---



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_____________________

FORM 10-Q/A
_____________________

(Mark One)

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

For the quarterly period ended March 31, 2001

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


For the transition period from ___________ to ___________

Commission file number: 0-30863

_____________________

NETWORK ENGINES, INC.

(Exact name of registrant as specified in its charter)

|Delaware                                             |                | 04-3064173         
|---------------------------------------------------- | -------------- | -------------------
|(State or other jurisdiction of                      |                | (I.R.S. Employer   
|incorporation)                                       |                | Identification No.)
|                                                     |                |                    
|25 Dan Road, Canton, MA                              |                | 02021              
|(Address of principal executive                      |                | (Zip Code)         
|offices)                                             |                |                    
|                                                     |                |                    
|                                                     | (781) 332-1000 |                    
|(Registrant's telephone number, including area code)
|                                                    
|_____________________                               

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

As of April 30, 2001, there were 35,020,056 shares of the registrants Common Stock, par value $.01 per share, outstanding.

---



NETWORK ENGINES, INC.

INDEX

|                                                     | PAGENUMBER | 
|---------------------------------------------------- | ---------- | 
|                                                     |           
|                                                     |            | 
|                                                     |            | 
|EXPLANATORY NOTE                                     | 1          | 
|                                                     |            | 
|PART I. FINANCIAL INFORMATION                        |            | 
|                                                     |            | 
|ITEM 1. FINANCIAL STATEMENTS                         |            | 
|                                                     |            | 
|CONDENSED CONSOLIDATED BALANCE SHEETS                | 2          | 
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS      | 3          | 
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS      | 4          | 
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 5          | 
|                                                     |            | 
|PART II. OTHER INFORMATION                           |            | 
|                                                     |            | 
|SIGNATURE                                            | 9          | 

EXPLANATORY NOTE




Network Engines, Inc. (the "Company") is filing this amendment to its Quarterly Report on Form 10-Q for the three months ended March 31, 2001 (the "Original 10-Q") in order to remove pro-forma information regarding the
conversion of the Company's convertible redeemable preferred stock into common stock, which occurred upon the effectiveness of the Company's initial public offering in July 2000. This pro-forma information was included in the Company's condensed
consolidated statement of operations and in Note 3 to the condensed consolidated financial statements, each contained in Item 1 of the Original 10-Q. In addition, the Company is amending Item 1 of the Original 10-Q to include in Note 5 of its
condensed consolidated financial statements information regarding the Company's ongoing legal proceedings. This amendment also amends Item 1 of the original 10-Q to make a minor clarification change to Note 6 to the Company's condensed consolidated
financial statements for the three months ended March 31, 2001. Item 1, as amended, is hereby provided in its entirety.







PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NETWORK ENGINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

