<PAGE>

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

                                   FORM 10-KSB
(Mark One)

[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934
                    FOR THE FISCAL YEAR ENDED MARCH 31, 2006

                                       OR

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

                         Commission file number: 0-28560

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

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

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

                                 (714) 974-2500
                (Issuer's telephone number, including area code)

             Securities registered under Section 12(b) of the Act:
Title of each class                         Name of exchange on which registered
         NONE                                              NONE

         Securities registered under Section 12(g) of the Exchange Act:

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

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. Yes [ ] No [X]

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]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The issuer's revenues for the fiscal year ended March 31, 2006 were $3,871,000.

The aggregate market value of the voting common equity held by non-affiliates of
the registrant computed by reference to the closing sale price of the common
equity on June 22, 2006 was $2,205,216. The registrant has no outstanding
non-voting common equity.

The number of shares outstanding of the registrant's only class of common stock,
$0.01 par value, was 19,235,041 on June 22, 2006.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      NONE
Transitional Small Business Disclosure Format (check one):    Yes [ ]  No [X]




<PAGE>
<TABLE>
<S>     <C>
                                          TABLE OF CONTENTS

                                                                                          PAGE
                                                                                          ----

                                               PART I

Item 1.    Description of Business...........................................................3

Item 2.    Description of Property...........................................................9

Item 3.    Legal Proceedings.................................................................9

Item 4.    Submission of Matters to a Vote of Security Holders..............................10

                                               PART II

Item 5.    Market for Common Equity, Related Stockholder Matters and Small Business
           Issuer Purchases of Equity Securities............................................11

Item 6.    Management's Discussion and Analysis or Plan of Operation........................11

Item 7.    Financial Statements.............................................................31

Item 8.    Changes in and Disagreements With Accountants on Accounting and
           Financial Disclosure.............................................................31

Item 8A.   Controls and Procedures..........................................................32

Item 8B.   Other Information................................................................33

                                              PART III

Item 9.    Directors and Executive Officers, Promoters and Control Persons; Compliance
           With Section 16(a) of the Exchange Act...........................................34

Item 10.   Executive Compensation...........................................................37

Item 11.   Security Ownership of Certain Beneficial Owners and Management and Related
           Stockholder Matters..............................................................43

Item 12.   Certain Relationships and Related Transactions...................................45

Item 13.   Exhibits.........................................................................48

Item 14.   Principal Accountant Fees and Services...........................................52

Index to Consolidated Financial Statements.................................................F-1

Signatures .................................................................................53

Index to Exhibits Filed with This Form 10-KSB...............................................54


                                               2
</TABLE>



<PAGE>

                                  NETGURU, INC.

                                     PART I


ITEM 1.       DESCRIPTION OF BUSINESS.

OVERVIEW

         We were incorporated in 1981 under the name Research Engineers, Inc.,
and changed our name to netGuru, Inc. in 2000. We are a Delaware corporation.
Our primary business offerings are:

         o        Document centric collaborative software products and services
                  for businesses worldwide; and

         o        Embedded information technology, or IT, services (including
                  engineering business process outsourcing, or EBPO).

         On November 18, 2005, we completed the sale of the assets of our
Research Engineers International ("REI") business and STAAD product lines to
privately held Bentley Systems, Incorporated ("Bentley") for $23.5 million. On
January 5, 2006, we completed the sale of our France subsidiary to Mr.
Badreddine Ziane for approximately $100,000. As such, unless otherwise noted,
all amounts presented, including all note disclosures, contain only information
related to our continuing operations. In accordance with GAAP, the balance sheet
at March 31, 2005 has been reclassified to reflect the assets and liabilities of
the REI business and STAAD product lines and our France subsidiary as held for
sale. Additionally, the statements of operations and cash flows have been
reclassified to reflect the results of the REI business and STAAD product lines
and our France subsidiary as discontinued for the periods presented.

         In August, our board of directors formed a special committee
consisting of three independent board members. This special committee has been
evaluating the possible divestiture of some of or all of our remaining assets
and operations, as well as possible mergers and/or strategic acquisitions for
our company and our information technology, collaborative software, and EBPO
businesses. Discussions with public and private entities have been or are being
held involving potential asset purchases, common stock purchases, and reverse
mergers. Our future capital requirements will depend upon many factors,
including sales and marketing efforts, the development of new products and
services, possible future corporate mergers or strategic acquisitions or
divestitures, the progress of research and development efforts, and the status
of competitive products and services. We believe that the proceeds that remain
from our sale of our REI business, together with our operating revenues and the
proceeds from the sale of our France subsidiary, will be adequate to extinguish
all of our remaining liabilities and fund our current operations through October
2006. However, to the extent we are in need of any additional financing, we
cannot assure you that any such additional financing will be available to us on
acceptable terms, or at all. In addition, any future financing may cause
significant dilution to existing stockholders.


PRODUCTS AND SERVICES

     COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         In April 2000, we acquired Allegria Software, Inc., a developer of
Web-based document management and collaborative tools for engineers and
manufacturers, and we added Allegria Software's eReview and ForReview
collaborative products to our offerings. Our collaborative software innovations


                                       3



<PAGE>

are changing the way engineers conduct their day-to-day business. Once installed
at a host location, our eReview collaborative software enables a host and other
participants to engage in real-time Web-based conferencing and document sharing
anywhere and anytime in over 150 widely used document formats. eReview allows
our customers to bridge physical distances in their global business environments
by enabling decision makers to communicate without costly and time consuming
travel to geographically dispersed locations. Complementing eReview, our
WebWorks software provides comprehensive project-based document and team
management functions. Our collaborative products can be implemented as
stand-alone enterprise solutions or as an integrated system working in concert
with other products. For example, we are working with BIW Technologies of United
Kingdom utilizing our collaboration and review expertise to enhance BIW's visual
interface. We are working in partnership with FileNet, IBM and Steria at
Deutsche Post, BfA and LVA respectively in Europe. We are working with Nissan,
USA to empower their nissanusa.com portal.

         Our view, markup and collaborative software is ideally suited for
manufacturing and architecture/engineering/construction (A/E/C) projects.
However, our collaborative software also has direct application for many other
industries, such as administration and human resources, government, finance,
pharmaceuticals and healthcare. We have also developed workflow management
solutions by embedding our collaborative software in the software of our major
original equipment manufacturer, or OEM, partners, who then market the combined
solution to their customers. Some of our OEM partners are Fuji Xerox, CMStat
and, Service Point. We are also working closely with both FileNet and Oracle to
develop integrations with their document collaboration tools.

         We generate revenues from software licensing fees and annual support
fees established at the time of the initial contract. Suggested list prices
range from approximately $850 to $7,000 for most of our collaborative software
products. Suggested list prices range up to $1,000 per license for eReview and
related products. Most of our customers who purchase eReview buy a site license
to cover the entire company's requirements. These site licenses vary in price
from $100,000 to $200,000. With additional customization, integration and
maintenance, total project prices may reach $500,000. Our primary sales strategy
for our collaborative software is to develop close relationships with our OEM
partners and create recurring revenues through royalties and maintenance.

     IT SERVICES

         We are an IT total solutions provider, or TSP. Our IT services division
has provided contracted IT services and software solutions to a wide variety of
vertical industry markets (that is, a particular industry or group of
enterprises to whom similar goods and services can be sold), with an emphasis on
engineering, aerospace, e-commerce, semiconductors, finance, education,
insurance, manufacturing, distribution, retail, government, pharmaceuticals and
healthcare. As a TSP, we provide our business-to-business clients with services
that involve integration of multiple existing third party software. We also
offer value-added IT services by incorporating and customizing our proprietary
collaborative software technology into enterprise solutions designed to
accomplish our clients' current objectives and grow with our clients'
enterprises. We specialize in providing IT services that involve mission
critical applications that deliver round-the-clock performance.

         We offer our IT services through our service office located in Boston,
Massachusetts. We provide IT 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. When we provide on-site consulting
services, we bill our clients on a time and materials basis. Our goal is to
migrate our staffing model to a project-based on-site/off-site model where most
of the work is done by our lower cost off-site centers in India or by our
outside contractors in Russia.


                                       4



<PAGE>

         netGuru was chosen as the global technology partner by BBK Healthcare
to create their latest version of TrialCentralNet portal application for
clinical study team collaboration. This project was done by our netGuru IT
services group using the above-mentioned on-site/off-site model.

         Our IT services operations include EBPO, where we offer full
engineering technical support to other non-competing engineering software
companies, as well as to steel detailing and fabrication companies in North
America, through a qualified labor pool of experienced engineers and detailers
at our wholly-owned subsidiary in India to expedite the production of erection
drawings necessary to construct a structure. This allows our customers to extend
their organizational capabilities and capacities and in turn provides a faster
turnaround to their customers while controlling their costs. SMI-Joist is one of
our customers for steel detailing that we serve out of our Indian EBPO
operation.

CUSTOMERS

     COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         We have implemented our eReview solution for large enterprise customers
in the manufacturing and A/E/C markets. Our eReview customers include:

         Agilent Technologies                Airbus, UK
         Case New Holland                    Constructware
         e-Build, Canada                     Tejari-FZ, LLC.
         United Defense                      LG Engineering & Construction Corp.
         BIW Technologies                    Northop Grummin
         Arabian Construction Company        Paxonix
         Cubic Defense                       Patents Ink
         FMC                                 Lockheed Martin

         In addition to the customers listed above, we are also working on a
project with Nissan, USA to empower their nissanusa.com portal. We are working
with our strategic partner Post Industrial Technologies, Inc. for this
particular project. We have also worked with Sharp Laboratories of America to
develop their next generation Composer application with Web4's core viewing
technology.

         Net revenues from Sharp Laboratories of America, Post Industrial
Technologies, Inc. and Tejari-FZ, LLC represented approximately 22.8%, 14.2% and
10.5%, respectively, of our total net revenues from collaborative software
products and services in fiscal 2006.

     IT SERVICES

         During the fiscal year ended March 31, 2006, we provided IT consulting
services to over 20 corporate customers in the United States, including Course
Technology, Inc., Deutsche Bank, and BBK Healthcare Systems. Net revenues from
Course Technology, Inc. and Deutsche Bank represented approximately 18.6% and
11.2%, respectively, of our total net revenues from IT services in fiscal 2006.

SALES AND MARKETING

     COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         Historically, we marketed our eReview collaborative software both
domestically and internationally using direct marketing through our network
office branches, subsidiaries and reseller channels. With the sale of our REI
division, most of our international sales offices were transferred to Bentley
and we no longer have netGuru employees in those offices. Now, eReview is sold
only out of our offices in the U.S., Germany and India.


                                       5



<PAGE>

         We use print advertising, telemarketing, e-mail and direct mail
campaigns as our primary lead generation activities for eReview. We intend to
work more closely with OEM partners in the document management space in the
coming years.

      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.

CUSTOMER SERVICE AND SUPPORT

      COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

      We provide full technical support to our collaborative software clients by
phone, fax, e-mail, remote diagnostics and desktop application sharing making
use of our own technology. Each support contract is customized to meet the
individual client's needs.

     IT SERVICES

         Our IT services are primarily project-based and time and
materials-based technology consulting services that 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
24x7 basis to meet the customer's information management needs from our facility
in Boston, Massachusetts.

RESEARCH AND DEVELOPMENT

         Our research and development efforts with respect to our collaborative
technologies have been focused on:

         o        enhancing response times in application performance;
         o        incorporating and adding the viewing of new two-dimensional
                  and three-dimensional file formats (including CAD formats);
         o        building open architecture and interfaces for easy migration
                  and integration of legacy systems;
         o        customizing and integrating our product into large systems
                  integrator applications for OEM opportunities;
         o        addressing the needs of new and diverse international markets;
                  and
         o        localizing the product by translating our application into
                  regional languages.

         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 collaborative software product and
service offerings with acquired, upgraded and new products and services, and
actively seek opportunities to expand these products and service offerings
through acquisitions and strategic alliances.

         Our research and development group includes specialists in
collaborative software and IT services. We have established research and
development facilities in the U.S. and India and we contract outside consultants
in Russia. Our offshore research and development facilities in India are used to


                                       6



<PAGE>

provide technical support and customer services for our collaborative
engineering clients worldwide, and to provide IT services resources for our
projects in the U.S. 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 in a
cost-effective manner. We believe our offshore technical resources provide a
significant competitive advantage.

         Research and development expenses were approximately $496,000 and
$543,000 during the fiscal years ended March 31, 2006 and 2005, respectively.
The costs of these activities are not borne directly by our customers.

COMPETITION

         We face significant competition within our target markets for
collaborative software products and services for the worldwide engineering
community and Internet-based IT services for businesses worldwide. We expect
that competition will intensify as the market for Internet-based solutions aimed
at the global community develops and expands. We compete primarily based on
service, reliability and customer support, and to a lesser extent on price, ease
of use and content.

         In general, we face significant 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 offerings.

         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 compete successfully in one or more of our target markets. Our inability to
do so could adversely impact our business, financial condition or results of
operations by decreasing our market share and the prices we receive for our
products and services, which in turn would decrease our revenues and profit
margins.

     COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         The software industry is intensely competitive and rapidly changing. A
number of companies offer products that target the same markets as our products.
In addition, our products occasionally compete with solutions provided by firms
much larger than us. We believe that we have significant competitive advantages
in the industry based on our:

         o        high caliber development effort;
         o        demonstrated understanding of the needs of the engineering
                  design industry; and
         o        ability to develop, acquire and implement emerging
                  technologies.

         The collaborative software products and services business is highly
competitive and changes rapidly. Our collaborative software and services face
competition from WebEx, eRoom, Cimmetry, Informative Graphics and PlaceWare. We
compete based on our technical expertise. We believe we are among the top
providers of collaborative software products and services in that we were the
first to bridge the gap between two-dimensional and three-dimensional desktop
viewing applications and generic Web-based conferencing technologies.


                                       7



<PAGE>

     IT SERVICES

         Our competitors in the IT consulting services industry include IT
services companies such as Cognizant Technology Solutions and Scient
Corporation, other technology companies and in-house management information
services departments. We believe that the use of our proprietary collaborative
software to add value to our IT services may provide us a competitive advantage
over some of our competition. We believe we are among the smaller providers of
IT services in terms of revenue and size 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 currently do not have any
patents, our patent application on eReview has been granted a "Patent Pending"
status. Our protective measures may be even less effective in the emerging
Internet law field. Internet law is a relatively 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 than in the U.S. 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 the laws 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, India's statutory laws do not protect service marks. Because a
significant portion of our sales of products and services comes from
international markets, 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.

         Our trademarks include NETGURU.COM(R) and ForReview(R).We may not be
able to secure adequate protection for our trademarks in the U.S. and in the
other countries in which we do business.

OTHER BUSINESS ACTIVITIES DURING THE PAST THREE YEARS

         During the past three years, our service offerings also included
engineering software products and services, travel services and
telecommunications services. In November 2005, we finalized the sale of our REI
business and STAAD product lines to Bentley. In January 2006, we sold our France
subsidiary, which sold REI products and services, to Mr. Badreddine Ziane. As a
result of our earlier efforts to focus on our core software products and IT
services businesses, we finalized the sale of our travel services subsidiary in
April 2004 and the sale of our Web-based telecommunications services division in
September 2004.

EMPLOYEES

         As of March 31, 2006, we had 174 employees, including 49 in product
development, digital animation and related support services, 65 in IT consulting
and steel detailing services, 24 in sales and marketing and 36 in finance and
administration. Of the 174 employees, 173 employees were full time employees and
one was a part-time employee. As of that date, 33 of our employees were located
in the U.S. and 141 were located in international locations.


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<PAGE>

ITEM 2.       DESCRIPTION OF PROPERTY.

         Our corporate headquarters are located in Yorba Linda, California,
where we lease approximately 3,000 square feet of office space. On November 18,
2005, we entered into a one year operating lease for this facility. The terms of
this lease provide for monthly payments of approximately $3,400, which includes
utilities.

          We own a 22,000 square-foot research and development facility in
Kolkata, India, built in 1997, primarily housing our digital media and steel
detailing services. In addition, we own an adjacent 27,600 square-foot building
in Kolkata, built in 2000. In November 2005, we leased this facility to Bentley
Systems for monthly payments of approximately $15,500. The lease expires in
November 2008 subject to two option terms of one year each.

         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, although we have no assurance that future terms would be as favorable as
our current terms.

ITEM 3.       LEGAL PROCEEDINGS.

ASH BRAHMA, ET AL. V. NETGURU, INC

         We were named as a defendant in a civil action commenced against us by
plaintiffs Ash Brahma, Sujit Kumar, and Venture International on August 18,
2005, in the Commonwealth of Massachusetts, Essex County, Superior Court
Department of the Trial Court, Civil Action No. 05-1446 B, entitled ASH BRAHMA,
ET AL. V. NETGURU, INC.

         In the action, plaintiffs alleged breach of contract and fraud on our
part, and they sought alleged damages of $4,885,000. On October 5, 2005, we
timely filed a Notice of Removal of the Action to the United States District
Court, District of Massachusetts.

         On October 13, 2005, we filed our answer and counterclaim in the
action. We denied any breach of contract or other wrongdoing on our part, and
denied that plaintiffs were entitled to equitable relief or damages. Our
counterclaim sought recission of contract and/or breach of contract, restitution
and/or damages for consulting fees paid to plaintiffs, damages for time and
money spent pursuant to the contracts alleged objectives (plus interest, costs
and attorneys' fees).

         In an effort to resolve the case in a timely and cost effective manner,
we sought, and plaintiffs agreed, to early-stage mediation before a U. S. judge
magistrate. The mediation was held on April 26, 2006, in the U. S. District
Court in Boston. At mediation the case settled, in its entirety, for the sum of
$50,000, in return for a dismissal with prejudice of all claims asserted by
plaintiffs in their complaint, and comprehensive, mutual releases between the
parties. The entire $50,000 settlement has been recorded under accrued expenses
in the March 31, 2006 consolidated balance sheet.

EOP-CENTRAL PARK PLAZA. LLC V. R-CUBE TECHNOLOGIES, INC.

         Our wholly-owned subsidiary, R-Cube Technologies, Inc. ("R-Cube") was
named as a defendant in a civil action commenced against it by plaintiff
EOP-Central Park Plaza, LLC ("EOP") on December 27, 2005, in Orange County
Superior Court, Case No. 05NL25236, entitled, EOP-CENTRAL PARK PLAZA. LLC V.
R-CUBE TECHNOLOGIES, INC.


                                       9



<PAGE>

         In the action, EOP alleged causes of action for (1) breach of contract;
(2) open book account; and (3) account stated on the part of R-Cube, and seeks
alleged damages of approximately $21,300. We denied any breach of contract or
other wrongdoing and/or contended that our performance under the agreement was
excused. We further denied that EOP is entitled to the claimed damages.

         Both R-Cube and EOP have reached a settlement agreement in principal.
The agreement calls for the payment of $12,000 by R-Cube to EOP in exchange for
dismissal of the action with prejudice. The settlement agreement was completed
and executed on June 28, 2006.

REPL V. VITAL COMMUNICATIONS, AND VITAL COMMUNICATIONS V. REPL
(REPL was amalgamated into our subsidiary, NetGuru Limited)

         Our wholly-owned India-based subsidiary, netGuru Limited (formerly
Research Engineers Private Limited, "REPL") is a plaintiff in a civil action
commenced by REPL and is a named defendant in a counter suit by Vital
Communications stemming from actions in 2001 in Tiz Hazari Court, India and
Delhi High Court, India, SUIT NO. 256 OF 2001 LYING PENDING AT THE HIGH COURT
OF DELHI, INDIA.

         In the actions, REPL alleges causes of action for breach of contract
and seeks alleged damages of approximately $450,000. Vital Communications denies
any breach of contract or other wrongdoing and/or contends and alleges that REPL
is in breach of contract and is demanding $1,350,000 in damages. We further deny
that Vital Communications is entitled to the claimed damages.

         Both REPL and Vital Communications are engaged in settlement
discussions. No reserves regarding this dispute have been recorded under accrued
expenses in the March 31, 2006 consolidated balance sheet.

         AUTODESK, INC. V. NETGURU SYSTEMS LIMITED AND RESEARCH ENGINEERS PVT.
LTD. (NetGuru Systems Limited and Research Engineers Pvt. Limited were
amalgamated into our subsidiary, NetGuru Limited)

         Our India-based subsidiary, NetGuru Limited is a defendant in a civil
action commenced against it by plaintiff Autodesk, Inc. ("Autodesk") on May 4,
2006, SUIT NO. 752 OF 2006, IN THE HIGH COURT OF DELHI, INDIA.

