SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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FORM 10-Q

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(Mark One)


[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2004

OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 000-31003



Corio, Inc.



|Delaware                                                       | 77-0492528                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

959 Skyway Road, Suite 100
San Carlos, California    94070

650-232-3000







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 reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes

Indicate by check mark whether the registrant is an accelerated filer as
defined in Rule 12b-2 of the Act.   Yes

As of August 9, 2004, there were 63,627,305 shares of the Registrant's common stock outstanding.







Corio, Inc.

      QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2004
                                INDEX



|PART I.   FINANCIAL INFORMATION                                                                                             | Page No.
|--------------------------------------------------------------------------------------------------------------------------- | --------
|                                                                                                                            |         
|Item 1.   Condensed Consolidated Financial Statements (Unaudited):                                                          |         
|                                                                                                                            |         
|Condensed Consolidated  Balance Sheets 
            
 as of June 30, 2004 and December 31, 2003                             | 3       
|                                                                                                                            |         
|Condensed Consolidated  Statements of Operations
            
    for the Three and Six Months ended June 30, 2004 and 2003 | 4       
|                                                                                                                            |         
|Condensed Consolidated  Statements of Cash Flows 
            
    for the Six Months ended June 30, 2004 and 2003          | 5       
|                                                                                                                            |         
|Notes to Condensed Consolidated  Financial Statements                                                                       | 6       
|                                                                                                                            |         
|Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations       | 13      
|                                                                                                                            |         
|Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                                        | 34      
|                                                                                                                            |         
|Item 4.   Controls and Procedures                                                                                           | 34      
|                                                                                                                            |         
|PART II.  OTHER INFORMATION                                                                                                 |         
|                                                                                                                            |         
|Item 1.   Legal Proceedings                                                                                                 | 36      
|                                                                                                                            |         
|Item 2: Changes in Securities and Use of Proceeds                                                                           | 36      
|                                                                                                                            |         
|Item 3: Defaults Upon Senior Securities                                                                                     | 36      
|                                                                                                                            |         
|Item 4: Submission of Matters to a Vote of Security Holders                                                                 | 36      
|                                                                                                                            |         
|Item 5: Other Information                                                                                                   | 37      
|                                                                                                                            |         
|Item 6.   Exhibits and Reports on Form 8-K                                                                                  | 37      
|                                                                                                                            |         
|Signatures                                                                                                                  | 38      

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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CORIO, INC.

                            CONDENSED CONSOLIDATED BALANCE SHEETS

                                (In thousands, except share amounts)

                                               (unaudited)

`June 30,    December 31,
                                                                          2004          2003
                                                                      ------------  ------------
ASSETS                                                                                          
Current assets:
    Cash and cash equivalents....................................... $     14,205  $     15,440
    Short-term investments..........................................       19,504        19,591
    Accounts receivable, net of allowance of $654 and $591
        at June 30, 2004 and December 31, 2003, respectively........        7,809         6,484
    Prepaid expenses and other current assets.......................        2,967         2,502
                                                                      ------------  ------------
        Total current assets........................................       44,485        44,017
Restricted cash.....................................................        7,853         7,680
Property and equipment, net.........................................       12,684        10,907
Other assets........................................................        8,662         9,539
                                                                      ------------  ------------
        Total assets................................................       73,684  $     72,143
                                                                      ============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY                                                            
Current liabilities:
    Accounts payable................................................ $      7,459  $      6,759
    Accrued liabilities.............................................        6,939         7,216
    Accrued restructuring...........................................          713           701
    Deferred revenue................................................        3,360         4,017
    Current portion of bank term commitment payable.................        7,000            --
    Current portion of capital lease obligations....................          365           476
                                                                      ------------  ------------
        Total current liabilities...................................       25,836        19,169
Capital lease obligations less current portion......................          174           387
Accrued restructuring less current portion..........................        3,701         4,068
Other liabilities...................................................        1,418         1,283
                                                                      ------------  ------------
        Total liabilities...........................................       31,129        24,907
                                                                      ------------  ------------
Commitments and contingencies (Note 8)
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;
       63,058,102 and 61,767,102 shares issued and outstanding
        at June 30, 2004 and December 31, 2003, respectively........           63            61
    Additional paid-in capital......................................      308,178       306,735
    Accumulated other comprehensive income (loss)...................          (55)           12
    Deferred stock-based compensation...............................           --            (3)
    Accumulated deficit.............................................     (265,631)     (259,569)
                                                                      ------------  ------------
        Total stockholders' equity..................................       42,555        47,236
                                                                      ------------  ------------
        Total liabilities and stockholders' equity.................. $     73,684  $     72,143
                                                                      ============  ============`

See accompanying notes to condensed consolidated financial statements.

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CORIO, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                      (In thousands, except per share amounts)

                                   (Unaudited)

`Three Months Ended        Six Months Ended
                                                           June 30,                  June 30,
                                                    ----------------------  ----------------------
                                                       2004        2003        2004        2003
                                                    ----------  ----------  ----------  ----------
REVENUES:                                                                                         
    Application management services............... $   13,769  $   14,838  $   28,690  $   31,467
    Professional services and other...............      3,885       2,213       6,579       4,588
                                                    ----------  ----------  ----------  ----------
    Total revenues................................     17,654      17,051      35,269      36,055
                                                    ----------  ----------  ----------  ----------
COSTS AND EXPENSES:                                                                               
    Application management services *.............     11,557      11,909      22,892      25,123
    Professional services and other ..............      3,349       1,712       5,713       3,725
    Research and development *....................        537       1,346       1,185       2,696
    Sales and marketing *.........................      2,720       2,301       5,430       4,507
    General and administrative *..................      2,939       2,188       5,234       4,578
    Restructuring charges.........................         --          --          --       2,334
    Amortization of stock-based compensation......         --         208           3         480
    Amortization of intangible assets.............        273         437         917         890
                                                    ----------  ----------  ----------  ----------
    Total operating expenses......................     21,375      20,101      41,374      44,333
                                                    ----------  ----------  ----------  ----------
Loss from operations..............................     (3,721)     (3,050)     (6,105)     (8,278)
Interest and other income.........................         78         181         230         381
Interest and other expense........................        (57)        (84)        (72)       (211)
                                                    ----------  ----------  ----------  ----------
Net loss before income tax expense................     (3,700)     (2,953)     (5,947)     (8,108)
Income tax expense................................       (113)         --        (115)         --
                                                    ----------  ----------  ----------  ----------
Net loss.......................................... $   (3,813) $   (2,953) $   (6,062) $   (8,108)
                                                    ==========  ==========  ==========  ==========

Basic and diluted net loss per share ............. $    (0.06) $    (0.05) $    (0.10) $    (0.15)
                                                    ==========  ==========  ==========  ==========

Shares used in computation-basic and diluted......     62,891      56,178      62,630      55,406
                                                    ==========  ==========  ==========  ==========
                                                                                                  
*  Amortization (reversal) of stock-based                                                         
   compensation not included in expense line item:
    Application management services............... $       --  $       23  $       --  $       59
    Research and development......................         --           5           1          (9)
    Sales and marketing...........................         --          62           1         160
    General and administrative....................         --         118           1         270
                                                    ----------  ----------  ----------  ----------
    Total amortization of stock-based compensation $       --  $      208  $        3  $      480
                                                    ==========  ==========  ==========  ==========`

See accompanying notes to condensed consolidated financial statements.

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CORIO, INC.

                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (In thousands)

                                   (unaudited)

`Six Months Ended
                                                                              June 30,
                                                                        --------------------
                                                                           2004       2003
                                                                        ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES:                                                       
    Net loss.......................................................... $  (6,062) $  (8,108)
    Adjustments to reconcile net loss to net
    cash provided by (used in) operating activities:
        Depreciation..................................................     3,995      6,087
        Amortization of intangible assets.............................       917        890
        Amortization of stock-based compensation......................         3        480
        Amortization of warrants......................................         7        423
        Amortization of investments...................................        29       (322)
        Compensation for grants of stock, options and warrants
          in exchange for services....................................        --         18
        Changes in assets and liabilities:
            Accounts receivable, net..................................    (1,325)     3,078
            Prepaid expenses and other current assets.................      (465)       721
            Accounts payable..........................................       700     (1,632)
            Accrued liabilities.......................................      (632)    (2,590)
            Deferred revenue..........................................      (657)      (628)
            Other liabilities.........................................       135      2,088
                                                                        ---------  ---------
    Net cash (used in) provided by operating activities...............    (3,355)       505
                                                                        ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:                                                       
    Purchases of short-term investments...............................   (16,326)   (27,856)
    Sales of short-term investments...................................    16,317     21,822
    Increase in restricted cash.......................................      (173)        --
    Purchase of property and equipment................................    (5,772)    (1,913)
    Other assets......................................................       (47)       157
    Cash paid for acquisition.........................................        --       (716)
                                                                        ---------  ---------
    Net cash used in investing activities.............................    (6,001)    (8,506)
                                                                        ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                       
    Proceeds from sale of common stock and exercise of stock options..     1,445        477
    Borrowings (repayments) on debt obligations.......................     7,000       (225)
    Payments on capital lease obligations.............................      (324)    (3,131)
                                                                        ---------  ---------
    Net cash provided by (used in) financing activities...............     8,121     (2,879)
                                                                        ---------  ---------
Net decrease in cash and cash equivalents.............................    (1,235)   (10,880)
Cash and cash equivalents, beginning of period........................    15,440     26,908
                                                                        ---------  ---------
Cash and cash equivalents, end of period.............................. $  14,205  $  16,028
                                                                        =========  =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                           
    Cash paid for interest and taxes.................................. $     109  $     198
                                                                        =========  =========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:                                   
    Deferred stock-based compensation/forfeitures, net................ $      --  $     274
                                                                        =========  =========

    Net unrealized gain (loss) on investments......................... $     (67) $     (53)
                                                                        =========  =========`

See accompanying notes to condensed consolidated financial statements.

---

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated
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 consolidated
financial statements and notes included herein should be read in conjunction
with the audited consolidated financial statements and accompanying notes
included in the Company's Annual Report on Form 10-K/A for the year ended
December 31, 2003.

PRINCIPLES OF CONSOLIDATION

The condensed consolidated financial statements include
the accounts of Corio and its wholly owned subsidiary. All intercompany accounts
and transactions have been eliminated.

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 shares of
common stock are excluded from the diluted net loss per share computation in
loss periods, as their effect would be antidilutive.

The following table sets forth potentially dilutive 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).

