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 September 30, 2003

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 October 31, 2003, there were 61,486,765 shares of the Registrant's common stock
outstanding, which includes 2,921,390 shares issued in October 2003 in connection with
the Registrant's purchase of substantially all of the assets of Nexus Technology, Inc.







Corio, Inc.

      QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2003
                                TABLE OF CONTENTS



|PART I.   FINANCIAL INFORMATION                                                                                                     | Page No.
|----------------------------------------------------------------------------------------------------------------------------------- | --------
|                                                                                                                                    |         
|Item 1.   Financial Statements                                                                                                      |         
|                                                                                                                                    |         
|Unaudited Condensed Consolidated  Balance Sheets 
            
September 30, 2003 and December 31, 2002                             | 3       
|                                                                                                                                    |         
|Unaudited Condensed Consolidated  Statements of Operations
            
    Three and Nine months ended September 30, 2003 and 2002 | 4       
|                                                                                                                                    |         
|Unaudited Condensed Consolidated  Statements of Cash Flows 
            
    Nine months ended September 30, 2003 and 2002          | 5       
|                                                                                                                                    |         
|Notes to Unaudited 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                                                                | 30      
|                                                                                                                                    |         
|Item 4.   Controls and Procedures                                                                                                   | 30      
|                                                                                                                                    |         
|PART II.  OTHER INFORMATION                                                                                                         |         
|                                                                                                                                    |         
|Item 1.   Legal Proceedings                                                                                                         | 31      
|                                                                                                                                    |         
|Item 2: Changes in Securities and Use of Proceeds                                                                                   | 31      
|                                                                                                                                    |         
|Item 3: Defaults Upon Senior Securities                                                                                             | 32      
|                                                                                                                                    |         
|Item 4: Submission of Matters to a Vote of Security Holders                                                                         | 32      
|                                                                                                                                    |         
|Item 5: Other Information                                                                                                           | 32      
|                                                                                                                                    |         
|Item 6.   Exhibits and Reports on Form 8-K                                                                                          | 32      
|                                                                                                                                    |         
|Signatures                                                                                                                          | 33      

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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CORIO, INC.

                            CONDENSED CONSOLIDATED BALANCE SHEETS

                                (In thousands, except share amounts)

                                               (unaudited)

`September 30,  December 31,
                                                                          2003          2002
                                                                      ------------  ------------
ASSETS                                                                                          
Current assets:
    Cash and cash equivalents....................................... $     11,585  $     26,908
    Short-term investments..........................................       24,128        17,031
    Accounts receivable, net of allowance of $361 and $403
        at September 30, 2003 and December 31, 2002, respectively...        3,339         6,109
    Prepaid expenses and other current assets.......................        2,443         3,421
                                                                      ------------  ------------
        Total current assets........................................       41,495        53,469
Restricted cash.....................................................        7,717         7,717
Property and equipment, net.........................................       10,640        16,286
Other assets........................................................        1,044         2,820
                                                                      ------------  ------------
        Total assets................................................       60,896  $     80,292
                                                                      ============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY                                                            
Current liabilities:
    Accounts payable................................................ $      5,327  $     10,004
    Accrued liabilities.............................................        5,485         7,723
    Accrued restructuring...........................................          694         1,757
    Deferred revenue................................................        2,090         2,636
    Current portion of notes payable................................           --           272
    Current portion of capital lease obligations....................          785         4,460
                                                                      ------------  ------------
        Total current liabilities...................................       14,381        26,852
Capital lease obligations less current portion......................           99           399
Accrued restructuring...............................................        4,245         2,472
Other liabilities...................................................        1,274         1,154
                                                                      ------------  ------------
        Total liabilities...........................................       19,999        30,877
                                                                      ------------  ------------
Commitments and contingencies
Stockholders' equity:
    Preferred stock: $0.001 par value; 10,000,000
        shares authorized, none issued and outstanding..............           --            --
    Common stock: $0.001 par value; 200,000,000 shares authorized;
        58,254,954 and 56,516,435 shares issued and outstanding
        at September 30, 2003 and December 31, 2002, respectively...           58            56
    Additional paid-in capital......................................      297,910       296,820
    Accumulated other comprehensive income..........................           18            98
    Deferred stock-based compensation...............................          (25)         (859)
    Accumulated deficit.............................................     (257,064)     (246,700)
                                                                      ------------  ------------
        Total stockholders' equity..................................       40,897        49,415
                                                                      ------------  ------------
        Total liabilities and stockholders' equity.................. $     60,896  $     80,292
                                                                      ============  ============`

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      Nine Months Ended
                                                         September 30,           September 30,
                                                     ----------------------  ----------------------
                                                        2003        2002        2003        2002
                                                     ----------  ----------  ----------  ----------
REVENUES:                                                                                          
    Application management services................ $   14,295  $    9,399  $   45,762  $   28,417
    Professional services and other................      1,245       3,982       5,833       9,959
                                                     ----------  ----------  ----------  ----------
    Total revenues.................................     15,540      13,381      51,595      38,376
                                                     ----------  ----------  ----------  ----------
COSTS AND EXPENSES:                                                                                
    Application management services *..............     11,210       9,704      36,333      27,024
    Professional services and other *..............        730       3,708       4,455      10,583
    Research and development *.....................      1,123       1,316       3,819       5,092
    Sales and marketing *..........................      2,125       2,085       6,632       8,324
    General and administrative *...................      2,339       2,693       6,917       8,682
    Restructuring charges..........................         --       4,036       2,334       4,036
    Amortization of stock based compensation.......        (34)        690         445       1,791
    Amortization of intangible assets..............        367          56       1,257          56
                                                     ----------  ----------  ----------  ----------
    Total operating expenses.......................     17,860      24,288      62,192      65,588
                                                     ----------  ----------  ----------  ----------
Loss from operations...............................     (2,320)    (10,907)    (10,597)    (27,212)
Interest and other income..........................        136         482         518       1,596
Interest and other expense.........................        (73)       (203)       (285)       (753)
                                                     ----------  ----------  ----------  ----------
Net loss before income taxes.......................     (2,257)    (10,628)    (10,364)    (26,369)
Tax benefit........................................         --         400          --         400
                                                     ----------  ----------  ----------  ----------
Net loss........................................... $   (2,257) $  (10,228) $  (10,364) $  (25,969)
                                                     ==========  ==========  ==========  ==========

Basic and diluted net loss per share .............. $    (0.04) $    (0.19) $    (0.18) $    (0.49)
                                                     ==========  ==========  ==========  ==========

Shares used in computation-basic and diluted.......     57,684      53,978      56,098      52,605
                                                     ==========  ==========  ==========  ==========
                                                                                                   
*  Amortization (reversal) of stock-based                                                          
   compensation not included in expense line item:
    Application management services................ $        7  $       50  $       65  $      226
    Research and development.......................         11          51           2         116
    Sales and marketing............................         27         160         187         718
    General and administrative.....................        (79)        429         191         731
                                                     ----------  ----------  ----------  ----------
    Total amortization of stock-based compensation. $      (34) $      690  $      445  $    1,791
                                                     ==========  ==========  ==========  ==========`

See accompanying notes to condensed consolidated financial statements.



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CORIO, INC.

