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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                 FORM 10-K/A-1

[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE TRANSITION PERIOD FROM           TO
                             ---------------------
                         COMMISSION FILE NUMBER 0-24219
                             ---------------------

                                   VERIO INC.
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                                 <C>
                    DELAWARE                                           84-1339720
         (State or other jurisdiction of                            (I.R.S. Employer
         incorporation and organization)                           Identification No.)
</TABLE>

        8005 SOUTH CHESTER STREET, SUITE 200, ENGLEWOOD, COLORADO 80112
          (Address of principal executive offices, including zip code)
                                 (303) 645-1900
                        (Registrant's telephone number)

          Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

          Securities registered pursuant to Section 12(g) of the Act:
                         COMMON STOCK, $.001 PER SHARE
                                (Title of class)

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  No [ ]

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of the Common Stock on March 14, 2000
as reported on the Nasdaq National Market, was approximately $2,512,000,000
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded from this
computation in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

     As of March 14, 2000 the Registrant had outstanding 78,724,424 shares of
Common Stock.
                             ---------------------
                      DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Registrant's Proxy Statement for the Annual Meeting of
   Stockholders to be held on April 27, 2000 are incorporated by reference into
   Part III of this Form 10-K Report, which Proxy Statement is to be filed
   within 120 days after the end of the Registrant's fiscal year ended December
   31, 1999.
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                                     INDEX

                                   VERIO INC.

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<S>           <C>                                                            <C>
PART I
Item 1.       Business....................................................       1
Item 2.       Properties..................................................      37
Item 3.       Legal Proceedings...........................................      38
Item 4.       Submission of Matters to a Vote of Security Holders.........      38
PART II
Item 5.       Market for Registrant's Common Equity and Related                 39
              Stockholder Matters.........................................
Item 6.       Selected Financial Data.....................................      40
Item 7.       Management's Discussion and Analysis of Financial Condition       42
              and Results of Operations...................................
Item 7A.      Quantitative and Qualitative Disclosures About Market             50
              Risk........................................................
Item 8.       Financial Statements and Supplementary Data.................      51
Item 9.       Changes in and Disagreements with Accountants on Accounting       51
              and Financial Disclosure....................................
PART III
Item 10.      Directors and Executive Officers of the Registrant..........      72
Item 11.      Executive Compensation......................................      72
Item 12.      Security Ownership of Certain Beneficial Owners and               72
              Management..................................................
Item 13.      Certain Relationships and Related Transactions..............      72
PART IV
Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form      72
              8-K.........................................................
              Signatures..................................................      77
              Index to Consolidated Financial Statements and Schedule.....      78
</TABLE>

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                                     PART I

ITEM 1. BUSINESS.

     From time to time, Verio may report, through its press releases and/or
Securities and Exchange Commission filings, certain matters that would be
characterized as forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act") that are subject to
risks and uncertainties that could cause actual results to differ materially
from those projected. Certain of these risks and uncertainties are beyond
management's control. This report contains statements that constitute
forward-looking statements. These statements appear in a number of places in
this report and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers, primarily with
respect to the future operating performance of the Company. Readers are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward-looking statements as a result of
various factors. The information contained in this report identifies certain
important factors that could cause such differences, beginning on page 20 below
and elsewhere in this report.

OVERVIEW

     Verio is the world's largest operator of Web sites for businesses and a
leading provider of comprehensive Internet services with an emphasis on serving
the small and medium sized business market. We offer customers a broad range of
Internet solutions, including:

     - Telecommunication circuits -- permitting our customers to make
       connections to and transmit data over the Internet.

     - Web hosting services -- providing our customers with a presence on the
       Internet in the form of a Web site. We offer a complete suite of Web
       hosting services, including shared and dedicated server hosting for
       customers who prefer that we provide the server hardware, as well as
       co-location services where customers bring their own servers to a Verio
       data center.

     - Domain name registration -- providing a fast, on-line process for our
       customers to reserve their personalized Web address (such as
       www.yourcompany.com).

     - Electronic commerce services -- enabling our customers to conduct
       transactions with their customers and vendors over the Internet.

     - Application hosting services -- providing our customers with the
       functionality and features of business-focused software and database
       applications on a shared or rented basis via the Internet. These
       applications support and automate office systems and business processes,
       such as financial reporting, payroll, sales order entry, shipping,
       inventory management and customer service systems.

     - Secure Internet communication links -- permitting our customers to
       establish "virtual private networks" in order to engage in private and
       secure Internet communication with their employees, vendors, customers
       and suppliers.

     - Other enhanced value Internet services, such as automated Web site
       development tools and templates.

     We believe that small and medium sized businesses represent an attractive
target market for the provision of Internet services because of this market's
low current penetration levels and the expanding Internet needs of these
businesses. Because of their limited internal technical resources and operating
scale, small and medium sized businesses are increasingly looking to outsource
Internet and information technology functions at a reasonable cost. They also
typically seek suppliers of Internet services that can address a wide range of
their Internet needs. We believe that these businesses currently are
under-served by both the local and other national Internet service providers.
While the other national Internet service providers typically lack the local
presence to provide hands-on support, local Internet service providers often
lack the requisite scale and resources to provide a full range of products and
services at acceptable quality and pricing levels. We believe

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that we have a competitive advantage in serving small and medium sized business
customers. We combine our technical expertise and hands-on support provided
through our local sales and engineering personnel with a broad set of Internet
solutions, the quality and economic efficiency of our national network,
operational infrastructure and financial strength. Most significantly, the
breadth of products and services that we offer allows our customers to look to
us as their "one-stop" provider for all of their rapidly evolving Internet
access and Web-dependent needs.

     Since our incorporation in March 1996, Verio has grown rapidly,
establishing a global presence through the acquisition, integration and organic
growth of over 50 local, regional, national and international providers of
Internet connectivity, Web hosting and other enhanced value Internet products
and services. We integrate the operations we acquire onto our national network
and common administrative support services in order to capture economies of
scale, derive operational efficiency and control, and improve the quality,
consistency and scalability of our services. Currently, we provide Web hosting
services to customers in over 170 countries and offer locally based sales and
engineering support for our Internet services in 41 of the top 50 metropolitan
statistical areas in the U.S.

     We are now the largest Web hosting company in the world based on the number
of domain names -- such as yourcompany.com -- that we host. To drive continued
growth, we have created a powerful global sales and marketing engine that
includes:

     - direct sales through over 240 sales professionals;

     - online sales through our www.verio.com Web site;

     - telemarketing operations;

     - over 5,000 resellers and referral partners in the U.S. and over 170 other
       countries;

     - private label and co-branded distribution relationships with major
       telecommunications companies; and

     - preferential marketing agreements with leading Internet on-line
       companies.

As of December 31, 1999, Verio served over 300,000 customer accounts, hosting
over 340,000 Web sites. For the three months ended December 31, 1999, we had
revenues of approximately $73.0 million, over half of which was derived from our
Web hosting and other enhanced value Internet services.

RECENT DEVELOPMENTS

     In January 2000, we announced our new $350 million capital budget for 2000
in connection with our plan to significantly expand our web hosting and
co-location physical infrastructure, systems and personnel. Of that budgeted
amount, approximately $300 million relates to the expansion of hosting
operations, including $200 million for new and expanded hosting centers, $45
million for additional servers, and the balance for product development,
software licenses, IT systems, a new Web operations control center, and
leasehold improvements. Approximately $50 million has been budgeted for network
equipment, systems and facilities to support the growth of our high speed access
business. We expect that all of these expenditures will be funded with cash on
hand.

     At the same time, we announced operational efforts underway to expand our
European Web hosting business. Our already leading position in the European Web
hosting business is comprised of more than 1,200 resellers, private label and
co-branded Web hosting and e-commerce distribution agreements with large,
European-based telecommunications companies, equity investments in Web hosting
companies in the top four European commercial markets, and an exclusive
marketing relationship with AOL UK, CompuServe and Netscape Online in the UK.
Our expansion plans in Europe, which we expect will add approximately $20
million in operating costs in 2000, include adding more Powered by Verio and
other distribution partners throughout the key European markets, acquiring
hosting facilities, hiring additional local sales and technical support staff,
increasing local brand recognition through marketing and advertising campaigns,
and pursuing additional hosting acquisitions.

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     In February 2000, we announced an agreement with Oracle that allows us to
offer the Oracle8i(TM) database on a hosted, remote access basis to our
customers. This new service will enable small and medium sized businesses to
utilize the world's leading database and to access it via the Internet in a
cost-effective and customizable manner, while easing in-house application
implementation issues. We are working with Oracle to implement these new
services, which we hope to make available in the third quarter of 2000. We plan
to promote these application services, along with our Web hosting services, to
Oracle's channel partners as well as our own resellers worldwide.

     In March 2000, we invested $30 million in Agilera.com, a subsidiary of
CIBER, Inc., the largest publicly held enterprise software implementor.
Agilera.com is a next generation application service provider that delivers
customized e-business and enterprise solutions to emerging and middle-market
companies. In connection with our investment, we entered into a commercial
agreement with Agilera.com under which we will provide fundamental
infrastructure to Agilera.com, including Internet connectivity through our Tier
One network, as well as the servers, data center facilities and managed services
necessary for it to offer its hosted applications.

BACKGROUND OF OUR BUSINESS

     Internet access, Web hosting, electronic commerce services and application
hosting services are among the fastest growing segments of the
telecommunications services market. The availability of Internet access,
advancements in technologies required to navigate the Internet, and the
proliferation of content and applications available over the Internet have
attracted a rapidly growing number of Internet users.

     In order to capitalize on the power of the Internet, businesses must adopt
one or both of the fundamental Internet service platforms: Internet access and
an Internet Web site. Internet access provides a company with the
telecommunications circuits necessary to allow a company to connect to the
Internet, communicate with employees, customers and suppliers and other Internet
users, transfer electronic mail, and access the wealth of information available
over the Internet. A Web site provides a company with a corporate presence on
the Internet and an ability to sell goods and services over the Internet. This
computer-based site allows a company to post information about itself that is
easily accessible to all Internet users. Businesses are increasingly adding a
variety of enhanced services and applications to their basic Internet access and
Web site platforms, in order to more fully capitalize on the power of the
Internet. These services and applications allow them to more efficiently
communicate company information, expand and enhance their distribution channels,
increase productivity through back-office automation and reduce costs.

     Verio expects this trend to continue as enhanced value Internet services
continue to be developed, improve and proliferate, and as Internet usage
continues to expand. For example, once a company has basic Internet access, by
then connecting each of the company's office locations and providing them with
security tools, such as data encryption, the company can implement a secure
Internet communication link permitting its employees, vendors, customers, and
other designated individuals to engage in secure, private communications over
the Internet. Further, by provisioning its Web site with enhanced application
tools, the company can automate business processes such as sales order entry,
shipping, inventory management and customer service from this site. When
conducting electronic commerce over a Web site, a company typically will add
security, shopping cart, and payment processing capabilities to its basic Web
site.

     Industry analysts have reported that small and medium sized businesses
represent a potential market of over seven million customers in the U.S. Verio
has specifically targeted the small and medium sized business market for the
provision of our Internet services because:

     - A small percentage of this market currently utilizes the Internet, but
       that number is increasing rapidly and is expected to be one of the
       fastest growing segments of the Internet industry.

     - These businesses have rapidly expanding Internet needs as they and their
       customers increasingly look to the Internet for information, as a
       standard mode of communication, and to conduct business in increasingly
       sophisticated and cost-effective ways.

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     - These companies often look to an Internet service provider to fulfill
       these needs because they typically lack the technology expertise,
       information technology resources, capital, personnel, or ability to bear
       the time-to-market and operational risks required to install, maintain
       and monitor their own Web servers and Internet access.

     - In selecting an Internet service provider, these businesses often prefer
       locally based personnel who are readily available to respond in-person to
       technical issues, who can assist in developing and implementing the
       customer's effective use of the Internet, and with whom they can
       establish a stable and long-term relationship.

     - Businesses that have outsourced their Internet requirements tend to
       become quite dependent on their Internet provider and tend to change
       Internet providers relatively infrequently.

     The Internet service provider market is segmented into large national or
multinational providers, such as Verio, which typically are full service
providers, and regional and local providers which generally offer a smaller
range of services and products and lack the ability to meet all the needs of a
business customer. Full service Internet providers also typically resell
capacity on their network to regional and local providers who rely on the larger
providers for Internet access. The largest full service providers, like Verio,
have what are referred to as "Tier One" networks, which exchange Internet
traffic on a cost-free basis at multiple public peering points known as network
access points, as well as through private peering arrangements that provide a
higher-quality inter-network exchange of data traffic. As the number of Internet
service providers has grown, the requirements to operate as a Tier One network
have increased, resulting in a higher barrier to achieving Tier One provider
status.

OUR BUSINESS STRATEGY

     Our business strategy of combining national scale with local presence was
specifically developed to serve the needs of the small and medium sized business
market. In formulating its business strategy, Verio concluded that the large,
national Internet service providers lacked the local presence to provide
customized hands-on support, while the smaller, local Internet service providers
did not have the requisite scale and resources to provide a full range of
services at acceptable quality and pricing levels. We believe that Verio has a
competitive advantage in serving these business customers because we have
combined the technical expertise and hands-on support, provided through our
local sales and engineering personnel, with the quality and economic efficiency
of our national network, operational infrastructure and financial strength.

     Verio's goal is to be the premier, full-service provider of Internet
services to small and medium sized businesses. The key elements of our strategy
in accomplishing this goal are:

     - Build Scale, Market Presence and Service Offerings through Acquisitions
       and Strategic Relationships. We rapidly accumulated operational scale and
       scope, establishing ourselves as a leading provider of Internet solutions
       for businesses by acquiring and investing in local and regional Internet
       service providers and regional, national and global Web hosting
       companies, and forging strategic relationships with key product, service
       and distribution partners. As a result, we have one of the most extensive
       access and Web hosting product suites targeted at the small and medium
       sized business market and are now one of the largest providers of
       Internet services to this market based on the following current
       statistics:

      - We host more domain names than any other company in the world.

      - We are one of the largest providers of dedicated servers with over 2,000
        servers hosted.

      - We host more than 10,000 e-commerce enabled Web sites.

      - We are one of the largest Web hosting companies in Europe.

      - We are one of the largest registrars of .com, .net and .org domain
        names.

      - We operate one of the Tier One Internet networks in the U.S.

      - We host over 1,000 databases on a shared, hosted application basis.
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      We intend to continue to expand our market presence, focusing primarily on
      strengthening our Web hosting, e-commerce, application hosting and other
      enhanced value service capabilities through further acquisitions,
      investments and strategic relationships. In connection with certain key
      vendor, supplier, customer and distribution partner relationships, where
      we consider it particularly strategic or opportunistic and appropriate to
      do so, we have and may continue to make equity investments in these
      partners to establish or cement a key relationship, to obtain better
      terms, or to take advantage of appreciation opportunities.

     - Integrate Operations and Leverage National Infrastructure to Reduce Costs
       and Improve Quality. We continue to improve our efficiency, service
       reliability, quality and scalability by:

      - integrating the Internet operations we acquire onto core national
        service platforms for Internet access and Web hosting;

      - focusing regional operations on sales, distribution and customer
        support; and

      - leveraging a common set of national systems and support services.

      We integrate the regional networks we acquire and connect them to Verio's
      Tier One national backbone, support the entire network with network
      management and monitoring services from our network operations center,
      consolidate point of presence facilities, aggregate traffic on higher
      capacity, lower cost telecommunication circuits, consolidate engineering
      and network operations staffs, increase network redundancy and ensure
      consistency of network operations. Similarly, we integrate our Web hosting
      operations onto common national platforms with regional data centers
      connected to Verio's Tier One national backbone and monitored by Verio's
      Web and network operations centers. Through this integration, we capture
      economies of scale, drive operational efficiency, ensure operational
      control and improve the quality, consistency and scalability of our
      services. We have leveraged our scale to negotiate advantageous national
      volume purchasing agreements with key vendors such as Cisco Systems, Qwest
      Communications, Juniper Networks and Foundry.

     - Build Brand Recognition, Expand Distribution Channels and Leverage Local
       Support to Drive Growth. We believe that brand recognition is, and will
       continue to be, an important decision factor among small and medium sized
       businesses in choosing an Internet solutions provider. In conjunction
       with the integration of our acquired operations, we have re-branded our
       consolidated regional operations under the Verio name. We are building
       national Verio brand recognition by aggressively marketing our full range
       of services through a national advertising campaign using traditional
       media, on-line campaigns and trade shows, strategic co-marketing
       relationships and a coordinated public relations program. In March 1999,
       we entered into a strategic media relationship with America Online, Inc.
       in order to substantially expand Verio's national brand name recognition.
       Under this agreement, for a three-year period, Verio has acquired
       exclusive rights to market its Web hosting and business-focused
       electronic commerce services on America Online's four key on-line media
       properties in the U.S. In June 1999, we entered into a similar one-year
       agreement with AOL UK, under which we have exclusive marketing rights for
       our Web hosting, electronic commerce, and domain name registration
       services in the AOL UK and CompuServe UK services. This agreement has
       since been expanded to encompass the Netscape Online service in the UK as
       well. Recently, we launched our "Powered by Verio" distribution program
       under which major telecommunications carriers and other companies with a
       significant business customer base can offer Verio's Web hosting and
       electronic commerce services on a co-branded basis to their customers
       using the "Powered by Verio" logo. Internationally, we have executed such
       an agreement with NTT Communications, a wholly owned subsidiary of Nippon
       Telegraph and Telephone Corporation, under which the entire group of NTT
       affiliated companies can offer our Web hosting services in Japan, and
       with Infostrada for distribution of our Web hosting and electronic
       commerce services in Italy. In the U.S., we have entered into a similar
       agreement with Qwest Communications under which Verio is the preferred
       provider of shared hosting services to Qwest and will supply e-commerce
       solutions based on our hosting platform. In addition to the "Powered by
       Verio" distribution program, we also market our Internet access and Web
       hosting services

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       through distribution relationships with major telecommunications carriers
       who offer Verio's services on a private-label basis to their customer
       base. We currently have over 240 direct sales professionals, over 350
       local engineers and customer support technicians and over 5,000 resellers
       and referral partners. We expect to continue to expand this sales and
       distribution force and increase its effectiveness through national
       training, sales support, advertising and marketing programs. We also
       market our services nationally through direct mail, telemarketing and
       on-line marketing campaigns.

     - Develop and Offer Enhanced Value Products and Services to Increase
       Revenues. While basic Internet access and Web hosting constitute the
       predominant services offered by Verio today, small and medium sized
       businesses are increasingly looking for enhanced value products and
       services that allow them to further leverage the power of the Internet to
       expand markets, increase productivity and reduce costs. We believe that
       our large existing customer base and strong, balanced position in both
       the Internet access and Web hosting service platforms give us a
       competitive edge in offering high-margin, enhanced value Internet
       services and bundled packages to meet the evolving needs of our current
       and future customers. As a result, we believe that we will be able to
       derive increased revenue from these customers and increase profitability
       by selling an expanding array of enhanced value Internet services, as
       well as better performing Web sites and additional Internet data
       transmission capacity capabilities to support these services. Examples of
       these Web-based enhanced value Internet services include:

      - electronic commerce services;

      - hosted applications, providing office system and business process
        automation capabilities, such as remotely hosted e-mail databases, and
        software applications for accounting, inventory management and similar
        systems;

      - Web-based e-mail;

      - audio and video streaming applications;

      - automated Web site development tools and templates; and

      - redundant "hot" sites, which are multiple presence Web sites that are
        replicated and hosted across multiple national and international data
        centers.

     We currently offer high capacity data transmission digital subscriber line
(commonly known as "DSL") circuits as an access option through relationships
with DSL providers and plan to offer additional alternative Internet access
options, as well as intranets and extranets incorporating both Internet access
and Web-hosting capabilities. Intranets are intra-company networks that rely on
Internet-based technologies to provide secure links among corporate offices and
secure access to company data. Extranets expand the network to selected business
partners through secured links on the Internet. We also offer enhanced value
Internet security capabilities and professional consulting services to support a
variety of methods or processes to handle our customers' unique Internet
requirements. We expect to provide these further enhanced value Internet
services through a combination of internal development and packaging,
acquisitions and new relationships with other Internet hardware, software and
service companies.

PRODUCTS AND SERVICES

     Verio currently offers a comprehensive range of business Internet services,
including its core Internet access and Web hosting services, as well as a
variety of related enhanced value products and services that enhance these core
offerings. Verio offers a core suite of products and services nationally, with
additional specific products offered in designated markets based on factors such
as unique needs within a particular market and local telecommunications tariffs.
As our customers' needs evolve, Verio intends to continue to develop a broad
range of enhanced value products and services independently, through
acquisition, and through strategic relationships with key vendors.

     Web Hosting Services. A Web site provides a company with a tangible
identity and interactive presence on the Internet. This computer-based site
allows a company to post information about itself that is easily

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accessible to all Internet users. Web sites are also the basis for providing
electronic commerce, where a company can advertise and sell its products and
services. Verio offers a comprehensive range of core Web site hosting products,
as well as a growing suite of enhanced Web site hosting products, including
electronic commerce solutions, hosted database applications, and other hosted
applications. Generally, our customers elect to outsource to us the hardware and
software provisioning that is necessary to host a Web site, where we can provide
these services from our highly reliable data center environments. However, for
our customers with the resources and desire to provide their own computer
equipment and software, we offer data center space and services, allowing them
to house their equipment in one of our sophisticated, secure and managed
facilities.

     Our core Web hosting services currently include:

     - Shared Server Web Hosting: Shared servers allow Web hosting of multiple
       accounts or multiple Web sites on a single computer system. Verio offers
       a series of shared server Web hosting plans that allow individuals and
       businesses to establish a sophisticated presence on the Internet at a
       reasonable cost, leveraging Verio's expertise and equipment to deploy an
       effective Web site on computers that are owned and maintained by Verio in
       one of its data centers and monitored seven days a week, twenty-four
       hours a day. In order to allow customers to use their Web site as an
       effective interface for communication, we provide additional services
       bundled into our shared server hosting plans. For example, our shared
       server customers are provided various Web-based electronic mail options,
       support for Microsoft FrontPage(TM) extensions and a variety of unique
       Web site development tools as part of the basic Web hosting account. The
       higher priced shared server Web hosting offerings, including our
       proprietary Virtual Server technology, provide customers additional
       enhanced value Internet services, functionality and resources. Each
       successive pricing tier allocates the customer more disk storage and
       increases the monthly data transfer limit. In addition, the more advanced
       plans offer Real Audio(TM), Real Video(TM) and mSQL(TM) database support
       and support for electronic commerce-enabled Web sites which we host on
       Microsoft NT as well as various UNIX-based platforms.

     - Shared Server Support Tools: We have implemented a variety of tools to
       allow our shared server customers to manage and enhance their sites more
       effectively and update their Web sites remotely. Typically, the Web
       hosting plans feature detailed Web statistics and access to raw log
       files, giving customers the ability to track the performance and evaluate
       the effectiveness of their Web sites. Higher tier plans offer customers
       their own configuration files, point of presence server and simple mail
       transfer protocol gateway. In addition, we provide a number of popular
       custom gateway interface scripts that allow customers to easily put into
       use hit counters, guest books, mail forms and other useful graphics, and
       also support custom gateway interface scripts that enable customers to
       build additional functionality into their Web sites. We offer numerous
       tools that give a customer increased control over managing its Web site,
       allowing them to change passwords, set electronic mail forwarding
       options, view Web site statistics and check account and billing
       information. Additionally, all shared servers have regular back-up
       procedures to protect customer files.

     - Dedicated Server Web Hosting: Dedicated servers allow Web hosting of a
       single Web site on one computer system. Verio offers dedicated server Web
       hosting solutions for larger customers that prefer not to host their Web
       sites on a shared server. This solution, which provides substantially
       more server and network resources than those available from a shared
       server, gives customers the ability to run complex applications without
       the additional information technology administration costs and
       considerations that customers would experience if they managed their own
       servers and Web sites internally. The dedicated server Web hosting
       solutions provide the customer with a Microsoft NT or UNIX-based server
       that is owned and maintained by Verio in one of its data centers and
       monitored seven days a week, twenty-four hours a day. We maintain spare
       equipment and back up data regularly. Our acquisition of digitalNATION in
       July 1999 substantially expanded our dedicated server customer base and
       capabilities.

     - Co-location Services: For customers that require the resources of a
       dedicated server, but prefer to retain physical access to and ownership
       of their server, our co-location services offer customers the

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       ability to locate their servers in a secure location, provisioned with
       managed services such as environmental controls, system monitoring and a
       high-speed connection from their server to the Internet. These data
       center facilities typically are designed to provide an uninterrupted
       power source, a back-up diesel generator, climate control and monitoring
       seven days a week, twenty-four hours a day.

     - Domain Name Registration: Each business or individual that desires a
       personalized Web address must first reserve a domain name (such as
       www.yourcompany.com). We are a world leader in providing this important
       service of registering .com, .net and .org domain names. We believe that
       offering this service provides us a marketing advantage when these domain
       name registration customers then select a Web hosting provider. In
       December 1999, Verio launched a new, direct, domain name registration
       process, designed to automate and expedite the registration process.
       Verio currently hosts more than 550,000 registered .com, .net and .org
       domains.

     The enhanced value Web hosting services that we currently provide include:

     - Electronic Commerce Solutions: Electronic commerce services provide
       businesses the ability to sell products and services on the Internet. The
       electronic commerce capability can be added to an existing Web site or it
       can be the basis for a Web site, starting with the customer's product
       catalog. The principle basic components of an electronic commerce-enabled
       Web site include:

      - a hosted Web site;

      - a catalog of the products to be sold from the site, including prices and
        inventory; a secure means of accepting orders from customers visiting
        the site;

      - a secure means of accepting payment for those orders -- a means of
        calculating the appropriate tax and shipping costs attributable to the
        order;

      - transaction reporting capability; and

      - a means of reconciling these transactions with the company's accounting
        records.

      Verio currently offers a variety of electronic commerce packages, from an
      entry level product designed for a merchant with a very limited number of
      products to sell that does not require real time payment clearing, to high
      end products for the more sophisticated merchant who desires an unlimited
      number of products to be sold and requires secure, on-line, real time
      payment settlement. We have relationships with numerous providers of the
      various components of our electronic commerce solutions, including tools
      for catalog and site creation, merchant accounts, digital certificates,
      transaction processing and numerous additional components that are
      required to build a completely commerce-enabled Web site.

      In addition, we have an agreement with Excite@home, a leading provider of
      fully integrated, "one-stop" electronic commerce solutions, and a related
      agreement with First Data Merchant Services Corporation, one of the
      nation's leading providers of Internet payment processing solutions, in
      order to offer complete electronic commerce services to businesses. These
      VerioStore(TM) plans offer small and medium-sized businesses a complete,
      affordable and easy way to set up virtual storefronts on the Web,
      including on-line product catalogs, a search engine, cash register,
      shopping cart, shipping and sales tax calculations, on-line merchant
      account establishment and a fully-integrated payment gateway.

      In February 2000, we announced an agreement with Lycos Inc., one of the
      most visited Web destinations in the world, under which Verio and Lycos
      are jointly marketing Lycos Shop membership to thousands of existing and
      potential on-line merchants. Lycos Shop is an on-line shopping destination
      that has assembled thousands of stores integrated with online auctions and
      classified ads. The co-branded e-commerce packages offered under the
      agreement include Web-site hosting and e-mail services provided by Verio,
      and Open Market's store creation software that enables merchants to "point
      and click" to easily build and operate a virtual storefront, thereby
      allowing them to begin selling through the site almost immediately to the
      millions of Lycos Shop customers. Also included are an on-line merchant
      account application and credit card processing software, which allow
      merchants to conduct secure and reliable transactions over the Internet.

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     - Application Hosting: Our application hosting services provide our
       customers with the functionality and features of business-focused
       software and database applications by allowing them to access these
       applications, hosted on our servers, via the Internet, in a
       cost-effective and customizable manner. These applications support and
       automate back-office systems -- such as financial reporting, payroll,
       sales order entry, shipping, inventory management and customer service
       systems -- as well as front office systems -- such as customer
       relationship management and sales force automation -- on a more
       cost-effective basis than if customers had to license these applications
       directly from the software vendor and host them on their own servers. In
       that situation, customers have to pay substantial up-front license fees
       and incur the cost of server hardware and supporting IT infrastructure
       and support services. Many independent software vendors are re-writing or
       adapting their software products to work over the Internet using a shared
       or rented model in order to facilitate remote running and management of
       key business software systems. By allowing us to host these applications
       on a "rented" basis, which the customer can then access remotely through
       our tier one national Internet backbone, we alleviate the traditional
       up-front capital and license costs and IT infrastructure limitations, as
       well as in-house application implementation issues for our customers. In
       February 2000, we announced an agreement with Oracle to offer the
       Oracle8i(R) database in a hosted environment. Under the agreement, Verio
       and Oracle will work together to implement hosted database application
       services, with expected availability in the third quarter of 2000. In
       March 2000, we invested $30 million in Agilera.com, a subsidiary of
       CIBER, Inc. In connection with that investment, Agilera.com entered into
       a commercial arrangement with us, under which Verio will provide
       Agilera.com with Internet connectivity through our tier one backbone as
       well as the servers, data center space and managed services necessary to
       offer its hosted applications. We believe that our sophisticated hosting
       infrastructure, supported by our Tier One national backbone, makes us
       particularly well-suited to provide these essential platform services to
       other application service providers such as Agilera.com. As a result, in
       addition to offering hosted applications directly to our customers, we
       expect to continue to actively market these infrastructure services to
       other application service providers who are looking for a proven,
       scalable, and reliable platform from which to offer their application
       capabilities.


     - Web Site Design: Web site design is the development of the Web site
       content that will be displayed on the Web site when it is being viewed on
       the Internet. While we rely principally on our resellers to create the
       Web sites for our customers, we do offer Web design services to a select
       set of our higher end customers. This may entail development of a basic
       Web page to a sophisticated electronic commerce Web site.

We believe that more advanced Web site-based application products will continue
to expand as businesses require more sophisticated on-line commerce and system
automation capabilities. We continue to assess potential opportunities to extend
new offerings as they become available and evaluate our ability to implement
these solutions in a cost-effective way while maintaining quality of service for
our customers. We are continually seeking to acquire technology from third
parties to incorporate with our existing solutions to provide increasing
functionality to our e-commerce and hosted application product offerings, as
well as exploring additional Web-based services through internal development. In
particular, our efforts are focused on:

     - expanded Web site-based electronic commerce capabilities;

     - expanded Web site-based system automation and database application
       capabilities;

     - "virtual offices"-- which is the creation of Web-based work groups
       through the use of common data, applications or other links;

     - Web-based faxing and electronic mail;

     - audio and video applications;

     - automated Web site development tools and templates;

     - basic automated marketing tools; and

     - multiple presence Web site hosting across multiple national and
       international data centers.