         In the action, plaintiffs alleged infringement of copyright on account
of unlicensed use of software programs being utilized by the defendants. A
settlement agreement is now in negotiations whereby the defendants would
purchase all software programs allegedly being used and would agree to periodic
audits by plaintiff over a period of 12 months.

         We anticipate the dispute to settle for approximately $120,000, which
has been accrued under accrued expenses in the March 31, 2006 consolidated
balance sheet. We anticipate that the settlement agreement will be completed and
executed in July 2006.

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

         During the quarter ended March 31, 2006, no matters were submitted to a
vote of our common stockholders.


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<PAGE>

                                     PART II

ITEM 5.       MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
              BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

         Our common stock trades on The Nasdaq Capital Market under the ticker
symbol "NGRU." As of June 22, 2006, there were approximately 118 holders of
record of our common stock. Within the holders of record of our common stock are
brokerage firms that in turn, hold shares of stock for beneficial owners.

         On December 29, 2005, we announced that our board of directors approved
a cash distribution in the amount of $0.85 per share payable on January 27, 2006
to stockholders of record as of January 17, 2006. The total amount that was
distributed on January 27, 2006 was approximately $16,250,000. The distribution
followed our sale of the assets of our REI business and STAAD product lines on
November 18, 2005 and our board of directors' subsequent decision to distribute
substantially all of the net proceeds of the sale after repaying debt and
setting aside reserves for taxes, continuing operations, and other
contingencies. In connection with the distribution, options issued under our
stock option plans ceased further vesting and then terminated if not exercised
prior to the ex-distribution date of January 30, 2006. Non-plan options and
warrants that remained outstanding on the ex-distribution date had an $0.85 per
share reduction in their exercise prices on the ex-distribution date.

         The high and low closing sale prices of a share of our common stock, as
reported by The Nasdaq Capital Market for each quarter of fiscal 2006 and 2005,
are as follows:

<TABLE>
                                                             FISCAL 2006 (1)        FISCAL 2005 (1)
                                                             ---------------        ---------------
                                                             HIGH        LOW        HIGH        LOW
                                                             ----        ---        ----        ---
<S>    <C>                                                  <C>         <C>        <C>         <C>
       1st  Quarter (April 1 - June 30)                     $0.29       $0.24      $0.44       $0.34
       2nd Quarter (July 1 - September 30)                   0.38        0.21       0.41        0.24
       3rd Quarter (October 1 - December 31)                 0.30        0.16       0.43        0.23
       4th Quarter (January 1 - March 31)                    0.58        0.26       0.37        0.27
         ---------------------------------------------------------------------------------------
         (1) Amounts have been adjusted to reflect a cash distribution of $0.85 in January 2006.
</TABLE>

         In March 2006, we issued 117,887 shares of common stock upon a cashless
net exercise of a portion of warrant with an exercise price of $0.15 per share
that we had issued in December 2003 to a consultant in connection with an
investment banking agreement.

         Exemption from the registration provisions of the Securities Act of
1933, as amended (the "Securities Act"), for the transaction described above is
claimed under Section 4(2) of the Securities Act, among others, on the basis
that this transaction did not involve any public offering and the purchaser was
accredited or sophisticated with access to the kind of information registration
would provide. Appropriate investment representations were obtained and the
securities were issued with restrictive legends if appropriate.

ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD-LOOKING STATEMENTS

         This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended, (the "Exchange Act)". We intend that those forward-looking
statements be subject to the safe harbors created by those sections. These


                                       11



<PAGE>

forward-looking statements generally include the plans and objectives of
management for future operations, including plans and objectives relating to our
future economic performance, and can generally be identified by the use of the
words "believe," "intend," "plan," "expect," "forecast," "project," "may,"
"should," "could," "seek," "pro forma," "goal," "estimates," "continues,"
"anticipate" and similar words. 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 continue as a going concern;
         o        Our ability to obtain additional debt or equity financing to
                  the extent needed for our continued operations or for planned
                  expansion, particularly if we are unable to attain and
                  maintain profitable operations in the future;
         o        Our ability to successfully implement our business plans,
                  including the possible divestiture of some or all remaining
                  operations, the possibility of a corporate merger or strategic
                  acquisition, and/or the possible expansion of our engineering
                  business process outsourcing initiatives;
         o        Our ability to attract and retain strategic partners and
                  alliances;
         o        Our ability to hire and retain qualified personnel;
         o        The risks of uncertainty of protection of our intellectual
                  property;
         o        Risks associated with existing and future governmental
                  regulation to which we are subject; and
         o        Uncertainties relating to economic conditions in the markets
                  in which we currently operate and in which we intend to
                  operate in the future.

         These forward-looking statements necessarily depend upon assumptions
and estimates that may prove to be incorrect. Although we believe that the
assumptions and estimates reflected in the forward-looking statements are
reasonable, we cannot guarantee that we will achieve our plans, intentions or
expectations. The forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to differ in
significant ways from any future results expressed or implied by the
forward-looking statements. We do not undertake to update, revise or correct any
forward-looking statements.

         Any of the factors described above or in the "Risk Factors" section of
this report could cause our future financial results, including our net income
(loss) or growth in net income (loss) to differ materially from prior results,
which in turn could, among other things, cause the price of our common stock to
fluctuate substantially.

OVERVIEW

         We were incorporated in 1981 under the name Research Engineers, Inc.,
and changed our name to netGuru, Inc. in 2000. We are a Delaware corporation.
Our primary business offerings are:

         o        Document centric collaborative software products and services
                  for businesses worldwide; and

         o        Embedded information technology, or IT services (including
                  engineering business process outsourcing, or EBPO).

         In our collaborative software business, we have won new customers and
partners worldwide. We secured new document collaboration projects with Sharp
Laboratories of America and Amtrak. We are one of several industry leaders
partnering with Oracle Corporation to provide enhanced functionality for Oracle
Files 10g, the content management solution developed for enterprise-wide


                                       12



<PAGE>

deployment. By taking advantage of the strong relationships we have built with
our 19,000 engineering clients worldwide, we believe we have a good foundation
on which to introduce software addressing the upstream facets of the design
chain.

         Our IT services net revenues declined from a high of $18,000,000 in
fiscal 2001 to $2,902,000 in fiscal 2006 due to the market decline for such
services as well as due to competition. As a result of the steep decline in the
IT services net revenues, we scaled back our domestic IT services operations in
fiscal 2004. In the third quarter of fiscal 2004, we extended our IT services
operations to include EBPO services leveraging our technical expertise and
established infrastructure in India. Currently, our EBPO services address the
production of structural steel detailing drawings. Through our EBPO services, we
offer full engineering technical support to non-competing engineering software
companies as well as work with steel detailing and fabrication companies in the
U.S. to outsource their labor-intensive work to our wholly-owned subsidiary in
India. Our goal is not to replace U.S. steel detailing companies but to augment
their current workforce so they can take on more jobs and provide a faster
turnaround with higher margins. Although we believe our EBPO services will
contribute additional revenues to the IT services segment, we offer no assurance
as to the amount of additional revenues that may materialize since we have a
limited history in this segment of the business, and competition for such
services is intense as there are relatively few barriers to entry.

SALE OF REI BUSINESS AND STAAD PRODUCT LINES AND FRANCE SUBSIDIARY

         On November 18, 2005, we completed our sale of assets of our REI
business and STAAD product lines to Bentley for $23.5 million and recorded a net
gain of $21.6 million. On January 5, 2006, we entered into an agreement with Mr.
Badreddine Ziane to sell our France subsidiary for approximately $100,000 and
recorded a net loss of approximately $120,000. Accordingly, the results of
operations relating to our REI business and STAAD product lines and France
subsidiary are discussed below as discontinued operations.

CRITICAL ACCOUNTING POLICIES

         We have identified the following as accounting policies that are the
most critical to aid in understanding and evaluating our financial results:

         o        revenue recognition;
         o        allowance for doubtful accounts receivable; and
         o        impairment of long-lived assets, including goodwill.

     REVENUE RECOGNITION

         We derive revenues from:

         o        Collaborative software products and services; and
         o        IT services.

         We recognize revenues when the following criteria are met:

         o        Persuasive evidence of an arrangement, such as agreements,
                  purchase orders or written or online requests, exists;
         o        Delivery has been completed and no significant obligations
                  remain;
         o        Our price to the buyer is fixed or determinable; and
         o        Collection is reasonably assured.


                                       13


<PAGE>

         We recognize revenues from software that we customize to fit a
customer's requirements based on satisfactory completion of pre-determined
milestones (evidenced by written acceptance from the customer) and delivery of
the product to the customer, provided no significant obligations remain and
collection of the resulting receivable is reasonably assured. Customers may
choose to purchase ongoing maintenance contracts that include telephone, e-mail
and other methods of support, and unspecified upgrades on a when-and-if
available basis. Revenue from the maintenance contracts is deferred and
recognized ratably over the life of the contract, usually twelve months.

         In 1997, the Accounting Standards Executive Committee ("AcSec") of the
American Institute of Certified Public Accountants ("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 and requires that each element of a software licensing
arrangement be separately identified and accounted for based on relative fair
values of each element. We determine the fair value of each element in
multi-element transactions based on vendor-specific objective evidence ("VSOE").
VSOE for each element is based on the price charged when the same element is
sold separately.

         In 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2, "Software
Revenue Recognition, With Respect to Certain Transactions," which modified SOP
97-2 to allow for use of the residual method of revenue recognition if certain
criteria are met. If evidence of fair value of all undelivered elements exists
but evidence does not exist for one or more delivered elements, then we
recognize revenue using the residual method. Under the residual method, the fair
value of the undelivered elements is deferred, and the remaining portion of the
transaction fee is recognized as revenue.

         We recognize revenues from our IT services primarily on a time and
materials basis, with time at a marked-up rate and materials and other
reasonable expenses at cost, as we perform IT services. Certain IT services
contracts are fixed price contracts where we measure progress toward completion
by mutually agreed upon pre-determined milestones and recognize revenue upon
reaching those milestones. Our fixed price IT contracts typically are for a
short duration of one to nine months. We did not have any uncompleted fixed
price IT contracts at March 31, 2006.

     ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

         We sell to our customers on credit and grant credit to those who are
deemed credit worthy based on our analysis of their credit history. We review
our accounts receivable balances and the collectibility of these balances on a
periodic basis. Based on our analysis of the length of time that the balances
have been outstanding, the pattern of customer payments, our understanding of
the general business conditions of our customers and our communications with our
customers, we estimate the recoverability of these balances. When recoverability
is uncertain, we record bad debt expense and increase the allowance for accounts
receivable by an amount equal to the amount estimated to be unrecoverable. If
the historical data we use to calculate the allowance provided for doubtful
accounts does not reflect our future ability to collect outstanding receivables,
additional provisions for doubtful accounts may be needed and our future results
of operations could be materially affected.

     IMPAIRMENT OF LONG-LIVED ASSETS INCLUDING GOODWILL

         We apply the provisions of SFAS No. 86, "Accounting for the Cost of
Computer Software to be Sold, Leased, or Otherwise Marketed," to software
development costs. At each balance sheet date, we compare the unamortized
software development cost of each product to the net realizable value of the
product. We write off to cost of revenues the amount by which the unamortized
software development cost exceeds the net realizable value of the product.


                                       14



<PAGE>

         On April 1, 2002, we adopted the provisions of SFAS No. 142, "Goodwill
and Other Intangible Assets." SFAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested at least annually for impairment. We consider the following operating
segments - collaborative software products and services as well as IT services -
to be our reporting units for purposes of testing for impairment.

         We use a two-step test to assess potential impairment to goodwill. In
the first step, the fair value of each reporting unit is compared to its
carrying value including goodwill. If the fair value exceeds the carrying value,
then goodwill is not considered impaired, and we do not need to proceed to the
second step. If the carrying value of a reporting unit exceeds its fair value,
then we have to determine and compare the implied fair value of the reporting
unit's goodwill to the carrying value of its goodwill. If the carrying value of
the reporting unit's goodwill exceeds its implied fair value, then we have to
record an impairment loss in the amount of the excess.

         The implied fair value of goodwill is determined by allocating the fair
value of the reporting unit to all of the assets (recognized and unrecognized)
and liabilities of the reporting unit in a manner similar to a purchase price
allocation, in accordance with SFAS No. 141, "Business Combinations." The
residual fair value after this allocation is the implied fair value of the
reporting unit goodwill.

         We are required to perform reviews for impairment annually, or more
frequently when events occur or circumstances change that would more likely than
not reduce the fair value of the net carrying amount. The evaluation of goodwill
impairment involves assumptions about the fair values of assets and liabilities
of each reporting unit. If these assumptions are materially different from
actual outcomes, the carrying value of goodwill will be incorrect. In addition,
our results of operations could be materially affected by the write-down of the
carrying amount of goodwill to its estimated fair value.

         We assessed the fair values of our two reporting units by considering
their projected cash flows, using risk-adjusted discount rates and other
valuation techniques. Given consideration of relevant factors, such as the
decline in revenue of these reporting units as well as the negative impact on
projected cash flows due to total operating costs being charged to the remaining
operations after the REI sale, we concluded that as of December 31, 2005,
impairment write-downs in our IT services division and our collaborative service
division were required. In accordance with the provisions of SFAS No. 142, we
recorded an impairment charge of $2,924,000 during the three months ended
December 31, 2005. The amount of the write-down represented the excess of the
carrying amounts of goodwill over their fair values. As of March 31, 2006, we
had no remaining goodwill balance.


                                       15



<PAGE>

CONSOLIDATED RESULTS OF OPERATIONS

CONTINUING OPERATIONS

NET REVENUES

         The following table presents our net revenues by operating segment
(dollars in thousands):

                                                       YEAR ENDED MARCH 31,
                                                     ------------------------
                                                        2006          2005
                                                     ----------    ----------
         NET REVENUES
             Collaborative software products and
               services                              $    969      $    748
             % of total revenue                          25.0%         16.4%

             IT services                                2,902         3,801
             % of total revenue                          75.0%         83.6%
                                                     ---------     ---------
                 Total net revenues                  $  3,871      $  4,549
                                                     =========     =========

         Total net revenues decreased by $678,000 (14.9%) to $3,871,000 in
fiscal 2006 from $4,549,000 in fiscal 2005. Our total net revenues primarily
consisted of revenues from (1) collaborative software products and services and
(2) IT services.

     COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         Net revenues from collaborative software products and services for
fiscal 2006 increased by $221,000 (29.5%) to $969,000 from $748,000 in fiscal
2005 due to an increase in the number of collaborative software projects
completed during the year compared to the prior year. In our Germany office,
collaborative software revenues increased approximately $87,000 primarily due to
obtaining three new customers: FileNet GMBH, Airbus France and Steria Mummert
Consulting. Following the sale of our REI business in November 2005, more focus
has been concentrated on collaborative software revenues whereas prior to that,
the majority of our focus was on our REI revenues. In addition, net revenues
increased due to the completion and recognition of one large project in the
amount of $220,000 during fiscal 2006 compared to the completion of a $100,000
project in the prior year. The majority of our collaborative software revenue is
generated from service-oriented projects where the revenue is recognized only
upon completion of the entire project. The timing of completion and recognition
of revenue from our large projects creates variability in our collaborative
software net revenues between quarters and fiscal years.

     IT SERVICES

         The trend of decreasing IT services net revenues continued in fiscal
2006. IT services net revenues decreased by $899,000 (23.7%) to $2,902,000 in
fiscal 2006 from $3,801,000 in fiscal 2005. IT services net revenues decreased
as a percentage of total net revenues to 75.0 % in fiscal 2006 from 83.6% in
fiscal 2005. Net revenues from IT services have decreased due to the scaling
back of one of our domestic IT services offices, a decrease in the number of
customers, and a reduction of our prices to remain competitive and retain our
current customers. For the past several years, the IT services industry has been
adversely affected by a slow economy, and many of our customers reduced, and
continue to reduce, spending on technology consulting and systems integration
services.


                                       16



<PAGE>

          Net revenues from our domestic subsidiaries decreased $1,027,000 due
to the scaling back of our R-Cube Technologies office, a decrease in the number
of qualified employees available to staff various jobs, and a decrease in the
number of customers. This decrease was offset by an increase in our EBPO service
business for steel designing and detailing. Our EBPO services business did not
bring significant revenues to the IT services segment. Although we anticipate
that our EBPO services business will bring in additional revenues for the IT
services segment, we cannot assure you that we will be successful in this
endeavor, due to competition among providers of such services and relatively few
barriers to entry since EBPO services are not capital-intensive.

GROSS PROFIT AND GROSS MARGIN

         The following table presents our gross profit by segment and gross
profit as a percentage of each segment's revenue, or gross margin (dollars in
thousands):

                                                         YEAR ENDED MARCH 31,
                                                     ---------------------------
                                                         2006            2005
                                                     -----------     -----------
GROSS PROFIT
    Collaborative software products and services     $      865      $      675
    IT services                                             764           1,315
                                                     -----------     -----------
         Total gross profit                          $    1,629      $    1,990
                                                     ===========     ===========

GROSS MARGIN
    Collaborative software products and services          89.3%           90.2%
    IT services                                           26.3%           34.6%
                                                     -----------     -----------
         Total gross margin                               42.1%           43.7%
                                                     ===========     ===========

         Consolidated gross margin decreased to 42.1% in fiscal 2006 from 43.7%
in fiscal 2005.

      COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         Our collaborative software products and services segment generally
produces a higher gross margin than our IT services segment due to the
relatively lower costs associated with each sale. Additionally, research and
development costs are typically written off when developing software and only
certain amounts are capitalized and subsequently amortized. The cost of net
revenues for the collaborative software products and services segment includes
royalty fees, salaries of the engineers working on specific service
customization jobs, and software amortization expense.

         Gross margin in the collaborative software products and services
segment decreased by 0.9 percentage points in fiscal 2006 compared to fiscal
2005. In fiscal 2006, cost of sales for the collaborative software products and
services segment included an increase of $86,000 for salaries of a few engineers
who worked on service- oriented collaborative software jobs, which were not
underway in the prior year. This increase was offset by a decrease of $69,000 in
software amortization costs as a result of the completion of amortization during
June 2004.

     IT SERVICES

         Gross margin in the IT services segment decreased by 8.3 percentage
points in fiscal 2006 compared to fiscal 2005. IT services segment gross margin
decreased due to the increase in the number of employees for the new estimated
EBPO projects we planned to undertake, but had not yet begun or had been
delayed. Historically, gross margin from the IT services segment has been lower
than gross margin from the collaborative software products and services segment


                                       17



<PAGE>

due to the higher cost of labor associated with IT services. The cost of net
revenues for IT services includes the salaries, bonuses, and benefits for the
consulting employees. Our IT services consultants generally receive higher
salaries than our technical support employees.

OPERATING EXPENSES

         The following table presents our operating expenses and the percentage
of total net revenues (dollars in thousands):

                                                           YEAR ENDED MARCH 31,
                                                          ----------------------
                                                             2006         2005
                                                          ----------   ---------
OPERATING EXPENSES
    Selling, general and administrative expenses          $   3,639    $  3,257
    % of total net revenues                                   94.0%       71.6%

    Research and development expenses                           496         543
    % of total net revenues                                   12.8%       11.9%

    Bad debt expense                                            369         236
     % of total net revenues                                   9.5%        5.2%

    Depreciation                                                328         343
     % of total net revenues                                   8.5%        7.5%

    Impairment charge                                         2,924          -
    % of total net revenues                                    75.5%         -

    Total operating expenses                              $   7,756    $  4,379
     % of total net revenues                                 200.3%       96.2%

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative ("SG&A") expenses increased by
$382,000 (11.7%) to $3,639,000 in fiscal 2006 from $3,257,000 in fiscal 2005
primarily due to the following:

     o   A $121,000 increase in professional fees due to an increase in legal
         fees and accounting fees due to increased lawsuits, quarterly and year
         end accounting fees, due diligence work, and an increased number of SEC
         filings;
     o   Lawsuit settlements of  $170,000;
     o   A $72,000 increase in temporary accounting help expenses;
     o   A $42,000 increase in traveling expenses due to increased travel by our
         sales departments and upper management to promote sales growth and
         visit our India office;
     o   A $37,000 increase in board compensation expenses due to monthly pay
         increases; and
     o   A $33,000 increase in investment banking expense due to strategic
         opportunities advisory services provided to us.


