<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    Form 10-Q

[Mark One]

    [X]        Quarterly report under Section 13 or 15(d) of the Securities
               Exchange Act of 1934 for the quarterly period ended September 30,
               2001.

                                       OR

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

                          Commission File No. 333-35402

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

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

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

                                  650-232-3000
            (The Registrant's telephone number, including area code)

                                 ---------------

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

As of October 31, 2001, there were 54,684,544 shares of the Registrant's common
stock outstanding.

<PAGE>

                                   CORIO, INC.

     QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2001

                                      Index

<TABLE>
<CAPTION>
                                                                                                       Page No.
                                                                                                       --------
<S>                                                                                                    <C>
                                      PART I. FINANCIAL INFORMATION

Item 1.     Condensed Financial Statements (Unaudited):

            Condensed Balance Sheets
              September 30, 2001 and December 31, 2000 .............................................       3

            Condensed Statements of Operations
              Three Months Ended September 30, 2001 and 2000 and the Nine
              Months Ended September 30, 2001 and 2000 .............................................       4

            Condensed Statements of Cash Flows
              Nine Months Ended September 30, 2001 and 2000 ........................................       5

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

Item 2.     Management's Discussion and Analysis of Financial Condition and Results
            of Operations ..........................................................................      10

Item 3.     Quantitative and Qualitative Disclosures about Market Risk .............................      23

                                         PART II OTHER INFORMATION

Item 1.     Legal Proceedings ......................................................................      24

Item 2.     Change in Securities and Use of Proceeds ...............................................      24

Item 3.     Defaults upon Senior Securities ........................................................      24

Item 4.     Submission of Matters to a Vote of Security Holders ....................................      24

Item 5.     Other Information ......................................................................      24

Item 6.     Exhibits ...............................................................................      24

            Signatures .............................................................................      25
</TABLE>

                                       2

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

                                   CORIO, INC.

                            CONDENSED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                SEPTEMBER 30,        DECEMBER 31,
                                                                                    2001                2000(1)
                                                                                -------------       -------------
<S>                                                                             <C>                 <C>
ASSETS
Current assets:
  Cash and cash equivalents .................................................   $    40,008          $    58,455
  Short-term investments ....................................................        47,665               80,326
  Restricted cash ...........................................................         7,735                    -
  Accounts receivable, net of allowance of $560 and $911 at
    September 30, 2001 and December 31, 2000, respectively ..................         4,082                7,780
  Prepaid expenses and other current assets .................................         2,660                2,293
                                                                                -----------          -----------
    Total current assets ....................................................       102,150              148,854
Property and equipment, net .................................................        25,119               28,221
Intangibles, net ............................................................             -                  564
Other assets ................................................................         1,367                3,645
                                                                                -----------          -----------
    Total assets ............................................................   $   128,636          $   181,284
                                                                                ===========          ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ..........................................................   $     7,293          $     8,910
  Accrued liabilities .......................................................        10,277               12,616
  Deferred revenue ..........................................................         3,049                3,196
  Current portion of notes payable ..........................................           476                1,565
  Current portion of capital lease obligations ..............................         6,861                6,051
                                                                                -----------          -----------
    Total current liabilities ...............................................        27,956               32,338
Notes payable less current portion ..........................................           473                1,336
Capital lease obligations less current portion ..............................         6,501                9,073
Other liabilities ...........................................................           843                  694
                                                                                -----------          -----------
    Total liabilities .......................................................        35,773               43,441

Commitments

Stockholders' equity:
  Preferred stock:  $0.001 par value; 10,000,000 shares authorized; .........             -                    -
  Common stock:  $0.001 par value; 200,000,000 shares authorized;
    54,661,628 and 49,288,222 shares issued and outstanding at
    September 30, 2001 and December 31, 2000, respectively ..................            54                   49
  Additional paid-in capital ................................................       305,469              299,052
  Unrealized gain on investments ............................................           497                    -
  Deferred stock-based compensation .........................................       (15,084)             (13,234)
  Accumulated deficit .......................................................      (198,073)            (148,024)
                                                                                ------------         ------------
  Total stockholders' equity ................................................        92,863              137,843
                                                                                -----------          -----------
    Total liabilities and stockholders' equity ..............................   $   128,636          $   181,284
                                                                                ===========          ===========
</TABLE>

(1)      Derived from audited financial statements.

            See accompanying notes to condensed financial statements.

                                       3

<PAGE>

                                   CORIO, INC.

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

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED               NINE MONTHS ENDED
                                                                      SEPTEMBER 30,                   SEPTEMBER 30,
                                                               ---------------------------     ---------------------------
                                                                   2001            2000            2001            2000
                                                               -----------     -----------     -----------     -----------
<S>                                                            <C>             <C>             <C>             <C>
REVENUES:
  Application management services ..........................   $    9,724      $    4,310      $   26,640      $    8,227
  Professional services and other ..........................        2,429           9,519          10,548          21,275
                                                               -----------     -----------      ----------      ----------
    Total revenues .........................................       12,153          13,829          37,188          29,502