`Six Months Ended June 30,
                                        ---------------------------------------
                                                2004                 2003
                                        -------------------  ------------------
                                        Weighted             Weighted
                                         Average              Average
                                        Exercise             Exercise
                                          Price    Shares      Price    Shares
                                        --------- ---------  --------- -------- 
Preferred stock warrants.............. $      --        --  $    1.70      746
Common stock subject to repurchase.... $      --        --  $    0.01      325
Common stock options and warrants..... $    2.00    17,966  $    1.81   17,990`

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 and related interpretations and complies with the disclosure
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation,as amended by SFAS 148,
Accounting for Stock-Based Compensation-Transition and Disclosure-an
amendment of FASB Statement No. 123.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 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 fair value at the grant dates
for the awards under a method prescribed by SFAS No. 123, the Company's net loss
would have increased to the pro forma amounts indicated below (in thousands,
except per share data):

`Three Months Ended      Six Months Ended
                                                              June 30,                June 30,
                                                       --------------------  --------------------
                                                          2004       2003       2004       2003
                                                       ---------  ---------  ---------  --------- 
Net loss as reported................................. $  (3,813) $  (2,953) $  (6,062) $  (8,108)
Add stock-based employee compensation expense
   included in reported net loss, net of tax of $0...        --        208          3        480
Deduct total stock-based employee compensation
   determined under the fair-value-based method
   for all awards, net of tax of $0..................    (1,211)    (1,678)    (2,504)    (3,605)
                                                       ---------  ---------  ---------  ---------
Pro forma net loss................................... $  (5,024) $  (4,423) $  (8,563) $ (11,233)
                                                       =========  =========  =========  =========
Basic and diluted net loss per share:
   As reported....................................... $   (0.06) $   (0.05) $   (0.10) $   (0.15)
   Pro forma......................................... $   (0.08) $   (0.08) $   (0.14) $   (0.20)`

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:

`Three Months Ended      Six Months Ended
                                                              June 30,                June 30,
                                                       --------------------  --------------------
                                                          2004       2003       2004       2003
                                                       ---------  ---------  ---------  --------- 
Expected life (in years).............................       4.0        4.0        4.0        4.0
Risk free interest rate..............................      3.47%      2.07%      2.75%      2.37%
Volatility...........................................       111%       107%       113%       105%
Dividend yield.......................................         0%         0%         0%         0%`

Weighted-average fair values per share for options granted
under the Company's stock option plans during the three and six months ended
June 30, 2004 and 2003 were:

`Three Months Ended      Six Months Ended
                                                              June 30,                June 30,
                                                       --------------------  --------------------
                                                          2004       2003       2004       2003
                                                       ---------  ---------  ---------  --------- 
Weighted-average fair value per share for options
   granted under the Company's stock option plans.... $    1.82  $    0.77  $    2.10  $    0.57`

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:

`Three and Six Months Ended
                                                              June 30,
                                                       --------------------
                                                          2004       2003
                                                       ---------  ---------  
Expected life (in years).............................       0.5        0.5
Risk free interest rate..............................      0.93%      1.71%
Volatility...........................................        84%       105%
Dividend yield.......................................         0%         0%`

Weighted-average fair values per share for options granted under the
Company's employee stock purchase plan during the three and six months ended
June 30, 2004 and 2003 were:

`Three and Six Months Ended
                                                              June 30,
                                                       --------------------
                                                          2004       2003
                                                       ---------  ---------  
Weighted-average fair value per share for
   options granted under the Company's
   employee stock purchase plan...................... $    1.08  $    0.54`

There were no common stock purchase rights granted under the
Company's employee stock purchase plan during the three months ended June 30,
2004 and 2003.

RESTRICTED CASH

In connection with two facility leases, the Company issued letters of
credit to the facility lessors as security for the leases. The letters of credit
may initially be drawn upon for a period of one year and each letter provides
for automatic one-year renewal periods. The letters of credit are collateralized
by a $7.9 million cash deposit, which is recorded as restricted cash on the
accompanying condensed consolidated balance sheet. For the three and six month
periods ended June 30, 2004, the amount of restricted cash increased by $0 and
$173,000, respectively. The amount of restricted cash the Company recorded
increased by $173,000 in March 2004 due to the required additional collateral
requirements related to a standby letter of credit we issued in connection with
a move to our new leased operations office in Phoenix, Arizona.

RECLASSIFICATION

Certain reclassifications have been made to prior period
amounts to be consistent with current period presentation in the condensed
consolidated statements of cash flows.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the SEC issued Staff Accounting
Bulletin ("SAB") No. 104, Revenue Recognition, which supersedes SAB No.
101, Revenue Recognition in Financial Statements. SAB No. 104 rescinds
accounting guidance in SAB No. 101 related to multiple-element arrangements as
this guidance has been superseded as a result of the issuance of EITF 00-21,
Accounting for Revenue Arrangements with Multiple Deliverables. The
adoption of SAB No. 104 did not have a material effect on our financial position
or results of operations.

In March 2004, the EITF reached consensus on Issue 03-01
("EITF 03-01"), The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. EITF 03-01 includes new guidance for
evaluating and recording impairment losses on debt and equity investments, as
well as new disclosure requirements for investments that are deemed to be
temporarily impaired.
The accounting guidance of EITF 03-01 is effective for reporting periods beginning
after June 15, 2004, while the disclosure requirements for debt and equity
securities accounted for under FASB Statement No. 115, Accounting for
Certain Investments in Debt and Equity Securities, are effective for annual periods
ending after December 15, 2003.
The Company does not believe that the adoption of EITF 03-01 will have a material effect on its
financial position or results of operations.

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 June 30, 2004 and December
31, 2003, the Company's accounts receivable balance excludes outstanding
invoices of $2,452,000 and $1,444,000, respectively, related to customers, which
the Company deemed as cash basis due to the customer's credit risks determined
by the Company. 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 or deferred revenue balances.

Included in accounts receivable at June 30, 2004 and December
31, 2003 were $410,000 and $332,000, respectively, of unbilled receivables under
various application management and 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. Because the exercised shares outstanding were repurchaseable
under certain circumstances, the fair value of the shares was remeasured each
reporting period from exercise until May 2003, when the Company's repurchase
right lapsed. With respect to these shares, the Company recorded amortization
expense of $0 and $337,000 in sales and marketing for the three months ended
June 30, 2004 and June 30 2003, respectively. Amortization of expense for the
six months ended June 30, 2004 and June 30, 2003 was $0 and $416,000,
respectively. There will be no further amortization expense related to these
warrants.

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 $0 and $19,000 for the three months ended June 30, 2004 and
2003, respectively, and $0 and $274,000 for the six months ended June 30, 2004
and 2003, respectively. Such amounts represent unamortized deferred stock
compensation for unvested options that were forfeited upon severance. The
deferred charges for employee options are being amortized to expense using the
graded vesting approach, prescribed by FASB Interpretation No. 28, through 2004.
Amortization of deferred stock-based compensation expense was $0 and $208,000
for the three months ended June 30, 2004 and 2003, respectively and $3,000 and
$480,000 for the six months ended June 30, 2004 and 2003, respectively, net of
stock options forfeited.

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  Professional
                                                Services    Services    Unallocated    Total
                                               ----------  -----------  -----------  ---------
For the Three Months Ended June 30, 2004                                                       
Revenues..................................... $   13,769  $     3,885  $        --  $  17,654
Depreciation.................................      1,855            1          197      2,053
Amortization of warrants.....................         --           --            3          3
Amortization of intangible assets............        234           39           --        273
                                               ----------  -----------  -----------  ---------
Segment profit (loss) from operations........ $    1,979  $       496  $    (6,196) $  (3,721) 
                                               ==========  ===========  ===========  =========

For the Three Months Ended June 30, 2003                                                       
Revenues..................................... $   14,838  $     2,213  $        --  $  17,051
Depreciation.................................      2,503            3          372      2,878
Amortization of stock-based compensation.....         23           --          185        208
Amortization of warrants.....................         --           --          340        340
Amortization of intangible assets............        437           --           --        437
                                               ----------  -----------  -----------  ---------
Segment profit (loss) from operations........ $    2,469  $       502  $    (6,021) $  (3,050)
                                               ==========  ===========  ===========  ========= 

For the Six Months Ended June 30, 2004                                                         
Revenues..................................... $   28,690  $     6,579  $        --  $  35,269
Depreciation................................. $    3,568  $         1  $       426  $   3,995
Amortization of stock-based compensation..... $       --  $        --  $         2  $       2
Amortization of warrants..................... $       --  $        --  $         7  $       7
Amortization of intangible assets............ $      756  $       161  $        --  $     917
                                               ----------  -----------  -----------  ---------
Segment profit (loss) from operations........ $    5,041  $       705  $   (11,851) $  (6,105)
                                               ==========  ===========  ===========  ========= 

For the Six Months Ended June 30, 2003                                                         
Revenues..................................... $   31,467  $     4,588  $        --  $  36,055
Depreciation................................. $    5,189  $        12  $       886  $   6,087
Amortization of stock-based compensation..... $       59  $        --  $       421  $     480
Amortization of warrants..................... $       --  $        --  $       423  $     423
Amortization of intangible assets............ $      890  $        --  $        --  $     890
                                               ----------  -----------  -----------  ---------
Segment profit (loss) from operations........ $    5,395  $       863  $   (14,536) $  (8,278)
                                               ==========  ===========  ===========  =========`

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

Significant customer information is as follows:

`Percentage of Total Revenue
                   ----------------------------------------     Accounts Receivable
                   Three Months Ended   Six Months Ended     ---------------------------
                       June 30              June 30
                   -------------------  -------------------    June 30,    December 31,
                     2004      2003       2004      2003         2004          2003
                   --------- ---------  --------- ---------  ------------- ------------- 
Customer A........       11%       16%        11%       --             --            --
Customer B........       --        --         --        --             --            34%
Customer C........       --        --         --        --             10%           --`

Percentages are listed in the table above only when the
result is 10% or greater. Customer A is a cash basis customer and therefore its
outstanding invoices have not been included in the Company's accounts receivable
balances. Customer A has terminated its customer contract effective July 29,
2004.

NOTE 6-RESTRUCTURING AND IMPAIRMENT ACCRUAL

The following table sets forth the charges taken against
the restructuring and impairment accrual in the quarters ended March 31, 2004
and June 30, 2004.

`Quarterly
                              December 31,      Cash       March 31,
                                  2003        Payments        2004
                              ------------  ------------  ------------  
Office lease obligations.... $      4,769  $       (178) $      4,591
                              ============  ============  ============


                                             Quarterly
                               March 31,        Cash        June 30,
                                  2004        Payments        2004
                              ------------  ------------  ------------  
Office lease obligations.... $      4,591  $       (177) $      4,414
                              ============  ============  ============`

In May 2003, the Company signed an agreement to sublease the
vacated portion of its headquarters facility through the end of its lease, which
is March 2010. In the first quarter of 2003, the Company adjusted its estimated
loss related to the vacated space and recorded an additional restructuring
charge of $2.5 million to reflect the terms of the sublease agreement. The
impact of this charge was partially offset by the favorable resolution of a
liability related to various leases, which resulted in a reduction of $139,000
to the previously established restructuring reserve.

NOTE 7-INCOME TAXES

Since inception, the Company has incurred net losses for
federal and state tax purposes and anticipates losses for the foreseeable
future. The Company recognized $113,000 of tax expense for the three months
ended June 30, 2004 and $0 for the three months ended June 30, 2003. Tax expense
was $115,000 and $0 for the six months ended June 30, 2004 and June 30, 2003,
respectively. The tax expense is primarily for state and local purposes, which
is determined based on gross receipts or capital.

NOTE 8-COMMITMENTS AND CONTINGENCIES

Equipment and Software Financing Agreement

On March 17, 2004, the Company entered into a $7 million
term commitment payable with a bank. The proceeds from this financing are to be
used to finance the purchase of new equipment and software. In connection with
the term commitment payable the Company issued a promissory note dated March 17,
2004 for a loan up to $7 million. Under the term commitment payable the Company
can draw against the note through September 2004. Outstanding balances under the
note will accrue interest at a rate of LIBOR plus 1.75%, however, the interest
rate can be changed, at the option of the Company, to a floating rate of prime
minus 0.25%. Additionally, the Company is obligated to pay interest on
outstanding balances until October 1, 2004, at which time, the term commitment
payable converts into a term loan with principal and interest payments due
monthly. The outstanding principal balance under the term loan and interest
payments will be payable over 30 months. The term loan interest rate can either
be LIBOR or fixed. Principal is due in full February 2007. As of June 30, 2004,
the outstanding balance was $7.0 million and the interest rate was 4.0%. This
agreement contains various financial covenants regarding liquidity, net worth
and results from operations.