                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (In thousands)

                                   (unaudited)

`Nine Months Ended
                                                                           September 30,
                                                                        --------------------
                                                                           2003       2002
                                                                        ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES:                                                       
    Net loss.......................................................... $ (10,364) $ (25,969)
    Adjustments to reconcile net loss to net
    cash used in operating activities:
        Depreciation..................................................     8,788      8,176
        Amortization of intangible assets.............................     1,257         56
        Amortization of stock-based compensation......................       445      1,791
        Amortization of warrants......................................       426       (134)
        Accretion of investments......................................       515        361
        Compensation for grants of stock, options and warrants
          in exchange for services....................................        22         20
        Loss on retirement of assets..................................        --         52
        Changes in assets and liabilities:
            Accounts receivable.......................................     2,735     (1,053)
            Prepaid expenses and other current assets.................       978        301
            Accounts payable..........................................    (3,345)      (253)
            Accrued liabilities.......................................    (3,674)        --
            Deferred revenue..........................................      (546)      (456)
            Other liabilities.........................................     1,893      2,878
                                                                        ---------  ---------
    Net cash used in operating activities.............................      (870)   (14,230)
                                                                        ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:                                                       
    Purchases of short-term investments...............................   (37,318)   (41,539)
    Sales of short-term investments...................................    29,626     64,805
    Purchase of property and equipment................................    (3,183)      (498)
    Other assets......................................................       266        309
    Cash paid for acquisition.........................................      (361)   (14,000)
                                                                        ---------  ---------
    Net cash (used in) provided by investing activities...............   (10,970)     9,077
                                                                        ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                       
    Proceeds from sale of common stock and exercise of stock options..     1,058        791
    Payments on debt obligations......................................      (272)      (362)
    Payments on capital lease obligations.............................    (4,269)    (5,545)
                                                                        ---------  ---------
    Net cash used in financing activities.............................    (3,483)    (5,116)
                                                                        ---------  ---------
Decrease in cash and cash equivalents.................................   (15,323)   (10,269)
Cash and cash equivalents, beginning of period........................    26,908     36,317
                                                                        ---------  ---------
Cash and cash equivalents, end of period.............................. $  11,585  $  26,048
                                                                        =========  =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                           
    Cash paid for interest............................................ $     268  $     723
                                                                        =========  =========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:                                   
    Acquisition of property and equipment under capital leases........ $      --  $     407
                                                                        =========  =========

    Deferred stock-based compensation/forfeitures, net................ $     389  $   2,213
                                                                        =========  =========

    Unrealized loss on investments.................................... $     (80) $    (277)
                                                                        =========  =========`

See accompanying notes to condensed consolidated financial statements.



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CORIO, INC.

              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 financial statements and accompanying notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net
loss for the period by the weighted average number of shares of common stock
outstanding during the period (excluding shares subject to repurchase). Diluted
net loss per share is computed by dividing the net loss for the period by the
weighted average number of shares of common stock and potentially dilutive
common securities outstanding during the period. Potentially dilutive common
shares are excluded from the computation in loss periods, as their effect would
be antidilutive.
The following table sets forth potential shares of common
stock that are not included in the diluted net loss per share calculation as
their effect would have been antidilutive for the periods indicated (in
thousands except weighted average exercise price):

September 30, 2003  September 30, 2002
                                        ------------------  ------------------
                                        Weighted            Weighted
                                         Average             Average
                                        Exercise            Exercise
                                          Price    Shares     Price    Shares
                                        --------- --------  --------- --------
Preferred stock warrants.............. $      --       --  $    2.52      900
Common stock subject to repurchase.... $    0.01      200  $    0.01    2,310
Common stock options and warrants..... $    1.85   17,779  $    2.12   15,912

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. 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    Nine Months Ended
                                                          September 30,         September 30,
                                                      --------------------  --------------------
                                                         2003       2002       2003       2002
                                                      ---------  ---------  ---------  ---------
Net loss as reported................................ $  (2,257) $ (10,228) $ (10,364) $ (25,969)
Add stock-based employee compensation expense
   included in reported net loss, net of tax of $0..       (34)       690        445      1,791
Deduct total stock-based employee compensation
   determined under the fair-value-based method
   for all awards, net of tax of $0.................    (1,093)    (2,190)    (4,502)    (6,902)
                                                      ---------  ---------  ---------  ---------
Pro forma net loss.................................. $  (3,384) $ (11,728) $ (14,421) $ (31,080)
                                                      =========  =========  =========  =========
Basic and diluted net loss per share:
   As reported...................................... $   (0.04) $   (0.19) $   (0.18) $   (0.49)
   Pro forma........................................ $   (0.06) $   (0.22) $   (0.26) $   (0.59)

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    Nine Months Ended
                                                          September 30,         September 30,
                                                      --------------------  --------------------
                                                         2003       2002       2003       2002
                                                      ---------  ---------  ---------  ---------
Expected life (in years)............................       4.0        4.0        4.0        4.0
Risk free interest rate.............................      2.99%      2.93%      2.47%      3.46%
Volatility..........................................       102%       105%       105%       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 nine months ended
September 30, 2003 and 2002 were:

Three Months Ended    Nine Months Ended
                                                          September 30,         September 30,
                                                      --------------------  --------------------
                                                         2003       2002       2003       2002
                                                      ---------  ---------  ---------  ---------
Weighted-average fair values per share for options
   granted under the Company's stock option plans... $    1.99  $    0.40  $    0.80  $    0.68

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 Months Ended    Nine Months Ended
                                                          September 30,         September 30,
                                                      --------------------  --------------------
                                                         2003       2002       2003       2002
                                                      ---------  ---------  ---------  ---------
Expected life (in years)............................       0.5        0.5        0.5        0.5
Risk free interest rate.............................      1.00%      1.19%      1.06%      1.84%
Volatility..........................................       102%       105%       104%       105%
Dividend yield......................................         0%         0%         0%         0%

Weighted-average fair values per share for options granted
under the Company's employee stock purchase plan during the three and nine
months ended September 30, 2003 and 2002 were:

Three Months Ended    Nine Months Ended
                                                          September 30,         September 30,
                                                      --------------------  --------------------
                                                         2003       2002       2003       2002
                                                      ---------  ---------  ---------  ---------
Weighted-average fair values per share for
   options granted under the Company's
   employee stock purchase plan..................... $    0.83  $    0.22  $    0.45  $    0.30

RESTRICTED CASH
In connection with two facility leases, the Company is
required to provide letters of credit as security for the leases. The letters of
credit are available for a period of one year with automatic one year renewals.
The letters of credit are collateralized by a $7.7 million cash deposit which is
recorded as restricted cash on the accompanying condensed consolidated balance
sheet.
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.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period
amounts to be consistent with current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the EITF reached a consensus on Issue
00-21, Revenue Arrangements with Multiple Deliverables, addressing how to
account for arrangements that involve the delivery or performance of multiple
products, services, and/or rights to use assets. Revenue arrangements with
multiple deliverables are divided into separate units of accounting if the
deliverables in the arrangement meet the following criteria: (1) the delivered
item has value to the customer on a stand-alone basis; (2) there is objective
and reliable evidence of the fair value of undelivered items; and (3) delivery
of any undelivered item is probable. Arrangement consideration should be
allocated among the separate units of accounting based on their relative fair
values, with the amount allocated to the delivered item being limited to the
amount that is not contingent on the delivery of additional items or meeting
other specified performance conditions. The final consensus will be applicable
to agreements entered into in fiscal periods beginning after June 15, 2003, with
early adoption permitted. The provisions of this consensus did not have a
significant effect on the Company's financial position or operating results.
In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities, an Interpretation of ARB No
51. This interpretation addresses the consolidation by business enterprises
of variable interest entities as defined in the interpretation. The
interpretation applies immediately to variable interests in variable interest
entities created after January 31, 2003, and to variable interests in variable
interest entities obtained after January 31, 2003. For public enterprises with a
variable interest in a variable interest entity created before February 1, 2003,
the interpretation applies to that enterprise no later than the beginning of the
first interim or annual reporting period ending after December 15, 2003. The
application of this interpretation is not expected to have a material effect on
the Company's financial statements.
In April 2003, the FASB issued SFAS No. 149, Amendments of
Statement 133 on Derivative Instruments and Hedging Activities, which amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133. SFAS No. 149 is generally effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS No. 149 did
not have a material impact on the Company's financial condition or results of
operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity, which establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 requires that an issuer classify a financial instrument
that is within its scope, many of which were previously classified as equity, as
a liability. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise shall be effective at the beginning
of the first interim period beginning after June 15, 2003. The adoption of SFAS
No. 150 did not have a material effect on the Company's financial condition 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 September 30, 2003 and
December 31, 2002, the Company had outstanding invoices of $2,078,000 and
$3,844,000, respectively, related to customers which the Company deemed as
credit risks. Since the revenue related to the collection of these invoices is
recognized on a cash basis, these amounts have not been included in the accounts
receivable or deferred revenue balances. Included in accounts receivable at
September 30, 2003 and December 31, 2002 were $452,000 and $1,443,000,
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. As these shares outstanding were repurchaseable under certain
circumstances, the fair value of these shares subject to repurchase were
remeasured each period until May 2003, when the repurchase rights lapsed.
Therefore, for the three months ended September 30, 2003, no amortization
expense was recorded. An amortization credit of ($269,000) was recorded in sales
and marketing expense for the three months ended September 30, 2002 related to
these shares. Amortization expense (credit) of $416,000 and ($143,000) was
recorded in sales and marketing expense for the nine months ended September 30,
2003 and 2002, respectively, related to these shares.
NOTE 4-STOCK-BASED COMPENSATION
In connection with stock options granted to employees to
purchase common stock, the Company recorded reductions in deferred stock-based
compensation of $116,000 and $60,000 for the three months ended September 30,
2003 and 2002, respectively, and $389,000 and $2.2 million for the nine months
ended September 30, 2003 and 2002, respectively. Such amounts represent
unamortized deferred stock compensation for unvested options that were forfeited
upon termination of employment. 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 (credit) was ($34,000) and $690,000 for the three months
ended September 30, 2003 and 2002, respectively and $445,000 and $1.8 million
for the nine months ended September 30, 2003 and 2002, 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 September 30, 2003
Revenues..................................... $   14,295  $     1,245  $        --  $  15,540
Depreciation................................. $    2,436  $         2  $       263  $   2,701
Amortization of stock based compensation..... $        7  $        --  $       (41) $     (34)
Amortization of intangible assets............ $      367  $        --  $        --  $     367
Segment profit (loss)........................ $    2,711  $       515  $    (5,483) $  (2,257) For the Three Months Ended September 30, 2002
Revenues..................................... $    9,399  $     3,982  $        --  $  13,381
Depreciation................................. $    2,140  $        11  $       553  $   2,704
Amortization of stock based compensation..... $       50  $        --  $       640  $     690
Amortization of intangible assets............ $       56  $        --  $        --  $      56
Segment profit (loss)........................ $     (411) $       274  $   (10,091) $ (10,228) For the Nine Months Ended September 30, 2003
Revenues..................................... $   45,762  $     5,833  $        --  $  51,595
Depreciation................................. $    7,625  $        14  $     1,149  $   8,788
Amortization of stock based compensation..... $       65  $        --  $       380  $     445
Amortization of intangible assets............ $    1,257  $        --  $        --  $   1,257
Segment profit (loss)........................ $    8,107  $     1,378  $   (19,849) $ (10,364) For the Nine Months Ended September 30, 2002
Revenues..................................... $   28,417  $     9,959  $        --  $  38,376
Depreciation................................. $    6,437  $        42  $     1,697  $   8,176
Amortization of stock based compensation..... $      226  $        --  $     1,565  $   1,791
Amortization of intangible assets............ $       56  $        --  $        --  $      56
Segment profit (loss)........................ $    1,111  $      (624) $   (26,456) $ (25,969)

