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

                                   FORM 10-KSB
 (Mark One)
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
                    FOR THE FISCAL YEAR ENDED MARCH 31, 2001

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the transition period from __________ to __________

                         Commission file number: 0-28560

                                  NETGURU, INC.
              (Exact name of small business issuer in its charter)

             DELAWARE                                             22-2356861
  (State or other jurisdiction of                           (I.R.S. Employer
   incorporation or organization)                            Identification No.)

22700 SAVI RANCH PARKWAY, YORBA LINDA, CA                          92887
(Address of principal executive offices)                         (Zip Code)

                    Issuer's telephone number: (714) 974-2500

           Securities registered pursuant to Section 12(b) of the Act:

     Title of each class                    Name of exchange on which registered
              NONE                                         NONE

           Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $0.01 PAR VALUE
                                (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year: $31,302,000.

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 18, 2001 was $23,141,012.

The number of shares outstanding of the registrant's only class of Common Stock,
$.01 par value, was 16,873,603 on June 18, 2001.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      NONE

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                                  NETGURU, INC.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.


INTRODUCTION

         We were incorporated in 1981 under the name Research Engineers, Inc.
and changed our name to netGuru, Inc. in 2000. We are an integrated Internet
technology and services company providing:

         o        Internet-based information technology, or IT, services to
                  companies worldwide;

         o        Internet and personal computer-based engineering software
                  products to businesses worldwide;

         o        Internet content and commerce through our portal network,
                  NETGURUINDIA.COM, which is focused on the "global Indian"
                  community, consisting of resident Indians and persons of
                  Indian origin, or PIOs; and

         o        Digital media and animation products and services.

         We have been providing computer-aided engineering software solutions to
our customers for over 18 years. For the past 16 years, we have supported our
engineering software business with our India-based software programming and IT
resources. In 1999, we acquired two IT services companies in the U.S., further
expanding our IT resources and capabilities. With our experience in India and
our understanding of the global Indian community, we began offering our Internet
portal services in 1999. In addition, based upon our knowledge and understanding
of the engineering software market, combined with our Internet technology
resources and experience, we launched WEB4ENGINEERS.COM, an engineering portal
hosting our engineering software applications online and providing applications
services provider, or ASP, services to engineering software providers and their
licensees worldwide.

         We provide a full suite of IT consulting services to our customers from
our IT services divisions in the Silicon Valley and the Boston area. We support
our IT services operations with our offshore facility in India. Our IT
consulting customers include companies such as General Electric, Fidelity,
Netscape, Sun Microsystems, Cisco Systems and Hewlett Packard. We have
positioned our company to capitalize on our IT services methodology in order to
provide Internet-based IT consulting services to businesses worldwide and to
enable us to provide business-to-business Web solutions in India.

         We develop and market cost-effective, high-quality engineering software
solutions. Our comprehensive line of structural, mechanical, civil and
process/piping engineering software products provide our customers with
fully-integrated, easy-to-use design automation and analysis solutions. We
currently license our software products to more than 20,000 companies accounting
for over 50,000 software installations. Based on our customer surveys, we
estimate that there are approximately 150,000 users at these installations
worldwide. Our customers include: Bechtel Corporation, British Telecom, Jet
Propulsion Laboratories, Exxon Corporation, Fluor Daniel, Inc., General
Dynamics, NASA, Rocketdyne, Siemens AG and Toyo Engineering.

<PAGE>

         In April 2000, we acquired Allegria Software, Inc., a company with
Internet technology resources and online collaborative software. This
acquisition, combined with our Web-enabling technology, allows us to offer to
our current and prospective customers our engineering software products online
with real-time, online collaboration through our WEB4ENGINEERS.COM portal. Our
WEB4ENGINEERS.COM portal offers ASP services, including applications hosting,
data hosting and portal services for engineering companies worldwide.

         Our Internet portal, NETGURUINDIA.COM, currently provides Internet
content and commerce services, including travel, telecommunications and gifts,
to PIOs through destinations that address the specific Indian cultural and
ethnic needs of the targeted communities. Our portal network provides
comprehensive digitally-rich media content and e-commerce services for PIOs,
including direct-to-customer fulfillment and Internet tools such as chat rooms
and other digital communication capabilities.

         We have developed proprietary digital multi-media expertise and
resources in our studios in Calcutta, India and in the U.S. to offer our
entertainment, advertising and corporate customers animation software such as
AXA Web, digital multi-media, and features and other digital products and
services worldwide. We plan to further enrich our offerings by providing full
motion video and sound through internet portals, allowing users to view content
in full-screen format on a user's computer without distortion or degradation of
either video or sound quality.

PRODUCTS AND SERVICES

         IT SERVICES

         Our IT services group provides business-to-business Web/Internet
software related technical services to companies in North America, India and the
Asia/Pacific region. Our IT expertise consists of:

         o        Web/Internet Solutions - strategic consulting, Web/Internet
                  software application development (Java/C++, HTML, CORBA, COM,
                  DCOM, NAS, IIS technologies), creative Web design and digital
                  media;

         o        Embedded systems - firmware;

         o        ERP/Database Solutions - SAP, Oracle applications; and

         o        Software Application Developments - C, C++, VC++, Java, J++,
                  Oracle, Sybase, DB2, PB, VB and other GUIs, Windows, NT, Unix.

         We offer our services both on a project basis and through on-site
consulting. When we provide IT services on a project basis, we assume full
project management responsibility. Typically, projects are of a fixed duration
and are charged at a fixed price. We also offer on-site consulting services for
which we bill clients on a time and material basis.

         Our IT consulting services feature the following:

         o        customized approach based on client's needs;

         o        qualified, trained and experienced Web/Internet and software
                  professionals and account managers;

         o        professional screening and training of our consultants;

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         o        confidentiality and intellectual property protection for
                  clients;

         o        continued support for completed jobs; and

         o        cost-effective outsourcing of projects supported by our
                  offshore facility in India.

         Our IT services division operates out of the Silicon Valley and the
Boston area and is supported by our offshore operations in India. These
strategic locations allow us to effectively position ourselves in the mainstream
of Internet/Web/e-commerce and IT sectors in North America and India.

         We leverage our U.S. IT services experience and capabilities as well as
our Indian IT resources to provide business-to-business Internet-based IT
solutions to companies in India. We market our Internet-based
business-to-business solutions to our installed base of 2,000 companies in India
who license our engineering software products.

         ENGINEERING SOFTWARE PRODUCTS AND ASP

         Our technically sophisticated stand-alone and network-based engineering
software products provide fully integrated, easy-to-use design automation and
analysis solutions for use by engineering analysis and design professionals
worldwide. We have developed a comprehensive line of structural, mechanical,
civil and process/piping engineering software products, including STAAD/Pro(R)
family of products, FabriCAD, ADLPIPE, STARDYNE(R), CIVILSOFT and
CIVILMASTER(R). Our products assist engineers in performing mission-critical
functions, including analysis and design of industrial, commercial,
transportation and utility structures, pipelines, machinery and automotive and
aerospace products and survey, contour and digital terrain modeling. All of our
products use our proprietary Windows-based graphics engine that provides a
modern graphics environment for model development, visualization/verification
and drawing generation. These products are also designed for use with
third-party CAD drafting systems, including AutoCAD and MicroStation. Our
structural and civil engineering products provide eight international language
options and twelve local design codes required by our worldwide markets. In
April 2000, we acquired Allegria Software, Inc., a developer of Web-based
document management and collaborative tools for engineers and manufacturers, and
added their e-Review and ForReview collaboration products to our offerings.
Suggested list prices for most of our software products range from approximately
$995 to $7,000.

         We now offer our engineering products and solutions online on
WEB4ENGINEERS.COM. On this site, we offer Web-enabled versions of our current
software products such as STAAD/Pro(R), CIVILMASTER(R) and FabriCAD in addition
to Web-enabled collaborative document review and management tools. We also
provide ASP services to engineering and construction software companies and
their customers to Web-host their applications software and their data. In
addition, we have licensed our ASP technologies to LG Korea and have contracted
with them to supervise their development of a Korean version of the ASP model.
We will continue to explore opportunities to license our ASP technologies for
use in various languages and countries as well as various industries outside of
engineering and construction.

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         The following table describes our engineering software products:
<TABLE>
<CAPTION>

------------------ ------------------- ------------------------------------------- ----------------------------------
PRODUCT CATEGORY      PRODUCT NAME                    FUNCTION                                 APPLICATIONS
------------------ ------------------- ------------------------------------------- ----------------------------------
<S>                <C>                 <C>                                         <C>
Structural         STAAD/Pro(R)        Comprehensive workflow integrated           Engineering/architectural firms,
Engineering                            solution for structural engineers.          consulting engineers,
                                       Includes STAAD Analysis/Design, STARDYNE(R) construction companies, building
                                       Advanced Finite Element Analysis and        designers, industrial plant
                                       drawing generation. Extensions for          designers, offshore/marine
                                       structural component design, concurrent     engineering, petrochemical
                                       piping engineering, and detailing.          industry, power industry,
                                       Supports US and all major international     manufacturing/ heavy industries,
                                       structural design codes.                    transportation, facilities,
                                                                                   government/municipal agencies, etc.

                   QSE - Quick         Integrated analysis and design for 2D/3D    Light industrial and residential
                   Structural          frame structures; steel/concrete design     applications, Engineering/
                   Engineering         per US and British codes; links to          architectural consulting firms;
                                       detailing software.                         construction companies.

                   FabriCAD Suite      Full-scale structural fabrication drawing   Construction engineering,
                                       and detailing; estimating, production       fabrication shops, steel
                                       control, inventory control and purchase     detailers, mechanical equipment
                                       orders.                                     fabrication.

                                       A comprehensive array of structural         Light industrial and residential
                   STAAD.etc.          component design software tools ideal for   applications, Engineering/
                                       efficient design and analysis of steel      architectural consulting firms;
                                       and concrete structural accessories,        construction companies.
                                       timber and masonry.
------------------ ------------------- ------------------------------------------- ----------------------------------
Mechanical         STARDYNE(R)         Finite element analysis of mechanical/      Aerospace, nuclear, machine
Engineering        and                 structural components; machine and          tools, machinery, manufacturing,
                   VISUAL SOLID        equipment design; static/dynamic/non-       automotive, civil/structural,
                                       linear/buckling/transient/random            offshore/ marine, electrical,
                                       vibration/thermal/fracture/fatigue          chemical, processing,
                                       analysis. 3D solid modeling in design       power/energy, mining.
                                       automation; integrated with finite
                                       element analysis
------------------ ------------------- ------------------------------------------- ----------------------------------
Process/Piping     ADLPIPE             Analysis, design and code checking of       Power, process, industrial plant
Engineering                            piping systems; static/dynamic/seismic/     design.
                                       non-linear analysis; transient/thermal
                                       analysis; U.S. and major international
                                       codes.
------------------ ------------------- ------------------------------------------- ----------------------------------
Civil              CIVILSOFT /         Surveying, contouring, highway design,      Civil engineering consulting
Engineering        CIVILMASTER(R)      digital terrain modeling, earthwork         firms; government/municipal
                                       calculations, water network design,         agencies; utilities;
                                       sewer/storm drainage systems, hydraulics.   transportation; facilities;
                                                                                   construction companies.
------------------ ------------------- ------------------------------------------- ----------------------------------
Collaborative      ForReview           View and markup system: viewing, checking,  Architectural, engineering,
Software                               comparing and redlining of 250 file         construction, automotive and
                                       formats                                     manufacturing companies

                   e-Review            Online meeting and conference system to     Architectural, engineering,
                                       review, view and annotate drawings and      construction, automotive and
                                       documents in real time collaboratively      manufacturing companies
------------------ ------------------- ------------------------------------------- ----------------------------------
</TABLE>

     NETGURU PORTAL NETWORK

         Our portal network provides our PIO users with a one-stop Internet
gateway that enables them to access India-focused content and commerce.

                                       4
<PAGE>

         CONTENT OFFERINGS. Through our portal network, we provide the PIO
community with local events, news and music in both English and the local
language of the Indian city on which the particular destination is based, and
offer products and services to suit the community's needs. We are expanding
access to our portal network to permit resident Indians to access our content
offerings. We also provide special interest integrated content and e-commerce
activities and Internet tools for our users. We believe that we will achieve
significant content differentiation by enriching our content with proprietary
animation and digital multimedia technology from our in-house studios.

         Currently, we provide news, sports, information and astrology updated
daily through on-demand streaming video technology, broadcasted in both English
and the relevant local Indian language.

         COMMERCE. Through our portal network, we offer electronic commerce,
designed to appeal to the global Indian community and to serve its needs.
Currently, we offer e-commerce to the PIO community and to the resident Indian
community. We have identified three primary e-commerce opportunities within the
global Indian community: travel-related services; communications; and gifts and
merchandising.

                  TRAVEL-RELATED SERVICES. We have identified travel to India as
a significant need for the PIO community. In January 2000, we acquired
e-Destinations, Inc., a U.S.-based travel agency which has been in the travel
business for over 19 years. e-Destinations focuses on the travel needs of the
PIO community in the U.S. Through e-Destinations, we provide online travel
services, including air tickets, cruises, packaged tours and stopover packages.

                  COMMUNICATIONS. We currently offer to our PIO users pre-paid
telephone cards for long distance phone calls to India directly through our
NETGURUINDIA.COM portal. Currently, we purchase access, on a wholesale basis,
from international carriers to offer our customers competitive pricing.
Beginning in September 2000, we began using our own telephony infrastructure to
send our customers' long distance calls to India. Our telephone cards allow our
customers to use a unique PIN and an 800 number to dial long distance from any
telephone in the U.S.

                  GIFTS AND MERCHANDISE. Currently, we sell gifts and
merchandise on our Internet portal, sourced from merchants in targeted Indian
cities, to PIOs for delivery to their family and friends in India. We plan to
expand our gift and merchandise offerings in the future by providing Indian
products from U.S. merchants for PIOs and by providing e-commerce opportunities
in India for our resident Indian subscribers and users.

         INTERNET TOOLS. We seek to develop a loyal and strong customer base by
providing our subscribers in India with useful Internet tools through our
portal. Once we implement our subscription program in India, each registered
subscriber will receive a personal "Netsecretary" which will be provided without
additional charge. Netsecretary will also be available to our U.S. portal users.
Netsecretary is our proprietary virtual Internet secretary, designed to
encourage our users to make our NETGURUINDIA.COM Web page their homepage,
thereby encouraging them to return to our Web site repeatedly. Netsecretary
provides users with many features including, support of all major e-mail servers
and operating systems; selectable media, including pager, fax, digital cellular
phone and e-mail; programmable schedule interface; remote call-in facility; and
selectable notification data. Through Netsecretary, we intend to offer the
following tools to our users at no cost:

         o        personal e-mails;

         o        personal electronic organizer;

         o        personal unified messaging system allowing for delivery of
                  messages over the media selected by a user; and

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         o        remote access to e-mail through toll-free number in
                  incorporating text-to-speech and automatic voice recognition
                  technologies.

         TELEPHONY SERVICES

         We are in the process of establishing a transpacific, carrier-grade
managed communications network to support our planned telephony services
offerings. We are designing our managed communications network to be a premium
communications and data network built with carrier-grade communications switches
and equipment linked by a combination of the Internet, international leased
lines and satellite access to and from India. We will monitor and control our
network on a 24x7x365 basis to deliver high quality voice communications. In the
U.S., our communications gateway and switch is located in our corporate
headquarters in Yorba Linda, California and our leased communications facility
in Los Angeles, California. In India, we will utilize government-approved
telecommunications facilities.

         Our plan includes providing communications services to and from India
to consumers, carriers and corporations. We currently offer to our PIO users,
through our NETGURUINDIA.COM portal, pre-paid telephone cards for long distance
calls to India. We also plan to offer our PIO users long distance call-back
cards which they can purchase for their family and friends in India to use to
place long distance calls from India.

         We plan to offer communications service providers long distance call
termination services in India through our gateway in the U.S. by traditional
delivery methods such as international leased lines and satellite access. Upon
our receipt of the long distance calls in India, the calls will be routed
through the Public Switched Telephone Network to the call termination
destination in India.

     DIGITAL MEDIA AND ANIMATION PRODUCTS AND SERVICES

         We have developed proprietary digital multi-media expertise and
resources in our studios in Calcutta, India and in the U.S. to offer our
entertainment, advertising and corporate customers animation software such as
AXA Web, digital multi-media, and features and other digital products and
services worldwide. We plan to further enrich our offerings by providing full
motion video and sound through internet portals, allowing users to view content
in full-screen format on a user's computer without distortion or degradation of
either video or sound quality.

CUSTOMERS

         In the past year, we provided IT consulting services to over 150
corporate customers in the U.S., including General Electric, Fidelity, Netscape,
Sun Microsystems, Cisco Systems and Hewlett Packard. No single customer
represented more than 5% of our business.

         We currently license our engineering software products to more than
20,000 customers accounting for over 50,000 software installations. Based on our
customer surveys, we estimate that there are approximately 150,000 users at
these installations worldwide. Our engineering software customers include
Bechtel Corporation, British Telecom, Jet Propulsion Laboratories, Exxon
Corporation, Fluor Daniel, Inc., General Dynamics, NASA, Rocketdyne, Siemens AG
and Toyo Engineering.

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<PAGE>

SALES AND MARKETING

         NETGURU INTERNET PORTAL NETWORK. Our marketing goal is to increase
traffic to our NETGURUINDIA.COM Internet portal and to develop a strong brand
name as a leading integrated Internet technology and services company for the
global Indian community. Our marketing plan includes the use of multiple
advertising media, such as national network and cable television, network radio,
national print and Web-based advertising initially in the U.S. and India, and
subsequently in PIO communities around the world.

         Cultural and social events traditionally constitute a significant
component of community life. We plan to create a marketing campaign that will
focus on sponsoring Indian community events as a way of developing and
maintaining awareness of our business and services. Currently, our Internet
portal destinations provide free space on our Web pages for announcements of
community events. For the past two years, we have sponsored a major North
American cultural conference aimed at PIOs. More than 5,000 people attended the
events and we believe the events generated significant awareness for our pilot
portal destinations. We will sponsor the 2001 North American Indian Cultural
Conference to be held in Boston, Massachusetts in July 2001. Our long-term
objective is to develop relationships with representative community
organizations and remain involved in community activities to maintain and
enhance awareness of our brand name.

         IT SERVICES. We market our IT services offerings primarily through
industry-focused print advertisements, direct mailings to targeted prospects and
online on our Internet portals. We market and sell our IT services on a direct
basis and through customer referrals.

         ENGINEERING SOFTWARE. We market and sell our engineering analysis and
design software products domestically and internationally through our network of
branch offices, subsidiaries and representatives in the U.S., United Kingdom,
Germany, Japan, France, Scandinavia, Australia, China, Singapore, India,
Indonesia, Korea, Thailand, Malaysia, South Africa, Mexico, Russia, the Middle
East and Latin America. We also plan to market and sell our engineering software
products online through our engineering portal, WEB4ENGINEERS.COM. We use
extensive print advertising, trade show participation and direct mail campaigns
to generate sales leads. In response to product inquiries generated through
these activities, and through our engineering portal, elaborate
evaluation/demonstration software packages, complete with full user manuals and
working programs are created. Finally, our telesales professionals and
international distributors close the sales.

         We utilize this sales approach in connection with the marketing and
sales of product enhancements, upgrades and new products to current customers.
We also generate awareness for our products by posting banners on the Web pages
of professional engineering societies, newsgroups and similar forums on the
Internet. Our Internet strategy includes providing online product demonstrations
and online use of our products for discrete projects.

CUSTOMER SERVICE AND SUPPORT

         Customer service and support are essential to our continued success and
brand development efforts. In our Internet portal and telephony businesses, we
intend to take full advantage of our established experience and infrastructure
to further enhance our users' experience and foster user loyalty. We have
established user support teams in our local offices to enable us to rapidly
respond to e-mail inquiries and provide technical advice on a 24x7x365 basis in
English and the relevant local language. We will also proactively solicit
feedback from our users in order to understand their preferences and to enhance
their experience on our network.

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<PAGE>

         Our IT services are primarily project-based and time and
materials-based technology consulting services which do not generally involve
on-going customer service and support. Our IT services group can provide, on a
project-basis, on-going high quality support as contracted by the customer on a
24x7x365 basis to meet the customer's information management needs from our
facilities in Boston, Massachusetts and San Jose, California.