COSTS AND EXPENSES:
  Application management services ..........................        9,923           8,425          30,822          22,518
  Professional services and other ..........................        2,647           7,161          12,310          19,843
  Research and development .................................        1,916           3,559           7,161           8,829
  Sales and marketing ......................................        4,326           8,209          17,647          28,619
  General and administrative ...............................        4,811           6,862          16,824          17,645
  Restructuring charges ....................................            -               -           1,413               -
  Amortization of stock based
    compensation ...........................................        1,456           3,391           3,184          12,625
  Amortization of intangible assets ........................          141             533             564           1,705
                                                               -----------     -----------     -----------      ----------
    Total operating expenses ...............................       25,220          38,140          89,925         111,784
                                                               -----------     -----------     -----------      ----------
Loss from operations .......................................      (13,067)        (24,311)        (52,737)        (82,282)
Interest and other income ..................................        1,179           2,019           4,810           3,019
Interest and other expense .................................         (497)           (896)         (2,122)         (1,582)
                                                               -----------     -----------     -----------     -----------
Net loss ...................................................      (12,385)        (23,188)        (50,049)        (80,845)
Series E beneficial conversion charge ......................            -         (20,158)              -         (20,158)
                                                               -----------     -----------     -----------      ----------
Net loss attributable to common stockholders
 ...........................................................   $  (12,385)     $  (43,346)     $  (50,049)     $ (101,003)
                                                               ===========     ===========     ===========     ===========

Basic and diluted net loss per share .......................   $    (0.25)     $    (1.14)     $    (1.00)     $    (7.17)
                                                               ===========     ===========     ===========     ===========
Shares used in computation - basic and
  diluted ..................................................       50,527          38,187          50,133          14,096
                                                               ===========     ===========     ===========     ===========
</TABLE>

            See accompanying notes to condensed financial statements.

                                       4

<PAGE>

                                   CORIO, INC.

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

<TABLE>
<CAPTION>
                                                                                       NINE MONTHS ENDED
                                                                                         SEPTEMBER 30,
                                                                                   ------------------------
                                                                                      2001           2000
                                                                                   ---------      ---------
<S>                                                                                <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss.....................................................................    $ (50,049)     $ (80,845)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization .............................................       11,235          6,205
    Amortization of intangibles ...............................................          564          1,705
    Amortization of deferred stock-based compensation .........................        3,184         12,625
    Compensation for grants of stock, options and warrants in
      exchange for services ...................................................          466          3,193
    Changes in assets and liabilities:
      Accounts receivable .....................................................        3,698         (4,813)
      Prepaid expenses and other current assets ...............................         (234)           827
      Accounts payable ........................................................       (1,617)         5,095
      Accrued liabilities .....................................................       (2,338)         4,670
      Deferred revenue ........................................................         (147)         1,158
      Other liabilities .......................................................          143            482
                                                                                   ---------      ---------
        Net cash used in operating activities .................................      (35,095)       (49,698)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of marketable securities ..........................................      (42,274)             -
  Sales of marketable securities ..............................................       75,431              -
  Increase in restricted cash .................................................       (7,735)             -
  Purchase of property and equipment ..........................................       (4,314)        (9,889)
  Other assets ................................................................        1,351         (3,532)
                                                                                   ---------      ----------
        Net cash (used in) provided by investing activities ...................       22,459        (13,421)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of preferred stock, net ..............................            -         54,450
  Proceeds from sale of common stock and exercise of stock options ............        1,723        129,648
  Proceeds from note receivable from stockholder ..............................            -             15
  Payments on notes payable and capital lease obligations .....................       (7,534)        (2,926)
                                                                                   ----------     ----------
        Net cash (used in) provided by financing activities ...................       (5,811)       181,187
                                                                                   ----------     ---------
Net increase (decrease) in cash and cash equivalents ..........................      (18,447)       118,068
Cash and cash equivalents, beginning of period ................................       58,455         37,177
                                                                                   ---------      ---------
Cash and cash equivalents, end of period ......................................    $  40,008      $ 155,245
                                                                                   =========      =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest ......................................................    $   1,274      $     946
                                                                                   =========      =========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Acquisition of property and equipment under capital leases ..................    $   3,819      $   7,999
                                                                                   =========      =========
  Issuance of preferred stock and common stock warrants .......................    $       -      $   1,061
                                                                                   =========      =========
  Conversion of preferred stock to common stock ...............................    $       -      $  54,455
                                                                                   =========      =========
  Issuance of stock and options in exchange for services ......................    $       4      $       -
                                                                                   =========      =========
  Deferred stock-based compensation ...........................................    $   5,034      $  13,425
                                                                                   =========      =========
  Unrealized gain on investments ..............................................    $     497      $       -
                                                                                   =========      =========
</TABLE>

           See accompanying notes to condensed financial statements.

                                       5

<PAGE>

                                   CORIO, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

     The accompanying unaudited condensed financial statements have been
prepared by Corio, Inc. ("Corio" or the "Company") and reflect all adjustments
that are, in the opinion of management, necessary for a fair presentation of the
interim periods presented. Such adjustments are of a normal recurring nature.
The results of operations for the interim periods presented are not necessarily
indicative of the results for any future interim period or for the entire fiscal
year. Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although the Company believes that the disclosures
included are adequate to make the information presented not misleading. The
unaudited condensed financial statements and notes included herein should be
read in conjunction with the audited financial statements and notes for the
fiscal year ended December 31, 2000.