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:

Percent of Total Revenue
                   ---------------------------------------       Percent of Total
                   Three Months Ended  Nine Months Ended       Accounts Receivable
                      Septenber 30,       Septenber 30,    ---------------------------
                   ------------------- ------------------- September 30, September 30,
                     2003      2002      2003      2002        2003          2002
                   --------- --------- --------- --------- ------------- -------------
Customer A........       17%       --        12%       --            --            --
Customer B........       --        11%       --        11%           --            --
Customer C........       --        --        --        --            14%           --
Customer D........       --        --        --        --            13%           --
Customer E........       --        --        --        --            11%           --

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 B had less than 10% of total accounts receivable for the
periods ended September 30, 2003 and 2002. Customers C, D and E had less than
10% of total revenue for the three and nine month periods ended September 30,
2003 and 2002.

NOTE 6-RESTRUCTURING AND IMPAIRMENT ACCRUAL
The following table sets forth the charges taken against
the restructuring and impairment accrual in the nine months ended September 30,
2003 and the remaining restructuring and impairment accrual balance at September
30, 2003 (in thousands):

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 has therefore not recognized any tax provision or benefit
for income taxes for the three and nine months ended September 30, 2003. The
Company recognized a $400,000 tax benefit for the three and nine months ended
September 30, 2002 after determining that a tax provision related to an exposure
item recorded in connection with the Company's acquisition of Data Systems
Connectors, Inc. in 1998 was no longer needed due to the completion of a tax
examination.
NOTE 8-COMMITMENTS AND CONTINGENCIESLitigation/ArbitrationIn 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. 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 is
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 relating to the arbitration, awarding Corio damages of
$1,115,440 plus pre-judgment interest from September 21, 2001 (the interest is
likely to total approximately $210,000). LivePerson, Inc. has filed a motion to
vacate the award in the Superior Court of California, County of San Francisco.
Corio disputed the motion to vacate and is awaiting the judge's ruling on the
motion. Any cash received pursuant to this award will be recorded as revenue
only upon collection.
Service Level AgreementsThe Company's application management services contracts
contain service level agreements that obligate the Company to provide its
applications at certain levels of performance. If the Company fails to meet
these service levels, the Company may be contractually obligated to provide its
customers a partial credit for its services rendered. If the Company were to
continue to fail to meet these service levels, certain of its customers may then
have the right to cancel their contracts with the Company. The Company's
contracts generally limit the scope and circumstances in which the Company would
provide credits to its customers. The Company believes its policies and
practices limit its exposure related to these service level obligations.
Numerous factors can affect the service level provided by the Company. The
Company cannot determine the maximum amount of future credits, if any, related
to such service level obligations.
NOTE 9-SUBSEQUENT EVENTS

In October 2003, the Company acquired substantially all
of the assets and certain liabilities of Nexus Technology, Inc. ("Nexus"). At
closing, the Company paid approximately $10.0 million in consideration,
consisting of $1.9 million in cash and 2,921,390 shares of Corio common stock.
In addition, Nexus will be entitled to receive an earn-out payment of up to $2
million to be paid in Corio common stock based on achievement of financial
goals. The Company is in the process of allocating the purchase price related to
this acquisition. The Company expects the majority of the purchase price to be
allocated to goodwill and other intangible assets.

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 2002 Annual Financial Report to Stockholders.

THIS REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AND THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, INCLUDING, WITHOUT LIMITATION, STATEMENTS
REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES
THAT ARE SIGNIFIED BY THE WORDS "EXPECTS", "ANTICIPATES", "INTENDS", "BELIEVES",
OR SIMILAR LANGUAGE. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT
ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS
AFTER THE DATE HEREOF AND CORIO SHALL HAVE NO DUTY TO UPDATE STATEMENTS MADE
HEREIN. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING BUT NOT
LIMITED TO THOSE SET FORTH UNDER "ADDITIONAL FACTORS THAT MAY AFFECT FUTURE
RESULTS" HEREIN. IN EVALUATING THE COMPANY'S BUSINESS, PROSPECTIVE INVESTORS
SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH BELOW UNDER THE CAPTION
"ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS" IN ADDITION TO THE OTHER
INFORMATION SET FORTH HEREIN AND IN THE COMPANY'S OTHER PUBLIC FILINGS. THE
COMPANY CAUTIONS INVESTORS THAT ITS BUSINESS AND FINANCIAL PERFORMANCE ARE
SUBJECT TO SUBSTANTIAL RISKS AND UNCERTAINTIES.

OVERVIEW

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

CRITICAL ACCOUNTING POLICIES

Management's Discussion and Analysis of Financial
Condition and Results of Operations are based on our condensed consolidated
financial statements. The preparation of our 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, but not limited to, the accounting
for revenue recognition, the 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 customers
- Allowance for doubtful accounts
- Loss contingencies
- Valuation allowance

Cash Basis Customers

We recognize revenue as the services are provided to our
customers provided that collection of the receivable is probable. We regularly
monitor the payment activity and credit worthiness of our customers. If we
determine that collection of revenue from a particular customer or contract is
no longer probable, we revert to recognizing revenue as payment for services is
received and we designate those customers as "cash basis customers". Revenues
recognized from cash basis customers were $5.9 million and $4.3 million for the
three months ended September 30, 2003 and 2002, respectively. Revenues
recognized from cash basis customers were $17.2 million and $13.6 million for
the nine months ended September 30, 2003 and 2002, respectively. At September
30, 2003 and December 31, 2002, we had outstanding invoices of $2.1 million and
$3.8 million, respectively, related to services provided to cash basis
customers. Since revenue related to these invoices is recognized on a cash
basis, these amounts have not been included in our accounts receivable balances.
Our revenue in the future could fluctuate significantly due to the timing and
amount of payments received from cash basis customers as well as the change in
composition of these customers.