                                       18



<PAGE>

         The above increases in SG&A expenses were partially offset by the
following decreases in SG&A expenses:

     o   A $90,000 decrease in insurance expenses and other benefits due to a
         decrease in the number of our U.S. employees and due to proper
         allocation to cost of sales for IT consultants' insurance expenses;
     o   A $74,000 decrease in sales commission expense due to a decrease in
         sales in the IT business segment; and
     o   A $76,000 decrease in consulting expenses due to the termination of an
         outside sales consulting contract and due to the fact that in the prior
         year we paid a brokerage fee for locating a subtenant for a portion of
         the space in our headquarters.

         We anticipate our legal and professional fees will increase in fiscal
2007 due to the possible divestiture of some of or all of our remaining assets
and operations as well as possible mergers and/or strategic acquisitions.
However, we are continuing to control and cut costs where feasible and
anticipate that our overall corporate overhead costs may decrease in fiscal
2007.

     RESEARCH AND DEVELOPMENT EXPENSES

         Research and development ("R&D") expenses consist primarily of software
developers' wages. In fiscal 2006, R&D expenses decreased by $47,000 (8.7%) to
$496,000 from $543,000 in fiscal 2005. As a percentage of collaborative software
net revenues, to which they mostly relate, R&D expenses decreased to 51.2% in
fiscal 2006 from 72.6% in fiscal 2005. The decrease in R&D expenses is primarily
due to many of our R&D developers working on actual service projects for our
customers, and, as a result, their costs were re-classified to cost of sales.

     BAD DEBT EXPENSE

         Bad debt expense increased $133,000 (56.4%) to $369,000 from $236,000
in fiscal 2005. The increase in bad debt expense was primarily due to an
increase in the reserve balance for receivables at our India subsidiary. Many of
the receivable accounts at our India subsidiary were aged significantly and
recoverability was uncertain, therefore we provided an allowance for these
accounts.

     DEPRECIATION

         In fiscal 2006, depreciation expense decreased by $15,000 (4.4%) to
$328,000 from $343,000 due to the increased amount of fixed assets becoming
fully depreciated. We anticipate that depreciation expenses will not change
significantly from these levels in fiscal 2007.


                                       19



<PAGE>

     IMPAIRMENT CHARGE

         During fiscal 2006, we recorded impairment charges totaling $2,924,000
for the write-down of goodwill related to the purchases of netGuru Systems,
Inc., R-Cube Technologies, Inc, and Allegria, Inc in accordance with SFAS No.
142. In accordance with SFAS No. 142, we assessed the fair value of our two
reporting units by considering their projected cash flows, using risk-adjusted
discount rates, and other valuation techniques. Given consideration of relevant
factors such as the sale of the REI business, we concluded that an impairment
write-down of our IT Services division in the amount of $1,137,000 was required,
as well as an impairment write-down of our collaborative software division in
the amount of $1,787,000. As of March 31, 2006, we had no remaining goodwill
balance.

     SEGMENT PROFITABILITY AND OPERATING INCOME (LOSS)

         In fiscal 2006, consolidated operating loss was $6,127,000 compared to
consolidated operating loss of $2,389,000 during fiscal 2005. Consolidated
operating loss during fiscal 2006 consisted of operating losses from the
collaborative software products and services segment, the IT services segment,
and the corporate center. Operating loss in the engineering and collaborative
software products and services segment was $1,817,000 during fiscal 2006
compared to operating loss of $332,000 during fiscal 2005. Operating loss for
the collaborative software segment increased $1,485,000 primarily due to an
impairment charge to goodwill in the amount of $1,787,000. This increase in
operating loss was offset by the following:

         o        A $221,000 increase in revenue due to larger value projects
                  being completed;
         o        A $130,000 decrease in bad debt expense due to no additional
                  reserves needed; and
         o        A $69,000 decrease in amortization of capitalized software due
                  to the completion of amortization in June 2004.

         In the IT services segment, the operating loss during fiscal 2006 was
$1,955,000 compared to operating loss of $61,000 during fiscal 2005. Operating
loss in the IT services segment increased due to the following:

         o        A $1,137,000 increase for an impairment charge to goodwill; o
                  A $120,000 lawsuit settlement for licensed software;
         o        A $263,000 increase in bad debt expense due to additional
                  reserves needed; and
         o        A $509,000 decrease in gross profit due to a decrease in the
                  number of customers and projects causing a reduction in sales
                  and increased staff for the anticipated EBPO projects that had
                  not started or had been delayed.


                                       20



<PAGE>

OTHER EXPENSE (INCOME)

         The following table presents our other expense (income) and its
percentage of total net revenues (dollars in thousands):

                                                    YEAR ENDED MARCH 31,
                                                  ------------------------
                                                     2006          2005
                                                  ----------    ----------
OTHER EXPENSE (INCOME)
    Interest expense, net                         $     543     $     504
    % of total revenue                                14.0%         11.1%

    Other income                                  $   (147)     $   (109)
    % of total revenue                               (3.8)%        (2.4)%

    Total other expense                           $     396     $     395
     % of total revenue                               10.2%          8.7%

     INTEREST EXPENSE, NET

         Net interest expense increased by $39,000 (7.7%) in fiscal 2006 to
$543,000 from $504,000 in fiscal 2005. This increase was due primarily to an
increase of $182,000 in interest expense from our debt to Laurus Master Fund,
Ltd. ("Laurus"). On November 18, 2005, we paid the entire outstanding debt
obligation to Laurus and expensed the remaining unamortized discount for the
2003 and 2004 note and the revolving credit facility in the amount of $247,000.
In addition, the remaining prepaid loan fees of $35,000 associated with the
Laurus debt were expensed to loan origination fees, which is part of interest
expense. Those additional expenses were offset by no interest expense recorded
for the Laurus debt during the three months ended March 31, 2006 due to the loan
being paid off in November 2005. That reduction in interest expenses amounted to
approximately $103,000. The overall increase in interest expense was partially
offset by a $161,000 increase in interest income due to investments made with
the proceeds received from the sale of the REI business. Due to the Laurus debt
payoff and the payoff of the debt of our India subsidiary, we anticipate our
interest expense in fiscal 2007 will decrease significantly from fiscal 2006.
The only remaining interest expense we anticipate paying in fiscal 2007 is
interest on our capital leases.

     OTHER INCOME

         Other income increased by $38,000 (34.9%) in fiscal 2006 to $147,000
from $109,000 in fiscal 2005 primarily due to rental income in India from
leasing our building to Bentley, and from the write off of previously recorded
liabilities.

     INCOME TAXES

         For fiscal 2006, we recorded an income tax expense of $45,000 relating
to certain state and foreign taxes compared to $7,000 in fiscal 2005. The
increase in income tax expense was mainly due to a fringe benefit tax that was
introduced in April 2005 in India. The fringe benefit tax taxes us for
benefits that are collectively used by all employees.


                                       21



<PAGE>

DISCONTINUED OPERATIONS

         On November 18, 2005, we completed the sale of our REI business and
STAAD product lines to Bentley for $23,500,000 in cash. The asset sale included
the worldwide operations associated with REI, including the STAAD structural
analysis and design product line, software and product development, customer
support and relationships, and offices associated with the worldwide business.
In addition to the $23,500,000, we also received $250,000 for reimbursement of
expenses relating to legal and financial services in connection with the asset
sale. In accordance with the asset sale agreement, in November 2005 we set aside
cash reserve of $1.07 million. As of May 17, 2006, the sum of the prepaid assets
assigned to Bentley at closing and assigned accounts receivable for which
payments had been received by Bentley was less than the aggregate amount of the
assumed current liabilities, which resulted in a shortfall of approximately
$760,000. Per the asset sale agreement, we were obligated to pay the amount of
the shortfall to Bentley. The entire amount of the shortfall has been recorded
under accrued settlement for REI sale on the balance sheet as of March 31, 2006.
In accordance with accounting principles generally accepted in the United
States, the revenues, costs, and expenses directly associated with the REI
business have been reclassified as discontinued operations on the condensed
consolidated statements of operations for all periods presented. Corporate
expenses such as general corporate overhead and interest have not been allocated
to discontinued operations.

         On January 5, 2006, we entered into a separate agreement with Mr.
Badreddine Ziane to sell the Company's France subsidiary for approximately
$100,000 and recorded a net loss of approximately $120,000. Our France
subsidiary was in the business of selling our STAAD structural analysis and
design product lines and provided technical support and maintenance for its
customers. Mr. Ziane has agreed to purchase all the outstanding shares of the
subsidiary and he intends to sell the REI products and offer related consulting
services as an independent contractor to Bentley.

         We recorded income from discontinued operations of $21,237,000 during
fiscal 2006 compared to income from discontinued operations of $2,003,000 during
fiscal 2005. The income recorded in fiscal 2006 includes a gain on the sale of
the REI business in the amount of $22,223,000, partially offset by a tax expense
from the gain on sale of the REI business of $608,000, a loss on sale of the
France subsidiary in the amount of $120,000, and losses from the REI operations
of $258,000. The losses in fiscal 2006 reflect only seven and one-half months of
full operations, as we completed the sale on November 18, 2005.

         Net loss from discontinued operations for fiscal 2006 was $258,000
compared to net income of $1,886,000 for the same period in the prior year, an
increase in net loss of $2,144,000. The increase in net loss in the REI business
segment was primarily due to additional direct costs incurred related to the
sale of the REI business. In addition, the increase was due to only seven and
one-half months of revenue being recorded in fiscal 2006, where the last quarter
of our fiscal year historically has been the most profitable quarter.

         Separately, in September 2004, we sold our Web-based telecommunications
services division in our efforts to focus on our core software products and IT
services businesses. Accordingly, the results of the operations of the Web-based
telecommunications services division are also excluded from continuing
operations and reported as discontinued operations for fiscal 2005. The total
sales price was $130,000 for the sale of the Web-based telecommunications
services division in September 2004. We had received the entire proceeds from
the sale of the Web-based telecommunications services division prior to March
31, 2005.


                                       22



<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Historically, we have relied upon cash from financing activities to
fund the majority of the cash requirements of our operating and investing
activities. We have not been able to generate sufficient cash from our operating
activities in the past, and there is no assurance we will be able to do so in
the future. Until the close the sale of our REI business during the quarter
ended December 31, 2005, we financed our operations (including capital
expenditures) primarily through existing cash and cash equivalent balances and
issuance of convertible notes. As a result of the sale, we allocated a portion
of the $23,500,000 sale proceeds to transaction costs, applicable taxes and the
retirement of approximately $3,312,000 of outstanding debt. On December 29,
2005, we announced that our board of directors approved a cash distribution in
the amount of $0.85 per share payable on January 27, 2006 to stockholders of
record as of January 17, 2006. The total amount that was distributed on January
27, 2006 was approximately $16,250,000.

         Our principal sources of liquidity at March 31, 2006 consisted of
$2,749,000 of cash and cash equivalents. Cash and cash equivalents of our
continuing operations decreased by $870,000 during fiscal 2006. Total cash used
in our discontinued operations was $339,000 for fiscal 2006, compared to total
cash provided of $1,903,000 for fiscal 2005.

         Net cash used in continuing operations was $2,213,000 in fiscal 2006
compared to $2,592,000 in fiscal 2005, a decrease of $379,000. The primary
reasons for cash used in operations during fiscal 2006 were net loss from
continuing operations of $6,568,000 offset by an impairment charge for goodwill
of $2,924,000, depreciation expense of $328,000, bad debt expense of $369,000,
and amortization of loan discount of $403,000. In addition, the following
contributed to cash usage in fiscal 2006:

         o        A $201,000 decrease in deferred revenues primarily due to a
                  lower level of new maintenance billings and the recognition of
                  revenues from one large collaborative software contract that
                  was deferred in fiscal 2005;
         o        A $92,000 increase in notes and related party receivables due
                  to the receivable due from the sale of the France subsidiary.

         The above cash usages were primarily offset by the following
contributors to cash during fiscal 2006:

         o        A $307,000 decrease in accounts receivable due to a few large
                  payments received for large collaborative software contracts
                  and due to one of our larger IT customers paying on a net
                  15-day basis instead of net 60 days;
         o        A $313,000 decrease in prepaid expenses and other current
                  assets due to the write-off of remaining capitalized film
                  costs, the write-off of tax deducted at source amounts, and a
                  decrease in prepaid insurance expense; and
         o        A $375,000 increase in accrued expenses due to an increase in
                  medical, vacation and gratuity accruals in our Indian
                  subsidiaries, an increase in accrued legal and professional
                  fees, and an increase for legal settlements.

          The primary reason for cash used in operations during fiscal 2005 was
net loss from continuing operations of $2,791,000 offset by depreciation expense
of $412,000, bad debt expense of $236,000, and amortization of discount on loan
of $227,000. In addition, the following contributed to the cash usage in fiscal
2005:

         o        A $418,000 increase in accounts receivable due to two large
                  collaborative software projects that were billed at the end of
                  fiscal 2005 and were not collected until fiscal 2006;


                                       23



<PAGE>

         o        A $236,000 increase in prepaid and other current assets due
                  primarily to a receivable resulting from the sale of our
                  Web-based telecommunications service division;
         o        A $223,000 decrease in accounts payable due to increased
                  payments being made.

          The above were partially offset by a $239,000 increase in deferred
revenues due to a higher level of maintenance billings and the deferral of
collaborative software project billings since the projects had not been
completed at the close of the fiscal year and therefore the related revenues
were not yet earned.

         Although we anticipate our cash needs will increase in the upcoming
quarters as a result of increases in expenses related to the possible
divestiture of some of or all of our remaining assets and operations as well as
possible mergers and/or strategic acquisitions, we believe that the proceeds
that remain from our sale of our REI business, together with our operating
revenues and the proceeds from the sale of our France subsidiary will be
adequate to cover these additional expenses.

         Net cash provided by investing activities in fiscal 2006 was
$21,986,000. Net cash provided by investing activities primarily consisted of
proceeds of $23,500,000 from the sale of our REI business to Bentley. This was
offset by an increase in restricted cash of $1,157,000 for the cash reserve set
aside for the Bentley purchase agreement and for cash reserves set aside for
government projects in India and an increase in capital expenditures of $357,000
primarily for facility enhancements at our India operations. As of May 17, 2006,
the sum of the prepaid assets assigned to Bentley at closing and assigned
accounts receivable for which payments had been received by Bentley was less
than the aggregate amount of the assumed current liabilities, which resulted in
a shortfall of approximately $760,000. Per the asset sale agreement, we were
obligated to pay the amount of the shortfall to Bentley in May 2006. The entire
amount of the shortfall has been recorded under accrued settlement for REI sale
on the balance sheet as of March 31, 2006. Net cash provided by investing
activities for fiscal 2005 was $135,000. This primarily consisted of proceeds
from the sale of e-Destinations and our Web-based telecommunications services
division of $286,000 and proceeds from the sale of short-term investments of
$100,000. These increases were offset by capital expenditures of $150,000 and
payments to acquire companies of $76,000.

         Net cash used in financing activities during fiscal 2006 was
$20,251,000. Net cash used in financing activities primarily resulted from a
cash distribution to our stockholders in the amount of $16,250,000. In addition,
cash used in financing activities was due to $3,812,000 in repayments of
long-term debt and $189,000 in payments of capital lease obligations. In
November 2005, our convertible notes and our India subsidiary's debt were paid
off with the proceeds from the sale of our REI business. Cash provided by
financing activities during fiscal 2005 resulted from long-term borrowings of
$3,035,000 and $100,000 of common stock issuances upon exercise of warrants,
offset by $754,000 in long-term debt repayments and $111,000 in capital lease
payments.

         On August 31, 2005, our board of directors formed a special committee
consisting of three independent board members. This special committee has been
evaluating the possible divestiture of some of or all of our remaining assets
and operations, as well as possible mergers and/or strategic acquisitions for
our company and our information technology, collaborative software, and EBPO
businesses. Discussions with public and private entities have been or are being
held involving potential asset purchases, common stock purchases, and reverse
mergers. We anticipate entering into merger and/or sale agreement(s) with one or
more parties by August 2006. In the event that such transaction(s) do not take
place at all and/or are unreasonably delayed, our future capital requirements
will depend upon many factors. These factors include but are not limited to
sales and marketing efforts, the development of new products and services,
possible future corporate mergers or strategic acquisitions or divestitures, the
progress of research and development efforts, and the status of competitive
products and services. We believe that the proceeds that remain from our sale of
our REI business, together with our operating revenues and the proceeds from the
sale of our France subsidiary will be adequate to extinguish all of our
remaining liabilities of and fund our current operations through October 2006.


                                       24



<PAGE>

         However, to the extent we are in need of any additional financing, we
cannot assure you that any such additional financing will be available to us on
acceptable terms, or will be available at all. In addition, any future financing
may cause significant dilution to existing stockholders. Because of this
uncertainty, our recurring losses from operations, excluding gains on the sale
of significant portions of our operating assets, our limited cash resources, our
accumulated deficit and the contemplated sale of additional operating assets,
among other factors, raised doubt about our ability to continue as a going
concern and led our independent registered public accounting firm to include an
explanatory paragraph related to our ability to continue as a going concern in
their report for the year ended March 31, 2006. Reports of independent auditors
questioning a company's ability to continue as a going concern generally are
viewed unfavorably by analysts and investors. This report may make it difficult
for us to raise additional debt or equity financing to the extent needed for our
continued operations or for planned expansion, particularly if we are unable to
attain and maintain profitable operations in the future. Consequently, future
losses may adversely affect our business, prospects, financial condition,
results of operations and cash flows. We urge potential investors to review the
report of our independent registered public accounting firm and our consolidated
financial statements before making a decision to invest in netGuru.

         The following table summarizes our contractual obligations and
commercial commitments at March 31, 2006 (in thousands of dollars):

<TABLE>
<S>     <C>
                                                                    PAYMENTS DUE BY PERIOD
                                                         LESS THAN                                AFTER
    CONTRACTUAL OBLIGATIONS                   TOTAL       1 YEAR      1-3 YEARS    4-5 YEARS     5 YEARS
    -----------------------                  --------     --------     ---------    ---------    --------

    Long-Term Debt *                       $    92           75            7            7            3
    Capital Lease Obligations **               379          176          195            8            -
    Operating Leases                            64           64            -            -            -
                                             --------     --------     --------     --------     --------
    Total Contractual Cash Obligations     $   535          315          202           15            3
                                             ========     ========     ========     ========     ========
</TABLE>

*  Excludes debt discount of $18 primarily related to warrant and beneficial
   conversion adjustments.
** Represents future minimum lease payments excluding deductions for imputed
   interest of $67.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         EXCHANGES OF NONMONETARY ASSETS

         In December 2004, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 153, "Exchanges of Nonmonetary Assets," an Amendment of
Accounting Principles Board ("APB") Opinion No. 29, "Accounting for Nonmonetary
Transactions." SFAS No. 153 requires companies to measure exchanges of
nonmonetary assets, including similar productive assets that have commercial
substance, based on the fair value of the assets exchanged, recognizing a gain
or loss. SFAS No. 153 is effective for interim periods beginning after June 15,
2005 and, thus, became effective for us beginning with the second quarter of
fiscal 2006. Adoption of SFAS No. 153 has not had a material effect on our
consolidated financial condition or results of operations.


                                       25



<PAGE>

         SHARE-BASED PAYMENT

         In December 2004, the FASB issued SFAS No. 123(R), "Share-Based
Payment." SFAS No. 123(R) requires companies to measure and recognize
compensation expense for all stock-based payments at fair value. For small
businesses, SFAS No. 123(R) is effective for the first quarter of the first
fiscal year beginning after December 15, 2005 and, thus, became effective for us
in the first quarter of fiscal 2007. Retroactive application of the provisions
of SFAS No. 123(R) to the beginning of the fiscal year that includes the
effective date is permitted, but not required. We are currently evaluating the
effect of adopting SFAS No. 123(R) and believe the adoption of SFAS No. 123(R)
will not have a material effect on our consolidated results of operations,
similar to the pro forma results described in "Stock-Based Compensation" in note
1 of notes to our consolidated financial statements included in this report, but
have not yet determined the amount of the effect.

         ACCOUNTING CHANGES AND ERROR CORRECTIONS

         In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections," a replacement of APB Opinion No. 20, "Accounting Changes,"
and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements."
The standard changes the requirements for accounting for and reporting of a
voluntary change in accounting principle, requiring a retrospective application
to prior periods' financial statements of the change in principle unless it is
impracticable rather than the recording of a cumulative effect of the change in
accounting principle in net income in the year of change. The standard is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005.