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):

                                                     SEPTEMBER 30,
                                                   ----------------
                                                    2001      2000
                                                   ------    ------
              Preferred stock warrants                372     1,054
              Common stock subject to repurchase    3,936       440
              Common stock options and warrants    15,192    11,833

RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the FASB issued SFAS No. 141, "Business Combination," and
SFAS No. 142, "Goodwill and Other Intangible Assets."

     SFAS No. 141 addresses the accounting for and reporting of business
combinations. SFAS No. 141 requires that all business combinations be accounted
for using the purchase method of accounting for acquisitions and eliminates the
use of the pooling-of-interests method. SFAS No. 141 is effective for all
business combinations initiated after June 30, 2001. The Company believes SFAS
No. 141 will not have a material effect on its financial statements.

     SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets. SFAS No. 142 changes the accounting for
goodwill from amortization method to an impairment-only method. The amortization
of goodwill, including goodwill recorded in past business combinations will
cease upon adoption of the SFAS No. 142. For goodwill acquired by June 30, 2001,
SFAS No. 142 is effective for all fiscal years beginning after December 15,
2001. Goodwill and intangible assets acquired after June 30, 2001 will be
subject to immediate adoption of SFAS No. 142. The Company believes SFAS No. 142
will not have a material effect on its financial statements.

NOTE 2 - RESTRICTED CASH

                                       6


<PAGE>

     In connection with a facility lease, the Company is required to provide a
$7 million letter of credit as security for the lease. As of September 30, 2001,
a $7 million certificate of deposit, which matures April 2002, is held as
collateral by a financial institution for guarantee of the letter of credit. The
certificate of deposit is recorded as restricted cash on the condensed balance
sheet.

     In connection with a facility lease, the Company is required to provide a
$735,000 letter of credit as security for the lease. As of September 30, 2001, a
$735,000 cash deposit, which matures October 2001, is held as collateral by a
financial institution for guarantee of the letter of credit. The cash deposit is
recorded as restricted cash on the condensed balance sheet.

NOTE 3 - ACCOUNTS RECEIVABLE

     The Company records accounts receivable when amounts are billed in
accordance with the contract terms or as services are performed under
non-cancelable contractual services arrangements. Included in accounts
receivable at September 30, 2001 and December 31, 2000 were $751,000 and
$555,000, respectively, of unbilled receivables under various application
management and professional services contracts.

NOTE 4 - DEBT

     In December 1998, the Company entered into a loan and security agreement to
borrow up to $4 million. Borrowing under the agreement incurred interest at
11.5% per annum and was repayable in 42 monthly installments. Borrowing under
the agreement was collateralized by substantially all of the Company's assets.
As of December 31, 2000, $2,901,000 was outstanding. The outstanding amount was
repaid in January 2001. In connection with the loan and security agreement, the
Company granted the lender warrants to purchase 469,523 shares of series A
preferred stock at an exercise price $1.24 per share. Upon the repayment of the
note in January 2001, the unamortized fair value of the warrant was charged to
interest expense.

     In December 1999, the Company entered into a guarantee with a lender for a
maximum $7 million letter of credit as security on a facility lease. The
guarantee was collateralized by certain assets of the Company. In connection
with the guarantee, the Company granted the lender a right to purchase shares of
series C preferred stock at an exercise price of $6.50 per share. In January
2001, this letter of credit was replaced with a new $7 million letter of credit
from another lender. The new letter of credit is collateralized by a $7 million
cash deposit. Upon replacement of the letter of credit, the unamortized fair
value of the warrant was charged to interest expense.

     In connection with a facility lease, the Company is required to provide a
$735,000 letter of credit as security for the lease. As of September 30, 2001, a
$735,000 cash deposit is held as collateral by a financial institution for
guarantee of the letter of credit. The cash deposit is recorded as restricted
cash on the condensed balance sheet.

WARRANTS

     In April 2000, the Company agreed to issue to Ernst & Young L.L.P. ("EY"),
on behalf of its consulting division, EY Consulting, four warrants to purchase
an aggregate of up to 7,000,000 shares of the Company's common stock at an
exercise price of $6.50 per share under the terms of a strategic alliance
arrangement. In May 2000, EY completed a sale of substantially all of the
business of E&Y Consulting to Cap Gemini, S.A. Upon the completion of this sale,
E&Y Consulting assigned to Cap Gemini, S.A. all of its rights and obligations
pursuant to its strategic alliance with the Company, including the right to
execute the warrants the Company issued to EY on behalf of E&Y Consulting. The
consulting business previously conducted by E&Y Consulting is now being carried
on by Cap Gemini Ernst & Young U.S., L.L.C. ("CGEY"). Under the April 2000
agreement, CGEY was permitted to exercise the first of these warrants to acquire
4,666,666 shares of common stock during the 90 day period following the
Company's July 20, 2000 IPO. The third and fourth warrants become exercisable
based upon the achievement of target volume revenues resulting from referrals
from CGEY in each of the Company's 2001 and 2002 fiscal years. The Company has
determined that CGEY did not achieve the minimum target volume revenues for its
2000 fiscal year and as a result, the second warrant for 933,333 shares expired.
The third and fourth warrants may be exercised to acquire up to 933,333 and
466,667 shares of common stock, respectively. The warrants are subject to
cancellation or repurchase in whole or part under certain circumstances, such as
if CGEY breaches a material provision of the agreement. The agreement itself may
be terminated prior to the end of the seven-year term by mutual consent of the
parties or unilaterally by a party in the event the other party defaults in the
performance of a material provision of the mutual agreement subject to a cure
period.