|                                                                    | March 31,2001                       |   | September 30 ,2000                  |  
|------------------------------------------------------------------- | ----------------------------------- | - | ----------------------------------- | -
|                                                                    |                                     |  
|                                                                    |                                     |   |                                     |  
|ASSETS                                                              | (unaudited)                         |   |                                     |  
|                                                                    |                                     |   |                                     |  
|Current assets:                                                     |                                     |   |                                     |  
|Cash and cash equivalents                                           | $                          93,104   |   | $                         112,382   |  
|Restricted cash                                                     | 1,098                               |   | 47                                  |  
|Accounts receivable, net of allowance                               | 2,001                               |   | 11,805                              |  
|Inventories                                                         | 4,075                               |   | 6,600                               |  
|Prepaid expenses and other current assets                           | 1,321                               |   | 1,031                               |  
|Due from contract manufacturer                                      | 1,057                               |   | 7,113                               |  
|                                                                    |                                     |   |                                     |  
|                                                                    |                                     |   |                                     |  
|Total current assets                                                | 102,656                             |   | 138,978                             |  
|                                                                    |                                     |   |                                     |  
|Property and equipment, net                                         | 6,935                               |   | 7,098                               |  
|Goodwill and intangible assets                                      | 2,322                               |   | -                                   |  
|Other assets                                                        | 1,206                               |   | 136                                 |  
|                                                                    |                                     |   |                                     |  
|                                                                    |                                     |   |                                     |  
|Total assets                                                        | $                         113,119   |   | $                         146,212   |  
|                                                                    |                                     |   |                                     |  
|                                                                    |                                     |   |                                     |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                |                                     |   |                                     |  
|                                                                    |                                     |   |                                     |  
|Current liabilities:                                                |                                     |   |                                     |  
|Accounts payable                                                    | $                             5,370 |   | $                             6,906 |  
|Due to contract manufacturer                                        | 12,653                              |   | -                                   |  
|Accrued compensation and other related benefits                     | 1,319                               |   | 1,773                               |  
|Other accrued expenses                                              | 538                                 |   | 1,077                               |  
|Deferred revenue                                                    | 610                                 |   | 827                                 |  
|Current portion of capital lease obligations and notes payable      | 59                                  |   | 63                                  |  
|                                                                    |                                     |   |                                     |  
|                                                                    |                                     |   |                                     |  
|Total current liabilities                                           | 20,549                              |   | 10,646                              |  
|                                                                    |                                     |   |                                     |  
|Capital lease obligations and notes payable, net of current portion | 41                                  |   | 90                                  |  
|                                                                    |                                     |   |                                     |  
|Stockholders' equity:                                               |                                     |   |                                     |  
|Preferred stock                                                     | -                                   |   | -                                   |  
|Common stock                                                        | 350                                 |   | 342                                 |  
|Additional paid-in capital                                          | 179,859                             |   | 171,314                             |  
|Accumulated deficit                                                 | (72,579                             | ) | (23,915                             | )
|Note receivable from stockholder                                    | (98                                 | ) | (94                                 | )
|Deferred stock compensation                                         | (15,003                             | ) | (12,171                             | )
|                                                                    |                                     |   |                                     |  
|                                                                    |                                     |   |                                     |  
|Total stockholders' equity                                          | 92,529                              |   | 135,476                             |  
|                                                                    |                                     |   |                                     |  
|                                                                    |                                     |   |                                     |  
|Total liabilities and stockholders' equity                          | $                         113,119   |   | $                         146,212   |  
|                                                                    |                                     |   |                                     |  

The accompanying notes are an integral part of the condensed consolidated financial statements.

2

NETWORK ENGINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share data)

(unaudited)

|                                                                       | Three months ended March 31,     |   | Six months ended March 31,     |  
|---------------------------------------------------------------------- | -------------------------------- | - | ------------------------------ | -
|                                                                       |                                  |   |                                |  
|                                                                       | 2001                             |   | 2000                           |  
|                                                                       |                                  |   |                                |  
|                                                                       |                                  |   |                                |  
|                                                                       |                                  |   |                                |  
|Net revenues                                                           | $                         2,516  |   | $                       6,051  |  
|Cost of revenues:                                                      |                                  |   |                                |  
|Cost of revenues (excluding stock compensation)                        | 3,452                            |   | 4,192                          |  
|Cost of revenues stock compensation                                    | 80                               |   | 52                             |  
|Inventory write-down                                                   | 8,692                            |   | -                              |  
|                                                                       |                                  |   |                                |  
|                                                                       |                                  |   |                                |  
|Total cost of revenues                                                 | 12,224                           |   | 4,244                          |  
|                                                                       |                                  |   |                                |  
|Gross profit (loss)                                                    | (9,708                           | ) | 1,807                          |  
|                                                                       |                                  |   |                                |  
|Operating expenses:                                                    |                                  |   |                                |  
|Research and development                                               | 3,968                            |   | 1,910                          |  
|Selling and marketing                                                  | 5,891                            |   | 3,012                          |  
|General and administrative                                             | 1,876                            |   | 759                            |  
|Stock compensation (excluding cost of revenues stock compensation)     | 1,373                            |   | 627                            |  
|Amortization of goodwill and intangible assets                         | 225                              |   | -                              |  
|Loss on retirement of property and equipment                           | 1,203                            |   | -                              |  
|                                                                       |                                  |   |                                |  
|                                                                       |                                  |   |                                |  
|Total operating expenses                                               | 14,536                           |   | 6,308                          |  
|                                                                       |                                  |   |                                |  
|                                                                       |                                  |   |                                |  
|Loss from operations                                                   | (24,244                          | ) | (4,501                         | )
|Interest income, net                                                   | 1,442                            |   | 280                            |  
|                                                                       |                                  |   |                                |  
|                                                                       |                                  |   |                                |  
|Net loss                                                               | (22,802                          | ) | (4,221                         | )
|                                                                       |                                  |   |                                |  
|Accretion of redeemable convertible preferred stock                    | -                                |   | (3,449                         | )
|                                                                       |                                  |   |                                |  
|                                                                       |                                  |   |                                |  
|Net loss attributable to common stockholders                           | $                       (22,802  | ) | $                      (7,670  | )
|                                                                       |                                  |   |                                |  
|                                                                       |                                  |   |                                |  
|Net loss per common share - basic and diluted                          | $                          (0.67 | ) | $                        (2.11 | )
|                                                                       |                                  |   |                                |  
|                                                                       |                                  |   |                                |  
|Shares used in computing net loss per common share - basic and diluted | 34,219                           |   | 3,633                          |  