         Purchasers of our engineering software products are typically provided
with 120 days of product support without charge and a multimedia training
CD-ROM. Following the 120-day period, customers may elect to purchase ongoing
support either on a one-year contract basis or on an as-used fee basis. To
provide quality technical support worldwide, we employ engineers and software
specialists and maintain product support centers in North America, Europe, the
Asia/Pacific region and India. In addition, through our Web site we provide
e-mail technical support to users of these products.

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RESEARCH AND DEVELOPMENT

         Our current research and development efforts are focused on Internet
technologies, applications software Web-enabling and collaboration technologies
and enhancements to our current engineering software product offerings. During
fiscal years 2001 and 2000, we spent approximately $2.8 million and $2.5
million, respectively, on research and development activities.

         We offer a broad range of products and services designed to keep pace
with the latest technological advances and address the increasingly
sophisticated needs of our customers in all of our targeted markets. We
continually focus on expanding our existing product and service offerings with
acquired, upgraded and new products and services. We specifically seek
opportunities to expand our product and service offerings through acquisitions
and strategic alliances.

         Our research and development group includes specialists in Internet,
telecommunications, IT services, engineering software and ASP technologies. We
have established research and development facilities in the U.S., India and the
United Kingdom. Our offshore research and development facilities in India are
used to develop content and technologies for our Internet portal, to develop our
digital media and animation technology, to provide IT services resources for our
projects in the U.S. and to develop and maintain local engineering software
design codes. These projects require significant man-hours. Due to the
availability of skilled technical resources in India at a fraction of the cost
for comparable personnel in the U.S., these projects can be completed with the
assistance of our Indian facility at a significantly lower cost. We believe our
offshore technical resources provide a significant competitive advantage.

         INTERNET TECHNOLOGY DEVELOPMENT. Our research and development efforts
with respect to Internet technologies have been focused on creating, developing
and implementing our NETGURUINDIA.COM and WEB4ENGINEERS.COM Web sites. We
employed our resources in our U.S. and Indian research and development centers
for these initiatives. We have a staff of trained graphics and Web design
professionals in India dedicated to designing and developing content for our
NETGURUINDIA.COM portal. We developed a comprehensive Java-based content
management system in order to manage content, live broadcasts and video on a
remote basis. Audio and video compression technologies have also been developed
to increase the speed over which audio and video can be broadcast over the
Internet. We are developing a personal information management system to allow
users to manage their online address book, e-mail, contacts and to-do lists as
well as utilize text-to-speech technology to route e-mails to pagers and cell
phones. We use an interactive viewing, markup and collaboration tool on Java
Servlet and RMI technologies on our WEB4ENGINEERS.COM portal to conduct real
time viewing and mark-up conferences. We have developed this system to permit
integration with major document management and ERP systems, including an
in-house system developed in Java.

         IT SERVICES TECHNOLOGY DEVELOPMENT. Our IT services business delivers
Internet-based information technology consulting services to businesses.
Therefore, our major technological focus is on providing the best technology
expertise to our clients. We emphasize and require continued technology training
and education of our employees to ensure that our services are the best
available in the industry.

         ENGINEERING SOFTWARE TECHNOLOGY DEVELOPMENT. Our engineering software
products automate engineering calculations that are performed by structural,
mechanical, civil and process/piping engineers. We support our engineering
software products on a wide range of hardware platforms and operating systems.
All of our products are supported on PCs, and STAAD(R), STARDYNE(R) and ADLPIPE
are supported on UNIX-based workstations, including IBM, Sun Microsystems,
Hewlett Packard, Digital Equipment Corporation and Integraph. All of our
products are available in single user, network-based and client-server models.

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We have Web-enabled all of our engineering software products, which are now
available online on our WEB4ENGINEERS.COM portal. To ensure that all of our
products meet the requirements of our users and that our software development,
validation and maintenance processes meet applicable regulatory guidelines on
software development, we have established an extensive quality assurance and
quality control process. Our quality control system has recently been validated
by our receipt of ISO 9001 certification from the American National Standards
Institute/American Society of Quality Control Standards. We believe we are the
first structural engineering firm to receive ISO 9001 certification.

         With acquisition of Allegria Software in April 2000, we acquired the
ForReview and e-Review software products, which permit our licensees to access
the software on a real-time, collaborative basis. ForReview permits project
managers, engineers and architects to access designs, models and reports on a
concurrent basis and make edits, changes and improvements collaboratively,
thereby saving time and improving efficiencies in the engineering and design
process. The e-Review software permits collaboration online on our portal to
permit concurrent review in a virtual environment.

COMPETITION

         We face competition within our target markets, which include Internet
portal services targeting PIOs and resident Indians; traditional telephony
services to and from India; Internet-based IT services for businesses worldwide;
and engineering software products and ASP services for the worldwide engineering
community. We expect that competition will intensify as the market for
Internet-based solutions aimed at the global Indian community develops and
expands. We compete primarily on the basis of service, reliability and customer
support, as well as price, ease of use and content.

         IT SERVICES. Our competitors in the IT consulting services industry
include IT services companies, large accounting firms and their consulting
affiliates, other technology companies and in-house MIS departments. We believe
that the continuing shortage of Internet and IT resources and expertise,
combined with the rapid growth of the Internet in business applications, has
reduced the significance of competition in this segment.

         ENGINEERING SOFTWARE PRODUCTS. The engineering software industry is
intensely competitive and rapidly changing. A number of companies offer products
that target the same markets as we do. In addition, our products occasionally
compete with analysis tools that are developed internally by engineering firms.
We believe that we have significant competitive advantages in the industry based
on our high caliber development effort, demonstrated understanding of the needs
of the engineering design industry, ability to attract and retain customers,
capability to develop, acquire and implement emerging technologies, ability to
provide technical support and demonstrated capability to provide attractive
price points for our products. There can be no assurance, however, that our
competitors will not develop products that are superior to ours or that achieve
greater market acceptance or that we will be able to continue to compete
successfully in these markets.

         INTERNET PORTAL SERVICES. For our Internet portal services focused on
the PIO market, we compete primarily with Indolink, Rediff.com, NRIOL.com and
Indiatimes.com. We may face additional competition in the future from major
online services such as Yahoo! and America Online if they enter these markets
and develop products focused on the Indian market. When we expand our portal
services to the resident Indian market, we will face competition from VSNL,
Satyam Infoway Limited, Rediff.com, MSN India and other Indian portals.

       TELEPHONY SERVICES. For our current long distance calling card telephony
business, we face competition primarily from international long distance
telecommunications carriers and wholesale carriers. Although these competitors
often have significantly greater resources than we do, we believe that in the

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PIO market which we address, their relative size advantages are less
significant. We believe that our understanding of our target market and our
ability to advertise our calling card offerings directly on our global
Indian-focused portal allow us to compete effectively in this niche market.
Further, when we expand our telecommunications service offerings in the future
to long distance carrier service to India, call origination services in India
and corporate telephony services in India, we believe that our unique
understanding of our targeted market will permit us to compete effectively.

         In general, we face competition in each of our business segments. Many
of our existing and potential competitors have competitive advantages over us,
including, but not limited to, the following:

         o        longer operating histories;

         o        greater name recognition;

         o        larger customer base;

         o        significantly greater financial, technical and other
                  resources; and

         o        broader service and/or product offering.

         To be competitive, we must be able to keep up with technological
advances and continue to enhance our products and services. We may not be able
to successfully compete in one or more of our target markets. Our inability to
do so could have a material and adverse impact on our business, financial
condition and results of operations.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

         Our intellectual property rights are an important aspect of our
business. We rely primarily on a combination of contract, copyright, trademark
and trade secret laws, domain registration, license and confidentiality
agreements and software security measures to protect our proprietary technology.
We require all of our employees and other parties with access to our
confidential information to execute agreements prohibiting the unauthorized use
or disclosure of our technology. In addition, we periodically review our
proprietary technology for patentability, although we do not have any current
patents. Despite these precautions and even though we have not experienced any
misappropriation of our technology over the 18-year history of our company, we
believe that existing laws provide limited protection for our technology and
that it may be possible for a third party to misappropriate our technology or to
independently develop similar technology. Our protective measures may be even
less effective in the emerging Internet law field. Internet law is a new and
developing area of the law and online contracting, privacy and liability issues,
among others, are still being resolved. This lack of certainty is further
exacerbated in India, where the use of the Internet is less evolved. In
addition, effective copyright and trade secret protection may not be available
in every jurisdiction where we distribute our products, particularly in foreign
countries where the laws generally offer no protection or less protection than
those of the U.S. The laws of India, and other foreign countries in which we
operate do not protect intellectual property rights to the same extent as those
of the U.S. For example, Indian statutory law does not protect service marks.
Due to our significant reliance upon international sales of our products and
services, particularly in India, this lack of copyright and trade secret
protection could adversely affect our business and results of operations if a
third party were successful in copying our products and services and marketing
products and services similar to ours. We distribute our engineering software
products under "shrink-wrap" software license agreements, which grant end-users
licenses to (rather than ownership of) our products and which contain various
provisions intended to protect our ownership and confidentiality of the
underlying technology. In addition, our software is distributed with a third
party "hardware lock." "Shrink-wrap" licenses, which are not signed by the
end-user, may be unenforceable in certain jurisdictions.

                                       11
<PAGE>

         Our trademarks include netGuru.com, NETGURUINDIA.COM,
WEB4ENGINEERS.COM, Allegria Software, ForReview, e-Review, QSE, FabriCAD,
STAAD.etc. and ADLPIPE. Our registered trademarks include STAAD(R),
STAAD/Pro(R), STARDYNE(R) and CIVILMASTER(R). We may not be able to secure
adequate protection for our trademarks in the United States and in the other
countries in which we do business.

GOVERNMENT REGULATION

     REGULATION OF THE INTERNET

         UNITED STATES AND EUROPE. The U.S. Congress has recently passed or is
considering legislation regulating certain aspects of the Internet, including
online content, copyright infringement, user privacy, taxation, access charges,
digital signatures and liability for third-party activities. The European Union
also has recently enacted several directives relating to the Internet, including
directives that address the use of personal data, e-commerce activities,
security, commercial piracy, consumer protection and taxation of e-commerce
transactions. Various states have adopted and are considering Internet related
legislation and regulations. Governmental authorities in the U.S. and abroad are
considering other legislative and regulatory proposals to further regulate the
Internet. Areas of potential regulation include libel, pricing, quality of
products and services and intellectual property ownership. We cannot predict
what new laws will be enacted, or how courts will interpret existing and new
laws, and therefore are uncertain as to how new laws or the application of
existing laws will affect our business. In addition, our business may be
indirectly affected by legislation that affects the ability of our customers to
engage in e-commerce activities. Increased regulation of the Internet may
decrease the growth in the use of the Internet, which could decrease the demand
for our products and services, increase our cost of doing business or otherwise
harm our business, results of operations and financial condition.

         INDIA. Our business is also subject to comprehensive regulation by the
Ministry of Communications through the Telecom Commission and the Department of
Telecommunications pursuant to the provisions of the Indian Telegraph Act of
1885, or Telegraph Act, the India Wireless Telegraphy Act, 1933, or Wireless
Act, and the terms of the Class A Internet service provider license agreement
under which we operate, which our subsidiary, Interra Global Limited, entered
into with the Department of Telecommunications. Pursuant to the Telegraph Act,
the provision of any telecommunications services in India requires a license
from the government of India, obtained through the Department of
Telecommunications. While the Telegraph Act sets the legal framework for
regulation of the telecommunications sector and the Wireless Act regulates the
possession of wireless telegraphy equipment, much of the supervision and
regulation of the Internet service provider segment of our company is
implemented more informally through the general administrative powers of the
Department of Telecommunications, including those reserved to the Department of
Telecommunications and other governmental agencies under our license.

         In March 1997, the government of India established the Telecom
Regulatory Authority, an independent regulatory authority under the provisions
of the Telecom Regulatory Authority of India Act. The Telecom Regulatory
Authority is an autonomous body consisting of a chairperson and at least two and
not more than four members, and has primary responsibility for the following:

         o        facilitating competition and promoting efficiency;

         o        protecting the interests of consumers;

         o        regulating revenue sharing among service providers;

         o        ensuring compliance with license conditions;

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<PAGE>

         o        setting and ensuring compliance with the time period
                  applicable to service providers for providing local and
                  long-distance telecommunications lines;

         o        ensuring technical compatibility and effective
                  interconnectivity among different service providers;

         o        settling differences between service providers;

         o        advising the government of India on matters relating to the
                  development of the telecommunications industry; and

         o        ensuring effective compliance with universal service
                  obligations.

         The Telecom Regulatory Authority also has the authority to, from time
to time, set the rates at which domestic and international telecommunications
services are provided in India. The Telecom Regulatory Authority does not have
authority to grant licenses to service providers or renew licenses, functions
that remain with the Department of Telecommunications. The Telecom Regulatory
Authority, however, has the following powers:

         o        to call on service providers to furnish information relating
                  to their operations;

         o        to appoint persons to make official inquiries;

         o        to inspect the books of service providers; and

         o        to issue directives to service providers to ensure their
                  proper functionality.

Failure to follow Telecom Regulatory Authority directives may lead to the
imposition of fines. Decisions of the Telecom Regulatory Authority may be
appealed to High Courts in India.

         The authority of the Telecom Regulatory Authority has been the subject
of recent litigation, particularly with respect to its role in introducing new
telecommunications licenses and the scope of its authority to settle disputes
regarding the grant by the Department of Telecommunications of
telecommunications licenses. The Delhi High Court has held that the authority of
the Department of Telecommunications to issue or amend licenses is not subject
to any prior recommendations of the Telecom Regulatory Authority, and that any
such recommendations are not mandatory. In addition, the Delhi High Court
determined that the Telecom Regulatory Authority does not have jurisdiction to
decide disputes regarding the grant or amendment of a Department of
Telecommunications license. The government of India has formulated the New
Telecom Policy, 1999, or NTP. The NTP was cleared by the Union Cabinet in March
1999 and contemplates a new regime for the telecom operators, a larger role for
the Telecom Regulatory Authority, a restructuring of the Department of
Telecommunications and opening up of the market for long-distance calls.

         In May 2000, we acquired Interra Global Limited, an Indian Internet
service provider, which has a Class A license to provide national Internet
service provider services in India under an agreement with the Department of
Communications. The license has a 15-year term and can be revoked by the
Department of Telecommunications if we breach the license. The Department of
Telecommunications retains the right to take over our network and to modify,
revoke, terminate or suspend the terms and conditions of the license at any time

                                       13
<PAGE>

if, in its opinion, it is necessary or expedient to do so in the interest of
general public, or for the proper operation of the telecommunications sector or
for security considerations. The Department of Telecommunications also retains
the right to review the terms of our license based on changes in national
telecommunications policy. We are not permitted to assign or transfer our rights
under our license without the prior written consent of the Department of
Telecommunications. Our license also requires us to ensure that objectionable,
obscene and unauthorized content, or any other content, messages or
communications infringing copyrights, intellectual property rights and domestic
and international cyberlaws or which are inconsistent with the laws of India,
are not carried on our network. Although under the terms of our license we are
free to fix the prices we charge our subscribers, the Telecom Regulatory
Authority may set prices for the provision of Internet access services
generally. We are permitted to use encryption to safeguard information
transmitted over our network. However, if we use a higher level of encryption
than that specified by the government of India, our license requires us to
deposit a set of keys with the government of India. Our obligations under the
license are secured by a performance bank guarantee in the amount of 20.0
million rupees ($428,000).

     TELECOMMUNICATIONS SERVICES

         UNITED STATES. The Communications Act of 1934 and FCC regulations
govern the international long distance telecommunications services that we
provide over circuit-switched networks. The FCC distinguishes providers of long
distance services as either "dominant" or "non-dominant." We are classified by
the FCC as a non-dominant carrier and are regulated as such. The FCC generally
does not exercise direct oversight over non-dominant carriers, although it has
the statutory power to do so. While the FCC does not regulate the specific rates
that we charge for our international long distance services, non-dominant
carriers are required to offer such services under rates, terms, and conditions
that are just, reasonable and not unreasonably discriminatory. The FCC possesses
jurisdiction to act upon complaints filed by third parties, or brought on the
FCC's own motion, against any common carrier, including non-dominant carriers,
for failure to comply with its statutory obligations.

         Until recently, all non-dominant carriers were required to file tariffs
listing the rates, terms and conditions of service; that requirement was
eliminated by virtue of a decision from a federal appellate court upholding the
right of the FCC to forbear from requiring tariff filings. The FCC also has the
authority to impose more stringent regulatory requirements and change a
carrier's regulatory classification from non-dominant to dominant. The FCC is
more likely to impose more stringent requirements for carriers that provide
facilities-based service, as we do, and carriers that provide service to other
carriers. In the current regulatory atmosphere, however, we believe that the FCC
is unlikely to do so.

         The FCC imposes only minimal reporting requirements on non-dominant
carriers, although we are subject to certain reporting, accounting and
record-keeping obligations. At present, the FCC exercises its regulatory
authority to set rates primarily with respect to the rates of dominant carriers,
and it has increasingly relaxed its control in this area.

         INDIA. Our current plans for our telecommunications offerings
contemplate using third parties in India to provide required call termination
and call origination services. Such third parties are properly licensed in India
to provide such services and we are not required to comply with the Indian
government's regulations concerning telecommunications. Telephony on the
Internet is not permitted in India, and our Class A license requires us to take
measures to ban carriage of telephone traffic over the Internet.

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<PAGE>

RISK FACTORS

         An investment in our common stock involves a high degree of risk. In
addition to the other information in this Form 10-KSB, you should carefully
consider the following risk factors before deciding to invest in shares of our
common stock. This Form 10-KSB contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Form 10-KSB. If any of the following risks actually occur, it is likely that our
business, financial condition and operating results would be harmed. As a
result, the trading price of our common stock could decline, and you could lose
part or all of your investment.

         WE HAVE RECENTLY EXPANDED INTO NEW LINES OF BUSINESS AND MAY EXPAND
         INTO OTHER LINES OF BUSINESS. WE HAVE A LIMITED OPERATING HISTORY AND
         LACK EXPERIENCE IN THESE NEW LINES OF BUSINESS MAKING IT DIFFICULT FOR
         US TO PREDICT OUR FUTURE SUCCESS.

         We have only recently diversified our business and are now offering
Internet content and commerce services for the PIO community, Internet-based IT
business-to-business services, telephony services to the PIO community and ASP
services to engineering software providers and their users worldwide. We intend
to provide integrated communications services to and from India to consumers,
carriers and businesses. As a result, we have limited or no operating histories
in each of these new or proposed lines of business and therefore, our historical
financial information is of limited value in projecting our future results. Our
future success in these new markets which we have recently entered and plan to
enter in the future is, therefore, difficult to evaluate.

         OUR NEW LINES OF BUSINESS MAY BE DIFFICULT TO INTEGRATE WITH OUR
         HISTORICAL CORE BUSINESSES.

         We have been in the engineering software business for approximately 20
years and our two recently acquired IT consulting businesses have a combined 10
years of operating experience. We have only recently entered the Internet
content and commerce services, Internet-based IT business-to-business services,
telephony services and engineering ASP services markets. In the future, we may
expand into the integrated Indian-focused communications markets. Our expansion
into these new and proposed lines of business may be particularly difficult for
us to manage and acquisitions in these fields may be more difficult for us to
integrate, at least initially, because they involve different disciplines and
require different expertise than our core businesses. In addition, this
expansion may detract management's time and attention away from our core
businesses. If we are not able to attain the level of expertise and reputation
in these fields that we believe we have attained in the engineering software
field, and, through our acquisitions within the IT consulting field, our
business, financial condition and operating results could be adversely affected.

         IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR EXPANDED OPERATIONS, OUR
         BUSINESS COULD BE ADVERSELY AFFECTED.

         We have experienced rapid growth in the past few years in some of our
new lines of business and expect to continue to experience rapid growth in all
of our new and proposed lines of business over the next several years. This
growth has placed, and will continue to place, a significant strain on our
management and other resources. Our ability to manage our growth will require us
to continue to improve our operational, financial and management information
systems, and to motivate and effectively manage our employees. Among other
things, we will need to hire and integrate new managers and install and operate
new or enhanced accounting, financial management and information systems. If we
are unable to manage our growth effectively, the quality of our products and
services, our ability to identify, hire and retain key personnel and our
business, financial condition and operating results could be adversely affected.