Covenants associated with this loan require that the
Company's results from operations generate certain levels of EBITDA (earnings
before interest, taxes, depreciation and amortization) on a quarterly basis. The
Company did not meet the EBITDA covenant for the quarter ended June 30, 2004 and
obtained a waiver from the bank on July 23, 2004 related to this covenant
violation. The Company has classified this obligation as current as of June 30,
2004 as the Company has future quarterly EBITDA covenants with the bank it does
not believe it will be able to comply with due to increased operating expenses
and the loss of revenue associated with the customer contract with
Expanets/Avaya, Inc., which terminated on July 29, 2004. The Company is in
discussions with the bank to renegotiate future EBITDA covenants. The Company
has $33.7 million of unrestricted cash and cash equivalents as of June 30,
2004.

Service Level Agreements

The Company's application management services contracts
contain service level agreements that obligate the Company to provide software
applications management services at certain levels of performance. Numerous
factors can affect the service level provided by the Company. If the Company
fails to meet the committed service levels, the Company may be contractually
obligated to provide a partial credit for the services rendered. If the Company
were to continue to fail to meet these service levels, certain customers may
then have the right to cancel their contracts with the Company. The Company's
contracts generally limit the circumstances in which the Company would provide
credits to its customers. The Company believes its policies and practices limit
its exposure relating to these service level obligations, however, the Company
cannot determine the maximum amount of future credits, if any, related to such
service level obligations. The Company's services contracts have standard
indemnification provisions.

Lease Guarantees

In connection with a San Carlos facility lease, the
Company issued a $7 million letter of credit for the lease. As of June 30, 2004,
a $7 million cash deposit is held as collateral by a financial institution for
guarantee of the letter of credit. The cash deposit is recorded as restricted
cash on the balance sheet.

In connection with a Phoenix facility lease, the Company
issued an $853,430 letter of credit as security for the lease. As of June 30,
2004, an $853,430 cash deposit made by the Company is held as collateral by a
financial institution for guarantee of the letter of credit. The cash deposit is
recorded as restricted cash on the balance sheet.

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. In June 2003, the plaintiffs
in these cases presented a settlement proposal to all of the issuer defendants.
Under the proposed settlement, the plaintiffs proposed to dismiss and release
all claims against participating defendants in exchange for a contingent payment
guaranty by the insurance companies collectively responsible for insuring the
issuers in all the related cases, and the assignment or surrender to the
plaintiffs of certain claims the issuer defendants may have against the
underwriters. Under the guaranty, the insurers or companies will be required to
pay the amount, if any, by which $1 billion exceeds the aggregate amount
ultimately collected by the plaintiffs from the underwriter defendants in all
the cases. If the plaintiffs fail to recover $1 billion and payment is required
under the guaranty, Corio would be responsible to pay its pro rata portion of
the shortfall, up to the amount of the self-insured retention under its
insurance policy, which is $1 million. In July 2003, Corio tentatively agreed to
accept this settlement proposal. The settlement is subject to acceptance by a
substantial majority of the issuer defendants and execution of a definitive
settlement agreement. The settlement is also subject to approval by the Court,
which cannot be assured, and the underwriters recently objected to the
settlement. If the settlement is not accepted by the requisite number of
defendants or if it is not approved by the Court or if it otherwise is not
consummated, Corio intends to defend the lawsuit vigorously. However, the
litigation is in the preliminary stage, and we cannot predict its outcome. The
litigation process is inherently uncertain. If the outcome of the litigation
were adverse to us and if we are required to pay significant monetary damages,
our business would be significantly harmed. This lawsuit may be time consuming
and expensive to defend and may divert management's attention and may be costly
to Corio even if the plaintiff's settlement proposal is consummated. As of June
30, 2004, no amount is accrued, as management does not believe that a loss is
probable.

In November 2001, Corio filed a demand for arbitration
against LivePerson, Inc. with the American Arbitration Association in San
Francisco County. The arbitration related to a dispute around a services
contract between the parties. On July 23, 2003, the arbitrator in this dispute
issued a judgment awarding Corio damages of $1,115,440 plus interest.
LivePerson, Inc. filed a motion to vacate the award in the Superior Court of
California. On November 18, 2003, the Superior Court of California issued a
judgment, relating to the arbitration, awarding Corio damages of $1,346,605 plus
interest from October 17, 2003 until the date of payment. LivePerson, Inc. paid
Corio $1,369,479 on December 18, 2003 and subsequently appealed the judgment.
For any portion of the cash paid that is affirmed on appeal or otherwise finally
committed, such cash received pursuant to this award will be recorded as
termination fee revenue. The Company recorded the amount received as an accrued
liability.

The Company is subject to other legal proceedings, claims and
litigation arising in the ordinary course of business. While the outcome of
these matters is currently not determinable, management does not expect that the
ultimate costs to resolve these other matters will have a material adverse
effect on the Company's financial statements.

Contingent Earn-out Payment

On October 22, 2003, the Company completed the purchase
of the assets and the assumption of certain liabilities of Nexus. The Company
paid Nexus approximately $10.2 million, consisting of $1.9 million in cash and
2,921,390 shares of Corio common stock, including $177,000 related to legal
expenses. In addition, Nexus is entitled to receive an earn-out payment of up to
$2.0 million payable in shares of Corio common stock contingent upon specified
revenue milestones for the three-month period ending December 31, 2004 from
identified existing and prospective customers of Nexus. In accordance with the
terms of the asset purchase agreement, $500,000 of the purchase price was also
deposited into an escrow account. The deposited funds were to be held as
security until the later of April 2004 and the date any claims against the
escrow are resolved for any losses incurred by the Company in the event, among
other matters, of any breach by Nexus of the agreements, covenants,
representations and warranties it made under or in connection with the purchase
agreement. The Company filed claims against the escrow and resolved most of the
claims with Nexus, agreeing to distribute approximately $89,000 plus interest to
Corio and to distribute all of the remaining escrow proceeds to Nexus, except
$20,000 left in the escrow for remaining claims.

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 consolidated 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 2003 Annual Report to Stockholders.

Notes Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes statements
that reflect our belief concerning future events and financial performance.
Statements which are not purely historical in nature are called "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. We sometimes identify
forward-looking statements with such words as "may", "will", "should", "expect",
"anticipate", "estimate", "seek", "project", "plan", "intend", "believe" or
similar words concerning future events.

You should not place undue reliance on these forward-looking
statements. They are subject to certain risks and uncertainties that may cause
actual results to differ materially from past results or our predictions.
Factors that could contribute to differences include, but are not limited to,
those risks and uncertainties identified under "Additional Factors That May
Affect Future Results" in this Quarterly Report. You should also carefully
review the risk factors set forth in other documents we file from time to time
with the Securities and Exchange Commission particularly the Annual Reports on
Form 10-K/A, the Quarterly Reports on Form 10-Q and any Current Reports on Form
8-K.

All statements included in this document are based on
information available to us as of the date of this Quarterly Report on Form 10-Q,
and we assume no obligation to update such statements, or to update the
reasons why actual results could differ from those projected in forward-looking
statements.

OVERVIEW

Corio was established in September 1998 and is an
enterprise application service provider, or ASP. Our services include the
implementation and management of business software for companies. We perform our
services across a secure network from data centers, allowing our customers to
outsource some or almost all aspects of their application management services
needs. By allowing our customers to outsource certain information technology
services needs, we enable our customers to avoid many of the significant and
unpredictable ongoing application management challenges, and to reduce costs and
extend the value of their technology. By providing software application
implementation, integration, management and various upgrade services and related
hardware and network infrastructure, our services help reduce the information
technology burdens of our customers, enabling them to focus on their core
businesses and react quickly to dynamic market conditions.

We operate through two lines of business:

- Application Management Services-Our application
management services consist of ongoing services for business software
application systems, which often includes providing the computers, data center
facilities and networks to support the software applications and working with
our customers to address problems that arise with these applications or the
computers or networks that run them.
- Professional Services-Our professional services
engagements consist of discrete projects on behalf of our customers such as
implementing business software applications in a manner that meets the
customer's requirements.

Our net loss for the three months ended June 30, 2004 and
2003 was $3.8 million and $3.0 million, respectively; an increase of $0.8
million. This increase in net loss is mainly attributable to an increase in
revenue of $0.6 million off-set by an increase of approximately $1.0 million in
staff costs due to increased additional headcount and a company-wide salary
increase effective April 1, 2004; an approximately $1.1 million increase in
professional services contractor costs associated with the increase in
professional services contracts, an approximately $0.6 million increase in
professional fees; an approximately $0.8 million decrease in depreciation
expense as many assets purchased in 2000 became fully depreciated in 2003 and a
$0.7 million decrease in amortization expense.

Our net loss for the six months ended June 30, 2004 and 2003
was $6.1 million and $8.1 million, respectively; a decrease of $2.0 million.
This decrease in net loss was due, in part, to a $0.8 million decrease in
revenue; an approximately $1.0 million increase in staff costs due to increased
headcount and a company-wide salary increase effective April 1, 2004; an
approximately $1.8 million increase in professional services contractor costs
associated with additional professional services contracts and an approximately
$0.7 million increase in professional fees, off-set by an approximately $1.1
million decrease in software and hardware maintenance and rental fees;
approximately $2.1 million less depreciation expense as many assets purchased in
2000 became fully depreciated in 2003; approximately $0.8 million decrease in
amortization expense and to a $2.5 million restructuring charge taken in the
first quarter of 2003 without a similar charge in 2004.

To drive sales growth and extend our market share, we are
making investments in our sales and marketing and professional services areas in
fiscal 2004. Our research and development team will continue to focus on further
automation and enhancement of our customer interaction processes.

Expanets/Avaya, Inc., a customer that accounted for 12% and
11% of fiscal 2003 and six months ended June 30, 2004 revenue, respectively,
terminated its customer contract with us effective July 29, 2004, and we expect
this will put downward pressure on revenue.

CRITICAL ACCOUNTING POLICIES

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

Estimates are used for, without limitation, the accounting
for revenue recognition, allowance for doubtful accounts, certain loss
contingencies, valuation allowances 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 revenue recognition customers;

- Allowance for doubtful accounts;
- Loss contingencies; and
- Valuation allowance.

Cash Basis Revenue Recognition Customers

We recognize revenue from application management services
as the services are provided to our customers provided that collection of the
receivable is reasonably assured. 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 reasonably assured we
designate those customers as "cash basis customers" and start to recognize
revenue from that customer on a cash basis, after services have been rendered
and payment for services has been received. We consider the following factors in
determining whether collection of revenue is no longer reasonably assured from a
customer: (i) the customer's payment history and outstanding receivables
balance, (ii) the increased probability of non-payment as a result of a
deterioration in the customer's financial health as indicated by our review of
publicly available information, bankruptcy announcements, or other factors
demonstrating a serious weakness in a customer's business such as significant
layoffs, decreases in revenues, loss of customers or litigation, or (iii) the
increased probability of non-payment due to service-related issues or the
receipt of an early termination notice from a customer. If we receive any
payment from a cash basis customer in advance of services, we would recognize
the payment as revenue as the services are performed. At the time a customer is
designated as a cash basis customer any uncollected accounts receivable are
evaluated for collectibility. Any amounts that are deemed uncollectible are
written off as a reduction to our revenue. The remaining balances remain
recorded on an accrual basis and are monitored for collection. Subsequent
receipts are applied to these balances before we recognize any additional
revenue.