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     Internet Access Services. Verio offers a variety of core Internet access
solutions, providing basic connectivity to the Internet, as well as a suite of
enhanced value products and services enabling our customers to expand their
basic Internet connectivity capability. For example, these additional services
allow customers to send and receive e-mail or engage in private, secure data
transmissions between remote offices. These products are offered in bundled and
unbundled packages.

     Our core Internet access services currently include:

     - Basic Internet access: Our basic Internet access service currently
       includes dial-up access at speeds ranging from 28.8 to 56 kilobytes per
       second, integrated services digital network (commonly known as "ISDN")
       connections providing 64 to 128 kilobytes per second access, DSL access
       providing 144 kilobytes per second to over 1 megabytes per second, and
       frame relay and leased line connectivity at speeds ranging from 28.8
       kilobytes per second to 155 megabytes per second.

     - Hardware products: As we provision access services, we provide necessary
       hardware, including routers, servers and other products as needed by the
       particular customer. Our national purchasing and leasing relationships
       with a variety of equipment partners provide improved hardware pricing,
       lower cost leasing arrangements and bundled service offerings.

     - Software products: Our software products include browsers, set-up disks
       and other solutions that permit customers to more effectively and easily
       navigate and utilize the Internet.

     - Configuration services: Our configuration solutions encompass services
       such as domain name server support, supplying telecommunication circuits,
       Internet protocol address space assignment, router set-up, electronic
       mail configuration, router security configuration and other similar
       set-up services.

     Our enhanced value Internet access services currently include:

     - E-mail: We provide e-mail services that permit customers to send and
       receive electronic mail messages. These services are offered either using
       the customer's domain name or through Verio's generic domain name. In
       order to provide our customers with the latest developments in e-mail and
       messaging services, we are in the process of converting our over 800,000
       e-mail boxes to a centralized e-mail system supported by technology
       licensed to us by Netscape Communications Corporation.

     - Secure Internet Communication Links: Many companies today have private
       data communication networks to transfer data between office locations.
       These networks tend to be built on expensive leased telecommunication
       lines. The Internet offers companies a cost-effective alternative to
       private leased lines through secure Internet communication links -- often
       referred to as a virtual private network or "VPN" -- which are designed
       to provide secure transmission of private traffic through the Internet
       and prevent unauthorized access to a computer from outside the immediate
       internal network. We currently offer our customers a number of security
       solutions, including Axent Raptor's Firewall, IRE's SafeNet(TM), and
       WatchGuard's Firebox II(TM), and we continue to evaluate additional
       products to meet our customers' needs in this area.

     - Security: Security solutions are a vital component for most businesses
       connected to the Internet as they are designed to prevent unauthorized
       access to computers from outside the immediate internal network and
       provide for secure Internet communication transmission. These solutions
       include:

      - firewalls -- software or hardware that prevents unauthorized access to a
        computer from outside the immediate internal network;

      - packet filter -- a method of screening, eliminating and prioritizing
        packets of data to prevent unauthorized access to a network;

      - proxy servers -- a server designed to intercept inbound data and process
        it prior to use on an internal network; and

      - encryption -- manipulation of data into a secret format to prevent
        anyone but the intended recipient from recognizing the data accurately.

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      These solutions give the customer the ability to prevent intruders from
      accessing its corporate network, authenticate the identity of users
      attempting to gain access to the customer's local area network or Web
      site, and provide secured transmission of company data through the
      Internet. We currently offer a comprehensive set of such security products
      from WatchGuard Technologies, Inc., a leading provider of Internet
      security solutions, as well as other vendors. Additionally, we offer a
      "managed" security solution that provides ongoing detection and prevention
      of intrusions. We plan to expand our security product line with new
      solutions that simplify, reduce costs, or offer greater functionality as
      they become commercially available. Our managed security services
      solutions are designed to protect small and medium sized businesses from
      electronic intruders and dynamic on-line risks. Based on WatchGuard's
      LiveSecurity for MSS(TM) security system, our managed security services
      safeguard businesses by monitoring their security around the clock,
      reducing the demands on internal administrators.

     Businesses are increasingly seeking to use the Internet for an expanding
array of telecommunication services. We continue to evaluate opportunities to
serve these more sophisticated Internet access needs by deploying additional
enhanced value Internet access-based services as they become commercially
available. For example, we are participating in trials for the deployment of new
access technologies, such as wireless access.

MARKETING

     Verio's marketing organization focuses on stimulating demand for Verio's
services and extending Verio's brands, and is responsible for advertising,
marketing communications and public relations. We have consolidated the
operations and marketing efforts of our acquired operations under the Verio
brand name, although in certain instances, such as where an acquired operation
has established particularly strong brand identity or where we want to
differentiate products and services offered through certain distribution
channels, we may continue to market particular products and services under
another name. Recently, we have focused significant effort on marketing
campaigns and brand recognition, relying on a combination of traditional media
and on-line advertising. We focus our traditional media efforts on
advertisements in major business and technical publications, television
commercials, radio spots and direct mail. We have undertaken national public
relations efforts to raise the awareness and visibility of Verio through a
national print, radio and television advertising campaign. We have also
undertaken joint marketing efforts with vendor partners such as NorthPoint
Communications, whose DSL services we offer in over 20 cities nationwide. Our
on-line marketing program consists of general rotation and keyword-specific Web
banner advertisements. We became one of the world's largest Internet domain name
registrars and Web hosting companies by pioneering domain name registration
services and establishing preferential Web-based marketing relationships with
leading Internet media, search engine and portal companies such as America
Online, Netscape, Lycos and others. Other marketing vehicles include collateral
materials, trade shows, direct response programs and management of our Web site.
Public relations focuses on cultivating industry analyst and media relationships
with the goal of securing broad media coverage and public recognition of the
Verio brand name.

     On March 4, 1999, we entered into a strategic media agreement with America
Online under which, for a three year period, Verio has acquired exclusive rights
to market its Web hosting and business-focused electronic commerce services on
America Online's four key on-line media properties in the U.S.: America Online,
CompuServe, AOL.com and America Online's Digital City. The agreement also
included the transition of America Online PrimeHost and CompuServe BusinessWeb
customers to Verio for continued Web hosting service. Through this agreement
Verio receives significant on-line advertising and promotion of a co-branded
Verio and America Online Web site that offers a broad range of Verio Web hosting
products and electronic commerce solutions. In June 1999, we entered into a
similar one-year agreement with AOL UK, under which we have exclusive marketing
rights for our Web hosting, electronic commerce, and domain name registration
services in the AOL UK and CompuServe UK services. This relationship was
expanded in August 1999 to encompass the Netscape Online service in the UK as
well.

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<PAGE>   14

SALES AND DISTRIBUTION

     Verio utilizes multiple distribution channels in order to extend its reach
and leverage the service capabilities and brand names of its channel partners.
Verio uses a combination of direct sales, on-line marketing, telemarketing,
value-added resellers and private label and co-branded distribution partners.

     Direct Sales. We have a sales force of more than 240 professionals. These
sales representatives have a strong Internet technical background, understand
the local telecommunication tariffs and the needs of their local business
community. Because these representatives are locally-based, they are able to
meet face-to-face to discuss a particular customer's Internet needs and
technical requirements and develop tailored solutions. We have developed
programs at the national level to attract and train high quality, motivated
sales representatives that have the necessary technical skills, experience and
knowledge. These programs include technical sales training, consultative selling
techniques, sales compensation plan development and sales representative
recruiting profile identification. Through the effective use of these
initiatives, we plan to continue to expand our direct sales force. At the local
level, direct marketing techniques are being used to target customers that would
achieve substantial benefit from the business applications afforded by the
Internet. Some direct marketing tactics include direct mail, telemarketing,
seminars and trade show participation. We work with key vendors to assist in
these direct marketing efforts. We co-market with these vendors through direct
mail programs, joint seminar development and joint trade show involvement. We
also operate a centralized outbound and inbound telemarketing sales capability
targeted at offering Web hosting services.

     On-line Sales. We directly offer our products and services on-line through
our www.verio.com Web site. We have an extensive on-line marketing program
consisting of general rotation and keyword-specific Web banner advertisements
which stimulate interest in and leads for our products and services. Much of
this on-line activity directs prospects to our on-line Web sites from which
prospects may make a product selection and order a product on-line. We are able
to generate a substantial amount of sales of our Web hosting products through
this selling technique as a result of the high degree of automation built into
our Web site provisioning process.

     Resellers and Indirect Sales. We believe that indirect sales channels
contribute significantly to our growth, and have developed three primary
reseller partner programs that provide us with a formal indirect distribution
strategy. Through these programs, we have a worldwide indirect distribution
channel with over 5,000 resellers and referral partners in the U.S. and over 170
other countries. These programs include:

     - Authorized Solutions Partner Program: This program offers our resellers
       the ability to share in the ongoing revenue stream of customers they
       bring to Verio. Authorized Solutions Partners include computer resellers,
       value-added resellers, systems integrators and other organizations
       focused on providing information technology hardware, software and
       services to the business community. Our resellers typically have an
       established relationship with the prospective customer base and a sales
       force capable of selling Internet services as part of the partner's suite
       of services.

     - Referral Partner Program: These partners include organizations such as
       Web designers, advertising agencies and telecommunication resellers. We
       target organizations that are less capable of, or interested in, selling
       Internet services, or for whom Internet services fall outside their core
       business interests.

     - Co-Branded and Private Label Distribution Programs: We have agreements
       with a number of large telecommunications providers under which these
       wholesale distribution partners can offer Verio's products and services.
       Recently, we launched our "Powered by Verio" distribution program under
       which major telecommunications carriers and other companies with a
       significant business customer base can offer Verio's Web hosting and
       e-commerce services on a co-branded basis to their customers using the
       "Powered by Verio" logo. For example, we have executed such an agreement
       with NTT Communications, a wholly owned subsidiary of Nippon Telegraph
       and Telephone Corporation, under which the entire group of NTT affiliated
       companies may distribute our Web hosting services in Japan, and with
       Infostrada for distribution of our Web hosting and e-commerce services in
       Italy. In the U.S.,

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       we entered into an agreement with Qwest Communications, under which Verio
       is the preferred provider of shared Web hosting services to Qwest, and
       also will supply e-commerce solutions based on our hosting platform. We
       also have similar arrangements in which the distribution partner is
       allowed to offer our services under its own brand. We have this type of
       agreement with a number of the regional bell operating companies and a
       large European telecommunications company. The benefits that we derive
       from these programs include greater market reach without fixed overhead
       costs and the ability to use partners to assist in the delivery of
       complete solutions to meet customer needs. We are actively pursuing the
       expansion of these distribution programs both domestically and
       internationally.

TECHNOLOGY AND NETWORK OPERATIONS

     Overview. Verio owns and operates a national network that provides a high
capacity, highly reliable data transmission path connecting Verio's customers to
the Internet. Verio's national network interconnects over 200 local point of
presence facilities across the U.S., of which approximately 30 are national
nodes. By aggregating our capacity onto one national network, we continue to
increase our operational control and efficiency, reduce costs, and provide
redundancy and higher quality service. In this way, we are able to address some
of the most significant challenges that an Internet service provider faces in
supporting its customers. Verio's national infrastructure also incorporates
several other elements critical to maintaining the highest quality Internet
service, including a high capacity and reliable national network, peering
relationships with other regional, national and international Internet service
network providers, sophisticated network management tools and engineering
support services. The reliability of the national network is the result of many
factors, including redundant high-speed routers and other critical hardware,
carrier class facilities with back-up power, fire suppression and climate
control, and redundant telecommunications lines. With our substantial national
capacity, network support capabilities, and peering relationships, Verio has
achieved "Tier One" status as one of the largest national, full service Internet
network providers.

     National Network. Following is a diagram of Verio's national network as of
December 31, 1999:

U.S. Map

     The national network architecture includes a presence at all of the major
public national exchange points and redundant network nodes to link our regional
networks to the national network at regional connecting

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<PAGE>   16

points, representing many of Verio's extensive private peering points. Each of
these locations uses leading router technology. The equipment is located in
facilities leased from a variety of telecommunications providers, including MCI
WorldCom, Sprint and others. These access points are linked using a nationwide
clear line network infrastructure ranging in capacity from DS-3 to OC-12. This
network capacity is leased primarily from Qwest and a variety of other national
telecommunications providers, including Sprint and MCI WorldCom. This
combination of clear channel circuits and router architecture makes the network
reliable by diversifying the path of Internet traffic and maintaining redundant
paths. Regional networks either co-locate at these access nodes or lease
connectivity from a local service provider such as a regional bell operating
company or other local exchange carrier to connect the regional points of
presence to our national network.

     Multiple national access nodes facilitate connection of our regional
operations to our national network. We continue to add additional private
peering points and access nodes as we acquire more Internet service providers,
expand operations and further increase network capacity as the need for
additional Internet data transmission capacity arises.

     In September 1999, we entered into a 20-year capacity and services
agreement with Qwest Communications to acquire long haul fiber capacity and
ancillary services on Qwest's nationwide MacroCapacity(SM) Fiber Network. This
agreement, which was amended and expanded in December 1999, required that we
prepay $65.5 million by December 31, 1999 for the capacity we acquire. In
addition, we have a five-year capacity agreement with Qwest, running from
September 30, 1999, that provides us with the flexibility to deploy circuits for
shorter term capacity needs. We also are party to a number of other long haul
capacity agreements with additional telecommunications providers. These
agreements are for various terms and at varied pricing.

     We believe that the currently installed Cisco and Juniper Networks routers
will be sufficient to support our traffic routing needs up to and beyond OC-3
and OC-12 speeds.

     Peering Relationships. Peering is the Internet practice under which
Internet service providers exchange each other's traffic without the payment of
settlement charges. Verio has established public or private peering
relationships with the major national Internet service providers, as well as
with many smaller domestic and international networks, and continues to evaluate
additional private peering proposals. By implementing our own national network
and establishing peering relationships with other national Internet service
providers, we believe we can lower the cost of our Internet transit and increase
the performance and reliability of our network operations. With approximately
100 peering partners, including all of the largest Internet service providers,
Verio's network is considered a "Tier One" national network. Some large network
providers now prefer to peer at private exchange points rather than at national
exchange points. This preference represents the desire to accomplish the
exchange of Internet data transmission traffic at a higher capacity and in a
more efficient manner rather than to risk congestion and equipment failure at
public exchange points.

     The basis on which the large national providers make peering available or
impose settlement charges is evolving as the provision of Internet access and
related services has expanded and the dominance of a small group of national
providers has driven industry peering practice. Recently, companies that have
previously offered peering have cut back or eliminated peering relationships and
are establishing new, more restrictive criteria for peering. We believe that
substantial traffic volume and national scale will continue to be the focal
criteria necessary to establish and maintain peering relationships. As a result,
it has become increasingly important for companies seeking to take advantage of
peering to have significant traffic, a national network and monitoring
capability. Global network capabilities also may become a requirement. In the
future, we may have to comply with new and more stringent peering requirements
in order to maintain our peering relationships. As a result, no assurance can be
given that peering relationships will continue to be made available to us. See
"Risk Factors -- We depend upon our network infrastructure" and "Our costs will
increase if we fail to maintain our peering relationships."

     Web Hosting Operations. We have developed high-performance, reliable,
secure and scalable Web hosting solutions that we believe provide us with a
significant competitive advantage. These solutions consist of multiple
proprietary Web hosting platforms that incorporate automated functionality and a
highly reliable network infrastructure that includes multiple data centers
monitored by our network operations center
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<PAGE>   17

24 hours per day, seven days a week. Our strategy in developing our Web hosting
solutions focuses on utilizing proprietary technological innovations that we
integrate with third-party software and hardware to configure integrated
solutions.

     Web Hosting Platform. We have established multiple proprietary Web hosting
platforms. As a result we can host up to 2,000 Web sites on a single server in
our most efficient platform. Although industry-standard Web servers can enable
Web hosting, we believe that efficiently managing large numbers of Web sites and
users on a single shared server, and operating hundreds of such servers, is
technically difficult and requires significant technological innovations.
Accordingly, we have focused our technology development efforts on ensuring the
scalability of our hosting platforms and creating various proprietary operating
system-level tools to facilitate a high-density customer-to-server ratio. We
also have customized or developed Web server applications designed to improve
performance in a shared server environment, as well as resource monitoring tools
designed to report and address scarcity of shared central processing units and
memory resources. Our solution easily allows server groups to be added
seamlessly and monitored centrally wherever they are located. To address the
diverse requirements of our customers, we offer Web hosting services on a range
of operating systems and computing platforms.

     We also have developed proprietary software that allows us to provide our
services on an efficient and cost-effective basis by automating the following
back-end functions:

          - order-taking and processing;

          - customer billing via credit cards, check, bank transfer and accounts
            receivable;

          - account provisioning and activation;

          - server management and monitoring;

          - coordination of the electronic mail subsystem to integrate
            electronic mail forwarding, multiple electronic mail accounts on a
            single Web site and auto-responders;

          - delegated administration to support distributor-dealer-customer
            hierarchy of all data; and

          - support for third-party feature "plug-ins."

     In addition, we provide a front-end interface that allows our customers to
set up accounts, change account parameters, check Web site statistics quickly
and easily and verify billing information. "TQ software" was engineered to
maximize automation to achieve high levels of scalability. Further, the modular
design allows additional server groups to be easily supported. Language and
branding independence enable international value-added resellers and original
equipment manufacturers to localize for foreign languages and customize the
interface quickly and with minimal effort.


     Data Centers. Our current primary data centers are located in Orem, Utah;
San Francisco and Mountain View, California; Seattle, Washington; Dallas, Texas;
Boca Raton, Florida; Vienna and Dulles, Virginia; Boston Massachusetts; and
Philadelphia, Pennsylvania. We also host servers in various other locations
around the U.S. Our data centers include environmental controls, back-up power
generators, redundant high capacity connections to the Internet, routers and
switches, and continuous monitoring capabilities to ensure high-quality service
with minimal interruptions. In January 2000, we announced plans to significantly
expand our Web hosting and co-location physical infrastructure, systems and
personnel, including a planned $200 million expansion program for the data
centers where we house our hosting servers and offer co-location services. This
planned data center expansion totals approximately 650,000 square feet in 21
locations, including 80,000 square feet in Virginia and 5 other large facilities
averaging 60,000 square feet in Seattle, the San Francisco Bay Area, Dallas,
Chicago, and New York. Ten of these facilities are expected to be complete by
mid-2000. The balance are expected to be completed around the end of 2000, at
which time we expect to have approximately 40 hosting centers located throughout
the U.S. The larger facilities will be used to provide all types of Web and
application hosting, as well as co-location services.


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     National Network Management. We consider world-class network management an
essential capability for network monitoring and expansion, maintaining high
customer satisfaction and improving network quality. We have established a
network operations center to allow continuous monitoring of the network 24 hours
per day, 7 days per week. Our network operations center also provides a single
point of contact for real-time network status information and customer technical
problem resolution. The network operations center is designed to provide
real-time alarming, event correlation, traffic management and forecasting, and
distributed notification of the network events and network status. We use many
leading edge systems to provide the network operations center capabilities.

     Telecommunications Supplier Arrangements. We have negotiated national level
telecommunication arrangements with local exchange carriers, such as MCI
WorldCom, providing favorable terms for local transport. We plan to expand
national purchasing and leasing benefits, as well as technical planning and
support to improve the performance, reliability and economics of our networks.
National level purchasing benefits include both cost and vendor performance
issues, as well providing spare equipment and additional technical support from
suppliers. National level distribution agreements have been negotiated with a
number of additional national-scope suppliers. Specialized facility lease
agreements have also been established with companies such as Qwest, Sprint, MCI
WorldCom and Digital Equipment Corporation. We are pursuing additional vendor
and telecommunications relationships in an effort to reduce the cost of
equipment and improve network quality.

NATIONAL SUPPORT SERVICES

     In addition to our national network and network monitoring capability, we
have developed and implemented three critical national support services designed
to increase operational efficiencies and enhance the quality, consistency and
scalability of our services. These support services include 24 hours per day, 7
days per week customer technical support and service, financial information
management through a central, standardized accounting system and a sophisticated
billing and collections system. We integrate the operations we acquire into
these common administrative support services in order to capture economies of
scale, derive operational efficiency and control and improve the quality,
consistency and scalability of our services while allowing local personnel to
focus on relationships with customers. As of December 31, 1999, 93% of all
companies acquired by us prior to 1999 had been migrated to our national
services.

     Customer Technical Support. Our customer care combines the responsiveness
and on-site capabilities of our local operations with the scale economies of a
national customer support center. Our network operations center in Dallas,
Texas, enables us to provide responsiveness 24 hours per day, 7 days per week
while maintaining the ability to provide on-site installation assistance,
hands-on troubleshooting and access to local experts who understand the
customer's business. The support center team is using a leading customer support
trouble ticketing and workflow management system offered by Vantive Corporation
to monitor and support our network and Internet access operations, and an
internally developed product to monitor and support our Web hosting operations.
These systems enable us to track, route, and report on customer issues. They
also provide significant benefits in ensuring quality and timely care to
customers. Based on information received through the trouble ticketing system
and the centralized billing and collections system, we are able to monitor
network reliability and outage experiences. To date, this information reflects
that the outages experienced by our customers, for the most part, are
attributable to ordinary course of business service interruptions,
telecommunication network capacity demands, and the customer's hardware and
software functionality issues. In certain instances, our customers experienced
downtime and outages in the course of our conversion of systems and processes
associated with our integration and consolidation efforts. Verio offers service
warranties in connection with certain of its products and services that provide
for payment credits in the event of specified circumstances such as unscheduled
service interruptions or downtime that exceed specified levels. In the future,
we expect that we may offer expanded service level commitments with respect to
our products and services as they become more standard and, therefore, necessary
in order for us to be or remain competitive. To date, Verio has provided credits
resulting from network outages and system failures in certain circumstances, but
the amount of these credits has not been material. Certain of the entities that
we have acquired have offered and implemented various service credit policies,
some of which remain in effect with respect to

                                       16
<PAGE>   19

customers of those acquired entities. However, credits required as a result of
those policies to date have not been material. We will continue to monitor
network outage experiences and expect to record appropriate reserves if the
level of outage credits becomes material.

     Financial Information Management. We have converted most of our acquired
operations to the PeopleSoft(TM) financial reporting system and the ADP
payroll/human resources system in order to provide a central, standardized
accounting system. These systems enable us to cost effectively increase the
productivity and quality of administrative support by standardizing operational
systems such as payroll, payables, purchasing and financial reporting.

     Billing and Collections. We have implemented the Kenan Systems' EC Arbor
billing solution for most of our operations. This billing system offers high
quality, flexibility, cost-effectiveness and scalability. Kenan Systems is a
leading billing solutions provider to the telecommunications industry, providing
accurate, timely, and easy-to-understand invoicing.

INTERNATIONAL OPERATIONS

     Through our Web hosting acquisitions and distribution and reseller
relationships, Verio has gained a substantial international Web hosting
presence. We now serve customers in over 170 countries and we estimate that
approximately 10% of our revenues currently are derived from international
sources. Hiway owned minority and majority interests in certain entities that
provide Web hosting and other enhanced Internet services in various foreign
countries. Upon the completion of the Hiway acquisition, Verio acquired the
majority and minority equity positions held by Hiway at that time. To capitalize
on opportunities presented by the rapidly emerging European business Internet
market, Verio has begun to significantly expand its Web hosting operations in
Europe. We have a leading position in shared server hosting throughout Europe,
and our expansion plans are designed to leverage our local presence and leading
Web hosting products and platforms. We have recently begun to offer dedicated
hosting services in Europe and plan to introduce application hosting products to
the European market in the near term. Our already strong European market
position is comprised of more than 1,200 resellers, a private label distribution
relationship with Swisscom AG, a co-branded "Powered by Verio" distribution
relationship with Italian telecommunications company Infostrada, a wholly owned
subsidiary of the Mannesmann Group, ownership of or equity investments in Web
hosting companies in the top four European markets and an exclusive marketing
relationship with AOL UK, CompuServe and Netscape Online in the UK. We have
recently acquired the remaining 40% interest in our RapidSite UK subsidiary and
now own 100% of that entity. We also own 100% of WWW-Service
Online-Dienstleistungen GmbH, which offers Web hosting and related services in
Germany, as well as minority interests in Web hosting companies in France and
Spain. We may seek to acquire the remaining equity of the other partially owned
international entities in the future. However, we also may decide to leave some
equity in our international subsidiaries in the hands of local owners in order
to retain their continued services and expertise in managing these distant
operations. Our expansion plans in Europe include adding more "Powered by Verio"
and other distribution partners throughout the key European markets, acquiring
hosting facilities, hiring additional local sales and technical support staff,
increasing local brand recognition through marketing and advertising campaigns
and pursuing additional hosting acquisitions in Europe.

COMPETITION

     The market for Internet access, Web hosting and related services is
extremely competitive. Verio anticipates that competition will continue to
intensify as the use of the Internet grows. The tremendous growth and potential
market size of the Internet access market has attracted many new start-ups as
well as existing businesses from different industries. Current and prospective
competitors include:

     - national, regional and local Internet service providers;

     - other independent providers of Web hosting, e-commerce, and other
       enhanced value Internet services;

     - global, national, and regional long distance and local exchange
       telecommunications companies;

     - cable television companies;
                                       17
<PAGE>   20

     - direct broadcast satellite and wireless communications providers;

     - on-line service providers; and

     - computer hardware and software manufacturers and vendors.

     Our competitors may operate in any one or more of these areas and include
companies such as AT&T, Cable & Wireless, Concentric Network, Digex, Exodus
Communications, Frontier/Global Center and PSINet.

     Verio believes that the following are the primary competitive factors in
this market:

     - secure and reliable national network and technology platforms with
       sufficient capacity, quality of service and scalability to support
       continued growth;

     - knowledgeable and effective sales force, and broad and effective
       distribution channels;

     - knowledgeable and capable technical support personnel, and prompt and
       efficient customer care services;

     - Internet system engineering and other technical expertise;

     - competitive prices;

     - timely introductions of new products and services;

     - sufficient financial resources; and

     - recognized and trusted brand name.

     Many of our competitors have significantly greater market presence, brand
recognition, and financial, technical, network capacity and personnel resources
than we do. All of the major long distance companies, also known as
interexchange carriers, offer Internet access services that compete with us. The
reforms in the federal regulation of the telecommunications industry brought
about by the Telecommunications Act of 1996 created greater opportunities for
local exchange carriers, including the regional bell operating companies, to
enter the Internet access market. In order to address the Internet access
requirements of the current business customers of long distance and local
carriers, there is a move toward integrating horizontally through acquisitions
of, joint ventures with, and the wholesale purchase of Internet access from,
Internet service providers by these telecommunications companies. In addition,
many of the major cable companies and other alternative service
providers -- such as those companies utilizing wireless terrestrial and
satellite-based service technologies -- have announced plans to offer Internet
access and related services. Accordingly, we expect that we will experience
increased competition from traditional and emerging telecommunications
providers. Many of these companies, in addition to their substantially greater
network coverage, market presence, and financial, technical and personnel
resources, also have large existing commercial customer bases. Furthermore, they
may have the ability to bundle Internet access with basic local and long
distance telecommunications services. This bundling of services may have an
adverse effect on our ability to compete effectively with them and may result in
pricing pressure on us that would adversely affect our financial condition and
results of operations.

     The recent deployment and further planned deployment of broadband services
and high capacity data transmission capabilities by cable and telephone
companies through new technologies such as cable modems and various digital
subscriber lines create further competitive pressure in Verio's business. While
these providers initially targeted the residential consumer, more recently a
number of digital subscriber lines providers have announced their intent to
offer digital subscriber lines services to our target business market. This may
significantly affect the pricing of our Internet access service offerings.
Similar to the co-marketing arrangement that we entered into with NorthPoint
Communications in early 1999, a number of digital subscriber lines providers
have launched their services in conjunction with Internet service providers,
allowing those providers to offer Internet access over digital subscriber line
circuits. These digital subscriber line

                                       18
<PAGE>   21

circuits compete with our dedicated connectivity offerings because they provide
higher speed and lower latency Internet connections than a standard dialup phone
connection.

EMPLOYEES

     As of December 31, 1999, Verio employed approximately 1,870 people,
including full-time and part-time employees at our corporate headquarters in
Colorado, our network operations and customer support center in Texas and at our
distributed operational offices across the country and around the world. We
consider our employee relations to be good. None of our employees are covered by
a collective bargaining agreement.

TRADEMARKS, TRADE NAMES AND OTHER INTELLECTUAL PROPERTY RIGHTS

     We rely on various copyright, trademark, service mark, and trade secret
laws and contractual restrictions in order to establish and protect certain
proprietary rights that are important in our business. We obtained federal
trademark protection for "Verio" on May 25, 1999. On September 2, 1998, Verio
filed for protection of the service mark "The New World of Business." These
applications are pending and there is no assurance that they will be granted. We
have also filed for trademark protection for the Verio mark in the European
Economic Community and Japan. Additionally, corporate name reservations for the
name "Verio Inc." have been filed in all fifty states. Hiway Technologies(R) and
Best Internet Communications(R) are registered trademarks of Hiway. Hiway(TM),
HWAY(TM), A Home Page(TM) and RapidSite(TM) are trademarks of Hiway. TABNET(R)
is a registered trademark of TABNet. TABNet has applied for federal trademark
protection for the following marks: 1-800-WEB SITE(TM), NETANNOUNCE(TM),
NTX(TM), and TAB.NET(TM).

     We also rely on many technologies that we license from third parties that
support our internal systems and operations, or that are incorporated in the
products and services that we offer our customers. For example, we license
software for our billing, financial accounting and reporting, and other
back-office systems, from vendors such as Oracle that we in turn provide to
customers on a hosted application basis, and from various technology providers
that enable specific aspects of the electronic commerce services that we offer
our customers. There can be no assurance that these third party technology
licenses will continue to be available to us on commercially reasonable terms.
The loss of such technology could require us to obtain substitute technology of
lower quality or performance standards, or at greater cost, which could harm our
business.

GOVERNMENT REGULATION

     We are not currently subject to direct federal, state or local government
regulation, other than regulations applicable to businesses generally. There
currently is only a small body of laws and regulations directly applicable to
the provision of access to or commerce services on the Internet. For example, in
late 1998, Congress enacted the Digital Millennium Copyright Act, which includes
a limitation on liability of on-line service providers for copyright
infringement for transmitting, routing or providing connections, storage or
caching of data at the direction of a user. This limitation on liability applies
if the service provider has no actual knowledge that the particular data
infringed on third party intellectual property rights and if certain other
conditions are met. Because this law is relatively new, we are not sure how it
will be applied to limit any liability that we may face in the future for
possible copyright infringement-related issues that arise in connection with the
services we provide. This law also requires that service providers follow
certain notice and take-down procedures with respect to allegedly infringing
materials in order to take advantage of the limitation on liability provided by
the Act. We are in the process of implementing these sorts of procedures across
our operations. Certain provisions of the Communications Decency Act, which
imposes criminal penalties for using an interactive computer service for
transmitting obscene or indecent communications, have been found
unconstitutional by the U.S. Supreme Court. Other federal legislation, that was
enacted to require limitations on access to pornography and other material
deemed harmful to minors, also was determined to violate the First Amendment,
but that decision is on appeal. We are unable to predict the outcome of this
appeal, or whether other similar legislation will be enacted or enforced. In
addition, the Federal Trade Commission has adopted final rules that are to
become effective April 21, 2000, regarding the Children's Online Privacy
Protection Act's prohibition of unfair and deceptive acts and practices in
connection with the collection and use of personal information from and about
children on the Internet. The rules provide that Web sites directed
                                       19
<PAGE>   22

at children under 13 years of age must obtain verifiable parental consent before
collecting personal information from children and must take other measures
intended to safeguard children's privacy. Additional requirements may be imposed
on Web site operations relating to the use, dissemination and collection of
personal information.