                                       15
<PAGE>

         OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN OUR CURRENT MANAGEMENT
         TEAM AND RECRUIT ADDITIONAL KEY MANAGEMENT AND TECHNICAL PERSONNEL.

         Our future success depends to a large extent upon the continued
services of key managerial and technical employees and our ability to recruit,
assimilate and retain other highly qualified employees. Competition for
personnel is intense. There can be no assurance that we will be able to recruit,
assimilate and retain such personnel. The loss of the services of any of our key
employees or our inability to recruit and retain quality personnel could have a
material adverse effect on our business. We do not currently maintain life
insurance on the lives of any of our key employees.

         THE MARKETS IN WHICH WE CURRENTLY AND PLAN TO COMPETE ARE HIGHLY
         COMPETITIVE AND WE EXPECT THEM TO BECOME MORE COMPETITIVE IN THE
         FUTURE, WHICH COULD RESULT IN SIGNIFICANT PRICE COMPETITION, REDUCED
         REVENUES, LOWER PROFIT MARGINS OR LOSS OF MARKET SHARE.

         The Internet portal services, Internet-based IT business-to-business
consulting services, Internet-based engineering software products and services
and telephony services markets are each highly competitive. These markets may
experience pricing and margin pressure, which as a result, could adversely
affect our operating results and financial position. A number of companies offer
products and services within the same markets that we target. The market for
Internet-based products and services is characterized by an increasing number of
entrants due to low start-up costs. Some of our competitors and potential
competitors have larger technical staffs, more established and larger marketing
and sales organizations and significantly greater financial resources than us.
Our competitors may develop products and services that are superior to ours or
that achieve greater market acceptance. Our future success will depend
significantly upon our ability to increase our share of our target markets and
to sell additional products, product enhancements and services to our customers.
We may not be able to compete successfully, and competition may result in
decreases in:

         o        the prices we receive for our products and services;

         o        our revenues;

         o        the number of visitors to our site; o our profit margins; or

         o        our market share.

Any of these decreases could adversely affect our business and results of
operations.

         IN ORDER TO COMPETE SUCCESSFULLY, WE MUST KEEP PACE WITH THE RAPID
         CHANGES INVOLVING TECHNOLOGY AND THE INTERNET.

         We currently compete in the Internet content and commerce services,
Internet-based IT business-to-business consulting services, Internet-based
engineering software products and services and telephony services market. We
plan to compete in the integrated communications markets. Each of these markets
is characterized by rapid technological advances, changes in customer
requirements and frequent new product and services introductions and
enhancements. Our future success will depend upon our ability to enhance our
current products and services and to develop and introduce new products and
services that keep pace with technological developments, respond to the growth
in the Internet, encompass evolving customer requirements and achieve market
acceptance. Any failure on our part to anticipate or respond adequately to
technological developments and customer requirements, or any significant delays

                                       16
<PAGE>

in product development or introduction, could result in a loss of
competitiveness, revenues, profit margins or market share. There is no assurance
that new products or product enhancements which we develop will achieve market
acceptance.

         IF WE ARE UNABLE TO DEVELOP STRATEGIC RELATIONSHIPS WITH CONTENT AND
         COMMERCE PROVIDERS, OUR INTERNET PORTAL BUSINESS COULD BE ADVERSELY
         AFFECTED.

         Strategic relationships with content and commerce providers may be
critical to our success in our Internet portal business. We are in the process
of negotiating certain third party relationships with content and commerce
providers. We expect that most of these relationships will not be exclusive and
will be short-term or can be terminated for convenience. We cannot assure you
that we will be successful in entering into any of these relationships or, if we
do, that any such relationship will result in attractive content and commerce
offerings. If we are unable to deliver valuable content and commerce through our
Internet portal, we will be unable to attract and retain a significant number of
users, subscribers and advertisers, and, as a result, our revenue from commerce
and advertising will not meet our expectations, and our business, financial
condition and operating results would be adversely affected.

         IF WE DO NOT BUILD BRAND NAME AND REPUTATION QUICKLY, OUR ABILITY TO
         ATTRACT AND RETAIN CUSTOMERS COULD BE ADVERSELY AFFECTED.

         We believe it is critical to establish, maintain and strengthen our
reputation and brand in order to establish and expand our customer base. We also
believe that as the markets in which we currently compete and plan to compete
become increasingly competitive, the importance of reputation and brand will
increase. If our initial brand-building efforts are unsuccessful, we may not
experience an increase in Internet traffic needed to generate sufficient
revenues to offset the increase in marketing expenses. As a result, our
operating results and financial condition could be adversely affected. Our
Internet portal will be more attractive to advertisers if we have a large
audience of consumers with demographic characteristics that advertisers perceive
as favorable. Therefore, we intend to introduce additional and enhanced content
and commerce offerings, interactive tools and other services and features in the
future in an effort to retain our current subscribers and users and to attract
new ones. Our reputation and brand name could be adversely affected if we are
unable to enhance our Internet portal successfully.

         THE UNPREDICTABILITY OF OUR QUARTERLY OPERATING RESULTS MAY CAUSE THE
         PRICE OF OUR COMMON STOCK TO FLUCTUATE.

         Our quarterly operating results have varied in the past and may
continue to fluctuate significantly in the future due to a number of factors,
many of which are beyond our control. If our operating results do not meet the
expectations of securities analysts or investors, our stock price may decline.
Fluctuations in our operating results may result from a number of factors,
including the following:

         o        the level of e-commerce activity on our special interest
                  portal;

         o        the number of purchasers of our phone cards and the level of
                  usage by those purchasers;

         o        the level of demand for Internet-based IT business-to-business
                  consulting services and Internet-based engineering software
                  products and services;

         o        the acceptance of online hosting of engineering applications;

         o        the prices which we are able to charge for our products and
                  services;

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<PAGE>

         o        costs related to possible acquisitions of new technologies and
                  businesses;

         o        changes affecting the telecommunication infrastructure in
                  India, the Internet generally or the operation of our Web
                  sites;

         o        the amount and timing of capital expenditures and other costs
                  relating to the expansion of our Internet network; and

         o        general economic conditions.

         Many of our expenses are relatively fixed in the short-term. We cannot
assure you that our revenues will increase in proportion to any increase in our
expenses. We may be unable to adjust spending quickly enough to offset any
unexpected revenues shortfall. This could lead to a shortfall in revenues in
relation to our expenses.

         WE RELY ON A THIRD-PARTY COMMUNICATIONS INFRASTRUCTURE OVER WHICH WE
         HAVE NO CONTROL.

         If the quality and maintenance of the third-party communications
infrastructure on which we rely suffers, our service could be disrupted, our
reputation could be harmed and we could lose customers. This infrastructure is
used to carry our voice traffic. We have no control over whether the
infrastructure on which we rely will be adequately maintained by these third
parties or whether these third parties are able to upgrade or improve their
equipment and prevent it from becoming obsolete. If these third parties fail to
maintain, upgrade or improve their equipment, our business may be materially
harmed.

         WE COULD EXPERIENCE SYSTEM FAILURES THAT PREVENT US FROM OPERATING OUR
         INTERNET BUSINESS.

         Our business depends on the efficient and uninterrupted operation of
our computer hardware and software systems. In addition, we rely on the Internet
and, accordingly, depend upon the continuous, reliable and secure operation of
Internet servers, related hardware and software and network infrastructure such
as lines leased from service providers operated by the government of India. We
have a back-up data facility. Although we have designed our system for complete
redundancies of all major computer components, we cannot assure that our system
will be fail-safe. As a result, failure of key primary or back-up systems to
operate properly could lead to a loss of customers, damage to our reputation and
violations of our Internet service provider license and contracts with corporate
customers. These failures could also lead to a decrease in the value of our
common stock, significant negative publicity and litigation.

         Our Internet service provider license requires that we provide an
acceptable level of service quality and that we remedy customer complaints
within a specified time period. Our computer and communications hardware are
protected through physical and software safeguards. However, they remain
vulnerable to fire, storm, flood, power loss, power surges, telecommunications
failures, physical or software break-ins, software viruses and similar events.
We do not carry business interruption insurance to protect us in the event of a
catastrophe, even though such an event could lead to a significant negative
impact on our business. Any sustained disruption in Internet access provided by
third parties could also have a material adverse effect on our business.

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<PAGE>

         FINANCIAL STATEMENTS OF OUR FOREIGN SUBSIDIARIES ARE PREPARED USING THE
         RELEVANT FOREIGN CURRENCY WHICH MUST BE CONVERTED INTO U.S. DOLLARS FOR
         INCLUSION IN OUR CONSOLIDATED FINANCIAL STATEMENTS. AS A RESULT,
         EXCHANGE RATE FLUCTUATIONS MAY ADVERSELY IMPACT OUR REPORTED RESULTS OF
         OPERATIONS.

         We have established and acquired several international subsidiaries,
which prepare their balance sheets in the relevant foreign currency. In order to
be included in our consolidated financial statements, these balance sheets are
converted, at the then current exchange rate, into U.S. dollars and the
statements of operations are converted using weighted average exchange rates for
the applicable periods. Therefore, exchange rate fluctuations can have a
detrimental effect on our reported operating results. We do not engage in
hedging activities to protect against the risk of currency fluctuations. Foreign
currency denominated sales may result in gains and losses on the conversion to
U.S. dollars. We have historically denominated sales by our foreign subsidiaries
in the local currency.

         OUR COMMITMENT OF SIGNIFICANT RESOURCES AND EXPANSION OF OUR ACTIVITIES
         IN INDIA COULD PROVE TO BE UNPROFITABLE DUE TO RISKS INHERENT IN
         INTERNATIONAL BUSINESS ACTIVITIES.

         Sales of our products and services to customers located outside the
U.S. accounted for approximately 19.1% and 28.9% of our net revenue for the
fiscal years ended March 31, 2001 and March 31, 2000, respectively. We are
subject to a number of risks associated with international business activities
that could adversely affect our operations in India and slow our growth. These
risks generally include, among others:

         o        difficulties in managing and staffing our Indian operations;

         o        difficulties in obtaining or maintaining regulatory approvals
                  or in complying with Indian laws;

         o        reduced or less certain protection for intellectual property
                  rights;

         o        increased collection risks;

         o        differing technological advances, preferences or requirements;

         o        trade restrictions;

         o        foreign currency fluctuations; and

         o        general economic conditions, including instability, in the
                  Indian market.

         Any of these risks could adversely affect our business and results of
operations.

         THE INDIAN GOVERNMENT MAY CHANGE ITS REGULATION OF OUR BUSINESS OR THE
         TERMS OF OUR LICENSE TO PROVIDE INTERNET ACCESS SERVICES, EITHER OF
         WHICH COULD NEGATIVELY IMPACT OUR OPERATING RESULTS.

         Our business is subject to regulation under Indian law and our Internet
service provider license is also subject to regulation. These regulations
include the following:

         o        Our Internet service provider license has a term of 15 years;
                  we have no assurance that the license will be renewed. If we
                  are unable to renew our Internet service provider license in
                  2015 for any reason, we will be unable to operate as an
                  Internet service provider in India and will lose one of our
                  sources of revenue.

                                       19
<PAGE>

         o        The government of India and the Telecom Regulatory Authority
                  of India, or TRAI, maintain the right to regulate the prices
                  we charge our subscribers. The success of our business model
                  depends on our ability to price our services at levels that we
                  believe are appropriate. If the government or the TRAI sets a
                  price floor, we may not be able to attract and retain
                  subscribers. Likewise, if the government or the TRAI sets a
                  price ceiling, we may not be able to generate sufficient
                  revenues to fund our operations.

         o        The government of India maintains the right to take over our
                  entire operations or revoke, terminate or suspend our license
                  for national security and similar reasons without compensation
                  to us. If the government of India were to take any of these
                  actions, we would be prevented from conducting a significant
                  part of our business.

         We had outstanding performance guarantees for various statutory
purposes totaling approximately $428,000 as of March 31, 2001. These guarantees
are generally provided to government agencies, as security for compliance with
and performance of terms and conditions contained in an Internet service
provider license towards the supply and installation of an e-commerce platform.
These guarantees may be seized by the governmental agencies if they suffer any
losses or damage by reason of our failure to perform our obligations. Any
failure on our part to comply with governmental regulations and the terms of our
Internet service provider license could result in the loss of our license and
any amount outstanding as performance guarantees, which would also prevent us
from carrying on a significant part of our business. Further, additional laws
regulating telecommunications, electronic records, the enforceability of
electronic documents and the liability of network service providers are under
consideration and if enacted, could impose additional restrictions on our
business.

         IF THERE IS A CHANGE IN THE CURRENT INDIAN GOVERNMENT POLICY FAVORING
         DEREGULATION, OUR BUSINESS COULD BE HARMED.

         During the past decade, the government of India has pursued policies of
economic liberalization, including significant relaxation of restrictions on the
private business sector. Although the Indian government has changed three times
since 1996, the policies of economic liberalization have continued. The current
government has continued these policies of liberalization and deregulation,
which have resulted in significantly increased opportunities for publicly and
privately held businesses in the Internet access and telecommunications markets
in which we operate in India. Although there are no indications that these
trends will not continue, there can be no assurance that the current government
will remain in power or that these policies will continue. A significant change
in the Indian government's policies could materially adversely affect our
business and results of operations.

         CONFLICTS INVOLVING INDIA COULD ADVERSELY AFFECT THE INDIAN ECONOMY AND
         HARM OUR BUSINESS.

         South Asia has from time to time experienced civil unrest and
hostilities among neighboring countries, including India and Pakistan. In April
1999, India and Pakistan conducted long-range missile tests. Since May 1999,
military confrontations between India and Pakistan have occurred in the disputed
Himalayan region of Kargill. Further, in October of 1999, the leadership of
Pakistan changed as a result of a coup led by the military. If a conflict
involving India and any of its neighboring countries should occur, it could have
an adverse affect on the Indian economy and our business would be adversely
affected.

                                       20
<PAGE>

         BANDWIDTH CAPACITY IN INDIA IS LIMITED AND MAY LIMIT THE GROWTH OF THE
         INTERNET IN INDIA AND SLOW OUR GROWTH.

         Bandwidth capacity, which is the measurement of the volume of data
capable of being transported in a communications system in a given amount of
time, is limited in India. The current limited bandwidth capacity in India may
severely limit the quality and desirability of using the Internet in India and,
in turn, may slow our growth.

         THE LIMITED INSTALLED PERSONAL COMPUTER BASE IN INDIA LIMITS THE NUMBER
         OF POTENTIAL CUSTOMERS AND RESTRICTS THE AMOUNT OF REVENUES THAT WE CAN
         GENERATE.

         The market penetration rates of PCs and online access in India are very
low. According to IDC, at the end of 1998, the Indian market contained 1.9
million PC owners or less than 1% of the total population in India of 987
million. Alternate methods of obtaining access to the Internet, such as through
cable television modems or set-top boxes for televisions, are currently
unavailable in India. There can be no assurance that the number or penetration
rate of PCs in India will increase rapidly, or at all, or that alternate means
of accessing the Internet will develop and become widely available in India. If
the market penetration rates of PCs and online access in India do not increase
rapidly, or we are unable to provide alternative means of Internet access to the
Indian market, we will be unable to generate significant revenue in India and we
will not generate the revenue which we expect to generate from this line of
business.

         WE MAY BE LIABLE TO THIRD PARTIES FOR INFORMATION RETRIEVED FROM THE
         INTERNET.

         Because users of our Internet access services and visitors to our
portal network may distribute our content to others, third parties may sue us
for defamation, negligence, copyright or trademark infringement, personal injury
or other matters. We could also become liable if confidential information is
disclosed inappropriately. Others could also sue us for the content and services
that are accessible from our portal network through links to other Web sites or
through content and materials that may be posted by our users in chat rooms or
bulletin boards. We do not carry insurance to protect us against these types of
claims, and there is no precedent on Internet service provider liability under
Indian law.

         OUR BUSINESS MAY NOT BE COMPATIBLE WITH DELIVERY METHODS OF INTERNET
         ACCESS SERVICES DEVELOPED IN THE FUTURE.

         We face the risk that fundamental changes may occur in the delivery of
Internet access services. Currently, Internet services are accessed primarily by
computers and are delivered by modems using telephone lines. As the Internet
becomes accessible by cellular telephones, personal data assistants, television
set-top boxes and other consumer electronic devices, and becomes deliverable
through other means involving coaxial cable or wireless transmission media, we
will have to develop new technology or modify our existing technology to
accommodate these developments. Our pursuit of these technological advances,
whether directly through internal development or by a third party license, may
require substantial time and expense. We may be unable to adapt our Internet
service business to alternate delivery means and new technologies may not be
available to us at all.

         OUR PRODUCT AND SERVICE OFFERINGS MAY NOT BE COMPATIBLE WITH INDUSTRY
         STANDARDS DEVELOPED IN THE FUTURE.

         Our ability to compete successfully depends upon the continued
compatibility and interoperability of our services with products and
architectures offered by various vendors. Although we intend to support emerging
standards in the market for Internet access, industry standards may not be
established and, if they become established, we may not be able to conform to

                                       21
<PAGE>

these new standards in a timely fashion or maintain a competitive position in
the market. The announcement or introduction of new products or services by us
or our competitors and any change in industry standards could cause customers to
defer or cancel purchases of existing products or services.

         ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS.

         Security breaches of our systems and network infrastructure, or the
perception that they could occur, could harm our business and reputation.
Despite the implementation of security measures, our infrastructure may be
vulnerable to physical break-ins, computer viruses, programming errors or
similar disruptive problems. If our security measures are circumvented, the
security of confidential information stored on our systems could be jeopardized,
proprietary information could be misappropriated and interruptions in our
operations could result. We may be required to make significant additional
investments and efforts to protect against or remedy security breaches. A
material security breach could damage our reputation or result in liability to
us, and we do not carry insurance that protects us from this kind of loss.

         THE TELECOMMUNICATIONS INFRASTRUCTURE IN INDIA IS DEVELOPING AND MAY
         NOT BE RELIABLE.

         The legal framework for telecommunications businesses in India is
developing and may change in ways that would adversely affect our ability to
operate and grow our business in India. Laws and regulations may be introduced
in India governing various aspects of the industry and the use of the Internet
as a medium for conducting business. We cannot predict the effect of further
developments in the Indian legal system, particularly with regard to the
Internet, including the promulgation of new laws, changes to existing laws or
their interpretation or enforcement, or the preemption of local regulations by
national laws.

         U.S. FEDERAL OR STATE GOVERNMENTS MAY INCREASE TELEPHONY REGULATION,
         WHICH COULD ADVERSELY AFFECT OUR BUSINESS.

         Our provision of telecommunications services is subject to government
regulation in the U.S. Federal law regulates international and interstate
telecommunications, while states have jurisdiction over telecommunications that
originate and terminate within the same state. Changes in existing policies or
regulations by Congress, by the FCC or any state could materially adversely
affect our financial condition or results of operations. There can be no
assurance that the regulatory authorities in one or more states or the FCC will
not take action having an adverse effect on our business, financial condition or
operating results.

         OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL
         LOSSES FOR INVESTORS PURCHASING SHARES OF OUR COMMON STOCK.

         The market prices of securities of technology-based companies like
ours, particularly Internet-related companies, currently are highly volatile.
The market price of our common stock has fluctuated significantly in the past.
Our market price may continue to exhibit significant fluctuations in response to
the following factors, some of which are beyond our control:

         o        variations in our quarterly operating results;

         o        deviations in our results of operations from the estimates of
                  securities analysts;

         o        changes in securities analysts' estimates of our financial
                  performance;

                                       22
<PAGE>

         o        changes in market valuations of similar companies and stock
                  market price and volume fluctuations generally;

         o        economic conditions specific to the Internet and online
                  commerce products and services;

         o        announcements by us or our competitors of new or enhanced
                  products, technologies or services or significant contracts,
                  acquisitions, strategic relationships, joint ventures or
                  capital commitments;

         o        regulatory developments;

         o        additions or departures of key personnel; and

         o        future sales of our common stock or other securities.

         In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.

         WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND ADEQUATE FINANCING MAY
         NOT BE AVAILABLE.