RISK FACTORS

         An investment in shares of our common stock involves a high degree of
risk. In addition to the other information contained or incorporated by
reference in this annual report on Form 10-KSB, you should carefully consider
the following risk factors before deciding to invest or maintain an investment
in shares of our common stock. This annual report contains or incorporates by
reference forward-looking statements that 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 annual report. If any
of the following risks actually occurs, 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.

         Since our sale of our REI division and related assets to Bentley in
November 2005, a special committee of our board of directors has been searching
for and evaluating the possibility of a merger and/or sale of our remaining
operations and assets. Although we have not entered into any material definitive
agreements with respect to such a transaction, we continue to work toward that
goal. Therefore, we are presenting some, but not all, possible risk factors that
may be associated with a merger or sale involving our remaining operations or
assets. We do not have a policy of updating or revising forward-looking
statements, and silence by our management over time should not be assumed to
mean that actual events are bearing out as estimated in the forward-looking
statements.


                                       26



<PAGE>

         WE HAVE LIMITED CASH RESOURCES AVAILABLE TO CONTINUE OUR OPERATIONS AND
         OUR EFFORTS TO CONSUMMATE A STRATEGIC TRANSACTION. ACCORDINGLY, IF WE
         ARE UNABLE TO CONSUMMATE A MERGER/SALE TRANSACTION OR RAISE NEEDED
         CAPITAL IN THE FUTURE, WE MAY BE UNABLE TO FUND OPERATING CASH
         SHORTFALLS.

         We have limited cash resources, and these resources may diminish in the
future. Our future capital requirements will depend upon many factors, including
sales and marketing efforts, the development of new products and services,
possible future strategic mergers and/or divestitures/acquisitions, the progress
of our research and development efforts, and the status of competitive products
and services. As of March 31, 2006, we had working capital of $3.3 million and
an accumulated deficit of $16.6 million. As of that date, we had $ 2.7 million
of cash and cash equivalents and $882,000 of accounts receivable, net of
allowance for doubtful accounts.

         We recorded a net operating loss of $6.1 million from continuing
operations and used $2.2 million of cash in continuing operating activities
during the fiscal year ended March 31, 2006. There is no assurance that we will
be able to generate sufficient operating cash in future quarters. We believe
that current and future available capital resources will not be adequate to fund
our operations for the next twelve months. We do not have any debt instruments
in place that we could use for future borrowings. Thus, we may be forced to seek
additional capital in order to continue our operations. It may be difficult for
us to obtain additional equity or debt financing. Any terms of such a financing
could be dilutive and unfavorable to our stockholders.

         Alternatively, our inability to obtain any needed financing could
result in a significant loss of ownership and/or control of our proprietary
technology and other important assets and could also hinder our ability to fund
our continued operations and our product development efforts that historically
have contributed significantly to our competitiveness.

         WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT THAT MAY
         CONTINUE IN THE FUTURE AND THAT MAY ADVERSELY AFFECT OUR BUSINESS,
         PROSPECTS, FINANCIAL CONDITION, RESULTS OF OPERATIONS, CASH FLOWS AND
         STOCK PRICE.

         We have incurred net losses each fiscal year since our public offering
in 1996, with the exception of the fiscal year ended March 31, 2006, in which we
realized net income of $14.7 million due in large part to a $21.5 million gain
on the asset sale to Bentley. We do not expect to realize similar gains in
future periods. For the three months ended March 31, 2006, we recorded a net
loss of approximately $1.9 million, as compared to a net income of $138,000 for
the three months ended March 31, 2005. Our accumulated deficit through March 31,
2006 was approximately $16.6 million, and as of that date we had a total
shareholders' equity of $3.6 million.

         Our recurring losses from operations, excluding gains on the sale of
significant portions of our operating assets, our limited cash resources and
continued negative cash flow from operations, our accumulated deficit and the
potential sale of additional operating assets, among other factors, raised doubt
about our ability to continue as a going concern and led our independent
registered public accounting firm to include an explanatory paragraph related to
our ability to continue as a going concern in their report for the year ended
March 31, 2006. Reports of independent auditors questioning a company's ability
to continue as a going concern generally are viewed unfavorably by analysts and
investors. This may make it difficult for us to raise additional debt or equity
financing to the extent needed for our continued operations or for planned
expansion, particularly if we are unable to attain and maintain profitable
operations in the future. Consequently, future losses may adversely affect our
business, prospects, financial condition, results of operations and cash flows.


                                       27



<PAGE>

Investors should review the report of our independent registered public
accounting firm and our consolidated financial statements before making a
decision to invest or maintain an investment in netGuru.

         EVEN IF APPROVED BY OUR STOCKHOLDERS, A MERGER/SALE TRANSACTION MAY NOT
         BE COMPLETED.

         The completion of a merger/sale would be subject to certain conditions,
likely to include stockholder approval. Even if our stockholders were to approve
a transaction, there could be no assurances that the other conditions to closing
would be met and that the transaction would be completed. If the transaction
were not completed, we would have spent a substantial amount of time and
financial resources in connection with the transaction without realizing any
gain.

         IF A MERGER/SALE IS COMPLETED, ANY NEW BUSINESS DIRECTION AND/OR
         BUSINESS OPPORTUNITY THAT WE PURSUE COULD BE RISKY.

         Because we have not yet entered into a definitive agreement relating to
a merger/sale, we have no commitments to enter into or acquire a specific
business opportunity. Therefore, we cannot disclose the risks and hazards of any
specific business or opportunity that we may enter into. Our merger with, or
participation in, a business opportunity will likely be illiquid and could
result in a total loss to us and our stockholders if the business or opportunity
proves to be unsuccessful.

         WE MAY BE DELISTED FROM THE NASDAQ CAPITAL MARKET EITHER VOLUNTARILY OR
         INVOLUNTARILY, AND WE MAY SEEK TO TERMINATE OUR SEC REPORTING
         OBLIGATIONS UNDER SECTIONS 12 AND 15 OF THE SECURITIES EXCHANGE ACT OF
         1934 IF WE ARE OR BECOME ELIGIBLE TO DO SO, WHICH COULD REDUCE THE
         LIQUIDITY OF OUR COMMON STOCK AND INHIBIT OR PRECLUDE OUR ABILITY TO
         RAISE ANY NEEDED WORKING CAPITAL FROM EQUITY INVESTORS.

         Nasdaq's quantitative listing standards require, among other things,
that listed companies maintain a minimum closing bid price of $1.00. Our grace
period to regain compliance with this provision ends September 11, 2006. If we
do not engage in a strategic transaction or successfully conduct a reverse split
of our common stock or take other appropriate actions that increase our stock
price, we may be involuntarily delisted from The Nasdaq Capital Market.

         Further, a change of control of our company could occur if we
consummate a merger/sale transaction. Nasdaq's qualification standards require,
among other things, that issuers apply for initial inclusion on Nasdaq following
a change of control. Nasdaq looks at many factors in determining whether a
change of control has occurred, including without limitation, changes in the
management, board of directors, voting power and ownership of a company. If we
consummate a merger/sale transaction and Nasdaq determines that a change of
control has occurred, we would need to file a new listing application if we want
to maintain our Nasdaq listing. We do not know whether, at the time, if any,
that we would file a new listing application with Nasdaq, we would meet the
initial listing standards of The Nasdaq Capital Market.

         Alternatively, we may determinate that it is not cost-effective for us
to remain listed in Nasdaq and maintain full-reporting status relative to our
operations. Therefore, an alternative under consideration to conserve resources
and avoid involuntary delisting is to voluntarily delist our common stock from
trading on Nasdaq and terminate our reporting obligations under Sections 12 and
15 of the Securities Exchange Act of 1934. Considering our rate of cash usage
and our current cash position, if a merger/sale on acceptable terms is not
consummated within the next few months, we may proceed with steps to delist from
Nasdaq and terminate our SEC reporting obligations if we are then eligible to do
so.


                                       28



<PAGE>

         If we are delisted from The Nasdaq Capital Market and/or if we
terminate our SEC reporting obligations, our stock price could decline and the
ability of our stockholders and of any potential or future investors to achieve
liquidity from our common stock could be severely limited. This could inhibit,
if not preclude, our ability to raise any needed additional working capital
through equity offerings on acceptable terms.

         ANY BUSINESS COMBINATION OR ACQUISITION WILL LIKELY BE DILUTIVE TO OUR
         EXISTING STOCKHOLDERS.

         Any business combination involving netGuru will most likely require our
issuance of additional shares of common and/or preferred stock. These issuances
could result in a change of control or substantial dilution to our existing
stockholders, with or without stockholder review or approval.

         THE MARKET PRICE FOR OUR COMMON STOCK MAY BECOME MORE VOLATILE AFTER A
         MERGER/SALE TRANSACTION OR AS A RESULT OF VARIOUS OTHER FACTORS.

         We cannot predict the extent of cash expenditures that may be related
to a merger/sale transaction. The cost of any transaction will be evaluated by
our special committee as part of any contemplated transaction. Therefore, we
cannot approximate the net cost to us at this time. However, these additional
costs may add to the volatility of our stock price. The price of netGuru stock
could further decline due to the impact of any of the following factors:

         o        failure to meet sales goals or operating budget;

         o        decline in demand for our common stock;

         o        revenues and operating results failing to meet expectations of
                  securities analysts or investors in any quarter;

         o        downward revisions in operating performance estimates or
                  changes in general market conditions;

         o        technological innovations by competitors or in competing
                  technologies;

         o        investor perception of our industry or prospects; or

         o        general economic trends.

         Market fluctuations are often unrelated to operating performance and
therefore are beyond our control.

         OUR SUCCESS IN OUR CONTINUING OPERATINGS DEPENDS, IN PART, ON OUR
         ABILITY TO RETAIN OUR CURRENT MANAGEMENT TEAM.

         Our founder, Chairman and Chief Executive Officer, Amrit K. Das, and
our Chief Financial Officer, Bruce K. Nelson, have been with us for
approximately 25 years and 4 years, respectively. Their experience, expertise,
industry knowledge and historical company knowledge would be extremely difficult
to replace if we were to lose the services of either of them. The precise impact
of the loss of services of either of them is extremely difficult to predict, but
would likely result in, at a minimum, significant costs to recruit, hire and
retain a successor and could impair operating results while the successor was
being recruited and transitioning into the position.


                                       29



<PAGE>

         THE MARKETS IN WHICH WE CURRENTLY COMPETE WILL CONTINUE TO BE HIGHLY
         COMPETITIVE, WHICH HAS RESULTED IN SIGNIFICANT PRICE COMPETITION AND
         MAY RESULT IN REDUCED REVENUES OR LOSS OF MARKET SHARE.

         The collaborative software products and services and IT services
markets, including the market for our EBPO services, are each highly
competitive. The market for IT services, including EBPO 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 those we have. 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 are experiencing pricing
pressures as we work to expand our software products and services market share.
As a result of these pricing pressures, we may experience declines in our
revenues, gross margins and market share.

         OUR OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY EXCHANGE RATE
         FLUCTUATIONS.

         We have established and acquired international subsidiaries that
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. Foreign currency denominated sales may result in gains
and losses on the conversion to U.S. dollars. We do not engage in hedging
activities to protect against the risk of currency fluctuations. Therefore,
exchange rate fluctuations can have a detrimental effect on our reported
operating results.

         WE SELL A SIGNIFICANT PORTION OF OUR PRODUCTS AND SERVICES TO CUSTOMERS
         IN INTERNATIONAL MARKETS IN WHICH WE MAY HAVE DIFFICULTY PROTECTING
         IMPORTANT INTELLECTUAL PROPERTY RIGHTS.

         Sales of our products and services to customers located outside the
U.S. accounted for approximately 35.2% of our total net revenues for the fiscal
year ended March 31, 2006. Our intellectual property rights are an important
aspect of our international business. We rely primarily on a combination of
contract, copyright, trademark and trade secret laws, domain name registration,
license and confidentiality agreements and software security measures to protect
our proprietary technology. However, 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. Protective measures we take may be even less effective in the
emerging Internet law field because online contracting, privacy and liability
issues, among others, are still being resolved. This lack of certainty is even
greater in India, where the use of the Internet is less evolved than in the U.S.

         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 the laws 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 the laws of the U.S. For example, India's statutory laws do not
protect service marks. Because a significant portion of our sales of products
and services comes from international markets, 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.


                                       30



<PAGE>

         CONFLICTS INVOLVING INDIA AND FUTURE CHANGES IN THE INDIAN GOVERNMENT
         POLICY FAVORING ECONOMIC LIBERALIZATION COULD MAKE OUR INDIAN
         OPERATIONS ECONOMICALLY UNVIABLE.

         During the fiscal years ended March 31, 2006 and March 31, 2005, we
derived approximately 26.7% and 19.8%, respectively, of our total net revenues
from continuing operations from sales made by our Indian operations, primarily
to customers in India. However, more than one-half of our employees, many of
whom are engaged in non-sales activities such as engineering business process
outsourcing, technical support and research and development, were based in India
during those periods. India has from time to time experienced civil unrest and
hostilities with its neighboring countries. Although the Indian government has
changed several times in recent years, the government of India has pursued
policies of economic liberalization throughout the past decade and the new
government that came to power in 2004 has promised to continue the same. These
policies have resulted in significantly increased opportunities for publicly and
privately held businesses in the information technology services markets in
which we operate in India. However, we cannot assure you that the current
government will remain in power or that these policies will continue. A
significant change in the Indian government's policies could cause our
operations in India to become more expensive or more difficult, and in either
case cause us to have to re-evaluate the economic viability of operating there.
Moreover, if civil unrest or hostilities involving India and any of its
neighboring countries should occur, it could have an adverse effect on the
communication infrastructure in India, which could, in turn, cause our
operations there to cease making economic sense. In that event, we may need to
expend significant time and resources in relocating and conducting our Indian
operations elsewhere.

         CHANGING TECHNOLOGY MAY RENDER OUR PRODUCT AND SERVICE OFFERINGS
         OBSOLETE AND, THEREFORE, UNMARKETABLE.

         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
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 our
customers to defer or cancel purchases of existing products or services.

         OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE, WHICH COULD
         RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES OF OUR
         COMMON STOCK AND IN LITIGATION AGAINST US.

         The market prices of securities of technology-based companies like ours
tend to be highly volatile. The market price of our common stock has fluctuated
significantly in the past. In fact, during the 52-week period ended June 19,
2006, the high and low sale prices of a share of our common stock (as adjusted
to reflect the $0.85 per share cash distribution we made in January 2006) were
$0.58 and $0.16, respectively. Our market price may continue to exhibit
significant fluctuations in response to a variety of factors, many of which are
beyond our control. These factors include, among others, deviations in our
results of operations from the estimates of securities analysts, changes in
securities analysts' estimates of our financial performance, changes in market
valuations of similar companies and stock market price and volume fluctuations
generally. Additionally, unless and until we successfully enter into and
consummate a merger/sale transaction or other strategic transaction, and perhaps
following such a transaction, it is likely that our quarter-to-quarter
performance will be unpredictable and our stock price particularly volatile.


                                       31



<PAGE>

         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. Because of the volatility of the market price of our common stock,
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.

         THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK GIVES A FEW
         INDIVIDUALS SIGNIFICANT INFLUENCE OVER IMPORTANT POLICY DECISIONS AND
         COULD DELAY OR PREVENT CHANGES OF CONTROL.

         As of June 22, 2006, our executive officers and directors and their
family members together beneficially owned approximately 36.3% of the issued and
outstanding shares of our common stock. As a result, these persons have the
ability to exert significant influence over matters that could include the
election of directors, changes in the size and composition of the board of
directors, and mergers and other business combinations or strategic transactions
involving our company. In addition, through their voting power, they may be able
to significantly influence certain decisions, including decisions regarding the
qualification and appointment of officers, dividend policy, access to capital
(including borrowing from third-party lenders and the issuance of additional
equity securities), and the acquisition or disposition of our assets. In
addition, the concentration of voting power in the hands of those individuals
could have the effect of delaying or preventing a change of control of our
company, even if the change of control would benefit our stockholders. A
perception in the investment community of an anti-takeover environment at our
company could cause investors to value our stock lower than in the absence of
such a perception.

ITEM 7.       FINANCIAL STATEMENTS.

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

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

         None.

ITEM 8A.      CONTROLS AND PROCEDURES.

         We conducted an evaluation, with the participation of our Chief
Executive Officer and Chief Financial Officer (our principal executive officer
and principal financial officer, respectively), of the design and operation of
our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), as of March 31,
2006, to ensure that information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's ("SEC's") rules and forms, including to ensure that
information required to be disclosed by us in the reports we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that as of March 31, 2006, our disclosure
controls and procedures were not effective at the reasonable assurance level due
to the material weakness described below.


                                       32



<PAGE>

         A material weakness is a control deficiency (within the meaning of the
Public Company Accounting Oversight Board (United States) Auditing Standard No.
2) or combination of control deficiencies that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. Management has identified as a
material weakness our need for additional staff with expertise in preparing
accounting estimates and performing reconciliation procedures relating to
inclusion of financial information in our consolidated financial statements.

         Our need for such additional staff resulted from the major sale of
assets we completed during the quarter ended December 31, 2005, which resulted
in our loss of accounting staff in our India and United States operations. We
have worked to remediate this weakness by using our remaining accounting staff,
temporary help and outside consulting services to perform additional manual
controls, procedures and analysis and other pre- and post-closing procedures
designed to ensure that our consolidated financial statements were prepared in
accordance with generally accepted accounting principles. Accordingly, we
believe that the consolidated financial statements included in this report
fairly present, in all material respects, our financial condition, results of
operations and cash flows for the periods presented. Management is unable,
however, to estimate our capital or other expenditures associated with
allocation of time of certain company personnel to assist us in performing the
additional controls and procedures or other expenditures relating to higher fees
paid to our independent auditors in connection with their review of this
remediation.

         The changes noted above, specifically, the changes relating to our use
of temporary help and outside consulting services to assist us in preparing our
consolidated financial statements and relating to our performance of additional
controls and procedures, are the only changes during the quarter ended March 31,
2006 in our "internal controls over financial reporting" (as defined in Rule
13a-15(f) under the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.

ITEM 8B.      OTHER INFORMATION.

         None.


                                       33



<PAGE>

                                    PART III

ITEM 9.       DIRECTORS AND 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 as of June 29,
2006, were as follows:

<TABLE>
                  Name                         Age                       Position
                  ----                         ---                       --------
<S>                                            <C>      <C>
Amrit K. Das                                   61       Chairman of the Board, Chief Executive Officer,
                                                          President and Director
Koushik Dutta                                  42       Chief Operating Officer
Bruce K. Nelson                                51       Chief Financial Officer and Secretary
Santanu K. Das                                 32       Director
D. Dean McCormick III (1) (2)(3)(4)            53       Director
Stanley W. Corbett (1) (2)(4)                  72       Director
Benedict A. Eazzetta (1) (2)(3)(4)             42       Director
</TABLE>

----------------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Nominating and Governance Committee.
(4) Member of Special Committee.

DIRECTORS AND EXECUTIVE OFFICERS

         AMRIT K. DAS is the founder of our company. He has served as our Chief
Executive Officer and Chairman of our board of directors since our inception in
1981 and as our President since November 2003. Mr. Das also served as our
President from 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. Mr. Das is the
father of Santanu K. Das.

         KOUSHIK DUTTA has served as our Chief Operating Officer since November
2005. He has served as Chief Technology Officer of our Web4 division since April
2000. Prior to that, Mr. Dutta co-founded Allegria Software, Inc. and served as
President and Chief Technology Officer of that company from February 1999 to
March 2000. Additionally, Mr. Dutta served as Vice President of Research and
Development for Advanced Technology Corporation from 1995 to June 1997 and as
Senior Manager for Research Engineers International from 1992 to 1995. Mr. Dutta
also co-founded and launched two business ventures, MicroWare and StanSoft. Mr.
Dutta is the inventor of eReview, WebWorks, ForReview and Autoproject. Further
Mr. Dutta is the winner of CSI's (Computer Society of India) prestigious NSTPC
award for programming. Mr. Dutta holds a Bachelors of Technology degree from
Indian Institute of Technology and an M.B.A from Indian Institute of Management.