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 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 September 30, 2003 and
December 31, 2002, our allowance for doubtful accounts was $361,000 and
$403,000, respectively. The decrease was mainly due to a corresponding decrease
in accounts receivable.

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 or an asset
has been impaired and the amount of loss can be reasonably estimated.

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

In addition, since we perform some of our professional
services on a fixed fee basis, if we incur more costs than estimated, our
profitability will suffer. Our process for tracking our progress to completion
on such arrangements is through individual detailed project plans and the
regular review of labor hours incurred compared to estimated hours to complete
the project. We believe this process results in a reasonable estimate of our
progress to completion. When estimates of costs to complete the project indicate
that a loss will be incurred, these losses are estimated and recognized
immediately. We regularly evaluate current information available to us to
determine whether such recorded losses should be adjusted. In the third quarter
of 2003, we determined that our professional services provision for contract
losses that we had recorded during fiscal years 2001 and 2002 was no longer
appropriate due to our decreased number of fixed fee contracts. We reduced our
provision for contract losses by $668,000 which resulted in a corresponding
reduction to professional services expenses for the three and nine month periods
ended September 30, 2003.

Valuation Allowance

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

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    September 30, 2003
                                              September 30, 2003     September 30, 2002           versus
                                              -------------------    -------------------    September 30, 2002
                                                        Percentage             Percentage   -------------------
                                                        of Total               of Total      Dollar   Percentage
                                               Amount   Revenues      Amount   Revenues      Change    Change
                                              --------- ---------    --------- ---------    --------- ---------
REVENUES:                                                                                                      
    Application management services......... $  14,295        92 %  $   9,399        70 %  $   4,896        52 %
    Professional services and other.........     1,245         8 %      3,982        30 %     (2,737)      (69)%
                                              --------- ---------    --------- ---------    ---------
    Total revenues..........................    15,540       100       13,381       100        2,159        16 %
                                                                                                               
COSTS AND EXPENSES:                                                                                            
    Application management services ........    11,210        72 %      9,704        73 %      1,506        16 %
    Professional services and other ........       730         5 %      3,708        28 %     (2,978)      (80)%
    Research and development ...............     1,123         7 %      1,316        10 %       (193)      (15)%
    Sales and marketing ....................     2,125        14 %      2,085        16 %         40         2 %
    General and administrative .............     2,339        15 %      2,693        20 %       (354)      (13)%
    Restructuring charges...................        --         0 %      4,036        30 %     (4,036)     (100)%
    Amortization of stock based compensation       (34)        0 %        690         5 %       (724)     (105)%
    Amortization of intangible assets.......       367         2 %         56         0 %        311       555 %
                                              --------- ---------    --------- ---------    ---------
    Total operating expenses................    17,860       115 %     24,288       182 %     (6,428)      (26)%
                                              --------- ---------    --------- ---------    ---------          %
Loss from operations........................    (2,320)      (15)%    (10,907)      (82)%      8,587       (79)%
Interest and other income...................       136         0 %        482         4 %       (346)      (72)%
Interest and other expense..................       (73)        0 %       (203)       (2)%        130       (64)%
Tax benefit.................................        --         0 %        400         3 %       (400)     (100)%
                                              --------- ---------    --------- ---------    ---------
Net loss.................................... $  (2,257)      (15)%  $ (10,228)      (77)%  $   7,971       (78)%
                                              ========= =========    ========= =========    =========


                                                                                             Nine Months Ended
                                               Nine Months Ended      Nine Months Ended     September 30, 2003
                                              September 30, 2003     September 30, 2002           versus
                                              -------------------    -------------------    September 30, 2002
                                                        Percentage             Percentage   -------------------
                                                        of Total               of Total      Dollar   Percentage
                                               Amount   Revenues      Amount   Revenues      Change    Change
                                              --------- ---------    --------- ---------    --------- ---------
REVENUES:                                                                                                      
    Application management services......... $  45,762        89 %  $  28,417        74 %  $  17,345        61 %
    Professional services and other.........     5,833        11 %      9,959        26 %     (4,126)      (41)%
                                              --------- ---------    --------- ---------    ---------
    Total revenues..........................    51,595       100       38,376       100       13,219        34 %
                                                                                                               
COSTS AND EXPENSES:                                                                                            
    Application management services ........    36,333        70 %     27,024        70 %      9,309        34 %
    Professional services and other ........     4,455         9 %     10,583        28 %     (6,128)      (58)%
    Research and development ...............     3,819         7 %      5,092        13 %     (1,273)      (25)%
    Sales and marketing ....................     6,632        13 %      8,324        22 %     (1,692)      (20)%
    General and administrative .............     6,917        13 %      8,682        23 %     (1,765)      (20)%
    Restructuring charges...................     2,334         5 %      4,036        11 %     (1,702)      (42)%
    Amortization of stock based compensation       445         1 %      1,791         5 %     (1,346)      (75)%
    Amortization of intangible assets.......     1,257         2 %         56         0 %      1,201     2,145 %
                                              --------- ---------    --------- ---------    ---------
    Total operating expenses................    62,192       120 %     65,588       172 %     (3,396)       (5)%
                                              --------- ---------    --------- ---------    ---------
Loss from operations........................   (10,597)      (20)%    (27,212)      (72)%     16,615       (61)%
Interest and other income...................       518         1 %      1,596         4 %     (1,078)      (68)%
Interest and other expense..................      (285)       (1)%       (753)       (2)%        468       (62)%
Tax benefit.................................        --         0 %        400         1 %       (400)     (100)%
                                              --------- ---------    --------- ---------    ---------
Net loss.................................... $ (10,364)      (20)%  $ (25,969)      (69)%  $  15,605       (60)%
                                              ========= =========    ========= =========    =========`

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 and 2002

OVERVIEW

Our net loss for the three months ended September 30,
2003 and 2002 was $2.3 million and $10.2 million, respectively. Our net loss for
the nine months ended September 30, 2003 and 2002 was $10.4 million and $26.0
million, respectively. Our net loss for the three and nine months ended
September 30, 2003 was favorably impacted by a $413,000 reduction in various
application management expenses associated with reimbursements received related
to the final settlement of contingencies associated with our purchase of Qwest
Cyber.Solutions ("QCS") and a $668,000 reduction in professional services
expenses related to the reduction of our provision for contract losses.

REVENUES

Total revenue was $15.5 million and $13.4 million for the
three months ended September 30, 2003 and 2002, respectively. Total revenue was
$51.6 million and $38.4 million for the nine months ended September 30, 2003 and
2002, respectively. For the twelve month period ended September 30, 2003,
Expanets, Inc, ("Expanets") accounted for 11% of total revenues. Expanets
recently announced that it has entered into an agreement to sell substantially
all of its assets. Although we have a long term contract with Expanets, there
are no assurances at this time that the acquirer will continue to purchase our
services following the completion of the acquisition.

In the ordinary course of business, we recorded revenue of
$16,000 and $32,000 for the three and nine months ended September 30, 2003,
respectively, arising from transactions with one company with which we have
directors in common. At September 30, 2003, we had no accounts receivable
arising from such transactions. We recorded no revenue for the three months
ended September 30, 2002, and $2.1 million for the nine months ended September
30, 2002 arising from transactions with four companies with which we had
directors in common. At September 30, 2002, we had no accounts receivable
arising from such transactions.

APPLICATION MANAGEMENT SERVICES REVENUES. Revenues
from our application management services were $14.3 million for the three months
ended September 30, 2003, including $1.5 million in non-recurring revenues from
customer contract terminations. Included in the three months ended September 30,
2003 revenues of $14.3 million is $5.9 million recognized as a result of
payments from cash basis customers. For the three months ended September 30,
2002, our revenues of $9.4 million included approximately $2.0 million in non-
recurring revenues from customer contract terminations. Included in the three
months ended September 30, 2002 revenues of $9.4 million was $4.2 million
recognized as a result of payments from cash basis customers. For the nine
months ended September 30, 2003, revenues from our application management
services were $45.8 million, including approximately $2.5 million in non-
recurring revenues from customer contract terminations. Included in the nine
months ended September 30, 2003 revenues of $45.8 million was $16.8 million
recognized as a result of payments from cash basis customers. For the nine
months ended September 30, 2002, revenues from our application management
services were $28.4 million, including $4.5 million in non-recurring revenues
from customer contract terminations. Included in the nine months ended September
30, 2002 revenues of $28.4 million was $13.1 million recognized as a result of
payments from cash basis customers. The increase in application management
services revenues for the three and nine months ended September 30, 2003 was
primarily due to the additional customer revenue acquired as a result of our
September 2002 acquisition of QCS. At both September 30, 2003 and December 31,
2002, we had a balance of $1.9 million for deferred application management
services revenues primarily from several customers who prepaid a portion of
their contract. These deferred revenues are recognized in our statement of
operations as the related services are provided over the life of the
contract.