         Our future capital requirements will depend upon many factors,
including sales and marketing efforts, the development of new products and
services, possible future strategic acquisitions, the progress of our research
and development efforts, and the status of competitive products and services. We
believe that current and future available capital resources will be adequate to
fund our operations for the foreseeable future. However, to the extent we are in
need of any additional financing, there can be no assurance that any such
additional financing will be available to us on acceptable terms, or at all. If
additional funds are raised by issuing equity securities, further dilution to
the existing stockholders may result. If adequate funds are not available, we
may be required to delay, scale back or eliminate our research and development
program and our marketing efforts or to obtain funds through arrangements with
partners or others that may require us to relinquish rights to certain of our
technologies or potential products or other assets. Accordingly, the inability
to obtain such financing could adversely affect our business, financial
condition and results of operations.

         OUR PREFERRED STOCK MAY DELAY OR PREVENT A TAKEOVER OF OUR COMPANY
         POSSIBLY PREVENTING YOU FROM OBTAINING HIGHER STOCK PRICES FOR YOUR
         SHARES.

         Our board of directors has the authority to issue up to 5,000,000
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights of those shares without any further vote
or action by our stockholders. As of March 31, 2001, no shares of preferred
stock were outstanding. The issuance of preferred stock in the future, while
providing desired flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock, thereby
delaying, deferring or preventing a change in control of our company.
Furthermore, such preferred stock may have other rights, including economic
rights senior to the common stock, and, as a result, the issuance thereof could
adversely affect the market value of our common stock. We have no present plans
to issue shares of preferred stock.

                                       23
<PAGE>

         THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK AND THE
         ANTI-TAKEOVER EFFECTS OF DELAWARE LAW COULD ADVERSELY AFFECT THE
         PERFORMANCE OF OUR STOCK.

         As of June 18, 2001, our executive officers and directors and their
family members together beneficially owned approximately 45.7% of the issued and
outstanding shares of our common stock. As a result, such persons will have the
ability to exert significant control over our affairs and over the election of
directors. This concentration of ownership may have the effect of delaying or
preventing a change in control of our company. In addition, Section 203 of the
General Corporation Law of Delaware prohibits us from engaging in certain
business combinations with interested stockholders, as defined by statute. These
provisions may have the effect of delaying or preventing a change in control of
our company without action by our stockholders, and therefore could adversely
affect the price of our common stock.

EMPLOYEES

         As of March 31, 2001, we had 361 employees, including 92 in product
development and related support services, 92 in IT consulting, 48 in digital
media production, 66 in sales and marketing and 63 in finance and
administration. As of that date, 178 of our employees were located in the United
States and 183 were located in international locations.

ITEM 2.  DESCRIPTION OF PROPERTY.

         Our corporate headquarters are located in Yorba Linda, California, in a
facility consisting of approximately 41,000 square feet of office and warehouse
space. On December 15, 1999, we entered into a 15-year operating lease for this
facility. The terms of this lease provides for initial monthly payments of
approximately $25,000. The monthly payment is adjusted every 3 years based on
the consumer price index. We are responsible for payment of any property taxes
and are required to maintain property insurance for the remainder of the lease.

         We own a 22,000 square foot research and development facility in
Calcutta, India. In addition, we own an adjacent 20,452 square foot building in
Calcutta, primarily housing our digital media and Internet operations.

         We also lease office space in various other locations domestically and
internationally where our operations are located. We believe that our existing
facilities are adequate to meet our current needs and that suitable additional
or alternative space will be available in the future on commercially reasonable
terms.

ITEM 3.  LEGAL PROCEEDINGS.

         We previously disclosed that we were involved in litigation with Video
Pioneers Corporation ("VPC"). We settled this action with VPC during the third
quarter of fiscal 2001 for a nominal amount.

         We are a party to various other litigation arising in the normal course
of business. We believe the disposition of these matters will not have a
material adverse effect on our results of operations or financial condition.

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

     During the quarter ended March 31, 2001, no matters were submitted for vote
to our common stockholders.

                                       24
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         To better reflect our strategic direction and the broadening of our
technology and e-commerce offerings, we changed our name from Research
Engineers, Inc. to netGuru, Inc. in February 2000. On March 3, 2000, our common
stock began trading on the Nasdaq National Market under the new ticker symbol,
NGRU. Our common stock had traded on the Nasdaq National Market under the ticker
symbol RENG from July 26, 1996 until March 2, 2000.

         As of June 18, 2001, there were approximately 136 holders of record of
our common stock. Within the holders of record of our common stock are brokerage
firms which, in turn, hold shares of stock for beneficial owners.

         We have reinvested our earnings in the business and have not paid any
dividends to holders of our common stock. The declaration and payment of
dividends are at the sole discretion of the Board of Directors and will depend
upon our profitability, financial condition, cash requirements, future prospects
and other factors deemed relevant by the Board of Directors.

         The high and low closing sales prices of a share of our common stock,
as reported by the Nasdaq National Market, for each quarter of fiscal 2001 and
2000 are as follows:

                                             Fiscal 2001          Fiscal 2000
                                         -------------------  ------------------
                                            High      Low        High      Low
                                         --------- ---------  --------- --------
  1st Quarter (April 1 - June 30)          $29.00    $16.50      $5.50    $3.94
  2nd Quarter (July 1 - September 30)       20.50     16.50       5.25     4.25
  3rd Quarter (October 1 - December 31)     16.81      3.38      24.50     4.47
  4th Quarter (January 1 - March 31)         6.25      2.00      55.75    22.75

On February 7, 2000, we effected a 2-for-1 split of our common stock. The above
high and low closing sales prices have been adjusted to reflect this stock
split.

                                       25
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATION.

GENERAL

         We were incorporated in 1981 under the name Research Engineers, Inc.
and changed our name to netGuru, Inc. in 2000. We are an integrated Internet
technology and services company providing:

         o        Internet-based IT services to companies worldwide;

         o        Internet and PC-based engineering software products to
                  businesses worldwide;

         o        Internet content and commerce through our portal network,
                  NETGURUINDIA.COM, which is focused on the "global Indian"
                  community, consisting of resident Indians and PIOs; and

         o        Digital media and animation products and services.

         We have been providing computer-aided engineering software solutions to
our customers for approximately 20 years. For the past 16 years, we have
supported our engineering software business with our India-based software
programming and IT resources. In 1999, we acquired two IT services companies in
the U.S., further expanding our IT resources and capabilities. With our
experience in India and our understanding of the global Indian community, we
began offering our Internet portal services in 1999. In addition, based upon our
knowledge and understanding of the engineering software market, combined with
our Internet technology resources and experience, we launched WEB4ENGINEERS.COM,
an engineering portal hosting our engineering software applications online and
providing ASP services to engineering software providers and their licensees
worldwide.

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of our net revenues.

                                                     YEAR ENDED MARCH 31,
                                              ---------------------------------
                                                  2001               2000
                                                  ----               ----

        Net revenues                               100.0%             100.0%
        Cost of revenues                            52.6               43.7
                                              ----------------  ---------------

        Gross profit                                47.4               56.3
                                              ----------------  ---------------

        Selling, general and
         administrative expenses                    51.8               51.8
        Research and development expenses            8.8               12.3
        Restructuring                                7.7                -
                                              ----------------  ---------------

        Operating loss                             (20.8)              (7.8)

        Interest income (expense), net               0.6               (2.0)
        Other income, net                            0.5                0.1
                                              ----------------  ---------------

        Loss before income taxes                   (19.7)              (9.7)
        Income tax (expense) benefit                (1.5)               2.9
                                              ----------------  ---------------

        Net loss                                   (21.2)%             (6.8)%
                                              ================  ===============

                                       26
<PAGE>

         NET REVENUES. Net revenues for the fiscal year ended March 31, 2001
increased by $11,366,000 (57.0%) to $31,302,000, as compared to $19,936,000 for
the fiscal year ended March 31, 2000. Our total revenues for the current year
primarily consisted of (1) IT services, (2) engineering software products,
maintenance and services, (3) Internet content, e-commerce and ASP services and
(4) digital media products and animation services. IT services net revenues
represented 57.6% of total net revenues for the fiscal year ended March 31, 2001
compared to 52.7% for the fiscal year ended March 31, 2000. In dollar terms, IT
services net revenues were $18,019,000 in fiscal 2001 compared to $10,512,000 in
fiscal 2000, an increase of 71.4%. This increase is primarily due to a full year
of revenue from Net Guru Systems in fiscal 2001 compared to approximately six
months of revenue in fiscal 2000. The remaining increase was largely achieved
during the first and second quarters of the year, during which customer demand
was high and our IT services professionals were at or near full utilization. Our
IT revenues decreased in the latter part of the year as a result of the changes
in the economic environment of technology companies, however, the strength of
the results from the first half of the year resulted in a net increase for the
year as a whole.

         Our revenues from software sales, maintenance and services declined as
a percentage of total revenues to 31.4% in fiscal 2001 from 44.9% in fiscal
2000, largely due to the growth of our other business segments. In dollar terms,
revenues from software sales, maintenance and services were $9,824,000 in fiscal
2001 compared to $8,953,000 in fiscal 2000, an increase of 9.7%. The increase
was largely achieved through the addition of new software product lines,
primarily For Review and e-Review online collaboration software products, as a
result of the acquisition of Allegria Software, Inc. in April 2000. Maintenance
revenues also increased as a result of the addition of these product lines.
Maintenance and services revenues for other product lines were relatively flat
as we continued to sell maintenance contracts for new and old versions of our
software products.

         Net revenue for our Internet portal segment increased as a percentage
of total revenues to 10.3% in fiscal 2001 from 0.5% in fiscal 2000. In dollar
terms , revenues from this segment were $3,217,000 in fiscal 2001 compared to
$100,000 in fiscal 2000. This increase is primarily the result of an increase in
the sales of travel and telecommunications services in the current year. The
increase in travel services was largely the result of the acquisition of
e-Destinations, Inc., a travel services agency, in January 2000. The sales of
prepaid phone cards has increased significantly since September 2000, when we
started routing calls through our own telecommunications switch.

         Digital media and animation services comprise an emerging business
segment for our company. Revenues for fiscal 2001 amounted to $242,000 compared
to $371,000 for fiscal 2000. The revenues for fiscal 2000 included $324,000 of
revenue for services performed for one customer, which was a related party. No
revenue was recognized in fiscal 2001 for this customer. Revenue for all other
customers has increased by $195,000 from $47,000 in fiscal 2000.

         GROSS PROFIT. Gross profit as a percentage of net revenues decreased to
47.4% for the fiscal year ended March 31, 2001 as compared to 56.3% for the
fiscal year ended March 31, 2000. The gross profit percentage from the IT
services segment is typically lower, 32.2% in fiscal 2001, than the gross profit
percentage from the software sales, maintenance and services segment, 79.7% in
fiscal 2001. In dollar terms, total gross profit increased by $3,623,000 (32.3%)
to $14,844,000 for fiscal 2001 compared to $11,221,000 for fiscal 2000, largely
as a result of the increase in IT services revenues. Gross profit for IT
services increased $2,606,000 to $5,796,000 for fiscal 2001 compared to
$3,190,000 for fiscal 2000. The total gross profit increase included an
additional $1,016,000 due to the emergence of the Internet, e-commerce and ASP
services segment during fiscal 2001. These increases were partially offset by a
decrease of $113,000 in gross profit for the software sales, maintenance and
services segment.

                                       27
<PAGE>

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased by $5,882,000 (57.0%) to $16,204,000
for the fiscal year ended March 31, 2001 as compared to $10,322,000 for the
fiscal year ended March 31, 2000. The increase is largely attributable to a full
year of operations for businesses acquired during fiscal 2000 and the
acquisition of Allegria in fiscal 2001. Increases also resulted from the
addition of personnel dedicated to the development of our Internet portal and
ASP services businesses. Despite this increase in total dollars, SG&A expenses
as a percentage of net revenues remained relatively flat at 51.8% for both
fiscal year 2001 and 2000.

         RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D")
expenses consist primarily of software developers' wages. R&D expenses increased
by $307,000 (12.5%) to $2,759,000 for fiscal 2001 as compared to $2,452,000 for
fiscal 2000, largely due to development of the ASP services business. As a
percentage of net revenues, however, R&D expenses decreased from 12.3% in fiscal
2000 to 8.8% in fiscal 2001 due to the significant increase in net revenues in
fiscal 2001.

         RESTRUCTURING. In March 2001, we announced plans to restructure our
operations. As a result of this restructuring plan, we recorded a restructuring
charge of $2.4 million in the fourth quarter of fiscal 2001. The restructuring
plan consisted of four major points: 1) refocused strategic direction of ISP
initiatives; 2) refocused strategic direction of Internet portal initiatives; 3)
consolidation of technical support activities; and 4) elimination of our
in-house legal department. In the Internet portal business, we have redirected
our primary focus towards the telephony and travel services offered through the
portal. For our ISP initiatives in India, we have redirected our primary focus
towards the telephony, communication and connectivity services targeted at the
corporate market. In March 2001, we closed our Boston technical support office
as the key milestone in the consolidation of technical support activities.
Technical support activities previously offered from that office has been
consolidated into the Yorba Linda facility. The elimination of the in-house
legal department primarily consisted of the termination of one employee whose
position will not be filled. Legal services will be obtained as needed through
our continuing external legal counsel.

         OTHER INCOME. Net interest changed by $601,000 to net interest income
of $193,000 for fiscal 2001 as compared to net interest expense of $408,000 for
fiscal 2000. The change is primarily due to the decrease in long-term debt and
increase in cash and cash equivalent balances due largely to cash proceeds from
equity financings.

         INCOME TAXES. Net income taxes changed by $1,044,000 to net income tax
expense of $457,000 in fiscal 2001 compared to a net income tax benefit of
$587,000 in fiscal 2000. The current year expense is primarily due to valuation
allowance provided against certain deferred tax assets. Although we believe that
most of these deferred tax assets will be realizable against future earnings, we
increased our valuation allowance by $2,564,000 in fiscal year 2001.

                                       28
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         We currently finance our operations (including capital expenditures)
primarily through existing cash and cash equivalent balances and have used debt
and equity financing when appropriate and practicable. Our principal sources of
liquidity at March 31, 2001 consisted of $7,958,000 of cash and cash
equivalents. Cash and cash equivalents decreased by $5,307,000 during the fiscal
year ended March 31, 2001. The decrease was largely due to cash used in
operations and cash used in investing activities offset by a net increase in
cash from financing sources.

         Net cash used in operations was $661,000 in fiscal 2001 compared to
$2,464,000 in fiscal 2000. The net loss for the period was the primary reason
for the decrease in cash during fiscal 2001. The impact of this was largely
offset by the return of a large deposit balance. Other significant changes
occurred due to changes in accounts receivable, prepaid expenses and other
assets, deferred revenues and accounts payable along with an increase in
depreciation and amortization expense.

         The cash used in investing activities is largely attributable to the
acquisitions of Allegria and Interra Global during fiscal 2001. Payments to
acquire companies, net of cash acquired, accounted for approximately $2,042,000
of the net cash used in investing activities. Approximately $4,598,000 was spent
to purchase property, plant and equipment, including hardware for our Internet
portal, ASP services and ISP businesses.

         Cash provided by financing activities during fiscal 2001 resulted from
many factors. The largest impact was the result of a private equity financing in
June 2000. On June 22, 2000, we closed a private equity financing and issued to
two investors, in a private transaction not involving a public offering, 200,000
shares of our common stock for approximately $3,075,000, net of certain
commissions and offering costs. This increase was largely offset by net
repayment of capital lease obligations and long term bank debt , including a
repayment of a $600,000 note payable to the prior owner of Net Guru Systems.

         We believe that our current cash and cash equivalents balances will
provide adequate working capital to fund our operations at currently anticipated
levels through March 31, 2002. Additionally, we currently have $2,000,000
available under an existing line of credit which expires in August 2001. To the
extent that such amounts are insufficient to finance our working capital
requirements, we will be required to raise additional funds through public or
private equity or debt financing. There can be no assurance that such additional
financing will be available, if needed, or, if available, will be on terms
satisfactory to us.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The provisions of the statement
require the recognition of all derivatives as either assets or liabilities in
the consolidated balance sheet and the measurement of those instruments at fair
value. The accounting for the changes in fair value of a derivative depends on
the intended use of the derivative and the resulting designation. We have not
historically entered into derivative contracts or related instruments.
Transactions between our domestic entities and foreign entities, including our
foreign subsidiaries, are typically denominated in the US dollar. Transactions
between our foreign subsidiaries and third parties are typically denominated in
the local functional currency in the country in which the subsidiary operates.
We adopted SFAS 133, as amended, effective April 1, 2001, the implementation of
which resulted in no material impact on our consolidated financial statements
and results of operations.

                                       29
<PAGE>

FORWARD LOOKING STATEMENTS

         The preceding "Description of Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" sections contain
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
We intend that such forward-looking statements be subject to the safe harbors
created thereby. These forward-looking statements generally include the plans
and objectives of management for future operations, including plans and
objectives relating to our future economic performance. The forward-looking
statements and associated risks may include, relate to or be qualified by other
important factors, including, without limitation,

         o        our ability to transition into new lines of business as
                  planned;
         o        our ability to become a leading integrated Internet technology
                  and services company addressing the global Indian market, the
                  worldwide information technology services market and the
                  worldwide Internet engineering software market;
         o        our ability to successfully market and sell ASP services
                  through our recently launched engineering portal;
         o        market growth;
         o        new competition;
         o        competitive pricing;
         o        new technologies;
         o        our ability to successfully implement our future business
                  plans;
         o        statements about our business strategy and our expansion
                  strategy;
         o        our ability to attract strategic partners, alliances and
                  advertisers;
         o        uncertainties relating to economic conditions in the markets
                  in which we currently operate and in which we intend to
                  operate in the future;
         o        our ability to hire and retain qualified personnel;
         o        our ability to obtain capital, if required;
         o        our ability to successfully implement our brand building
                  campaign;
         o        the risks of uncertainty of trademark protection;
         o        our plans for expanding our Internet portal network and the
                  services offered through such network;
         o        our plans regarding our telephony infrastructure and service
                  offerings;
         o        our beliefs regarding the growth of Internet usage within the
                  global Indian community;
         o        our beliefs regarding the demand for our products and our
                  competitive advantages;
         o        the negative impact of economic slowdowns and recessions; and
         o        risks associated with existing and future government
                  regulation to which we are subject.

We do not undertake to update, revise or correct any forward-looking statements.

         Results actually achieved may differ materially from expected results
in these statements. Several of these risks are discussed in greater detail in
the "Risk Factors" section of the preceding "Description of Business" section.
Any of the factors described alone or in the "Risk Factors" section could cause
our financial results, including our net income (loss) or growth in net income
(loss), to differ materially from prior results.

                                       30
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.

         Our consolidated financial statements are included in this Form 10-KSB
beginning on page F-1 following the signature page.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None.

                                       31
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

     Our directors, executive officers and key employees are as follows:

<TABLE>
<CAPTION>
                 Name                     Age                               Position
                 ----                     ---                               --------
<S>                                       <C>      <C>
Amrit K. Das........................      56       Chairman of the Board, Chief Executive Officer and Director
Jyoti Chatterjee....................      45       President,  Chief Operating Officer,  Director and Acting Chief
                                                   Financial Officer
Santanu Das.........................      28       Corporate Vice President, President, Engineering and Animation
                                                   Software and ASP and Director
Stephen Owen........................      42       Senior Vice President, European Operations
Charles Sleichter III...............      55       Vice President, Marketing Communications and Marketing
                                                   Strategies
Clara Young.........................      46       Vice President, Chief Administrative Officer
Bruce E. Cummings...................      52       Director
Garrett Vreeland....................      42       Director
</TABLE>

AMRIT K. DAS is the founder of our company and has served as our Chief Executive
Officer and Director since its inception in 1981. Mr. Das also served as our
President since our inception until March, 1999. Mr. Das holds a B.S. in
Civil/Structural Engineering from Calcutta University, India and an M.S. in
Structural Engineering from the University of South Carolina.

JYOTI CHATTERJEE has served as our President since March 1999 and has served as
our Chief Operating Officer and a Director since April 1990 and has served as
our Chief Financial Officer since March 2001 . From April 1990 to March 1999,
Mr. Chatterjee served as our Executive Vice President. From 1985 to 1990, Mr.
Chatterjee served as our Chief Consulting Engineer. Mr. Chatterjee holds a B.S.
in Structural Engineering from the Indian Institute of Technology and an M.S. in
Structural Engineering from the University of Pennsylvania.