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

                                       7

<PAGE>

     At September 30, 2001, 2,333,333 of the initial warrant remained issued and
outstanding. The exercise period has been extended to December 31, 2001. The
fair value of this warrant was calculated using the Black-Scholes option pricing
model, using $0.46 as the fair value of the underlying common stock and the
following weighted-average assumptions: no dividends; contractual life of 1.5
years; risk-free interest rate of 7%; and expected volatility of 100%. The fair
value of the remaining unexercised initial warrant was $28,000 at September 30,
2001. A reduction of $314,000 to amortization expense was recorded in sales and
marketing expense in the quarter ended September 30, 2001.

STOCK-BASED COMPENSATION

     In connection with stock options granted to employees to purchase common
stock, the Company recorded deferred charges for stock-based compensation of
$5.0 million and $13.4 million for the nine months ended September 30, 2001 and
2000, respectively. Such amounts represent, for employee stock options, the
difference at the grant date between the exercise price of each stock option
granted and the fair value of the underlying common stock. The deferred charges
for employee options are being amortized to expenses using the graded vesting
approach through fiscal year 2005. Amortization of deferred stock-based
compensation expense was $3.2 million and $12.6 million for the nine months
ended September 30, 2001 and 2000, respectively.

NOTE 5 - SIGNIFICANT CUSTOMER INFORMATION AND SEGMENT REPORTING INFORMATION

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

     Disaggregated information is as follows (in thousands):

<TABLE>
<CAPTION>
                                                APPLICATION
                                                 MANAGEMENT     PROFESSIONAL
                                                  SERVICES        SERVICES      UNALLOCATED        TOTAL
                                                  --------        --------      -----------        -----
     <S>                                        <C>             <C>             <C>             <C>
     FOR THE THREE MONTHS ENDED
     SEPTEMBER 30, 2001
     Revenues                                   $     9,724     $     2,429     $         -     $   12,153
     Depreciation and amortization              $     2,458     $        59     $     1,307     $    3,824
     Segment loss                               $      (199)    $      (218)    $   (11,968)    $  (12,385)

     FOR THE THREE MONTHS ENDED
     SEPTEMBER 30, 2000
     Revenues                                   $     4,310     $     9,519     $         -     $   13,829
     Depreciation and amortization              $       807     $        70     $     1,552     $    2,429
     Segment profit (loss)                      $    (4,116)    $     2,359     $   (21,431)    $  (23,188)

     FOR THE NINE MONTHS ENDED
     SEPTEMBER 30, 2001
     Revenues                                   $    26,640     $    10,548     $         -     $   37,188
     Depreciation and amortization              $     7,099     $       180     $     3,956     $   11,235
     Segment loss                               $    (4,356)    $    (1,900)    $   (43,793)    $  (50,049)

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

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

                                       8

<PAGE>

     No single customer accounted for more than 10% of total revenues for the
nine months ended September 30, 2001. For the nine month period ended September
30, 2000, one customer accounted for 10% of total revenues.

At September 30, 2001, one customer represented 13% of total accounts
receivable. At September 30, 2000, one customer represented 15% of total
accounts receivable.

NOTE 6 - RESTRUCTURING CHARGES

     During the quarter ended June 30, 2001, we initiated cost-saving actions
resulting in restructuring charges of $1.4 million. These charges included
$435,000 for estimated payments for the cancellation of a facility lease
contract and $821,000 for severance benefits paid or to be paid to employees
involuntarily terminated, and a $157,000 impairment charge to dispose of certain
operating assets. We anticipate paying the remaining accrued
restructuring-related costs at September 30, 2001 of approximately $168,000
during the quarter ending December 31, 2001.

                                       9

<PAGE>

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

     The following Management's Discussion and Analysis of our Financial
Condition and Results of Operations should be read in conjunction with the
unaudited condensed financial statements and notes thereto included in Part
I-Item 1 of this Quarterly Report and the audited financial statements and notes
thereto and Management's Discussion and Analysis in the Company's 2000 Annual
Financial Report to Stockholders attached as an appendix to Corio's 2001 Proxy
Statement.

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

OVERVIEW

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

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

     REVENUES

     Total revenues decreased to $12.2 million for the three months ended
September 30, 2001 from $13.8 million for the three months ended September 30,
2000. For the three months ended September 30, 2001, one customer accounted for
more than 12% of total revenues. For the nine months ended September 30, 2000,
one customer accounted for 10% of total revenues. Total revenues increased to
$37.2 million for the nine months ended September 30, 2001 from $29.5 million
for the nine months ended September 30, 2000.

     APPLICATION MANAGEMENT SERVICES REVENUES. Revenues from our application
management services were $9.7 million for the three months ended September 30,
2001 and $4.3 million for the three months ended September 30, 2000. Revenues
from our application management services were $26.6 million for the nine months
ended September 30, 2001 and $8.2 million for the nine months ended September
30, 2000. The increase in application management services revenues was primarily
due to the increased number of customers, increased number of users, revenues
associated with e-commerce trading exchanges and approximately $971,000 non
recurring revenues from customer contract terminations for the quarter ended
September 30, 2001. At September 30, 2001, the Company had a balance of $1.8
million for deferred application management services revenues from several
customers who prepaid a portion of their contracts. These deferred revenues will
be recognized as the related services are provided over the life of the
contract.