         BRUCE K. NELSON has served as our Chief Financial Officer since April
2002 and as our Secretary since November 2005. Prior to joining us, Mr. Nelson
served as Chief Financial Officer of Millennium Information Technologies, Inc.
from 1997 to April 2002. From 1992 to 1997, he was co-founder and President of
Comprehensive Weight Management, a healthcare marketing company. From 1985 to
1992, Mr. Nelson served as Treasurer of Comprehensive Care Corporation, a
NYSE-traded national service company. Mr. Nelson holds a B.S. in Finance from
University of Southern California and an M.B.A. from Bryant College in
Smithfield, Rhode Island.


                                       34



<PAGE>

         SANTANU K. DAS has served as a director since November 2003. He also
served as our Executive Vice President and Chief Operating Officer from November
2003 until he resigned to join Bentley in connection with our sale of assets on
November 18, 2005. Prior to that, he served as Corporate Vice President and
President of Engineering and Collaborative Software from April 2002 to November
2003, as our Vice President of New Technology from July 1999 to November 2003
and as a director from September 1996 to July 2003. Prior to that, Mr. Das
served as our Corporate Vice President and President of Engineering and
Animation Software and ASP from January 2001 to March 2002. Prior to that, Mr.
Das served as our Manager of New Technology from May 1997 until June 1999, and
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 K. Das.

         D. DEAN MCCORMICK III is a certified public accountant and has been
president of the accounting firm of McCormick Consulting, Inc. since July 1993.
He has also been a member of Insight Consulting partners, LLC, a strategic
consulting firm, since October 2004. He joined the Board of Directors of
Composite Technology Corporation in January 2006. He has been a member of the
Audit and Budget Committee for the Catholic Diocese of Orange since February
2004. Mr. McCormick has been a member of the Forum for Corporate Directors since
June 2003. He served as president of the Orange County Chapter of the
Association for Corporate Growth from 1995 to 1996. Mr. McCormick holds a B.A.
degree in Economics from the University of Redlands and an M.B.A. from the
University of Southern California.

         STANLEY W. CORBETT has served as one of our directors since July 2002.
Mr. Corbett is a manufacturing executive in the aerospace industry. Since 1989,
Mr. Corbett has been providing consulting services for software system
implementations to first and second tier defense contractors as well as
commercial manufacturers. As a consultant, he also has provided solutions to a
large variety of manufacturing problems. Mr. Corbett holds a B.S. in Mechanical
Engineering from Lehigh University and an M.S. in Industrial Engineering from
Stanford University and has completed the University of California at Los
Angeles Executive Program.

         BENEDICT A. EAZZETTA has served as the president of Intergraph Public
Safety, Inc., a division of Intergraph Corporation (Nasdaq NM:INGR), since
August 2004. Prior to that, he served as the chief operating officer of
Intergraph Process Power & Offshore, an engineering software and services
business segment of Intergraph Corporation, and executive vice president of
Intergraph Corporation, since May 2001. He co-founded and then served from
January 2000 to April 2001 as vice president of product management for Industria
Solutions, a privately held software and services company. Mr. Eazzetta served
as an engineering executive at ExxonMobil from January 1996 to January 2000.
Prior to that, he served in several engineering, staff and management positions,
including downstream planning and development, economics and planning, and
various operational supervisory roles. Mr. Eazzetta earned a B.S. degree in
Nuclear Engineering and an M.S. degree in Mechanical Engineering from Georgia
Tech.

         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, our board of directors.

CODE OF BUSINESS CONDUCT AND ETHICS

         Our code of business conduct and ethics, as approved by our board of
directors, can be obtained from our Website, at
http://www.netguru.com/netGuruPolicies.asp.


                                       35



<PAGE>

         We intend to satisfy the disclosure requirement under Item 5.05 of Form
8-K relating to amendments to or waivers from provisions of the code that relate
to one or more of the items set forth in Item 406(b) of Regulation S-B, by
describing on our Internet Website, within five business days following the date
of a waiver or a substantive amendment, the date of the waiver or amendment, the
nature of the amendment or waiver, and the name of the person to whom the waiver
was granted.

         Information on our Internet website is not, and shall not be deemed to
be, a part of this report or incorporated into any other filings we make with
the Securities and Exchange Commission (the "SEC").

AUDIT COMMITTEE MATTERS

         Since July 25, 2003, our Audit Committee has consisted of Messrs.
Corbett, Eazzetta and McCormick, with Mr. McCormick holding the position of
chairman of that committee. Each of the members of our Audit Committee is
"independent" within the meaning of Rule 4200(a)(15) of the listing standards of
the National Association of Securities Dealers. Our board of directors has
determined that Mr. McCormick is an "audit committee financial expert" under SEC
rules and meets the NASD's professional experience requirements.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended, or
the 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
Commission. These officers, directors and stockholders are required by SEC
regulations to furnish us 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, 2006 and thereafter, or any written
representations received by us from reporting persons that no other reports were
required, we believe that, during our fiscal 2006, all Section 16(a) filing
requirements applicable to our reporting persons were met.


                                       36



<PAGE>

ITEM 10.      EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

         The following table sets forth information concerning the annual and
long-term compensation for services rendered during the last three fiscal years
to our company in all capacities as an employee by our Chief Executive Officer
and our other executive officers whose aggregate cash compensation exceeded
$100,000 (collectively, the "named executive officers") during fiscal 2006 shown
below. Koushik Dutta accepted the position of Chief Operating Officer effective
November 18, 2005 when Santanu K. Das resigned from this position due to his
employment with Bentley. In addition, due to his employment with Bentley on
November 18, 2005, Stephen Owen resigned from his positions as our Corporate
Vice President and President of European Operations.

<TABLE>
<S>     <C>
                                                                                          LONG-TERM COMPENSATION
                                                                                      -----------------------------
                                                      ANNUAL COMPENSATION                AWARDS          PAYOUTS
                                              -------------------------------------   -----------   ---------------
                                     FISCAL
                                     YEAR                             OTHER ANNUAL     SECURITIES
                                     ENDED                            COMPENSATION     UNDERLYING     ALL OTHER
             NAME AND                MARCH      SALARY      BONUS          (1)          OPTIONS      COMPENSATION
        PRINCIPAL POSITION            31,         ($)        ($)           ($)            (#)             ($)
 --------------------------------   -------   ----------  ---------   -------------   -----------   ---------------

 Amrit K. Das                        2006       220,154        ---             ---           ---          11,827(2)
    Chairman, Chief Executive        2005       217,000        ---             ---           ---          11,749(3)
    Office, President                2004       330,462        ---             ---           ---          12,324(4)


 Koushik Dutta                       2006       114,231        ---             ---           ---           3,427(5)
    Chief Operating Officer          2005      110,000         ---             ---           ---           3,315(5)
                                     2004      106,277         ---             ---           ---           3,173 (5)


 Bruce K. Nelson                     2006       127,500      25,000            ---           ---           3,825(5)
    Chief Financial Officer and      2005      102,423         ---             ---         20,000          3,073(5)
 Secretary                           2004        93,923        ---             ---           ---           2,301(5)


 Santanu K. Das                      2006       109,638      25,000            ---           ---           6,723(6)
     Former Corporate Vice
 President,  Former                  2005       120,000        ---             ---           ---           8,750(7)
    Chief Operating Officer          2004       121,615        ---             ---           ---           8,750(7)

 Stephen W. Owen                     2006       108,152       9,652            ---           ---           2,100(8)
    Former Corp Vice President,      2005       159,904       9,243            ---           ---           3,376(8)
    Former President, European
      Operations                     2004       157,477        ---             ---           ---             767(8)
</TABLE>

(1)    The costs of certain benefits are not included because they did not
       exceed, in the case of each named executive officer, the lesser of
       $50,000 or 10% of the total annual salary and bonus as reported above.
(2)    Includes $6,324 in premiums paid by us pursuant to a split-dollar life
       insurance policy established for the benefit of Amrit Das and $5,504 in
       company contributions to the 401(k) plan.
(3)    Includes $6,324 in premiums paid by us pursuant to a split-dollar life
       insurance policy established for the benefit of Amrit Das and $5,425 in
       company contributions to the 401(k) plan.
(4)    Includes $6,324 in premiums paid by us pursuant to a split-dollar life
       insurance policy established for the benefit of Amrit Das and $6,000 in
       company contributions to the 401(k) plan
(5)    Represents company contributions to the 401(k) plan.


                                       37



<PAGE>

(6)    Includes $3,433 in premiums paid by us pursuant to a life insurance
       policy established for the benefit of Santanu Das and $3,289 in company
       contributions to the 401(k) plan.
(7)    Includes $5,150 in premiums paid by us pursuant to a life insurance
       policy established for the benefit of Santanu Das and $3,600 in company
       contributions to the 401(k) plan.
(8)    Represents premiums paid by us pursuant to a life insurance policy for 3
       the benefit of Stephen Owen.

OPTION GRANTS IN LAST FISCAL YEAR

         In fiscal 2006, no options were granted to the named executive
officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

         On December 29, 2005, we announced that our board of directors
approved a cash distribution in the amount of $0.85 per share payable on January
27, 2006 to stockholders of record as of January 17, 2006. In connection with
the distribution, all holders of options issued under our stock option plans
were notified that, in accordance with the terms of the plans, plan-related
options would cease further vesting and then would terminate if not exercised
prior to the ex-distribution date of January 30, 2006. Accordingly, all options
held by the named executive officers were cancelled prior to fiscal year-end.

LONG-TERM INCENTIVE PLAN AWARDS

         In fiscal 2006, no awards were made to the named executive officers
under long-term incentive plans.

DIRECTORS' COMPENSATION

         From January 2004 to March 2005, Messrs. McCormick, Eazzetta and
Corbett, our non-employee directors, were eligible to receive $1,500 per month,
each, in consideration for their services on our board of directors. This amount
was increased to $2,000 per month in April 2005. In addition, effective June 1,
2005, the Chairman of the Audit Committee receives an additional $500 per month
in consideration for his services as Audit Committee Chairman. Non-employee
directors are reimbursed for certain expenses in connection with attendance at
board of directors and committee meetings.

         We also periodically award options to our directors under our existing
stock option plans and otherwise. During fiscal 2006, we granted fully vested
non-qualified stock options to purchase 15,000 shares of common stock each to
Dean McCormick III, Benedict A. Eazzetta and Stanley W. Corbett. The options had
an exercise price of $1.02 per share (which price was the fair market value of a
share of our common stock on the date of the grant), vested immediately on the
date of the grant, which was June 7, 2005 and were to expire June 7, 2015. In
addition, the vesting of outstanding options granted to non-employee directors
shall be accelerated under the circumstances described below with regard to a
change in control. In connection with the cash distribution, these stock options
were cancelled as of January 30, 2006.

         Effective June 1, 2005, each non-employee director became eligible to
receive annual grants of non-qualified stock options to purchase up to 15,000
shares of our common stock on the following terms:

     o    The annual grants were effective automatically on June 7, 2005 and
          were to be effective on each April 1 thereafter.

     o   The options were to be granted under one of our stock option plans to
         the extent shares are then available under a plan and the grants under
         a plan can be made in compliance with applicable securities laws.


                                       38



<PAGE>

     o    The exercise prices of the options were to be equal to the Fair Market
          Value of a share of our common stock as defined in the applicable
          stock option plan or, if the options are being granted outside of a
          plan, then the exercise price of the options were to be equal to the
          Fair Market Value of a share of our common stock as defined in our
          stock option plan most recently approved by our stockholders ("Recent
          Plan").

     o    The expiration date of the options was to have been ten years after
          their date of grant or such earlier date as is provided for
          non-employee directors (or if there is no such provision for
          non-employee directors, then as is provided for employee optionees) in
          the applicable stock option plan or, if there is no applicable stock
          option plan, then in the Recent Plan. o The options were to vest and
          become exercisable in nine equal monthly installments commencing one
          month after their date of grant. o If the director's service on the
          board of directors terminates as a result of, and concurrently or
          within three months following the consummation of, a change in
          control, then the unvested and unexpired options were to vest
          immediately prior to termination of the director's service.

         In addition, effective June 1, 2005, our board of directors and audit
committee resolved that the vesting of outstanding options previously granted to
non-employee directors would be accelerated under the circumstances described
above. However, those options subsequently were cancelled following the January
2006 cash distribution. In addition, the annual stock option grant program
described above was also cancelled due to the January 2006 cash distribution.

         Effective August 31, 2005, our board of directors approved payment of
$42,000 cash compensation to each of our then three non-employee directors,
Messrs. McCormick, Eazzetta and Corbett, in consideration of their agreement to
serve as members of a special committee of the board of directors. The charge of
the committee is to establish a specific course of action for us to take after
we consummated the sale of assets to Bentley. Each non-employee director
received five equal monthly installments of $8,400, commencing August 31, 2005.

                                       39

<PAGE>

         Subsequent to March 31, 2006, in recognition of the additional efforts
expended by members of the special committee during calendar 2006, our board and
compensation committee approved an additional cash payment in the amount of
$25,000 made to each member of the special committee on May 31, 2006.

REPRICING OF OPTIONS AND SARS

         No adjustments to or repricing of stock options previously awarded to
named executives occurred in fiscal 2006.

EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

         In June 2001, we entered into a five-year employment agreement with
Amrit Das, our Chairman, Chief Executive Officer and President. The agreement
provided that Mr. Das would receive a minimum base annual salary of $312,000.
However, in December 2003, Mr. Das voluntarily agreed to reduce his annual
salary by $100,000, effective April 2004. The $100,000 was to be used toward the
expansion of our EBPO services, which Mr. Das has been managing from India.

         The agreement expired on May 31, 2006. All terms and conditions have
been extended to Mr. Das that were in effect on May 31, 2006 on a month to month
basis. [The agreement contains provisions for confidentiality and assignments of
intellectual property rights. In addition, the agreement prohibits Mr. Das from
competing with us and from recruiting our employees, suppliers or independent
contractors within one year after termination of the agreement.

         Since June 2005, we have been a party to a Change in Control and
Executive Retention Agreement with Mr. Amrit Das. The initial term of the
agreement ran through March 31, 2006. Commencing on April 1, 2006 and each April
1 thereafter, the term of the retention agreement shall automatically be
extended for one additional year unless, not later than December 31 of the
preceding year, we give notice to Mr. Das of our intention not to continue the
retention agreement. However, if a Change in Control occurs during the term of
the agreement, then the agreement will continue in effect for 24 months beyond
the Change in Control.

         The retention agreement generally provides for payment of severance
benefits if Mr. Das is terminated following a Change in Control during the term
of the retention agreement, unless the termination is due to his death or
disability, is made by us for cause, or is made by him other than for good
reason. The retention agreement also contains certain provisions regarding a
"Change in Control" as defined Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act, whether or not we are then subject to such
reporting requirement. A Change in Control will be deemed to have occurred if:

         (i)    any "person" (as such term is used in Sections 13(d) and 14(d)
                of the Exchange Act), other than a trustee or other fiduciary
                holding securities under our employee benefit plan is or becomes
                the "beneficial owner" (as defined in Rule 13d-3 under the
                Exchange Act), directly or indirectly, of our securities
                representing 35% or more of the combined voting power of our
                then outstanding voting securities;


                                       40



<PAGE>

         (ii)   there is a merger or consolidation of our company in which our
                company does not survive as an independent public company;

         (iii)  the business or businesses of our company for which the services
                principally performed by the executive are disposed of by us
                pursuant to a partial or complete liquidation of our company, a
                sale of assets (including stock of a subsidiary) of our company,
                or otherwise; or

         (iv)   during any period of two consecutive years during the term of
                the agreement, individuals who, at the beginning of such period
                constitute the board of directors, cease for any reason to
                constitute at least a majority thereof, unless the election of
                each director who was not a director at the beginning of such
                period has been approved in advance by directors representing at
                least two-thirds of the directors then in office who were
                directors at the beginning of the period. However, no
                transaction that effects a mere reincorporation of our company
                or reorganizes our company will be considered a "Change in
                Control" for purposes of these agreements.

         Following a Change in Control during the term of the retention
agreement, Mr. Das will be entitled to:

         (a) during a period of disability, receive base salary at the rate in
effect at the commencement of the disability period until we terminate the
retention agreement in accordance with its terms;

         (b) if termination is by us for cause, by Mr. Das other than for good
reason, or due to death, disability or retirement, receive full base salary plus
other amounts otherwise due through the date of termination;

         (c) if termination is by us other than for cause, retirement or
disability, or by Mr. Das for good reason, receive:

         o        full base salary plus other amounts otherwise due through the
                  date of termination;
         o        vesting of all unvested benefits Mr. Das has accrued under any
                  stock option, retirement or deferred compensation plan,
                  program or agreement of our company in which Mr. Das
                  participates, payable subject to the same actuarial and
                  interest factors applicable and in accordance with the options
                  available and selected by Mr. Das under such plans or
                  programs.
         o        a lump sum severance payment equal to the sum of Mr. Das'
                  annual base salary in effect immediately prior to the
                  occurrence of the circumstance that gives rise to the
                  termination ("Circumstance") plus the bonus paid to Mr. Das
                  during the twelve calendar months preceding the Circumstance;
         o        for twelve months after termination, receive for Mr. Das and
                  his dependents life, disability, accident and health insurance
                  benefits substantially similar to those received immediately
                  prior to the notice of termination, provided that Mr. Das must
                  continue to make the required employee contribution payments;
                  and
         o        payment of legal fees and expenses incurred by Mr. Das as a
                  result of the termination.

         The retention agreement provides that the severance payment to Mr. Das
will be reduced if and to the extent that any payment or benefit received or to
be received by Mr. Das in connection with a change in control or the termination
of his employment following a change in control would constitute an excess
parachute payment as defined in Section 280G(b) of the Internal Revenue Code.


                                       41



<PAGE>

         On March 24, 2006, we entered into an employment agreement with Mr.
Bruce Nelson, our Chief Financial Officer and Secretary. The employment
agreement superseded and made void a retention agreement that we had entered
into with Mr. Nelson in June 2005 on the same terms as the retention agreement
described above. The employment agreement provides for an annual base salary of
$127,000 per year, or such greater amount as may be established by our
compensation committee, plus additional incentive cash compensation as follows:

         (a) A bonus payment equal to three months' salary, payable on the date
         of execution of the agreement, March 24, 2006;

         (b) A bonus payment equal to three months' salary, payable at the
         earlier of five days after we close the sale of any of our three
         remaining business units or April 21, 2006;

         (c) A bonus payment equal to three months' salary at the earlier of
         five days after we enter into a definitive agreement providing for a
         change in control transaction, which is defined as the merger of our
         company (or a subsidiary of ours) with any other company in which our
         stockholders immediately prior to the merger will (by virtue of the
         ownership of our stock) own less than 50% of the outstanding voting
         securities of the surviving entity (or parent thereof) immediately
         after the merger, five days after we deregister our securities under
         the Exchange Act, or July 31, 2006; and

         (d) A bonus payment equal to three months' salary plus an additional
         $20,000at the earlier of the completion of the sale of all three
         remaining business units, the closing of a change of control
         transaction, resignation of two or more members of our board of
         directors, including at least one of the independent members, or
         November 18, 2006.

         The foregoing not withstanding, if Mr. Nelson's employment is
terminated for "good cause" or if he resigns without "good reason," Mr. Nelson
shall not be entitled to receive any bonus payable after the effective date of
such termination. If we terminate Mr. Nelson's employment without "good cause"
or if Mr. Nelson dies or resigns for "good reason," then any unpaid bonus
amounts will become immediately due and payable. The third and fourth bonus
payments described above are to be placed into escrow and released to Mr. Nelson
or his estate upon satisfaction of the conditions described above, or released
back to us if Mr. Nelson's employment is terminated for "good cause" or without
"good reason" prior to the relevant payment date.

         "Good cause" for us to terminate the agreement includes Mr. Nelson's
material breach of the agreement, conviction of a crime involving moral
turpitude or imprisonment, failure to cure within ten days after receiving a
written notice regarding his continuing repeated failure or refusal to perform
his material and lawful duties required by the agreement or regarding his gross
negligence, insubordination, disloyalty or other material misconduct.

         "Good reason" for Mr. Nelson to terminate the agreement includes a
reduction from Mr. Nelson's title as Chief Financial Officer, or our material
breach of the agreement or failure to provide Mr. Nelson with adequate staff or
continued benefits.