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

NETWORK ENGINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

|                                                                                        | Six months ended March 31, |        
|--------------------------------------------------------------------------------------- | -------------------------- | -------
|                                                                                        |                            |        
|                                                                                        | 2001                       |        
|                                                                                        |                            |        
|                                                                                        |                            |        
|Cash flows from operating activities:                                                   |                            |        
|Net loss                                                                                | $                          | (48,664
|Adjustments to reconcile net loss to net cash used in                                   |                            |        
|operating activities:                                                                   |                            |        
|Depreciation and amortization                                                           |                            | 1,911  
|Provision for inventory reserve                                                         |                            | 23,835 
|Provision for doubtful accounts                                                         |                            | 620    
|Stock compensation                                                                      |                            | 2,798  
|Interest on note receivable from stockholder                                            |                            | (4     
|Loss on retirement of property and equipment                                            |                            | 1,203  
|Changes in operating assets and liabilities, net of effects of acquisition:             |                            |        
|Accounts receivable                                                                     |                            | 9,184  
|Inventories                                                                             |                            | (21,310
|Prepaid expenses and other current assets                                               |                            | (262   
|Due from contract manufacturer                                                          |                            | 6,056  
|Accounts payable                                                                        |                            | (1,740 
|Due to contract manufacturer                                                            |                            | 12,653 
|Accrued expenses                                                                        |                            | (999   
|Deferred revenue                                                                        |                            | (217   
|                                                                                        |                            |        
|                                                                                        |                            |        
|Net cash used in operating activities                                                   |                            | (14,936
|                                                                                        |                            |        
|Cash flows from investing activities:                                                   |                            |        
|Purchases of property and equipment                                                     |                            | (2,522 
|Deposit of restricted cash                                                              |                            | (1,051 
|Increase in other assets                                                                |                            | (1,070 
|Cash of business acquired, net of acquisition expenses                                  |                            | (30    
|                                                                                        |                            |        
|                                                                                        |                            |        
|Net cash used in investing activities                                                   |                            | (4,673 
|                                                                                        |                            |        
|Cash flows from financing activities:                                                   |                            |        
|Proceeds from notes payable                                                             |                            | -      
|Payments on capital lease obligations and notes payable                                 |                            | (53    
|Proceeds from issuance of common stock                                                  |                            | 384    
|Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs |                            | -      
|                                                                                        |                            |        
|                                                                                        |                            |        
|Net cash provided by financing activities                                               |                            | 331    
|                                                                                        |                            |        
|                                                                                        |                            |        
|Net increase (decrease) in cash and cash equivalents                                    |                            | (19,278
|Cash and cash equivalents, beginning of period                                          |                            | 112,382
|                                                                                        |                            |        
|                                                                                        |                            |        
|Cash and cash equivalents, end of period                                                | $                          | 93,104 
|                                                                                        |                            |        

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

NETWORK ENGINES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements have been prepared by Network Engines, Inc. (Network Engines or the Company) in accordance with generally accepted accounting principles and
pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and the accompanying notes included in the Company's 2000 Annual Report on Form 10-K filed by
the Company with the Securities and Exchange Commission.