SANTANU DAS has served as our Corporate Vice President and President,
Engineering and Animation Software and ASP since January 2001, Vice President,
New Technology since July 1999 and as a Director since September 1996. Mr. Das
served as Manager of New Technology from May 1997 until June 1999. Prior to that
Mr. Das served as a Senior Engineering Analyst for our company from 1991 to
April 1997. Mr. Das holds a B.S. in Structural Engineering from the University
of Southern California and an M.S. in Structural Engineering from the
Massachusetts Institute of Technology. Santanu Das is the son of Amrit Das.

STEPHEN OWEN has served as our Senior Vice President of European Operations
since October 1999. He served as our Director of European Operations from 1987
to 1999. Mr. Owen holds a B.S. in Civil Engineering from the University College
Swansea, United Kingdom.

CHARLES SLEICHTER, III has served as our Vice President, Marketing
Communications and Marketing Strategies since January 2000. Prior to joining us,
Mr. Sleichter served, as an independent contractor, as Chief Operating Officer,
Senior Executive-Creative & Marketing Strategy for VPC Communications from
August 1999 to December 1999. From September 1997 to July 1999, Mr. Sleichter
served as Director of Business Development for J.B. Research/Relaxor. >From 1996

                                       32
<PAGE>

to 1997, he served as an adjunct professor in the Department of Communications,
Film and Television of California State University, Fullerton. Mr. Sleichter
holds a B.A. in Communications and an M.A. in Mass Communications, Electronic
Media from California State University, Fullerton.

CLARA YOUNG has served as our Vice President of Administration since December
1987. Ms. Young holds a B.S. in Computer Science from California State
University, Fullerton.

BRUCE E. CUMMINGS has served as a Director of our company since 1996. Mr.
Cummings is the Principal of Bruce Cummings Associates, management and marketing
consultants, which he founded in 1997. Prior to that, Mr. Cummings was the
President and Chief Executive Officer of Portrait Display Labs, Inc., a
manufacturer of special purpose computer monitors, which he co-founded, from
1992 to June 1997. Mr. Cummings is currently a member of the Advisory Board for
Europe Direct, the European Direct Marketing Conference. Mr. Cummings holds a
B.S. in Marketing from California State University at Long Beach.

GARRETT VREELAND has served as a Director of our company since December 2000.
Mr. Vreeland is the Vice President of US Advertising Sales at Lycos. He has been
with Lycos since June 1998. From November 1995 to June 1998, Mr. Vreeland was in
Ad Sales at Time, Inc. Prior to that, Mr. Vreeland spent 11 years in the
Advertising Agency business at Ogilvy & Mather. Mr. Vreeland holds a B.S. in
Marketing from University of Vermont.

         All directors hold office until the next annual stockholders' meeting
or until their respective successors are elected or until their earlier death,
resignation or removal. Officers are appointed by, and serve at the discretion
of, the Board of Directors.

COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES

         Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires our executive officers and directors, and persons who
beneficially own more than 10% of a registered class of our common stock to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission ("Commission"). Such officers, directors and
stockholders are required by Commission regulations to furnish our company with
copies of all such reports that they file.

         Based solely upon a review of copies of such reports furnished to us
during the fiscal year ended March 31, 2001 and thereafter, or any written
representations received by us from directors, officers and beneficial owners of
more than 10% of our common stock ("reporting persons") that no other reports
were required, we believe that, during our 2001 fiscal year, we complied with
all Section 16(a) filing requirements applicable to our reporting persons.

                                       33
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

         Information concerning the annual and long-term compensation for
services in all capacities to our company of our Chief Executive Officer and our
other executive officers whose aggregate cash compensation exceeded $100,000
(collectively, the "Named Executives") during the fiscal years ended March 31,
2001, 2000 and 1999 is shown below.

<TABLE>
                                     SUMMARY COMPENSATION TABLE
<CAPTION>

                                                                        Long-Term
                                                                      Compensation
                                         Annual Compensation             Awards
                                         -------------------             ------

                                                                       Securities
                                                     Other Annual      Underlying       All Other
         Name and                       Salary      Compensation(1)     Options        Compensation
    Principal Position       Year        ($)             ($)              (#)               ($)
    ------------------       ----     ----------    --------------     ----------      ------------
<S>                          <C>        <C>            <C>              <C>              <C>
Amrit K. Das                 2001       324,000        73,183            30,000          26,068(2)
  Chief Executive Officer    2000       322,400          ---               ---           28,055(2)
                             1999       260,000          ---            120,000          16,506(2)

Jyoti Chatterjee             2001       210,600        36,573            30,000          10,500(3)
  President and Chief        2000       209,160          ---               ---           11,116(3)
  Operating Officer          1999       156,000          ---            100,000           9,360(3)

Clara Young                  2001       121,500        16,203             9,000           7,290(3)
  Vice President,            2000       121,100          ---               ---            8,111(3)
  Chief Administrative       1999       104,000          ---             25,500           6,040(3)
  Officer

Stephen Owen (4)             2001       107,481        13,344(5)         12,000          30,144(6)
  Sr. Vice President,        2000       111,002        14,475(5)           ---           36,619(6)
  European Operations

Santanu Das (7)              2001       124,616          ---             30,000          12,627(8)
  Corporate Vice President,
  President, Engineering
  and Animation Software
  and ASP
</TABLE>

--------------------------------------------------------------------------------
(1)      The costs of certain benefits are not included because they did not
         exceed, in the case of each Named Executive, the lesser of $50,000 or
         10% of the total annual salary and bonus as reported above.
(2)      Represents 401(k) contributions as well as premiums paid by us pursuant
         to a split-dollar life insurance policy established for the benefit of
         Amrit Das in the amount of $15,568 in 2001, $16,855 in 2000 and $7,006
         in 1999.
(3)      Represents 401(k) contributions made by us on behalf of the Named
         Executive.
(4)      Information related to fiscal 1999 omitted since Mr. Owen did not meet
         the criteria to be included in this table during that year.
(5)      Represents car allowance.
(6)      Represents contributions to pension plan.
(7)      Information related to fiscal 1999 and 2000 omitted since Santanu Das
         did not meet the criteria to be included in this table during those
         years.
(8)      Represents 401(k) contributions as well as premiums paid by us pursuant
         to a life insurance policy established for the benefit of Santanu Das
         in the amount of $5,150 in 2001

STOCK OPTION GRANTS IN 2001

         Stock option grants were made to each of the Named Executives in fiscal
2001; 30,000 to Amrit Das, 30,000 to Mr. Chatterjee, 9,000 to Mrs. Young, 12,000
to Mr. Owen and 30,000 to Santanu Das. We have never granted any stock
appreciation rights.

                                       34
<PAGE>

OPTION EXERCISES AND FISCAL YEAR-END VALUES

         Shown below is information with respect to the number of shares of our
common stock acquired upon the exercise of options, the value realized
therefore, the number of unexercised options at March 31, 2001 and the value of
unexercised in-the-money options at March 31, 2001 for the Named Executives in
the Summary Compensation Table above. The Named Executives did not hold any
stock appreciation rights during fiscal 2001.

<TABLE>
                                       AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                                              AND FISCAL YEAR-END OPTION VALUES
<CAPTION>

                                                            Number of Securities           Value of Unexercised In-the-Money
                                                       Underlying Unexercised Options        Options at Fiscal Year-End ($)
                                                          At Fiscal Year-End (#)
                         Shares
                       Acquired on       Value
        Name           Exercise(#)     Realized($)      Exercisable      Unexercisable      Exercisable        Unexercisable
        ----           -----------     -----------      -----------      -------------      -----------        -------------
<S>                        <C>             <C>            <C>                <C>              <C>                   <C>
Amrit K. Das               ---             ---            130,000            70,000           390,000               210,000

Jyoti Chatterjee           ---             ---            192,667            63,333           578,000               190,000

Clara Young                ---             ---             68,667            17,333           206,000                52,000

Stephen Owen               ---             ---             66,667            25,333           200,000                76,000

Santanu Das                ---             ---            150,000            50,000           450,000               150,000
</TABLE>

DIRECTORS' COMPENSATION

         Our directors do not currently receive any cash compensation for
service on the Board of Directors or any committee thereof, but directors may be
reimbursed for certain expenses in connection with attendance at Board of
Directors and committee meetings.

EMPLOYMENT AGREEMENTS

         In May 1996, we entered into five-year employment agreements with each
of Amrit Das, Jyoti Chatterjee and Clara Young. In June 2001, we entered into
new five-year agreements with each of these individuals and in addition entered
into a five-year employment agreement with Santanu Das. The new agreements
provide that Mr. Amrit Das, Mr. Chatterjee, Ms. Young and Mr. Santanu Das will
receive minimum base annual salaries of $312,000, $202,800, $117,000 and
$120,000, respectively. Each employment agreement also provides for the grant of
an annual bonus with such bonuses, if any, to be determined by the Compensation
Committee of the Board of Directors.

                                       35
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth, as of June 18, 2001, certain
information with respect to (i) each director of our company, (ii) the Named
Executives and (iii) all directors and executive officers of our company as a
group, and (iv) each person known to our company to be the beneficial owner of
more than 5% of our common stock. The information with respect to each person
specified is as supplied or confirmed by such person or based upon statements
filed with the Commission.

 NAME AND ADDRESS           AMOUNT AND NATURE OF BENEFICIAL     PERCENT OF CLASS
OF BENEFICIAL OWNER          OWNERSHIP OF COMMON STOCK (1)      OF COMMON STOCK
-------------------          -----------------------------      ---------------

Amrit K. Das (2)(3)(4)                  2,689,518                     15.8%

Jyoti Chatterjee (2)(3)(5)                457,957                      2.7%

Clara Young (2)(6)                        104,039                       *

Stephen Owen (2) (7)                      150,191                       *

Santanu Das (2)(3)(8)                   2,704,900                     15.9%

Bruce E. Cummings (3)(9)                   20,000                       *

Peter Kellogg (10)                      3,772,864                     22.4%

Sormistha Das                           1,862,914                     11.0%
1043 Taylor Court
Anaheim Hills, CA 92808


All Directors and Executive             6,140,605                     35.1%
Officers of the Company as
a Group (7 persons) (11)

---------------
* Less than 1%
(1)      Beneficial ownership is determined in accordance with the rules of the
         Securities and Exchange Commission and generally includes voting or
         investment power with respect to securities. Except as indicated by
         footnote, and subject to community property laws where applicable, the
         persons named in the table above have sole voting and investment power
         with respect to all shares of common stock shown as beneficially owned
         by them. Shares of common stock subject to options currently
         exercisable, or exercisable within 60 days after June 18, 2001, are
         deemed to be outstanding in calculating the percentage ownership of a
         person or group but are not deemed to be outstanding as to any other
         person or group.
(2)      Named executive officer of our company. The address of each executive
         officer is c/o netGuru, Inc., 22700 Savi Ranch Parkway, Yorba Linda,
         CA.
(3)      Director of our company. The address of each director is c/o netGuru,
         Inc., 22700 Savi Ranch Parkway, Yorba Linda, CA.
(4)      Includes 1,279,759 shares of Common Stock held by the A. and P. Das
         Living Trust and 130,000 shares of common stock underlying options
         which are exercisable as of June 18, 2001 or within 60 days after such
         date. Does not include 1,862,914 shares of common stock held by Mr.
         Das' daughter, Sormistha Das, or 2,704,900 shares of common stock
         beneficially held by Mr. Das' son, Santanu Das. Mr. Das disclaims
         beneficial ownership of the shares of common stock held by Sormistha
         Das and Santanu Das. Includes 50,000 shares of common stock held by the
         Purabi Das Foundation, Inc., of which Mr. Das is the Trustee. Mr. Das
         disclaims beneficial ownership of these shares.
(5)      Includes 192,667 shares of common stock underlying options which are
         exercisable as of June 18, 2001 or within 60 days after such date.

                                       36
<PAGE>

(6)      Includes 68,667 shares of common stock underlying options which are
         exercisable as of June 18, 2001 or within 60 days after such date.
(7)      Includes 66,667 shares of common stock underlying options which are
         exercisable as of June 18, 2001 or within 60 days after such date.
(8)      Includes 150,000 shares of common stock underlying options which are
         exercisable as of June 18, 2001 or within 60 days after such date. Mr.
         Das is the son of Amrit Das, our Chief Executive Officer.
(9)      Represents 20,000 shares of common stock underlying options which are
         exercisable as of June 18, 2001 or within 60 days after such date.
(10)     Includes 2,104,594 shares of common stock held by Spear, Leeds &
         Kellogg of New York of which Mr. Kellogg is a principal.
(11)     Includes 642,001 shares of common stock underlying options which are
         exercisable as of June 18, 2001 or within 60 days after such date.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         We provide digital media production services to Ruby Pictures, Inc.
("Ruby"). Ruby is a movie production house owned and operated by the Purabi Das
Foundation, Inc., a charitable organization founded by Amrit Das, our Chairman
and CEO. We recognized $324,000 in revenue for the fiscal year ended March 31,
2000 related to these services and have a receivable balance due from Ruby of
$284,000 at March 31, 2000. In fiscal 2001, we entered into an agreement with
Ruby to purchase the rights to a digital film produced by Ruby for $500,000, net
of any unreimbursed costs incurred by us in the production of this film. The
outstanding receivable balance due from Ruby was offset against the purchase
price, and a net payment was made in April 2001. We plan to use this film as a
promotional tool for our digital media and animation services business segment
and also plan to generate direct revenues through distribution of this film.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a)      Exhibits

         2.1      Amended and Restated Stock Purchase Agreement, without
                  exhibits and schedules, dated as of September 14, 1999, among
                  the registrant, NetGuru Systems, Inc., NetGuru Consulting,
                  Inc. and Bharat Manglani.*****

         2.6      Securities Purchase Agreement, without exhibits and schedules,
                  dated as of September 14, 1999, between the registrant and
                  Triton Private Equities Fund, L.P.*****

         2.11     Securities Purchase Agreement dated March 8, 2000 between the
                  registrant, Elliott Associates, L.P. and Westgate
                  International, L.P.+++

         2.12     Exchange Agreement dated March 30, 2000 between the
                  registrant, Elliott Associates, L.P. and Westgate
                  International, L.P. +++

         2.13     Stock Purchase Agreement dated March 27, 2000 between the
                  registrant, Allegria Software, Inc. and GRAL, Inc. +++

         3.1      Certificate of Incorporation of the registrant.*

                                       37
<PAGE>

         3.5      Bylaws of the registrant.*

         4.1      Certificate of Designations of Series B Cumulative Convertible
                  Preferred Stock dated March 30, 2000. +++

         4.3      Common Stock Purchase Warrant dated as of September 14, 1999,
                  issued by the registrant to Triton Private Equities Fund,
                  L.P.*****

         4.6      Common Stock Purchase Warrant dated March 8, 2000, issued by
                  the registrant to Elliott Associates, L.P. +++

         4.7      Common Stock Purchase Warrant dated March 8, 2000, issued by
                  the registrant to Westgate International, L.P. +++

         4.9      Common Stock Purchase Warrant dated March 8, 2000, issued by
                  the registrant to Shoreline Institutional Finance. +++

         4.10     Warrant Agreement dated February 7, 2000 between the
                  registrant and Cruttenden Roth Incorporated. +++

         10.1     Research Engineers, Inc. 1996 Stock Option Plan.*

         10.2     Form of Nonqualified Stock Option Agreement pertaining to the
                  1996 Stock Option Plan (schedule of options issued pursuant to
                  this Plan is attached thereto).*

         10.6     Research Engineers, Inc. 1997 Stock Option Plan.**

         10.7     Agreement Not To Compete dated October 1, 1998 between the
                  registrant and Techna Consultancy Private Limited.***

         10.8     Research Engineers, Inc. 1998 Stock Option Plan. +

         10.9     Credit Agreement dated February 26, 1999 by and between the
                  registrant and Imperial Bank.****

         10.10    Agreement and Plan of Reorganization among the registrant,
                  PacSoft, Incorporated and Karen Hunter, William Schmidt and
                  Mae Webb dated March 31, 1999. ++

         10.11    netGuru, Inc. 2000 Stock Option Plan.

         10.12    Employment Agreement dated June 1, 2001, by and between the
                  registrant and Amrit K. Das.

         10.13    Employment Agreement dated June 1, 2001, by and between the
                  registrant and Jyoti Chatterjee.

         10.14    Employment Agreement dated June 1, 2001, by and between the
                  registrant and Clara Y. M. Young.

                                       38
<PAGE>

         10.15    Employment Agreement dated June 1, 2001, by and between the
                  registrant and Santanu Das.

         21.1     Subsidiaries of the registrant.

         23.1     Consent of KPMG LLP.


(b)      Reports on Form 8-K

                 None.

-----------------------------------------------------------------
*        Filed as an exhibit to our Registration Statement on Form SB-2 dated
         May 21, 1996 or amendment thereto dated June 14, 1996 (Registration No.
         333-4844-LA) and incorporated herein by reference.
**       Filed as an exhibit to our Form 10-KSB for the fiscal year ended March
         31, 1997 and filed with Securities and Exchange Commission on June 30,
         1997, or amendment thereto filed on August 19, 1997 and incorporated
         herein by reference.
***      Filed as an exhibit to our Form 10-QSB for the quarterly period ended
         December 31, 1998 and filed with the Securities and Exchange Commission
         on February 11, 1999 and incorporated herein by reference.
****     Filed as an exhibit to our Form 8-K dated February 26, 1999 and filed
         with the Securities and Exchange Commission on March 5, 1999 and
         incorporated herein by reference.
*****    Filed as an exhibit to our Form 8-K dated September 14, 1999 and filed
         with the Securities Exchange Commission on September 29, 1999.
+        Filed as an exhibit to our Proxy Statement filed pursuant to Section
         14(a) of the Securities Act on November 12, 1998 and incorporated
         herein by reference.
++       Filed as an exhibit to our Form 10-KSB dated March 31, 1999 and filed
         with the Securities and Exchange Commission on June 30, 1999 and
         incorporated herein by reference.
+++      Filed as an exhibit to our Form 10-KSB dated March 31, 2000 and filed
         with the Securities Exchange Commission on June 26, 2000 and
         incorporated herein by reference.

                                       39
<PAGE>

SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                           NETGURU, Inc


Dated: July 13, 2001                       /s/ AMRIT K. DAS
                                           -------------------------------------
                                           Amrit K. Das, Chief Executive Officer


         In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

        Name                               Title                      Date
------------------------    -----------------------------------   -------------


/s/ AMRIT K. DAS            Chairman of the Board, Chief          July 13, 2001
------------------------    Executive Officer and Director
Amrit K. Das                (principal executive officer)


/s/ JYOTI CHATTERJEE        President, Chief Operating Officer,   July 13, 2001
------------------------    Acting Chief Financial Officer and
Jyoti Chatterjee            Director (principal financial and
                            accounting officer)


/s/ SANTANU DAS             Director                              July 13, 2001
------------------------
Santanu Das


/s/ BRUCE CUMMINGS          Director                              July 13, 2001
------------------------
Bruce Cummings


/s/ GARRETT VREELAND        Director                              July 13, 2001
------------------------
Garrett Vreeland

                                       40
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


1.       Independent Auditors' Report                                      F-2

2.       Consolidated Financial Statements:

         Consolidated Balance Sheet as of March 31, 2001                   F-3

         Consolidated Statements of Operations for the years ended
         March 31, 2001 and 2000                                           F-4

         Consolidated Statements of Stockholders' Equity and
         Comprehensive Loss for the years ended
         March 31, 2001 and 2000                                           F-5

         Consolidated Statements of Cash Flows for the years ended
         March 31, 2001 and 2000                                           F-6

         Notes to Consolidated Financial Statements                        F-8

                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
netGuru, Inc.:


We have audited the consolidated financial statements of netGuru, Inc. and
subsidiaries as listed in the accompanying index. 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 auditing standards generally accepted
in the United States of America. 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 netGuru, Inc. and
subsidiaries as of March 31, 2001, and the results of their operations and their
cash flows for the years ended March 31, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America.