         The agreement also provides that Mr. Nelson is entitled to three weeks
of paid vacation each year and standard employee medical and hospital insurance.
If Mr. Nelson's employment terminates other than for "good cause" or without
"good reason," then Mr. Nelson or his estate will be entitled to receive $500
per month until the earlier of six months from the date of termination or
November 18, 2006.


                                       42



<PAGE>

         The agreement contains restrictions on Mr. Nelson's disclosure and use
of confidential company information and property and an assignment to us of
intellectual property rights relating to Mr. Nelson's activities at our company.

ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
              RELATED STOCKHOLDER MATTERS.

BENEFICIAL OWNERSHIP TABLE

     GENERAL

         As of June 22, 2006, 19,235,041 shares of our common stock were
outstanding. The following table sets forth information as of that date
regarding the beneficial ownership of our common stock by:

         o        each of our directors;
         o        each of our current named executive officers listed in the
                  summary compensation table;
         o        all of our directors and executive officers as a group; and
         o        each person known by us to beneficially own 5% or more of the
                  outstanding shares of our common stock as of the date of the
                  table.

         Except as indicated below, the address for each named beneficial owner
is the same as ours. The information with respect to each person is as supplied
or confirmed by such person or based upon statements filed with the SEC. The
inclusion of shares in this table as beneficially owned is not an admission of
beneficial ownership. Percentages shown as an asterisk represent less than 1.0%.

         Beneficial ownership is determined in accordance with Rule 13d-3
promulgated by the SEC, and generally includes voting or investment power with
respect to securities. Except as indicated below, we believe each holder
possesses sole voting and investment power with respect to all of the shares of
common stock shown below as owned by that holder, subject to community property
laws where applicable. In computing the number of shares beneficially owned by a
holder and the percentage ownership of that holder, shares of common stock
subject to options held by that holder that are currently exercisable or
convertible or are exercisable or convertible within 60 days after the date of
the table are deemed outstanding. Those shares, however, are not deemed
outstanding for computing the percentage ownership of any other person or group.


                                       43



<PAGE>

<TABLE>
<S>     <C>
          NAME AND ADDRESS                   AMOUNT AND NATURE OF BENEFICIAL              PERCENT OF CLASS
        OF BENEFICIAL OWNER                     OWNERSHIP OF COMMON STOCK                 OF COMMON STOCK
-------------------------------------        -------------------------------        ---------------------------
Amrit K. Das                                           2,570,018(1)                            13.4%
Koushik Dutta                                                  -                                -
Bruce K. Nelson                                                -                                -
D. Dean McCormick III                                          -                                -
Benedict A. Eazzetta                                           -                                -
Stanley W. Corbett                                             -                                -
Santanu K. Das                                         2,550,900                               13.3%
Sormistha Das                                          1,862,924                                9.7%
Peter Kellogg                                          3,835,800(2)                            19.9%
Diker GP, LLC, Diker Management LLC,
Charles M. Diker and Mark M. Diker                       967,424(3)                             5.0%
All directors and executive officers
as a group (7 persons)                                 5,120,918(4)                            26.6%
</TABLE>

---------------
(1)    Includes 1,279,759 shares of common stock held by the A. and P. Das
       Living Trust, of which trust Amrit Das is the trustee. Also includes
       50,000 shares of common stock held by the Purabi Das Foundation, Inc., of
       which foundation Amrit Das is the trustee. Mr. Das disclaims beneficial
       ownership of the shares held by the foundation.
(2)    The address for Mr. Kellogg is 120 Broadway, New York, New York, 10271.
(3)    Based on a Schedule 13G filed February 17, 2006, power to vote or dispose
       of the shares is shared by: Diker GP, LLC, as the general partner ("Diker
       GP") to Diker Value-Tech Fund, LP, the Diker Value Tech QP Fund, LP, the
       Diker Micro-Value Fund, LP, the Diker Micro-Value QP Fund, LP, the Diker
       Micro and Small Cap Fund, LP, and the Diker M&S Cap Master, Ltd.
       (collectively, the "Diker Funds"); Diker Management, LLC, as the
       investment manager of the Diker Funds with respect to the shares of
       common stock held by the Diker Funds ("Diker Management"); and Charles M.
       Diker and Mark N. Diker, as managing members of each of Diker GP and
       Diker Management, with respect to the shares of common stock subject to
       the control of Diker GP and Diker Management. Each of these persons
       disclaims all beneficial ownership, however, as affiliates of a
       registered investment adviser and, in any case, disclaims beneficial
       ownership except to the extent of their pecuniary interest in the shares.
       The address of each of these persons is 745 Fifth Avenue, Suite 1409, New
       York, New York 10151.
(4)    Includes 50,000 shares of common stock that are held indirectly by Amrit
       Das and as to which Mr. Das disclaims beneficial ownership.

EQUITY COMPENSATION PLAN INFORMATION

         On December 29, 2005, we announced that our board of directors approved
a cash distribution in the amount of $0.85 per share payable on January 27, 2006
to stockholders of record as of January 17. 2006. In connection with the
distribution, the holders of options issued under the our stock option plans
were notified that, in accordance with the terms of the plans, plan-related
options would cease further vesting and then would terminate if not exercised
prior to the ex-distribution date of January 30, 2006. As such, all options
issued under the our stock option plans were cancelled on January 30, 2006.
Holders of non-plan options and warrants that remained outstanding as of January
30, 2006 had an $0.85 per share reduction in their exercise prices of those
options and warrants.


                                       44



<PAGE>

         The following table gives information about our common stock that may
be issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of March 31, 2006. The existing equity
compensation plans include our 1996 Stock Option Plan , 1997 Stock Plan, 1998
Stock Option Plan, 2000 Stock Option Plan, and 2003 Stock Option Plan (together
"the option plans").

<TABLE>
<S>     <C>
                                                                                           NUMBER OF SECURITIES
                                                                                         REMAINING AVAILABLE FOR
                                                                                          FUTURE ISSUANCE UNDER
                                   NUMBER OF SECURITIES TO BE     WEIGHTED AVERAGE         EQUITY COMPENSATION
                                     ISSUED UPON EXERCISE OF      EXERCISE PRICE OF          PLANS (EXCLUDING
                                     OUTSTANDING OPTIONS AND     OUTSTANDING OPTIONS      SECURITIES REFLECTED IN
          PLAN CATEGORY                   WARRANTS (1)              AND WARRANTS                 COLUMN (A))
---------------------------------  --------------------------   ---------------------   --------------------------
                                               (a)                       (b)                        (c)
 Equity compensation
   plans approved by
   security holders                             -                          -                     3,658,000
 Equity compensation
   plans not approved by
   security holders(2)                       427,500                      $0.42                     -
                                   --------------------------   ---------------------   --------------------------
 Total                                       427,500                      $0.42                  3,658,000
                                   ==========================   =====================   ===========================
</TABLE>

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

(1)  Number of shares is subject to adjustment for changes in capitalization for
     stock splits, stock dividends and similar events.
(2)  Represents 225,000 warrants and 202,500 options outstanding under equity
     compensation plans not approved by security holders.

         Options outstanding under equity compensation plans that were not
approved by security holders at March 31, 2006, were 202,500 at a weighted
average exercise price per share of $0.23, including an option to purchase
200,000 shares granted to a former executive pursuant to a separation agreement,
and options granted to consultants to purchase 2,500 shares for services
rendered and to be rendered.

         Warrants outstanding under equity compensation plans that were not
approved by security holders at March 31, 2006, were 225,000 at a weighted
average exercise price per share of $0.58 issued as consideration for investor
relations and business advisory services.

         There were no options outstanding under equity compensation plans
approved by security holders at March 31, 2006 (see Note 4 "Stockholders'
Equity" of Notes to Consolidated Financial Statements included in this report
for further information regarding the option plans).


         The option plans permit grants of both incentive stock options and
non-qualified stock options. 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 service and other conditions.

ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         On June 28, 2005, we and Laurus, who was then a secured creditor and
beneficial owner of more than 5% of our outstanding common stock, entered into a
waiver and extension pursuant to which Laurus waived our failure to meet a
January 22, 2005 resale registration statement filing date deadline under a
December 23, 2004 registration rights agreement and extended to September 1,
2005 a May 22, 2005 effectiveness date deadline imposed by that agreement in
exchange for our payment to Laurus of $10,000 liquidated damages.


                                       45



<PAGE>

         In connection with our entry into the asset sale agreement with
Bentley, we and Laurus entered into a Stand Still Agreement as of August 19,
2005. Under the Stand Still Agreement, Laurus consented to our entry into and
consummation of the transactions contemplated by the sale agreement, temporarily
agreed not to exercise any of its outstanding warrants, and agreed to release
its security interest in the assets being sold, subject to Laurus being paid in
full at the closing all of our obligations under the convertible promissory
notes described below held by Laurus. The Stand Still Agreement did not,
however, limit the right of Laurus to transfer or vote shares of our common
stock.

         As of August 19, 2005, Peter R. Kellogg, a beneficial owner of more
than 5% of our outstanding common stock, and Santanu K. Das each entered into a
voting agreement with Bentley. Pursuant to the voting agreements, Mr. Kellogg
and Mr. Das each delivered to Bentley irrevocable proxies that empowered two
executive officers of Bentley to vote shares of common stock owned by Mr.
Kellogg and Mr. Das, at any time prior to the earlier to occur of the
consummation or termination of the Bentley asset sale agreement, in favor of
approval and adoption of the agreement and approval of the asset sale
contemplated by the asset sale agreement, against approval of any proposal that
would result in a breach by us of the asset sale agreement, and against any
proposal made in opposition to, or in competition with, consummation of the
asset sale contemplated by the asset sale agreement.

         On November 18, 2005, we used part of the sale proceeds from the
Bentley transaction to pay the remaining total outstanding debt and accrued
interest owed to Laurus in the amount of approximately $2.25 million. This
amount also included 4% prepayment penalty charges aggregating approximately
$86,000. Upon receiving payment in full for all of our obligations under the
convertible promissory notes held, Laurus released all financing statements
filed against our assets. In addition, the revolving credit facility with Laurus
was terminated.

         In October 2003, we borrowed $100,000 from Mr. Amrit Das, our Chief
Executive Officer, and issued to him a 7.25% interest bearing unsecured
promissory note. The proceeds were used for working capital. The principal along
with the accrued interest was paid in full in August 2005.

         In June 2001, we entered into five-year employment agreements with each
of Santanu Das, our then Chief Operating Officer and Executive Vice President;
and Clara Young, our then Corporate Vice President, Chief Administrative Officer
and Secretary. The agreements provided for minimum base annual salaries of
$120,000 and $117,000, respectively, and contained terms similar to the other
employment agreement discussed above. In June 2005, the annual salaries of Mr.
Santanu Das and Ms. Young were increased to $165,000 and $123,000, respectively.
In November 2005, Ms. Young received a cash bonus of $8,333, which had been
contingent upon the closing of the asset sale to Bentley. Mr. Das and Ms. Young
resigned from their positions with us effective November 18, 2006 due to their
employment with Bentley. In March 2006, Mr. Das received a cash bonus of $25,000
in consideration for services he rendered in his capacity as an executive
officer in connection with the asset sale to Bentley.

         Each of Mr. Amrit Das, Mr. Santanu Das, Mr. Nelson and Ms. Young
(collectively, the "Executives"), were eligible to receive annual bonuses at the
discretion of the compensation committee based upon achievement of certain
operating income targets and contribution of the recipient to profitability
during fiscal 2006. The annual discretionary bonuses were to be up to 50% of Mr.
Santanu Das' base salary or up to 30% of the annual base salaries of the other
three Executives. However, none of the Executives received any annual bonus
under this arrangement.


                                       46



<PAGE>

         In June 2005, we entered into Change in Control and Executive Retention
Agreements with each of Mr. Amrit Das, Mr. Santanu Das, Ms. Young and Mr.
Nelson, on the terms described in Item 10 above with regard to Mr. Amrit Das'
retention agreement. In connection with the asset sale to Bentley in November
2005, Mr. Santanu Das and Ms. Young terminated their employment agreements with
us and were immediately employed by Bentley. Both Mr. Santanu Das and Ms. Young
waived their rights to any claim under the retention agreements at that time.
Mr. Nelson's retention agreement was terminated in connection with the execution
of his employment agreement.

         In November 2005, Mr. Nelson received a cash bonus of $25,000, which
had been contingent upon the closing of the asset sale to Bentley.

         We are a party to director and executive officer compensation
arrangements, employment, change in control and retention agreements with
related parties, as more particularly described in Item 10 of this report. In
addition, Sormistha Das, who beneficially owned 9.7% of our outstanding shares
of common stock as of June 22, 2006, and is the daughter of Mr. Amrit Das and
sister of Santanu K. Das, serves as our assistant controller.


                                       47



<PAGE>

ITEM 13.      EXHIBITS.

  Exhibit
   Number                           Description
  --------                          -----------

    2.1     Stock Purchase Agreement dated March 27, 2000 between the
            registrant, Allegria Software, Inc. and GRAL, Inc. (1)

    2.2     Shareholders Agreement dated May 25, 2000 between the registrant and
            Anup Das, individually and on behalf of the Indian Shareholders
            (defined therein) (1)

    2.3     Stock Purchase Agreement dated April 16, 2004, between the
            registrant and Rakesh Kapoor (2)

    2.4     Asset Purchase Agreement dated September 23, 2004, between the
            registrant and Reliance Consulting, Inc. (3)

    2.5     Asset Purchase Agreement dated as of August 19, 2005 between
            netguru, Inc. and Bentley Systems, Incorporated ("Purchase
            Agreement") (18)

    3.1     Form of Restated Certificate of Incorporation of the registrant
            filed with the Delaware Secretary of State on August 28, 2000 (3)

    3.2     Bylaws of the registrant (5)

    3.3     Action With Respect To Bylaws, as certified by the registrant's
            Secretary on October 22, 2004 (6)

    10.1    Common Stock Purchase Warrant dated December 13, 2002 issued by the
            registrant in favor of Laurus Master Fund, Ltd. (7)

    10.2    Security Agreement dated July 31, 2003 by and between the registrant
            and Laurus Master Fund, Ltd. (8)

    10.3    Secured Convertible Note dated July 31, 2003 made by the registrant
            in favor of Laurus Master Fund, Ltd. (8)

    10.4    Common Stock Purchase Warrant dated July 31, 2003 issued by the
            registrant in favor of Laurus Master Fund, Ltd. (8)

    10.5    Registration Rights Agreement dated July 31, 2003 by and between the
            registrant and Laurus Master Fund, Ltd. (8)

    10.6    Amendment No. 2 to Securities Purchase Agreement dated August 4,
            2003, by and between the registrant and Laurus Master Fund, Ltd. (8)

    10.7    Amendment No. 2 to Secured Convertible Note dated August 4, 2003 by
            and between the registrant and Laurus Master Fund, Ltd. (8)

    10.8    Security Agreement dated December 4, 2003 by and between the
            registrant and Laurus Master Fund, Ltd. (9)

    10.9    Registration Rights Agreement dated December 4, 2003 by and between
            the registrant and Laurus Master Fund, Ltd. (9)

    10.10   Secured Convertible Note dated December 4, 2003 made by the
            registrant in favor of Laurus Master Fund, Ltd. (9)


                                       48



<PAGE>

  Exhibit
   Number                           Description
  --------                          -----------

    10.11   Amended and Restated Convertible Note dated December 4, 2003 in the
            principal amount of $2,400,000 made by the registrant in favor of
            Laurus Master Fund, Ltd. (10)

    10.12   Securities Purchase Agreement dated December 23, 2004 by and between
            the registrant and Laurus Master Fund, Ltd. (11)

    10.13   Secured Convertible Note dated December 23, 2004 in the principal
            amount of $1,000,000 made by the registrant in favor of Laurus
            Master Fund, Ltd. (11)

    10.14   Registration Rights Agreement dated December 23, 2004 issued the
            registrant in favor of Laurus Master Fund, Ltd. (11)

    10.15   Security Agreement dated December 23, 2004 by and between the
            registrant and Laurus Master Fund, Ltd. (11)

    10.16   Common Stock Purchase Warrant dated December 23, 2004 issued by the
            registrant in favor of Laurus Master fund, Ltd. (11)

    10.17   Research Engineers, Inc. 1996 Stock Option Plan (5) (#)

    10.18   Research Engineers, Inc. 1997 Stock Option Plan (12) (#)

    10.19   Research Engineers, Inc. 1998 Stock Option Plan (13) (#)

    10.20   netGuru, Inc. 2000 Stock Option Plan (12) (#)

    10.21   netGuru, Inc. 2003 Stock Option Plan (14) (#)

    10.22   Employment Agreement dated June 1, 2001, by and between the
            registrant and Amrit K. Das (15) (#)

    10.23   Employment Agreement dated June 1, 2001, by and between the
            registrant and Clara Y. M. Young (15) (#)

    10.24   Employment Agreement dated June 1, 2001, by and between the
            registrant and Santanu Das (15) (#)

    10.25   Standard Industrial/Commercial Single-Tenant Lease-Net dated
            November 30, 1999 by and between Lowenberg Corporation and the
            registrant (16)

    10.26   Description of Salary and Bonus Programs for Executive Officers for
            Fiscal Year 2006 (17) (#)

    10.27   Description of Non-Employee Director Regular Compensation (#)

    10.28   Form of Change in Control and Executive Retention Agreement approved
            effective as of June 1, 2005 between netGuru, Inc. and each of Amrit
            K Das, Santanu Das, Clara Young and Bruce K. Nelson (17) (#)

    10.29   Form of Non-Qualified Stock Option Agreement dated June 7, 2005
            between netGuru, Inc. and each non-employee director (17) (#)

    10.30   Waiver of Section 2(a) and Extension of Section 2(b) of Registration
            Rights Agreement dated June 28, 2005 (18)


                                       49



<PAGE>

  Exhibit
   Number                           Description
  --------                          -----------

    10.31   Asset Purchase Agreement dated as of August 19, 2005 between
            netguru, Inc. and Bentley Systems, Incorporated  (18)

    10.32   Form of Transition Services Agreement entered into by and between
            netGuru, Inc. and Bentley Systems, Incorporated at the closing of
            Purchase Agreement (19)

    10.33   Voting Agreement dated as of August 19, 2005 by and between Bentley
            Systems, Incorporated and Peter R. Kellogg (19) (#)

    10.34   Voting Agreement dated as of August 19, 2005 by and between Bentley
            Systems, Incorporated and Santanu Das (19) (#)

    10.35   Stand Still Agreement dated as of August 19, 2005 by and between
            netGuru, Inc. and Laurus Master Fund, Ltd. (19)

    10.36   Summary of special compensation approved August 31, 2005 for
            executive officers and special committee members. (20) (#)

    10.37   Waiver and Termination of Agreement dated as of November 23, 2005 by
            and between netGuru, Inc. and Clara Young (21) (#)

    10.38   Waiver and Termination of Agreement dated as of November 28, 2005 by
            and between netGuru, Inc. and Santanu Das (21) (#)

    10.39   Employment Agreement dated March 24, 2006 by and between the
            registrant and Bruce K. Nelson (22) (#)

    21      Subsidiaries of the registrant

    23      Consent of Independent Registered Public Accounting Firm (Haskell &
            White LLP)

    31.1    Certification of Principal Executive Officer Required by Rule
            13a-14(a) of the Securities Exchange Act of 1934, as amended, as
            Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

    31.2    Certification of Principal Financial Officer Required by Rule
            13a-14(a) of the Securities Exchange Act of 1934, as amended, as
            Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

    32      Certification of Chief Executive Officer and Chief Financial Officer
            Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002

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

(#)  Management contract or compensatory plan, contract or arrangement required
     to be filed as an exhibit.

(1)  Filed as an exhibit to the registrant's Form 10-KSB for March 31, 2000 that
     was filed with the SEC on June 26, 2000 (File No. 0-28560), and
     incorporated herein by reference.

(2)  Filed as an exhibit to the registrant's Form 8-K for April 16, 2004 that
     was filed with the SEC on April 28, 2004 (File No. 0-28560), and
     incorporated herein by reference.

(3)  Filed as an exhibit to the registrant's information statement that was
     filed with the SEC pursuant to Section 14 (c) of the Securities Act on July
     27, 2000 (File No. 0-28560), and incorporated herein by reference.


                                       50



<PAGE>

(4)  Filed as an exhibit to the registrant's Form 8-K for December 5, 2002 that
     was filed with the SEC on December 20, 2002 (File No. 0-28560 and
     incorporated herein by reference.

(5)  Filed as an exhibit to the registrant's 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.