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     PROFESSIONAL SERVICES AND OTHER REVENUES. Our professional services and
other revenues were $2.4 million for the three months ended September 30, 2001
and $9.5 million for the three months ended September 30, 2000. Our professional
services and other revenues were $10.5 million for the nine months ended
September 30, 2001 and $21.3 million for the nine months ended September 30,
2000. The decrease in professional services revenues from 2000 to 2001 was
primarily due to the decreased number of new customer implementations as well as
customer use of third party integrators for project implementations. At
September 30, 2001, we had a balance of $1.3 million for deferred professional
services revenues resulting from customer payments that we required in advance
of commencing our professional services work.

     COSTS AND EXPENSES

     APPLICATION MANAGEMENT SERVICES EXPENSES. Application management services
expenses were $9.9 million for the three months ended September 30, 2001 and
$8.4 million for the three months ended September 30, 2000. Application
management services expenses were $30.8 million for the nine months ended
September 30, 2001 and $22.5 million for the nine months ended September 30,
2000. The largest component of the increase was the growth in personnel costs.
Other significant components of the increase included costs for third-party
license and support fees, costs of our data center and network providers,
facilities expenses and depreciation and lease costs for equipment.

     PROFESSIONAL SERVICES AND OTHER EXPENSES. Professional services and other
expenses were $2.6 million for the three months ended September 30, 2001 and
$7.2 million for the three months ended September 30, 2000. Professional
services and other expenses were $12.3 million for the nine months ended
September 30, 2001 and $19.8 million for the nine months ended September 30,
2000. The largest component of the decrease was attributable to the reduction in
the number of contracts in process and the reduction in personnel costs. Another
significant component of the decrease included reduced costs for subcontractors
to perform services under professional services engagements.

     RESEARCH AND DEVELOPMENT. Research and development expenses were $1.9
million for the three months ended September 30, 2001 and $3.6 million for the
three months ended September 30, 2000. Research and development expenses as a
percentage of total revenues were 16% for the three months ended September 30,
2001 and 26% for the three months ended September 30, 2000. Research and
development expenses were $7.2 million for the nine months ended September 30,
2001 and $8.8 million for the nine months ended September 30, 2000. Research and
development expenses as a percentage of total revenues were 19% for the nine
months ended September 30, 2001 and 30% for the nine months ended September 30,
2000. The largest component of the decrease was attributable to a reduction in
the number of projects in process and a decrease in personnel costs and
facilities expense.

     SALES AND MARKETING EXPENSES. Sales and marketing expenses were $4.3
million for the three months ended September 30, 2001 and $8.2 million for the
three months ended September 30, 2000. Sales and marketing expenses as a
percentage of total revenues were 36% for the three months ended September 30,
2001 and 59% for the three months ended September 30, 2000. Sales and marketing
expenses were $17.6 million for the nine months ended September 30, 2001 and
$28.6 million for the nine months ended September 30, 2000. Sales and marketing
expenses as a percentage of total revenues were 47% for the nine months ended
September 30, 2001 and 97% for the nine months ended September 30, 2000. The
decrease in sales and marketing expense reflects a decline in personnel costs
and incentive compensation as well as lower spending on advertising and
tradeshows. Sales and marketing expenses also include amortization costs,
associated with warrants issued to a software vendor and Cap Gemini Ernst &
Young of $(314,000)and $(329,000) for the three and nine months ended September
30, 2001, respectively. For the three and nine months ended September 30, 2000
Sales and Marketing expense included $168,000, and $1.7 million respectively of
amortization costs associated with these warrants.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $4.8 million for the three months ended September 30, 2001 and $6.9 million
for the three months ended September 30, 2000. General and administrative
expenses as a percentage of total revenues were 40% for the three months ended
September 30, 2001 and 50% for the three months ended September 30, 2000.
General and administrative expenses were $16.8 million for the nine months ended
September 30, 2001 and $17.6 million for the nine months ended September 30,
2000. General and administrative expenses as a percentage of total revenues were
45% for the nine months ended September 30, 2001 and 60% for the nine months
ended September 30, 2000. The largest component of the decrease was attributable
to the decrease in personnel costs and facility related costs.

     RESTRUCTURING CHARGES. During the quarter ended June 30, 2001, we initiated
cost-saving actions resulting in restructuring charges of $1.4 million. These
charges included $435,000 for estimated payments for the cancellation of a
facility lease

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contract and $821,000 for severance benefits paid or to be paid to employees
involuntarily terminated, and a $157,000 impairment charge to dispose of certain
operating assets.

     AMORTIZATION OF STOCK-BASED COMPENSATION. Amortization of deferred
stock-based compensation was $1.5 million for the three months ended September
30, 2001 and $3.4 million for the three months ended September 30, 2000.
Amortization of deferred stock-based compensation was $3.2 million for the nine
months ended September 30, 2001 and $12.6 million for the nine months ended
September 30, 2000. The decrease in amortization was due primarily to the
reduction in personnel.