     Despite the enactment of the Digital Millennium Copyright Act, the law
relating to the liability of Internet access and Web hosting providers for
information hosted on or disseminated through their networks remains largely
unsettled. It is possible that claims could be made against on-line service
providers under both U.S. and foreign law based on matters such as defamation,
obscenity, negligence or other legal theories, as well as intellectual property
infringement, based on the nature and content of the data disseminated through
or hosted on their networks. Numerous private lawsuits have been initiated in
which such liability is sought to be imposed against on-line service providers.

     We have adopted a standard acceptable use policy that applies to all of our
customers, that prohibits them from posting, transmitting, or storing material
on or through our services that we determine to be in violation of third party
intellectual property rights. Our acceptable use policy also imposes other
restrictions on our customers in connection with the use of our services,
including prohibitions on illegal activity or other activity that is destructive
or potentially destructive to our business or reputation or to our customers. We
initially designed and continue to evolve our acceptable use policy to promote
the security, reliability and privacy of our systems and network. However we
cannot assure that our policy will accomplish this goal or shield us from
liability under the Digital Millennium Copyright Act or otherwise with respect
to the activities of, or the content hosted or transmitted by, our customers or
other Internet users.

     Because of the increased popularity and use of the Internet, it is likely
that a number of additional laws and regulations may be adopted at the federal,
state and local levels, governing such issues as user privacy, freedom of
expression, pricing, taxation, advertising, intellectual property rights,
information security and the convergence of traditional telecommunications
services with on-line services and Internet communications. Legislation
addressing such things as on-line security, privacy, mass unsolicited commercial
e-mail messages, and the regulation of sales of products, such as
pharmaceuticals, firearms, drug paraphernalia and gambling is proposed regularly
in many states and in Congress. The implementation of any such legislation could
result in direct or indirect regulation of on-line service providers generally,
including Verio. In that case, it is likely that we would have to implement
additional policies and procedures designed to assure our compliance with the
particular legislation. Further, the adoption of such laws and regulations might
decrease growth of the Internet generally, which in turn could negatively impact
our business. In addition, applicability to the Internet of existing laws
governing such things as property ownership, intellectual property rights,
taxation, obscenity, defamation, libel and personal property is uncertain.
Because so many of the existing laws on these topics were adopted prior to the
advent of the Internet and related technologies, as a result they do not
contemplate, address or readily apply to the unique issues that the Internet and
its use create.

                   FACTORS AFFECTING FUTURE OPERATING RESULTS

     This Annual Report on Form 10-K contains forward-looking statements
concerning the Registrant's future products, expenses, revenue, liquidity and
cash needs as well as the Registrant's plans and strategies. These
forward-looking statements are based on current expectations and the Registrant
assumes no obligation to update this information. Numerous factors could cause
actual results to differ significantly from the results described in these
forward-looking statements, including the following risk factors.

WE HAVE A HISTORY OF LOSSES AND LIMITED OPERATING AND FINANCIAL DATA

     We have incurred net losses attributable to common stockholders since our
inception in March 1996. For the period from inception to December 31, 1996, we
had a loss attributable to common stockholders of $5.1 million, and for the
years ended December 31, 1997, 1998 and 1999, we had losses attributable to
common stockholders of $46.3 million, $122.0 million and $192.8 million,
respectively. Because we have a relatively short operating history, there is
little operating and financial data about us, which makes an evaluation of our
business operations and prospects more difficult. We have experienced annual
growth in
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<PAGE>   23

revenue from approximately $2.4 million for the period from our inception to
December 31, 1996; to approximately $35.7 million in 1997; to approximately
$120.7 million in 1998; and to approximately $258.3 million for the year ended
December 31, 1999.

THE MARKET PRICE AND TRADING VOLUME OF OUR COMMON STOCK ARE VOLATILE

     The market price of our common stock has fluctuated significantly in the
past, and is likely to continue to be highly volatile. In addition, the trading
volume in our common stock has fluctuated, and significant price variations can
occur as a result. We cannot assure you that the market price of our common
stock will not fluctuate or decline significantly in the future. In addition,
the U.S. equity markets have from time to time experienced significant price and
volume fluctuations that have particularly affected the market prices for the
stocks of Internet-related companies, specifically and technology and
telecommunications companies generally. These broad market fluctuations may
materially adversely affect the market price of our common stock in the future.
Such variations may be the result of changes in our business, operations or
prospects, announcements of technological innovations and new products by
competitors, new contractual relationships with strategic partners by us or our
competitors, proposed acquisitions by us or our competitors, financial results
that fail to meet public market analyst expectations, regulatory considerations
and domestic and international market and economic conditions.

WE EXPECT CONTINUING LOSSES AND CANNOT ASSURE YOU THAT WE WILL BECOME PROFITABLE

     We expect to continue to operate at a net loss in the near term as we
continue to use significant amounts of cash for our data center expansion, our
acquisition and integration efforts, the build out of our national network
operations, the expansion and enhancement of our product and service offerings
and the further establishing our brand name recognition. The extent to which we
experience negative cash flow will depend upon a number of factors, including
the following:

     - the number and size of any additional acquisitions and investments;

     - the expense and time required to integrate prior and future acquired
       operations;

     - the time and effort required to capture operating efficiencies;

     - our ability to generate increased revenues;

     - the amount of our expenditures at the corporate, national and network
       operations levels; and

     - potential regulatory developments that may affect our operations.

In order to achieve profitability, we must develop and market products and
services that gain broad commercial acceptance. We cannot assure you that our
products and services will ever achieve broad commercial acceptance or that we
will achieve profitability. Although we have experienced significant growth in
revenues on an annual basis, this growth rate is not necessarily indicative of
future operating results. We cannot assure you that we will achieve or sustain
positive operating cash flow or generate net income in the future.

OUR SUCCESS IS HIGHLY DEPENDENT ON THE EVOLUTION OF OUR OVERALL MARKET, THE
GROWTH OF OUR EXISTING INTERNET ACCESS AND WEB HOSTING CORE SERVICES, AND ON OUR
ABILITY TO EXPAND OUR SERVICE OFFERINGS AND DISTRIBUTION CHANNELS

     The market for Web site and application hosting and related services has
only recently begun to develop and is evolving rapidly. Although certain
industry analysts project significant growth for this market, their projections
may not be realized. Our future growth, if any, will depend on the continued
trend of businesses outsourcing their Web site and application hosting and our
ability to market our services effectively. There can be no assurance that the
market for our services will grow, that our services will be adopted, or that
businesses will use these Internet-based services to the degree or in the manner
that we expect. It is possible that at some point businesses may find it
cheaper, more secure or otherwise preferable to host their Web sites and

                                       21
<PAGE>   24

applications internally and decide not to outsource the management of their Web
sites and applications. If we are unable to react quickly to changes in the
market, if the market fails to develop, or develops more slowly than expected,
or if our services do not achieve market acceptance, then we are unlikely to
become or remain profitable.

     While we continue to pursue acquisitions and investments both in the U.S.
and internationally, our success is highly dependent on the growth of our
existing Internet access and Web hosting core service platforms, as well as the
growth of our e-commerce, application hosting, and other enhanced service
offerings. We expect to drive this internal growth by expanding and enhancing
our product service base with additional enhanced value Internet service
capabilities and by establishing further distribution capabilities. We may
develop these further product and distribution capabilities internally, but we
primarily plan to form strategic relationships with various vendors and
distribution partners. Accordingly, it will be important that we either develop
these capabilities internally or identify suitable potential product and service
vendors and distributors with whom we are able to complete agreements on
acceptable terms. We expect that competition for strategic relationships with
key vendors and potential distributors could be significant and that we may have
to compete with other companies with greater financial and other resources to
obtain these important relationships. We cannot assure you that we will be able
to identify suitable partnering candidates or be able to complete agreements on
acceptable terms with these parties. Once implemented, we cannot assure you that
any additional service capabilities that we launch will achieve general
commercial acceptance or generate significant revenue, or that any particular
distribution channels will prove to be effective.

WE HAVE SUBSTANTIAL LIABILITIES WHICH MAY IMPACT OUR FUTURE OPERATIONS AND
AFFECT OUR ABILITY TO MEET OUR DEBT OBLIGATIONS

     We have substantial amounts of outstanding debt and other liabilities. At
December 31, 1999, our total long-term liabilities were approximately $1,098.8
million, representing 67% of our total capitalization. In addition, we have a
$100.0 million revolving credit facility from a group of financial institutions.
To date, we have not drawn any funds under this credit facility.

     High levels of debt have had and could have several important effects on
our future operations. Some of these consequences include the following:

     - A substantial portion of our cash flow from operations must be used to
       pay interest on our debt and will not be available for other business
       purposes.

     - Covenants imposed under certain of our financing agreements limit our
       ability to pursue our business strategy, borrow additional funds to grow
       our business, acquire and dispose of assets, and make capital
       expenditures, and may otherwise restrict our operations and growth.

     Our ability to meet our debt and other obligations and to reduce our total
debt depends on our future operating performance and on economic, financial,
competitive, regulatory and other factors. Many of these factors are beyond our
control. In addition, we may need to incur additional indebtedness in the
future. We believe that our existing current assets, combined with working
capital from our operations, our existing credit facility, capital lease
financings and proceeds of future equity or debt financings will be adequate to
meet our

                                       22
<PAGE>   25

existing financial obligations. We cannot assure you, however, that our business
will generate sufficient cash flow or that future financings will be available
to provide sufficient proceeds to meet these obligations or to service our total
debt. In particular, our cash flow may not be sufficient to pay:

     - $13.5 million in annual interest on the 1997 Notes;

     - $18.2 million in annual interest on the March 1998 Notes;

     - $45.0 million in annual interest on the November 1998 Notes;

     - $42.5 million in annual interest on the November 1999 Notes, plus any
       additional amounts owed thereon depending on certain contingencies; or

     - any debt obligations we may incur under the credit facility, if drawn
       upon.

     In addition to the required interest payments on our debt, beginning in
November 2000, we will have to pay up to $24.3 million in annual dividends on
our convertible preferred stock, plus any additional dividends owed thereon,
depending on certain contingencies. These dividends may be paid in the form of
shares of our common stock. However, if it is not possible or practical to issue
shares of common stock at the time such dividend payments are due, then these
payments would have to be made in cash.

OUR EARNINGS HAVE BEEN INSUFFICIENT TO PAY OUR COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS

     Our earnings were insufficient to pay our combined fixed charges and
preferred stock dividends during those periods and by the amounts set forth in
the table below, although our combined fixed charges and preferred stock
dividends included substantial non-cash charges for depreciation, amortization
and non-cash interest expense on some of our debt:

<TABLE>
<CAPTION>
                                                               EARNINGS     NON-CASH
                                                              DEFICIENCY    CHARGES
                                                              ----------    --------
                                                                  (IN THOUSANDS)
<S>                                                           <C>           <C>
Period from inception to December 31, 1996..................  $  (5,825)    $    784
Fiscal year ended December 31, 1997.........................  $ (48,253)    $ 11,468
Fiscal year ended December 31, 1998.........................  $(112,423)    $ 48,516
Fiscal year ended December 31, 1999.........................  $(192,774)    $113,669
</TABLE>

     We anticipate that earnings will be insufficient to cover our combined
fixed charges and preferred stock dividends for the next several years. In order
for us to meet our debt obligations, we will need to substantially improve our
operating results. We cannot assure you that our operating results will be of
sufficient magnitude to enable us to meet our debt and preferred stock
obligations. In the absence of such operating results, we could face substantial
liquidity problems and may be required to raise additional financing through the
issuance of debt or equity securities. We cannot assure you, however, that we
would be successful in raising such financing on acceptable terms or otherwise.

OUR RAPID GROWTH PUTS SIGNIFICANT STRAIN ON OUR RESOURCES

     As a result of our growth and acquisition strategy, we have been growing
rapidly and expect to continue to grow rapidly. This rapid growth has placed,
and is likely to continue to place, a significant strain on our managerial,
operating, financial and other resources, including our ability to ensure
customer satisfaction. For example, as our customer base grows, and the need for
high capacity Internet data transmission capability expands, we will need to
continue to acquire substantial network capacity to support these needs. We
recently announced a capital budget of $350 million that we expect to expend
during 2000 to significantly expand our Web hosting and co-location
infrastructure, systems and personnel. In addition to the significant capital
requirements, our expansion efforts also require significant time commitments
from our senior management and place a strain on their ability to manage our
existing business. We also may be required to manage multiple relationships with
third parties as we expand our enhanced value service offerings, including Web

                                       23
<PAGE>   26

hosting. Our future performance will depend, in part, upon our ability to manage
this growth effectively. To that end, we will have to undertake the following
improvements, among others:

     - implement additional management information systems capabilities;

     - further develop our operating, administrative, financial and accounting
       systems and controls;

     - improve coordination between our engineering, accounting, finance,
       marketing and operations; and

     - hire and train additional personnel.

WE DEPEND UPON THIRD-PARTY CHANNEL PARTNERS FOR SALES OF OUR PRODUCTS AND
SERVICES

     We depend on third-party channel partners to stimulate demand for our
products and services both where we do not have a direct sales force, and as an
alternative means for generating sales to customers. These channel partners
include computer and telecommunications providers, Internet companies and
portals, value-added resellers, original equipment manufacturers, systems
integrators, Web designers and advertising agencies. Many of our channel partner
distribution relationships involve untested or novel modes of distributing our
products and services, and not all of these channel partners have been
successful in meeting our objectives for generating additional sales of our
products and services. If we fail to gain commercial acceptance in certain
markets, channel partners may discontinue their relationships with us or we may
fail to achieve a return on our investment in certain channel partner
distribution arrangements. Conflicts may develop between our direct sales force
efforts and those of our channel partners as well as among different channel
partners. The loss of channel partners, the failure of such parties to perform
under agreements with us, or the inability to attract other channel partners
with the expertise and industry experience required to market our products and
services could adversely affect us. Furthermore, sales through channel partners
are usually at discounted rates or may require us to incur additional sales and
marketing expenses. Therefore, the resulting revenues and gross margins will be
less than if we had sold the same services directly.

WE FACE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION

     We provide Web hosting services to customers in over 170 countries. For the
year ended December 31, 1999, we estimate that approximately 10% of our total
revenues were from international operations. We expect to continue to expand in
these and other international markets. However, the rate of development and
adoption of the Internet has been slower outside the U.S., and the cost of
transmitting data over the Internet outside the U.S. has been higher, which may
adversely affect our ability to expand operations, and may increase our costs of
operations internationally. We cannot assure you that acceptance of the Internet
or demand for Internet access, Web hosting and other enhanced value Internet
services will increase significantly in any international markets.

     We may need to enter into joint ventures or other outsourcing agreements
with third parties, acquire complementary businesses or operations, or establish
or maintain new operations outside the U.S. in order to conduct our foreign
operations successfully. However, we cannot assure you that we will be able to
obtain the permits and operating licenses required to operate, to hire and train
employees, or to market, sell and deliver high quality services in these
markets. In addition, there are certain risks inherent in doing business on an
international level. These risks include:

     - unexpected changes in, or delays resulting from, regulatory requirements,
       tariffs, customs, duties and other trade barriers;

     - difficulties in staffing and managing foreign operations;

     - longer payment cycles and problems in collecting accounts receivable;

     - political instability, expropriation, nationalization, war, insurrection
       and other political risks;

     - fluctuations in currency exchange rates and foreign exchange controls
       which restrict or prohibit repatriation of funds;

                                       24
<PAGE>   27

     - technology export and import restrictions or prohibitions;

     - employment laws and practices in foreign countries;

     - delays from customs brokers or government agencies;

     - differences in technology standards;

     - seasonal reductions in business activity during the summer months in
       Europe and certain other parts of the world; and

     - potentially adverse tax consequences.

     We cannot assure you that any of these factors will not have an adverse
effect on our future international operations. In addition, changes in existing
foreign laws or administrative practice relating to taxation, foreign exchange,
regulatory or other matters could adversely affect us. For example, the European
Union recently enacted its own privacy regulations. Future decisions, laws,
regulations and other activities regarding regulation and content liability may
significantly affect our business. Certain foreign governments, such as Germany,
have enforced laws and regulations related to content distributed over the
Internet that are more restrictive than those currently in place in the U.S.
This could adversely affect our investment in international operations such as
WWW -- Service Online -- Dienstleistungen GmbH.

     Effective January 1, 1999, 11 of the 15 member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the euro, and adopted the euro as their common legal currency. We
have not commenced any assessment of the effects or potential impact that the
euro conversion would have on us.

WE FACE A HIGH LEVEL OF COMPETITION IN THE INTERNET SERVICES INDUSTRY

     The tremendous growth and potential market size of the Internet services
market and the absence of substantial barriers to entry have attracted many new
start-ups as well as existing businesses from the telecommunications, cable and
technology industries. As a result, the market for Internet access, Web hosting
and related services is extremely competitive. We anticipate that competition
will continue to intensify as the use of the Internet grows. Current and
prospective competitors include:

     - national, regional and local Internet service providers;

     - other independent providers of Web hosting and other enhanced value
       Internet services;

     - global, national and regional long distance and local exchange
       telecommunications companies;

     - cable television companies;

     - direct broadcast satellite and wireless communications providers;

     - on-line service providers; and

     - computer hardware and software manufacturers and vendors.

     We believe that the following are the primary competitive factors in this
market:

     - a secure and reliable national network and technology platforms with
       sufficient capacity, quality of service and scalability to support
       continued growth;

     - a knowledgeable and effective sales force, and broad and effective
       distribution channels;

     - knowledgeable and capable technical support personnel, and prompt and
       efficient customer care services;

     - Internet system engineering and other technical expertise;

     - competitive prices;

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<PAGE>   28

     - timely introductions of new products and services;

     - sufficient financial resources; and

     - a recognized and trusted brand name.

     Many of our competitors have significantly greater market presence, brand
recognition, and financial, technical, network capacity and personnel resources
than we do. All of the major long distance companies, also known as
interexchange carriers, offer Internet access services that compete with us. The
reforms in the federal regulation of the telecommunications industry brought
about by the Telecommunications Act of 1996 created greater opportunities for
local exchange carriers, including the regional Bell operating companies, to
enter the Internet access market. In order to address the Internet access
requirements of the current business customers of long distance and local
carriers, many carriers are integrating horizontally through acquisitions of or
joint ventures with Internet service providers, or by wholesale purchase of
Internet access from Internet service providers. In addition, many of the major
cable companies and other alternative service providers -- such as those
companies utilizing wireless terrestrial and satellite-based service
technologies -- have announced plans to offer Internet access and related
services. Accordingly, we expect that we will experience increased competition
from traditional and emerging telecommunications providers. Many of these
companies, in addition to their substantially greater network coverage, market
presence and financial, technical and personnel resources, also have large
existing commercial customer bases. Furthermore, they may have the ability to
bundle Internet access Web hosting, and related services with basic local and
long distance telecommunications services. This bundling of services may have an
adverse effect on our ability to compete effectively with them and may result in
pricing pressure on us that would adversely affect our business, financial
condition and results of operations.

     The recent deployment and further planned deployment of broadband services
and high capacity data transmission capabilities by cable and telephone
companies through new technologies such as cable modems and various digital
subscriber lines also creates further competitive pressure on our business.
While these providers initially targeted the residential consumer, more recently
a number of digital subscriber lines providers also have announced their intent
to offer services to our target business market. This may significantly affect
the pricing of our Internet access service offerings. Although we sell digital
subscriber line services to business customers in a large number of markets,
there are numerous providers of digital subscriber lines competing with these
product offerings, and several providers have launched their services in
conjunction with Internet service providers, allowing those providers to offer
Internet access over digital subscriber line circuits. These circuits, which
provide higher speed and lower latency Internet connections than a standard
dial-up phone connection, compete with our dedicated connectivity offerings.

     The market for Web server hosting services is highly fragmented and
extremely competitive. Because there are no substantial barriers to entry, the
Company expects that competition will intensify in the future. As a result of an
increase in the number of competitors, and vertical and horizontal integration
in the industry, the Company currently encounters and expects to encounter
significant pricing pressure and other competition in the future. Advances in
technology as well as changes in the marketplace and the regulatory environment
are constantly occurring, and the Company cannot predict the effect that ongoing
or future developments may have on the Internet connectivity and Web server
hosting markets generally or on the Company specifically.

     As we continue to expand internationally, we will encounter new
competitors. In some cases, we will be forced to compete with and buy services
from government-owned or subsidized telecommunications providers. Some of these
providers may enjoy a monopoly on telecommunications services essential to our
business. We cannot assure you that we will be able to purchase these services
at a reasonable price or at all. In addition to the risks associated with our
local competitors, foreign competitors may pose an even greater risk, as they
may possess a better understanding of their local markets and may have better
working relationships with local infrastructure providers and others. We cannot
assure you that we can obtain similar levels of local knowledge. Failure to
obtain that knowledge and those relationships could place us at a significant
competitive disadvantage.

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WE DEPEND UPON OUR NETWORK AND FACILITIES INFRASTRUCTURE

     Our success depends upon our ability to implement, expand and adapt our
national network and data center infrastructure and support services to
accommodate an increasing amount of data traffic and evolving customer
requirements at an acceptable cost. This has required and will continue to
require that we enter into agreements with providers of infrastructure capacity,
equipment, facilities and support services on an ongoing basis. We cannot assure
you that any of these agreements can be obtained on satisfactory terms and
conditions. We also anticipate that future expansions and adaptations of our
network infrastructure and data center facilities may be necessary in order to
respond to growth in the number of customers served, increased demands to
transmit and host larger amounts of data and more complex applications, and
changes to our customers' product and service requirements. This will require
substantial financial, operational and managerial resources. For example, in
January 2000, we announced a capital budget of $350 million that we plan to
expand during 2000 to significantly expand our Web hosting and co-location
infrastructure, systems and personnel. Typically, there is a several month lead
time required in order to select the appropriate location for a new data center,
construct the necessary facilities, install equipment and telecommunications
infrastructure and hire operations and sales personnel. As a result,
expenditures commence well before the data center opens and it takes an extended
period for us to achieve break-even capacity utilization. As a result, we expect
that individual data centers will experience losses for a period of time after
they are opened. We incur further expenses for sales personnel hired to test
market our services in markets where there is no local data center. Growth in
the number of data centers is likely to increase the amount and duration of
losses. In addition, if we do not attract customers to new data centers in a
timely manner, or at all, our business would be adversely affected. We cannot
assure you that we will be able to expand or adapt our network infrastructure to
meet the industry's evolving standards or our customers' growing demands and
changing requirements on a timely or cost-effective basis, or at all.

WE DEPEND UPON SUPPLIERS, WHO ARE OFTEN OUR COMPETITORS, AND HAVE LIMITED
SOURCES OF SUPPLY FOR CERTAIN PRODUCTS AND SERVICES

     We rely on other companies to supply certain key products and services that
we resell and certain components of our network infrastructure. The products and
services that we resell, and certain components that we require for our network,
are only available from limited sources. For example, we currently rely heavily
on Cisco Systems and Juniper Networks to supply routers critical to our network.
We could be adversely affected if routers from Cisco and/or Juniper were to
become unavailable on commercially reasonable terms. Qwest, Sprint, MCI WorldCom
and MFS, who sell products and services that compete with ours, are also our
primary providers of data communications facilities and network capacity.
Northpoint Communications and Covad Communications provide us with digital
subscriber line services for resale to our customers. We also are dependent upon
local exchange carriers, which often are our competitors, to provide
telecommunications services and lease physical space to us for routers, modems
and other equipment. From time to time, we experience delays in the delivery and
installation of telecommunications services, which can lead to the loss of
existing or potential customers or delays in generating revenues from sales to
customers. We cannot assure you that, on an ongoing basis, we will be able to
obtain third-party products and services cost-effectively and on the scale and
within the time frames we require, or at all. Failure to obtain or to continue
to make use of such third-party products and services would have a material
adverse effect on our business, financial condition and results of operations.

OUR COSTS WILL INCREASE IF WE FAIL TO MAINTAIN OUR PEERING RELATIONSHIPS

     The establishment and maintenance of peering relationships with other
Internet service providers are necessary in order to exchange traffic with other
Internet service providers with networks of roughly equivalent size without
paying transit costs. The basis on which the large national Internet service
providers make peering available or impose settlement charges is evolving.
Recently, companies that previously offered peering have cut back or eliminated
peering relationships and are establishing new, more restrictive criteria for
peering, requiring substantial data transmission volume and broad national
scale. Global network capabilities also may become a requirement. We may have to
comply with new and more stringent peering requirements in order to

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<PAGE>   30

maintain our peering relationships. Consolidation among some of the large
network providers (such as the pending merger of MCI WorldCom and Sprint) could
result in a significant imbalance in relative traffic levels between the various
providers' networks, and therefore make the ability to meet peering criteria
more difficult or impossible. Failure to maintain peering relationships or
establish new ones, if necessary, will increase our operating expenses.

OUR NETWORK, WEB HOSTING PLATFORMS OR DATA CENTERS COULD FAIL, WHICH COULD
NEGATIVELY IMPACT OUR REVENUES

     Our success depends upon our ability to deliver reliable, high-speed access
to the Internet and upon the ability and willingness of our telecommunications
providers to deliver reliable, high-speed telecommunications service through
their networks. Our customers often have business-critical and confidential
information in the Web sites we host for them, so we also must provide a
reliable and secure platform for our Web hosting services, in a robust, reliable
and secure physical environment. Our network and facilities, and other networks
and facilities providing services to us, are vulnerable to damage, unauthorized
access, or cessation of operations from human error and tampering, breaches of
security, fires, earthquakes, severe storms, power losses, telecommunications
failures, software defects, intentional acts of vandalism including computer
viruses, and similar events, particularly if the events occur within a high
traffic location of the network or at one of our data centers. A significant
portion of Verio's computer equipment, including components critical to the
operation of our national backbone, is located at our network operations center
facility in Dallas, Texas, at various other points of presence along the
network, and in our data centers. Occasionally, we experience temporary outages
and service interruptions in these facilities as a result of various events and
factors. We believe that this type of service interruption is not abnormal in
the industry. However, the occurrence of a natural disaster or other
unanticipated problems at the network operations center, key sites at which we
locate routers, switches and other computer equipment which make up the backbone
of our network infrastructure, or at one or more of our data centers, could
substantially impact our business. Furthermore, the failure of an individual POP
would result in interruption of service to the customers served by such POP
until necessary repairs were effected or replacement equipment was installed.

     We have designed our network and facilities to minimize the risk of such
system failure, by providing such things as back-up power generators, redundant
high capacity connections to the Internet and continuous monitoring capabilities
at our data centers, and redundant circuits among point of presence facilities
to allow traffic rerouting in our national network. In addition, we engage in
capacity planning and perform lab and field testing before integrating new and
emerging technology into the network. Nonetheless, we cannot assure you that we
will not experience failures or shutdowns relating to individual facilities or
even catastrophic failure of the entire network. Despite precautions we have
taken, a natural disaster or other unanticipated problems at one or more of our
Internet data centers could result in interruptions in our services or
significant damage to customer equipment. Any damage to or failure of our
systems or service providers could result in reductions in, or terminations of,
services supplied to our customers, which could have a material adverse effect
on our business.

     Our customers are increasingly requiring that we provide a service-level
warranty for our services and many of our competitors have begun to do so. As a
result, in order to remain competitive, we offer service-level warranties for
certain of our products and services, and expect that we will continue to
evaluate and offer additional such warranties in the future. Typically, these
warranties are based on service downtime, and provide a customer with service or
payment credits for the month in which we do not meet the required service
levels. In the future, we could experience a material decline in our revenues in
connection with any significant system downtime experienced by our customers or
other material changes associated with such warranty coverage.

     We carry business personal property insurance at both scheduled locations
and unscheduled locations, with a blanket property limit of $10.0 million per
location and business interruption insurance with a blanket limit of $2.0
million per location. This insurance may not be adequate or available to
compensate us. In addition, we generally attempt to limit our liability to
customers by contractually disclaiming liability or limiting liability to a
usage credit based on the amount of time that the system was down. We cannot
assure

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<PAGE>   31

you, however, that such limitations of liability will be enforceable. In any
event, significant or prolonged system failures or shutdowns could damage our
reputation and cause us to lose our customers.

ALTHOUGH WE HAVE IMPLEMENTED NETWORK SECURITY MEASURES, OUR NETWORK MAY
EXPERIENCE SECURITY BREACHES

     We have implemented various network security measures, such as limiting
physical and network access to our routers. Nonetheless, we cannot assure you
that our network infrastructure will not be vulnerable to human error,
intentional acts of vandalism including computer viruses, break-ins and similar
security breaches and disruptive problems caused by our customers or other
Internet users. Computer viruses, break-ins or other problems caused by third
parties could lead to interruptions, delays or cessation in service to our
customers. Such incidents could deter potential customers and adversely affect
existing customer relationships.

     Security problems represent an ongoing threat to public and private data
networks. Attacks upon the security of Internet sites and infrastructure
continue to be reported with highly public and visible ramifications to some of
the largest and most visited commercial Web sites. Inappropriate use of the
network by third parties could potentially jeopardize the security of
confidential information stored in our computer systems and our customer's
computer systems. We may face liability and may lose potential subscribers as a
result. Although we intend to continue to implement industry-standard security
measures, such measures occasionally have been circumvented in the past, and we
cannot assure you that our security measures will not be circumvented in the
future. Addressing problems caused by computer viruses, break-ins or other
problems caused by third parties could have a material adverse effect on us, and
the cost of eliminating these security breaches could be prohibitively
expensive.

     PROVIDING SERVICES TO CUSTOMERS WITH MISSION-CRITICAL WEB SITES AND
WEB-BASED APPLICATIONS COULD POTENTIALLY EXPOSE US TO LAWSUITS FOR CUSTOMERS'
LOST PROFITS OR OTHER DAMAGES. Because our Web site and application hosting
services are critical to many of our customers' businesses, any significant
security breaches or interruption in our services could result in claims of lost
profits or other indirect or consequential damages by our customers. Our
customers are required as a general matter to sign server order forms that
incorporate our standard terms and conditions. Although these terms disclaim our
liability for any such damages, a customer could still bring a lawsuit against
us claiming lost profits or other consequential damages as the result of a
service interruption or other Web site or application problems that the customer
may ascribe to us. There can be no assurance a court would enforce any
limitations on our liability, and the outcome of any lawsuit would depend on the
specific facts of the case and legal and policy considerations. We also believe
we would have meritorious defenses to any such claims, but there can be no
assurance we would prevail. In such cases, we could be liable for substantial
damage awards. Such damage awards might exceed our liability insurance by
unknown but significant amounts, which would seriously harm our business.