(6)  Filed as an exhibit to the registrant's Form 8-K for October 29, 2004 that
     was filed with the SEC on October 29, 2004 (File No. 0-28560), and
     incorporated herein by reference

(7)  Filed as an exhibit to the registrant's Form 10-KSB for March 31, 2003 that
     was filed with the SEC on July 15, 2003 (File No. 0-28560), and
     incorporated herein by reference.

(8)  Filed as an exhibit to the registrant's Form 8-K for July 25, 2003 that was
     filed with the SEC on August 7, 2003 (File No. 0-28560), and incorporated
     herein by reference.

(9)  Filed as an exhibit to the registrant's registration statement on Form S-3
     that was filed with the SEC on January 6, 2004 (File No. 333-112181), and
     incorporated herein by reference.

(10) Filed as an exhibit to the registrant's Form 8-K for April 27, 2004 that
     was filed with the SEC on June 3, 2004 (File No. 0-28560), and incorporated
     herein by reference.

(11) Filed as an exhibit to the registrant's Form 8-K for December 23, 2004 that
     was filed with the SEC on December 30, 2004 (File No. 0-28560), and
     incorporated herein by reference.

(12) Filed as an exhibit to the registrant's registration statement on Form S-8
     (Registration No. 333-84184) that was filed with the SEC on March 12, 2002,
     and incorporated herein by reference.

(13) Filed as an exhibit to the registrant's proxy statement that was filed with
     the SEC pursuant to Section 14 (a) of the Securities Act on November 12,
     1998 (File No. 0-28560), and incorporated herein by reference.

(14) Filed as an exhibit to the registrant's Definitive Proxy Statement that was
     filed with the SEC pursuant to Section 14 (a) of the Securities Act on
     October 14, 2003 (File No. 0-28560), and incorporated herein by reference.

(15) Filed as an exhibit to the registrant's Form 10-KSB for March 31, 2001 that
     was filed with the SEC on July 13, 2001 (File No. 0-28560), and
     incorporated herein by reference.

(16) Filed as an exhibit to Amendment No. 1 to the registrant's Form 10-KSB for
     March 31, 2002 that was filed with the SEC on December 3, 2002 (File No.
     0-28560), and incorporated herein by reference.

(17) Filed as an exhibit to the registrant's current report on Form 8-K for June
     7, 2005 that was filed with the SEC on June 7, 2005 (File No. 0-28560), and
     incorporated herein by reference.

(18) Filed as an exhibit to the registrant's current report on Form 8-K for June
     28, 2005 that was filed with the SEC on July 5, 2005 (File No. 0-28560),
     and incorporated herein by reference.

(19) Filed as an exhibit to the registrant's current report on Form 8-K for
     August 18, 2005 that was filed with the SEC on August 24, 2006 (File No.
     0-25860), and incorporated herein by reference.

(20) Filed as an exhibit to the registrant's current report on Form 8-K for
     August 31, 2005 that was filed with the SEC on September 6, 2005 (File No.
     0-25860), and incorporated herein by reference.

(21) Filed as an exhibit to the registrant's Form 10-QSB for December 31, 2005
     that was filed with the SEC on February 21, 2006 (File No. 0-25860), and
     incorporated herein by reference.

(22) Filed as an exhibit to the registrants current report on Form 8-K for March
     24, 2006 that was filed with the SEC on March 30, 2006 (File No. 0-25860),
     and incorporated herein by reference.


                                       51



<PAGE>

ITEM 14.      PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         The following table presents fees for professional services rendered by
Haskell & White LLP ("Haskell & White") for the years ended March 31, 2006 and
2005:

                                                       2006             2005
                                                    ----------       ----------
  Audit Fees (1)                                    $ 190,000        $ 119,000
  Audit-Related Fees (2)                                    -                -
  Tax Fees (3)                                              -                -
  All Other Fees (4)                                        -                -
                                                    ----------       ----------
      Total                                         $ 190,000        $ 119,000
                                                    ==========       ==========

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

(1)    Audit Fees: Includes fees for professional services performed by Haskell
       & White in fiscal 2006, for the audit of our annual financial statements
       and review of financial statements included in our Form 10-QSB filings,
       and services that are normally provided in connection with statutory and
       regulatory filings or engagement, such as the filing of Form S-3 or Form
       S-8.
(2)    Audit-Related Fees: Haskell & White did not provide any audit-related
       services.
(3)    Tax Fees: Haskell & White did not provide any professional services with
       respect to tax compliance, such as preparation and filing of original and
       amended returns for us and our consolidated subsidiaries, refund claims,
       payment planning, tax audit assistance and tax work stemming from
       "Audit-Related" items.
(4)    All Other Fees:  Haskell & White did not provide other permissible work
       for us that does not meet the above category descriptions.

PRE-APPROVAL POLICY

         Our Audit Committee is responsible for approving all Audit,
Audit-Related, Tax and Other Services. The Audit Committee pre-approves all
auditing services and permitted non-audit services, including all fees and terms
to be performed for us by our independent auditor at the beginning of the fiscal
year. Non-audit services are reviewed and pre-approved by project at the
beginning of the fiscal year. Any additional non-audit services contemplated by
our company after the beginning of the fiscal year are submitted to the Audit
Committee chairman for pre-approval prior to engaging the independent auditor
for such services. Such interim pre-approvals are reviewed with the full Audit
Committee at its next meeting for ratification.


                                       52



<PAGE>


                         NETGURU, INC. AND SUBSIDIARIES


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


1. Report of Independent Registered Public Accounting Firm...................F-2

2. Consolidated Financial Statements:

     Consolidated Balance Sheet as of March 31, 2006.........................F-3

     Consolidated Statements of Operations for the years ended
     March 31, 2006 and 2005.................................................F-4

     Consolidated Statements of Stockholders' Equity and
     Comprehensive Loss for the years ended
     March 31, 2006 and 2005.................................................F-6

     Consolidated Statements of Cash Flows for the years ended
     March 31, 2006 and 2005.................................................F-7

     Notes to Consolidated Financial Statements..............................F-9





<PAGE>


                                    REPORT OF


                  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
netGuru, Inc.:

We have audited the accompanying consolidated balance sheet of netGuru, Inc. and
subsidiaries as of March 31, 2006 and the related consolidated statements of
operations, stockholders' equity and comprehensive loss and cash flows for each
of the years ended March 31, 2006 and 2005. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion or the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. 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, 2006, and the results of their operations and their
cash flows for each of the years ended March 31, 2006 and 2005, in conformity
with generally accepted accounting principles in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 14 to
the consolidated financial statements, the Company has experienced losses and
negative cash flows from operations, sold a significant portion of its operating
assets and made a partial liquidating distribution to stockholders during the
year ended March 31, 2006 and is contemplating the sale of additional operating
assets; all of which raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 14. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


                                                   /s/ HASKELL & WHITE LLP

June 26, 2006
Irvine, California


                                      F-2



<PAGE>

<TABLE>
                                       NETGURU, INC. AND SUBSIDIARIES


                                         Consolidated Balance Sheet
                                               March 31, 2006
                             (In thousands, except share and per share amounts)


                                                   ASSETS

<S>                                                                                                 <C>
Current assets:
    Cash and cash equivalents                                                                       $  2,749
    Restricted cash                                                                                    1,217
    Accounts receivable (net of allowance for doubtful accounts of $275)                                 882
    Note receivable                                                                                      103
    Deposits                                                                                              69

    Prepaid expenses and other current assets                                                            754
                                                                                                    --------

           Total current assets                                                                        5,774

Property, plant and equipment, net (Note 2)                                                            1,053

Other assets                                                                                             109
                                                                                                    --------
           Total assets                                                                             $  6,936
                                                                                                    ========

                                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Current portion of long-term debt and capital lease obligations, net of discount of $18         $    192
    Accounts payable                                                                                     314
    Income tax payable                                                                                    60
    Accrued expenses                                                                                     910
    Deferred revenues                                                                                    207

    Accrued settlement for REI sale (Note 13)                                                            760
    Other liabilities                                                                                     53
                                                                                                    --------

           Total current liabilities                                                                   2,496

Long-term debt and capital lease obligations, net of current portion                                     194
Deferred gain on sale-leaseback (Note 2)                                                                 608
                                                                                                    --------

           Total liabilities                                                                           3,298
                                                                                                    --------

Commitments and contingencies  (Note 7)
Subsequent event (Note 13)

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; 19,235,041 shares issued
      and outstanding                                                                                    192
    Additional paid-in capital                                                                        20,685
    Accumulated deficit                                                                              (16,563)
    Accumulated other comprehensive loss:
      Cumulative foreign currency translation adjustments                                               (676)
                                                                                                    --------

           Total stockholders' equity                                                                  3,638
                                                                                                    --------

                                                                                                    $  6,936
                                                                                                    ========

                        See accompanying notes to consolidated financial statements.


                                                    F-3



<PAGE>

                               NETGURU, INC. AND SUBSIDIARIES

                            Consolidated Statements of Operations
                             Years ended March 31, 2006 and 2005
                     (In thousands, except share and per share amounts)


                                                                  2006             2005
                                                              -----------      ------------

Net revenues:
    Collaborative software products and services              $       969      $        748

    IT services                                                     2,902             3,801
                                                              -----------      ------------
           Total net revenues                                       3,871             4,549
                                                              -----------      ------------

Cost of revenues:
     Collaborative software products and services                     104                73

    IT services                                                     2,138             2,486
                                                              -----------      ------------
           Total cost of revenues                                   2,242             2,559

                                                              -----------      ------------
           Gross profit                                             1,629             1,990
                                                              -----------      ------------

Operating expenses:
    Selling, general and administrative                             3,639             3,257
    Research and development                                          496               543
    Bad debt expense                                                  369               236
    Depreciation                                                      328               343

     Impairment charge (Note 12)                                    2,924                --
                                                              -----------      ------------

           Total operating expenses                                 7,756             4,379
                                                              -----------      ------------

           Operating loss                                          (6,127)           (2,389)
                                                              -----------      ------------

Other expense (income):
    Interest, net                                                     543               504
    Other                                                            (147)             (109)

                                                              -----------      ------------
           Total other expense                                        396               395
                                                              -----------      ------------

Loss from continuing operations before income taxes                (6,523)           (2,784)

Income tax expense                                                     45                 7
                                                              -----------      ------------
     Loss from continuing operations                               (6,568)           (2,791)
                                                              -----------      ------------

Discontinued operations (Note 10):
(Loss) income from discontinued operations (Note 10)                 (258)            1,886

Gain on sale of business, net of taxes (Note 10)                   21,495               117
                                                              -----------      ------------
       Income from discontinued operations                         21,237             2,003
                                                              -----------      ------------

              Net income (loss)                               $    14,669      $       (788)

                                (continued on following page)

                See accompanying notes to consolidated financial statements.


                                            F-4



<PAGE>

                               NETGURU, INC. AND SUBSIDIARIES

                            Consolidated Statements of Operations
                             Years ended March 31, 2006 and 2005
                     (In thousands, except share and per share amounts)


                                                                  2006             2005
                                                              -----------      ------------
Basic income (loss) per common share:
     Loss per common share from continuing operations         $    (0.34)      $      (0.15)
     Income from discontinued operations                            1.11               0.11
     Basic income (loss) per common share                     $     0.77       $      (0.04)

Diluted income (loss) per common share:
     Loss per common share from continuing operations         $    (0.34)      $      (0.15)
     Income from discontinued operations                            1.11               0.11
     Diluted income (loss) per common share                   $     0.77       $      (0.04)

Weighted average shares used in computing:
       Basic loss per common share                             19,120,661        18,857,866
       Diluted loss per common share                           19,184,160        18,857,866

                See accompanying notes to consolidated financial statements.


                                            F-5



<PAGE>

                                                   NETGURU, INC. AND SUBSIDIARIES

                               Consolidated Statements of Stockholders' Equity and Comprehensive Loss
                                                Years ended March 31, 2006 and 2005
                                               (In thousands, except share amounts)


                                             COMMON STOCK                                                                   TOTAL
                                         ----------------------   ADDITIONAL                                  TOTAL        COMPRE-
                            PREFERRED     NUMBER        PAR        PAID IN     ACCUMULATED   ACCUMULATED   STOCKHOLDERS'   HENSIVE
                              STOCK      OF SHARES     VALUE       CAPITAL       DEFICIT        OTHER         EQUITY       (LOSS)
                            ----------   ----------  ----------   ----------    ----------    ----------    ----------    ---------
Balance,
  March 31, 2004                    --    8,087,154         181       35,352       (30,444)         (683)        4,406
   Net loss                         --           --          --           --          (788)           --          (788)   $    (788)
   Foreign currency
   translation                      --           --          --           --            --           140           140          140
                            ----------   ----------  ----------   ----------    ----------    ----------    ----------    ---------
Comprehensive loss for
   the year ended March
   31, 2005                         --           --          --           --          (788)          140            --    $    (648)
                                                                                                                          =========
Issuance of common stock            --      930,000           9        1,286            --            --         1,295
Exercise of warrants                --      100,000           1           99            --            --           100
Issuance of warrants and
   options                          --           --          --          103            --            --           103

Compensation expense                --           --          --           29            --            --            29
                            ----------   ----------  ----------   ----------    ----------    ----------    ----------
Balance, March 31, 2005             --   19,117,154  $      191   $   36,869    $  (31,232)   $     (543)   $    5,285
   Net income                       --           --          --           --        14,669            --        14,669    $  14,669
   Foreign currency
   translation                      --           --          --           --            --          (133)         (133)        (133)
                            ----------   ----------  ----------   ----------    ----------    ----------    ----------    ---------
Comprehensive loss for
   the year ended March
   31, 2006                         --           --          --           --        14,669          (133)           --    $  14,536
                                                                                                                          =========
Cash distribution                   --           --          --      (16,250)           --            --       (16,250)
Exercise of warrants                --      117,887           1           (1)           --            --            --
Compensation expense                --           --          --           67            --            --            67
                            ----------   ----------  ----------   ----------    ----------    ----------    ----------
Balance, March 31, 2006             --   19,235,041  $      192   $   20,685    $  (16,563)   $     (676)   $    3,638
                            ==========   ==========  ==========   ==========    ==========    ==========    ==========

               See accompanying notes to consolidated financial statements.

                                            F-6



<PAGE>

                                        NETGURU, INC. AND SUBSIDIARIES


                                     Consolidated Statements of Cash Flows
                                      Years ended March 31, 2006 and 2005
                                                (In thousands)

                                                                                   2006                2005
                                                                                 --------             -------
Cash flows from operating activities:
    Net income (loss)                                                            $ 14,669             $  (788)
      Less: (Loss) income from discontinued operations                               (258)              1,886
      Less: Gain on sale                                                           21,495                 117
                                                                                 --------             -------
    Loss from continuing operations                                                (6,568)             (2,791)
    Adjustments to reconcile loss from continuing operations to net cash used
      in operating activities:
        Depreciation and amortization                                                 328                 412
        Tax expense allocation to discontinued operations                            (608)                 --
        Bad debt expense                                                              369                 236
        Impairment charge -goodwill                                                 2,924                  --
        Expense recognized on issuance of stock, stock options and warrants            67                  86
        Amortization of discount on loan                                              403                 227
        Loss on disposal of property                                                   --                  19
        Changes in operating assets and liabilities:
          Accounts receivable                                                         307                (418)
          Notes and related party loans receivable                                    (92)                 24
          Income tax receivable                                                         8                  (8)
          Prepaid expenses and other current assets                                   313                (236)
          Deposits                                                                     25                 (29)
          Other assets                                                                 35                  --
          Accounts payable                                                            142                (223)
          Accrued expenses                                                            375                 (22)
          Income taxes payable                                                         36                 (32)
          Other current liabilities                                                    (6)                 (6)
          Deferred revenues                                                          (201)                239
          Deferred gain on sale-leaseback                                             (70)                (70)
                                                                                 --------             -------

                  Net cash used in operating activities                            (2,213)             (2,592)
                                                                                 --------             -------
Cash flows from investing activities:
    Purchase of property, plant and equipment                                        (357)               (150)
    Proceeds from sale of equipment                                                    --                  37
    Sale of short-term investment                                                      --                 100
    Payments to acquire companies, net of cash                                         --                 (76)
    Increase in restricted cash                                                    (1,157)                (62)
    Proceeds from sale of discontinued operations                                  23,500                 286
                                                                                 --------             -------

                  Net cash provided by investing activities                        21,986                 135
                                                                                 --------             -------

Cash flows from financing activities:
    Proceeds from issuance of long-term debt                                           --               3,035
    Financing fees                                                                     --                 (21)
    Repayment of long-term debt                                                    (3,812)               (754)
    Payment of capital lease obligations                                             (189)               (111)
    Issuance of common stock                                                           --                 100
    Cash distribution to shareholders                                             (16,250)                 --
                                                                                 --------             -------

                  Net cash (used in) provided by financing activities             (20,251)              2,249
                                                                                 --------             -------

    Effect of exchange rate changes on cash and cash equivalents                      (53)                278
                                                                                 --------             -------

                  Net cash (used in) provided by continuing operations               (531)                 70
                                                                                 --------             -------
                                       (continued on the following page)

                         See accompanying notes to consolidated financial statements.

                                                      F-7



<PAGE>

                                        NETGURU, INC. AND SUBSIDIARIES

                               Consolidated Statements of Cash Flows (Continued)
                                      Years Ended March 31, 2006 and 2005
                                                (In thousands)

                                                                                   2006                2005
                                                                                 --------             -------
Cash flows from discontinued operations (Revised - See Note 15)
     Cash provided by operating activities                                           (214)              2,232
     Cash used in investing activities                                               (115)               (309)
     Cash used in financing activities                                                (10)                (20)
                                                                                 --------             -------
                  Net cash (used in) provided by discontinued operations             (339)              1,903
                                                                                 --------             -------

Cash and cash equivalents, beginning of period                                      3,619               1,646
                                                                                 --------             -------
Cash and cash equivalents, end of period                                        $   2,749             $ 3,619
                                                                                =========             =======

Supplemental disclosure of cash flow information: Cash paid for:
      Interest                                                                  $     287             $   396
                                                                                =========             =======
      Income taxes                                                              $     590             $    77
                                                                                =========             =======

Supplemental disclosure of non-cash investing and financing activities:
    Acquisition of equipment under capital leases                               $      27             $   118
    Repayment of convertible debt with common stock                             $       -             $ 1,209
    Issuance of warrants                                                        $       -             $   103
     Acquisition of a company:
          Net assets acquired                                                   $       -             $    54
          Net liabilities assumed                                               $       -             $    29
          Promissory note issued toward consideration, net of discount          $       -             $   108
          Common stock issued toward consideration                              $       -             $    23


                         See accompanying notes to consolidated financial statements.

                                                      F-8
</TABLE>



<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         ORGANIZATION

         netGuru, Inc. (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 18, 2000, the
         Company's name was changed to netGuru.com. Effective February 25, 2000,
         the Company's name was changed to netGuru, Inc. netGuru is an
         integrated Internet technology and services company providing
         collaborative software products and services and information technology
         ("IT") 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. At March
         31, 2006, management believed the carrying amounts of cash and cash
         equivalents, receivable and payable amounts, and accrued expenses
         approximated fair value because of the short maturity of these
         financial instruments. The Company also believed that the carrying
         amounts of its capital lease obligations approximated their fair value,
         as the interest rates approximated a rate that the Company could have
         obtained under similar terms at the balance sheet date. The estimated
         fair value of the Company's long-term debt payable at March 31, 2006,
         determined by using the effective rate of interest on this
         indebtedness, was approximately $92,000.

         FOREIGN CURRENCY TRANSLATION

         The financial condition 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 the fiscal year-end. Statements of operations
         accounts are translated at the average rate of exchange prevailing
         during the respective fiscal years. Translation adjustments arising
         from the use of differing exchange rates from period to period are
         included in accumulated other comprehensive (loss) in the consolidated
         statements of stockholders' equity and comprehensive loss. Gains and
         losses resulting from foreign currency transactions are included in
         operations and are not material for fiscal 2006 and 2005.


                                      F-9



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         CASH AND CASH EQUIVALENTS

         The Company considers all liquid investments with maturities of three
         months or less at the date of purchase to be cash equivalents. The
         Company maintains its cash balances at financial institutions that
         management believes possesses high-credit quality. Although a portion
         of the related cash balances are federally insured, the Company
         maintains amounts on deposit in excess of federally insured limits.