     INTEREST AND OTHER INCOME AND EXPENSE. Net interest and other income was
$682,000 for the three months ended September 30, 2001 and was $1.1 million for
the three months ended September 30, 2000. Net interest and other income was
$2.7 million for the nine months ended September 30, 2001 and was $1.4 million
for the nine months ended September 30, 2000. For the three months ended
September 30, 2001, the decrease in net interest income was due primarily to a
decrease in average cash and investment balances at September 30, 2001. For the
nine months ended September 30, 2001, the increase in net interest income was
due primarily to higher average cash and investment balances at September 30,
2001.

     INCOME TAXES. Since inception, we have incurred net losses for federal and
state tax purposes, and anticipate losses for the foreseeable future. We have
therefore not recognized any material tax provision or benefit of income taxes
for the three and nine months ended September 30, 2001 and 2000.

LIQUIDITY AND CAPITAL RESOURCES

     As of September 30, 2001, we had cash and cash equivalents, short-term
investments, and restricted cash of $95.4 million, a decrease of $43.4 million
from December 31, 2000. The decrease was primarily a result of cash used by
operating activities as well as repayment of debt.

     Net cash used in operating activities was $35.1 million and $49.7 million
for the nine months ended September 30, 2001 and 2000, respectively. The net
decrease was primarily due to a decrease in the net loss and significant changes
in amortization of deferred stock compensation, accounts payable, accounts
receivables and accrued liabilities.

     Net cash provided by investing activities was $22.5 million for the nine
months ended September 30, 2001 compared to $13.4 million used in investing
activities in the nine months ended September 30, 2000. Investing activities
consisted primarily of purchases of computer equipment of $1.9 million and
computer software of $2.4 million, purchase and sale of short term investments
as well as an increase of $7.8 million of restricted cash held as security for
the Company's leased facility.

     Net cash used by financing activities for the nine months ended September
30, 2001 was $5.8 million. Net cash provided by financing activities was $181.2
million for the nine months ended September 30, 2000. Financing activities
consisted primarily of the proceeds from the issuance of common and preferred
stock, loans and exercise of stock options offset by repayments of loans and
capital leases.

     We expect that our current cash balances and existing debt arrangements
will be sufficient to meet our cash requirements for at least the next twelve
months.

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ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS


                                  RISK FACTORS

                          Risks Related to Our Business

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

     We have spent significant funds to date to develop and refine our current
services, to create and run an operations organization, consisting of
application management and customer support services personnel, 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,
2001, we had an accumulated deficit of $198 million.

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

The emerging high-growth and middle-market companies that currently comprise a
substantial majority of our customer 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 adversely affect demand for our services.

     A substantial majority of our current revenue base consists of emerging
high-growth and middle-market companies and is comprised primarily of internet,
e-commerce trading exchanges and "dot-com" companies. These companies will be
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 when required or
at all. In the past we have terminated our agreements with a substantial number
of customers who were unable or unwilling to continue 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 diminish and delay demand for our
services.

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. We have a limited number of customers and
have implemented our services a limited number of times. Because our business
model is new, it continues to evolve. In the future, we may revise our pricing
model for different services, and our model for our customers to gain access to
third-party software applications and other third-party services is evolving.
Changes in our anticipated business and financial model could materially impact
our ability to become profitable in the future. Additionally, especially as we
try to move up-market to larger, more established customers, the demand for our
services is uncertain and the sales process may take 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

                                       13

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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 new customers, particularly larger, more
          established companies required to create a stable revenue and customer
          base;

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

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

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

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

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

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

     .    increase awareness of our brand; and

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

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

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

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

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

     Our financial results will vary over time as our ASP business matures. For
each individual customer, we typically 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
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 will 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;

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

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

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

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<PAGE>

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

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

Our financial results could vary over time as our business model evolves, which
could cause our stock price to fall.

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

     In this regard, from time to time we negotiate with some of our major
third-party software vendors to modify the pricing and other terms currently in
place with these vendors. We may agree to restructure our current arrangements
with some of our third-party software providers. For example for future
customers of our PeopleSoft and Siebel services, our customers must obtain
licenses for software directly from the independent software vendor. Such new
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 applications from third parties, such as
PeopleSoft, Oracle, SAP and Siebel Systems, that we in turn incorporate into the
services we provide to customers. Our agreements with third-party software
vendors are non-exclusive, are for limited terms ranging from two to five years
and typically permit termination in the event of our breach of the agreements.
Additionally, as we move more to "host-only" relationships, whereby our
customers must obtain licenses directly from independent software vendors such
as PeopleSoft and Siebel, we rely on the independent software vendors to consent
to allow us to access the software to provide our services. If we lose the right
to use the software that we license from third-parties, if the cost of licensing
the software applications becomes prohibitive, or if we change the vendors from
whom we currently license software, our customers' businesses could be
significantly disrupted, which could harm our revenues and increase our costs.
Our financial results may also be harmed if the cost structure we negotiate with
the third-party software vendors changes in a manner that is less beneficial to
us compared to our current cost structure with software vendors. We cannot
assure you that our services will continue to support the software of our
third-party vendors, or that we will be able to adapt our own offerings to
changes in third-party software. In addition, if our vendors were to experience
financial or other difficulties, it could adversely affect the availability of
their software. It is also possible that improvements in software by
third-parties with whom we have no relationship could render the software we
offer to our customers less compelling or obsolete.