     Such claims, regardless of their ultimate outcome, could result in costly
litigation and adversely affect our business or reputation or our ability to
attract and retain customers. Moreover, the security and privacy concerns of
existing and potential customers may inhibit the growth of the Internet service
industry and our customer base and revenues.

WE DEPEND ON THE INTERNET AND INTERNET INFRASTRUCTURE DEVELOPMENT

     Our products and services are targeted toward users of the Internet, which
has experienced rapid growth. Critical issues concerning the commercial use of
the Internet remain unresolved and may impact the growth of Internet use,
especially in our target business market. Despite growing interest in the many
commercial uses of the Internet, many businesses have been deterred from
purchasing Internet access services for a number of reasons, including:

     - inconsistent quality of service;

     - lack of availability of cost-effective, high-speed options;

     - a limited number of local access points for corporate users;

     - an inability to integrate business applications on the Internet;

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<PAGE>   32

     - the need to deal with multiple and frequently incompatible vendors;

     - inadequate protection of the confidentiality of stored data and
       information moving across the Internet; and

     - a lack of tools to simplify Internet access and use.

     In particular, numerous published reports have indicated that the perceived
lack of security of commercial data, such as credit card numbers, has
significantly impeded commercial use of the Internet to date. There can be no
assurance that encryption or other technologies will satisfactorily address
these security concerns. Published reports have also indicated that capacity
constraints caused by growth in the use of the Internet may, unless resolved,
impede further development of the Internet to the extent that users experience
delays, transmission errors and other difficulties. The adoption of the Internet
for commerce and communication, particularly by those individuals and
enterprises that have historically relied upon alternative means of commerce and
communication, generally requires the understanding and acceptance of a new way
of conducting business and exchanging information. In particular, enterprises
that have already invested substantial resources in other means of conducting
commerce and exchanging information may be particularly reluctant or slow to
adopt a new strategy that may make their existing personnel and infrastructure
obsolete. If the market for Internet access services fails to develop, develops
more slowly than expected, or becomes saturated with competitors, or if Internet
access and services are not broadly accepted, our business, financial condition
and results of operations will be materially adversely affected. In addition,
the rate of development and adoption of the Internet has been slower outside the
United States and the cost of transmitting data over the Internet has been
higher. The recent growth in the use of the Internet has caused frequent periods
of performance degradation, requiring the upgrade of routers and switches,
telecommunications links and other components forming the infrastructure of the
Internet by providers and other organizations with links to the Internet. Any
perceived degradation in the performance of the Internet as a whole could
undermine the benefits of our services. Consequently, the emergence and growth
of the market for our services is dependent on improvements being made to the
entire Internet infrastructure to alleviate overloading and congestion.

WE MUST KEEP UP WITH TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS

     The market for Internet access and related services is characterized by
rapidly changing technology, evolving industry standards, changes in customer
needs and frequent new product and service introductions. Our future success
will depend, in part, on our ability to effective leading technologies, continue
to develop our technical expertise, enhance our current services, to develop new
products and services that meet changing customer needs and influence and
respond to emerging industry standards and other technological changes on a
timely and cost-effective basis. We cannot assure you that we will be successful
in accomplishing these tasks or that such new technologies or enhancements will
achieve market acceptance. We believe that our ability to compete successfully
is also dependent upon the continued compatibility and interoperability of our
services with products and architectures offered by various vendors. We cannot
assure you that we will be able to effectively address the compatibility and
interoperability issues raised by technological changes or new industry
standards. In addition, we cannot assure you that services or technologies
developed by others will not render our services or technology uncompetitive or
obsolete. For example, our services rely on the continued widespread commercial
use of transmission control protocol/Internet protocol. Alternative open and
proprietary protocol standards that compete with transmission control
protocol/Internet protocol, including proprietary protocols developed by IBM and
Novell, Inc., have been or are being developed. The failure of the market for
business-related Internet solutions to continue to develop would adversely
impact our business financial condition and results of operations.

WE FACE POTENTIAL COSTS AND LIABILITY IN CONNECTION WITH THE INFORMATION WE HOST
AND THAT IS DISSEMINATED THROUGH OUR NETWORK

     We are not currently subject to direct federal, state or local government
regulation, other than regulations applicable to businesses generally. There
currently is only a small body of laws and regulations directly applicable to
the provision of access to or commerce services on the Internet. For example, in
late 1998,
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Congress enacted the Digital Millennium Copyright Act, which includes a
limitation on liability of on-line service providers for copyright infringement
for transmitting, routing or providing connections, storage or caching of data
at the direction of a user. This limitation on liability applies if the service
provider has no actual knowledge that the particular data infringed on third
party intellectual property rights and if certain other conditions are met.
Because this law is relatively new, we are not sure how it will be applied to
limit any liability that we may face in the future for possible copyright
infringement-related issues that arise in connection with the services we
provide. This law also requires that service providers follow certain notice and
take-down procedures with respect to allegedly infringing materials in order to
take advantage of the limitation on liability provided by the Act. We are in the
process of implementing these sorts of procedures across our operations. Certain
provisions of the Communications Decency Act, which imposes criminal penalties
for using an interactive computer service for transmitting obscene or indecent
communications, have been found unconstitutional by the U.S. Supreme Court.
Other federal legislation, that was enacted to require limitations on access to
pornography and other material deemed harmful to minors was determined to
violate the First Amendment, but that decision is on appeal. We are unable to
predict the outcome of this appeal or whether other similar legislation will be
enacted or enforced. In addition, the Federal Trade Commission has adopted final
rules that are to become effective April 21, 2000, regarding the Children's
Online Privacy Protection Act's prohibition of unfair and deceptive acts and
practices in connection with the collection and use of personal information from
and about children on the Internet. The rules provide that Web sites directed at
children under 13 years of age must obtain verifiable parental consent before
collecting personal information from children and must take other measures
intended to safeguard children's privacy. Additional requirements may be imposed
on Web site operations relating to the use, dissemination and collection of
personal information. We have adopted a standard acceptable use policy that
applies to all of our customers, that prohibits them from posting, transmitting,
or storing material on or through our services that we determine to be in
violation of third party intellectual property rights. Our acceptable use policy
also imposes other restrictions on our customers in connection with the use of
our services, including prohibitions on illegal activity or other activity that
is destructive or potentially destructive to our business or reputation or to
our customers. We initially designed and continue to evolve our acceptable use
policy to promote the security, reliability and privacy of our systems and
network. However, we cannot assure that our policy will accomplish this goal or
shield us from liability under the Digital Millennium Copyright Act or otherwise
with respect to the activities of, or the content hosted or transmitted by, our
customers or other Internet users.

     Because of the increased popularity and use of the Internet, it is likely
that a number of additional laws and regulations may be adopted at the federal,
state and local levels, governing such issues as user privacy, freedom of
expression, pricing, taxation, advertising, intellectual property rights,
information security and the convergence of traditional telecommunications
services with on-line services and Internet communications. Legislation
addressing such things as on-line security, privacy, mass unsolicited commercial
e-mail messages, and the regulation of sales of products, such as
pharmaceuticals, firearms, drug paraphernalia and gambling is proposed regularly
in many states and in Congress. The implementation of any such legislation could
result in direct or indirect regulation of on-line service providers generally,
including Verio. In that case, it is likely that we would have to implement
additional policies and procedures designed to assure our compliance with the
particular legislation.

     The imposition on Internet service providers or Web hosting providers of
potential liability for materials carried on or disseminated through their
systems could require us to implement measures to reduce our exposure to such
liability. These measures may require that we spend substantial resources or
discontinue certain product or service offerings. Any of these actions could
have a material adverse effect on our business, financial condition and results
of operations. Further, the adoption of such laws and regulations might decrease
growth of the Internet generally, which in turn could negatively impact our
business. In addition, applicability to the Internet of existing laws governing
such things as property ownership, intellectual property rights, taxation,
obscenity, defamation, libel and personal property is uncertain. Because so many
of the existing laws on these topics were adopted prior to the advent of the
Internet and related technologies, as a result they do not contemplate, address
or readily apply to the unique issues that the Internet and its use create.

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     The law relating to the regulation and liability of Internet access
providers in relation to information carried or disseminated is also developing
in other countries. For example, the European Union has enacted its own data
privacy regulations, and Australia has imposed new obligations on Internet
service providers to block access to certain types of content. Decisions, laws,
regulations and other activities regarding regulation and content liability may
significantly affect the development and profitability of companies offering
on-line and Internet access services.

     We carry an errors and omissions insurance policy. This insurance may not
be adequate or available to compensate us for all liability that may be imposed.

OUR INTERNET ACCESS OPERATIONS MAY BE IMPACTED BY GOVERNMENT REGULATION

     Although as an Internet access provider we are not currently subject to
direct federal governmental regulation other than regulations applicable to
businesses generally, changes in the regulatory environment relating to the
Internet connectivity market could affect our business, financial condition and
results of operations. For example, regulations at the Federal Communications
Commission require discounted Internet connectivity rates for schools and
libraries. Due to the increasingly widespread use of the Internet for the
hosting, use and transmission of content, it is likely that additional laws and
regulations will be adopted at the federal, state and local level, especially
that is content related, that will apply directly or indirectly to us. For
example, legislation concerning unsolicited commercial e-mail messages, on-line
gambling, on-line sales of pharmaceuticals, drug paraphernalia and other illegal
or controlled goods and services, privacy, libel, intellectual property
protection and infringement, technology export and other controls is pending
and, in some cases, has been adopted in various states as well as at the federal
level. We may be subject to similar or other laws and regulations in non-U.S.
jurisdictions.

     Moreover, the Federal Communications Commission continues to review its
regulatory position on the usage of the basic network and communications
facilities by Internet service providers. Although in an April 1998 report the
Federal Communications Commission determined that Internet service providers
should not be treated as telecommunications carriers and, therefore, need not be
regulated, future Internet service provider regulatory status remains uncertain.
Indeed, in its 1998 report, the Federal Communications Commission concluded that
certain services offered over the Internet, such as phone-to-phone Internet
protocol telephony, may be functionally indistinguishable from traditional
telecommunications service offerings and their non-regulated status may have to
be re-examined.

     Changes in the regulatory structure and environment affecting the Internet
access market, including regulatory changes that directly or indirectly affect
telecommunications costs or increase the likelihood of competition from regional
bell operating companies or other telecommunications companies, could adversely
affect us. Although the Federal Communications Commission has decided not to
allow local telephone companies to impose per-minute access charges on Internet
service providers, and that decision has been upheld by a reviewing court,
further regulatory and legislative consideration of this issue is likely. In
addition, some telephone companies are seeking relief through the Federal
Communications Commission and state regulatory agencies. Such rules, if adopted,
are likely to have a greater impact on consumer-oriented Internet access
providers than on business-oriented Internet service providers such as us.
Nonetheless, the imposition of access charges would affect our costs of serving
dial-up customers and could have a material adverse effect on our business,
financial condition and results of operations.

OUR SUCCESS DEPENDS ON OUR ABILITY TO SUCCESSFULLY INTEGRATE THE OPERATIONS WE
HAVE ACQUIRED AND MAY ACQUIRE IN THE FUTURE

     A key element of our business strategy is to grow through acquisitions, and
our success depends in large part on our ability to integrate the operations and
management of the independent Internet operations we have

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acquired and those we may acquire in the future. To integrate our newly acquired
Internet operations successfully, we must:

     - install and standardize adequate operational and control systems;

     - deploy standard equipment and telecommunications facilities;

     - employ qualified personnel to provide technical and marketing support in
       new as well as existing locations;

     - eliminate redundancies in overlapping network systems and personnel;

     - incorporate acquired technology and products into our existing service
       offerings;

     - implement and maintain uniform standards, procedures and policies;

     - standardize marketing and sales efforts under the common Verio brand; and

     - continue the expansion of our managerial, operational, technical and
       financial resources.

     The process of consolidating and integrating acquired operations takes a
significant period of time, places a significant strain on our managerial,
operating and financial resources, and could prove to be even more expensive and
time-consuming than we have predicted. We may increase expenditures in order to
accelerate the integration and consolidation process with the goal of achieving
longer-term cost savings and improved profitability.

     The key integration challenges we face in connection with our acquisitions
include:

     - acquired operations, facilities, equipment, service offerings, networks,
       technologies, brand names and sales, marketing and service development
       efforts may not be effectively integrated with our existing operations;

     - anticipated cost savings and operational benefits may not be realized;

     - in the course of integrating an acquired operation, we may discover facts
       or circumstances that we did not know at the time of the acquisition that
       adversely impact our business or operations, or make the integration more
       difficult or expensive;

     - integration efforts may divert our resources from our existing business;

     - standards, controls, procedures and policies may not be maintained;

     - employees who are key to the acquired operations may choose to leave; and

     - we may experience unforeseen delays and expenses.

WE FACE RISKS ASSOCIATED WITH ACQUISITIONS GENERALLY

     We expect to continue our acquisition and expansion strategy. Future
acquisitions could materially adversely affect our operating results as a result
of dilutive issuances of equity securities and the incurrence of additional
debt. In addition, the purchase price for many of these acquired businesses
likely will significantly exceed the current fair value of the net identifiable
assets of the acquired businesses. As a result, material goodwill and other
intangible assets would be required to be recorded which would result in
significant amortization charges in future periods. These charges, in addition
to the financial impact of such acquisitions, could have a material adverse
effect on our business, financial condition and results of operations.

     We have recorded all business acquisitions under the purchase method of
accounting. With the acquisition on January 5, 1999, of Best Internet
Communications, Inc. (d/b/a Hiway Technologies), which we refer to as Hiway, we
recorded gross goodwill totaling approximately $241.5 million which is being
amortized over a ten-year period from the acquisition date. On July 13, 1999, we
acquired all of the outstanding stock of Computer Services Group, Inc. (which
conducted business as digitalNATION) for $100.0 million in cash, the goodwill
associated with which is being amortized over a ten-year period from the
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acquisition date. We cannot assure you of the number, timing or size of future
acquisitions, or the effect that any such acquisitions might have on our
operating or financial results.

THE FINANCIAL INFORMATION CONCERNING BUSINESSES WE ACQUIRE MAY BE INACCURATE

     A number of the Internet businesses we have acquired did not have audited
financial statements, and this may be true for subsequent acquisitions as well.
These companies often have varying degrees of internal controls and detailed
financial information, and the financial information we are able to provide for
recently completed acquisitions may not be audited. Our subsequent audits of
those acquired companies may reveal significant issues with respect to revenues,
expenses and liabilities, contingent or otherwise.

OUR OPERATING RESULTS FLUCTUATE DUE TO A VARIETY OF FACTORS AND ARE NOT
NECESSARILY A MEANINGFUL INDICATOR OF FUTURE PERFORMANCE

     Our operating results have fluctuated in the past and may fluctuate
significantly in the future depending upon a variety of factors, including the
incurrence of capital costs and the introduction of new products and services.
Additional factors that may contribute to variability of operating results
include:

     - the pricing and mix of services we offer;

     - our customer retention rate;

     - changes in pricing policies and product offerings by our competitors;

     - growth in demand for network and Internet access services;

     - one-time costs associated with acquisitions and the consolidation and
       integration of our acquired operations; and

     - general telecommunications services' performance and availability.

     We also have experienced seasonal variation in Internet use. Accordingly,
our revenue streams may fluctuate. In response to competitive pressures, we may
take certain pricing or marketing actions that could have a material adverse
effect on our business, financial condition and results of operations.
Therefore, we believe that period-to-period comparisons of our operating results
are not necessarily meaningful and cannot be relied upon as indicators of future
performance. If our operating results in any future period fall below the
expectations of securities analysts and investors, the market price of our
securities would likely decline.

     We depend on key personnel and could be affected by the loss of their
services because of the limited number of qualified people in our industry.

     Competition for qualified employees and personnel in the Internet services
industry is intense and there are a limited number of people with knowledge of
and experience in the Internet service industry. The process of locating
personnel with the combination of skills and attributes required to carry out
our strategies is often lengthy. Our success depends to a significant degree
upon our ability to attract and retain qualified management, technical,
marketing and sales personnel and upon the continued contributions of such
people. We cannot assure you that we will be successful in attracting and
retaining qualified executives and personnel. In addition, our employees may
voluntarily terminate their employment with us at any time. The loss of the
services of key personnel or our failure to attract additional qualified
personnel could have a material adverse effect on our business, financial
condition and results of operations.

OUR NOTES ARE EFFECTIVELY SUBORDINATED TO ALL OF OUR SECURED INDEBTEDNESS AND
THE LIABILITIES OF OUR SUBSIDIARIES.

     Our notes are general senior unsecured obligations, ranking pari passu in
right of payment with all of our existing and future unsecured and
unsubordinated indebtedness, in particular, the 1997 Notes, the March

                                       34
<PAGE>   37

1998 Notes, the November 1998 Notes, and the November 1999 Notes, and are senior
in right of payment to all of our existing and future subordinated indebtedness.
Our notes are effectively subordinated to all of our secured indebtedness to the
extent of the value of the assets securing such indebtedness, and structurally
subordinated to all indebtedness of our subsidiaries. At December 31, 1999, we
had approximately $36.8 million of secured indebtedness outstanding to which
holders of our notes would have been effectively subordinated in right of
payment and approximately $14.8 million of subsidiary indebtedness to which
holders of our notes would have been structurally subordinated. Our revolving
credit facility is secured and therefore our notes are effectively subordinated
to the revolving credit facility.

     We are a holding company that conducts substantially all of our revenue
producing operations through our operating subsidiaries. Claims of holders of
our notes will be effectively subordinated to the indebtedness and other
liabilities and commitments of our subsidiaries and claims by Verio as an equity
holder in our non-wholly owned subsidiaries and minority interests will be
limited to the extent of our direct or indirect investment in such entities. The
ability of creditors, including the holders of our notes, to participate in the
assets of any of our subsidiaries upon any liquidation or bankruptcy of any such
entity will be subject to the prior claims of that entity's creditors, including
trade creditors, and any prior or equal claim of any other equity holder. In
addition, the ability of our creditors, including the holders of notes, to
participate in distributions of assets of our subsidiaries will be limited to
the extent that the outstanding shares of any of our subsidiaries are either
pledged to secure other creditors (which is the case under our revolving credit
facility) or are not owned by Verio.

WE WILL DEPEND UPON THE CASH FLOW OF OUR SUBSIDIARIES TO REPAY OUR NOTES.

     Our notes are obligations solely of Verio. Our ability to pay interest on
the notes or to repay the notes at maturity or otherwise will be dependent upon
the cash flows of our operating subsidiaries and the payment of funds by those
subsidiaries to us in the form of repayment of loans, dividends, management fees
or otherwise. Our operating subsidiaries have no obligation, contingent or
otherwise, to pay amounts pursuant to the notes or to make funds available
therefor, whether in the form of loans, dividends or other distributions. In
addition, to the extent we make minority investments and investments in joint
ventures as a part of our strategy, we may not have access to the cash flows of
such entities. Accordingly, our ability to repay the notes at maturity or
otherwise may be dependent upon our ability to refinance the notes, which will
in turn depend, in large part, upon factors beyond our control. While at the
present time there are no material agreements in place which prohibit or
restrict our subsidiaries' right or ability to make such payments, future
agreements may contain covenants prohibiting them from distributing or advancing
funds to Verio under certain circumstances, including to fund interest payments
in respect of the notes.

WE ARE SUBJECT TO RESTRICTIVE COVENANTS THAT LIMIT OUR FLEXIBILITY

     Our $100.0 million revolving credit facility may only be used if we meet
certain financial tests. Our credit facility and other debt instruments contain
customary covenants limiting our flexibility, including covenants limiting our
ability to incur additional debt, make liens, make investments, consolidate,
merge or acquire other businesses and sell assets, pay dividends and other
distributions, make capital expenditures and enter into transactions with
affiliates. Such covenants may make it difficult for us to pursue our business
strategies. Failure to comply with the terms of the credit facility would
entitle the secured lenders to foreclose on certain of our assets, including the
capital stock of our subsidiaries. The secured lenders would be repaid from the
proceeds of the liquidation of those assets before the assets would be available
for distribution to other creditors and, lastly, to the holders of Verio's
capital stock. Our ability to satisfy the financial and other restrictive
covenants may be affected by events beyond our control.

IT IS UNLIKELY THAT INVESTORS WILL RECEIVE A RETURN ON OUR COMMON STOCK THROUGH
THE PAYMENT OF CASH DIVIDENDS

     We have never declared or paid cash dividends on our common stock and have
no intention of doing so in the foreseeable future. In addition, although we
have the option of paying dividends in cash, our ability to pay cash dividends
is substantially restricted under various covenants and conditions contained in
our debt instruments. In any event, under Delaware law we are permitted to pay
dividends on our capital stock only out
                                       35
<PAGE>   38

of our surplus, or if we have no surplus, out of our net profits for the year in
which a dividend is declared or for the immediately preceding fiscal year.
Surplus is defined as the excess of a company's total assets over the sum of its
total liabilities and convertible preferred stock plus the par value of its
outstanding capital stock. As of December 31, 1999, we had stockholders' equity
of approximately $533.1 million. We have had a history of losses and expect to
operate at a net loss for the next several years. These net losses will reduce
our stockholders' equity. For the year ended December 31, 1999, we had net loss
attributable to common stockholders of $192.8 million. We cannot predict what
the value of our assets or the amount of our liabilities will be in the future.

PAYMENT OF DIVIDENDS AND ADDITIONAL DIVIDENDS ON OUR PREFERRED STOCK THAT ARE
MADE IN SHARES OF COMMON STOCK MAY NOT RESULT IN STATED DIVIDEND YIELD

     In the event dividends or additional dividends, if any, on our convertible
preferred stock are paid in shares of common stock, the number of shares of
common stock to be issued on each dividend payment date will be determined by
dividing the total dividend and additional dividends, if any, to be paid on each
share of convertible preferred stock by the Market Value Amount, as defined in
the certificate of designation governing the convertible preferred stock. If the
market value applicable in determining the Market Value Amount is higher than
the market value for the common stock on the dividend payment date and a holder
of the convertible preferred stock sells at the lower price, a holder's actual
dividend yield could be lower than the stated dividend yield on the convertible
preferred stock. In addition, a holder of the convertible preferred stock is
likely to incur commissions and other transaction costs in connection with the
sale of such common stock.

OUR CONVERTIBLE PREFERRED STOCK AND COMMON STOCK ARE SUBORDINATED TO ALL OUR
LIABILITIES

     In the event of bankruptcy, liquidation or reorganization of Verio, our
assets will be available to pay obligations on the convertible preferred stock
and common stock only after all indebtedness and other liabilities, including
our existing notes and all subsequent series of preferred stock which may rank
senior to the convertible preferred stock, have been paid. There may not be
sufficient assets remaining to pay amounts due on any or all of the convertible
preferred stock or common stock then outstanding. With regard to the convertible
preferred stock, while we consider the funds placed in the deposit account to be
the property of the purchasers of the convertible preferred stock and not our
property, in a bankruptcy proceeding, our creditors or a trustee in bankruptcy
could claim that those funds constitute property of our bankrupt estate. If that
were to occur, access to the funds in the deposit account by the purchasers of
the convertible preferred stock would be denied until all our indebtedness had
been paid in full. As of December 31, 1999, the convertible preferred stock is
junior in right of payment to $1,098.8 million total long-term liabilities of
Verio, of which $14.8 million is attributed to our subsidiaries.

FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY AFFECT OUR
STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW EQUITY OFFERINGS

     No prediction can be made as to the effect, if any, that future sales of
shares of common stock or the availability for future sales of shares of common
stock or securities convertible into or exercisable for our common stock will
have on the market price of common stock prevailing from time to time. Sale, or
the availability for sale, of substantial amounts of common stock by existing
stockholders under Rule 144, through the exercise of registration rights or the
issuance of shares of common stock upon the exercise of stock options or
warrants, or the conversion of our convertible preferred stock, or the
perception that such sales or issuances could occur, could adversely affect
prevailing market prices for our common stock and could materially impair our
future ability to raise capital through an offering of equity securities.

WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION AND COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK

     Our certificate of incorporation and bylaws, certain provisions of Delaware
law and the certificate of designation governing the convertible preferred stock
may make it difficult in some respects to cause a change in control of Verio and
replace incumbent management. In addition, Nippon Telegraph and Telephone
                                       36
<PAGE>   39

Corporation has the right to designate a member of our board of directors and is
subject to certain standstill and other limitations on its ability to make
further acquisitions of our stock that could delay, defer or prevent a change of
control. The existence of these provisions may collectively have a negative
impact on the price of the common stock, may discourage third-party bidders from
making a bid for Verio, or may reduce any premiums paid to stockholders for
their common stock. In addition, the board of directors has the authority to fix
the rights and preferences of, and to issue shares of, our preferred stock,
which may have the effect of delaying or preventing a change in control of Verio
without action by our stockholders.

WE MAY BE UNABLE TO RAISE ADDITIONAL FUNDS THAT WE WILL NEED TO REMAIN
COMPETITIVE

     We depend on a number of different financing sources to fund our growth and
continued losses from operations. However, we cannot assure you that we will be
able to raise such funds on favorable terms or at all. In the event that we are
unable to obtain such additional funds on acceptable terms or otherwise, we may
be unable or determine not to take advantage of new opportunities or take other
actions that otherwise might be important to our operations.

     We expect to make significant capital expenditures in order to maintain our
competitive position and continue to meet the increasing demands for service
quality, availability and competitive pricing. In addition to our continuing
acquisition efforts, we currently expect that our significant capital
expenditures will include the following:

     - network equipment;

     - network operating and data centers;

     - network monitoring equipment;

     - information technology systems; and

     - customer support systems.

     We believe that we will have a reasonable degree of flexibility to adjust
the amount and timing of these capital expenditures. However, we may need to
raise additional funds in order to take advantage of unanticipated
opportunities, such as acquisition opportunities that may arise in the U.S. and
internationally. In addition, we may need to raise additional funds to develop
new products or otherwise respond to changing business conditions or
unanticipated competitive pressures. We may be required to delay or abandon some
of our planned future expansion or expenditures if we fail to raise sufficient
funds.

ITEM 2. PROPERTIES.

     Verio's corporate headquarters is located in Englewood, Colorado, where it
leases approximately 43,362 square feet of office space. Its lease agreement,
which commenced February 1, 1998, is for a term of five years. Verio also has
executed a lease covering approximately 20,700 square feet of space in the
InfoMart in Dallas, Texas, where it maintains its network operations center and
customer support center. That lease expires on August 30, 2000. A new data
center is under construction in Dulles, Virginia and is currently expected to be
completed by the end of the second quarter of 2000. Verio has entered into a
ten-year lease for the Dulles data center, which covers approximately 80,400
square feet of space, and the ten-year lease term will begin 90 days after the
facility is 90% complete or, when Verio commences operations in the space,
whichever is earlier. Verio also has executed a ten-year lease covering
approximately 6,203 square feet in Vienna, Virginia, where it maintains a data
center and offices for locally-based personnel. That lease expires on May 31,
2008. Another data center is located in San Jose, California, where Verio leases
approximately 17,111 square feet of space under a twenty-year lease which
expires on September 1, 2019. Two other data centers are located in New York
City, New York and Boston, Massachusetts, where Verio leases 11,900 square feet
and 8,000 square feet of space, respectively, under ten-year leases which
terminate on December 1, 2009 and June 1, 2009, respectively. Hiway's principal
executive offices and data center was located in Boca Raton, Florida. The lease,
which covers rentable area of approximately 78,971 square feet, commenced on
February 1, 1998 and is for a term of seven years, expiring on January 31, 2005.
Verio
                                       37
<PAGE>   40

currently uses this space to house locally-based personnel and as a data center.
Hiway also entered into a seven-year lease for approximately 15,850 square feet
of office space in Mountain View, California. This lease commenced on June 1,
1995 and expires on May 31, 2002. Verio currently uses this space for a data
center and to house locally-based personnel. Verio also leases space, typically
less than 200 square feet, in various geographic locations to house network
infrastructure and telecommunications equipment. Certain operational functions
are also located in various regional operation offices, where Verio typically is
party to lease agreements for administrative office space sufficient for locally
based personnel, as well as smaller site leases to house network equipment. In
connection with the data center expansion strategy announced by Verio in January
2000, we recently have executed leases for additional data center space in
Chicago, Seattle, Portland, and Springfield, Virginia, providing a total of
approximately 230,000 square feet of space, and are continuing to negotiate and
pursue additional space for this purpose.

ITEM 3. LEGAL PROCEEDINGS.

     Verio is party to various legal proceedings that have arisen in the
ordinary course of business. We do not believe any of these proceedings, if
determined adversely to us, would have a material adverse effect on us.

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

     No matter was submitted to a vote of security holders in the fourth quarter
of the fiscal year covered by this report.

                                       38
<PAGE>   41

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The common stock of Verio is traded on the Nasdaq National Market (Nasdaq
Symbol: VRIO). The following table presents for the periods indicated the high
and low bid prices for our common stock, as reported by the Nasdaq National
Market.

<TABLE>
<CAPTION>
                                                                PRICE RANGE OF
                                                                 COMMON STOCK
                                                              ------------------
                                                              HIGH/ASK   LOW/BID
                                                              --------   -------
<S>                                                           <C>        <C>
First Quarter...............................................   $28.61    $10.50
Second Quarter..............................................   $39.00    $20.81
Third Quarter...............................................   $42.50    $24.81
Fourth Quarter..............................................   $55.63    $27.50
</TABLE>

     On March 14, 2000, the closing price of our common stock as reported on the
Nasdaq National Market was $50.94 per share. As of March 14, 2000, there were
approximately 385 holders of record of our common stock.

     We have never declared or paid any dividends on our common stock and do not
expect to pay dividends in the foreseeable future. Verio's current policy is to
retain all of its earnings to finance future growth and acquisitions.
Furthermore, the terms of the indentures relating to each of the November 1999
Notes, the November 1998 Notes, the March 1998 Notes and the 1997 Notes, as well
as the $100.0 million revolving credit facility, place limitations on our
ability to pay dividends. Future dividends, if any, will be at the discretion of
our board of directors and will depend upon, among other things, our operations,
capital requirements and surplus, general financial condition, contractual
restrictions and such other factors as our board of directors may deem relevant.