The information furnished reflects all adjustments, which, in the opinion of management, are of a normal recurring nature and are considered necessary for a fair presentation of results for the interim
periods. It should also be noted that results for the interim periods are not necessarily indicative of the results expected for the full year or any future period.

The preparation of these condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates
included in the financial statements are inventory valuation, accounts receivable and sales allowances and the recoverability of goodwill and intangible assets. Actual results could differ from those estimates.

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In December 1999, the Securities and Exchange Commission released Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). This bulletin summarizes certain views of the staff
of the Securities and Exchange Commission (the Staff) on applying generally accepted accounting principles to revenue recognition in financial statements. The Staff believes that revenue is realized or realizable and earned when all of
the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller's price to the buyer is fixed or determinable; and collectibility is reasonably assured. In June 2000, the
Staff issued Staff Accounting Bulletin No. 101B, Second Amendment: Revenue Recognition in Financial Statements, (SAB 101B). SAB 101B delays the implementation of SAB 101 until the fourth quarter of the Companys fiscal
year 2001. The Company does not expect the application of SAB 101 to have a material impact on the Company's financial position or results of operations.

Comprehensive Loss

During each period presented, comprehensive loss was equal to net loss.

Segment Reporting

During each period presented, the Company operated in a single business segment, primarily in the United States.

3. NET LOSS PER SHARE

Basic net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period, excluding shares of common stock
subject to repurchase by the Company (restricted shares). Diluted net

5

NETWORK ENGINES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of shares of common stock and potential common stock outstanding during the period, if dilutive.
Potential common stock includes restricted shares and incremental shares of common stock issuable upon the exercise of stock options and warrants and upon conversion of redeemable convertible preferred stock. Because the inclusion of potential
common stock would be anti-dilutive for all periods presented, diluted net loss per share is the same as basic net loss per share.

The following table sets forth the potential common stock excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive (in thousands):

|                                       | As ofMarch 31, | 
|-------------------------------------- | -------------- | 
|                                       |               
|                                       |                | 
|                                       | 2001           | 
|                                       |                | 
|                                       |                | 
|Options to purchase common stock       | 6,364          | 
|Warrants to purchase common stock      | 1,625          | 
|Unvested restricted common stock       | 438            | 
|Redeemable convertible preferred stock |               | 
|                                       |                | 
|                                       |                | 
|                                       | 8,427          | 
|                                       |                | 



4. INVENTORIES

|Inventories consisted of the following (in thousands): |               |       |                   |   |       | 
|------------------------------------------------------ | ------------- | ----- | ----------------- | - | ----- | 
|                                                       | March 31,2001 |       | September 30,2000 |  
|                                                       |               |      
|                                                       |               |       |                   |  
|Raw materials                                          | $             | 3,383 |                   | $ | 3,524 | 
|Work in process                                        |               | 57    |                   |   | 847   | 
|Finished goods                                         |               | 635   |                   |   | 2,229 | 
|                                                       |               |       |                   |  
|                                                       |               |       |                   |   |       | 
|                                                       | $             | 4,075 |                   | $ | 6,600 | 
|                                                       |               |       |                   |  