PROFESSIONAL SERVICES AND OTHER REVENUES. Our
professional services and other revenues were $1.2 million for the three months
ended September 30, 2003, including $51,000 recognized as a result of payments
from cash basis customers, and $4.0 million for the three months ended September
30, 2002, including $144,000 recognized as a result of payments from cash basis
customers. Our professional services and other revenues were $5.8 million for
the nine months ended September 30, 2003, including $486,000 recognized as a
result of payments from cash basis customers and $10.0 million for the nine
months ended September 30, 2002, including $564,000 recognized as a result of
payments from cash basis customers. The decrease in professional services
revenues for the three and nine months ended September 30, 2003 was primarily
due to the decreased number of new customer implementations. At September 30,
2003 and December 31, 2002, we had balances of $186,000 and $647,000,
respectively, for deferred professional services revenues resulting from
customer payments that we required in advance of providing our professional
services work. We anticipate that professional services revenue and the
associated margins will fluctuate significantly from period to period depending
on the timing and size of projects, the amount of such work completed by
independent third party integrators and other factors.

COSTS AND EXPENSES

Total expenses were $17.9 million and $24.3 million for
the three months ended September 30, 2003 and 2002, respectively. Total expenses
were $62.2 million and $65.6 million for the nine months ended September 30,
2003 and 2002, respectively. We anticipate total expenses to increase in the
fourth quarter compared to the third quarter of 2003 due to the additional costs
associated with integrating, administering and supporting the customers acquired
from Nexus Technology, Inc. in October 2003.

APPLICATION MANAGEMENT SERVICES EXPENSES. Application
management services expenses, excluding non-cash stock based compensation of
$7,000 and $50,000 for the three months ended September 30, 2003 and 2002,
respectively, were $11.2 million for the three months ended September 30, 2003
and $9.7 million for the three months ended September 30, 2002. Application
management services expenses, excluding non-cash stock based compensation of
$65,000 and $226,000 for the nine months ended September 30, 2003 and 2002,
respectively, were $36.3 million for the nine months ended September 30, 2003
and $27.0 million for the nine months ended September 30, 2002. The increase in
application management services expenses for the three and nine months ended
September 30, 2003 and 2002 was mainly attributable to the additional costs
associated with integrating, administering, and supporting the customers
acquired from QCS in September 2002. The $1.5 million increase in expenses for
the three months ended September 30, 2003 compared to the three months ended
September 30, 2002 was mainly attributable to a $1.5 million increase in data
center fees, a $179,000 increase in payroll expenses and a $296,000 increase in
depreciation expense offset by a $413,000 decrease in various application
management expenses associated with reimbursements received related to the final
settlement of contingencies associated with our QCS acquisition. The $9.3
million increase for the nine months ended September 30, 2003 compared to the
nine months ended September 30, 2002 was attributable to a $5.2 million increase
in data center fees, a $1.8 million increase in payroll expenses, a $1.2 million
increase in depreciation expense, a $623,000 increase in outside contractor
expenses, a $625,000 increase in equipment maintenance and a $220,000 increase
in facility costs, and partially offset by a $413,000 decrease in various
application management expenses associated with reimbursements received related
to the final settlement of contingencies associated with our QCS
acquisition.

PROFESSIONAL SERVICES AND OTHER EXPENSES. Professional
services and other expenses were $730,000 for the three months ended September
30, 2003 and $3.7 million for the three months ended September 30, 2002. The
$3.0 million decrease was due primarily to a reduction in the number of active
contracts, which resulted in a reduction of $896,000 in personnel costs, a $1.0
million decrease in outside contractor expenses, a $272,000 decrease in travel
related expenses and a $118,000 decrease in allocated facilities expenses. In
addition, during the third quarter of 2003, as a result of the conclusion of the
majority of our significant fixed fee professional services contracts, we
adjusted our provision for contract losses and decreased the balance by $668,000
which resulted in a corresponding reduction to professional services expenses
for the three and nine months ended September 30, 2003. Our professional
services and other expenses were $4.5 million for the nine months ended
September 30, 2003 and $10.6 million for the nine months ended September 30,
2002. The $6.1 million decrease in expenses was primarily attributable to the
reduction in the number of contracts in process which resulted in a reduction of
$2.7 million in personnel costs, a $1.4 million decrease in outside contractor
expenses, a $574,000 decrease in travel related expenses and a $376,000
reduction in facilities expenses. The remaining difference was primarily
attributable to adjustments to decrease our provision for contract losses
related to our fixed fee professional services implementations. There were no
professional services stock based compensation charges for the three and nine
months ended September 30, 2003 or 2002.

RESEARCH AND DEVELOPMENT. Research and development
expenses, excluding non-cash stock based compensation of $11,000 and $51,000 for
the three months ended September 30, 2003 and 2002, respectively, were $1.1
million for the three months ended September 30, 2003 and $1.3 million for the
three months ended September 30, 2002. Research and development expenses as a
percentage of total revenues were 7% for the three months ended September 30,
2003 and 10% for the three months ended September 30, 2002. The $200,000 expense
decrease was mainly due to a $53,000 reduction in personnel costs and a $107,000
reduction in depreciation expense.

Research and development expenses, excluding non-cash stock
based compensation of $2,000 and $116,000 for the nine months ended September
30, 2003 and 2002, respectively, were $3.8 million for the nine months ended
September 30, 2003 and $5.1 million for the nine months ended September 30,
2002. Research and development expenses as a percentage of total revenues were
7% for the nine months ended September 30, 2003 and 13% for the nine months
ended September 30, 2002. The $1.3 million decrease in expense was mainly
attributable to a $1.0 million reduction in personnel costs and a $207,000
reduction in depreciation expense mainly due to certain assets being fully
depreciated in 2003.

SALES AND MARKETING EXPENSES. Sales and marketing
expenses, excluding non-cash stock based compensation of $27,000 and $160,000
for the three months ended September 30, 2003 and 2002, respectively, were $2.1
million for both the three months ended September 30, 2003 and 2002. Sales and
marketing expenses as a percentage of total revenues were 14% for the three
months ended September 30, 2003 and 16% for the three months ended September 30,
2002. Personnel expenses decreased $179,000, marketing program expenses
decreased $51,000 and outside contractor expenses decreased $24,000. These
decreases in expenses were offset by a $269,000 increase in amortization
expenses for non-cash costs associated with repurchasable shares issued to Cap
Gemini Ernest & Young. No amortization expense was recognized for the three
months ended September 30, 2003 as the repurchase rights related to these shares
lapsed in May 2003.

Sales and marketing expenses, excluding non-cash stock based
compensation of $187,000 and $718,000 for the nine months ended September 30,
2003 and 2002, respectively, were $6.6 million for the nine months ended
September 30, 2003 and $8.3 million for the nine months ended September 30,
2002. Sales and marketing expenses as a percentage of total revenues were 13%
for the nine months ended September 30, 2003 and 22% for the nine months ended
September 30, 2002. The $1.7 million expense decrease was attributable to a $1.1
million decline in payroll expenses, a $302,000 decrease in advertising and
marketing programs, a $119,000 reduction in travel related expenses, a $70,000
decrease in facility costs and a $558,000 reduction in amortization expense
associated with a marketing alliance that was fully amortized in April 2002.
These expense decreases were offset by a $559,000 increase in amortization
expenses for non-cash costs associated with repurchasable shares issued to Cap
Gemini Ernest & Young.

GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses, excluding non-cash stock based compensation of
($79,000) and $429,000 for the three months ended September 30, 2003 and 2002,
respectively, were $2.3 million for the three months ended September 30, 2003
and $2.7 million for the three months ended September 30, 2002, respectively.
General and administrative expenses as a percentage of total revenues were 15%
for the three months ended September 30, 2003 and 20% for the three months ended
September 30, 2002. The $400,000 decrease in general and administrative expenses
was mainly due to a $164,000 reduction in telecommunication expenses and a
$175,000 decrease in depreciation expense.