                                                     /s/ KPMG LLP


Orange County, California
June 27, 2001

                                      F-2
<PAGE>

<TABLE>
                            NETGURU, INC. AND SUBSIDIARIES

                              Consolidated Balance Sheet

                                    March 31, 2001

                  (In thousands, except share and per share amounts)
<CAPTION>

                                        ASSETS

<S>                                                                          <C>
Current assets:
    Cash and cash equivalents                                                $  7,958
    Accounts receivable (net of allowance for doubtful accounts of $832)        4,937
    Deferred income taxes                                                         342
    Notes and related party loans receivable                                       14
    Prepaid expenses and other current assets                                   1,375
                                                                             ---------

           Total current assets                                                14,626

Property, plant and equipment, net                                              4,796
Goodwill and intangible assets (net of accumulated amortization of $2,962)     10,847
Deferred income taxes, non-current                                                936
Other assets                                                                    1,076
                                                                             ---------

                                                                             $ 32,281
                                                                             =========

                         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Current portion of long-term debt                                        $    591
    Current portion of capital lease obligations                                  151
    Accounts payable                                                            1,179
    Accrued expenses                                                            1,558
    Income taxes payable                                                          116
    Deferred maintenance revenue                                                1,992
    Deferred income taxes                                                          60
    Accrued restructuring costs                                                   309
                                                                             ---------

           Total current liabilities                                            5,956

Long-term debt, net of current portion                                            840
Capital lease obligations, net of current portion                                 532
Deferred income taxes, non-current                                                104
Deferred gain on sale-leaseback                                                   957
                                                                             ---------

           Total liabilities                                                    8,389
                                                                             ---------

Commitments and contingencies  (Note 8)

Stockholders' equity:
    Preferred stock, par value $.01; authorized 5,000,000 shares;
      no shares issued and outstanding                                              -
    Common stock, par value $.01; authorized 150,000,000 shares; issued
      and outstanding 16,864,604 shares (net of 10,965 treasury shares)           169
    Additional paid-in capital                                                 32,621
    Accumulated deficit                                                        (7,861)
    Accumulated other comprehensive loss:
      Cumulative foreign currency translation adjustments                      (1,037)
                                                                             ---------

           Total stockholders' equity                                          23,892
                                                                             ---------

                                                                             $ 32,281
                                                                             =========

See accompanying notes to consolidated financial statements.
</TABLE>

                                         F-3
<PAGE>

<TABLE>
                              NETGURU, INC. AND SUBSIDIARIES

                           Consolidated Statements of Operations

                            Years ended March 31, 2001 and 2000

                    (In thousands, except share and per share amounts)
<CAPTION>

                                                                  2001            2000
                                                             -------------   -------------
<S>                                                          <C>             <C>
Net revenues:
    IT services                                              $     18,019    $     10,512
    Software sales, maintenance and services                        9,824           8,953
    Internet, e-commerce and ASP services                           3,217             100
    Digital media and animation services                              242             371
                                                             -------------   -------------

           Total net revenues                                      31,302          19,936

Cost of revenues:
    IT services                                                    12,223           7,322
    Software sales, maintenance and services                        1,994           1,010
    Internet, e-commerce and ASP services                           2,214             113
    Digital media and animation services                               27             270
                                                             -------------   -------------

           Total cost of  revenues                                 16,458           8,715

           Gross profit                                            14,844          11,221
                                                             -------------   -------------

Operating expenses:
    Selling, general and administrative                            16,204          10,322
    Research and development                                        2,759           2,452
    Restructuring                                                   2,400               -
                                                             -------------   -------------

           Total operating expenses                                21,363          12,774
                                                             -------------   -------------

           Operating loss                                          (6,519)         (1,553)
                                                             -------------   -------------

Other expense (income):
    Interest, net                                                    (193)            408
    Other                                                            (146)            (26)
                                                             -------------   -------------

           Total other expense (income)                              (339)            382
                                                             -------------   -------------

Loss before income taxes                                           (6,180)         (1,935)

Income tax expense (benefit)                                          457            (587)
Minority interest in earnings of consolidated subsidiaries              -               7
                                                             -------------   -------------

           Net loss                                          $     (6,637)   $     (1,355)
                                                             =============   =============

Net loss per common share:
     Basic                                                   $      (0.45)   $      (0.12)
                                                             =============   =============
     Diluted                                                 $      (0.45)   $      (0.12)
                                                             =============   =============

Common shares used in computing net loss per common share:
     Basic                                                     14,781,331      11,979,577
                                                             =============   =============
     Diluted                                                   14,781,331      11,979,577
                                                             =============   =============
</TABLE>
See accompanying notes to consolidated financial statements.

                                           F-4
<PAGE>

<TABLE>
                                                   NETGURU, INC. AND SUBSIDIARIES

                               Consolidated Statements of Stockholders' Equity and Comprehensive Loss

                                                 Years ended March 31, 2001 and 2000

                                                (In thousands, except share amounts)
<CAPTION>

                                                                                                                           TOTAL
                                            COMMON STOCK                        RETAINED     ACCUMULATED                 COMPREHEN-
                                     --------------------------  ADDITIONAL     EARNINGS        OTHER          TOTAL       SIVE
                          PREFERRED    NUMBER OF        PAR       PAID-IN     (ACCUMULATED  COMPREHENSIVE  STOCKHOLDERS'   INCOME
                            STOCK       SHARES         VALUE      CAPITAL       DEFICIT)    INCOME (LOSS)     EQUITY       (LOSS)
                         ----------  ------------  ------------ ------------  ------------  ------------  ------------  ------------
<S>                      <C>          <C>          <C>          <C>           <C>           <C>           <C>           <C>
Balance, March 31, 1999         --    11,476,420   $       115  $     6,565   $       176   $      (266)  $     6,590
                         ----------  ------------  ------------ ------------  ------------  ------------  ------------

Net loss                        --            --            --           --        (1,355)           --        (1,355)  $    (1,355)

Foreign currency
   translation                  --            --            --           --            --           (78)          (78)          (78)
                         ----------  ------------  ------------ ------------  ------------  ------------  ------------  ------------

Comprehensive loss for
   the year ended March
   31, 2000                     --            --            --           --        (1,355)          (78)           --   $    (1,433)
                                                                                                                        ============
Issuance of preferred
   stock                         4            --            --       13,976            --            --        13,980

Preferred stock
   conversion                   (4)      578,372             6           (2)           --            --            --

Issuance of common
   stock, stock
   options and stock
   warrants in
   connection with
   acquisitions                 --       405,270             4        2,970            --            --         2,974

Exercise of stock
   warrants                     --       575,000             6        4,527            --            --         4,533

Exercise of stock
   options                      --       227,441             2          361            --            --           363

Compensation expense
   for stock options
   issued to employees
   below fair value             --            --            --           61            --            --            61

Preferred stock
   dividends                    --         1,532            --           42           (45)           --            (3)
                         ----------  ------------  ------------ ------------  ------------  ------------  ------------

Balance, March 31, 2000  $      --    13,264,035   $       133  $    28,500   $    (1,224)  $      (344)  $    27,065
                         ==========  ============  ============ ============  ============  ============  ============

Net loss                        --            --            --           --        (6,637)           --        (6,637)  $    (6,637)

Foreign currency
   translation                  --            --            --           --            --          (693)         (693)         (693)
                         ----------  ------------  ------------ ------------  ------------  ------------  ------------  ------------

Comprehensive loss for
   the year ended March
   31, 2001                     --            --            --           --        (6,637)         (693)           --   $    (7,330)
                                                                                                                        ============
Preferred stock
   conversion                   --     1,136,065            11          (11)           --            --            --

Repurchase of preferred
   stock                        --       400,000             4       (6,564)           --            --        (6,560)

Issuance of common
   stock in connection
   with acquisition             --        25,000            --          750            --            --           750

Issuance of common
   stock to private
   investors                    --     1,870,270            19        9,302            --            --         9,321

Exercise of stock
   warrants                     --        80,000             1          386            --            --           387

Exercise of stock
   options                      --       100,199             1          198            --            --           199

Repurchase of common
   stock                        --       (10,965)           --          (76)           --            --           (76)

Compensation expense
   for stock options
   issued to employees
   below fair value             --            --            --          136            --            --           136
                         ----------  ------------  ------------ ------------  ------------  ------------  ------------

Balance, March 31, 2001  $      --    16,864,604   $       169  $    32,621   $    (7,861)  $    (1,037)  $    23,892
                         ==========  ============  ============ ============  ============  ============  ============
</TABLE>
See accompanying notes to consolidated financial statements.

                                                                F-5
<PAGE>

<TABLE>
                                 NETGURU, INC. AND SUBSIDIARIES

                             Consolidated Statements of Cash Flows

                              Years ended March 31, 2001 and 2000

                                         (In thousands)
<CAPTION>

                                                                             2001        2000
                                                                          ---------   ---------
<S>                                                                       <C>         <C>
Cash flows from operating activities:
    Net loss                                                              $ (6,637)   $ (1,355)
    Adjustments to reconcile net loss to net cash used in operating
      activities:
        Depreciation and amortization                                        2,442       1,666
        Deferred income taxes                                                  318        (633)
        Compensation expense recognized on issuance of stock options           136          61
        Restructuring                                                        2,400           -
        Changes in operating assets and liabilities (net of
          acquisitions):
          Accounts receivable                                                 (829)       (245)
          Notes and related party loans receivable                             210          76
          Deposits                                                           2,381      (2,381)
          Prepaid expenses and other current assets                           (697)       (334)
          Other assets                                                        (794)        (43)
          Accounts payable                                                     317          49
          Accrued expenses                                                    (382)        713
          Income taxes payable                                                 (91)       (183)
          Accrued restructuring costs                                          (96)          -
          Deferred maintenance revenue                                         731         166
          Deferred gain on sale-leaseback                                      (70)        (21)
                                                                          ---------   ---------

                  Net cash used in operating activities                       (661)     (2,464)
                                                                          ---------   ---------

Cash flows from investing activities:
    Purchase of property, plant and equipment                               (4,598)       (906)
    Proceeds from sale-leaseback                                                 -       2,446
    Collection of note receivable                                                -         250
    Payments to acquire companies, net of cash acquired                     (2,042)     (3,701)
                                                                          ---------   ---------

                  Net cash used in investing activities                     (6,640)     (1,911)
                                                                          ---------   ---------

Cash flows from financing activities:
    Proceeds from issuance of bank debt                                        385       1,544
    Repayment of bank debt                                                  (1,147)     (4,670)
    Payment of capital lease obligations                                      (132)        (90)
    Preferred stock issuance                                                     -      13,980
    Common stock issuance                                                    9,907       4,896
    Repurchase of preferred stock                                           (6,560)          -
    Repurchase of common stock                                                 (76)          -
    Preferred stock dividends                                                    -          (3)
                                                                          ---------   ---------

                  Net cash provided by financing activities                  2,377      15,657
                                                                          ---------   ---------

    Effect of exchange rate changes on cash and cash equivalents              (383)        (28)
                                                                          ---------   ---------

                  (Decrease) increase in cash and cash equivalents          (5,307)     11,254

Cash and cash equivalents, beginning of year                                13,265       2,011
                                                                          ---------   ---------

Cash and cash equivalents, end of year                                    $  7,958    $ 13,265
                                                                          =========   =========
                                          (Continued)
</TABLE>
                                              F-6
<PAGE>

<TABLE>
                                 NETGURU, INC. AND SUBSIDIARIES

                        Consolidated Statements of Cash Flows, Continued
<CAPTION>

                                                                             2001        2000
                                                                          ---------   ---------
<S>                                                                       <C>         <C>
Supplemental disclosure of cash flow information:
    Cash paid for:
      Interest                                                            $    154    $    663
                                                                          =========   =========
      Income taxes                                                             152         272
                                                                          =========   =========

Supplemental disclosure of non-cash investing and financing activities:
    Acquisition of equipment under capital lease obligations              $    334    $      4
    Write-off of assets against accrued restructure reserve                  1,995           -
    Note receivable from sale of property                                        -         250
    Issuance of common stock, warrants and options in connection with
      acquisitions                                                             750       2,974
    Note payable issued in connection with acquisition                           -         600
    Conversion of preferred stock                                                -           4
    Common shares issued as preferred stock dividend                             -          42

Acquisitions:
    Fair value of assets acquired, net of cash                            $  2,868    $  8,333
    Liabilities assumed                                                        (76)     (1,058)
                                                                          ---------   ---------

    Net assets acquired                                                      2,792       7,275
    Less: non-cash consideration given                                        (750)     (3,574)
                                                                          ---------   ---------

    Payments to acquire companies, net of cash acquired                   $  2,042    $  3,701
                                                                          =========   =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                              F-7
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       ORGANIZATION

       The company was incorporated in 1981 in the state of New Jersey and
       reincorporated in the state of Delaware in 1996 under the name Research
       Engineers, Inc. Effective February 25, 2000 the name of the company was
       changed to netGuru, Inc. (the "Company" or "netGuru"). The Company is an
       integrated Internet technology and services company providing
       Internet-based information technology ("IT") services, Internet and
       PC-based engineering software products, Internet content and commerce
       through special interest portals and digital media and animation
       services.

       PRINCIPLES OF CONSOLIDATION

       The consolidated financial statements include the accounts of netGuru,
       Inc. and its wholly-owned subsidiaries. All significant transactions
       among the consolidated entities have been eliminated upon consolidation.

       USE OF ESTIMATES

       The preparation of financial statements in conformity with accounting
       principles generally accepted in the United States of America requires
       management to make estimates and assumptions that affect the reported
       amounts of assets and liabilities at the date of the financial statements
       and the reported amounts of revenues and expenses during the reporting
       periods. Actual results could differ from those estimates.

       FAIR VALUE OF FINANCIAL INSTRUMENTS

       Statement of Financial Accounting Standards ("SFAS") No. 107, DISCLOSURES
       ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires management to
       disclose the estimated fair value of certain assets and liabilities
       defined by SFAS No. 107 as financial instruments. Financial instruments
       are generally defined by SFAS No. 107 as cash or a contractual obligation
       that both conveys to one entity a right to receive cash or other
       financial instruments from another entity, and imposes on the other
       entity the obligation to deliver cash or other financial instruments to
       the first entity. At March 31, 2001, management believes that the
       carrying amounts of cash and cash equivalents, receivable and payable
       amounts, and accrued expenses approximate fair value because of the short
       maturity of these financial instruments. The Company believes that the
       carrying amounts of its long-term debt and capital lease obligations
       approximate their fair value as the interest rates approximate a rate
       that the Company could obtain under similar terms at the balance sheet
       date.

       FOREIGN CURRENCY TRANSLATION

       The financial position and results of operations of the Company's foreign
       subsidiaries are accounted for using the local currency as the functional
       currency. Assets and liabilities of the subsidiaries are translated into
       U.S. dollars (the reporting currency) at the exchange rate in effect at
       each year-end. Statement of operations accounts are translated at the
       average rate of exchange prevailing during the year. Translation
       adjustments arising from the use of differing exchange rates from period
       to period are included in accumulated other comprehensive income (loss)
       in the consolidated statement of stockholders' equity. Gains and losses
       resulting from foreign currency transactions are included in operations
       and are not material for fiscal 2001 and 2000.

                                      F-8
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       CASH AND CASH EQUIVALENTS

       The Company considers all highly liquid investments with maturities of
       three months or less at the date of purchase to be cash equivalents.

       PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment are stated at cost. Depreciation is
       calculated using the straight-line method over the following useful
       lives:

                 Building                                  39 years
                 Computer equipment                        5 years
                 Computer software                         3 years
                 Office equipment and furniture            3-7 years

       Assets held subject to capital lease agreements and leasehold
       improvements are amortized over the lesser of the life of the asset or
       the term of the lease but not in excess of 5 years.

       GOODWILL

       The Company amortizes costs in excess of the fair value of net assets of
       businesses acquired ("Goodwill") using the straight-line method over the
       estimated useful lives of the businesses acquired, usually a period of
       5-15 years. Goodwill amortization was $1,360,000 and $795,000 for the
       years ended March 31, 2001 and 2000, respectively.

       IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

       The Company applies the provisions of SFAS No. 121, ACCOUNTING FOR THE
       IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
       OF. This statement requires that long-lived assets and certain
       identifiable intangibles (including Goodwill) be reviewed for impairment
       whenever events or changes in circumstances indicate that the carrying
       amount of an asset may not be recoverable. Recoverability of assets to be
       held and used is measured by a comparison of the carrying amount of an
       asset to future net undiscounted cashflows expected to be generated by
       the asset. If such asset is considered to be impaired, the impairment to
       be recognized is measured as the amount by which the carrying amount of
       the asset exceeds the fair value of the asset. Assets to be disposed of
       are reported at the lower of the carrying amount or fair value less costs
       to sell.

       SOFTWARE DEVELOPMENT COSTS AND PURCHASED TECHNOLOGY

       The Company capitalizes costs related to the development of certain
       software products. Capitalization of costs begins when technological
       feasibility has been established and ends when the product is available
       for general release to customers. As of March 31, 2001, capitalized costs
       of approximately $358,000, net of accumulated amortization, were included
       in other assets. Approximately $71,000 of this amount represents the cost
       of software developed by third parties on behalf of the Company. The
       remaining $287,000 represents purchased technology. Additions to
       capitalized software were $254,000 and $60,000 during fiscal 2001 and
       2000, respectively.

                                      F-9
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Capitalized software development costs and purchased technology are
       amortized using the straight-line method over three to five years, or the
       ratio of actual sales to anticipated sales, whichever is greater.
       Amortization of software development costs and purchased technology
       charged to operations was approximately $284,000 and $337,000 for the
       years ended March 31, 2001 and 2000, respectively. Accumulated
       amortization on capitalized software was $966,000 and $697,000 as of
       March 31, 2001 and 2000, respectively.

       REVENUE RECOGNITION

       The Company recognizes revenue when it is realized or realizable and
       earned. The Company's revenues arise from the following segments:
       information technology ("IT") services; software sales, maintenance and
       services; and Internet portals and digital media products and services.

       Revenue from providing IT services is primarily recognized on a time and
       material basis as services are performed. Certain IT services contracts
       are fixed cost type contracts for which revenue is recognized upon
       achieving certain milestones.

       Revenue from software sales is recognized upon shipment, provided that no
       significant post-contract support obligations remain outstanding and
       collection of the resulting receivable is deemed probable. The Company's
       sales do not provide a specific right of return. At the time of sale, the
       Company typically provides 120-day initial maintenance and support to the
       customer. Costs relating to this initial 120-day support period, which
       include primarily telephone support, are not considered material. After
       the initial support period, customers may choose to purchase ongoing
       maintenance contracts that include telephone, e-mail and other methods of
       support, and the right to receive upgrades. Revenue from these
       maintenance contracts is deferred and recognized ratably over the life of
       the contract, usually twelve months.

       Revenues from products and services sold via Internet portals, including
       telecommunications and travel services, are predominantly recognized net
       of purchase costs when the products and services are delivered and
       collectibility is probable. Certain travel services, based on their
       nature, are recognized at the gross sales value with purchase costs
       stated as a separate cost of revenues in accordance with Emerging Issues
       Task Force Issue No. 99-19, RECORDING REVENUE GROSS AS A PRINCIPAL VERSUS
       NET AS AN AGENT.

       Revenues from digital media and animation services are recognized upon
       achievement of certain pre-determined milestones.

       In October 1997, the Accounting Standards Executive Committee ("AcSEC")
       of the AICPA issued Statement of Position ("SOP") 97-2, SOFTWARE REVENUE
       RECOGNITION. SOP 97-2 distinguishes between significant and insignificant
       vendor obligations as a basis for recording revenue with a requirement
       that each element of a software licensing arrangement be separately
       identified and accounted for based on relative fair values of each
       element. The Company adopted SOP 97-2 in the first quarter of fiscal
       1999, the implementation of which resulted in no material changes to the
       Company's previous practice. In 1998 the AICPA issued SOP 98-9,
       MODIFICATION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO
       CERTAIN TRANSACTIONS, which modifies SOP 97-2 to allow for use of the
       residual method of revenue recognition provided that certain criteria
       have been met. The Company adopted SOP 98-9 in the first quarter of
       fiscal 2000, the implementation of which resulted in no material changes
       to the Company's previous practice.

                                      F-10
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       In December 1999, the staff of the Securities and Exchange Commission
       issued Staff Accounting Bulletin No. 101 ("SAB 101"), REVENUE RECOGNITION
       IN FINANCIAL STATEMENTS, as amended by Staff Accounting Bulletins No. 101
       A and 101 B. These bulletins summarize certain of the staff's views about
       applying generally accepted accounting principles to revenue recognition
       in financial statements. The Company adopted SAB 101, as amended, in the
       fourth quarter of fiscal 2001, the implementation of which resulted in no
       material changes in the Company's previous practice.

       RESEARCH AND DEVELOPMENT

       Research and development costs are charged to operations as incurred.