5. CONTINGENCIES

On December 29, 1999, a former employee, George Flate, commenced a lawsuit against the Company, a current officer and director and a former officer and director in Suffolk Superior Court, a Massachusetts state court. Mr. Flate alleges that he was
unlawfully terminated as Vice President of OEM Sales in an effort to deprive him of commission payments. Mr. Flate is seeking undisclosed damages based on two contractual claims relating to his employment, although the Company anticipates that Mr.
Flate will claim damages in the multi-million dollar range. Specifically, Mr. Flate is alleging a breach of the implied covenant of good faith and fair dealing against the Company and a claim of intentional interference with contractual relations
against the current and former officers of the company named in the lawsuit. Both of these claims are based on Mr. Flate's allegations that he is entitled to commissions from several transactions that were negotiated after Mr. Flate was no longer
with the Company. Mr. Flate was employed by the Company for approximately one year. Currently, the matter is in the early stages of discovery. Although the Company believes that these claims are without merit and the Company intends to vigorously
defend against each claim asserted in the complaint, an adverse resolution of either of these claims could require the payment of substantial monetary damages. Moreover, the Company's defense against these claims might result in the expenditure of
significant financial and managerial resources.

6. ACQUISITION OF IP PERFORMANCE

On November 8, 2000, the Company completed its acquisition of IP Performance, Inc. (IP Performance), a developer of network acceleration technology, through the exchange of 128,693 shares of Network Engines common stock for all
outstanding shares of IP Performance capital stock. The acquisition was accounted for using the purchase method of accounting. Accordingly, the fair market value of the acquired assets and assumed liabilities have been included in the Companys
financial

6

NETWORK ENGINES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

statements as of the acquisition date and the results of IP Performance operations have been included in the Companys financial statements thereafter. The purchase price of approximately $2,540,000, assumed net liabilities of
approximately $94,000 and acquisition expenses of approximately $63,000, resulted in goodwill and intangible assets of approximately $2,697,000. The Company is amortizing the goodwill and intangible assets over a three-year period. Through March 31,
2001, the Company amortized approximately $375,000 of goodwill and intangible assets. The Companys pro forma statements of operations prior to the acquisition would not differ materially from reported results.

The Company also issued 321,756 shares of restricted common stock to key employee shareholders of IP Performance. These shares are restricted as to sale and such restrictions lapse in three equal annual installments beginning on
November 8, 2001, contingent upon continued employment of the holder. In connection with the issuance of these restricted shares, the Company recorded approximately $6,351,000 of deferred compensation, which is being recognized as stock compensation
expense ratably over the vesting period. Through March 31, 2001, the Company recognized approximately $882,000 of stock compensation expense. The amount of stock compensation expense to be recorded in future periods could change if holders of
unvested restricted stock cease to be employees of the Company prior to the lapse of the vesting period.

7. INVENTORY WRITE-DOWN

During the six months ended March 31, 2001, the Company recorded an inventory write-down of approximately $23,657,000 for excess and obsolete inventory related to the Companys WebEngine Blazer, WebEngine Sierra and
StorageEngine Voyager products. This excess and obsolete inventory was due to an unanticipated shortfall in sales of these products in the six months ended March 31, 2001 and the resulting reduction in expected future sales of these products. This
write-down includes inventory held at our contract manufacturer, inventory on-hand and firm purchase commitments as of March 31, 2001.

8. RETIREMENT OF PROPERTY AND EQUIPMENT

In the three months ended March 31, 2001, the Company retired fixed assets related to its WebEngine Blazer product line. These fixed assets had a total net book value of approximately $1,203,000 and consisted primarily of computer
equipment previously utilized in the production and sales of the WebEngine Blazer, our previous generation web content server appliance product.