     In July 1999, we issued 7.2 million shares of 6.75% Series A Convertible
Preferred Stock, with a liquidation preference of $50.00 per share, for
approximate net proceeds of $347.3 million. The shares of preferred stock are
convertible to shares of common stock at $48.2813 per share. The convertible
preferred stock may be redeemed, at our option, at a redemption premium of
102.0% of the liquidation preference, plus accumulated and unpaid dividends on
or after August 1, 2001, but prior to August 1, 2002, if the trading price of
our common stock equals or exceeds $72.4219 per share for a specified period. In
addition to the payments described above, holders will receive a payment equal
to the present value of the dividends that would thereafter have been payable on
the convertible preferred stock through and including August 1, 2002. Except as
described above, we may not redeem the convertible preferred stock prior to
August 1, 2002. Beginning on August 1, 2002, we may redeem the convertible
preferred stock initially at a redemption premium of 103.8571% of the
liquidation preference and thereafter at prices declining to 100.0% on or after
August 1, 2006, plus, in each case, all accumulated and unpaid dividends. Verio
may effect any redemption, in whole or in part, by delivering cash, shares of
our common stock or a combination thereof. At the closing of this offering, the
initial purchasers of the convertible preferred stock deposited approximately
$24.3 million into an account from which quarterly cash payments will be made,
or which may be used, at Verio's option, to purchase shares of our common stock
from us for delivery to holders in lieu of cash payments. The deposit account
will expire on August 1, 2000 unless it is earlier terminated and is reflected
in restricted cash. Subsequent to August 1, 2000, dividends will accrue on a
cumulative basis at 6.75% per annum.

                                       39
<PAGE>   42

ITEM 6. SELECTED FINANCIAL DATA.

                      SELECTED CONSOLIDATED FINANCIAL DATA
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

     The selected historical consolidated financial data as of December 31,
1996, 1997, 1998 and 1999, and for the period from inception (March 1, 1996) to
December 31, 1996 and the years ended December 31, 1997, 1998 and 1999 has been
derived from our audited Consolidated Financial Statements.

     The information contained below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and the notes thereto
included elsewhere in this Annual Report on Form 10-K. Results of operations for
the period from inception (March 1, 1996) to December 31, 1996 and the years
ended December 31, 1997, 1998 and 1999 are not necessarily indicative of results
of operations for future periods. Our development and expansion activities,
including acquisitions, during the periods shown below may significantly affect
the comparability of this data from one period to another.

     We define EBITDA as earnings (loss) from operations before interest, taxes,
depreciation, amortization and provision for loss on write-offs of investments
in Internet service providers and fixed assets and includes non-cash stock
option compensation and severance costs. The primary measure of operating
performance is net earnings (loss) and not EBITDA. Although EBITDA is a measure
commonly used in our industry, it should not be considered as an alternative to
net earnings (loss) (determined in accordance with generally accepted accounting
principles ("GAAP")) as an indicator of operating performance, or as an
alternative to cash flows from operating activities (determined in accordance
with GAAP). In addition, our definition of EBITDA may not be comparable to other
similarly titled measures of other companies.

     For purposes of presenting capital expenditures, we have excluded equipment
and leasehold improvements acquired in our business acquisitions.

<TABLE>
<CAPTION>
                                             PERIOD FROM
                                              INCEPTION
                                          (MARCH 1, 1996) TO    YEAR ENDED     YEAR ENDED     YEAR ENDED
                                             DECEMBER 31,      DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                 1996              1997           1998           1999
                                          ------------------   ------------   ------------   ------------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>                  <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
Total revenue...........................        $2,365           $ 35,692      $ 120,653      $ 258,336
Total costs and expenses................         8,645             75,981        211,671        376,403
                                                ------           --------      ---------      ---------
Loss from operations....................        (6,280)          $(40,289)     $ (91,018)     $(118,067)
                                                ======           ========      =========      =========
Loss before extraordinary item..........        (5,122)          $(46,069)     $(111,854)     $(181,906)
                                                ======           ========      =========      =========
Net loss................................        (5,122)          $(46,069)     $(121,955)     $(181,906)
                                                ======           ========      =========      =========
Net loss attributable to common
  stockholders..........................        (5,145)          $(46,329)     $(122,042)     $(192,774)
                                                ======           ========      =========      =========
Loss per common share -- basic and
  diluted:
  Loss per common share before
     extraordinary item.................         (2.65)          $ (20.24)     $   (2.62)     $   (2.56)
                                                ======           ========      =========      =========
  Loss per common share.................         (2.65)          $ (20.24)     $   (2.85)     $   (2.56)
                                                ======           ========      =========      =========
Weighted average common shares
  outstanding -- basic and diluted......         1,944              2,290         42,752         75,372
</TABLE>

                                       40
<PAGE>   43

<TABLE>
<CAPTION>
                                                                      AS OF
                                          -------------------------------------------------------------
                                          DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                              1996            1997            1998            1999
                                          -------------   -------------   -------------   -------------
                                                                 (IN THOUSANDS)
<S>                                       <C>             <C>             <C>             <C>
BALANCE SHEET DATA:
Cash and cash equivalents...............     $66,467        $ 62,662        $433,424       $  506,055
Securities available for sale...........          --           9,924         143,963          358,969
Restricted cash and securities..........          --          40,554          14,805           20,481
Goodwill, net...........................       8,736          83,216         236,696          546,936
Total assets............................      82,628         246,471         933,712        1,763,724
Long-term debt and capital lease
  obligations, net of discount..........         106         142,321         674,618        1,086,681
Redeemable preferred stock..............      76,877          97,249              --               --
Stockholders' equity (deficit)..........      (4,055)        (27,001)        202,681          533,123
</TABLE>

<TABLE>
<CAPTION>
                                            PERIOD FROM
                                             INCEPTION
                                         (MARCH 1, 1996) TO    YEAR ENDED      YEAR ENDED      YEAR ENDED
                                            DECEMBER 31,      DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                1996              1997            1998            1999
                                         ------------------   -------------   -------------   -------------
                                                                   (IN THOUSANDS)
<S>                                      <C>                  <C>             <C>             <C>
SUPPLEMENTAL FINANCIAL DATA:
EBITDA.................................       $(5,611)          $ (29,665)      $ (51,292)      $  (8,562)
Cash flows used by operations..........        (2,326)            (35,323)        (64,239)        (69,579)
Cash flows used by investing
  activities...........................        (9,123)           (130,254)       (284,891)       (591,666)
Cash flows from financing activities...        77,916             161,772         719,892         733,876
Capital expenditures...................         3,430              14,547          23,058         146,840
Cash dividends on common stock.........            --                  --              --              --
</TABLE>

                                       41
<PAGE>   44

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS.

     The following discussion and analysis should be read in conjunction with
the financial statements and related notes included elsewhere in this Form 10-K.
This discussion contains forward-looking statements based on current
expectations, which involve risks and uncertainties. Actual results and the
timing of certain events could differ materially from the forward-looking
statements as a result of a number of factors including those referred to in
Factors Affecting Future Operating Results.

OVERVIEW

     Our Company was founded in March 1996. Since then, we have rapidly
established a global presence by acquiring and growing Internet service
providers with a business customer focus. We are the world-wide leader in
hosting domain-based Web sites and a leading provider of high speed connectivity
and enhanced services such as electronic commerce and virtual private networks
based on secure Internet communications links, to small and medium sized
businesses. As of December 31, 1999 we served over 300,000 customer accounts,
including over 340,000 hosted Web sites, and had total revenue of approximately
$258.3 million for the year ended December 31, 1999.

     From the time of our inception we have raised substantial amounts of
capital through the private placement and public sale of various debt and equity
securities. The proceeds of these financings were used to invest in and acquire
Internet service, Web hosting, and related service providers, to fund
operations, and to build a national infrastructure including a national network,
network operations center, data centers and other hosting facilities, and
billing, customer care and financial reporting systems. During 1999, we sold
$360.0 million of our Series A convertible preferred stock to institutional
investors, and raised $400.0 million by issuing additional senior notes to
institutional investors. We expect to use the proceeds of these offerings to
further our strategic acquisition and investment strategy and to fund our
operations.

     In January 2000, we announced our new $350 million capital budget for 2000
in connection with our plan to significantly expand our Web hosting and
co-location physical infrastructure, systems and personnel. Of that budgeted
amount, approximately $300 million relates to the expansion of hosting
operations, including $200 million for new and expanded hosting centers, $45
million for additional servers, and the balance for product development,
software licenses, IT systems, a new Web operations control center, and
leasehold improvements. Approximately $50 million has been budgeted for network
equipment, systems and facilities to support the growth of our high speed access
business. We expect that all of these expenditures will be funded with cash on
hand.

     Since inception, we have completed over 50 acquisitions, all using the
purchase method of accounting. As a result, we have recorded significant amounts
of goodwill, which totaled $626.2 million, gross, at December 31, 1999. We have
undertaken to consolidate the ownership and management of the acquired
operations into nationally managed functional areas, such as sales, marketing,
customer care, network and finance. In addition, we are deploying systems for
sales force automation, operations, customer support, accounting and other
back-office functions in order to be more efficient. Although we have incurred
and continue to incur significant costs in these efforts, we expect to realize
substantial long term cost savings as a result. We have incurred net losses
since we were formed. For the period from inception to December 31, 1996, and
the years ended December 31, 1997, 1998 and 1999, we reported net losses
attributable to common stockholders of $5.1 million, $46.3 million, $122.0
million and $192.8 million, respectively.

                                       42
<PAGE>   45

RESULTS OF OPERATIONS

     The following table presents operating data, as a percentage of total
revenue, for the years ended December 31, 1997, 1998 and 1999. This information
is from our Consolidated Financial Statements included in this Annual Report on
Form 10-K. This information should be read in conjunction with the Financial
Statements and Notes thereto:

<TABLE>
<CAPTION>
                                                               FOR THE YEARS ENDED
                                                              ----------------------
                                                              1997     1998     1999
                                                              ----     ----     ----
<S>                                                           <C>      <C>      <C>
Revenue:
  Internet connectivity.....................................    66 %     63 %    47 %
  Enhanced services and other...............................    34 %     37 %    53 %
                                                              ----     ----     ---
          Total revenue.....................................   100 %    100 %   100 %
Costs and expenses:
  Cost of service...........................................    45 %     45 %    31 %
  Sales and marketing.......................................    30 %     27 %    23 %
  General and administrative................................   108 %     70 %    49 %
  Depreciation and amortization.............................    30 %     33 %    43 %
                                                              ----     ----     ---
          Total costs and expenses..........................   213 %    175 %   146 %
                                                              ----     ----     ---
          Loss from operations..............................  (113)%    (75)%   (46)%
Other income (expense):
  Interest income...........................................    17 %     12 %     9 %
  Interest expense and other................................   (33)%    (30)%   (34)%
  Equity in losses of affiliates............................    (5)%     --      --
                                                              ----     ----     ---
          Loss before minority interests and extraordinary
            item............................................  (134)%    (93)%   (71)%
Minority interests..........................................     5 %     --      --
                                                              ----     ----     ---
          Loss before extraordinary item....................  (129)%    (93)%   (71)%
Extraordinary item -- loss related to debt repurchase.......    --       (8)%    --
                                                              ----     ----     ---
          Net loss..........................................  (129)%   (101)%   (71)%
Accretion of preferred stock to liquidation value and Return
  on convertible preferred stock............................    (1)%     --      (4)%
                                                              ----     ----     ---
          Net loss attributable to common stockholders......  (130)%   (101)%   (75)%
                                                              ====     ====     ===
</TABLE>

  Revenue

     Most of our revenue is received from business customers who purchase Web
hosting products, high-speed Internet connectivity, and other enhanced value
Internet services. Verio offers a broad range of connectivity options to its
customers including dedicated, digital subscriber lines, integrated services
digital network, frame relay and dial-up connections. Connectivity customers
typically sign a contract for one year of service and pay fixed, recurring
monthly service charges plus a one-time setup fee under those agreements. These
charges vary depending on the type of service, the length of the contract and
local market conditions. Our Web hosting customers typically pay fixed,
recurring monthly service charges plus a one-time setup fee. These charges vary
depending on the amount of disk space and transit required by the customer.
Other enhanced services include:

     - e-commerce;

     - virtual private networks permitting our customers to engage in private
       and secure Internet communication with their employees, vendors,
       customers and suppliers;

     - security services;

     - co-location services, which include leased space, connectivity and
       support services in specialized facilities for customers that wish to
       place their own equipment and software in our secure, controlled
       facilities;

                                       43
<PAGE>   46

     - consulting; and,

     - the sales of equipment and customer circuits.

     Revenue for all products is recognized as the service is provided. Amounts
billed relating to future periods are recorded as deferred revenue and amortized
monthly as services are rendered.

     We have experienced some seasonality in our internal revenue growth, with
the period of higher growth being the fall and winter. Verio's focus is on
services that generate recurring revenue from small and mid-sized business
customers. Revenue from business customers currently represents approximately
90% of revenue, and approximately 85% of revenue is recurring. No single
customer represents more than 2% of revenue.

  Cost of Service

     Cost of service consists primarily of local telecommunications expense.
Local telecommunications expense is primarily the cost of transporting data
between a customer's place of business, Verio's local points of presence and a
national point of presence. Cost of service also includes Internet access
expense and the cost of equipment sold to customers. Internet access expense is
the cost that we pay to lease fiber capacity that we use to carry our customers'
data between national points of presence on the Internet. Most of the Internet
businesses and operations we have acquired were parties to various local
telecommunications and Internet access contracts with third parties when we
acquired them. We are in the process of converting that traffic carried by third
parties to our own network.

  Sales and Marketing

     Sales and marketing expenses consist primarily of salaries, commissions and
advertising.

  General and Administrative Expenses

     General and administrative expenses consist primarily of salaries and
related benefits, rent and utilities. Such expenses also include the expenses of
general management, engineering, customer care and accounting.

     In 1998, Verio incurred significant one-time expenses in connection with
the operational consolidation and integration of its acquisitions. These
expenses included approximately $1.9 million, primarily related to severance
costs in connection with the elimination of approximately 250 positions that
were no longer necessary due to the efficiencies of the national services. These
terminations were completed as of December 31, 1999.

     General and administrative expenses are expected to continue to increase in
absolute dollars, but decrease as a percentage of total revenue as revenue
growth continues to outpace general expenses. Verio's scalable systems limit the
number of additional personnel and the need for additional office space to
support incremental revenue. We expect these systems will result in the ability
to add significant additional revenue at low incremental costs. Although we
expect to continue to reduce our operating losses as a percentage of revenue,
there can be no assurance that we will be able to do so, or that the rate of any
reduction in losses will be as rapid as we expect. One-time integration expenses
are expected to continue as the integration of previously acquired companies is
not yet complete, and due to the cost of integrating future acquisitions.

  Depreciation and Amortization

     Depreciation is provided over the estimated useful lives of assets ranging
from three to five years using the straight-line method. The excess of cost over
the fair value of net assets acquired, or goodwill, is amortized using the
straight-line method over a ten-year period. Debt issuance costs are amortized
over the life of the debt. Other intangibles consist primarily of the costs
associated with customer acquisitions and non-compete agreements and are
amortized over a three-year period or the life of the agreement. As of December
31, 1999, the Company had entered into a 20-year capacity agreement with Qwest
to acquire fiber capacity on Qwest's fiber optic network for $65.5 million which
was paid in cash as of December 31, 1999. This payment will be

                                       44
<PAGE>   47

depreciated over the life of the agreement. Additional acquisitions and
investments are expected to cause depreciation and goodwill amortization to
increase significantly in the future.

  Other expenses

     Other expenses consist primarily of interest expense and interest income.

  Year ended December 31, 1998 compared to the year ended December 31, 1999

     Total revenue increased 114% from $120.7 million for the year ended
December 31, 1998 to $258.3 million for the year ended December 31, 1999.
Acquisitions completed after December 31, 1998 and internal growth both
contributed significantly to this increase. Revenue from Web hosting and other
Internet enhanced value services increased from 37% of revenue for the year
ended December 31, 1998 to 53% for the year ended December 31, 1999, and is
expected to continue to grow as a percent of revenue. The increase in revenue
from Web hosting and other enhanced value Internet services is primarily the
result of acquisitions we made at the end of 1998 and in 1999 (including Hiway
and digitalNATION).

     Cost of service increased $25.3 million, or 47%, from $54.0 million for the
year ended December 31, 1998 to $79.3 million for the year ended December 31,
1999, due to acquisitions and internal growth. However, as a percentage of
revenue, cost of service decreased from 45% for the year ended December 31, 1998
to 31% for the year ended December 31, 1999. This improvement is due primarily
to the scale efficiencies of our local and national networks and the shift in
our revenue mix to products with higher gross margin, such as Web hosting. As
Verio continues to grow, we expect our cost of service to continue to increase
in absolute dollars. However, we also expect cost of service to decrease as a
percentage of total revenue, as Verio's revenue mix shifts to higher margin Web
hosting and other enhanced value Internet services and as traffic is shifted
from third party networks to the Verio network.

     Sales and marketing expenses increased $27.3 million from $33.3 million for
the year ended December 31, 1998 to $60.6 million for the year ended December
31, 1999, due to increases in the number of direct sales representatives,
indirect channel managers and marketing personnel and increased brand
advertising. However, as a percent of revenue, sales and marketing expenses
decreased from 27% for the year ended December 31, 1998 to 23% for the year
ended December 31, 1999. As Verio seeks to accelerate our revenue growth, we
also expect sales and marketing expense to increase in total dollars but to
remain flat as a percentage of revenue.

     General and administrative expenses increased $42.4 million from $84.6
million for the year ended December 31, 1998, to $127.0 million for the year
ended December 31, 1999, primarily due to acquisitions. However, as a percentage
of revenue, general and administrative expenses decreased from 70% to 49%, which
was the result of efficiencies realized by integrating the operations of
numerous acquisitions and the shift in product mix toward Web hosting, which has
lower general and administrative costs. In the near term, as a result of planned
investments in new and expanded data centers, scalable web hosting operations
and international operations, Verio expects significant increases in general and
administrative expenses, both in absolute dollars and as a percentage of
revenue.

     Depreciation and amortization expenses increased $69.8 million, or 176%,
from the year ended December 31, 1998 to December 31, 1999, primarily due to
increases in equipment and leasehold improvements and goodwill. As of December
31, 1999, the Company had entered into a 20-year capacity agreement with Qwest
to acquire fiber capacity on Qwest's fiber optic network. Required prepayments
under this agreement totalling $65.5 million were paid in cash by December 31,
1999. This payment will be depreciated over the life of the agreement.
Depreciation expense is expected to increase significantly as a result of the
$350 million capital improvements program planned for 2000.

     Interest and other expenses increased from $35.9 million for the year ended
December 31, 1998 to $87.2 million for the year ended December 31, 1999,
primarily due to the issuance of the November 1998 Notes and the November 1999
Notes. Interest income increased from $14.6 million for the year ended December
31, 1998 to $23.3 million for the year ended December 31, 1999 due to increased
cash balances

                                       45
<PAGE>   48

resulting from these debt offerings and issuance of $360.0 million in preferred
stock in July 1999. See "-- Liquidity and Capital Resources."

     During the year ended December 31, 1998, an extraordinary loss of $10.1
million was recorded in connection with the refinancing of $50.0 million of the
1997 Notes. See "-- Liquidity and Capital Resources."

     Other comprehensive income increased $89.6 million from the year ended
December 31, 1998 to December 31, 1999, primarily due to the unrealized gain on
investments in publicly traded equity securities.

  Year ended December 31, 1997 compared to the year ended December 31, 1998

     Total revenue increased 238% from $35.7 million for the year ended December
31, 1997 to $120.7 million for the year ended December 31, 1998. Acquisitions
completed after December 31, 1997 contributed significantly to this increase,
adding $41.4 million of the $85.0 million increase.

     Cost of service increased $38.0 million from $16.0 million for the year
ended December 31, 1997 to $54.0 million for the year ended December 31, 1998,
primarily due to acquisitions. However, as a percentage of revenue, cost of
service remained constant at 45%, as the increases in cost and capacity of the
new national network were offset by the lower per unit cost of these facilities.

     Sales and marketing expenses decreased from 30% of total revenue for the
year ended December 31, 1997 to 27% for the year ended December 31, 1998, due in
part to efficiencies gained from the regionalization and nationalization of
certain sales and marketing functions. These savings were partially offset by
increased expenses related to an increase in the number of direct sales
representatives and marketing personnel, and the initiation of a national
advertising campaign.

     General and administrative expenses increased $46.0 million from $38.6
million for the year ended December 31, 1997 to $84.6 million for the year ended
December 31, 1998, primarily due to acquisitions. However, as a percentage of
revenue, general and administrative expenses decreased from 108% to 70%, which
was the result of efficiencies realized by combining and integrating the
operations of numerous acquisitions onto Verio's national systems.

     Depreciation and amortization expenses increased $29.1 million, or 274%,
from the year ended December 31, 1997 to December 31, 1998, primarily due to
increases in equipment and leasehold improvements and goodwill.

     Interest expenses increased from $11.8 million for the year ended December
31, 1997 to $35.9 million for the year ended December 31, 1998, primarily as a
result of the issuance of the 1997 Notes, the March 1998 Notes and the November
1998 Notes. Interest income increased from $6.1 million for the year ended
December 31, 1997 to $14.6 million for the year ended December 31, 1998 due to
increased cash balances resulting from the debt offerings and the sale of stock.
See "-- Liquidity and Capital Resources."

     During the year ended December 31, 1997, Verio recognized equity in losses
of affiliates of $2.0 million under the equity method of accounting for
investments owned 50% or less. Such losses were not significant for the year
ended December 31, 1998. See note 1 to the Consolidated Financial Statements of
the Company.

CASH FLOW ANALYSIS

  Year ended December 31, 1998 compared to the year ended December 31, 1999

     The most significant changes in cash balances and cash flows between 1998
and 1999 are explained by acquisitions, the issuance of the March 1998 Notes,
the November 1998 Notes, the November 1999 Notes and the issuance of preferred
stock. The acquisitions of Hiway in January 1999 and digitalNATION in July 1999
resulted in an aggregate cash outflow of approximately $276.0 million and also
caused amortization to increase approximately $26.4 million between the two
years. The issuance of $175.0 million of 10 3/8% debt in March 1998, $400.0
million of 11 1/4% debt in November 1998, $400.0 million of 10 5/8% debt in
November 1999 and $360.0 million in gross proceeds from the issuance of
preferred stock in July 1999 caused cash balances and interest expenses to
increase significantly. The upfront payment totaling $65.5 million to Qwest was
the

                                       46
<PAGE>   49

most significant capital expenditure during 1999. The $10.1 million
extraordinary charge during the year ended December 31, 1998 related to the
repurchase of $50.0 million of the 1997 Notes. Cash flows used by operations as
a percentage of revenue improved from (53%) to (27%) from the year ended
December 31, 1998 to the year ended December 31, 1999. Cash provided by working
capital items was $5.1 million for the year ended December 31, 1998, compared to
$1.5 million for the year ended December 31, 1999.

  Year ended December 31, 1997 compared to the year ended December 31, 1998

     Net cash used by operating activities was $64.2 million during the year
ended December 31, 1998, which includes cash provided by working capital items
of $5.1 million. Sources of cash included approximately $120.8 million net
proceeds from our IPO, $100.0 million from the sale of common stock to an
affiliate of NTT, $175.0 million from the March 1998 Notes and $400.0 million
from the November 1998 Notes. Cash used during 1998 was primarily for business
combinations and capital expenditures, and totaled $151.1 million and $23.1
million for these items, respectively. Verio also used approximately $54.5
million of the proceeds from the March 1998 Notes to repurchase $50.0 million
principal amount of the 1997 Notes.

LIQUIDITY AND CAPITAL RESOURCES

     Our business strategy has required, and is expected to continue to require,
substantial capital to fund acquisitions and investments, capital expenditures
and interest expense.

     In 1996, we raised approximately $78.1 million from the sale of preferred
stock and approximately $1.1 million from the sale of common stock. In 1997, we
raised approximately $20.0 million from the sale of preferred stock, and issued
0.7 million shares of preferred stock in connection with an acquisition.

     On June 24, 1997, we completed the placement of $150.0 million principal
amount of the 1997 Notes and attached warrants. One hundred and fifty thousand
units were issued, each consisting of $1,000 principal amount of notes and eight
warrants. The 1997 Notes mature on June 15, 2004 and interest, at the annual
rate of 13 1/2%, is payable semi-annually in arrears on June 15 and December 15
of each year. Each warrant entitles the holder thereof to purchase 3.52 shares
of Verio's common stock at a price of $.005 per share, for a total of 4,224,960
shares. The warrants and the 1997 Notes were separated on December 15, 1997.
Concurrent with the completion of the sale of the 1997 Notes, we were required
to deposit funds into an escrow account in an amount that together with interest
was sufficient to fund the first five interest payments. The final interest
payment from the escrow account was made on December 15, 1999. The 1997 Notes
are redeemable at our option commencing June 15, 2002. The 1997 Notes are senior
unsecured obligations ranking equally in right of payment with all existing and
future unsecured and senior indebtedness.

     On March 25, 1998, we completed the placement of $175.0 million principal
amount of the March 1998 Notes. The March 1998 Notes are senior unsecured
obligations ranking equally in right of payment with all existing and future
unsecured and senior indebtedness and mature on April 1, 2005. Interest on the
March 1998 Notes, at the annual rate of 10 3/8%, is payable semi-annually in
arrears on April 1 and October 1 of each year, commencing October 1, 1998. The
March 1998 Notes are redeemable at our option commencing April 1, 2002. Verio
used approximately $54.5 million of the proceeds from the March 1998 Notes to
repurchase $50.0 million principal amount of 1997 Notes. Upon consummation of
the sale of the March 1998 Notes and the repurchase, $13.3 million of escrowed
interest funds were released to us.

     At various times during the first four months of 1998, we issued 1.5
million additional shares of Series D-1 preferred stock in connection with the
purchases of substantially all the remaining unowned interests in our
subsidiaries and affiliates.

     In May 1998, we completed our initial public offering, selling an aggregate
of 11.5 million shares of common stock, including the partial exercise of the
over-allotment option by the initial purchasers in the initial public offering,
for net proceeds of approximately $120.8 million, after deducting underwriting
discounts, commissions and expenses. Concurrently with our initial public
offering, we completed the sale of 9.0 million shares of common stock to an
affiliate of Nippon Telegraph and Telephone Corporation for net proceeds of
approximately $100.0 million.

                                       47
<PAGE>   50

     On November 25, 1998, we sold $400.0 million principal amount of the
November 1998 Notes, for net proceeds of approximately $389.0 million. Interest
at the annual rate of 11 1/4% is payable semi-annually in arrears on June 1 and
December 1 of each year, commencing June 1, 1999. We have the option of
redeeming the November 1998 Notes starting December 1, 2003.

     In August 1999, Verio replaced its earlier $70.0 million revolving credit
facility with a new $100.0 million revolving credit facility with a group of
commercial lending institutions. This facility is secured by substantially all
of the stock of our subsidiaries and by an agreement with Qwest pursuant to
which Verio may lease fiber capacity from time to time. The credit facility
requires no payments of principal until its maturity on June 30, 2002. The terms
of the credit facility provide for borrowings at a margin of 2% above the LIBOR.
There is a commitment fee of 1/2 of 1% per annum on the undrawn amount of the
credit facility. We have made no borrowings under the credit facility.

     The credit facility contains a number of other restrictions, including
limitations on our ability to:

     - engage in businesses other than the Internet service business;

     - place liens on our assets; and

     - pay cash dividends.

     In addition, under the credit facility, our indebtedness (less cash) may
not exceed 2.35 times our annualized pro forma revenue for the most recent
quarter. We currently have the ability to borrow the full $100.0 million
commitment. We are required to pay back any amounts borrowed under the credit
facility with the proceeds of new indebtedness, certain asset sales, free cash
flow in excess of $5.0 million in any quarter, or the net proceeds from
insurance claims.

     In July 1999, we issued 7.2 million shares of 6.75% Series A Convertible
Preferred Stock, with a liquidation preference of $50.00 per share, for
approximate net proceeds of $347.3 million. The shares of preferred stock are
convertible to shares of common stock at $48.2813 per share. The convertible
preferred stock may be redeemed, at our option, at a redemption premium of
102.0% of the liquidation preference, plus accumulated and unpaid dividends on
or after August 1, 2001, but prior to August 1, 2002, if the trading price of
our common stock equals or exceeds $72.4219 per share for a specified period. In
addition to the payments described above, holders will receive a payment equal
to the present value of the dividends that would thereafter have been payable on
the convertible preferred stock through and including August 1, 2002. Except as
described above, we may not redeem the convertible preferred stock prior to
August 1, 2002. Beginning on August 1, 2002, we may redeem the convertible
preferred stock initially at a redemption premium of 103.8571% of the
liquidation preference and thereafter at prices declining to 100.0% on or after
August 1, 2006, plus, in each case, all accumulated and unpaid dividends. Verio
may effect any redemption, in whole or in part, by delivering cash, shares of
our common stock, or a combination thereof. At the closing of this offering, the
initial purchasers of the convertible preferred stock deposited approximately
$24.3 million into an account from which quarterly cash payments will be made,
or which may be used, at Verio's option, to purchase shares of our common stock
from us for delivery to holders in lieu of cash payments. The deposit account
will expire on August 1, 2000 unless it is earlier terminated and is reflected
in restricted cash. Subsequent to August 1, 2000, dividends will accrue on a
cumulative basis at 6.75% per annum.

     On November 19, 1999, we sold $400.0 million principal amount of the
November 1999 Notes, for net proceeds of approximately $388.0 million. Interest
at the annual rate of 10 5/8% is payable semi-annually in arrears on May 15 and
November 15 of each year commencing May 15, 2000. We have the option of
redeeming the November 1999 Notes starting November 15, 2004.

     The 1997 Notes, the March 1998 Notes and the November 1998 Notes contain
terms, other than the rate of interest and maturity, that are substantially
similar. The terms of the indentures governing these Notes impose significant
limitations on our ability to incur additional indebtedness unless we have
issued additional equity, or if our Consolidated Pro Forma Interest Coverage
Ratio, as defined in the indentures, is greater than or equal to 1.8 to 1.0
prior to June 30, 1999, or 2.5 to 1.0 on or after that date, and if the ratio of
our total debt to consolidated annualized pro forma operating cash flow is not
higher than 6:1.
                                       48
<PAGE>   51

     The indentures contain a number of other restrictions, including, among
others, limitations on our ability to:

     - engage or make investments in businesses other than the Internet service
       business;

     - place liens on or dispose of our assets; and

     - pay cash dividends.

     If a change of control with respect to Verio occurs, we are required to
make an offer to purchase all the Notes then outstanding at a price equal to
101% of the respective principal amount of the notes, plus accrued and unpaid
interest. We are in compliance with the provisions of all of our debt
agreements.

     As of December 31, 1999, we had approximately $885.5 million in cash and
cash equivalents and securities available for sale (including $20.5 million of
restricted cash). Our business plan for 2000 currently anticipates investing
approximately $350.0 million over the year for capital expenditures.
Approximately $300.0 million is budgeted for the expansion of hosting
operations. Specifically, the expenditures include $200.0 million for new and
expanded hosting centers, $45.0 million for additional servers, and the balance
for product development, software licenses, IT systems, a new Web operations
control center and leasehold improvements. Approximately $50.0 million of
capital has been budgeted for network equipment, systems and facilities to
support the growth of our high-speed access business.

     We also have significant debt service requirements. At December 31, 1999
our long-term liabilities were $1,098.8 million, and the expected annual
interest expense associated with the 1997 Notes, March 1998 Notes, the November
1998 Notes and the November 1999 Notes is approximately $119.2 million. The
interest expense and principal repayment obligations associated with our debt
could have a significant effect on our future operations.