       INCOME TAXES

       The Company accounts for income taxes using the asset and liability
       method. Deferred tax assets and liabilities are recognized for the future
       tax consequences attributable to differences between the financial
       statement carrying amounts of existing assets and liabilities and their
       respective tax bases. Deferred tax assets and liabilities are measured
       using enacted tax rates expected to apply to taxable income in the years
       in which those temporary differences are expected to be recovered or
       settled.

       NET LOSS PER SHARE

       Basic Earnings Per Share ("EPS") is calculated by dividing net income
       (loss) by the weighted-average common shares outstanding during the
       period. Diluted EPS reflects the potential dilution to basic EPS that
       could occur upon conversion or exercise of securities, options, or other
       such items, to common shares using the treasury stock method based upon
       the weighted-average fair value of the Company's common shares during the
       period. See Note 12 "Loss Per Share" for computation of EPS. On February
       7, 2000, the Company effected a 2-for-1 split of its common stock. All
       share and per share amounts have been adjusted to reflect this split.

       COMPREHENSIVE INCOME (LOSS)

       The Company applies the provisions of SFAS No. 130, REPORTING
       COMPREHENSIVE INCOME, which establishes rules for the reporting and
       display of comprehensive income (loss) and its components. SFAS No. 130
       requires changes in foreign currency translation adjustments, which are
       reported separately in stockholders' equity, to be included in other
       comprehensive income (loss).

                                      F-11
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       STOCK-BASED COMPENSATION

       The Company applies the provisions of SFAS No. 123, ACCOUNTING FOR
       STOCK-BASED COMPENSATION. As permitted by SFAS No. 123, the Company
       continues to follow the guidance of Accounting Principles Board ("APB")
       Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Consequently,
       compensation related to stock options is the difference between the grant
       price and the fair market value of the underlying common shares at the
       grant date. Generally, the Company issues stock options to employees with
       a grant price equal to the market value of common stock on the grant
       date. The Company has issued certain stock options with a grant price
       below the market value at the grant date. The Company recognizes
       compensation expense on these grants over the vesting period, generally
       three to four years. As required by SFAS No. 123, the Company discloses
       in Note 6 "Stockholders' Equity" the pro forma effect on operations, as
       if compensation costs were recorded at the estimated fair value of the
       stock options granted.

       SEGMENT REPORTING

       The Company applies the provisions of SFAS No. 131, DISCLOSURES ABOUT
       SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION". SFAS 131 requires
       segments to be determined and reported based on how management measures
       performance and makes decisions about allocating resources. See Note 11
       "Segment and Geographic Data" for description of and disclosures
       regarding the Company's significant reportable segments.

       RECENT ACCOUNTING DEVELOPMENTS

       In June 1998, the Financial Accounting Standards Board ("FASB") issued
       Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
       ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The
       provisions of the statement require the recognition of all derivatives as
       either assets or liabilities in the consolidated balance sheet and the
       measurement of those instruments at fair value. The accounting for the
       changes in fair value of a derivative depends on the intended use of the
       derivative and the resulting designation. The Company has not
       historically entered into derivative instruments. Transactions between
       the Company's domestic entities and foreign entities, including foreign
       subsidiaries of the Company, are typically denominated in the US dollar.
       Transactions between the Company's foreign subsidiaries and third parties
       are typically denominated in the local functional currency in the country
       in which the subsidiary operates. The Company adopted SFAS 133, as
       amended, effective April 1, 2001, the implementation of which resulted in
       no material impact on our consolidated financial statements and results
       of operations.

       RECLASSIFICATIONS

       Certain reclassifications have been made to the 2000 consolidated
       financial statements to conform to the 2001 presentation.

                                      F-12
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(2)    ACQUISITIONS

       The Company has consummated a number of acquisitions during the fiscal
       years ended March 31, 2001 and 2000. All acquisitions were accounted for
       using the purchase method of accounting and, accordingly, the results of
       operations of the acquired assets and assumed liabilities have been
       included in the consolidated financial statements subsequent to effective
       dates of the respective acquisitions. All assets acquired and liabilities
       assumed were recorded at their estimated fair market values at the date
       of acquisition in the consolidated balance sheet. Any options and
       warrants issued in these transactions were valued using the Black-Scholes
       model.

       ALLEGRIA SOFTWARE, INC.

       Effective April 1, 2000, the Company acquired all of the outstanding
       capital stock of Allegria Software, Inc. ("Allegria") for $1,500,000 in
       cash and 25,000 shares of the Company's common stock, valued at
       approximately $750,000 at the date of acquisition. Allegria is a
       developer of Internet-based document management and collaborative
       software tools primarily for engineering and manufacturing companies. The
       acquisition includes stand-alone software products, as well as technology
       which is being used in the development of the Company's ASP services
       business. The purchase price allocation (including acquisition costs of
       $11,000) is summarized as follows (in thousands):


                Current assets                             $           97
                Other assets                                           18
                Goodwill                                            2,222
                Current liabilities                                   (76)
                                                           ---------------
                                                           $        2,261
                                                           ===============

       Goodwill recorded as a result of this acquisition is being amortized over
       ten years.

       INTERRA GLOBAL, LTD.

       In May 2000, the Company acquired India-based Interra Global Limited, an
       Internet service provider which has obtained the rights to operate as
       such in India. The total purchase price was approximately $348,000 and
       substantially all of the purchase price has been recorded as goodwill,
       which is being amortized over five years.

                                      F-13
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       E-DESTINATIONS, INC.

       On January 31, 2000, the Company, acquired all of the outstanding stock
       of e-Destinations, Inc. ("e-Destinations"), an online travel agency
       targeting Asia/Pacific countries, for 60,000 shares of the Company's
       common stock, options to purchase an additional 100,000 shares of common
       stock at $10.46 per share and $74,000 in cash. The purchase price
       allocation (including acquisition costs of $24,000) is summarized as
       follows (in thousands):

                Current assets, including cash of $16      $          105
                Other assets                                           34
                Goodwill                                            1,125
                Current liabilities                                   (22)
                                                           ---------------
                                                           $        1,242
                                                           ===============

       Goodwill recorded as a result of this acquisition is being amortized over
       five years.

       NET GURU SYSTEMS, INC. AND NET GURU CONSULTING, INC.

       Effective September 14, 1999, the Company acquired 80% of the outstanding
       capital stock of NetGuru Systems, Inc. and NetGuru Consulting, Inc.
       (collectively, "NetGuru Systems"). Pursuant to the terms of the
       agreement, the Company purchased the remaining 20% interest on December
       15, 1999. NetGuru Systems is a provider of IT services headquartered in
       Waltham, Massachusetts. The aggregate purchase, including acquisition
       costs, was approximately $6,282,000 which was paid in a combination of
       cash, a $600,000 note payable, 341,270 shares of the Company's common
       stock and warrants to purchase 70,000 shares of the Company's common
       stock at $4.71 per share. The promissory note was paid in full in June
       2000.

       The cash portion of the purchase price was obtained through the issuance
       of 371,429 shares of the Company's Series B 5% Convertible Preferred
       Stock and warrants to purchase 100,000 shares of the Company's common
       stock to two investors in a private transaction not involving a public
       offering. The preferred stock accrued dividends on a cumulative basis and
       was convertible to shares of common stock at the option of the holder.
       Prior to March 31, 2000, all of the preferred shares were converted into
       578,372 shares of common stock. Preferred dividends accrued through the
       conversion date were paid in a combination of 1,532 shares of common
       stock and approximately $1,800 in cash.

       In determining the purchase price for NetGuru Systems, the Company took
       into account the value of companies of similar industry and size,
       comparable transactions and the market for such companies. The purchase
       price allocation (including acquisition costs of $704,000) is summarized
       as follows (in thousands):

                Current assets, including cash of $300     $         1,307
                Property and equipment                                  75
                Goodwill                                             5,935
                Current liabilities                                 (1,033)
                Capital lease obligations                               (2)
                                                           ----------------
                                                           $         6,282
                                                           ================

       Goodwill recorded as a result of this acquisition is being amortized over
       fifteen years.

                                      F-14
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       PRO FORMA DISCLOSURES

       The Company's fiscal 2000 consolidated financial statements include 6.5
       months of operations of Net Guru Systems. The following selected
       unaudited pro forma information is being provided to present a summary of
       the combined results of the Company and NetGuru Systems as if the
       acquisition had occurred as of April 1, 1999, giving effect to purchase
       accounting adjustments.

                                                        FOR THE PRO FORMA YEAR
                                                         ENDED MARCH 31, 2000
                                                        ----------------------
                                                               (unaudited)

              Net revenues                                 $        23,859
              Net loss                                     $        (1,127)
              Basic loss per share                         $         (0.11)
              Diluted loss per share                       $         (0.11)

       The pro forma amounts reflect the results of operations for the Company
       including NetGuru Systems and the following purchase accounting
       adjustments for the period presented:

         o        Amortization of goodwill, straight-line, over a useful life of
                  15 years;
         o        The addition of interest expense of 8.5% on the debt incurred
                  to finance the acquisition;
         o        Estimated income tax effect on the pro forma adjustments;
         o        Estimated income tax effect on NetGuru Systems historical
                  financial results (prior to the acquisition, NetGuru Systems
                  was an "S" Corporation and as such had not reported income tax
                  expense in their financial statements); and
         o        The 20% minority interest in the earnings of NetGuru Systems
                  through the date of the second acquisition closing.

       The pro forma loss per share data is based on the Company's weighted
       average number of common shares outstanding during fiscal 2000 and the
       addition of the 341,270 common shares issued as part of the acquisition.
       The loss per share calculation was adjusted to include the effect of
       cumulative dividends on 371,429 shares of Series B 5% Convertible
       Preferred Stock issued as part of financing the acquisition. The
       unaudited pro forma data is for informational purposes only and may not
       necessarily reflect the results of operations of the Company had Net Guru
       Systems operated as part of the Company for the fiscal year ended March
       31, 2000, nor are they indicative of future operating results.

       Pro forma disclosures have not been provided for the Allegria,
       e-Destinations and Interra Global acquisitions as they would not have
       significantly changed the above noted proforma disclosures for the fiscal
       year ended March 31, 2000 or the actual results of operations for the
       fiscal year ended March 31, 2001.

                                      F-15
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(3)    PROVISION FOR RESTRUCTURING OPERATIONS

       In March 2001, the Company announced plans to restructure its operations.
       As a result of this restructuring plan, the Company recorded a
       restructuring charge of $2.4 million. The restructuring plan consisted of
       four major points: 1) refocused strategic direction of internet service
       provider ("ISP") initiatives; 2) refocused strategic direction of
       Internet portal initiatives; 3) consolidation of the Company's technical
       support activities; and 4) elimination of the Company's in-house legal
       department. In the Internet portal business, the Company has redirected
       its primary focus towards the telephony and travel services offered
       through the portal. For the Company's ISP initiatives in India, the
       Company has redirected its primary focus towards the telephony,
       communication and connectivity services targeted at the corporate market.

       The restructuring charge is comprised as follows (in thousands):

<TABLE>
<CAPTION>
                                                     ASSET                         CONTRACTUAL
                                                  WRITE-OFFS       SEVERANCE       OBLIGATIONS          TOTAL
                                                --------------   --------------   --------------    --------------
<S>                                             <C>              <C>              <C>               <C>
           Provision:
           Refocus of ISP operations            $       1,827    $           -    $         171     $       1,998
           Refocus of portal operations                   168                -               26               194
           Consolidation of technical
               support activities                           -               49              117               166
           Elimination of legal department                  -               42                -                42
                                                --------------   --------------   --------------    --------------
                                                        1,995               91              314             2,400
                                                --------------   --------------   --------------    --------------

           Fiscal 2001 Activity:
           Refocus of ISP operations                   (1,827)               -              (70)           (1,897)
           Refocus of portal operations                  (168)               -              (26)             (194)
           Consolidation of technical
               support activities                           -                -                -                 -
           Elimination of legal department                  -                -                -                 -
                                                --------------   --------------   --------------    --------------
                                                       (1,995)               -              (96)           (2,091)
                                                --------------   --------------   --------------    --------------

           Balance at March 31, 2001:
           Refocus of ISP operations                        -                -              101               101
           Refocus of portal operations                     -                -                -                 -
           Consolidation of technical
               support activities                           -               49              117               166
           Elimination of legal department                  -               42                -                42
                                                --------------   --------------   --------------    --------------
                                                $           -    $          91    $         218     $         309
                                                ==============   ==============   ==============    ==============
</TABLE>

                                      F-16
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       The charge includes $117,000 of lease payments for vacated office space
       scheduled for payment through September 2003. The remaining personnel
       costs and contractual obligations are expected to be completed by the end
       of the second quarter of fiscal 2002.

(4)    PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment, at cost, as of March 31, 2001 consists of
       the following (in thousands):

             Land                                              $          24
             Buildings and leasehold improvements                        723
             Office and computer equipment, software
                 and furniture                                         5,495
             Assets under capital lease                                  890
                                                               --------------
                                                                       7,132

             Accumulated depreciation                                 (2,336)
                                                               --------------
             Net property, plant and equipment                 $       4,796
                                                               ==============

       On December 15, 1999 the Company consummated a sale and leaseback
       transaction involving its Yorba Linda, California facility. The gross
       selling price of the property was $3,200,000, $1,689,000 of which was
       utilized to pay off the balance of the mortgage on the property. The
       Company received approximately $1,017,000 in cash proceeds, net of
       transaction costs, and a $250,000 short term note receivable for the sale
       of the property (payment on note was received prior to March 31, 2000).
       The proceeds were used to purchase the remaining 20% of NetGuru Systems
       in December 1999 and for operating purposes. Concurrent with the sale,
       the Company entered into a fifteen year operating lease on the facility
       (see Note 9). The net book value of the land and building and the related
       mortgage were removed from the Company's consolidated balance sheet and
       the lease payments are being charged to expense as incurred. The gain on
       the sale transaction of $1,047,000 has been deferred and is being
       recognized over the period of the lease as a reduction in lease expense.
       Deferred gain, net of accumulated amortization, was $957,000 as of March
       31, 2001.

<TABLE>
<CAPTION>
(5)    LINES OF CREDIT AND LONG-TERM DEBT

       Long-term debt consists of the following at March 31, 2001 (in thousands):

<S>                                                                                              <C>
       Term loan from a bank in India, bearing interest at 3.5% over the bank's medium term
          prime rate (for an effective rate of 16.0% at March 31, 2001) payable monthly,
          principal due in quarterly installments beginning June 2000 and ending March 2005,
          secured by substantially all of the Company's assets located in India and
          guaranteed by a major shareholder                                                      $     1,071

       Capital lease obligations maturing at dates ranging from October 2001 to December
          2006, secured by the leased assets                                                             683

       Lines of credit, specific to equipment purchases, principal plus interest payable
          monthly, interest at effective rates ranging from 9.2% to 13.0%, maturing at dates
          ranging from May 2002 to May 2004, secured by the related assets                               338

       Other                                                                                              22
                                                                                                 ------------
               Total                                                                                   2,114
               Less current portion                                                                     (742)
                                                                                                 ------------
                                                                                                 $     1,372
                                                                                                 ============
</TABLE>

                                      F-17
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       The Company has a $2,000,000 revolving line of credit (LOC), bearing
       interest at 3.0% over the bank's prime rate and maturing August 2001. The
       Company has available borrowings under this LOC of $2,000,000 at March
       31, 2001. Any outstanding borrowings under the LOC would be secured by
       substantially all of the assets of the Company.

       The LOC and the term loan contain certain restrictive covenants, all of
       which have been complied with at March 31, 2001.

       The long-term debt and capital lease obligations mature in each of the
       following years ending March 31 (in thousands):

                                                  LONG-TERM       CAPITAL LEASE
                                                     DEBT          OBLIGATIONS
                                                ---------------   --------------

           2002                                 $          589    $         231
           2003                                            420              202
           2004                                            381              168
           2005                                             41              104
           2006                                              -              104
           Thereafter                                        -               79
                                                ---------------   --------------

           Total minimum payments               $        1,431              888
                                                ===============

           Less amount representing interest                               (205)
                                                                  --------------

           Present value of minimum capital
               lease payments                                     $         683
                                                                  ==============

(6)    STOCKHOLDERS' EQUITY

       In September 1999, the Company issued 371,429 shares of the Company's
       newly created Series B 5% Cumulative Convertible Preferred Stock and
       warrants to purchase 100,000 shares of the Company's common stock at an
       exercise price of $4.85 per share to two investors in a private
       transaction not involving a public offering. The Company issued
       additional warrants to purchase 70,000 shares of the Company's common
       stock at an exercise price of $4.71 per share to third parties related to
       this transaction. The proceeds were used to complete the cash portion of
       the purchase price of NetGuru Systems. The preferred stock accrued
       dividends on a cumulative basis and was convertible to shares of common
       stock at the option of the holder. Prior to March 31, 2000, all of the
       preferred shares were converted into 578,372 shares of common stock.
       Preferred dividends accrued through the conversion date were paid in a
       combination of 1,532 shares of common stock and approximately $1,800 in
       cash. Each warrant is convertible into one share of common stock. Through
       March 31, 2001, 135,000 of these warrants had been converted into common
       stock. The remaining 35,000 warrants expire between September 2002 and
       September 2004.

                                      F-18
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       In December 1999, warrants to purchase 260,000 shares of common stock,
       originally issued in 1996 at an exercise price of $3.00 per share, were
       exercised for $780,000. In consideration for the holder's decision to
       exercise these warrants for cash rather than via a cashless exercise,
       warrants to purchase an additional 260,000 shares of common stock were
       issued at an exercise price of $13.44 per share. In February 2000, these
       additional shares were exercised for approximately $3,494,000. In
       consideration for the holder's decision to exercise these warrants for
       cash rather than via a cashless exercise, warrants to purchase an
       additional 200,000 shares of common stock were issued at an exercise
       price of $38.00 per share. These warrants expire February 2005.

       In March 2000, the Company issued 12,000 shares of Series B 5% Cumulative
       Convertible Preferred Stock and warrants to purchase 102,000 shares of
       the Company's common stock at an exercise price of $28.50 per share for
       approximately $11,380,000, net of offering costs, in a private
       transaction not involving a public offering. The preferred stock accrued
       dividends on a cumulative basis and was convertible to shares of common
       stock. These warrants expire between March 2003 and March 2005.

       On November 29, 2000 the Company repurchased and retired all of its
       outstanding preferred stock in exchange for 400,000 shares of common
       stock and a net cash payment of $6,560,000. A significant portion of the
       funds for this repurchase were obtained from the concurrent issuance of
       1,670,270 shares of the Company's common stock to one investor in a
       private transaction not involving a public offering. The proceeds from
       this issuance were approximately $6,246,000, net of certain commissions
       and offering costs. The Company issued additional warrants to purchase an
       aggregate of 200,000 shares of the Company's common stock at an exercise
       price of $3.93 per share to a third party related to this financing
       transaction. These warrants expire in November 2005.

       On June 22, 2000, the Company closed a private equity financing to issue
       to two investors, in a private transaction not involving a public
       offering, 200,000 shares of the Company's common stock and warrants to
       purchase 60,000 shares of the Company's common stock at an exercise price
       of $19.00 per share for approximately $3,075,000, net of certain
       commissions and offering costs. These warrants expire in June 2005. The
       Company issued additional warrants to purchase 53,300 shares of the
       Company's common stock at exercise prices ranging from $16.50 to $23.46
       per share to third parties related to this financing transaction. These
       warrants expire between May and June 2003.