General and administrative expenses, excluding non-cash stock
based compensation of $191,000 and $731,000 for the nine months ended September
30, 2003 and 2002, respectively, were $6.9 million for the nine months ended
September 30, 2003, and were $8.7 million for the nine months ended September
30, 2002. General and administrative expenses as a percentage of total revenues
were 13% for the nine months ended September 30, 2003 and 23% for the nine
months ended September 30, 2002. The $1.8 million decrease in general and
administrative expenses is mainly attributable to a $437,000 decline in payroll
expenses, a $417,000 decrease in telecommunications costs, a $363,000 decrease
in office expenses, a $223,000 decrease in depreciation expense and a $465,000
decrease in rent expense due to the rent related to the vacated portion of our
headquarters facility being already charged to restructuring expense in the
third quarter of 2002.

RESTRUCTURING CHARGES. During the third quarter of 2002, we reviewed
our facilities requirements and vacated a portion of our headquarters in San
Carlos, California. Related to this action, we took a third quarter impairment
charge of $3.8 million to record the estimated loss associated with a portion of
the remaining lease stream of the unoccupied space. During the third quarter of
2002, we also incurred $272,000 for severance benefits.

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 March 31, 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 months ended
September 30, 2003.

AMORTIZATION OF STOCK-BASED COMPENSATION. Amortization
of deferred stock-based compensation was ($34,000) and $690,000 for the three
months ended September 30, 2003 and 2002, respectively. The credit was due
primarily to significant forfeitures during the three months ended September 30,
2003. The amortization of deferred stock-based compensation was $445,000 and
$1.8 million for the nine months ended September 30, 2003 and 2002,
respectively. The deferred charges for employee options are being amortized to
expense using the graded vesting approach prescribed by FASB Interpretation No.
28. Our remaining deferred compensation balance at September 30, 2003 is
$25,000.

AMORTIZATION OF OTHER INTANGIBLES. Related to our
Qwest Cyber.Solutions' (QCS) acquisition, we recorded an intangible asset for
our acquired customer contracts of $2.7 million, which is included in other
assets in the accompanying condensed consolidated balance sheet. This intangible
asset is being amortized over an estimated life of 18 months. Amortization of
the intangible asset was $367,000 for the three months ended September 30, 2003
and $1,257,000 for the nine months ended September 30, 2003. Amortization of the
intangible asset was $56,000 for the three and nine months ended September 30,
2002 as the acquisition occurred in September 2002.

INTEREST AND OTHER INCOME AND EXPENSE. Net interest
and other income and expense were $63,000 for the three months ended September
30, 2003 and $279,000 for the three months ended September 30, 2002. Net
interest and other income and expense were $233,000 for the nine months ended
September 30, 2003 and $843,000 for the nine months ended September 30, 2002.
The three and nine month decreases in net interest income were due primarily to
lower average cash and investment balances at September 30, 2003 and were
offset, in part, by a decrease in interest expense due to lower average debt
balances.

INCOME TAXES. Since inception, we have incurred net
losses for federal and state tax purposes, and anticipate losses for the
foreseeable future. We have therefore not recognized any material tax provision
or benefit for income taxes for the three and nine months ended September 30,
2003. We recognized a $400,000 tax benefit for the three and nine months ended
September 30, 2002 after determining that a tax provision related to an exposure
item recorded in connection with our acquisition of Data Systems Connectors,
Inc. in 1998 was no longer needed due to the completion of a tax
examination.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2003, we had cash and cash
equivalents, short-term investments, and restricted cash of $43.4 million, a
decrease of $8.2 million from December 31, 2002. At September 30, 2003, we had
cash and cash equivalents of $11.6 million compared to $26.9 million at December
31, 2002. The $15.3 million decrease was primarily the result of $10.5 million
used in investing activities, $3.5 million to repay debt and $1.4 million used
in operating activities.

Net cash used in operating activities was $870,000 for the
nine months ended September 30, 2003 compared to $14.2 million used in operating
activities for the nine months ended September 30, 2002. The $13.4 million net
change was primarily due to the reduction of our net loss.

Net cash used in investing activities was $11.0 million for
the nine months ended September 30, 2003 compared to $9.1 million provided by
investing activities in the nine months ended September 30, 2002. For the nine
months ended September 30, 2003, investing activities consisted primarily of
$3.2 million in equipment purchases and $7.7 million of net purchases of short-
term investments. For the nine months ended September 30, 2002, investing
activities consisted primarily of $23.3 million of net sales of short-term
investments offset by $14.0 million used for our QCS acquisition.

Net cash used by financing activities was $3.5 million and
$5.1 million for the nine months ended September 30, 2003 and 2002,
respectively. Financing activities consisted primarily of the proceeds from the
issuance of common stock and exercise of stock options, offset by repayments of
notes and capital leases. The decrease in our cash used by financing activities
is mainly due to our decreases in debt repayments due to our lower debt balances
at September 30, 2003.

Except for equipment operating leases, we have no off balance
sheet financing arrangements (see Note 7 in the Company's Annual Report on Form
10-K for the year ended December 31, 2002).



In October 2003, we acquired substantially of the assets
and certain liabilities of Nexus Technology, Inc. ("Nexus"). At closing, we paid
approximately $10.0 million in consideration, consisting of $1.9 million in cash
and 2,921,390 shares of Corio common stock. In addition, Nexus will be entitled
to receive an earn-out payment of up to $2 million to be paid in Corio common
stock based on achievement of financial goals.

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 a
significant reduction in demand for our services, the acquisition of products,
the need for significant new capital expenditures of an existing business, 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 Corio, or at all.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

Risks Related to Our Business

We have a history of losses and expect that we will continue
to incur losses and negative cash flow and may never be profitable.

We have spent significant funds to date to develop and
refine our current services, to create and run our operations organization, to
build and run a professional services organization and to develop and run our
sales and marketing resources. We have incurred significant operating and net
losses and negative cash flow and have not achieved profitability. As of
September 30, 2003, we had an accumulated deficit of $257 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, 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, because we may continue to invest
in our business faster than we anticipate growth in our revenues, we may
continue to incur significant losses and negative cash flow for the foreseeable
future and we may never be profitable.

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

A significant portion of our current revenue consists of
revenue from technology and middle-market companies. These companies are more
likely to be acquired, experience financial difficulties or cease operations
than other companies that are larger and better established or are in more
stable industries. In particular, these companies may experience difficulties in
raising capital needed to fund their operations. In the past we have terminated
our agreements with a substantial number of customers who were unable or
unwilling to continue to meet their financial obligations to us and we expect to
terminate additional customers in the future. As a result, our client base will
likely be more volatile than those companies whose customers consist of more
mature and established entities. If we continue to experience greater than
expected customer loss or an inability to collect fees from our customers in a
timely manner because of this volatility, our operating results could be
seriously harmed. In addition, uncertainty regarding the stability of the
economy in general could continue to diminish and delay demand for our services.
Also, as we move up market and away from high-growth and middle market
companies, revenue from termination fees resulting from high-growth and middle
market companies may diminish. Moreover, one of our customers represented 11% of
total revenues in fiscal 2002 and its contract expired in May 2003. Although
this customer renewed for a short term contract, the new contract is for
significantly less recurring revenue and the loss of revenue from this customer
and of any other significant customers will adversely affect our business.

Any failure to replace revenue from lost customers may result in Corio
failing to achieve profitability and positive cash flow.

We have experienced customer attrition in the past and expect to
experience it in the future. Customers may leave for a number of reasons,
including the acquisition of a customer 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. One of our customers, Expanets, Inc., accounted for 11% of our total
revenues for the twelve month period ended September 30, 2003. Expanets recently
announced that it has signed an agreement to be acquired. The acquisition has
not been consummated. Although we have a long term contract with Expanets, we
are unsure of the acquirer's intentions around whether to retain our services,
and this presents risks regarding how long Expanets will remain a customer, if,
for example, the acquiring entity decides to replace our system with its current
system or another system. If we lose Expanets, or any other significant
customer, and are unable to replace this revenue with revenue from new or
existing clients, this will have an adverse effect on our ability to achieve
profitability and positive cash flow.



Our limited history of offering ASP services to customers
and the fact that we operate in a new industry for application services expose
us to risks that affect our ability to execute our business model.