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

     The licenses we have for the third-party software we use to deliver our
services typically restrict our ability to sell our services in specified
countries and to customers with revenue above or below specified revenue levels.
For example, some of our licenses restrict us from selling our services to
customers with annual revenues greater than various levels such as $1 billion,
and several of our licenses restrict our ability to sell to customers outside of
North America. In addition, some of these licenses contain limits on our ability
to sell our services to certain types of customers. Our operating results and
ability to grow could be harmed to the extent these licenses prohibit us from
selling our services to customers to which we would otherwise sell our services,
or in countries in which we would otherwise sell our services.

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

     Our customers depend on our hosted software applications for their critical
systems and business functions, including enterprise resource planning, customer
relationship management, e-commerce and business intelligence. Our customers'
businesses could be seriously harmed if the applications we provide to them work
improperly or fail, even if only temporarily. Accordingly, if the software

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<PAGE>

that we license from our vendors or our implementation of such software performs
poorly, experiences errors or defects or is otherwise unreliable, our customers
would likely be extremely dissatisfied, which could cause our reputation to
suffer, force us to divert research and development and management resources,
cause a loss of revenues or hinder market acceptance of our services. It is also
possible that any customer disruptions resulting from failures in our
applications could force us to refund all or a portion of the fees customers
have paid for our services or result in other significant liabilities to our
customers.

We may fail to implement, host or manage enterprise software applications
successfully due to the complicated nature of the services we provide and our
limited experience in providing these services, which would harm our reputation
and sales.

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

We have only implemented our Orion technology platform for a small number of
customers, and it may not achieve market acceptance, provide the performance we
anticipate or generate significant revenue for us.

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

If our strategic alliance with Cap Gemini Ernst & Young does not generate the
benefits we expect, we may not be able to grow our business as effectively as we
anticipate and may have difficulty providing systems integration services to our
customers.

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

Our relationship with CGEY may change in a manner adverse to our business
through circumstances beyond our control.

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

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

     A failure to maintain and expand relationships with third-party systems
integrators that we use to implement our services could harm our ability to
service our customers effectively. Because of our relationship with CGEY, we may
have difficulty retaining the

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<PAGE>

services of other systems integrators, which we may need if our alliance with
CGEY terminates or if CGEY performs services in a manner below our customers'
expectations. In addition, as we seek to provide applications management
services for larger, more established customers, they frequently will 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 our growth successfully, we
must:

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

     .    maintain a high level of customer service and support;

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

     .    expand, train, manage and retain our employee base effectively.

     There will be additional demands on our customer service support, research
and development, sales and marketing and administrative resources as we try to
increase our service offerings and expand our target markets. The strains
imposed by these demands are magnified by our limited operating history. Any
delay in the implementation of, or disruption in the transition to, new or
enhanced systems and controls could harm our ability to accurately forecast
demand for our services, manage our 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. For example, PeopleSoft, from whom we
license a substantial amount of software applications and represented more than
half of our applications management services revenue in fiscal 2000, has
recently released a new version of its software. Implementing software upgrades
can be a complicated and costly process, particularly implementation of an
upgrade simultaneously across multiple customers, and we have not performed a
major software upgrade to date. Accordingly, we cannot assure you that we will
be able to perform these upgrades successfully or at a reasonable cost. We may
also experience difficulty implementing software upgrades to a large number of
customers, particularly if different software vendors release upgrades
simultaneously. If we are unable to perform software upgrades successfully and
to a large customer base, our customers could be subject to increased risk of
interruptions or errors in their business-critical software, our reputation and
business would likely suffer and the market would likely delay the acceptance of
our services. It will also be difficult for us to predict the timing of these
upgrades, the cost to us of these upgrades and the additional resources that we
may need to implement these upgrades. Additionally, 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

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<PAGE>

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 have licenses could
become out of date or obsolete and we may be forced to upgrade or replace our
technology. For example, this is of particular concern with regard to our
enterprise resource planning, or ERP, software, including PeopleSoft, 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 will be written to be
hosted. Our existing software application providers may face competition from
new vendors who have written hostable software. It may be difficult for us to
acquire hostable ERP software from these new vendors and for our software
application providers to develop this software quickly or successfully. In
either event, the services we offer would likely become less attractive to our
customers, which could cause us to lose revenue and market share. Performing
upgrades may also require substantial time and expense and even then we cannot
be sure that we will succeed in adapting our business to these technological
developments. Prolonged delays resulting from our efforts to adapt to rapid
technological change, even if ultimately successful, could harm our reputation
within our industry and our ability to grow our revenues.

We may incur substantial accounting charges as a result of warrants held by Cap
Gemini Ernst & Young which may result in significant operating losses over the
next several years.