If we believe that there is a reasonable chance that we will
receive payment from a customer, even if payment is not reasonably assured and
the customer is cash basis, we will typically not terminate the customer and
will continue to provide services to that customer. We have set forth below the
amount of revenue recognized from cash basis customers for the three and six
months ended June 30, 2004 and 2003 and the period in which the underlying
services were performed:

`Three Months Ended    Six Months Ended
                                                                                       June 30,              June 30,
                                                                                   (In thousands)        (In thousands)
                                                                                --------------------  --------------------
                                                                                   2004       2003       2004       2003
                                                                                ---------  ---------  ---------  ---------  
Cash Basis Revenue Recorded Related to Services Performed in Current Period... $   2,893  $   3,400  $   5,855  $   6,125
Cash Basis Revenue Recorded Related to Services Performed in Prior Period.....       307      1,594      1,522      5,172
                                                                                ---------  ---------  ---------  ---------
      Total Cash Basis Revenue Recorded....................................... $   3,200  $   4,994  $   7,377  $  11,297
                                                                                =========  =========  =========  =========`

Revenue earned from cash basis customers but not recognized due to the cash
basis designation was $2.3 million and $2.2 million for the three and six months
ended June 30, 2004 and 2003, respectively. Since revenue related to these
invoices is recognized on a cash basis, these amounts have not been included in
our accounts receivable balances. In addition, only one of our cash basis
customers is obligated to pay recurring application management services fees in
advance.

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 of a major customer's
credit worthiness or actual defaults are higher than our historical experience,
our estimates of the recoverability of amounts due to us could be adversely
affected. We regularly review the adequacy of our allowance for doubtful
accounts through the identification of specific receivables where we expect 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 June 30, 2004 and December
31, 2003, our allowance for doubtful accounts was $654,000 and $591,000,
respectively.

Loss Contingencies

We are subject to 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
is accrued when it is probable that a liability has been incurred and the amount
of loss can be reasonably estimated.

For our office lease restructuring liability, our estimate is
based on our contracted lease obligation offset by estimated sublease income
over the lease term. We increased our office lease restructuring liability in
the first quarter of 2003 as a result of the sublease agreement signed in May
2003 because the total sublease income for the restructuring period was less
than initially estimated.

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. We track our progress to completion on such
arrangements by detailing individual project plans for each arrangement and then
regularly comparing the labor hours actually spent on a project against the
number of hours we estimate 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. Additionally, we regularly
evaluate current information available to us to determine whether such recorded
losses should be adjusted. In the first quarter of 2004, based on our evaluation
of the opened professional services contracts, we reduced our accruals for
contract losses by $153,000, which resulted in a corresponding reduction to
professional services expenses for the three months ended March 31, 2004. As of
June 30, 2004, the accrual for contract losses was $0.

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.

Valuation Allowance

We provided a valuation allowance against our entire net
deferred tax asset, primarily consisting of net operating loss carryforwards.
The valuation allowance was recorded given the losses we incurred through the
current quarter, and our uncertainties regarding future operating profitability
and taxable income. If we do not achieve profitability or if we were to
consummate certain types of mergers, we will not fully realize the deferred tax
benefits.

Selected Financial Data

The following tables set forth, for the periods presented, certain
data from our condensed consolidated statements of operations as percentages of total revenues.

`Three Months Ended
                                                Three Months Ended     Three Months Ended       June 30, 2004
                                                   June 30, 2004          June 30, 2003             versus
                                               -------------------    -------------------       June 30, 2003
                                                         Percentage             Percentage   -------------------
                                                         of Total               of Total      Dollar   Percentage
                                                Amount   Revenues      Amount   Revenues      Change    Change
                                               --------- ---------    --------- ---------    --------- ---------
REVENUES:                                                                                                       
    Application management services.......... $  13,769        78 %  $  14,838        87 %  $  (1,069)       (7)%
    Professional services and other..........     3,885        22 %      2,213        13 %      1,672        76 %
                                               --------- ---------    --------- ---------    --------- ---------
    Total revenues...........................    17,654       100       17,051       100          603         4 %
                                                                                                                
COSTS AND EXPENSES:                                                                                             
    Application management services .........    11,557        65 %     11,909        70 %       (352)       (3)%
    Professional services and other .........     3,349        19 %      1,712        10 %      1,637        96 %
    Research and development ................       537         3 %      1,346         8 %       (809)      (60)%
    Sales and marketing .....................     2,720        15 %      2,301        13 %        419        18 %
    General and administrative ..............     2,939        17 %      2,188        13 %        751        34 %
    Amortization of stock-based compensation.        --         0 %        208         1 %       (208)     (100)%
    Amortization of intangible assets........       273         1 %        437         3 %       (164)      (38)%
                                               --------- ---------    --------- ---------    --------- ---------
    Total operating expenses.................    21,375       121 %     20,101       118 %      1,274         6 %
                                               --------- ---------    --------- ---------    --------- ---------%
Loss from operations.........................    (3,721)      (21)%     (3,050)      (18)%       (671)       22 %
Interest and other income....................        78        -- %        181         1 %       (103)      (57)%
Interest and other expense...................       (57)        0 %        (84)        0 %         27       (32)%
Income tax expense...........................      (113)        0 %         --         0 %       (113)         0%
                                               --------- ---------    --------- ---------    --------- ---------
Net loss..................................... $  (3,813)      (22)%  $  (2,953)      (17)%  $    (860)       29 %
                                               ========= =========    ========= =========    ========= =========


                                                                                              Six Months Ended
                                                Six Months Ended       Six Months Ended         June 30, 2004
                                                        June 30, 2004          June 30, 2003       versus
                                               -------------------    -------------------       June 30, 2003
                                                         Percentage             Percentage   -------------------
                                                         of Total               of Total      Dollar   Percentage
                                                Amount   Revenues      Amount   Revenues      Change    Change
                                               --------- ---------    --------- ---------    --------- ---------
REVENUES:                                                                                                       
    Application management services.......... $  28,690        81 %  $  31,467        87 %  $  (2,777)       (9)%
    Professional services and other..........     6,579        19 %      4,588        13 %      1,991        43 %
                                               --------- ---------    --------- ---------    --------- ---------
    Total revenues...........................    35,269       100       36,055       100         (786)       (2)%
                                                                                                                
COSTS AND EXPENSES:                                                                                             
    Application management services .........    22,892        65 %     25,123        70 %     (2,231)       (9)%
    Professional services and other .........     5,713        16 %      3,725        10 %      1,988        53 %
    Research and development ................     1,185         3 %      2,696         7 %     (1,511)      (56)%
    Sales and marketing .....................     5,430        15 %      4,507        13 %        923        20 %
    General and administrative ..............     5,234        15 %      4,578        13 %        656        14 %
    Restructuring charges....................        --        -- %      2,334         6 %     (2,334)     (100)%
    Amortization of stock-based compensation.         3        -- %        480         1 %       (477)      (99)%
    Amortization of intangible assets........       917         3 %        890         2 %         27         3 %
                                               --------- ---------    --------- ---------    --------- ---------
    Total operating expenses.................    41,374       117 %     44,333       122 %     (2,959)       (7)%
                                               --------- ---------    --------- ---------    --------- ---------
Loss from operations.........................    (6,105)      (17)%     (8,278)      (22)%      2,173       (26)%
Interest and other income....................       230         1 %        381         1 %       (151)      (40)%
Interest and other expense...................       (72)       -- %       (211)       (1)%        139       (66)%
Income tax expense...........................      (115)        0 %         --         0 %       (115)        0 %
                                               --------- ---------    --------- ---------    --------- ---------
Net loss..................................... $  (6,062)      (17)%  $  (8,108)      (22)%  $   2,046       (25)%
                                               ========= =========    ========= =========    ========= =========`

RESULTS OF OPERATIONS

Revenues

Total revenue was $17.7 million and $17.1 million for
the three months ended June 30, 2004 and 2003, respectively, an increase of $0.6
million. Total revenue was $35.3 million and $36.1 million for the six months
ended June 30, 2004 and 2003, respectively, a decrease of $0.8 million. One of
our customers Expanets/Avaya, Inc., which accounted for 11% of our total
revenues for the three and six month periods ended June 30, 2004, terminated its
contract effective July 29, 2004.

Application Management Services Revenues. Revenues
from our application management services, or AMS, were $13.8 million for the
three months ended June 30, 2004, including $373,000 in non-recurring revenues
from customer contract terminations and $3.2 million recognized as a result of
payments from cash basis customers. For the three months ended June 30, 2003,
our revenues of $14.8 million included approximately $507,000 in non-recurring
revenues from customer contract terminations and $5.0 million recognized as a
result of payments from cash basis customers. The $1.0 million decrease in
application management services revenues for the three months ended June 30,
2004 was primarily due to the significant decrease in the hosting fees for
Quadrem Hosting Ltd. ("Quadrem"). Quadrem terminated its hosting agreement in
May 2003, and subsequently entered into a new hosting agreement with
significantly reduced services and fees. As a result of the new agreement, we
recognized approximately $0.9 million less in the quarter ended June 30, 2004 as
compared to the quarter ended June 30, 2003. In addition, AMS revenue from one
of our cash basis customers, Expanets/Avaya, Inc., decreased by approximately
$0.7 million for the quarter ended June 30, 2004 as compared to the quarter
ended June 30, 2003 due to the receipt of three monthly hosting fees payments in
the quarter ended June 30, 2004 compared to the receipt of four monthly hosting
fees payments in the quarter ended June 30, 2003. The offset to these two
revenue decrease items was the increase in new business.

Revenues from our application management services, or AMS,
were $28.7 million for the six months ended June 30, 2004, including $1.3
million in non-recurring revenues from customer contract terminations and $7.4
million recognized as a result of payments from cash basis customers. For the
six months ended June 30, 2003, our revenues of $31.5 million included
approximately $1.0 million in non-recurring revenues from customer contract
terminations and $10.9 million recognized as a result of payments from cash
basis customers. The $2.8 million decrease in application management services
revenues for the six months ended June 30, 2004 was due in part to a decrease of
$2.1 million in the hosting fees for Quadrem. In addition, we recognized $1.1
million in the six months ended June 30, 2003 from a former Qwest Cyber
Solutions, or QCS, customer. This customer was in the process of terminating its
AMS contract with QCS at the time we acquired the contract as part of the
September 2002 QCS acquisition. As a result, we recognized $1.1 million in
monthly hosting fees for the contract through the February 28, 2003 termination
date. The offset to these two revenue decrease items was the increase in new
business

Professional Services and Other Revenues. Ourprofessional services and other revenues were $3.9 million for the three
months ended June 30, 2004, including $0 recognized as a result of payments from
cash basis customers, compared to $2.2 million for the three months ended June
30, 2003, including $13,000 recognized as a result of payments from cash basis
customers. The $1.7 million increase in professional services revenues was
primarily due to additional customers obtained through our acquisition of Nexus
Technology, Inc. as well as the addition of other new customers/projects. Ourprofessional services and other revenues were $6.6 million for the six
months ended June 30, 2004, including $55,000 recognized as a result of payments
from cash basis customers, compared to $4.6 million for the six months ended
June 30, 2003, including $435,000 recognized as a result of payments from cash
basis customers. The $2.0 million increase in professional services revenues was
primarily due to additional customers we obtained through our acquisition of
Nexus Technology, Inc. as well as the addition of new customers/projects. At
June 30, 2004 and December 31, 2003, we had balances of $231,000 and $76,000,
respectively, for deferred professional services revenues resulting from
customer payments that we required in advance of providing our professional
services work. We anticipate that professional services revenue and the
associated margins will fluctuate significantly from period to period depending
on the timing and size of projects, the amount of such work completed by
independent third parties and other factors.