     Our anticipated expenditures are inherently uncertain and will vary widely
based on many factors including operating performance and working capital
requirements, the cost of additional acquisitions and investments, the
requirements for capital equipment to operate our business and our ability to
raise additional funds. Accordingly, we may need significant amounts of cash in
excess of our plan, and no assurance can be given as to the actual amounts of
our future expenditures. We will have to increase revenue without a commensurate
increase in costs to generate sufficient cash to enable us to meet our debt
service obligations. There can be no assurance that we will have sufficient
financial resources if operating losses increase or additional acquisition or
other investment opportunities become available.

     We expect to meet our capital needs for the next 12 months with cash on
hand, and beyond 12 months, with the proceeds from the sale or issuance of
capital stock, the credit facility, lease financing and additional debt. We
regularly examine financing alternatives based on prevailing market conditions
and expect to access the capital markets from time to time based on our current
and anticipated cash needs and market opportunities. Over the longer term, we
will be dependent on obtaining positive operating cash flow and, to the extent
cash flow is not sufficient, the availability of additional financing, to meet
our debt service obligations. Insufficient funding may require us to delay or
abandon some of our planned future expansion or expenditures, which could have a
material adverse effect on our growth and ability to realize economies of scale.
In addition, our operating flexibility with respect to certain business
activities is limited by covenants associated with our indebtedness. There can
be no assurance that such covenants will not adversely affect our ability to
finance our future operations or capital needs or to engage in business
activities that may be in our interest.

NEW ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133). Statement of Financial Accounting Standards
No. 137, Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of SFAS 133 -- An Amendment of SFAS 133, has
delayed the effective date of SFAS 133 to fiscal years beginning after June 15,
2000. The adoption of these pronouncements did not and is not expected to have a
significant effect on the Company's financial position or results of operations.
                                       49
<PAGE>   52

IMPACT OF YEAR 2000

     The commonly referred to Year 2000 or Y2K issue results from the fact that
many computer programs and systems were developed without considering the
possible impact of a change in the century designation that occurred on January
1, 2000. As a result, these programs and systems use only two digits instead of
four to identify the year in the date field. Many people were concerned that
essential systems and programs might not properly recognize this date and
therefore could generate wrong data, calculate erroneous results, or fail if the
issue remained uncorrected. As a result of these concerns, we undertook a
pervasive inventory, internal and third party compliance assessment, and
service-level testing effort across all of our operations. Based on these
initiatives we discovered certain non-material Y2K compliance issues and took
appropriate corrective actions in advance of January 1, 2000. On January 1, 2000
and since that time, we have not experienced any significant Year 2000 problems
in connection with any of our systems or operations. Based on that experience,
we do not expect that we will encounter any significant latent Y2K-related
problems in the future. As of December 31, 1999, we had spent approximately $1
million in the aggregate in connection with our Y2K assessment and remediation
efforts. These costs included external costs primarily associated with outside
consultants, and hardware and software remediation costs incurred in connection
with the compliance program. These costs do not include internal costs for
employee time spent on the project, and various system upgrades that we
implemented and that otherwise would be part of our overall capital expenditure
program.

FORWARD-LOOKING STATEMENTS

     The statements included in the discussion and analysis above that are not
historical or factual are "forward-looking statements" (as that term is defined
in the Private Securities Litigation Reform Act of 1995). The safe harbor
provisions provided in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, apply to
forward-looking statements made by Verio. These statements can be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. Management cautions the reader that these
forward-looking statements addressing the timing, costs and scope of our
acquisition of, or investments in, existing affiliates, the revenue and
profitability levels of the affiliates in which we invest, the anticipated
reduction in operating costs resulting from the integration and optimization of
those affiliates, and other matters contained herein or therein from time to
time regarding matters that are not historical facts, are only predictions. No
assurance can be given that future results indicated, whether expressed or
implied, will be achieved. While sometimes presented with numerical specificity,
these projections and other forward-looking statements are based on current
expectations and a variety of assumptions relating to the business of Verio,
which, although we consider them reasonable, may not be realized. Because of the
number and range of the assumptions underlying Verio's projections and forward-
looking statements, many of which are subject to significant uncertainties and
contingencies that are beyond the reasonable control of Verio, some of the
assumptions will not materialize and unanticipated events and circumstances may
occur subsequent to the date of this report. Therefore, the actual experience of
Verio and results achieved during the period covered by any particular
projections or forward-looking statements may differ substantially from those
projected.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The following discussion relates to Verio's exposure to market risk related
to changes in interest rates, foreign currency exchange rates and security
prices. This discussion contains forward-looking statements that are subject to
risks and uncertainties. Actual results may differ materially due to a number of
factors including those set forth under the captions "We have substantial
liabilities which may impact our future operations and affect our ability to
meet our debt obligations" and "We may be unable to raise additional funds that
we will need in order to remain competitive" in the section titled "Factors
Affecting Future Operating Results."

                                       50
<PAGE>   53

INTEREST RATE RISK

     At December 31, 1999, Verio had cash and cash equivalents and securities
available for sale of approximately $885.5 million (including restricted cash of
$20.5 million). These securities available for sale include highly liquid
investments in debt obligations of highly rated entities with maturities of
between one and 360 days and equity securities. The investments in debt
obligations of $107.4 million are subject to interest rate risk and will fall in
value if market interest rates increase. Verio expects to hold these investments
in debt obligations until maturity, and therefore expects to realize the full
value of these investments, even though changes in interest rates may affect
their value prior to maturity. If interest rates decline over time, this will
result in a reduction of our interest income as our cash is reinvested at lower
rates.

     Verio has debt that is substantial in relation to its stockholders' equity
and cash flow. At December 31, 1999, Verio had long-term liabilities in the
aggregate amount of $1,098.8 million, representing 67% of its total
capitalization. The majority of Verio's long-term debt is comprised of fixed
rate debt resulting from the issuance of the 1997 Notes, the March 1998 Notes,
the November 1998 Notes and the November 1999 Notes. A change of interest rates
would not affect our obligations under these agreements. Increases in market
interest rates would increase the interest expense associated with any future
borrowings under our bank credit facility.

FOREIGN CURRENCY RATE RISK

     Verio does not currently have any significant foreign currency exposure.
However, a portion of our revenue (approximately 10%) is generated from sources
outside the United States. Some of these transactions are denominated in local
currencies, and any currency devaluation would affect the amount of revenues
that Verio would receive from its international operations. As these operations
represent a small portion of Verio's revenue, we do not have any significant
overall currency exposure at December 31, 1999. Verio does not hedge against
foreign currency rate changes.

     On January 1, 1999, 11 of 15 member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the euro, and adopted the euro as their common legal currency (the "Euro
Conversion"). Verio has not commenced any assessment of the effects of the Euro
Conversion. Based on the size of our international investments, any effect is
not expected to be material.

SECURITY PRICES

     Verio is also exposed to changes in stock prices as a result of its
holdings in publicly traded equity securities. Changes in stock prices can be
expected to vary as a result of general market conditions, technological
changes, specific industry changes and other factors.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The index to our Consolidated Financial Statements, Financial Schedules,
and the Report of the Independent Auditors appears in Part IV of this Annual
Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     None.

                                       51
<PAGE>   54

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Verio Inc.:

     We have audited the accompanying consolidated balance sheets of Verio Inc.
and subsidiaries as of December 31, 1998 and 1999, and the related consolidated
statements of operations and comprehensive loss, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Verio Inc.
and subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.

                                            /s/ KPMG LLP

Denver, Colorado
March 9, 2000

                                       52
<PAGE>   55

                          VERIO INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              -------------------------
                                                                  1998          1999
                                                              ------------   ----------
                                                                (IN THOUSANDS, EXCEPT
                                                                     SHARE DATA)
<S>                                                           <C>            <C>
Current assets:
  Cash and cash equivalents.................................   $ 433,424     $  506,055
  Securities available for sale.............................     143,963        358,969
  Restricted cash and securities (note 4 and 6).............      13,629         18,801
  Trade receivables, net of allowance for doubtful accounts
    of $4,763 and $8,694....................................      15,084         32,642
  Prepaid expenses and other................................       7,831         14,386
                                                               ---------     ----------
         Total current assets...............................     613,931        930,853
Restricted cash and securities (note 4 and 6)...............       1,176          1,680
Investments in affiliates, at cost (note 2).................       8,298          8,957
Prepaid marketing expense (note 2)..........................          --         17,247
Equipment and leasehold improvements (note 3)...............      77,118        269,132
Less accumulated depreciation and amortization..............     (26,672)       (64,002)
                                                               ---------     ----------
  Net equipment and leasehold improvements..................      50,446        205,130
Other assets:
  Goodwill, net of accumulated amortization of $21,614 and
    $79,263 (note 2)........................................     236,696        546,936
  Debt issuance costs, net of accumulated amortization of
    $1,710 and $3,934.......................................      18,542         28,362
  Other, net of accumulated amortization of $624 and $8,262
    (note 2)................................................       4,623         24,559
                                                               ---------     ----------
         Total assets.......................................   $ 933,712     $1,763,724
                                                               =========     ==========
                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................   $  10,501     $   29,807
  Accrued expenses..........................................      14,228         42,223
  Accrued interest payable..................................       9,634         18,620
  Line of credit, notes payable and current portion of
    long-term debt (note 4).................................       3,329            945
  Current portion of capital lease obligations (note 5).....       5,848         15,447
  Deferred revenue..........................................      12,512         24,800
                                                               ---------     ----------
         Total current liabilities..........................      56,052        131,842
Long-term debt, less current portion, net of discount (note
  4)........................................................     668,177      1,070,601
Capital lease obligations, less current portion (note 5)....       6,441         16,080
Other long-term liabilities (note 2)........................          --         12,078
                                                               ---------     ----------
         Total liabilities..................................     730,670      1,230,601
                                                               ---------     ----------
Minority interests in subsidiaries (note 2).................         361             --
Stockholders' equity (note 7):
  Preferred stock, 12,500,000 shares authorized; 7,200,000
    outstanding of 6.75% Series A Convertible Preferred
    (aggregate liquidation preference $360,000) (note 6)....          --        347,304
  Common stock, $.001 par value; 250,000,000 shares
    authorized; 66,292,020 and 77,769,395 shares issued and
    outstanding at December 31, 1998 and 1999...............          66             78
  Additional paid-in capital................................     376,131        462,480
  Accumulated deficit.......................................    (173,516)      (366,290)
  Accumulated other comprehensive income....................          --         89,551
                                                               ---------     ----------
         Total stockholders' equity.........................     202,681        533,123
                                                               ---------     ----------
Commitments and contingencies (note 5)
         Total liabilities and stockholders' equity.........   $ 933,712     $1,763,724
                                                               =========     ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       53
<PAGE>   56

                          VERIO INC. AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSES

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                           -------------------------------------
                                                              1997         1998          1999
                                                           ----------   -----------   ----------
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                        <C>          <C>           <C>
Revenue:
  Internet connectivity:
     Dedicated...........................................  $  16,383    $   53,274    $  95,674
     Dial-up.............................................      7,093        22,865       24,997
  Enhanced services and other............................     12,216        44,514      137,665
                                                           ---------    ----------    ---------
          Total revenue..................................     35,692       120,653      258,336
Costs and expenses:
  Cost of service........................................     15,974        54,023       79,288
  Sales and marketing....................................     10,744        33,320       60,623
  General and administrative and other (note 7)..........     38,639        84,602      126,987
  Depreciation and amortization..........................     10,624        39,726      109,505
                                                           ---------    ----------    ---------
          Total costs and expenses.......................     75,981       211,671      376,403
                                                           ---------    ----------    ---------
     Loss from operations................................    (40,289)      (91,018)    (118,067)
Other income (expense):
  Interest income........................................      6,080        14,628       23,344
  Interest expense.......................................    (11,826)      (35,946)     (87,183)
  Equity in losses of affiliates.........................     (1,958)           --           --
                                                           ---------    ----------    ---------
     Loss before minority interests and extraordinary
       item..............................................    (47,993)     (112,336)    (181,906)
Minority interests.......................................      1,924           482           --
                                                           ---------    ----------    ---------
  Loss before extraordinary item.........................    (46,069)     (111,854)    (181,906)
Extraordinary item -- loss related to debt repurchase
  (note 4)...............................................         --       (10,101)          --
                                                           ---------    ----------    ---------
          Net loss.......................................    (46,069)     (121,955)    (181,906)
Accretion of preferred stock to liquidation value and
  return on convertible preferred stock (note 6).........       (260)          (87)     (10,868)
                                                           ---------    ----------    ---------
          Net loss attributable to common stockholders...  $ (46,329)   $ (122,042)   $(192,774)
                                                           =========    ==========    =========
Weighted average number of common shares
  outstanding -- basic and diluted.......................      2,290        42,752       75,372
                                                           =========    ==========    =========
Loss per common share -- basic and diluted:
  Loss per common share before extraordinary item........  $  (20.24)   $    (2.62)   $   (2.56)
  Extraordinary item.....................................         --         (0.23)          --
                                                           ---------    ----------    ---------
     Loss per common share...............................  $  (20.24)   $    (2.85)   $   (2.56)
                                                           =========    ==========    =========
Net loss.................................................  $ (46,069)   $ (121,955)   $(181,906)
                                                           ---------    ----------    ---------
Other comprehensive income (losses):
  Foreign currency translation loss......................         --            --         (153)
  Unrealized gains on securities.........................         --            --       89,704
                                                           ---------    ----------    ---------
Other comprehensive income...............................         --            --       89,551
                                                           ---------    ----------    ---------
          Total comprehensive losses.....................  $ (46,069)   $ (121,955)   $ (92,355)
                                                           =========    ==========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       54
<PAGE>   57

                          VERIO INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                                         ACCUMULATED
                                                          COMMON STOCK       ADDITIONAL                     OTHER
                                           PREFERRED   -------------------    PAID-IN     ACCUMULATED   COMPREHENSIVE
                                             STOCK       SHARES     AMOUNT    CAPITAL       DEFICIT        INCOME         TOTAL
                                           ---------   ----------   ------   ----------   -----------   -------------   ---------
                                                                     (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                        <C>         <C>          <C>      <C>          <C>           <C>             <C>
BALANCES AT JANUARY 1, 1997..............  $     --     2,180,000    $ 2      $  1,088     $  (5,145)      $    --      $  (4,055)
Issuance of common stock for exercise of
  options................................        --       152,400     --           148            --            --            148
Issuance of common stock for cash........        --       176,666     --           360            --            --            360
Warrants issued in connection with debt
  offering (note 4)......................        --            --     --        12,675            --            --         12,675
Issuance of preferred stock in business
  combination (note 6)...................    10,200            --     --            --            --            --         10,200
Accretion of redeemable preferred stock
  to liquidation value...................        --            --     --            --          (260)           --           (260)
Net loss.................................        --            --     --            --       (46,069)           --        (46,069)
                                           --------    ----------    ---      --------     ---------       -------      ---------
BALANCES AT DECEMBER 31, 1997............    10,200     2,509,066      2        14,271       (51,474)           --        (27,001)
Issuance of common stock for:
  Exercise of options....................        --       315,770      1           664            --            --            665
  Exercise of warrants...................        --     1,313,976      1             5            --            --              6
  Employee purchases.....................        --       143,094     --           988            --            --            988
Issuance of common stock in initial
  public offering, net of expenses (note
  7).....................................        --    11,470,000     12       120,806            --            --        120,818
Issuance of common stock to private
  investor (note 7)......................        --     8,987,754      9        99,990            --            --         99,999
Issuance of Series D-1 preferred stock in
  business combinations (notes 2 and
  6).....................................    26,726            --     --            --            --            --         26,726
Accretion of redeemable preferred stock
  to liquidation value...................        --            --     --            --           (87)           --            (87)
Issuance of common stock pursuant to
  conversion of Series D-1 preferred
  stock (note 6).........................   (36,926)    4,429,026      4        36,922            --            --             --
Issuance of common stock pursuant to
  Conversion of Series A, B and C
  redeemable preferred stock (note 6)....        --    37,123,334     37        97,269            --            --         97,306
Issuance of common stock options in
  business combinations (note 2).........        --            --     --         1,937            --            --          1,937
Stock option related compensation and
  severance costs (note 7)...............        --            --     --         3,279            --            --          3,279
Net loss.................................                                                   (121,955)                    (121,955)
                                           --------    ----------    ---      --------     ---------       -------      ---------
BALANCES AT DECEMBER 31, 1998............  $     --    66,292,020     66       376,131      (173,516)           --        202,681
Issuance of common stock for:
  Exercise of options....................        --     2,404,210      2        10,601            --            --         10,603
  Exercise of warrants...................        --     1,657,437      2           914            --            --            916
  Employee purchases.....................        --       360,276      1         2,811            --            --          2,812
  Exercise of warrants issued pursuant to
    a
    non-cash exchange of notes...........        --       715,760      1         2,357            --            --          2,358
Stock issued pursuant to the acquisition
  of Best Internet Communications, Inc.
  (note 2)...............................        --     6,289,692      6        50,314            --            --         50,320
Issuance of common stock, options and
  warrants in business combinations (note
  2).....................................        --        50,000     --        17,612            --            --         17,612
Issuance of convertible preferred stock,
  net of issuance costs..................   347,304            --     --            --            --            --        347,304
Stock option related compensation and
  severance costs (note 7)...............        --            --     --         1,740            --            --          1,740
Other comprehensive income...............        --            --     --            --            --        89,551         89,551
Return on convertible preferred stock....        --            --     --            --       (10,868)           --        (10,868)
Net loss.................................        --            --     --            --      (181,906)           --       (181,906)
                                           --------    ----------    ---      --------     ---------       -------      ---------
BALANCES AT DECEMBER 31, 1999............  $347,304    77,769,395    $78      $462,480     $(366,290)      $89,551      $ 533,123
                                           ========    ==========    ===      ========     =========       =======      =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       55
<PAGE>   58

                          VERIO INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                              ---------------------------------
                                                                1997        1998        1999
                                                              ---------   ---------   ---------
                                                                       (IN THOUSANDS)
<S>                                                           <C>         <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $ (46,069)  $(121,955)  $(181,906)
  Adjustments to reconcile net loss to net cash used by
    operating activities:
    Depreciation and amortization...........................     10,624      39,726     109,505
    Minority interests' share of losses.....................     (1,924)       (482)         --
    Stock option related compensation and severance costs...         --       3,279       1,740
    Other...................................................         --          --        (377)
    Equity in losses of affiliates..........................      1,958          --          --
    Extraordinary item -- loss related to debt repurchase...         --      10,101          --
    Changes in operating assets and liabilities, excluding
      effects of business combinations:
      Receivables...........................................     (1,561)     (2,058)    (12,895)
      Prepaid expenses and other current assets.............     (2,305)     (1,283)     (9,630)
      Accounts payable......................................     (1,656)     (1,766)     15,779
      Accrued expenses......................................      3,082         654       2,877
      Accrued interest payable..............................        844       9,674      (1,008)
      Deferred revenue......................................      1,684        (129)      6,336
                                                              ---------   ---------   ---------
         Net cash used by operating activities..............    (35,323)    (64,239)    (69,579)
                                                              ---------   ---------   ---------
Cash flows from investing activities:
  Acquisition of equipment and leasehold improvements.......    (14,547)    (23,058)   (146,840)
  Acquisition of net assets in business combinations and
    investments in affiliates, net of cash acquired.........    (64,023)   (151,119)   (321,572)
  Change in restricted cash and securities..................    (40,554)     25,750      (5,343)
  Purchase of securities available for sale, net............     (9,924)   (134,039)   (105,522)
  Other.....................................................     (1,206)     (2,425)    (12,389)
                                                              ---------   ---------   ---------
    Net cash used by investing activities...................   (130,254)   (284,891)   (591,666)
                                                              ---------   ---------   ---------
Cash flows from financing activities:
  Proceeds from lines of credit, notes payable and long-term
    debt, net of issuance costs.............................    145,512     559,340     387,081
  Repayments of lines of credit and notes payable...........     (3,468)    (57,885)     (3,177)
  Repayments of capital lease obligations...................       (950)     (4,039)    (11,663)
  Proceeds from issuance of common and preferred stock, net
    of issuance costs.......................................     20,678     222,476     361,635
                                                              ---------   ---------   ---------
    Net cash provided by financing activities...............    161,772     719,892     733,876
                                                              ---------   ---------   ---------
    Net increase (decrease) in cash and cash equivalents....     (3,805)    370,762      72,631
Cash and cash equivalents:
  Beginning of year.........................................     66,467      62,662     433,424
                                                              ---------   ---------   ---------
  End of year...............................................  $  62,662   $ 433,424   $ 506,055
                                                              =========   =========   =========
Supplemental disclosures of cash flow information:
  Cash paid for interest....................................  $  10,982   $  27,156   $  83,019
                                                              =========   =========   =========
  Cash paid for return on convertible preferred stock.......  $      --   $      --   $   6,075
                                                              =========   =========   =========
Supplemental disclosures of non-cash investing and financing
  activities:
  Equipment acquired through capital lease obligations......  $   3,301   $  11,027   $  29,293
                                                              =========   =========   =========
  Acquisition of net assets in business combinations through
    issuance of notes payable...............................  $   4,718   $      --   $      --
                                                              =========   =========   =========
  Acquisition of net assets in business combinations through
    issuance of preferred stock, common stock and preferred
    stock options...........................................  $  10,200   $  28,663   $  67,932
                                                              =========   =========   =========
  Warrants issued in connection with debt offering..........  $  12,675   $      --   $      --
                                                              =========   =========   =========
  Other liabilities incurred for prepaid marketing expense
    and acquisition of customers through AOL agreement......  $      --   $      --   $  25,000
                                                              =========   =========   =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       56
<PAGE>   59

                          VERIO INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  (a) Organization and Basis of Presentation

     Verio Inc. (Verio or the Company) was incorporated on March 1, 1996. Verio
commenced operations in April 1996 and had no activity other than the sale of
common stock to founders prior to April 1, 1996. Since then, Verio has rapidly
established a global presence by acquiring and growing Internet service
providers with a business customer focus. Verio is the world-wide leader in
hosting domain-based Web sites and is a leading provider of high speed
connectivity and enhanced services such as electronic commerce and virtual
private networks to small and medium sized businesses. Verio operates in one
business segment and has operations in the United States, Europe and Asia.
International operations were not significant in 1997, 1998, and approximated
10% of total revenue in 1999.

     The accompanying consolidated financial statements include the accounts of
Verio and its majority owned subsidiaries, as described in Note 2. All
significant intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ significantly from those
estimates.

  (b) Cash and Cash Equivalents, Restricted Cash and Securities Available for
      Sale

     Verio considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents. Included in cash equivalents as
of December 31, 1998 and 1999 are U.S. government, municipal and corporate debt
securities, money market accounts and commercial paper totaling $433.4 million
and $506.1 million respectively, with maturities ranging from thirty to ninety
days. Verio's securities available for sale consist of readily marketable debt
securities with remaining maturities of more than 90 days and less than 360 days
at time of purchase, commercial paper and equity securities. Verio has
classified a portion of its investment portfolio as available for sale
securities. Available for sale securities are stated at fair value with
unrealized gains and losses included in other comprehensive income. Realized
gains and losses are determined on a specific identification basis. Securities
available for sale consisted of the following as of December 31:

<TABLE>
<CAPTION>
                                                             FAIR VALUE
                                                          -----------------         1999
                                                           1998      1999      INTEREST RATES
                                                          -------   -------   ----------------
                                                           (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Commercial paper........................................   68,627   149,958          --
Corporate notes and bonds...............................    9,794    47,600   6.125% to 9.500%
Medium term notes.......................................   56,944    52,821   6.125% to 9.500%
Equity securities.......................................       --   108,537          --
Other...................................................    8,598        53          --
                                                          -------   -------
                                                          143,963   358,969
                                                          =======   =======
</TABLE>

     At December 31, 1998, the amortized cost of these securities approximated
market value. In 1999, unrealized gains were approximately $89.7 million,
primarily related to equity securities.

     Restricted cash and securities include U.S. government securities which are
considered to be securities held to maturity and recorded at cost. At December
31, 1998 and 1999, cost approximated market value.

  (c) Equipment and Leasehold Improvements

     Equipment and leasehold improvements are recorded at cost. Depreciation is
provided over the estimated useful lives of the assets ranging from 3 to 5 years
using the straight-line method. The cost of the 20-year capacity agreement with
Qwest Communications Corporation ("Qwest") will be depreciated using the

                                       57
<PAGE>   60
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

straight line method over the life of the agreement. Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life of the
asset.

  (d) Investments in Affiliates

     Investments in affiliates generally represent newly issued preferred or
common shares of various affiliates. During the year ended December 31, 1997,
Verio recognized equity in losses of affiliates of $1,958,000. Such losses were
not significant for the years ended December 31, 1998 and 1999.

  (e) Other Assets

     The excess of cost over the fair value of net assets acquired, or goodwill,
is amortized using the straight-line method over a 10-year period. Other
intangibles are amortized using the straight-line method over periods ranging
from three to seven years.

  (f) Debt Issuance Costs

     Debt issuance costs are amortized over the terms of the related debt.

  (g) Long-Lived Assets

     Verio evaluates the carrying value of its long-lived assets, including
goodwill, under the provisions of Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of (SFAS 121). SFAS 121 requires impairment losses to be
recorded on long-lived assets used in operations when indications of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets' carrying amount. In addition, the
recoverability of goodwill is further evaluated under the provisions of APB
Opinion No. 17, Intangible Assets, based upon undiscounted cash flows. If such
assets are impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the estimated fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
value or fair value, less costs to sell.

  (h) Revenue Recognition

     Revenue related to Internet and enhanced services is recognized as the
services are provided, and deferred and amortized to operations for amounts
billed relating to future periods. Revenue from consulting services is
recognized as the services are provided. Revenue from hardware and software
sales is recognized upon shipment of the respective products.

  (i) Peering Relationships

     Verio does not pay any fees in connection with its peering relationships
with other companies and does not record revenue or expense in connection with
those arrangements. The nature of these relationships is that the parties share
the responsibility for communications that occur between their respective local
networks. These peering relationships are essentially exchanges of similar
productive assets rather than the culmination of an earnings process.
Accordingly, these arrangements are not reflected in the operations of Verio.

  (j) Income Taxes

     Verio accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109).
SFAS 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the

                                       58
<PAGE>   61
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
difference is expected to reverse.

  (k) Stock-Based Compensation

     Verio accounts for its stock-based compensation plans using the intrinsic
value based method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations (APB 25).
Verio has provided pro forma disclosures of net loss and loss per share as if
the fair value based method of accounting for the plans, as prescribed by
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), had been applied. Pro forma disclosures include the
effects of employee stock options granted subsequent to January 1, 1996.

  (l) Loss Per Share

     Loss per share ("EPS") is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128). Under SFAS 128, basic EPS excludes dilution for potential common stock and
is computed by dividing income or loss available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Basic and diluted EPS are the same in 1997, 1998 and 1999, as all potential
common stock instruments, consisting of options, warrants and convertible
preferred stock, are antidilutive.

  (m) Reclassifications

     Certain prior year amounts have been reclassified for comparability with
the 1999 presentation.