     Even if we are able to generate revenues that exceed our operating costs,
we may incur substantial accounting charges over the next two years associated
with warrants held by Cap Gemini Ernst & Young U.S. LLC, or CGEY. Under the
terms of a strategic alliance agreement with CGEY, CGEY holds warrants to
purchase up to approximately 2.3 million shares of our common stock at an
exercise price of $6.50 per share, exercisable through December 31, 2001, and up
to 1.4 million shares based on specific performance metrics achieved by CGEY
through year 2002. These warrants and other expenses related to our strategic
alliance with CGEY may result in substantial expenses and operating losses for
us over the term of our agreement with them. Because of the accounting policies
applicable to these warrants, any charges associated with these warrants will be
measured and recorded each fiscal quarter in part using the trading price of our
common stock. Significant increases in our stock price could result in
significant non-cash accounting charges.

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

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

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<PAGE>

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

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

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

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

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

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


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

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

     Our current and potential competitors primarily include:

     .    application service providers and business process outsourcers, such
          as Agilera, AppShop, AristaSoft, Blue Star Solutions, Breakaway
          Solutions, NaviSite, Qwest Cyber.Solutions, Surebridge and
          USinternetworking;

     .    systems integrators, such as Accenture, Electronic Data Systems and
          PricewaterhouseCoopers;

     .    internet service providers and web hosting providers, such as XO
          Communications, DIGEX, Exodus Communications, Frontier Corporation,
          Genuity, Worldcom and PSINet;

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

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

     .    internet portals, such as AOL Time Warner and Yahoo; and

     .    telecommunications companies.

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

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

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

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<PAGE>

     .    take advantage of acquisitions and other opportunities more readily;

     .    negotiate more favorable licensing 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 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. 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 two data centers to house our hardware and to provide network services, but
each of our customers is serviced at a single site. While our data center and
network providers maintain back-up systems, a natural disaster or similar
disruption at their site could impair our ability to provide our services to our
customers until the site is repaired or back-up systems become operable. Most 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 and similar events.

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

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

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.

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<PAGE>

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

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

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

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

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

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

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

                          Risks Related to our Industry

We cannot assure you that the ASP market will become viable or grow at a rate
that will allow us to achieve profitability.

     Growth in demand for and acceptance of ASPs and their hosted business
software applications is highly uncertain. This is especially true given the
current uncertain macroeconomic environment. Companies in the ASP industry, such
as Pandesic and Red Gorilla, have ceased operations. 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

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<PAGE>

many of our potential customers are not fully aware of the benefits of hosted
and managed solutions. It is possible that these solutions will never achieve
market acceptance. It is also possible that potential customers will decide that
the risks associated with hiring ASPs to implement and manage their critical
systems and business functions outweigh the efficiencies associated with the
products and services we provide. Concerns over transaction security and user
privacy, inadequate network infrastructure for the entire Internet and
inconsistent performance of the Internet 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 subjects
us to government regulation concerning Internet usage and electronic commerce.
We expect that state, federal and foreign agencies will adopt and modify
regulations covering issues such as user and data privacy, pricing, taxation of
goods and services provided over the Internet, the use and export of
cryptographic technology and content and quality of products and services. It is
possible that legislation could expose us and other companies involved in
electronic commerce to liability or require permits or other authorizations,
which could limit the growth of electronic commerce generally. Legislation could
dampen the growth in Internet usage and decrease its acceptance as a
communications and commercial medium. If enacted, these laws, rules or
regulations could limit the market for or make it more difficult to offer our
services.

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

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

     We have customers with international operations and may expand our business
outside of the United States in the foreseeable 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. For information transmitted from the
European Union to the United States, we may need to qualify for the safe harbor
to the European Union privacy directive or for another exemption, and there is
no guarantee that we will be able to so qualify.

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

     Because of the recent economic downturn and political environment, many
industries are delaying or reducing 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 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.

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<PAGE>

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

     The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies generally, and
Internet-related software companies particularly, have been extremely volatile.
The market prices of technology companies generally, and technology service
companies in particular have been subject to significant downward pressure. In
the past, following periods of volatility in the market price of a public
company's securities, securities class action litigation has often been
instituted against that company. Such litigation could result in substantial
costs to us and a diversion of our management's attention and resources.

Many significant corporate actions are controlled by our officers, directors and
affiliated entities regardless of the opposition of other investors or the
desire of other investors to pursue an alternative cause of action.

     Our executive officers, directors and entities affiliated with them, in the
aggregate, beneficially own approximately 44% of our common stock. If they were
to act together, these stockholders would be able to exercise control over most
matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in
control of our company, which could cause our stock price to drop. These actions
may be taken even if they are opposed by the other investors, including those
who purchased shares in the initial public offering.

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

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

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

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

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

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

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

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.

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<PAGE>

Interest Rate Risk

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    There are no material legal proceedings pending.

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, 2001, the ending date of the
reporting period, the approximate amount of net offering proceeds used were $8.8
million to repay outstanding debt and approximately $48 million to fund
operations. The remaining net proceeds were invested in short-term financial
instruments.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

No matter was submitted to a vote of the stockholders, through the solicitation
of proxies or otherwise, during the quarter ended September 30, 2001.

ITEM 5  OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    (a)    Exhibits

              None

    (b)    The registrant did not file any reports on Form 8-K during the
           quarter ended September 30, 2001.

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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 9, 2001

                                   CORIO, INC.

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

                                   By  /s/ BARBARA J. POSCH
                                      ------------------------------------------
                                      Barbara J. Posch
                                      Senior Vice President, Finance and
                                      Chief Financial Officer

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