Costs and Expenses

Total operating expenses were approximately $21.4
million and $20.1 million for the three months ended June 30, 2004 and 2003,
respectively, and approximately $41.4 million and $44.3 million for the six
months ended June 30, 2004 and 2003, respectively. We anticipate that costs will
increase in the third quarter due to increased headcount and professional
services costs.

Application Management Services. Application
management services expenses, excluding stock-based compensation of $0 and
$23,000 for the three months ended June 30, 2004 and 2003, respectively, were
$11.6 million for the three months ended June 30, 2004 and $11.9 million for the
three months ended June 30, 2003. The $0.3 million decrease in expenses for the
three months ended June 30, 2004 compared to the three months ended June 30,
2003 was primarily attributable to a $0.6 million reduction in depreciation. A
number of our assets were purchased in 2000 and had a three-year useful life.
The reduction in depreciation was partially offset by an increase in staff costs
due to higher headcount and a company-wide 4% salary increase effective April 1,
2004. Application management services expenses, excluding stock-based
compensation of $500 and $59,000 for the six months ended June 30, 2004 and
2003, respectively, were $22.9 million for the six months ended June 30, 2004
and $25.1 million for the six months ended June 30, 2003. The $2.2 million
decrease is due primarily to a $1.6 million reduction in depreciation expense,
$0.8 million lower software license and equipment rental expense, $0.2 million
lower external contractor costs and $0.3 million higher staff costs.

Professional Services and Other. Professional services and
other expenses were $3.3 million for the three months ended June 30, 2004 and
$1.7 million for the three months ended June 30, 2003. The $1.6 million increase
was due primarily to an increase in $0.3 million in internal staff costs and a
$1.3 million increase in outside contractors associated with delivering higher
revenue from our professional services contracts. There were no professional
services stock-based compensation charges for the three or six months ended June
30, 2004 or 2003. Professional services and other expenses were $5.7 million for
the six months ended June 30, 2004 and $3.7 million for the six months ended
June 30, 2003. The $2.0 million increase is primarily the result of a $2.2
million increase in outside contractors associated with delivering higher
revenue offset by an adjustment to our provision for contract losses decreasing
the balance by $153,000 as the result of the conclusion of the majority of our
significant fixed fee professional services contracts during the first quarter
of 2004.

Research and Development. Research and development
expenses, excluding stock-based compensation charges reductions of $0 and $5,000
for the three months ended June 30, 2004 and 2003, respectively, were $0.5
million for the three months ended June 30, 2004 and $1.4 million for the three
months ended June 30, 2003. Research and development expenses as a percentage of
total revenues were 3% for the three months ended June 30, 2004 and 8% for the
three months ended June 30, 2003. The $0.8 million expense decrease was mainly
due to a $0.5 million reduction in personnel costs partly due to moving tasks to
our office in India, a $0.1 million reduction in depreciation expense and in
facilities allocation and a $0.2 million reduction in contractor costs for
research and development work that is now performed internally. Research and
development expenses, excluding stock-based compensation charges (expense
reductions) of $500 and ($9,000) for the six months ended June 30, 2004 and
2003, respectively, were $1.2 million for the six months ended June 30, 2004 and
$2.7 million for the six months ended June 30, 2003. The $1.5 million decrease
is the result of a $1.0 million decrease in staff costs, a $0.3 million decrease
in external contractors, a $0.1 decrease in facilities allocation and a $0.1
decrease in depreciation expense.

Sales and Marketing Expenses.Sales and
marketing expenses, excluding stock-based compensation of $0 and $62,000 for the
three months ended June 30, 2004 and 2003, respectively, were $2.7 million for
the three months ended June 30, 2004 and $2.3 million for the three months ended
June 30, 2003. Sales and marketing expenses as a percentage of total revenues
were 15% for the three months ended June 30, 2004 and 13% for the three months
ended June 30, 2003. The $0.4 million increase was due to $0.3 million in
personnel costs as additional headcount was added to provide increased subject
matter experts in Peoplesoft, Oracle and SAP areas to assist in the sales
process, and a $0.3 million increase in commissions expense due to higher sales
off-set by a $ 0.3 million decrease in amortization expense associated with the
warrants issued to Cap Gemini Ernst & Young U.S., L.L.C on September 27,
2000. Sales and marketing expenses, excluding stock-based compensation of $1,000
and $160,000 for the six months ended June 30, 2004 and 2003, respectively, were
$5.4 million for the six months ended June 30, 2004 and $4.5 million for the six
months ended June 30, 2003. The $0.9 million increase was primarily due to a
$0.7 million increase in personnel costs, a $0.5 million increase in commissions
expense and a $0.4 million decrease in amortization expense.

General and Administrative Expenses. General
and administrative expenses, excluding stock-based compensation of $0 and
$118,000 for the three months ended June 30, 2004 and 2003, respectively, were
$2.9 million for the three months ended June 30, 2004 and $2.2 million for the
three months ended June 30, 2003, respectively. General and administrative
expenses as a percentage of total revenues were 17% for the three months ended
June 30, 2004 and 13% for the three months ended June 30, 2003. The $0.7 million
increase in general and administrative expenses was mainly due to a $0.2 million
increase in staff costs in finance and professional services general management,
a $0.2 million increase in telecom costs, a $0.7 million increase in
professional legal and accounting fees offset by a $0.3 million reduction in
occupancy costs due to sub-leasing and restructuring a portion of our San Carlos
facility space in fiscal year 2003, and a $0.1 million reduction in depreciation
expense related to fully-depreciated assets. General and administrative
expenses, excluding stock-based compensation of $1,000 and $270,000 for the six
months ended June 30, 2004 and 2003, respectively, were $5.2 million for the six
months ended June 30, 2004 and $4.6 million for the six months ended June 30,
2003, respectively. The $0.6 million increase was mainly due to a $0.4 million
increase in staff costs, a $0.2 million increase in telecom costs, a $0.7
million increase in professional legal and accounting fees offset by a $0.4
million reduction in occupancy cost, and a $0.3 million reduction in
depreciation.

Restructuring Charges.In May 2003, we signed
an agreement to sublease the vacated portion of our headquarters facility
through the end of our lease, which is March 2010. During the quarter ended June
30, 2003, 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. There were no additional restructuring
charges recorded during the three or six months ended June 30, 2004. The cash
payments were approximately $177,000 for the three months ended June 30, 2004
and approximately $355,000 for the six months ended June 30, 2004.

Amortization of Stock-Based Compensation.
Amortization of deferred stock-based compensation was $0 and $208,000 for the
three months ended June 30, 2004 and 2003, respectively. Amortization of
deferred stock-based compensation was $3,000 and $480,000 for the six months
ended June 30, 2004 and 2003, respectively. The deferred charges for employee
options are being amortized to expense using the graded vesting approach
prescribed by FASB Interpretation No. 28. Deferred stock-based compensation was
fully amortized in March 2004.

Amortization of Other Intangibles.Amortization
of intangible assets was $273,000 for the three months ended June 30, 2004 and
$437,000 for the three months ended June 30, 2003. Amortization of intangible
assets was $917,000 for the six months ended June 30, 2004 and $890,000 for the
six months ended June 30, 2003. In November 2003, we recorded an intangible
asset of $2.6 million for application management services and professional
services contracts acquired in connection with our acquisition of Nexus. This
intangible asset is being amortized over estimated lives ranging from four
months to five years. In September 2002, we recorded an intangible asset of $2.7
million for contracts acquired in connection with our acquisition of QCS, which
is included in other assets in the accompanying, condensed consolidated balance
sheet. This intangible asset was amortized over an 18 month period that ended
February 2004.

Interest and Other Income and Expenses.Net interest and other income and expense were $21,000 for the three months
ended June 30, 2004 and $97,000 for the three months ended June 30, 2003. The
$76,000 decrease was primarily due to a lower average cash balance offset by
lower interest expense resulting from a buy-out of some of our leased capital
equipment. Net interest and other income and expense were $158,000 for the six
months ended June 30, 2004 and $170,000 for the six months ended June 30, 2003.
The $12,000 decrease was primarily due to a lower cash balance offset by lower
interest expense and approximately $57,000 higher net gain on sale of marketable
securities.

Income Taxes. Since inception, the Company has
incurred net losses for federal and state tax purposes, and anticipates losses
for the foreseeable future. The Company recognized $113,000 of tax expense for
the three months ended June 30, 2004 and $0 for the three months ended June 30,
2003. The Company recognized $115,000 and $0 of tax expense for the six months
ended June 30, 2004 and June 30, 2003, respectively. The tax expense is
primarily for state and local purposes, which is determined based on gross
receipts or capital.

Related Party. In the ordinary course of business, we
recorded revenue of $8,000 and $0 for the three months ended June 30, 2004 and
2003, respectively, arising from transactions with one company with which we
have directors in common. We recorded revenue of $55,000 and $16,000 for the six
months ended June 30, 2004 and 2003, respectively, arising from transactions
with such companies. We paid $5,000 and $0 for the three months ended June
30, 2004 and 2003, respectively, to a company with which we have directors in
common. For the six months ended June 30, 2004 and 2003, we paid $54,000 and $0,
respectively, to companies with which we have directors in common. At June 30,
2004, we had $0 in accounts receivable and $25,000 in accounts payable from such
related parties.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2004, we had cash and cash equivalents,
short-term investments, and restricted cash of $41.6 million, a decrease of $1.1
million from $42.7 million as of December 31, 2003. The $1.1 million decrease
was primarily the result of $8.1 million in cash provided by financing
activities offset by $6.0 million of cash used in investing activities and $3.4
million of cash used by operating activities.

Net cash used in
operating activities was $3.4 million for the six months ended June 30, 2004
compared to $0.5 million provided by operating activities for the six months
ended June 30, 2003. The $3.9 million net change was primarily due to an
increase in accounts receivable offset by lower payments of accounts payable,
payments of professional services and equipment purchases, which lowered accrued
expenses. Operating expenses less depreciation basically stayed flat.

We lease office facilities and fixed assets under non-
cancelable operating and capital leases. Rental expense under operating lease
agreements was $0.7 million and $1.0 million for the three months ended June 30,
2004 and 2003, respectively. Rental expense for the six-month period ended June
30, 2004 and 2003 was $1.6 million and $2.1 million, respectively.