                                       59
<PAGE>   62
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(2) BUSINESS COMBINATIONS, INVESTMENTS IN AFFILIATES AND ASSET ACQUISITIONS

     During the year ended December 31, 1997, Verio completed 24 business
combinations and investments for cash, notes payable and preferred stock. All of
the acquisitions were accounted for using the purchase method of accounting. For
those businesses acquired and consolidated, the results of operations for the
acquired businesses are included in Verio's consolidated statement of operations
from the dates of acquisition. Eighteen subsidiaries were acquired and newly
consolidated during 1997. In addition, Verio formed two new start-up
subsidiaries. Summary information regarding these acquisitions is as follows:

  Consolidated acquisitions in 1997:

<TABLE>
<CAPTION>
                                                                         TOTAL OWNERSHIP
                                                           OWNERSHIP       INTEREST AT      APPROXIMATE
                                                            INTEREST      DECEMBER 31,        PURCHASE
BUSINESS NAME                          ACQUISITION DATE   PURCHASED(A)       1997(A)          PRICE(E)
-------------                          ----------------   ------------   ---------------   --------------
                                                                                           (IN THOUSANDS)
<S>                                   <C>                 <C>            <C>               <C>
Global Enterprise
  Services -- Network Division......  January 17, 1997        100%            100%(d)         $ 2,350
Pioneer Global Telecommunications,
  Inc. .............................  February 6, 1997        100%            100%(c)           1,011
Compute Intensive Inc. .............  February 18, 1997        55%             55%(b)           4,900
NorthWestNet, Inc. .................  February 28, 1997        85%             85%(c)           9,464
RUSTnet, Inc. ......................  March 14, 1997          100%            100%(c)           1,703
Aimnet Corporation..................  May 19, 1997             55%
                                      September 22, 1997       45%            100%(c)           7,613
Branch Information Services, Inc....  September 17, 1997      100%            100%(c)           1,687
West Coast Online, Inc. ............  April 29, 1997           12%
                                      September 30, 1997       68%            100%(b)           1,775
Communique, Inc. ...................  October 2, 1997         100%            100%(c)           3,000
Clark Internet Services, Inc........  October 17, 1997         51%             51%(b)           3,520
ATMnet..............................  November 5, 1997        100%            100%(d)           5,522
Global Internet Network Services,
  Inc. .............................  December 1, 1997        100%            100%(c)           6,000
Surf Network, Inc. .................  January 31, 1997         25%
                                      December 22, 1997        75%            100%(b)             603
PREPnet.............................  December 24, 1997       100%            100%(d)           1,405
Sesquinet...........................  December 24, 1997       100%            100%(d)             732
Service Tech, Inc. .................  August 1, 1997           40%
                                      December 31, 1997        60%            100%(b)           2,055
Monumental Network Systems, Inc.....  December 31, 1997       100%            100%(c)           3,962
Internet Servers, Inc. .............  December 31, 1997       100%            100%(c)          20,000
                                                                                              -------
                                                                                              $77,302
Acquisition costs.......................................................................        3,396
                                                                                              -------
                                                                                              $80,698
                                                                                              =======
</TABLE>

     The aggregate purchase price, including acquisition costs, was allocated
based upon fair values as follows:

<TABLE>
<S>                                                          <C>
Equipment..................................................  $12,378
Goodwill...................................................   77,772
Net current liabilities....................................   (9,452)
                                                             -------
          Total purchase price.............................  $80,698
                                                             =======
</TABLE>

                                       60
<PAGE>   63
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Unconsolidated investments in 1997:

<TABLE>
<CAPTION>
                                                                       TOTAL OWNERSHIP
                                                          OWNERSHIP      INTEREST AT      APPROXIMATE
                                                          INTEREST      DECEMBER 31,        PURCHASE
BUSINESS NAME                         ACQUISITION DATE   PURCHASE(A)       1997(A)          PRICE(E)
-------------                         ----------------   -----------   ---------------   --------------
                                                                                         (IN THOUSANDS)
<S>                                   <C>                <C>           <C>               <C>
Pacific Rim Network, Inc. ..........  February 4, 1997       27%             27%(b)          $  150
Internet Engineering Associates,
  Inc. .............................  March 4, 1997          20%             20%(b)             206
Internet Online, Inc. ..............  March 5, 1997          35%             35%(b)           1,050
Structured Network Systems, Inc.....  March 6, 1997          20%             20%(b)             150
National Knowledge Networks, Inc....  November 7, 1997       15%             41%(b)             599
Signet Partners, Inc. ..............  November 20, 1997      16%             41%(b)             414
                                                                                             ------
                                                                                             $2,569
Acquisition costs.....................................................................          253
                                                                                             ------
                                                                                             $2,822
                                                                                             ======
</TABLE>

                                       61
<PAGE>   64
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During the year ended December 31, 1998, Verio purchased additional
investments in 11 of its partially-owned affiliates and acquired 15 new internet
service providers for a combination of cash and Series D-1 Preferred Stock. All
acquisitions were accounted for using the purchase method of accounting. For
those businesses acquired and consolidated, the results of operations are
included in Verio's consolidated statement of operations from the dates of
acquisition. Summary information regarding the 1998 business combinations is as
follows:

  Consolidated acquisitions in 1998:

<TABLE>
<CAPTION>
                                                                        TOTAL OWNERSHIP
                                                          OWNERSHIP       INTEREST AT      APPROXIMATE
                                                           INTEREST      DECEMBER 31,        PURCHASE
BUSINESS NAME                         ACQUISITION DATE   PURCHASED(A)       1998(A)          PRICE(E)
-------------                         ----------------   ------------   ---------------   --------------
                                                                                          (IN THOUSANDS)
<S>                                   <C>                <C>            <C>               <C>
Signet Partners, Inc. ..............  January 30, 1998        14%              --                  --
                                      February 26, 1998       45%            100%            $  1,925
Pacific Rim Network, Inc. ..........  February 16, 1998       73%            100%                 730
Clark Internet Services, Inc. ......  February 25, 1998       49%            100%               3,863
Internet Engineering Associates,
  Inc...............................  February 25, 1998       80%            100%               1,608
On-Ramp Technologies, Inc. .........  February 26, 1998       45%            100%              11,849
National Knowledge Networks, Inc....  February 27, 1998       59%            100%               2,092
Access One, Inc. ...................  February 27, 1998       80%            100%               5,601
NSNet, Inc. ........................  February 27, 1998      100%            100%               3,661
NorthWestNet, Inc. .................  March 6, 1998           15%            100%               4,803
LI Net, Inc. .......................  April 9, 1998          100%            100%               6,500
STARnet, L.L.C. ....................  April 14, 1998         100%            100%               3,500
Computing Engineers Inc. ...........  April 15, 1998         100%            100%               9,000
Florida Internet Corporation........  April 15, 1998         100%            100%               2,200
Structured Network Systems, Inc. ...  April 16, 1998          80%            100%               1,250
Compute Intensive Inc. .............  April 24, 1998          45%            100%              14,260
Matrix Online Media, Inc. ..........  May 5, 1998            100%            100%               4,000
PacketWorks, Inc. ..................  June 19, 1998          100%            100%                 852
Internet Online, Inc. ..............  June 30, 1998           65%            100%               4,200
NTX, Inc. (TABNet)..................  July 7, 1998           100%            100%              45,800
MagicNet, Inc. .....................  July 23, 1998          100%            100%               3,300
Smart.Connect (a division of
  FiberServices, Inc.)..............  August 5, 1998         100%            100%               1,009
TerraNet............................  August 7, 1998         100%            100%               4,271
Internet Now, Inc. .................  August 20, 1998        100%            100%                 998
WWW Service AG......................  October 21, 1998        80%             80%               8,430
Tinkleman Enterprises, Inc.
  (NYNet)...........................  December 3, 1998       100%            100%               7,000
QualNet, Inc. (Internet Access
  Group, Inc. and Great Plains Net,
  Inc.).............................  December 31, 1998      100%            100%              15,535
                                                                                             --------
                                                                                              168,237
Acquisition costs......................................................................         6,255
                                                                                             --------
                                                                                             $174,492
                                                                                             ========
</TABLE>

                                       62
<PAGE>   65
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The aggregate purchase price, including acquisition costs, was allocated
based upon fair values as follows:

<TABLE>
<S>                                                         <C>
Equipment.................................................  $  6,586
Goodwill..................................................   171,499
Net current liabilities...................................    (3,593)
                                                            --------
          Total purchase price............................  $174,492
                                                            ========
</TABLE>

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

(a)  Represented existing ownership interest or, in the case of investments in
     preferred stock, ownership upon conversion of preferred shares to common,
     on a fully diluted basis.

(b)  Represented ownership of preferred stock of affiliate or subsidiary.

(c)  Represented ownership of common stock of affiliate or subsidiary.

(d)  Represented acquisition of net assets.

(e)  Purchase prices are comprised of cash, notes payable, the issuance of
     shares of Series D-1 preferred stock, and the granting of an option to
     purchase shares of Series D-1 preferred stock. The value of such shares,
     which were converted to common stock of Verio in May 1998, as described in
     note 6, was generally determined by Verio's Board of Directors based on
     comparable valuations of private and public companies, methodologies based
     on multiples of revenue and discounted cash flows, and arms-length
     negotiated values.

     In January 1999, Verio completed the acquisition of all the outstanding
common stock of Best Internet Communications, Inc. (which does business as Hiway
Technologies, Inc. ("Hiway")) for total consideration of approximately $241.5
million, including $176.0 million in cash and approximately 9.8 million shares
of Verio common stock. In February 1999, Verio completed the acquisition of Web
Communications, LLC for approximately $8.0 million in cash. In July 1999, Verio
acquired all of the outstanding stock of Computer Services Group, Inc. (which
does business as digitalNATION) for $100.0 million in cash. In December 1999,
Verio purchased 31% of one of its start-up subsidiaries for 50,000 shares of
common stock bringing Verio's ownership to 100% and also purchased the remainder
of a subsidiary majority owned by Hiway for approximately $3.5 million in cash.
All acquisitions were accounted for using the purchase method of accounting. For
those businesses acquired and consolidated, the results of operations for the
acquired businesses are included in Verio's consolidated statement of operations
from the dates of acquisition. Summary information regarding the 1999 business
combinations is as follows:

  Consolidated acquisitions in 1999:

<TABLE>
<CAPTION>
                                                                   OWNERSHIP
                                                                   INTEREST     APPROXIMATE
BUSINESS NAME                                   ACQUISITION DATE   PURCHASED   PURCHASE PRICE
-------------                                   ----------------   ---------   --------------
                                                                               (IN THOUSANDS)
<S>                                             <C>                <C>         <C>
Best Internet Communications, Inc. ...........  January 5, 1999      100%         $241,505
Web Communications, LLC.......................  February 19, 1999    100%            8,000
Computer Services Group, Inc.
  (digitalNATION).............................  July 13, 1999        100%          100,000
                                                                                  --------
                                                                                  $349,505
Acquisition costs...........................................................         5,276
                                                                                  --------
                                                                                  $354,781
                                                                                  ========
</TABLE>

                                       63
<PAGE>   66
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The aggregate purchase price, including acquisition costs, was allocated
based upon fair values as follows:

<TABLE>
<S>                                                         <C>
Equipment.................................................  $ 19,110
Goodwill..................................................   349,944
Net current liabilities...................................   (14,273)
                                                            --------
          Total purchase price............................  $354,781
                                                            ========
</TABLE>

     The following presents the condensed unaudited pro forma results of
operations of Verio as though the above noted acquisitions had occurred at the
beginning of the respective period in which the acquisition occurred, as well as
at the beginning of the immediately preceding period:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                              -------------------------
                                                                 1998          1999
                                                              -----------   -----------
                                                              (IN THOUSANDS, EXCEPT FOR
                                                                   PER SHARE DATA)
<S>                                                           <C>           <C>
Revenue.....................................................   $ 194,806     $ 263,697
Net loss....................................................    (149,091)     (186,459)
Net loss attributable to common stockholders................    (149,178)     (197,327)
Loss per common share -- basic and diluted..................   $   (3.04)    $   (2.61)
</TABLE>

     The pro forma results do not necessarily represent results that would have
occurred if the consolidated acquisitions had occurred at the beginning of the
respective periods nor are they necessarily indicative of the results of future
operations.

     Investment in affiliates at December 31, 1999 consists primarily of the
Company's cost-based investment in VIANet.Works, Inc.

     Effective March 4, 1999, Verio entered into an agreement with America
Online, Inc. ("AOL"). Under this three-year agreement, Verio will purchase
advertising promotions from AOL to promote Verio's Web hosting and related
business-focused commerce products and services on AOL's four key U.S. on-line
media properties. Verio's promotional rights with respect to Web hosting and
designated electronic commerce products and services are exclusive during this
period on these four specified sites. AOL has also conveyed its Prime Host and
CompuServe BusinessWeb hosting customers to Verio. Verio agreed to make
guaranteed payments totaling $42.5 million over the first two years of the
agreement, with AOL participating in future revenue under specified
circumstances defined in the agreement. The first payment of $17.5 million was
made in March 1999. The guaranteed payments to AOL have been allocated to
subscribers and prepaid advertising costs based on the estimated fair values of
the assets acquired, and are amortized over a three year period. At December 31,
1999, $25.0 million was due under the agreement and is included in current and
other long-term liabilities.

(3) EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     Equipment and leasehold improvements consist of the following:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1998       1999
                                                              -------   --------
<S>                                                           <C>       <C>
Internet access and computer equipment......................  $66,408   $175,111
Fiber capacity..............................................       --     65,477
Furniture, fixtures and computer software...................    5,823      9,062
Leasehold improvements......................................    4,887     19,482
                                                              -------   --------
                                                              $77,118   $269,132
                                                              =======   ========
</TABLE>

                                       64
<PAGE>   67
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Total depreciation and amortization expense was $6.9 million, $19.5 million
and $41.8 million for the years ended December 31, 1997, 1998 and 1999,
respectively.

     As of December 31, 1999, the Company had entered into a 20-year capacity
agreement with Qwest to acquire fiber capacity on Qwest's fiber optic network
for $65.5 million which is being depreciated using the straight-line method over
the life of the agreement.

(4) DEBT

     Lines of credit, notes payable and long-term debt as of December 31
consists of the following:

<TABLE>
<CAPTION>
                                                                1998        1999
                                                              --------   ----------
                                                                 (IN THOUSANDS)
<S>                                                           <C>        <C>
10 5/8% Senior Notes due 2009(a)............................  $     --   $  400,000
11 1/4% Senior Notes due 2008(b)............................   400,000      400,000
10 3/8% Senior Notes due 2005(c)............................   175,000      175,000
13 1/2% Senior Notes due in 2004, net of unamortized
  discount of $7,296 and 6,375 as of December 31, 1998 and
  December 31, 1999, respectively(d)........................    92,704       93,625
Unsecured notes payable bearing interest primarily at 7%,
  due in 1998, 1999 and 2000................................     1,418          945
Other.......................................................     2,384        1,976
                                                              --------   ----------
                                                               671,506    1,071,546
Less current portion........................................    (3,329)        (945)
                                                              --------   ----------
Long-term debt, less current portion........................  $668,177   $1,070,601
                                                              ========   ==========
</TABLE>

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

(a)  On November 19, 1999, Verio completed the private placement of $400.0
     million principal amount of senior notes (the "November 1999 Notes"). The
     November 1999 Notes are redeemable at the option of Verio commencing
     November 15, 2004. The November 1999 Notes mature on November 15, 2009.
     Interest on the November 1999 Notes is payable semi-annually in arrears on
     May 15 and November 15 of each year, commencing May 15, 2000. The November
     1999 Notes are senior unsecured obligations of Verio ranking equally in
     right of payment with all existing and future unsecured and senior
     indebtedness.

(b)  On November 25, 1998, Verio completed the private placement of $400.0
     million principal amount of senior notes (the "November 1998 Notes"). The
     November 1998 Notes are redeemable at the option of Verio commencing
     December 1, 2003. The November 1998 Notes mature on December 1, 2008.
     Interest on the November 1998 Notes is payable semi-annually in arrears on
     June 1 and December 1 of each year, commencing June 1, 1999. The November
     1998 Notes are senior unsecured obligations of Verio ranking equally in
     right of payment with all existing and future unsecured and senior
     indebtedness. The November 1998 Notes contain terms that are substantially
     similar to the March 1998 Notes and the 1997 Notes.

(c)  On March 25, 1998, Verio completed the private placement of $175.0 million
     principal amount of senior notes (the "March 1998 Notes"). The March 1998
     Notes are redeemable at the option of Verio commencing April 1, 2002. The
     March 1998 Notes mature on April 1, 2005. Interest on the March 1998 Notes
     is payable semi-annually in arrears on April 1 and October 1 of each year,
     commencing October 1, 1998. The March 1998 Notes are senior unsecured
     obligations of Verio ranking equally in right of payment with all existing
     and future unsecured and senior indebtedness. The March 1998 Notes contain
     terms that are substantially similar to the 1997 Notes. Verio used
     approximately $54.5 million of the proceeds plus accrued interest to
     repurchase $50.0 million principal amount of the 1997 Notes. As a result,
     Verio was refunded approximately $13.3 million from the escrow account for
     the 1997 Notes, of

                                       65
<PAGE>   68
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     which approximately $1.9 million was used to pay accrued and unpaid
     interest. This transaction resulted in an extraordinary loss of $10.1
     million.

(d)  In June 1997, Verio completed a debt offering of $150.0 million, 13 1/2%
     Senior Notes due 2004 (the "1997 Notes") and warrants to purchase 4,224,960
     shares of common stock at $.005 per share, expiring on June 15, 2004.
     Interest on the 1997 Notes is payable semi-annually on June 15 and December
     15 of each year. The value attributed to the warrants was recorded as debt
     discount and is being amortized to interest expense using the interest
     method over the term of the 1997 Notes. Upon closing, Verio deposited U.S.
     Treasury securities in an escrow account in an amount that, together with
     interest on the securities, will be sufficient to fund the first five
     interest payments (through December 1999) on the 1997 Notes. This
     restricted cash and securities balance totaled $13.1 million at December 31
     1998. The 1997 Notes are redeemable on or after June 15, 2002 at 103% of
     the face value, decreasing to face value at maturity.

     If a change of control with respect to Verio occurs, Verio is required to
make an offer to purchase all the Notes then outstanding at a price equal to
101% of the respective principal amount of the Notes, plus accrued and unpaid
interest. In addition, the terms of the Notes restrict our ability to pay cash
dividends on Verio's stock.

     Maturities of lines of credit, notes payable and long-term debt are as
follows (in thousands):

<TABLE>
<S>                                                        <C>
2000.....................................................  $      945
2001.....................................................          --
2002.....................................................       1,976
2003.....................................................          --
2004.....................................................     100,000
Thereafter...............................................     968,625
                                                           ----------
                                                           $1,071,546
                                                           ==========
</TABLE>

     Verio has an agreement with a group of commercial lending institutions to
provide an aggregate of up to $100.0 million pursuant to a three-year revolving
credit financing facility secured by substantially all of the stock of Verio's
subsidiaries and by an agreement with Qwest pursuant to which Verio may lease
fiber capacity from time to time. The credit financing facility expires on June
30, 2002 with interest at 2% above the LIBOR. There is a commitment fee of 1/2%
per annum on the undrawn amount of the credit facility. No borrowings are
outstanding under this facility as of December 31, 1999.

                                       66
<PAGE>   69
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) LEASES, COMMITMENTS AND CONTINGENCIES

     Verio leases office space, certain facilities storing Internet points of
presence and certain computer and office equipment under capital and operating
leases expiring at various dates through 2009. Future minimum annual lease
payments under these leases as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                 CAPITAL     OPERATING
                                                  LEASES      LEASES
                                                 --------    ---------
                                                    (IN THOUSANDS)
<S>                                              <C>         <C>
2000...........................................  $ 17,334     $10,925
2001...........................................    13,364       9,959
2002...........................................     4,893       9,387
2003...........................................        38       6,426
2004...........................................        --       4,956
Thereafter.....................................        --      12,626
                                                 --------     -------
          Total minimum payments...............    35,629     $54,279
                                                              =======
Less amount representing interest and taxes....    (4,102)
                                                 --------
          Present value of net minimum lease
            payments...........................    31,527
Less current portion...........................   (15,447)
                                                 --------
                                                 $ 16,080
                                                 ========
</TABLE>

     Rent expense for the years ended December 31, 1997, 1998 and 1999 was $1.9
million, $4.0 million and $11.6 million, respectively.

     Verio had an outstanding irrevocable letter of credit in the amount of $1.3
million as of December 31, 1999. This letter of credit is to collateralize a
Verio lease obligation to a third party. Restricted cash in the amount of
approximately $1.3 million secures the letter of credit.

     The Company is subject to litigation and claims incidental to its business.
While it is not feasible to predict or determine the financial outcome of these
matters, management does not believe they should result in a materially adverse
effect on the Company's financial position, results of operations or liquidity.

(6) REDEEMABLE PREFERRED STOCK

     Series A, B and C preferred shares were issued at $3, $6 and $8 per share
for total proceeds of $18,100,001, $60,170,004 and $20,000,000, respectively, in
1996 and 1997. The Series A, B, and C preferred shares were subject to mandatory
redemption and were convertible into common stock, initially on a one-for-one
basis. In December 1997, Verio also issued 680,000 shares of Series D-1
preferred stock at $15 per share in connection with an acquisition. The Series
D-1 preferred shares were not mandatorily redeemable. From January 1, 1998
through April 30, 1998, Verio issued 1,534,513 additional shares of Series D-1
preferred stock with values ranging from $15 to $22 per share in connection with
business combinations. In connection with Verio's initial public offering of
common stock discussed in note 7, all outstanding preferred shares were
converted to common stock in May 1998.

(7) STOCKHOLDERS' EQUITY

  Common Stock Offerings and Stock Split

     On May 15, 1998, Verio completed its initial public offering of common
stock. Verio issued 11.5 million shares for net proceeds, after offering costs,
of approximately $120.8 million.

                                       67
<PAGE>   70
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Concurrent with the above offering, Verio also sold an additional 9.0
million shares to a strategic investor for total proceeds of approximately
$100.0 million.

     A two-for-one stock split, which was effective on August 20, 1999 for
stockholders of record at the close of business on August 3, 1999, is reflected
in the accompanying financial statements for all periods presented.

 Preferred Stock

     In July 1999 Verio issued 7.2 million shares of its 6.75% Series A
Convertible Preferred Stock, with a liquidation preference of $50.00 per share,
for approximate net proceeds of $347.3 million. The shares of preferred stock
are convertible to shares of common stock at $48.2813 per share. The convertible
preferred stock may be redeemed, at the Company's option, at a redemption
premium of 102.0% of the liquidation preference, plus accumulated and unpaid
dividends on or after August 1, 2001, but prior to August 1, 2002, if the
trading price of Verio common stock equals or exceeds $72.4219 per share for a
specified period. In addition to the payments described above, holders will
receive a payment equal to the present value of the dividends that would
thereafter have been payable on the convertible preferred stock through and
including August 1, 2002. Except as described above, the Company may not redeem
the convertible preferred stock prior to August 1, 2002. Beginning on August 1,
2002, Verio may redeem the convertible preferred stock initially at a redemption
premium of 103.8571% of the liquidation preference and thereafter at prices
declining to 100.0% on and after August 1, 2006, plus, in each case, all
accumulated and unpaid dividends. Verio may effect any redemption, in whole or
in part, by delivering cash, shares of common stock or a combination thereof. At
the closing of this offering, the initial purchasers of the convertible
preferred stock deposited approximately $24.3 million into an account from which
four, equal quarterly cash payments will be made to the preferred stockholders
of record in the form of a return of capital, or which, at Verio's election, may
be used to purchase shares of Verio common stock for delivery to holders in lieu
of cash payments. The deposit account will expire on August 1, 2000 unless it is
earlier terminated and is reflected in restricted cash on the consolidated
balance sheet. Subsequent to August 1, 2000, dividends will accrue on a
cumulative basis at 6.75% per annum.

  Stock-Based Compensation Plans


     Verio has established incentive stock option plans (the Plans) whereby, at
the discretion of the Board of Directors (the Board), Verio may grant stock
options to employees of Verio and its controlled subsidiaries. As of December
31, 1999, Verio had reserved 18.4 million shares for issuance under the Plans.
Prior to Verio's initial public offering, the option price was determined by the
Board at the time the option was granted, with such price being not less than
the estimated fair value of Verio's common stock. Options granted subsequent to
the initial public offering are granted at fair value based on quoted prices for
Verio's common stock. As of December 31, 1999 options had been granted and
remained outstanding under the Plans entitling the holders to purchase
approximately 14.8 million shares of Verio's common stock, at exercise prices
ranging from $0.46 to $46.19 per share. Options granted on or before December
19, 1997, vest over a five year period, and expire ten years from the date of
grant. Options granted December 20, 1997, or later, vest over a four year
period, and expire eight years from the date of grant. Certain options granted
prior to March 1998 may be exercised prior to their scheduled vesting date, but
are subject to a repurchase by Verio at the exercise price until the scheduled
vesting date. In addition, Verio has established an non-employee director stock
incentive plan (the "Director Plan"), under which non-employee directors are
granted stock options in order to incent them to serve the Company. As of
December 31, 1999, Verio has reserved 1.1 million shares for issuance under the
Director Plan. Options granted under the Director Plan are granted at fair value
based on quoted prices for Verio's common stock. As of December 31, 1999,
options had been granted and remained outstanding under the Director Plan
entitling the holders to purchase approximately 360,000 shares of Verio's common
stock.


                                       68
<PAGE>   71
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     The following table summarizes option activity for the years ended December
31, 1997, 1998 and 1999, including activity under all of the Plans and the
Director Plan:



<TABLE>
<CAPTION>
                               1997                   1998                    1999
                       --------------------   ---------------------   ---------------------
                                   WEIGHTED                WEIGHTED                WEIGHTED
                                   AVERAGE                 AVERAGE                 AVERAGE
                                   EXERCISE                EXERCISE                EXERCISE
                        SHARES      PRICE       SHARES      PRICE       SHARES      PRICE
                       ---------   --------   ----------   --------   ----------   --------
<S>                    <C>         <C>        <C>          <C>        <C>          <C>
Outstanding at
  beginning of
  year...............  1,415,400    $1.42      4,369,500    $2.77     13,202,698    $ 7.88
Granted..............  3,495,100     3.27     11,501,128     9.23      8,307,312     24.26
Exercised............   (152,400)    0.98       (315,770)    2.10     (2,404,210)     4.45
Canceled.............   (388,600)    3.05     (2,352,160)    6.03     (3,960,352)    13.95
                       ---------              ----------              ----------
Outstanding at end of
  year...............  4,369,500    $2.77     13,202,698    $7.88     15,145,448    $15.48
                       =========              ==========              ==========
Options exercisable
  at year end........    109,400    $2.84      1,215,692    $2.43      3,172,797    $ 6.81
</TABLE>


     A summary of the range of exercise prices and the weighted-average
contractual life of outstanding stock options at December 31, 1999 is as
follows:


<TABLE>
<CAPTION>
                                          OPTIONS OUTSTANDING                OPTIONS EXERCISABLE
                                 -------------------------------------   ----------------------------
                                                            WEIGHTED
                                                             AVERAGE
                                    NUMBER      WEIGHTED    REMAINING                        WEIGHTED
                                 OUTSTANDING    AVERAGE    CONTRACTUAL        NUMBER         AVERAGE
RANGE OF                         DECEMBER 31,   EXERCISE      LIFE          EXERCISABLE      EXERCISE
EXERCISE PRICES                      1999        PRICE       (YEARS)     DECEMBER 31, 1999    PRICE
---------------                  ------------   --------   -----------   -----------------   --------
<S>                              <C>            <C>        <C>           <C>                 <C>
$ 0.46-$ 4.25..................    2,163,242     $ 2.55        7.5           1,237,549        $ 2.35
  6.38-  9.50..................    3,052,072     $ 7.37        6.5             796,412        $ 7.33
 10.25- 14.57..................    4,877,017     $11.29        6.7           1,114,004        $11.10
 15.03- 29.75..................    3,009,144     $26.02        7.5              22,830        $18.06
 31.81- 46.19..................    2,043,973     $35.79        7.5               2,002        $33.93
                                  ----------                                 ---------
$ 0.46-$46.19..................   15,145,448     $15.48        7.0           3,172,797        $ 6.81
                                  ==========                                 =========
</TABLE>


     During the years ended December 31, 1997, 1998 and 1999, the per share
weighted-average fair value of stock options granted was $0.54, $5.77 and
$14.82, respectively, on the dates of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: no
dividends, volatility of 0% in 1997, 95% in 1998 and 91% in 1999, risk-free
interest rate of 6.0% in 1997 and 1998, and 6.46% in 1999, and an expected life
of three years. If Verio had recorded compensation expense for the years ended
December 31, 1997, 1998 and 1999, based on the fair value of the options at the
grant date under SFAS No. 123, net loss attributable to common stockholders
would increase to $46.7 million, $137.2 million and $238.8 million,
respectively, and basic and diluted net loss per common share would increase to
$20.39, $3.21 and $3.17, respectively.

     Since inception, Verio has generally granted stock options with exercise
prices equal to the fair value of the underlying common stock, as determined by
Verio's Board of Directors and based on Verio's other equity transactions prior
to the initial public offering, and quoted prices of Verio's common stock
thereafter. Accordingly, Verio had not recorded compensation expense related to
the granting of stock options in 1997 and through February 28, 1998. Subsequent
to February 28, 1998, Verio granted options to employees with exercise prices
less than Verio's estimated price per share in the initial public offering.
Accordingly, Verio is recognizing compensation expense totaling approximately
$7.2 million, as adjusted for forfeitures, pro rata over the forty-eight month
vesting period of the options. This compensation expense totaled approximately

                                       69
<PAGE>   72
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$1.9 million and $1.7 million for the years ended December 31, 1998 and 1999,
respectively, and is recorded in general and administrative and other expenses
in the consolidated statements of operations and comprehensive losses. In
addition, Verio incurred $1.4 million in compensation expense during the year
ended December 31, 1998 related to accelerated vesting of options.

(8) INCOME TAXES

     Income tax benefit for the years ended December 31 differs from the amounts
that would result from applying the federal statutory rate of 35% as follows (in
thousands):

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                       ------------------------------
                                                         1997       1998       1999
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
Expected tax benefit.................................  $(16,124)  $(42,684)  $(63,667)
State income taxes, net of federal benefit...........    (1,612)    (4,268)    (4,730)
Nondeductible goodwill amortization..................       845      5,532     14,415
Change in valuation allowance for deferred tax
  assets, exclusive of effect of acquired net
  operating losses...................................    16,741     39,185     57,600
Nondeductible portion of loss related to debt
  repurchase.........................................        --      1,415         --
Other, net...........................................       150        820     (3,618)
                                                       --------   --------   --------
Actual income tax benefit............................  $     --   $     --   $     --
                                                       ========   ========   ========
</TABLE>

     Temporary differences that give rise to significant components of deferred
tax assets as of December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1998       1999
                                                              --------   ---------
<S>                                                           <C>        <C>
Net operating loss carryforwards, including acquisitions....  $ 51,263   $ 102,462
Receivables, due to allowance for doubtful accounts for tax
  purposes only.............................................       789       2,627
Difference in amortization period for deductible goodwill...     1,154       2,438
Equipment and leasehold improvements due to differences in
  depreciation..............................................     2,775       5,942
Compensation expense related to stock options for financial
  statement purposes only...................................     1,493       2,185
Other, net..................................................       729         149
                                                              --------   ---------
     Gross deferred tax asset...............................    58,203     115,803
Valuation allowance.........................................   (58,203)   (115,803)
                                                              --------   ---------
          Net deferred tax asset............................  $     --   $      --
                                                              ========   =========
</TABLE>

     At December 31, 1999, Verio has a net operating loss carryforward for
federal income tax purposes of approximately $262.7 million, which is available
to offset future federal taxable income, if any, through 2019. As a result of
various equity transactions during 1996, 1997, 1998 and 1999, management
believes Verio has undergone an "ownership change" as defined by section 382 of
the Internal Revenue Code. Accordingly, the utilization of a portion of the net
operating loss carryforward may be limited. Due to this limitation, and the
uncertainty regarding the ultimate realization of the net operating loss
carryforward, no tax benefit for losses has been recorded by Verio and a
valuation allowance has been recorded for the entire amount of Verio's deferred
tax asset.

                                       70
<PAGE>   73
                          VERIO INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

     Financial instruments that potentially subject Verio to concentrations of
credit risk consist primarily of cash, cash equivalents and accounts receivable.
As of December 31, 1998 and 1999, Verio had no significant concentrations of
credit risk. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising Verio's customer base
and the relatively minor balances of each individual account. At December 31,
1998 and 1999, the fair values of Verio's financial instruments approximate
their carrying values, based on their terms and interest rates and quoted market
prices.

(10) EMPLOYEE BENEFIT PLAN

     Verio has a 401(k) Plan (the Plan) for all full time employees. Verio may
make discretionary contributions to the Plan on behalf of employees who meet
certain contribution eligibility requirements defined under the terms of the
Plan. Verio did not make any contributions to the Plan during 1997, 1998 or
1999.

(11) QUARTERLY FINANCIAL DATA (UNAUDITED)

     Summary quarterly financial information for Verio is as follows. (in
thousands except per share data):

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED
                              ------------------------------------------------
1997                          MARCH 31   JUNE 30    SEPTEMBER 30   DECEMBER 31     TOTAL
----                          --------   --------   ------------   -----------   ---------
<S>                           <C>        <C>        <C>            <C>           <C>
Revenue.....................  $  4,414   $  8,249     $  9,624      $ 13,405     $  35,692
Loss from operations........    (5,592)    (8,854)     (10,741)      (15,102)      (40,289)
Net loss attributable to
  common stockholders.......    (4,677)    (9,274)     (13,250)      (19,128)      (46,329)
Loss per common share --
  basic and diluted.........     (2.15)     (4.16)       (5.63)        (8.32)       (20.24)
</TABLE>

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED
                              ------------------------------------------------
1998                          MARCH 31   JUNE 30    SEPTEMBER 30   DECEMBER 31     TOTAL
----                          --------   --------   ------------   -----------   ---------
<S>                           <C>        <C>        <C>            <C>           <C>
Revenue.....................  $ 21,198   $ 28,541     $ 33,804      $ 37,110     $ 120,653
Loss from operations........   (14,718)   (21,327)     (29,140)      (25,833)      (91,018)
Loss before extraordinary
  item......................   (18,217)   (26,294)     (33,606)      (33,737)     (111,854)
Net loss attributable to
  common stockholders.......   (28,383)   (26,316)     (33,606)      (33,737)     (122,042)
Loss per common share before
  extraordinary
  item -- basic and
  diluted...................     (7.23)     (0.72)       (0.52)        (0.51)        (2.62)
Loss per common share --
  basic and diluted.........    (11.22)     (0.72)       (0.52)        (0.51)        (2.85)
</TABLE>

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED
                              ------------------------------------------------
1999                          MARCH 31   JUNE 30    SEPTEMBER 30   DECEMBER 31     TOTAL
----                          --------   --------   ------------   -----------   ---------
<S>                           <C>        <C>        <C>            <C>           <C>
Revenue.....................  $ 55,124   $ 61,936     $ 68,326      $ 72,950     $ 258,336
Loss from operations........   (29,532)   (29,071)     (26,726)      (32,738)     (118,067)
Loss before extraordinary
  item......................   (45,112)   (45,693)     (41,939)      (49,162)     (181,906)
Net loss attributable to
  common stockholders.......   (45,112)   (45,693)     (46,732)      (55,237)     (192,774)
Loss per common share --
  basic and diluted.........     (0.62)     (0.61)       (0.61)        (0.71)        (2.56)
</TABLE>

                                       71
<PAGE>   74

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information required by this Item 10 is incorporated by reference from
the section labeled "Directors and Executive Officers" of the Company's
definitive Proxy Statement, to be filed in connection with the annual meeting of
stockholders to be held on April 27, 2000 (the "Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION.