We have offered our services for a relatively short
period of time, and our industry is relatively new. Prior to September 1998, our
predecessor company, DSCI, carried on a different business. Accordingly, we have
a limited operating history as a provider of ASP services. Because our business
model is relatively new, it continues to evolve. In the future, we may revise
our pricing model for different services, and our model for our customers to
gain access to third-party software applications and other third-party services
has evolved. Changes in our anticipated business and financial model could
materially impact our ability to become profitable in the future. Additionally,
especially as we move up-market to larger, more established customers, the
demand for our services is uncertain and the sales process takes longer than
with smaller potential customers. An investor in our common stock must consider
these facts as well as the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as the market
for Internet-based software application services. Some of the risks and
difficulties relate to our potential inability to:

- acquire and retain customers, particularly larger, more
established companies required to create a stable revenue and customer base;
- acquire new customers at a rate sufficient to create
growth taking into account loss of customers;
- reduce costs associated with the delivery of services to
our customers;
- expand and maintain our pipeline of sales prospects in
order to promote greater predictability in our period-to-period sales
levels;
- acquire or license third-party software applications at
a reasonable cost or at a structure beneficial to us;
- complete successful implementations of our software
applications in a manner that is repeatable and scalable;
- integrate successfully software applications we manage
with each other and with our customers' existing systems;
- continue to offer new services that complement our
existing offerings;
- increase awareness of our brand; and
- maintain our current, and develop new, strategic
relationships.

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

Because we may spend significant sums to run our business
and to try to grow our business, we may be unable to adjust spending to offset
any future revenue shortfall, which could cause our quarterly operating results
to fluctuate and our stock price to fall.

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

Our quarterly operating results may fluctuate due to the
nature of our ASP business, timing of payments received from cash basis
customers and other factors affecting our revenues and costs, which could cause
our stock price to fall.

Our financial results will vary over time as our ASP
business matures. For individual customers, we may recognize professional
services revenues associated with the implementation of our applications during
the early months of our engagement. We then recognize monthly fees from the
customer, consisting primarily of application management services revenues, over
the balance of the contractual relationship. As a result, for some customers we
have a high proportion of up-front professional services revenues associated
with implementation. We expect that our financial results may continue to vary
over time as monthly fees increase as a portion of total revenue. Third parties
also provide professional services for some of our application management
services customers, and whether professional services will be provided by us or
by third parties may be difficult to predict. Changes in our revenue mix from
professional services revenues to application management services revenues could
be difficult to predict and could cause our quarterly results and stock price to
fluctuate.

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

- the timing of obtaining, implementing and establishing
connectivity with individual customers;
- the loss of or change in our relationship with important
customers and our ability or inability to collect termination fees from
terminating customers;
- any 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 could vary over time as our business
model evolves, which could cause our stock price to fall.

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

In this regard, from time to time we negotiate with some of
our major third-party software vendors to modify the pricing and other terms
currently in place with these vendors. We may agree to restructure our current
arrangements with some of our third-party software providers. For example, we
are migrating customers, and currently plan to eventually migrate all customers,
from a model whereby some rent enterprise application licenses from us to a
model whereby they all purchase the licenses directly from independent software
vendors. Such pricing structures or business models may not in fact be more
beneficial to us and may ultimately hinder our ability to become profitable.

We depend on software vendors to supply us with the
software necessary to provide our services, and the loss of access to this
software or any decline or obsolescence in its functionality could cause our
customers' businesses to suffer, which, in turn, could harm our revenues and
increase our costs.

We offer our customers software application services for
applications from third parties such as PeopleSoft, Oracle, SAP and Siebel
Systems. We have agreements in place with certain of our third-party software
vendors, and our agreements with third-party software vendors are non-exclusive,
are for limited terms and typically permit termination in the event of our
breach of the agreements. Additionally, as we move more to "host-only"
relationships, whereby our customers must obtain licenses directly from
independent software vendors such as PeopleSoft, Oracle, SAP and Siebel, 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 that
we host from third-parties, if the cost of licensing the software applications
becomes prohibitive, or if we change the vendors from whom we currently license
software, our customers' businesses could be significantly disrupted, which
could harm our revenues and increase our costs. Our financial results may also
be harmed if the cost structure we negotiate with the third-party software
vendors changes in a manner that is less beneficial to us compared to our
current cost structure with software vendors. We cannot assure you that our
services will continue to support the software of our third-party vendors, or
that we will be able to adapt our own offerings to changes in third-party
software. In addition, if our vendors were to experience financial or other
difficulties, it could adversely affect the availability of their software. It
is also possible that improvements in software by third-parties with whom we
have no relationship could render the software we offer to our customers less
compelling or obsolete.

Our licenses for the third-party software we use to
deliver our services contain limits on our ability to use them that could impair
our growth and operating results.

The licenses we have for the third-party software for
which we provide hosting or application management services typically restrict
our ability to sell our services in specified countries and to customers with
revenue above or below specified revenue levels. For example, one of our
licenses 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, some of these licenses contain limits on
our ability to sell our services to certain types of customers. Our operating
results and ability to grow could be harmed to the extent these licenses
prohibit us from selling our services to customers to which we would otherwise
sell our services, or in countries in which we would otherwise sell our
services.

Poor performance of the software we deliver to our
customers or disruptions in our business-critical services could harm our
reputation, delay market acceptance of our services and subject us to
liabilities.

Our customers depend on our hosted software applications
for their critical systems and business functions, including enterprise resource
planning, customer relationship management and e-commerce. Our customers'
businesses could be seriously harmed if the applications we provide to them work
improperly or fail, even if only temporarily. Accordingly, if the software that
we license from our vendors or our implementation or ongoing management of such
software performs poorly, experiences errors or defects or is otherwise
unreliable, our customers would likely be extremely dissatisfied, which could
cause our reputation to 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 can be very complex. We cannot assure you that we can convince
customers that we have the requisite expertise required to implement, host or
manage these applications. Our reputation will be harmed and sales of our
services would decline significantly if we are not able to complete successfully
repeated implementations of our enterprise software applications or if we are
not able to successfully manage enterprise applications, including those
applications with which we have limited or no implementation, hosting or
management experience to date.

Any inability to expand sufficiently our enterprise
software implementation and systems consulting capabilities could harm our
ability to service our customers effectively and could hinder our growth.

A failure to maintain and expand relationships with
third-party systems integrators that we use to implement our services could harm
our ability to service our customers effectively. As we seek to provide
applications management services for larger, more established customers, they
may frequently utilize the systems integration and consulting services of
independent, third-party systems integrators rather than Corio. In such cases,
we may receive only modest revenue for implementation and integration services
if any. In addition, we frequently contract with our customers for
implementation on a fixed price basis. As a result, unexpected complexities in
implementing software applications for our customers could result in unexpected
losses for us or increases in losses. Our business and reputation could also be
seriously harmed if third party systems integrators were unable to perform their
services for our customers in a manner that meets customer expectations.

Increased demand for customization of our services beyond
what we currently provide or anticipate could reduce the scalability and
profitability of our business.

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

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

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

- expand our management team, financial and information
systems and controls and operations team;
- maintain a high level of customer service and
support;
- expand our implementation and consulting resources
internally and with third-parties; and
- expand, train, manage and retain our employee base
effectively.

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

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

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

Security risks and concerns may decrease the demand for
our services, and security breaches with respect to our systems may disrupt our
services or make them inaccessible to our customers.

Our services involve the storage and transmission of
business-critical, proprietary information, and security breaches could expose
us to a risk of loss of this information, litigation and possible liability.
Anyone who circumvents our security measures could misappropriate business-
critical proprietary information or cause interruptions in our services or
operations. In addition, computer "hackers" could introduce computer viruses
into our systems or those of our customers, which could disrupt our services or
make them inaccessible to customers. We may be required to expend significant
capital and other resources to protect against the threat of security breaches
or to alleviate problems caused by breaches. Our security measures may be
inadequate to prevent security breaches, and our business and reputation would
be harmed if we do not prevent them.

If we are unable to adapt our services to rapidly changing
technology, our reputation and our ability to grow our revenues could be
harmed.

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

Our application management agreements are typically long-
term, fixed-price contracts, which may hinder our ability to become
profitable.

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

Our long-term, fixed-price application management
contracts may hinder our ability to evolve our business and to ultimately become
profitable.