The following summarizes our principal
facilities and equipment contractual commitments, excluding open orders for
purchases to support normal operations, as of June 30, 2004:

`Payments due by Period
                                     -------------------------------------------------------------------------------
                                                 Six months
                                                   Ending                   Years Ending December 31,
                                                December 31,   -----------------------------------------------------
                                       Total        2004         2005       2006       2007       2008    Thereafter
                                     ---------  -------------  ---------  ---------  ---------  --------  ----------
Capital lease obligations.......... $     586  $         187  $     283  $     116  $      --  $     --  $       --
Operating lease obligations........    25,236          2,138      4,335      4,320      4,426     4,332       5,685
Equipment Operating leases.........        57             28         28          1         --        --          --
                                     ---------  -------------  ---------  ---------  ---------  --------  ----------
                                    $  25,879  $       2,353  $   4,646  $   4,437  $   4,426  $  4,332       5,685
                                     =========  =============  =========  =========  =========  ========  ==========`

The following summarizes our principal vendor contractual commitments as of
June 30, 2004:

`Payments due by Period
                                     -------------------------------------------------------------------------------
                                                 Six months
                                                   Ending                   Years Ending December 31,
                                                December 31,   -----------------------------------------------------
                                       Total        2004         2005       2006       2007       2008    Thereafter
                                     ---------  -------------  ---------  ---------  ---------  --------  ----------
Vendor Commitments................. $  12,735  $       3,751  $   5,856  $   1,073  $   1,762  $    293  $       --
                                     =========  =============  =========  =========  =========  ========  ==========`

Net cash used in investing activities was $6.0 million for
the six months ended June 30, 2004 compared to $8.5 million used in investing
activities for the six months ended June 30, 2003. The $2.5 million decrease was
primarily related to a reduction in short-term investment purchases of $11.5
million that was offset by a $5.5
million reduction in sale of short-term investments and an
increase in equipment purchases of $3.9 million for customer contracts related
to first half 2004 bookings and internal use purposes.

Net cash provided by financing activities was $8.1 million
for the six months ended June 30, 2004 compared to $2.9 million used for the six
months ended June 30, 2003, respectively. The $11.0 million change in cash
provided by financing activities consisted primarily of the proceeds from the
issuance of common stock and exercise of stock options, reduced payments on
capital leases as buy-outs increased, and $7.0 million in borrowings from a bank
term commitment payable entered into in the first quarter of fiscal 2004 for
equipment purchases.

On March 17, 2004, the Company entered
into a $7.0 million bank term commitment payable for which the proceeds are to
be used to finance the purchase of new equipment and software. In connection
with the term commitment payable, the Company issued a promissory note dated
March 17, 2004 for a loan up to $7.0 million. Under the term commitment payable
the Company can draw against the note through September 2004. Outstanding
balances under the note will accrue interest at a rate of LIBOR plus 1.75%;
however, the interest rate can be changed to a floating rate of prime minus
0.25%. Additionally, the Company is obligated to pay interest on outstanding
balances until October 1, 2004 at which time the term commitment payable
converts into a term loan with principal and interest payments due monthly. The
outstanding principal balance under the term loan and interest payments will be
payable over 30 months. The term loan interest rate can either be LIBOR or
fixed. Principal is due in full in February 2007. As of June 30, 2004 the
balance was $7.0 million and the interest rate was 4.0%. The full line of credit
was utilized by the end of June 30, 2004.

Covenants associated with this loan require that the
Company's results from operations generate certain levels of EBITDA (earnings
before interest, taxes, depreciation and amortization) on a quarterly basis. The
Company did not meet the EBITDA covenant for the quarter ended June 30, 2004 and
obtained a waiver from the bank on July 23, 2004 related to this covenant
violation. The Company has classified this obligation as current as of June 30,
2004 as the Company has future quarterly EBITDA covenants with the bank it does
not believe it will be able to comply with due to increased operating expenses
and the loss of revenue associated with the customer contract with
Expanets/Avaya, Inc. which terminated July 29, 2004. The Company is in
discussions with the bank to renegotiate the future EBITDA covenants. The
Company has $33.7 million of unrestricted cash and cash equivalents as of June
30, 2004.

Except for equipment operating leases, we have no off balance
sheet financing arrangements (see Note 8 in this Quarterly Report).

On October 22, 2003, the Company completed the purchase of
the assets and the assumption of certain liabilities of Nexus. The Company paid
Nexus approximately $10.2 million, consisting of $1.9 million in cash and
2,921,390 shares of Corio common stock, including $177,000 related to legal
expenses. In addition, Nexus is entitled to receive an earn-out payment of up to
$2.0 million payable in shares of Corio common stock contingent upon specified
revenue milestones for the three month period ending December 31, 2004 from
identified existing and prospective customers of Nexus. In accordance with the
terms of the asset purchase agreement, $500,000 of the purchase price was also
deposited into an escrow account. The deposited funds were to be held as
security until the later of April 2004 and the date any claims against the
escrow are resolved for any losses incurred by the Company in the event, among
other matters, of any breach by Nexus of the agreements, covenants,
representations and warranties it made under or in connection with the purchase
agreement. The Company filed claims against the escrow and resolved most of the
claims with Nexus, agreeing to distribute approximately $89,000 plus interest to
Corio and to distribute all of the remaining escrow proceeds to Nexus, except
$20,000 left in the escrow for remaining claims.

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 changes in the nature of our business or
structure, a significant reduction in demand for our services, the need for
significant new capital expenditures, or mergers or acquisitions could further
utilize our cash reserves. To the extent we require additional cash, there can
be no assurances that we will be able to obtain such financing on terms
favorable to us, or at all.

Risks Related to Our Business

We expect to continue to incur losses and experience negative
cash flow and we 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 June
30, 2004, we had an accumulated deficit of $266 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, and ongoing services, 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 and number of customers, to increase our revenue, to decrease our
overall costs of providing services, including the costs of our licensed
technology and our operations and the costs of customer acquisitions. We cannot
assure you that we will be able to increase our revenues or increase our
operating efficiencies in this manner. Also, we may continue to invest in our
business faster than we anticipate growth in our revenues, and we may continue
to incur significant losses and negative cash flow for the foreseeable future
and we may never be profitable.

Because of the nature of our customer base, we may
experience greater than expected customer loss and instability as well as
difficulties collecting fees, which could result in reduced revenues.

A significant portion of our current revenue is derived
from technology and middle-market companies. Middle-market companies consist of
companies or divisions with annual revenues of between approximately $200
million and $1 billion. Technology and middle-market companies may be more
likely to be acquired, experience financial difficulties or cease operations
than companies that are larger and better established or are in more stable
industries. For instance, technology and middle-market companies may experience
difficulties in raising capital needed to fund their operations. As a result,
our client base will likely be more volatile than those companies whose customer
base consists of more mature and established businesses. Over the past four
years we experienced early terminations of customer agreements with
approximately one hundred customers, many of which entered into agreements with
us in 1999 and 2000 and whose terminations were based on the dot com crash and
many of which are no longer in business. We expect additional customer
agreements to terminate in the future. 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.

The loss of key customers could reduce our revenues and
could be perceived as a loss of momentum for our business.

We have experienced customer attrition in the past and
expect to experience it in the future. Historically, we have generated a
substantial portion of our revenues from a limited number of customers and we
expect that in the future a limited number of customers will continue to account
for a substantial portion of our revenues. As a result, if we lose a major
customer for any reason, including non-renewal of a customer contract, failure
to meet performance requirements, or because of an acquisition or bankruptcy,
our revenues could be adversely affected. We may lose customers if they are
acquired by a company which does not need access to the kinds of services we
provide, either because the acquiring company has in-house capabilities,
existing contractual arrangements that preclude them from using our services, or
for a variety of other reasons. If we do not grow our revenue, we may never
achieve profitability or positive cash flow and therefore the loss of any
significant customers could adversely affect our operating results. In addition,
our potential customers and investors may perceive any customer loss as a loss
of momentum in our business, which may adversely affect future opportunities to
sell our products and services and cause our stock price to decline. We cannot
be certain that customers that have accounted for significant revenues in past
periods will continue to generate revenues in any future period.

For example, one of our customers, Quadrem, who represented
11% of total revenues in fiscal 2002, had its contract expire in May 2003.
Although Quadrem renewed for a short-term contract, the new contract was for
significantly less recurring monthly revenue. In addition, another customer,
Expanets, that accounted for 12% of total revenues for fiscal 2003, was acquired
by Avaya, Inc. in November 2003. Expanets/Avaya, Inc. terminated its customer
contract as of July 29, 2004. The loss of Expanets/Avaya, Inc. as a customer, or
any future loss of any other significant customer, or any significant reduction
in fees paid to us by a significant customer, will have a significant adverse
effect on our ability to achieve profitability and positive cash flow.

Our failure to collect payments for our services from
"cash basis" customers could significantly decrease our revenues and
profitability.

In the event we decide payment by a customer is no longer
reasonably assured then we designate that customer as a "cash basis" customer.
Historically we have generated a significant portion of our revenue from
payments by cash basis customers. The percentage of our customers designated as
cash basis customers as of the end of June 30, 2004 was 10% and for the years
ended December 31, 2003, 2002 and 2001 was 12%, 29% and 42%, respectively. For
the quarter ended June 30, 2004 we recorded revenue of $3.2 million (18% of
revenues) related to services provided to cash basis customers. For the six
months ended June 30, 2004 we recorded revenue of $7.4 million (21% of revenues)
related to services provided to cash basis customers. For the years ended
December 31, 2003, 2002 and 2001, we recorded revenue of $22.2 million (32% of
total revenue), $17.0 million (31% of total revenue) and $16.6 million (32% of
total revenue), respectively, related to services provided to cash basis
customers.

For the quarter ended June 30, 2004, we determined not to
recognize approximately $2.3 million in revenue related to services provided
during this period, based on our policies regarding customers designated as cash
basis customers for which we did not receive payment. For the 2003 fiscal year
we determined not to recognize approximately $1.4 million in revenue related to
services provided during this period to cash basis customers. For fiscal 2002,
this amount was $3.0 million and for fiscal 2001 it was $2.3 million. A
significant portion of our customer base remains on a cash basis and we expect
to continue to have a significant number of customers on a cash basis going
forward. For these customers we are at risk of not receiving payment for
services we have already performed. Failure by these customers to pay could
decrease revenue and result in our having incurred costs to provide services
without being compensated for those services, which could adversely affect our
ability to become profitable.

We may experience issues with our financial controls that could harm our
financial condition and results of operations and have a negative effect on the
trading price of our stock.

Our auditors have recently noted certain matters involving
internal controls and operations that they consider to be reportable conditions
under standards established by the American Institute of Certified Public
Accountants. Reportable conditions involve matters coming to auditors' attention
relating to significant deficiencies in the design or operation of internal
controls that, in the auditor's judgment, could adversely affect the company's
ability to initiate, record, process, and report financial data accurately, on a
timely basis and consistent with regulatory requirements. For example, our
auditors have identified as an ongoing significant deficiency our lack of
adequate staffing within our finance department.

We are continuing to work to improve our internal controls
and to address the significant deficiencies identified by the auditors. We have
taken measures to improve our financial reporting and management capabilities
and we are in the process of instituting changes to our internal controls in
order to try to satisfy our obligations as a public company, including the
requirements associated with the Sarbanes-Oxley Act of 2002 such as compliance
with Section 404 of the Sarbanes-Oxley Act by the end of this year. For example,
we are in the process of expanding the documentation of our internal processes,
and we are actively recruiting additional financial and accounting personnel to
support our finance team. To sufficiently address the issues with our internal
controls, we will need to continue to improve our financial and managerial
controls, reporting systems and procedures, and documentation thereof, and will
need to continue to expand, train and manage our finance team effectively.

We cannot be certain that the measures we are taking and will
take in the future will ensure that we implement and continue to maintain
adequate controls over our financial processes and reporting. If we fail to
implement and continue to maintain adequate internal controls, this could have a
material adverse effect on Corio's business, results of operations and financial
conditions and could prevent Corio from releasing its financial information and
SEC reports in a timely and accurate manner and in compliance with regulatory
requirements, adversely affect our ability to sell our services and implement
our business plan successfully and in a manner that achieves profitability, and
impair our ability to detect and prevent fraud.

We are also in the process of trying to engage independent
auditors to replace KPMG LLP. There can be no assurance that we will promptly
engage new auditors or that any new auditors that we do engage will have
sufficient resources to certify Corio at the end of this year, as required by
Section 404 of the Sarbanes-Oxley Act.