     The information required by this Item 11 is incorporated by reference from
the section labeled "Executive Compensation and Other Information" to be
included in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information required by this Item 12 is incorporated by reference from
the section labeled "Security Ownership of Certain Beneficial Owners and
Management" to be included in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by this Item 13 is incorporated by reference from
the section labeled "Certain Relationships and Related Transactions" to be
included in the Proxy Statement.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

  (a)(1) Financial Statements

     The following Consolidated Financial Statements and Independent Auditors'
Report are included on pages 52 through 71 of this Annual Report on Form 10-K:

          The consolidated balance sheets of the Registrant and its subsidiaries
     as of December 31, 1998 and 1999 and the related consolidated statements of
     operations and comprehensive losses, stockholders' equity (deficit) and
     cash flows for each of the years in the three-year period ended December
     31, 1999 together with the notes thereto.

  (a)(2) Financial Statement Schedule.

     The following financial statement schedule and the related independent
auditors' report are included on pages 79 and 80 of this Annual Report on Form
10-K. All other schedules are omitted because they are not

                                       72
<PAGE>   75

applicable or not required or because the required information is included in
the Consolidated Financial Statements or the notes thereto:

          Schedule II -- Valuation and Qualifying Accounts

  3. List of Exhibits:

     The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Commission. The Registrant shall furnish
copies of exhibits for a reasonable fee (covering the expense of furnishing
copies) upon request.

<TABLE>
<CAPTION>
      EXHIBIT NO.                                 DESCRIPTION
      -----------                                 -----------
<C>                       <S>
          2.1++           -- Amended and Restated Agreement and Plan of Merger (see
                             Exhibit 10.38).
          3.1****         -- Restated Certificate of Incorporation of the Registrant.
          3.2+++          -- Certificate of Designations of the Powers, Preferences
                             and Relative, Participating, Optional and Other Special
                             Rights of Series A 6.75% Convertible Preferred Stock and
                             Qualifications, Limitations and Restrictions Thereof
                             dated July 20, 1999.
          3.3****         -- Bylaws of the Registrant.
          4.1***          -- Form of Old 1997 Note.
          4.2***          -- Form of New 1997 Note.
          4.3***          -- Escrow Agreement, dated as of June 24, 1997, among First
                             Trust National Association (as escrow agent and trustee)
                             and the Registrant.
          4.4**           -- 1997 Indenture (See Exhibit 10.1).
          4.5**           -- 1997 Notes Registration Rights Agreement (See Exhibit
                             10.4).
          4.6***          -- Purchase Agreement, dated as of June 17, 1997, by and
                             among Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
                             & Smith Incorporated, and Lazard Freres & Co. LLC
                             (collectively, the "Initial 1997 Notes Purchasers"), and
                             the Registrant.
          4.7***          -- Form of Old March 1998 Note.
          4.8***          -- Form of New March 1998 Note.
          4.9**           -- 1998 Indenture (See Exhibit 10.23).
          4.10**          -- 1998 Notes Registration Rights Agreement (See Exhibit
                             10.24).
          4.11***         -- Purchase Agreement, dated as of March 19, 1998, by and
                             among Salomon Brothers Inc, Lazard Freres & Co. LLC,
                             Chase Securities, Inc., and BancBoston Securities Inc.
                             (collectively, the "Initial March 1998 Notes
                             Purchasers"), and the Registrant.
          4.12*****       -- Form of Old November 1998 Note.
          4.13*****       -- Form of New November 1998 Note.
          4.14++          -- Indenture (See Exhibit 10.34).
          4.15++          -- Registration Rights Agreement (See Exhibit 10.35).
          4.16++          -- Purchase Agreement, dated as of November 20, 1998, by and
                             among Salomon Smith Barney Inc., Credit Suisse First
                             Boston Corporation, Donaldson, Lufkin & Jenrette
                             Securities Corporation and First Union Capital Markets
                             (collectively, the "Initial November 1998 Notes
                             Purchasers"), and the Registrant.
          4.17++++        -- Form of Old November 1999 Note.
          4.18++++        -- Form of New November 1999 Note.
          4.19++++        -- Indenture (See Exhibit 10.36).
</TABLE>

                                       73
<PAGE>   76

<TABLE>
<CAPTION>
      EXHIBIT NO.                                 DESCRIPTION
      -----------                                 -----------
<C>                       <S>
          4.20++++        -- Registration Rights Agreement (See Exhibit 10.37).
          4.21++++        -- Purchase Agreement, dated November 16, 1999, by and among
                             Salomon Smith Barney Inc., Donaldson, Lufkin & Jenrette
                             Securities Corporation and Morgan Stanley & Co.
                             Incorporated (collectively, the "Initial November 1999
                             Notes Purchasers"), and the Registrant.
         10.1**           -- Indenture, dated as of June 24, 1997, by and among the
                             Registrant and First Trust National Association (as
                             trustee).
         10.2**           -- Warrant Agreement, dated as of June 24, 1997, by and
                             between First Trust National Association and the
                             Registrant.
         10.3**           -- Common Stock Registration Rights Agreement, dated as of
                             June 17, 1997, by and among the Registrant, Brooks Fiber
                             Properties, Inc., Norwest Equity Partners V, Providence
                             Equity Partners, Centennial Fund V, L.P., Centennial Fund
                             IV, L.P. (as investors), and the Initial 1997 Notes
                             Purchasers.
         10.4**           -- Registration Rights Agreement, dated as of June 17, 1997,
                             by and among the Registrant and the Initial 1997 Notes
                             Purchasers.
         10.5**           -- Lease Agreement, dated as of June 20, 1997, by and
                             between the Registrant and Highland Park Ventures, LLC,
                             with respect to the property in Englewood, Colorado,
                             including the First Amendment to Lease Agreement, dated
                             as of December 16, 1997.
         10.6**           -- Lease Agreement, dated as of May 24, 1997, by and between
                             the Registrant and IM Joint Venture, with respect to the
                             property in Dallas, Texas, as amended.
         10.7**           -- Form of Indemnification Agreement between the Registrant
                             and each of its officers and directors.
         10.8**           -- Amended and Restated Stockholders Agreement, dated as of
                             May 20, 1997, by and between the Registrant, the Series A
                             Purchasers, the Series B Purchasers, the Series C
                             Purchasers and members of the Registrant's management.
         10.9**           -- The Registrant's 1996 Stock Option Plan, as amended.
         10.10**          -- The Registrant's 1997 California Stock Option Plan, as
                             amended.
         10.11**          -- The Registrant's 1998 Employee Stock Purchase Plan, as
                             amended.
         10.12**          -- The Registrant's 1998 Stock Incentive Plan, as amended.
         10.13**          -- Form of Compensation Protection Agreement between the
                             Registrant and each of its officers.
         10.14**          -- Master Service Agreement, dated as of August 23, 1996, by
                             and between the Registrant and MFS Datanet, Inc.
         10.15**          -- Agreement for Terminal Facility Collocation Space, dated
                             August 8, 1996, by and between MFS Telecom, Inc. and the
                             Registrant.
         10.16**          -- Bilateral Peering Agreement, dated May 19, 1997, between
                             AT&T Corp. and the Registrant.
         10.17**          -- Master Lease Agreement, dated November 17, 1997, by and
                             between Insight Investments Corp. and the Registrant.
         10.18**          -- Master Lease Agreement, dated October 27, 1997, by and
                             between Cisco Capital Systems Corporation and the
                             Registrant.
         10.19**+         -- Lateral Exchange Networks Interconnection Agreement,
                             dated as of February 3, 1997, by and between the
                             Registrant and Sprint Communications Company L.P.
                             ("Sprint").
</TABLE>

                                       74
<PAGE>   77

<TABLE>
<CAPTION>
      EXHIBIT NO.                                 DESCRIPTION
      -----------                                 -----------
<C>                       <S>
         10.20**+         -- Cover Agreement, dated September 30, 1996, by and between
                             the Registrant and Sprint.
         10.21**+         -- Amendment One to Cover Agreement, dated November 7, 1996,
                             by and between the Registrant and Sprint.
         10.22**+         -- Amendment Two to Cover Agreement, dated March 2, 1998, by
                             and between the Registrant and Sprint.
         10.23**          -- Indenture, dated as of March 25, 1998, by and among the
                             Registrant and First Trust National Association (as
                             trustee).
         10.24**          -- Registration Rights Agreement, dated as of March 25,
                             1998, by and among the Registrant, and the Initial 1998
                             Notes Purchasers.
         10.25**+         -- Capacity and Services Agreement, dated as of March 31,
                             1998, by and among the Registrant and Qwest
                             Communications Corporation.
         10.26**          -- Credit Agreement, dated as of April 6, 1998, by and among
                             the Registrant, The Chase Manhattan Bank (as
                             administrative agent) and Fleet National Bank (as
                             documentation agent).
         10.27**          -- Stock Purchase and Master Strategic Relationship
                             Agreement, dated as of April 7, 1998, by and among the
                             Registrant and Nippon Telegraph and Telephone Corporation
                             ("NTT"), a Japanese corporation.
         10.28**+         -- Investment Agreement, dated as of April 7, 1998, by and
                             among the Registrant and NTT.
         10.29**+         -- Outside Service Provider Agreement, dated as of April 7,
                             1998, by and among the Registrant and NTT America, Inc.
         10.30**+         -- Master Services Agreement, dated as of June 13, 1997, by
                             and between the Registrant and MCI Telecommunications
                             Corporation ("MCI").
         10.31**+         -- MCI Domestic (US) Public Interconnection Agreement dated
                             as of June 12, 1997, by and between the Registrant and
                             MCI, as amended.
         10.32**          -- The Registrant's 1998 Non-Employee Director Stock
                             Incentive Plan.
         10.33*+          -- Interconnection Agreement, effective as of April 1, 1998
                             by and between the Registrant and UUNET Technologies,
                             Inc.
         10.34++          -- Indenture, dated as of November 25, 1998, by and among
                             the Registrant and U.S. Bank Trust National Association
                             (as trustee).
         10.35++          -- Registration Rights Agreement, dated as of November 25,
                             1998, by and among the Registrant and the Initial
                             November 1998 Notes Purchasers.
         10.36++++        -- Indenture, dated as of November 19, 1999, by and among
                             the Registrant and U.S. Bank Trust National Association
                             (as trustee).
         10.37++++        -- Registration Rights Agreement, dated as of November 19,
                             1999, by and among the Registrant and the Initial
                             November 1999 Notes Purchasers.
         10.38++          -- Amended and Restated Agreement and Plan of Merger, dated
                             as of November 17, 1998, by and among the Registrant,
                             Purple Acquisition, Inc. and Best Internet
                             Communications, Inc.
         10.39+++         -- Purchase Agreement, dated July 14, 1999, by and among the
                             Registrant and Salomon Smith Barney Inc., Donaldson,
                             Lufkin & Jenrette Securities Corporation, Credit Suisse
                             First Boston Corporation, Deutsche Bank Securities Inc.
                             and First Union Capital Markets Corp.
         10.40+++         -- Deposit Agreement, dated as of July 20, 1999, by and
                             between the Registrant and Norwest Bank Minnesota, N.A.
</TABLE>

                                       75
<PAGE>   78

<TABLE>
<CAPTION>
      EXHIBIT NO.                                 DESCRIPTION
      -----------                                 -----------
<C>                       <S>
         10.41+++         -- Registration Rights Agreement, dated as of July 20, 1999,
                             by and among the Registrant and Salomon Smith Barney
                             Inc., Donaldson, Lufkin & Jenrette Securities
                             Corporation, Credit Suisse First Boston Corporation,
                             Deutsche Bank Securities Inc. and First Union Capital
                             Markets Corp.
         10.42            -- Confirmation for Equity Swap Transaction, dated as of
                             March 17, 2000, between Salomon Brothers Holding Company
                             Inc, Verio, LLC and Verio Inc.
         10.43            -- Purchase Agreement, dated as of March 17, 2000, by and
                             among Verio, LLC, Verio Inc., Salomon Brothers Holding
                             Company Inc and Salomon Smith Barney Inc.
         10.44            -- Pledge Agreement, dated as of March 17, 2000, between
                             Verio, LLC and Salomon Brothers Holding Company Inc.
         21.1             -- List of Subsidiaries of the Registrant.
         23.1             -- Consent of KPMG LLP.
         27.1             -- Financial Data Schedule.
</TABLE>

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

    * Incorporated by reference from the Registrant's quarterly report on Form
      10-Q filed with the Commission on August 13, 1998.

   ** Incorporated by reference from the Registration Statement on Form S-1 of
      the Registrant (Registration No. 333-47099) filed with the Commission on
      February 27, 1998, as amended.

  *** Incorporated by reference from the Registration Statement on Form S-4 of
      the Registrant (Registration No. 333-47497) filed with the Commission on
      March 6, 1998, as amended.

 **** Incorporated by reference from the Registration Statement on Form S-3 of
      the Registrant (Registration No. 333-91051) filed with the Commission on
      November 16, 1999, as amended.

***** Incorporated by reference from the Registration Statement on Form S-4 of
      the Registrant (Registration No. 333-70727) filed with the Commission on
      January 15, 1999, as amended.

    + Document for which confidential treatment has been requested.

   ++ Incorporated by reference from the Registration Statement on Form S-4 of
      the Registrant (Registration No. 333-67715) filed with the Commission on
      November 23, 1998, as amended.

  +++ Incorporated by reference from the Registrant's quarterly report on Form
      10-Q filed with the Commission on August 16, 1999.

 ++++ Incorporated by reference from the Registration Statement on Form S-4 of
      the Registrant (Registration No. 333-31184) filed with the Commission on
      February 25, 2000, as amended.

  (b) Reports on Form 8-K

     On November 18, 1999, the Registrant filed with the Commission a report on
Form 8-K, announcing that it had agreed to issue $400 million aggregate
principal amount of 10 5/8% Senior Notes due 2009 in a private placement to a
number of institutional investors in accordance with Securities and Exchange
Commission Rule 144A.

                                       76
<PAGE>   79

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

                                            VERIO INC.

                                            By:    /s/ JUSTIN L. JASCHKE
                                              ----------------------------------
                                                      Justin L. Jaschke
                                                   Chief Executive Officer
                                                (Principal Executive Officer)


Date: March 27, 2000


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
                      SIGNATURE                                    TITLE                     DATE
                      ---------                                    -----                     ----
<C>                                                    <S>                              <C>

               /s/ STEVEN C. HALSTEDT                  Chairman of the Board            March 27, 2000
-----------------------------------------------------
                 Steven C. Halstedt

                /s/ JUSTIN L. JASCHKE                  Chief Executive Officer and      March 27, 2000
-----------------------------------------------------    Director (Principal
                  Justin L. Jaschke                      Executive Officer)

                 /s/ JAMES C. ALLEN                    Director                         March 27, 2000
-----------------------------------------------------
                   James C. Allen

                /s/ TRYGVE E. MYHREN                   Director                         March 27, 2000
-----------------------------------------------------
                  Trygve E. Myhren

                  /s/ PAUL J. SALEM                    Director                         March 27, 2000
-----------------------------------------------------
                    Paul J. Salem

                  /s/ YUKIMASA ITO                     Director                         March 27, 2000
-----------------------------------------------------
                    Yukimasa Ito

                /s/ ARTHUR L. CAHOON                   Director                         March 27, 2000
-----------------------------------------------------
                  Arthur L. Cahoon

               /s/ PETER B. FRITZINGER                 Chief Financial Officer          March 27, 2000
-----------------------------------------------------    (Principal Accounting
                 Peter B. Fritzinger                     Officer)
</TABLE>


                                       77
<PAGE>   80

                                   VERIO INC.

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

<TABLE>
<CAPTION>
DESCRIPTION                                                   PAGE
-----------                                                   ----
<S>                                                           <C>
Independent Auditors' Report................................   52
Consolidated Balance Sheets as of December 31, 1998 and
  1999......................................................   53
Consolidated Statements of Operations and Comprehensive
  Losses for the years ended December 31, 1997, 1998 and
  1999......................................................   54
Consolidated Statements of Stockholders' Equity (Deficit)
  for the years ended December 31, 1997, 1998 and 1999......   55
Consolidated Statements of Cash Flows for the years ended
  December 31, 1997, 1998 and 1999..........................   56
Notes to Consolidated Financial Statements..................   57
Independent Auditors' Report on Financial Statement
  Schedule..................................................   79
Schedule II: Valuation and Qualifying Accounts..............   80
</TABLE>

                                       78
<PAGE>   81

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Verio Inc.:

     Under date of March 9, 2000, we reported on the consolidated balance sheets
of Verio Inc. and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity (deficit), and cash flows for each of the years in the three-year period
ended December 31, 1999, which are included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement Schedule II -- Valuation and Qualifying
Accounts. This consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.

     In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

                                            /s/ KPMG LLP

Denver, Colorado
March 9, 2000

                                       79
<PAGE>   82

                                  SCHEDULE II
                                   VERIO INC.

                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                      BALANCE AT     CHARGED TO     ADDITIONS
                                     BEGINNING OF      COSTS           FROM                    BALANCE AT
DESCRIPTION                              YEAR       AND EXPENSES   ACQUISITIONS   DEDUCTIONS   END OF YEAR
-----------                          ------------   ------------   ------------   ----------   -----------
                                                                (IN THOUSANDS)
<S>                                  <C>            <C>            <C>            <C>          <C>
Year ended December 31, 1997:
  Allowance for doubtful
     accounts......................     $  117         $  948         $  623       $  (455)      $1,233
Year ended December 31, 1998:
  Allowance for doubtful
     accounts......................     $1,233         $3,204         $1,586       $(1,260)      $4,763
Year ended December 31, 1999:
  Allowance for doubtful
     accounts......................     $4,763         $9,572         $2,154       $(7,795)      $8,694
</TABLE>

                 See accompanying independent auditors' report.

                                       80
<PAGE>   83

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
      EXHIBIT NO.                                 DESCRIPTION
      -----------                                 -----------
<C>                       <S>
          2.1++           -- Amended and Restated Agreement and Plan of Merger (see
                             Exhibit 10.38).
          3.1****         -- Restated Certificate of Incorporation of the Registrant.
          3.2+++          -- Certificate of Designations of the Powers, Preferences
                             and Relative, Participating, Optional and Other Special
                             Rights of Series A 6.75% Convertible Preferred Stock and
                             Qualifications, Limitations and Restrictions Thereof
                             dated July 20, 1999.
          3.3****         -- Bylaws of the Registrant.
          4.1***          -- Form of Old 1997 Note.
          4.2***          -- Form of New 1997 Note.
          4.3***          -- Escrow Agreement, dated as of June 24, 1997, among First
                             Trust National Association (as escrow agent and trustee)
                             and the Registrant.
          4.4**           -- 1997 Indenture (See Exhibit 10.1).
          4.5**           -- 1997 Notes Registration Rights Agreement (See Exhibit
                             10.4).
          4.6***          -- Purchase Agreement, dated as of June 17, 1997, by and
                             among Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
                             & Smith Incorporated, and Lazard Freres & Co. LLC
                             (collectively, the "Initial 1997 Notes Purchasers"), and
                             the Registrant.
          4.7***          -- Form of Old March 1998 Note.
          4.8***          -- Form of New March 1998 Note.
          4.9**           -- 1998 Indenture (See Exhibit 10.23).
          4.10**          -- 1998 Notes Registration Rights Agreement (See Exhibit
                             10.24).
          4.11***         -- Purchase Agreement, dated as of March 19, 1998, by and
                             among Salomon Brothers Inc, Lazard Freres & Co. LLC,
                             Chase Securities, Inc., and BancBoston Securities Inc.
                             (collectively, the "Initial March 1998 Notes
                             Purchasers"), and the Registrant.
          4.12*****       -- Form of Old November 1998 Note.
          4.13*****       -- Form of New November 1998 Note.
          4.14++          -- Indenture (See Exhibit 10.34).
          4.15++          -- Registration Rights Agreement (See Exhibit 10.35).
          4.16++          -- Purchase Agreement, dated as of November 20, 1998, by and
                             among Salomon Smith Barney Inc., Credit Suisse First
                             Boston Corporation, Donaldson, Lufkin & Jenrette Securities
                             Corporation and First Union Capital Markets
                             (collectively, the "Initial November 1998 Notes
                             Purchasers"), and the Registrant.
          4.17++++        -- Form of Old November 1999 Note.
          4.18++++        -- Form of New November 1999 Note.
          4.19++++        -- Indenture (See Exhibit 10.36).
          4.20++++        -- Registration Rights Agreement (See Exhibit 10.37).
          4.21++++        -- Purchase Agreement, dated November 16, 1999, by and among
                             Salomon Smith Barney Inc., Donaldson, Lufkin & Jenrette
                             Securities Corporation and Morgan Stanley & Co.
                             Incorporated (collectively, the "Initial November 1999
                             Notes Purchasers"), and the Registrant.
         10.1**           -- Indenture, dated as of June 24, 1997, by and among the
                             Registrant and First Trust National Association (as
                             trustee).
</TABLE>
<PAGE>   84

<TABLE>
<CAPTION>
      EXHIBIT NO.                                 DESCRIPTION
      -----------                                 -----------
<C>                       <S>
         10.2**           -- Warrant Agreement, dated as of June 24, 1997, by and
                             between First Trust National Association and the
                             Registrant.
         10.3**           -- Common Stock Registration Rights Agreement, dated as of
                             June 17, 1997, by and among the Registrant, Brooks Fiber
                             Properties, Inc., Norwest Equity Partners V, Providence
                             Equity Partners, Centennial Fund V, L.P., Centennial Fund
                             IV, L.P. (as investors), and the Initial 1997 Notes
                             Purchasers.
         10.4**           -- Registration Rights Agreement, dated as of June 17, 1997,
                             by and among the Registrant and the Initial 1997 Notes
                             Purchasers.
         10.5**           -- Lease Agreement, dated as of June 20, 1997, by and
                             between the Registrant and Highland Park Ventures, LLC,
                             with respect to the property in Englewood, Colorado,
                             including the First Amendment to Lease Agreement, dated
                             as of December 16, 1997.
         10.6**           -- Lease Agreement, dated as of May 24, 1997, by and between
                             the Registrant and IM Joint Venture, with respect to the
                             property in Dallas, Texas, as amended.
         10.7**           -- Form of Indemnification Agreement between the Registrant
                             and each of its officers and directors.
         10.8**           -- Amended and Restated Stockholders Agreement, dated as of
                             May 20, 1997, by and between the Registrant, the Series A
                             Purchasers, the Series B Purchasers, the Series C
                             Purchasers and members of the Registrant's management.
         10.9**           -- The Registrant's 1996 Stock Option Plan, as amended.
         10.10**          -- The Registrant's 1997 California Stock Option Plan, as
                             amended.
         10.11**          -- The Registrant's 1998 Employee Stock Purchase Plan, as
                             amended.
         10.12**          -- The Registrant's 1998 Stock Incentive Plan, as amended.
         10.13**          -- Form of Compensation Protection Agreement between the
                             Registrant and each of its officers.
         10.14**          -- Master Service Agreement, dated as of August 23, 1996, by
                             and between the Registrant and MFS Datanet, Inc.
         10.15**          -- Agreement for Terminal Facility Collocation Space, dated
                             August 8, 1996, by and between MFS Telecom, Inc. and the
                             Registrant.
         10.16**          -- Bilateral Peering Agreement, dated May 19, 1997, between
                             AT&T Corp. and the Registrant.
         10.17**          -- Master Lease Agreement, dated November 17, 1997, by and
                             between Insight Investments Corp. and the Registrant.
         10.18**          -- Master Lease Agreement, dated October 27, 1997, by and
                             between Cisco Capital Systems Corporation and the
                             Registrant.
         10.19**+         -- Lateral Exchange Networks Interconnection Agreement,
                             dated as of February 3, 1997, by and between the
                             Registrant and Sprint Communications Company L.P.
                             ("Sprint").
         10.20**+         -- Cover Agreement, dated September 30, 1996, by and between
                             the Registrant and Sprint.
         10.21**+         -- Amendment One to Cover Agreement, dated November 7, 1996,
                             by and between the Registrant and Sprint.
         10.22**+         -- Amendment Two to Cover Agreement, dated March 2, 1998, by
                             and between the Registrant and Sprint.
         10.23**          -- Indenture, dated as of March 25, 1998, by and among the
                             Registrant and First Trust National Association (as
                             trustee).
         10.24**          -- Registration Rights Agreement, dated as of March 25,
                             1998, by and among the Registrant, and the Initial 1998
                             Notes Purchasers.
</TABLE>
<PAGE>   85


<TABLE>
<CAPTION>
      EXHIBIT NO.                                 DESCRIPTION
      -----------                                 -----------
<C>                       <S>
         10.25**+         -- Capacity and Services Agreement, dated as of March 31,
                             1998, by and among the Registrant and Qwest
                             Communications Corporation.
         10.26**          -- Credit Agreement, dated as of April 6, 1998, by and among
                             the Registrant, The Chase Manhattan Bank (as
                             administrative agent) and Fleet National Bank (as
                             documentation agent).
         10.27**          -- Stock Purchase and Master Strategic Relationship
                             Agreement, dated as of April 7, 1998, by and among the
                             Registrant and Nippon Telegraph and Telephone Corporation
                             ("NTT"), a Japanese corporation.
         10.28**+         -- Investment Agreement, dated as of April 7, 1998, by and
                             among the Registrant and NTT.
         10.29**+         -- Outside Service Provider Agreement, dated as of April 7,
                             1998, by and among the Registrant and NTT America, Inc.
         10.30**+         -- Master Services Agreement, dated as of June 13, 1997, by
                             and between the Registrant and MCI Telecommunications
                             Corporation ("MCI").
         10.31**+         -- MCI Domestic (US) Public Interconnection Agreement dated
                             as of June 12, 1997, by and between the Registrant and
                             MCI, as amended.
         10.32**          -- The Registrant's 1998 Non-Employee Director Stock
                             Incentive Plan.
         10.33*+          -- Interconnection Agreement, effective as of April 1, 1998
                             by and between the Registrant and UUNET Technologies,
                             Inc.
         10.34++          -- Indenture, dated as of November 25, 1998, by and among
                             the Registrant and U.S. Bank Trust National Association
                             (as trustee).
         10.35++          -- Registration Rights Agreement, dated as of November 25,
                             1998, by and among the Registrant and the Initial
                             November 1998 Notes Purchasers.
         10.36++++        -- Indenture, dated as of November 19, 1999, by and among
                             the Registrant and U.S. Bank Trust National Association
                             (as trustee).
         10.37++++        -- Registration Rights Agreement, dated as of November 19,
                             1999, by and among the Registrant and the Initial
                             November 1999 Notes Purchasers.
         10.38++          -- Amended and Restated Agreement and Plan of Merger, dated
                             as of November 17, 1998, by and among the Registrant,
                             Purple Acquisition, Inc. and Best Internet
                             Communications, Inc.
         10.39+++         -- Purchase Agreement, dated July 14, 1999, by and among the
                             Registrant and Salomon Smith Barney Inc., Donaldson,
                             Lufkin & Jenrette Securities Corporation, Credit Suisse
                             First Boston Corporation, Deutsche Bank Securities Inc.
                             and First Union Capital Markets Corp.
         10.40+++         -- Deposit Agreement, dated as of July 20, 1999, by and
                             between the Registrant and Norwest Bank Minnesota, N.A.
         10.41+++         -- Registration Rights Agreement, dated as of July 20, 1999,
                             by and among the Registrant and Salomon Smith Barney
                             Inc., Donaldson, Lufkin & Jenrette Securities
                             Corporation, Credit Suisse First Boston Corporation,
                             Deutsche Bank Securities Inc. and First Union Capital
                             Markets Corp.
         10.42+++++       -- Confirmation for Equity Swap Transaction, dated as of
                             March 17, 2000, between Salomon Brothers Holding Company
                             Inc, Verio, LLC and Verio Inc.
         10.43+++++       -- Purchase Agreement, dated as of March 17, 2000, by and
                             among Verio, LLC, Verio Inc., Salomon Brothers Holding
                             Company Inc and Salomon Smith Barney Inc.
</TABLE>

<PAGE>   86


<TABLE>
<CAPTION>
      EXHIBIT NO.                                 DESCRIPTION
      -----------                                 -----------
<C>                       <S>
         10.44+++++       -- Pledge Agreement, dated as of March 17, 2000, between
                             Verio, LLC and Salomon Brothers Holding Company Inc.
         21.1+++++        -- List of Subsidiaries of the Registrant.
         23.1+++++        -- Consent of KPMG LLP.
         27.1+++++        -- Financial Data Schedule.
</TABLE>


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

     *  Incorporated by reference from the Registrant's quarterly report on Form
        10-Q filed with the Commission on August 13, 1998.

   ** Incorporated by reference from the Registration Statement on Form S-1 of
      the Registrant (Registration No. 333-47099) filed with the Commission on
      February 27, 1998, as amended.

  *** Incorporated by reference from the Registration Statement on Form S-4 of
      the Registrant (Registration No. 333-47497) filed with the Commission on
      March 6, 1998, as amended.

 **** Incorporated by reference from the Registration Statement on Form S-3 of
      the Registrant (Registration No. 333-91051) filed with the Commission on
      November 16, 1999, as amended.

***** Incorporated by reference from the Registration Statement on Form S-4 of
      the Registrant (Registration No. 333-70727) filed with the Commission on
      January 15, 1999, as amended.

     + Document for which confidential treatment has been requested.

   ++ Incorporated by reference from the Registration Statement on Form S-4 of
      the Registrant (Registration No. 333-67715) filed with the Commission on
      November 23, 1998, as amended.

  +++ Incorporated by reference from the Registrant's quarterly report on Form
      10-Q filed with the Commission on August 16, 1999.

 ++++ Incorporated by reference from the Registration Statement on Form S-4 of
      the Registrant (Registration No. 333-31184) filed with the Commission on
      February 25, 2000, as amended.


+++++ Incorporated by reference from the Registrant's annual report on Form 10-K
      filed with the Commission on March 24, 2000.