       WARRANTS

       The following table summarizes the warrant activity (in thousands, except
       dollar amounts):

                                                                    Weighted
                                                  Number of         average
                                                  warrants       exercise price
                                                                 --------------
       Outstanding at March 31, 1999                 260           $    3.00
       Issued                                        732           $   20.24
       Exercised                                    (575)          $    7.90
                                                ------------

       Outstanding at March 31, 2000                 417           $   26.53
       Issued                                        313           $    9.03
       Exercised                                     (80)          $    4.84
                                                ------------
                                                ------------

       Outstanding at March 31, 2001                 650           $   20.76
                                                ============

                                      F-19
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       STOCK OPTION PLANS

       The Company has adopted the following employee stock option plans:

<TABLE>
<CAPTION>
                                                                                                SHARES
                                                              ADOPTED         TERMINATES      AUTHORIZED
                                                         ----------------  ---------------  --------------
<S>                                                       <C>               <C>               <C>
          NetGuru, Inc. 2000 Stock Option Plan
              (the "2000 Plan")                           December 2000     November 2010     1,000,000
          Research Engineers, Inc. 1998 Stock
              Option Plan (the "1998 Plan")               December 1998     November 2008     1,000,000
          Research Engineers, Inc. 1997 Stock
              Option Plan (the "1997 Plan")               February 1997     February 2007       600,000
          Research Engineers, Inc. 1996 Stock
              Option Plan (the "1996 Plan")                April 1996        April 2006         588,000
</TABLE>

       Each plan provides for the granting of shares as either Incentive Stock
       Options (ISOs) or Non-Qualified Stock Options (NQOs). Options under all
       plans generally vest over 3 years, though the vesting periods may vary
       from person to person, and are exercisable subject to continued
       employment and other conditions. As of March 31, 2001, there were 546,000
       options available for grant and no options exercisable under the 2000
       Plan, 79,000 options available for grant and 513,000 options exercisable
       under the 1998 Plan, 34,000 options available for grant and 393,000
       options exercisable under the 1997 Plan, and 16,000 options available for
       grant and 383,000 options exercisable under the 1996 Plan.

       During fiscal 2000, the Company granted 100,000 stock options outside of
       the above described plans, pursuant to the e-Destination acquisition (see
       Note 2). These options vest over a period of ten years, with an exercise
       price of $10.46.

       The following is a summary of activity related to all outstanding stock
       options (number of shares in thousands):

                                                                    WEIGHTED
                                                                    AVERAGE
                                                                    EXERCISE
                                                      NUMBER OF     PRICE PER
                                                       SHARES        OPTION
                                                     -----------   ----------
                Outstanding at March 31, 1999           1,683         $1.47
                Granted                                   613          5.54
                Exercised                                (227)         1.57
                Forfeited                                 (69)         1.45
                                                     -----------
                Outstanding at March 31, 2000           2,000         $2.71
                Granted                                   534          4.11
                Exercised                                (100)         2.06
                Forfeited                                (176)         4.49
                                                     -----------
                Outstanding at March 31, 2001           2,258         $2.93
                                                     ===========

                                      F-20
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       As discussed in Note 1, the Company accounts for its stock options issued
       to employees based on the intrinsic value of a grant as of the date of
       the grant in accordance with APB No. 25. Generally, the Company issues
       stock options to employees with a grant price equal to the market value
       of common stock on the grant date. The Company has issued certain stock
       options with a grant price below the market value at the grant date.
       Compensation expense on these grants is recognized over the vesting
       period, generally three to four years. Compensation expense recognized in
       the Company's consolidated financial statements for these grants for
       fiscal years 2001 and 2000 was $136,000 and $61,000, respectively.

       As required by SFAS No. 123, the Company discloses below the pro forma
       and assumption information for stock options using the fair value method
       (dollars in thousands, except amounts per share):

          For the fiscal years ended March 31,            2001           2000
                                                     -------------   -----------

          Net loss - as reported                     $     (6,637)   $   (1,355)
          Net loss - pro forma                             (9,181)       (2,046)
                                                     =============   ===========
          Basic net loss per share -
              as reported                            $      (0.45)   $    (0.12)
               pro forma
                                                            (0.60)        (0.17)
          Diluted net loss per share -
               as reported                                  (0.45)        (0.12)
               pro forma
                                                            (0.60)        (0.17)
                                                     =============   ===========
          Weighted average fair value of options
              granted                                $       3.41    $     4.14
                                                     =============   ===========
          Black-Scholes option pricing model
              assumptions:
                   Dividend yield                              --            --
                   Expected volatility                        146%           93%
                   Risk-free interest rate                   4.87%         6.72%
                   Expected option lives (in years)           7.5             5

       At March 31, 2001, the range of exercise prices and the weighted average
       remaining contractual life of outstanding options were $1.31 - $21.68 and
       7.2 years, respectively.

(7)    RELATED PARTY TRANSACTIONS

       The Company provides digital media production services to Ruby Pictures,
       Inc. ("Ruby"). Ruby is a movie production house owned and operated by the
       Purabi Das Foundation, Inc., a charitable organization founded by Amrit
       Das, Chairman and CEO of the Company. The Company recognized $324,000 in
       revenue for the fiscal year ended March 31, 2000 related to these
       services and had a receivable balance due from Ruby of $284,000 at March
       31, 2000. In fiscal 2001, the Company entered into an agreement with Ruby
       to purchase the rights to a digital film produced by Ruby for $500,000,
       net of any unreimbursed costs incurred by the Company in the production
       of this film. The outstanding receivable balance due from Ruby was offset
       against the purchase price, and a net payment of $135,000 was made in
       April 2001. The Company plans to use this film as a promotional tool for
       its digital media and animation services business segment and also plans
       to generate direct revenues through distribution of this film.

                                      F-21
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       In September 1999, the Company issued a $600,000 promissory note payable
       to the previous owner of NetGuru Systems to satisfy a portion of the
       purchase price of NetGuru Systems. The Company had a note receivable from
       the same individual in the amount of $164,000. This note related to
       payments made by the Company to third parties on behalf of the individual
       as part of the acquisition. In June 2000, both of these notes were paid
       in full.

(8)    RETIREMENT PLAN

       The Company and certain of its subsidiaries have adopted a qualified cash
       or deferred 401(k) retirement savings plan. The plan covers all domestic
       employees who have attained age 21. Employees may contribute up to 14% of
       their compensation. The Company makes matching contributions to the plan
       of 75% to 100% of the employees' elective contributions for the first 6%
       of compensation. For the years ended March 31, 2001 and 2000, Company
       contributions to the retirement plans were $188,000 and $144,000,
       respectively.

(9)    COMMITMENTS AND CONTINGENCIES

       The Company leases certain facilities and equipment under noncancelable
       operating leases. The facility leases include options to extend the lease
       terms and provisions for payment of property taxes, insurance and
       maintenance expenses.

       At March 31, 2001, future minimum annual rental commitments under these
       lease obligations were as follows (in thousands):

                     Year ending March 31:
                         2002                               $        724
                         2003                                        616
                         2004                                        510
                         2005                                        440
                         2006                                        457
                         Thereafter                                2,812
                                                            -------------

                                                            $      5,559
                                                            =============

       Rent expense was $738,000 and $459,000 for the years ended March 31, 2001
       and 2000, respectively.

       The Company is a party to various litigation arising in the normal course
       of business. Management believes the disposition of these matters will
       not have a material adverse effect on the Company's results of operations
       or financial condition.

       Through our acquisition of Interra Global Limited in May 2000 (see Note
       4), we obtained a Class A license to provide national Internet service
       provider services in India under an agreement with the Department of
       Communications. Our obligations under the license are secured by a
       performance bank guarantee in the amount of 20.0 million rupees
       ($428,000).

                                      F-22
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(10)   INCOME TAXES

       The components of loss before income taxes are as follows for the year
       ended March 31, (in thousands):

                                                           2001          2000
                                                       ----------    ----------

                        United States                  $  (5,914)    $  (1,897)
                        Foreign                             (266)          (38)
                                                       ----------    ----------
                          Total                           (6,180)       (1,935)
                                                       ==========    ==========


       The provision (benefit) for income taxes is comprised of the following
       for the year ended March 31, (in thousands):

                                                           2001          2000
                                                       ----------    ----------
                    Current:
                        Federal                        $       -     $       -
                        State                                  4             -
                        Foreign                              136            46
                                                       ----------    ----------
                                                             140            46
                    Deferred:
                        Federal                              271          (445)
                        State                                 46          (183)
                        Foreign                                -            (5)
                                                       ----------    ----------
                                                             317          (633)
                                                       ----------    ----------
                          Total                        $     457     $    (587)
                                                       ==========    ==========

       The reported provision (benefit) for income taxes differs from the amount
       computed by applying the statutory federal income tax rate of 34% to loss
       before income taxes as follows for the year ended March 31, (in
       thousands):

                                                         2001           2000
                                                    -------------   ------------

              Income tax benefit at statutory rate  $     (2,101)   $      (658)
              State taxes, net of federal benefits          (255)          (121)
              Foreign income tax rate differential           123             59
              Return to provision adjustments                 (8)            59
              Change in valuation allowance                2,564             11
              Research and development credits               (18)           (25)
              Nondeductible amortization                      83             72
              Other                                           69             16
                                                    -------------   ------------
                    Total                           $        457    $      (587)
                                                    =============   ============

                                      F-23
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       The Company provides deferred income taxes for temporary differences
       between assets and liabilities recognized for financial reporting and
       income tax purposes. The tax effects of temporary differences at March
       31, 2001 are as follows (in thousands):

                 Deferred tax assets:
                     Accrued vacation                               $      143
                     Allowance for doubtful accounts                       222
                     Amortization of intangibles                           356
                     Maintenance revenue                                    36
                      Net operating loss carryforwards                   1,528
                      Foreign tax credit carryforwards                     183
                      Research and development credit
                         carryforwards                                     132
                      Gain on sale of property                             395
                      Restructuring reserve                                916
                      Other                                                  2
                                                                    -----------

                            Total deferred tax assets                    3,913

                            Less: valuation allowance                   (2,635)
                                                                    -----------

                            Net deferred tax assets                      1,278
                                                                    -----------

                 Deferred tax liabilities:
                     Depreciation                                         (104)
                     Cash to accrual adjustment                            (60)
                                                                    -----------

                            Total deferred tax liabilities                (164)
                                                                    -----------

                            Net deferred tax assets                 $    1,114
                                                                    ===========

       At March 31, 2001 the Company had tax net operating loss carryforwards of
       approximately $4,141,000 for federal and $2,056,000 for state income tax
       purposes, which expire at varying dates beginning in 2019 and 2004,
       respectively. In addition, the Company has, for federal income tax
       purposes, $83,000 of research and development credit carryforwards and
       $183,000 of foreign tax credit carryforwards, which expire at varying
       dates beginning in 2013 and 2003, respectively. Additionally, the Company
       has, for state income tax purposes, $75,000 of research and development
       credit, which carries forward indefinitely.

       In assessing the realizability of the net deferred tax assets, management
       considers whether it is more likely than not that some or all of the
       deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets is dependent upon either the generation of future
       taxable income during the periods in which those temporary differences
       become deductible or the carryback of losses to recover income taxes
       previously paid during the carryback period. As of March 31, 2001, the
       Company had provided a valuation allowance of $2,635,000 to reduce the
       net deferred tax assets due to the potential expiration of certain tax
       credit and net operating loss carryforwards prior to their utilization.

                                      F-24
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


       Undistributed earnings of certain of the Company's foreign subsidiaries
       in the cumulative amount of $1,375,000 are considered to be indefinitely
       reinvested and, accordingly, no provision for United States federal and
       state income taxes has been provided thereon. Upon distribution of those
       earnings in the form of dividends or otherwise, the Company would be
       subject to both federal income taxes (subject to an adjustment for
       foreign tax credits) and withholding taxes payable to the various foreign
       countries.

(11)   SEGMENT AND GEOGRAPHIC DATA

       The Company is an integrated Internet and IT technology and services
       company operating in four primary business segments; 1) IT services; 2)
       engineering software products, maintenance and services; 3) Internet
       portals focused on telecommunications and travel services for Asian
       expatriates and ASP solutions; and 4) digital media products and
       animation services. The Company has provided computer-aided engineering
       software solutions to customers for over 20 years. During the past 16
       years, the Company has supported the engineering software business with
       India-based software programming and IT resources. In addition, based
       upon the Company's knowledge and understanding of the engineering
       software market, combined with the Company's Internet technology
       resources and experience, the Company launched Web4engineers.com, an
       engineering applications service provider ("ASP") portal hosting the
       Company's engineering software applications online and providing ASP
       services to engineering software providers and their licensees worldwide.
       With the acquisitions of R-Cube Technologies in February 1999 and NetGuru
       Systems completed in December 1999, the Company further expanded its IT
       resources and capabilities and its presence in the IT services industry,
       providing expertise in data-mining and embedded technologies,
       Internet/Intranet design and development and systems and software
       integration and implementation to companies in North America. The Company
       has expanded its IT services business into Europe and intends to further
       expand its services in India and Southeast Asia. With the Company's
       experience in India and understanding of the global Indian community, it
       began offering online Internet portal services in 1999. The Company's
       portal offerings are primarily focused on telecommunications and travel
       services for Asian expatriates. The Company continues to provide digital
       media services, including computer animation, and has used this expertise
       to enhance its Internet portal offerings. The following are significant
       components of worldwide operations by reportable operating segment (in
       thousands):

                                                     FOR THE YEAR ENDED MARCH 31
                                                     ---------------------------
                                                         2001           2000
                                                     ------------   ------------
                                                           (IN THOUSANDS)
                         NET REVENUE
           IT services                               $     18,019   $    10,512
           Software sales, maintenance and services         9,824         8,953
           Internet, e-commerce and ASP services            3,217           100
           Digital media and animation services               242           371
                                                     ------------   ------------

                    Consolidated                     $     31,302   $    19,936
                                                     ============   ============

                                      F-25
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


                         OPERATING (LOSS)/INCOME
           IT services                               $      1,994   $     1,102
           Software sales, maintenance and services        (3,892)       (1,609)
           Internet, e-commerce and ASP services           (4,740)         (751)
           Digital media and animation services               119          (295)
                                                     -------------  ------------

                    Consolidated                     $     (6,519)  $    (1,553)
                                                     =============  ============

     The Company's operations are based worldwide through foreign and domestic
     subsidiaries and branch offices in the United States, Germany, India, the
     United Kingdom, and Asia-Pacific. The following are significant components
     of worldwide operations by geographic location:

                                                     FOR THE YEAR ENDED MARCH 31
                                                     ---------------------------
                                                         2001           2000
                                                     ------------   ------------
                                                           (IN THOUSANDS)
                              NET REVENUE
                United States                        $    25,316    $    14,169
                The Americas (other than U.S.)               728            628
                Europe                                     2,755          3,255
                Asia-Pacific                               2,503          1,884
                                                     ------------   ------------

                         Consolidated                $    31,302    $    19,936
                                                     ============   ============

                             EXPORT SALES
                United States                        $     1,078    $     1,590
                                                     ============   ============


                           LONG-LIVED ASSETS
                United States                        $    14,621    $    10,629
                Europe                                       324            473
                Asia-Pacific                               2,710          1,675
                                                     ------------   ------------

                         Consolidated                $    17,655    $    12,777
                                                     ============   ============

                                      F-26
<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(12)   LOSS PER SHARE

       The following table illustrates the computation of basic and diluted net
       loss per share for the years ended March 31, (in thousands):

<TABLE>
<CAPTION>
                                                                    2001         2000
                                                                 ----------   ----------
<S>                                                              <C>          <C>
              Numerator:
              Net loss                                           $  (6,637)   $  (1,355)
              Cumulative preferred stock dividends                       -          (39)
                                                                 ----------   ----------

              Numerator for basic and diluted net loss per share    (6,637)      (1,394)
                                                                 ==========   ==========

              Denominator:
              Denominator for basic net loss per share -
                 average number of common shares outstanding
                 during the year                                    14,781       11,980
              Incremental common shares attributable to
                 exercise of outstanding options and warrants            -            -
                                                                 ----------   ----------

              Denominator for diluted net loss per share            14,781       11,980
                                                                 ==========   ==========

              Basic net loss per share                           $   (0.45)   $   (0.12)
                                                                 ==========   ==========

              Diluted net loss per share                         $   (0.45)   $   (0.12)
                                                                 ==========   ==========
</TABLE>

       Options, warrants and other common stock equivalents amounting to
       1,700,000 and 1,789,000 potential common shares were excluded from the
       computation of diluted EPS for fiscal 2001 and 2000, respectively,
       because the Company reported a net loss and, therefore, the effect would
       be antidilutive.

                                      F-27
<PAGE>

                                  EXHIBIT INDEX
                                  -------------

EXHIBIT
  NO.                               DESCRIPTION
-------                             -----------

2.1      Amended and Restated Stock Purchase Agreement, without exhibits and
         schedules, dated as of September 14, 1999, among the registrant,
         NetGuru Systems, Inc., NetGuru Consulting, Inc. and Bharat
         Manglani.*****

2.6      Securities Purchase Agreement, without exhibits and schedules, dated as
         of September 14, 1999, between the registrant and Triton Private
         Equities Fund, L.P.*****

2.11     Securities Purchase Agreement dated March 8, 2000 between the
         registrant, Elliott Associates, L.P. and Westgate International,
         L.P.+++

2.12     Exchange Agreement dated March 30, 2000 between the registrant, Elliott
         Associates, L.P. and Westgate International, L.P. +++

2.13     Stock Purchase Agreement dated March 27, 2000 between the registrant,
         Allegria Software, Inc. and GRAL, Inc. +++

3.1      Certificate of Incorporation of the registrant.*

3.5      Bylaws of the registrant.*

4.1      Certificate of Designations of Series B Cumulative Convertible
         Preferred Stock dated March 30, 2000. +++

4.3      Common Stock Purchase Warrant dated as of September 14, 1999, issued by
         the registrant to Triton Private Equities Fund, L.P.*****

4.6      Common Stock Purchase Warrant dated March 8, 2000, issued by the
         registrant to Elliott Associates, L.P. +++

4.7      Common Stock Purchase Warrant dated March 8, 2000, issued by the
         registrant to Westgate International, L.P. +++

4.9      Common Stock Purchase Warrant dated March 8, 2000, issued by the
         registrant to Shoreline Institutional Finance. +++

4.10     Warrant Agreement dated February 7, 2000 between the registrant and
         Cruttenden Roth Incorporated. +++

10.1     Research Engineers, Inc. 1996 Stock Option Plan.*

<PAGE>

10.2     Form of Nonqualified Stock Option Agreement pertaining to the 1996
         Stock Option Plan (schedule of options issued pursuant to this Plan is
         attached thereto).*

10.6     Research Engineers, Inc. 1997 Stock Option Plan.**

10.7     Agreement Not To Compete dated October 1, 1998 between the registrant
         and Techna Consultancy Private Limited.***

10.8     Research Engineers, Inc. 1998 Stock Option Plan. +

10.9     Credit Agreement dated February 26, 1999 by and between the registrant
         and Imperial Bank.****

10.10    Agreement and Plan of Reorganization among the registrant, PacSoft,
         Incorporated and Karen Hunter, William Schmidt and Mae Webb dated March
         31, 1999. ++

10.11    netGuru, Inc. 2000 Stock Option Plan.

10.12    Employment Agreement dated June 1, 2001, by and between the registrant
         and Amrit K. Das.

10.13    Employment Agreement dated June 1, 2001, by and between the registrant
         and Jyoti Chatterjee.

10.14    Employment Agreement dated June 1, 2001, by and between the registrant
         and Clara Y. M. Young.

10.15    Employment Agreement dated June 1, 2001, by and between the registrant
         and Santanu Das.

21.1     Subsidiaries of the registrant.

23.1     Consent of KPMG LLP.

--------------------------
*        Filed as an exhibit to our Registration Statement on Form SB-2 dated
         May 21, 1996 or amendment thereto dated June 14, 1996 (Registration No.
         333-4844-LA) and incorporated herein by reference.
**       Filed as an exhibit to our Form 10-KSB for the fiscal year ended March
         31, 1997 and filed with Securities and Exchange Commission on June 30,
         1997, or amendment thereto filed on August 19, 1997 and incorporated
         herein by reference.
***      Filed as an exhibit to our Form 10-QSB for the quarterly period ended
         December 31, 1998 and filed with the Securities and Exchange Commission
         on February 11, 1999 and incorporated herein by reference.
****     Filed as an exhibit to our Form 8-K dated February 26, 1999 and filed
         with the Securities and Exchange Commission on March 5, 1999 and
         incorporated herein by reference.
*****    Filed as an exhibit to our Form 8-K dated September 14, 1999 and filed
         with the Securities Exchange Commission on September 29, 1999.
+        Filed as an exhibit to our Proxy Statement filed pursuant to Section
         14(a) of the Securities Act on November 12, 1998 and incorporated
         herein by reference.
++       Filed as an exhibit to our Form 10-KSB dated March 31, 1999 and filed
         with the Securities and Exchange Commission on June 30, 1999 and
         incorporated herein by reference.
+++      Filed as an exhibit to our Form 10-KSB dated March 31, 2000 and filed
         with the Securities Exchange Commission on June 26, 2000 and
         incorporated herein by reference.