The fact that we operate in a relatively new and rapidly
evolving industry exposes us to risks that may result in our inability to
successfully execute on our business model, which could adversely affect our
operating results.

The ASP market is relatively new and has not yet received
universal acceptance by the enterprises we target. An investor in our common
stock must consider these facts as well as the risks, uncertainties, expenses
and difficulties frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets such as
the market for Internet-based software application services. Some of the risks
and difficulties relate to our potential inability to:

- acquire and retain customers, particularly larger, more
established companies desirable 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,
hardware, and networking and data center services at a reasonable cost or at a
structure beneficial to us;
- complete successful implementations of 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.

If we are unable to adjust our spending to offset future
revenue shortfalls, our short-term operating results could be adversely affected
causing our stock price to fall.

We expend significant sums in order to run our business
and to promote future growth in our business, operations, professional services,
research and development, and sales and marketing organizations. Although we are
monitoring our spending, we expect to continue to expend significant sums on
these activities. 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 operating 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, which could
cause our stock price to fall.

Our financial results will vary due to factors such as
the nature of our services and the timing of payments received from cash basis
customers. 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 these customers,
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 vary in relation to other revenue. In addition, 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 increase or decrease in termination fees, settlement
fees or judgments 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;
- 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 we may incur in the future relating
to stock options, stock or warrant issuances.

Our financial results may 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 ASP
business and financial models mature and evolve. 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 have unbundled the cost of
enterprise software licenses from our fixed monthly fee and 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
have migrated substantially all of our 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.

The loss of access to, or the obsolescence of, third party
software necessary to deliver our services may adversely affect our revenues and
increase our costs.

We offer our customers software application services for
applications from third parties such as PeopleSoft, Oracle, SAP, Ariba and
Siebel Systems. We have agreements in place with certain 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, a substantial majority of our customers
are "host-only", whereby they must obtain licenses directly from independent
software vendors such as PeopleSoft, Oracle, SAP, Ariba and Siebel, and, in
these situations, we may 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
host the software from third party software vendors, if the cost of licensing
the software applications becomes prohibitive, or if we change the vendors from
whom we currently license software, our business and 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 in the future 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 which we have no relationship could render the
software we offer to our customers less compelling or obsolete.

The limits imposed on our uses of the third party software
necessary to deliver our services may impair our growth and operating
results.

Certain agreements we have for the third party software
for which we provide hosting or application management services restrict our
ability to sell our services in specified countries and to customers with
revenue above or below specified revenue levels. For example, one agreement
restricts us from selling our services to customers with annual revenues greater
than $1 billion, and restricts our ability to sell to customers outside of North
America. In addition, certain agreements 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, or if we have other service disruptions, even if only
temporarily. Accordingly, if the software that we deliver to our customers 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 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, which would harm our reputation and sales.

Implementations and management of enterprise software
applications are 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.

Our inability to sufficiently expand 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. For this
reason and others, it may be difficult for Corio to maintain and increase its
professional services revenues. 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.

A significant increase in our customer base could strain
our operations and may result in our inability to properly manage our
organizational structure.

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;
- expand, train, manage and retain our employee base
effectively; and
- manage costs for employees, hardware, software, data
centers and networks in a manner that will permit our business to
scale.

Any failure to effectively meet the above requirements could
adversely affect our business. In addition, 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.

Our inability to successfully perform required software
upgrades for our customers could cause interruptions or errors in our customers'
applications, which could increase our costs and delay market acceptance of our
services.

Our software vendors from time to time will upgrade their
software applications, and at such time we may 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. 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, who 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.

Our application management agreements are typically long-
term, fixed-price contracts, and if we are not able to manage our costs, these
agreements may become unprofitable for us.

We enter into agreements with our customers to provide
application management services for long periods, typically three years for our
full service contracts. Most of these agreements are in the form of fixed-price
contracts that do not provide for price adjustments to reflect any cost overruns
associated with providing our services, such as potential increases in the costs
of software applications we license from third parties, and the costs of
upgrades or inflation or any other price increases in products or services
supplied to us by third parties. 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 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 hurt our
ability to become profitable.

Downward pricing pressure may decrease our revenue.

Customers often request reductions in pricing upon
contracts coming up for renewal and sometimes even prior to renewal. We have
accommodated some of these requests in the past and may accommodate others in
the future. As information technology services evolve we have noted that
customers expect these services to be provided on a more efficient and
cost-effective basis. We may not be able to increase efficiencies so as to maintain
current profit margins on an individual customer basis, taking into account such
reduced revenue. The downward pressure on pricing may result in decreased
revenues and may make it difficult for us to become profitable.

Proposed changes to GAAP may require recording
compensation expense for employee stock options.

The FASB and various legislative proposals have proposed
changes to GAAP that may require us to adopt a different method of determining
the compensation expense for our employee stock options. We currently use the
intrinsic value method to measure compensation expense for stock-based awards to
our employees. Under this standard, we generally do not consider stock option
grants issued under our employee stock option plans to be compensation when the
exercise price of the stock option is equal to the fair market value on the date
of grant. If any change to GAAP is adopted that requires us to adopt a different
method of determining the compensation expense for our employee stock options,
our reported results of operations may be adversely affected.

We have focused on reducing costs, particularly in certain
areas of our business, and these reductions may hinder sales and development of
new technology.

In response to the difficult business environment and in
order to try to bring our cost structure more in line with our revenues, we have
been focusing on reducing our costs for some time. We have attempted to do this
in a way that permits us to continue to provide excellent levels of service for
customers, focusing on reducing costs by automating services, negotiating with
vendors and headcount reductions in areas that have less direct impact on
customers. We have significantly reduced our marketing expenses and this may
adversely affect our ability to attract new customers and to increase our
revenues. We have also significantly reduced our research and development
expenses and this may adversely affect our ability to develop new technology,
although we have attempted to augment our research and development capabilities
through less expensive means such as through our Indian subsidiary.

If we do not meet the service levels we establish in our
customer contracts, we may lose existing customers and revenue and our
reputation and ability to engage potential customers may be adversely
affected.

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 services related to additional software applications that
address their evolving business needs. Certain challenges may arise related to
this potential strategy. For example, we cannot be sure that we will be able to
license these applications at a commercially viable rates or at all or otherwise
be permitted access to the applications to provide our services, or, in the
alternative, that we will be able to cost-effectively develop the applications
in-house. If we cannot obtain these applications on a cost-effective basis or
otherwise cannot effectively expand our service offering 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. Furthermore,
we may not focus on the strategy of expanding by providing our services in
relation to additional enterprise software applications, and this may be a
strategic mistake.

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, NaviSite and USinternetworking;
- systems integrators, such as Accenture and Bearing
Point;
- offshore providers such as Wipro, Tata and Infosys;
- software vendors, such as Oracle, PeopleSoft, SAP, Ariba
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.

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 lose customers or have to credit customers for our
services if our network infrastructure is not delivered or serviced in a timely,
consistent and cost-effective manner by third parties.

We depend on third parties, such as XO Communications,
Qwest, AT&T, 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. For example,
downtime caused by our data center providers could materially disrupt our
services, and, in the event any of these data center providers terminate or
decline to renew their contracts with us, we could experience significant
disruption and costs related to migrating customers to a different data center.
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 our
services to our customers in an effective manner and these customers may
terminate their contracts with us as a result or demand credits against fees.
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.

Computer system failures could render us unable to service
our customers and may 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 or service downtime for
a period of time could cause us to lose our customers and subject us to
significant potential liabilities. We currently use seven data center providers
to house our hardware and to provide network services, but most of our customers
are 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.

Our inability to retain and hire qualified and effective
executive officers and critical personnel may adversely affect our ability to
successfully manage our business or achieve our business 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. 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.

Our inability to retain and hire qualified and effective
personnel may adversely affect our ability to grow our business.

In the future, we may expand our sales, operations and
marketing efforts 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, past reductions in our
workforce, although designed to not affect service levels and demand generation,
may adversely affect these areas of our business.

In the event we are not able to achieve the anticipated
benefits from our acquisition of Nexus this may increase our expenses without
the expected increase in revenue, which will adversely affect our operating or
financial results.

In October 2003 we acquired substantially all of the
assets of Nexus as part of our efforts to expand our applications management
business and product offerings. The rationale for the asset purchase was to
expand Corio's customer base and expertise in the SAP market space. SAP AG is a
significant software vendor, providing enterprise resource planning and e-
commerce software for businesses. We may experience difficulties in achieving
and may never fully realize this anticipated benefit. Potential risks with this
acquisition include, among others:

- possible impairment of relationships with employees and
customers as a result of the acquisition of Nexus;
- inability to retain key employees of Nexus;
- inability to retain the SAP customers of Nexus;
- diversion of management's attention from other business
concerns; and
- difficulties in assimilation of acquired personnel,
operations, technologies or products.

In the event we are unable to retain Nexus's SAP customers or
use this acquisition as a basis for expanding our customer base in the SAP
market, or in the event the risks identified above lead to increased costs or a
loss of benefits from the acquisition then we may never achieve the anticipated
benefits of this acquisition and this will adversely impact our operating
results. In addition, Corio has an obligation to issue additional shares of
common stock to Nexus in the event Corio attains specified revenue milestones
for the three month period ending December 31, 2004. Any such issuance would
dilute our existing stockholders and increase the consideration we issue for the
acquisition.

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 and October 2003, we completed the
acquisition of the ASP assets of Qwest Cyber Solutions LLC and Nexus,
respectively. The integration of the ASP assets of Qwest Cyber Solutions and
Nexus into our business is ongoing, and we may experience related disruptions
and distractions as well as unexpected costs. We have lost, and may continue to
lose, customers acquired from Qwest Cyber Solutions and Nexus.

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. Furthermore, any future acquisitions
could materially deplete our cash.

Any inability to protect our intellectual property rights
could reduce our competitive advantage, divert management's attention, and
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. 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 them or us, 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.

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. In June 2003, the plaintiffs in these cases presented a
settlement proposal to all of the issuer defendants. Under the proposed
settlement, the plaintiffs proposed to dismiss and release all claims against
participating defendants in exchange for a contingent payment guaranty by the
insurance companies collectively responsible for insuring the issuers in all the
related cases, and the assignment or surrender to the plaintiffs of certain
claims the issuer defendants may have against the underwriters. Under the
guaranty, the insurers or companies will be required to pay the amount, if any,
by which $1 billion exceeds the aggregate amount ultimately collected by the
plaintiffs from the underwriter defendants in all the cases. If the plaintiffs
fail to recover $1 billion and payment is required under the guaranty, Corio
would be responsible to pay its pro rata portion of the shortfall, up to the
amount of the self-insured retention under its insurance policy, which is $1
million. In July 2003, Corio tentatively agreed to accept this settlement
proposal. The settlement is subject to acceptance by a substantial majority of
the issuer defendants and execution of a definitive settlement agreement. The
settlement is also subject to approval by the Court, which cannot be assured,
and the underwriters recently objected to the settlement. If the settlement is
not accepted by the requisite number of defendants or if it is not approved by
the Court or if it otherwise is not consummated, Corio intends to defend the
lawsuit vigorously. However, the litigation is in the preliminary stage, and we
cannot predict its outcome. The litigation process is inherently uncertain. If
the outcome of the litigation were adverse to us and if we are required to pay
significant monetary damages, our business would be significantly harmed. This
lawsuit may be time consuming and expensive to defend and may divert
management's attention and may be costly to Corio even if the plaintiff's
settlement proposal is consummated.