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

If we do not meet the service levels provided for in our
contracts with customers, we may be required to give our customers credit for
free service, and our customers may be entitled to cancel their service
contracts, which could adversely affect our reputation and hinder our ability to
grow our revenues.

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

If we cannot obtain additional software applications that
meet the evolving business needs of our customers, the market for our services
may not grow and may decline, and sales of our services may suffer.

Part of our strategy may be to expand our services by
offering our customers services related to additional software applications that
address their evolving business needs. We cannot be sure, however, that we will
be able to license these applications at a commercially viable cost or at all or
that we will be able to cost-effectively develop the applications in-house. If
we cannot obtain these applications on a cost-effective basis 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.

We have many competitors and expect new competitors to
enter our market, which could adversely affect our ability to increase revenues,
maintain our margins or grow our market share.

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

Our current and potential competitors primarily
include:

- application service providers and business process
outsourcers, such as Bluestar Solutions, CSC, Electronic Data Systems,
 Hewlett-Packard, IBM Global Services, Surebridge and USinternetworking;
- systems integrators, such as Accenture and, Bearing
Point;
- offshore providers such as Wipro, Tata and Infosys;
- software vendors, such as Oracle, PeopleSoft, SAP and
Siebel Systems; and
- major technology providers, such as Microsoft.

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

- develop and expand their network infrastructures and
service offerings more quickly;
- adapt to new or emerging technologies and changing
customer needs faster;
- take advantage of acquisitions and other opportunities
more readily;
- negotiate more favorable agreements with software
application vendors;
- devote greater resources to the marketing and sale of
their products; and
- address customers' service-related issues more
effectively.

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

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

We may be unable to deliver effectively our services if
our data center management services providers, computer hardware suppliers or
software providers do not provide us with key components of our technology
infrastructure in a timely, consistent and cost-effective manner.

We depend on third-parties, such as XO Communications,
Qwest and (i) Structure, for our data center management services and for key
components of our network infrastructure. Our contracts with these data center
and network infrastructure providers are for a fixed term and for a specified
amount of services, which may be insufficient to meet our needs. The services we
provide could be materially disrupted by any disruption in the services provided
by our data center management service providers to us. 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
effectively our services to customers. Some of the key components of our
infrastructure are available only from sole or limited sources in the quantity
and quality we demand. We do not carry significant inventories of those
components that we obtain from third-parties and have no guaranteed supply
arrangements for some of these components. Additionally, some of our service and
product providers have recently experienced financial difficulty, and financial
problems they experience may cause disruptions in our service, loss of customers
and expose us to additional costs.

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

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

If we are unable to retain our executive officers and key
personnel, or to integrate new members of our senior management that are
critical to our business, we may not be able to successfully manage our business
or achieve our objectives.

Our future success depends upon the continued service of
our executive officers and other key personnel. None of our executive officers
or key employees is bound by an employment agreement for any specific term. Key
personnel may voluntarily terminate due to various reasons such as the 10%
salary decrease which we implemented in January 2003. If we lose the services of
one or more of our executive officers or key employees, or if one or more of
them decides to join a competitor or otherwise compete directly or indirectly
with us, we may not be able to successfully manage our business or achieve our
business objectives.

If we are unable to hire and retain sufficient sales,
marketing, technical and operations personnel, we may be unable to grow our
business or to service our customers effectively.

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

We may never achieve the anticipated benefits from our acquisition of
Nexus Technology, Inc.

In October 2003, we acquired substantially all of the assets of Nexus
Technology, Inc. as part of our efforts to expand our applications management
business and product offerings. We may experience difficulties in achieving and
may never fully realize the anticipated benefits of our acquisition of Nexus
Technology. Potentials risks with this acquisition include, among others:

- Possible impairment of relationships with employees and customers as a
result of the acquisition of Nexus Technology;
- Inability to retain key employees of Nexus Technology.
- Inability to retain customers of Nexus Technology;
- Diversion of management's attention from other business concerns;
- Difficulties in assimilation of acquired personnel, operations, technologies
or products.

In addition, Corio has an obligation to issue additional shares of its common
stock to Nexus Technology upon Corio's attainment of specific revenue milestones
for the 3-month period ending December 31, 2004. Any such issuance would dilute
our existing stockholders.

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 Technology, Inc.,
respectively. The integration of the ASP assets of Qwest Cyber Solutions and
Nexus Technology into our business is ongoing, and we may experience disruption
and distraction related thereto and unexpected costs associated therewith. We
have lost, and may continue to lose, customers acquired from Qwest Cyber
Solutions, and we may experience similar losses of customers acquired from Nexus
Technology.

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.



Any inability to protect our intellectual property rights
could reduce our competitive advantage, divert management attention, require
additional intellectual property to be developed or cause us to incur expenses
to enforce our rights.

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

Any infringement claims involving our technology or the
applications we offer or other lawsuits could cost a significant amount of money
and could divert management's attention away from our business.

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

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." 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. 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 is 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 current uncertain macroeconomic environment. Companies in the ASP
industry, such as Pandesic and Red Gorilla and others, have ceased operations.
Other companies in the ASP industry, such as USinternetworking, have filed for
bankruptcy. We cannot assure you that this market will become viable or, if it
becomes viable, that it will grow at a rate that will allow us to achieve
profitability. The market for Internet services, private network management
solutions and widely distributed Internet-enabled application software has only
recently begun to develop and is now evolving rapidly. We believe that many of
our potential customers are not fully aware of the benefits of hosted and
managed solutions. It is possible that these solutions will never achieve market
acceptance. It is also possible that potential customers will decide that the
risks associated with hiring ASPs in general (or smaller 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.

As 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 further 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 business.

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

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

Market prices of Internet and technology companies have
been highly volatile, and the market for our stock may be volatile as well.

The stock market has experienced significant price and
trading volume fluctuations, and the market prices of technology companies
generally, and Internet-related software companies particularly, have been
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 at September 30, 2003. If they were to act together, these stockholders
would be able to exercise control over most matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of our company, which could cause
our stock price to drop. These actions may be taken even if they are opposed by
the other investors, including those who purchased shares in the initial public
offering.

Delaware law and our charter, bylaws and contracts provide
anti-takeover defenses that could delay or prevent an acquisition of us, even if
an acquisition would be beneficial to our stockholders.

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

- Our bylaws limit the ability of our stockholders to call
a special meeting and do not permit stockholders to act by written consent.
- We are subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which prohibits us from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner.
- Several members of our senior management have contracts
with us that provide for the acceleration of the vesting of their stock options
upon termination following a change of control, and several 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 FINANCIAL MARKET RISK

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

Interest Rate Risk

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

ITEM 4.	CONTROLS AND
PROCEDURES

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 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.

Changes in internal control over financial reporting.
There was no change in our internal control over financial reporting that
occurred 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

Litigation/Arbitration

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. 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 is
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 relating to the arbitration, awarding Corio damages of
$1,115,440 plus pre-judgment interest from September 21, 2001 (the interest is
likely to total approximately $210,000). LivePerson, Inc. has filed a motion to
vacate the award in the Superior Court of California, County of San Francisco.
Corio disputed the motion to vacate and is awaiting the judge's ruling on the
motion.

ITEM 2.	CHANGE IN SECURITIES
AND USE OF PROCEEDS

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

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

After deducting expenses of the IPO, the net offering
proceeds to the Company were approximately $128,200,000. From July 20, 2000, the
effective date of the Registration Statement, to September 30, 2003, the ending
date of the reporting period, the approximate amount of net offering proceeds
used were $23.3 million to repay outstanding debt and approximately $70.9
million to fund operations. The remaining net proceeds are invested in short-
term financial instruments.



ITEM 3.	DEFAULTS UPON SENIOR
SECURITIES

None

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



None

ITEM 5.	OTHER
INFORMATION

None

ITEM 6.	EXHIBITS AND REPORTS
ON FORM 8-K

(a)	Exhibits



|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) On July 22, 2003, the Company furnished a
Current Report on Form 8-K in connection with the press release of the Company's
financial results for the quarter ended June 30, 2003

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SIGNATURES

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

Dated: November 14, 2003



|CORIO, INC.
|-----------
|           
|By:        
|           
|           
|By:        
|           

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EXHIBIT INDEX



|ExhibitNumber | Description                                         
|------------- | ----------------------------------------------------
|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

---