9. RELATED PARTY TRANSACTIONS

In January 2001, the Company entered into a series of related agreements with Lawrence A. Genovesi, the Companys current Chairman and Chief Technology Officer and former Chief Executive Officer. These agreements were entered
into in order to avoid significant sales of the Companys stock by Mr. Genovesi as a result of a margin call on a personal loan that was collateralized by Mr. Genovesis holdings of the Companys common stock. The Company agreed to
guarantee a personal loan obtained by Mr. Genovesi from a financial institution (the Bank) through a deposit of $1,051,850 of the Companys cash with the Bank (the Guarantee). The Guarantee period ends on January 9, 2002
and the balance of the amount deposited with the Bank will be returned to the Company. Mr. Genovesi and the Company also entered into an agreement whereby Mr. Genovesi has agreed to reimburse the Company for any obligations incurred by the Company
under the Guarantee (the Reimbursement Agreement). Any unpaid balances under the Reimbursement Agreement bear interest at a rate of 10% per annum. In the event of a default of the Reimbursement Agreement by Mr. Genovesi, the Company has
the right to apply any and all compensation due to Mr. Genovesi against all of Mr. Genovesis obligations outstanding under the Reimbursement Agreement. In addition, the Company and Mr. Genovesi entered into a revolving promissory note of up to
$210,000 (the Note). The Note bears interest at a rate of 5.9% per annum and is due and payable in full upon the earlier of January 9, 2002 or 30 days following the date Mr. Genovesi ceases to be an employee of the Company.

7

NETWORK ENGINES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

In conjunction with the Guarantee, the Reimbursement Agreement and the Note, the Company and Mr. Genovesi entered into a pledge agreement whereby Mr. Genovesi pledged to the Company all shares of the Companys common stock owned
by Mr. Genovesi as of the date of the agreement or subsequently acquired, and all options and other rights to acquire shares of the Companys common stock owned by Mr. Genovesi as of the date of the agreement or subsequently acquired
(collectively the Pledged Securities). Additionally, Mr. Genovesi pledged to the Company all additional securities or other consideration from time to time acquired by Mr. Genovesi in substitution for, or in respect of, the Pledged
Securities. If Mr. Genovesi elects to sell any of the Pledged Securities during the term of the agreement, all proceeds of such sale will be applied first to any outstanding obligations related to the Note and then to any amounts payable under the
Reimbursement Agreement. In addition to the Pledged Securities, the Note is collateralized by a second mortgage on certain real property owned by Mr. Genovesi. As of May 14, 2001, no amounts were outstanding under the Note or were required to be
reimbursed to the Company under the Reimbursement Agreement.

10. SUBSEQUENT EVENTS

In April 2001, the Company entered into full recourse loan agreements with certain employees and executive officers of the Company (the Loan Agreements). These loan agreements were entered into to avoid substantial sales
of the Companys common stock by these employees and executive officers as a result of alternative minimum tax obligations incurred by these employees and executive officers. The total amount loaned to the employees and executive officers under
the Loan Agreements was approximately $737,000. Outstanding amounts under the Loan Agreements accrue interest at a rate of 4.63% per annum and are due and payable in full upon the earlier of one year from the date of each individual agreement or
thirty days after termination of employment with the Company, unless termination is involuntary and without cause. In conjunction with the Loan Agreements, each employee and executive officer pledged all shares of capital stock of the Company now
owned, or acquired in the future, (the Pledged Stock), and any distributions on the Pledged Stock or proceeds from their sale.

In April 2001, as a result of the effect that the recent economic down-turn has had on the Company and its customers information technology spending, the Company announced a restructuring plan to align the Companys
operating expenses and cash requirements with current market conditions. This plan includes a reduction in the Companys workforce from 243 employees to 170 employees, the curtailment of a planned expansion into currently leased facilities, the
consolidation of international operations, a reduction of marketing programs as well as other items. The Company expects to record a total charge of approximately $3,500,000 in the quarter ended June 30, 2001 as a result of this
restructuring.

8

SIGNATURE

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

|                    | NETWORK ENGINES, INC.                     
|------------------- | ------------------------------------------
|                    |                                           
|                    |                                           
|                    |                                           
|                    |                                           
|Date: July 24, 2001 |                                           
|                    |                                           
|                    |                                           
|                    | /s/ Douglas G. Bryant                     
|                    |                                           
|                    | Douglas G. Bryant                         
|                    | Vice President of Administration, Chief   
|                    | Financial Officer, Treasurer and Secretary
|                    | (Principal Financial Officer and Principal
|                    | Accounting Officer)                       

9