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 uncertainty in the 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 service
providers 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, have
established a subsidiary in India, 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 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 operations.

Because of the economic 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. Additionally, 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
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 41% of our common
stock as of June 30, 2004. 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, and members of our board of
directors have contracts with us that provide for the acceleration of vesting of
their stock options upon 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.

ITEM 3.   Quantitative
and Qualitative Disclosures About Market Risk

We develop and market our services primarily in the
United States. As we expand our operations outside of the United States, our
financial results could be affected by factors such as changes in foreign
currency rates or weak economic conditions in foreign markets. Because all of
our 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

The primary objective of our investment activities is to
preserve principal while at the same time maximize the income we receive from
our investments without significantly increasing risk. Some of the securities
that we have invested in may be subject to market risk. This means that a change
in prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing interest rate and the prevailing interest
rate later rises, the fair value amount of our investment will probably decline.
To minimize this risk, we maintain our portfolio of cash equivalents and
short-term investments in a variety of securities, including Government Securities,
Commercial Paper, Corporate Bonds and money market funds. In general, money
market funds are not subject to market risk because the interest paid on such
funds fluctuates with the prevailing interest rate. The following table presents
the amounts of our cash equivalents and short-term investments that are subject
to market risk by range of expected maturity and weighted-average interest rates
as of June 30, 2004.

`Maturing in   Maturing Between
                                                         Three months   Three months and
                                                           or less      Thirteen months
                                                         ------------  ------------------
June 30, 2004 (in thousands, except percentages):
   Included in cash and cash equivalents............... $      6,264   $             --
      Weighted-average interest rate...................         1.41 %               --
   Included in short-term investments.................. $      3,007   $         16,497
      Weighted-average interest rate...................         1.44 %             1.62 %
                                                         ============   ================`

ITEM 4.   Controls
and Procedures

(a)     Evaluation of disclosure
controls and procedures.

Our management evaluated, with the participation of our Chief
Executive Officer and our Chief Financial Officer, the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive
Officer and our Chief Financial Officer have concluded that, except as discussed
below with respect to absence of appropriate levels of accounting personnel, our
disclosure controls and procedures are effective to ensure that information we
are required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in internal controls.

As discussed in the Company's Current Report on Form 8-K
filed with the Securities and Exchange Commission on August 4, 2004, KPMG noted
deficiencies related to the Company's internal controls around the Company's
monitoring of debt covenant compliance, the absence of appropriate levels of
accounting personnel, the absence of appropriate review and approval of manual
journal entries, and evidence of failure to reconcile bank statements in a
timely manner. The Company believes that it has remedied all of these
deficiencies except the absence of the appropriate levels of accounting
personnel, which it expects to remedy soon, as discussed below.

- Monitoring debt covenant compliance. This finding
relates to a new debt arrangement entered into in March 2004.  The Company  has
clarified the covenants with the bank and reemphasized its monitoring of the
compliance of these covenants as part of its monthly close process.
- Absence of appropriate levels of accounting personnel.
At the time KPMG noted this deficiency, five members of the Company's finance
and accounting departments were temporary consultants.  Since that time,
the Company has hired as full time employees three of the five temporary
consultants.  In addition, the Company has received an acceptance to its
offer of employment for one of the remaining positions currently staffed by a
temporary consultant and an acceptance to its offer of employment for an
additional incremental accounting position.  The Company plans to extend an
additional offer of employment for an additional incremental accounting position
in the near future.
- Absence of appropriate review and approval of manual
journal entries.  The Company has reemphasized the requirement to properly
document the review of all manual journal entries.  As an additional control, we
have added a second review to confirm that the review of all manual entries has
been properly documented.
- Evidence of failure to reconcile bank statements in a
timely manner.  The Company's accounting manager was called up for three weeks
of United States military service during the Company's accounting close process
for the quarterly period ended June 30, 2004, and therefore did not complete
some of the Company's bank reconciliations as part of our normal quarterly
closing process.  These reconciliations were completed in time for our
second quarter 2004 earning release by other accounting department personnel.
Again, we have reemphasized the company policy regarding the timely completion
of all reconciliations.

Except as stated above, there was no change in the Company's
internal controls over financial reporting during the period covered by this
Quarterly Report on Form 10-Q that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

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. In June 2003, the plaintiffs
in these cases presented a settlement proposal to all of the issuer defendants.
Under the proposed settlement, the plaintiffs proposed to dismiss and release
all claims against participating defendants in exchange for a contingent payment
guaranty by the insurance companies collectively responsible for insuring the
issuers in all the related cases, and the assignment or surrender to the
plaintiffs of certain claims the issuer defendants may have against the
underwriters. Under the guaranty, the insurers or companies will be required to
pay the amount, if any, by which $1 billion exceeds the aggregate amount
ultimately collected by the plaintiffs from the underwriter defendants in all
the cases. If the plaintiffs fail to recover $1 billion and payment is required
under the guaranty, Corio would be responsible to pay its pro rata portion of
the shortfall, up to the amount of the self-insured retention under its
insurance policy, which is $1 million. In July 2003, Corio tentatively agreed to
accept this settlement proposal. The settlement is subject to acceptance by a
substantial majority of the issuer defendants and execution of a definitive
settlement agreement. The settlement is also subject to approval by the Court,
which cannot be assured, and the underwriters recently objected to the
settlement. If the settlement is not accepted by the requisite number of
defendants or if it is not approved by the Court or if it otherwise is not
consummated, Corio intends to defend the lawsuit vigorously. However, the
litigation is in the preliminary stage, and we cannot predict its outcome. The
litigation process is inherently uncertain. If the outcome of the litigation
were adverse to us and if we are required to pay significant monetary damages,
our business would be significantly harmed. This lawsuit may be time consuming
and expensive to defend and may divert management's attention and may be costly
to Corio even if the plaintiff's settlement proposal is consummated.

In November 2001, Corio filed a demand for arbitration
against LivePerson, Inc. with the American Arbitration Association in San
Francisco County. The arbitration related to a dispute around a services
contract between the parties. On July 23, 2003, the arbitrator in this dispute
issued a judgment awarding Corio damages of $1,115,440 plus interest.
LivePerson, Inc. filed a motion to vacate the award in the Superior Court of
California. On November 18, 2003, the Superior Court of California issued a
judgment, relating to the arbitration, awarding Corio damages of $1,346,605 plus
interest from October 17, 2003 until the date of payment. LivePerson, Inc. paid
Corio $1,369,479 on December 18, 2003 and subsequently appealed the judgment.
For any portion of the cash paid that is affirmed on appeal or otherwise finally
committed, such cash received pursuant to this award will be recorded as
termination fee revenue.

The Company is subject to other legal proceedings, claims and
litigation arising in the ordinary course of business. While the outcome of
these matters is currently not determinable, management does not expect that the
ultimate costs to resolve these other matters will have a material adverse
effect on the Company's financial statements.

ITEM 2. CHANGES IN SECURITIES, USE OF
PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

Not applicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable

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

(a) We held our 2004 Annual Meeting of Stockholders on May
12, 2004 (the "Annual Meeting").

(b) At the Annual Meeting, the stockholders elected Glenn W. Marschel, Jr. as
the Class I director to serve for a term of three years. In addition, the term
of office as a director continued after the Annual Meeting for the following
directors: Ted E. Schlein, George Kadifa, Mark Forman, George J. Still, Jr.,
Randall P. Baker and Mark Hauser. Aneel Bhusri, who was one of our Class I
directors prior to the Annual Meeting, decided not to stand for re-election and
permitted his term as a director to expire on May 12, 2004.

(c) The following is a brief description of matters voted on at the Annual
Meeting and a statement of the number of votes cast for, against or withheld, as
well as the number of abstentions and broker non-votes, as to each such
matter:

(1) Election of Glenn W. Marschel, Jr. as the Class I director:

|FOR              |  | WITHHELD       
|---------------- |  | ---------------
|54,975,548 Votes |  | 1,155,549 Votes

(2) Re-approval of our 1998 Stock Plan to preserve the corporate
income tax deduction available pursuant to Section 162(m) of the Internal
Revenue Code:



|FOR              |  | AGAINST         |  | ABSTAINED    |  | BROKER NON-VOTES
|---------------- |  | --------------- |  | ------------ |  | ----------------
|32,768,453 Votes |  | 1,617,050 Votes |  | 75,481 Votes |  | 21,670,829 Votes

(3) Ratification of the appointment of KPMG LLP as
our independent auditors for the fiscal year ending December 31, 2004:



|FOR              |  | AGAINST       |  | ABSTAINED   
|---------------- |  | ------------- |  | ------------
|55,844,176 Votes |  | 257,817 Votes |  | 29,820 Votes

ITEM 5.	OTHER
INFORMATION

Not applicable

ITEM 6.	EXHIBITS AND REPORTS
ON FORM 8-K

(a)	Exhibits



|10.17 | Credit Agreement entered into as of March 17, 2004, by and
between Corio, Inc., a Delaware Corporation, and Wells Fargo Bank, National
Association                     
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18 | The First Amendment to Credit Agreement entered into as of July
23, 2004, by and between Corio, Inc., a Delaware Corporation and Wells Fargo
Bank, National Association
|31.1  | Section 302 Certification of Chief Executive Officer                                                                                                                   
|31.2  | Section 302 Certification of Chief Financial Officer                                                                                                                   
|32.1  | Section 906 Certification of Chief Executive Officer                                                                                                                   
|32.2  | Section 906 Certification of Chief Financial Officer                                                                                                                   

(b)	 Reports on Forms 8-K

On April 27, 2004, Corio furnished a Current Report on Form
8-K reporting the announcement of its financial results for the quarter ended
March 31, 2004. Under Item 12 of Form 8-K, Corio furnished the press release
relating to its financial results for the quarter ended March 31, 2004.

On June 14, 2004, Corio filed a Current Report on Form 8-K/A
amending its Current Report on Form 8-K dated September 20, 2002 in order to
provide required financial information related to Corio's purchase of assets of
Qwest Cyber.Solutions LLC and to amend certain section of the initial Current
Report on Form 8-K.

On June 14, 2004, Corio filed a Current Report on Form 8-K/A
amending its Current Report on Form 8-K dated October 22, 2003 regarding Corio's
purchase of assets of Nexus Technology, Inc.

---

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: August 13, 2004



|    | CORIO, INC.                                                     
|--- | ----------------------------------------------------------------
|   
|By: | /s/    GEORGEKADIFA                                             
|    | George Kadifa
President and Chief Executive Officer             
|    |                                                                 
|By: | /s/    BRETTWHITE                                               
|    | Brett White
Executive Vice President and
Chief Financial Officer

---

EXHIBIT INDEX



|ExhibitNumber | Description                                                                                                                                                                      
|------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.17         | Credit Agreement entered into as of March 17, 2004, by and between Corio, Inc.,
a Delaware Corporation, and Wells Fargo Bank, National Association
     PDF                      
|10.18         | The First Amendment to Credit Agreement entered into as of July 23, 2004, by and between Corio, Inc.,
a Delaware Corporation, and Wells Fargo Bank, National Association
     PDF
|31.1          | Section 302 Certification of Chief Executive Officer                                                                                                                             
|31.2          | Section 302 Certification of Chief Financial Officer                                                                                                                             
|32.1          | Section 906 Certification of Chief Executive Officer                                                                                                                             
|32.2          | Section 906 Certification of Chief Financial Officer                                                                                                                             

---