         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:

                   Buildings                                   39 years

                   Computer equipment                           5 years

                   Computer software                          2-3 years

                   Office equipment and furniture              3-7 years

         Assets 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.

         GOODWILL

         The Company adopted the provisions of SFAS No. 142 "Goodwill and Other
         Intangible Assets" on April 1, 2002. SFAS No. 142 requires that
         goodwill and intangible assets with indefinite useful lives no longer
         be amortized, but instead be tested for impairment at least annually.
         SFAS No. 142 also requires that intangible assets with estimable useful
         lives be amortized over their respective estimated useful lives to
         their estimated residual values, and reviewed for impairment in
         accordance with SFAS No. 144. SFAS No. 142 required the Company to
         perform an assessment of whether there was an indication that goodwill
         was impaired as of the date of adoption.

         The Company is required to perform reviews for impairment annually, or
         more frequently when events occur or circumstances change that would
         more likely than not reduce the fair value of the net carrying amount.
         The evaluation of goodwill impairment involves assumptions about the
         fair values of assets and liabilities of each reporting unit. If these
         assumptions are materially different from actual outcomes, the carrying
         value of goodwill will be incorrect. In addition, the Company's results
         of operations could be materially affected by the write-down of the
         carrying amount of goodwill to its estimated fair value.


                                      F-10



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         The Company assessed the fair value of its two reporting units by
         considering their projected cash flows, using risk-adjusted discount
         rates and other valuation techniques. Given consideration of relevant
         factors, such as the decline in revenue of these reporting units as
         well as the negative impact on projected cash flows due to total
         operating costs being charged to the remaining operations after the REI
         sale, the Company concluded that as of December 31, 2005, impairment
         write-downs in the Company's IT services division and collaborative
         service division were required. In accordance with the provisions of
         SFAS No. 142, the Company recorded an impairment charge of $2,924,000
         during the three months ended December 31, 2005. The amount of the
         write-down represented the excess of the carrying amounts of goodwill
         over their fair value. As of March 31, 2006, the Company had no
         remaining goodwill balance.

         IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

         The Company accounts for its long-lived assets under SFAS No. 144,
         "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
         No. 144 requires that long-lived assets 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 cash flows expected to be generated by the
         asset. If the carrying amount of an asset exceeds its estimated future
         cash flows, an impairment charge is recognized in the amount by which
         the carrying amount of the asset exceeds the fair value of the asset.
         SFAS No. 144 requires companies to separately report discontinued
         operations and extends that reporting to a component of an entity that
         either has been disposed of (by sale, abandonment, or in a distribution
         to owners) or is classified as held for sale. Assets to be disposed of
         are reported at the lower of the carrying amount or fair value less
         costs to sell.

         REVENUE RECOGNITION

         The Company recognizes revenue when the following criteria are met: (1)
         persuasive evidence of an arrangement, such as agreements, purchase
         orders or written or online requests, exists; (2) delivery has been
         completed and no significant obligations remain; (3) the Company's
         price to the buyer is fixed or determinable; and (4) collection is
         reasonably assured. The Company's revenues arise from the following
         segments: collaborative software products and services and IT services.

         Revenue from software sales is recognized upon shipment if no
         significant post-contract support obligations remain outstanding and
         collection of the resulting receivable is reasonably assured. Customers
         may choose to purchase maintenance contracts that include telephone,
         e-mail and other methods of support, and the right to unspecified
         upgrades on a when-and-if available basis. Revenue from these
         maintenance contracts is deferred and recognized ratably over the life
         of the contract, usually twelve months.

         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 determines the fair value of each element
         in multi-element transactions based on vendor-specific objective
         evidence ("VSOE"). VSOE for each element is based on the price charged
         when the same element is sold separately.


                                      F-11



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         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 if certain criteria have been met. If evidence of fair
         value of all undelivered elements exists but evidence does not exist
         for one or more delivered elements, then revenue is recognized using
         the residual method. Under the residual method, the fair value of the
         undelivered elements is deferred and the remaining portion of the
         transaction fee is recognized as revenue.

         The Company sells its collaborative software along with a maintenance
         package. This constitutes a multi-element arrangement. The price
         charged for the maintenance portion is the same as when the maintenance
         is sold separately. The fair values of the maintenance contracts sold
         in all multi-element arrangements are recognized over the terms of the
         maintenance contracts. The collaborative software portion is recognized
         when persuasive evidence of an arrangement exits, price is fixed and
         determinable, when delivery is complete, collection of the resulting
         receivable is reasonably assured and no significant obligations remain.

         Revenues from providing IT services are recognized primarily on a time
         and materials basis, with time at a marked-up rate and materials and
         other reasonable expenses at cost, once the services are completed and
         no significant obligations remain. Certain IT services contracts are
         fixed price contracts where progress toward completion is measured by
         mutually agreed upon pre-determined milestones for which the Company
         recognizes revenue upon achieving such milestones. Fixed price IT
         contracts are typically for a short duration of one to nine months. The
         Company did not have any fixed price contracts at March 31, 2006. Other
         products and services sold via Internet portals, where the Company is
         an agent, are recognized net of purchase costs when the products and
         services are delivered and collection is reasonably assured.

         ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

         The Company sells to its customers on credit and grants credit to
         those who are deemed credit worthy based on its analysis of their
         credit history. The Company reviews its accounts receivable balances
         and the collectibility of these balances on a periodic basis. Based on
         the Company's analysis of the length of time that the balances have
         been outstanding, the pattern of customer payments, the Company's
         understanding of the general business conditions of its customers and
         its communications with their customers, the Company estimates the
         recoverability of these balances. When recoverability is uncertain, the
         Company records bad debt expenses and increases the allowance for
         accounts receivable by an amount equal to the amount estimated to be
         unrecoverable. If the historical data the Company uses to calculate the
         allowance provided for doubtful accounts does not reflect its future
         ability to collect outstanding receivables, additional provisions for
         doubtful accounts may be needed and the Company's future results of
         operations could be materially affected.

         CONCENTRATION OF SALES AND CREDIT RISK

         The Company is subject to credit risk primarily through its accounts
         receivable balances. The Company does not require collateral for its
         accounts receivable balances. One of the Company's customers, Course
         Technology, Inc., accounted for more than 10% of the Company's
         consolidated net sales in fiscal 2006. Course Technology accounted for
         approximately 14.0% and 14.3% of the Company's consolidated net sales,
         excluding discontinued operations in fiscal 2006 and 2005,
         respectively. In fiscal 2005, Deutsche Bank accounted for approximately
         12.9% of the Company's consolidated net sales. No other customers
         accounted for more than 10% of consolidated net sales.


                                      F-12



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         DEFERRED REVENUES

         The Company defers revenues for its maintenance contracts and for its
         collaborative software sales that are not considered earned. The
         Company defers its maintenance revenues when the maintenance contracts
         are sold, and then recognizes the maintenance revenues over the term of
         the maintenance contracts. The Company defers its collaborative
         software sales revenues if it invoices or receives payment prior to the
         completion of a project, and then recognizes these revenues upon
         completion of the project when no significant obligations remain.

         RESEARCH AND DEVELOPMENT

         The Company's research and development ("R&D") costs consist mainly of
         developers' salaries. The Company follows the provisions of SFAS No. 86
         to capitalize software development costs when technological feasibility
         has been established and to stop capitalization when the product is
         available for general release to customers. The Company expenses
         development costs when they are related to enhancement of existing
         software products.

         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, and operating loss and tax credit
         carryforwards. 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.

         EARNINGS (LOSS) PER SHARE

         Basic earnings (loss) 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
         and/or if converted method based upon the weighted-average fair value
         of the Company's common shares during the period. See Note 11 "Loss Per
         Share" for a computation of EPS.

         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-13



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         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 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 below the pro forma
         effect on operations, and the Black-Scholes option pricing model
         assumption information for stock options, as if compensation costs were
         recorded at the estimated fair value of the stock options granted
         (dollars in thousands, except amounts per share):

<TABLE>
         For the fiscal years ended March 31,                                2006         2005
                                                                         -----------   ----------

<S>                                                                      <C>           <C>
         Net income (loss) - as reported                                 $    14,669   $     (788)
         Deduct: Stock-based compensation expense determined under
             the fair value based method for all awards, net of tax

                                                                                  84          283

                                                                         -----------   ----------
         Net income (loss) - pro forma                                   $   (14,585)  $   (1,071)
                                                                         ===========   ==========

         Basic and diluted net income (loss) per share -
             as reported                                                 $      0.77   $    (0.04)

              pro forma
                                                                                0.76        (0.06)

         Weighted average fair value of options granted                  $      1.02   $     1.38

         Black-Scholes option pricing model assumptions:
                  Dividend yield                                                  --           --
                  Expected volatility                                             81%          81%
                  Risk-free interest rate                                        4.3%         4.3%
                  Expected option lives (in years)                               7.0          6.7
</TABLE>

         SEGMENT REPORTING

         The Company applies the provisions of SFAS No. 131, "Disclosures about
         Segments of an Enterprise and Related Information." SFAS No. 131
         requires segments to be determined and reported based on how management
         measures performance and makes decisions about allocating resources.
         See Note 9 "Segment and Geographic Data" for a description of and
         disclosures regarding the Company's significant reportable segments.

         RECLASSIFICATIONS

         Certain reclassifications have been made to the fiscal 2005 condensed
         consolidated financial statements to conform to the fiscal 2006
         presentation. The primary reclassifications relate to the separate
         reporting for the discontinued operations of the REI business and STAAD
         product lines.


                                      F-14



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         EXCHANGES OF NONMONETARY ASSETS

         In December 2004, the Financial Accounting Standards Board (the "FASB")
         issued SFAS No. 153, "Exchanges of Nonmonetary Assets," an Amendment of
         Accounting Principles Board ("APB") Opinion No. 29, "Accounting for
         Nonmonetary Transactions." SFAS No. 153 requires companies to measure
         exchanges of nonmonetary assets, including similar productive assets
         that have commercial substance, based on the fair value of the assets
         exchanged, recognizing a gain or loss. SFAS No. 153 is effective for
         interim periods beginning after June 15, 2005 and, thus, became
         effective for the Company beginning with the second quarter of fiscal
         2006. Adoption of SFAS No. 153 has not had a material effect on the
         Company's consolidated financial condition or results of operations.

         SHARE-BASED PAYMENT

         In December 2004, the FASB issued SFAS No. 123(R), "Share-Based
         Payment." SFAS No. 123(R) requires companies to measure and recognize
         compensation expense for all stock-based payments at fair value. For
         small businesses, SFAS No. 123(R) is effective for the first quarter of
         the first fiscal year beginning after December 15, 2005 and thus,
         became effective for the Company in the first quarter of fiscal 2007.
         Retroactive application of the provisions of SFAS No. 123(R) to the
         beginning of the fiscal year that includes the effective date is
         permitted, but not required. The Company is currently evaluating the
         effect of adopting SFAS No. 123(R) and the Company's management
         believes the adoption of SFAS No. 123(R), will not have a material
         effect on the Company's consolidated results of operations. However,
         management has not yet determined the actual effect of the accounting
         for stock option and related income tax components.

         ACCOUNTING CHANGES AND ERROR CORRECTIONS

         In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
         Error Corrections," a replacement of APB Opinion No. 20, "Accounting
         Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim
         Financial Statements." The standard changes the requirements for
         accounting for and reporting of a voluntary change in accounting
         principle, requiring a retrospective application to prior periods'
         financial statements of the change in principle unless it is
         impracticable rather than the recording of a cumulative effect of the
         change in accounting principle in net income in the year of change. The
         standard is effective for accounting changes and corrections of errors
         made in fiscal years beginning after December 15, 2005.

(2)      PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment, at cost, as of March 31, 2006 consisted
         of the following (in thousands):


                                      F-15



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


                Land                                             $      26
                Buildings and leasehold improvements                   929
                Office and computer equipment, software
                    and furniture                                    2,962
                Assets under capital lease                             882
                Automobiles                                            129
                                                                 ---------
                                                                     4,928
                Less accumulated depreciation and amortization      (3,875)
                                                                 ---------
                Property, plant and equipment, net               $   1,053
                                                                 =========

         On December 15, 1999, the Company consummated a sale and leaseback
         transaction involving its Yorba Linda, California facility. Concurrent
         with the sale, the Company entered into a fifteen-year operating lease
         on the facility. 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 on a straight-line basis over the period of the lease
         as a reduction in lease expense. The deferred gain, net of accumulated
         amortization, was $608,000 as of March 31, 2006.

         The Yorba Linda office sale-leaseback was assigned to Bentley Systems,
         Incorporated ("Bentley") on November 17, 2005 as part of the sale.
         Effective as of that date, the Company assigned to Bentley all of its
         right, title, and interest in and to the lease. Bentley assumed all of
         the Company's obligations under the lease, and agreed to make all
         payments and to perform all covenants and agreements of tenant under
         the lease, however the assignment did not alter the primary
         responsibility of the Company for the payment of rent if Bentley
         defaults or breaches the lease assignment. As such, the deferred gain
         on the sale-leaseback that was recorded in November 1999 remains on the
         balance sheet as a liability and is being recognized over the remaining
         period of the original lease.

(3)      LONG-TERM DEBT

         In connection with the Company's entry into the Asset Purchase
         Agreement with Bentley described in note 10, the Company and Laurus
         Master Fund, Ltd., ("Laurus"), then a secured creditor and beneficial
         owner of more than 5% of the Company's outstanding common stock,
         entered into a Stand Still Agreement as of August 19, 2005. Under the
         Stand Still Agreement, Laurus consented to the Company's entry into and
         consummation of the transactions contemplated by the Asset Purchase
         Agreement, temporarily agreed not to exercise any of its warrants, and
         agreed to release its security interest in the assets being sold,
         subject to Laurus being paid in full at the closing all of the
         Company's obligations under the convertible promissory notes described
         below held by Laurus. The Stand Still Agreement did not, however, limit
         the right of Laurus to transfer or vote shares of the Company's common
         stock.

         As described below, on November 18, 2005, the Company used part of the
         sale proceeds to pay the remaining total outstanding debt and accrued
         interest owed to Laurus in the amount of approximately $2.25 million.
         This amount also included 4% prepayment penalty charges aggregating
         approximately $86,000. Upon receiving payment in full for all of the
         Company's obligations under the convertible promissory notes held,
         Laurus released all UCC filings against assets of the Company. In
         addition, the revolving credit facility described below was terminated.


                                      F-16



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         REVOLVING CREDIT FACILITY

         On July 31, 2003, the Company obtained a three-year, renewable,
         $4,000,000 revolving accounts receivable credit facility from Laurus
         ("Facility"). The amount available under this Facility was reduced by
         the balance outstanding on the Amended and Restated 2003 Note (defined
         below).

         On December 4, 2003, the outstanding balance of $900,000 under the
         Facility was refinanced with Laurus along with $500,000 of additional
         borrowings into a three-year, 5% secured convertible note ("2003
         Note"). In connection with the Facility, the Company issued to Laurus a
         warrant to purchase up to 180,000 shares of the Company's common stock
         at any time or from time to time on or before July 2008 at an exercise
         price ranging from $1.50 to $1.89 per share. The Company recorded a
         debt discount as a result of the issuance of this warrant of
         approximately $201,000. The total debt discount was being charged to
         interest expense, ratably, over the term of the Facility

         On November 18, 2005, this Facility was terminated after the entire
         outstanding debt balance for the Amended and Restated 2003 Note and
         2004 Note were paid off. As of that date the Company had no borrowings
         under the Facility. On the day the note was terminated, the Company
         expensed the remaining unamortized discount to interest expense in the
         amount of approximately $38,000. The early termination fee that was due
         if the Facility were to be terminated prior to August 1, 2006 was
         waived since all of the outstanding borrowings from Laurus were repaid.

         2003 NOTE

         On April 27, 2004, the Company amended and restated the 2003 Note to
         reflect an additional $1,000,000 that it borrowed on April 27, 2004, so
         that the principal amount of the 2003 Note was increased to $2,400,000
         from $1,400,000 (the "Amended and Restated 2003 Note"). The net
         proceeds from the additional principal under the Amended and Restated
         2003 Note were used for working capital.

         The Company recorded approximately $173,000 as additional discount to
         the Amended and Restated 2003 Note, which included the $11,000 in fees
         it paid to an affiliate of Laurus and the $162,000 it recorded in April
         2004 due to the beneficial conversion feature of the debt related to
         the additional borrowings. This additional discount, along with
         approximately $133,000 in unamortized discount remaining at the time of
         the amendment for a total discount of $306,000, was being amortized to
         interest expense over the remainder of the term of the Amended and
         Restated 2003 Note. In April 2004 and December 2004, Laurus converted
         $260,000 and $219,000 of the principal balance under the Amended and
         Restated 2003 Note into 200,000 and 168,462 shares of the Company's
         common stock, respectively.

         As of November 18, 2005, there was an outstanding principal balance of
         $1,310,000 and accrued interest of approximately $5,000 for the 2003
         Note. On November 18, 2005, the Company paid the entire amount of
         outstanding debt and accrued interest for the 2003 Note. In addition,
         the Company was charged a 4% pre-payment penalty fee in the amount of
         approximately $52,000. The total amount that was paid for the 2003 Note
         was approximately $1,367,000. On the day the note was paid off, the
         Company expensed the remaining unamortized discount to interest expense
         in the amount of approximately $85,000.


                                      F-17



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         2004 NOTE

         On December 23, 2004 ("Closing Date"), the Company entered into a
         Securities Purchase Agreement ("2004 Agreement") with Laurus. Pursuant
         to the 2004 Agreement, the Company sold to Laurus a secured convertible
         note in the original principal amount of $1,000,000 ("2004 Note") that
         is scheduled to mature on December 23, 2007 ("Maturity Date"). The
         Company paid Laurus Capital Management, LLC, an affiliate of Laurus, a
         $5,000 fee, and reimbursed Laurus for $5,000 of expenses in connection
         with the offering. The net proceeds from the sale of the 2004 Note were
         used for working capital.

         In connection with the 2004 Note, the Company issued to Laurus a
         warrant to purchase up to 130,000 shares of the Company's common stock
         at any time or from time to time on or before December 23, 2009 at an
         exercise price of $1.56 per share ("2004 Warrant"). The Company
         recorded a debt discount as a result of the issuance of the 2004
         Warrant of approximately $103,000 and a debt discount as a result of
         $10,000 in fees paid to Laurus and its affiliate. The total debt
         discount of $113,000 was being charged to interest expense, ratably,
         over the term of the 2004 Note.

         As of November 18, 2005, there was an outstanding principal balance of
         $850,000 and accrued interest of approximately $3,000 on the 2004 Note.
         On November 18, 2005, the Company paid the entire amount of outstanding
         debt and accrued interest on the 2004 Note. In addition, the Company
         was charged a 4% pre-payment penalty fee in the amount of $34,000. The
         total amount that was paid for the 2004 Note was approximately
         $887,000. On the day the note was paid off, the Company expensed the
         remaining unamortized discount to interest expense in the amount of
         approximately $124,000.

         Long-term debt, including capital lease obligations, consisted of the
         following at March 31, 2006 (dollars in thousands):

         Capital lease obligations maturing at dates ranging from
            June 2008 to May 2009, secured by the leased assets        $    312

         Note payable, at an imputed interest rate of 14.5% per
            annum, principal and accrued interest
            due on or before April 1, 2007                                   75
         Other                                                               17
                                                                       --------
                 Total long-term debt before unamortized discount           404
                            Less: Unamortized discount                      (18)
                                                                       --------
                       Long-term debt                                       386
                      Less: current portion                                 192
                                                                       --------
                                                                       $    194
                                                                       ========


                                      F-18



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


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

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

           2007                                  $          75    $         176
           2008                                              3              139
           2009                                              3               56
           2010                                              3                8
           2011                                              4                -
           Thereafter                                        4                -
                                                 --------------   -------------
           Total minimum payments                $          92    $         379
                                                 ==============

           Less amount representing interest                                (67)
                                                                  -------------
           Present value of minimum capital
              lease payments                                      $         312
                                                                  =============

(4)      STOCKHOLDERS' EQUITY

         On December 29, 2005, the Company announced that its board of directors
         approved a cash distribution in the amount of $0.85 per share payable
         on January 27, 2006 to stockholders of record as of January 17, 2006.
         The distribution followed the Company's sale of the assets of its REI
         business and STAAD product lines on November 18, 2005 and the board of
         directors' subsequent decision to distribute substantially all of the
         net proceeds of the sale after repaying debt and setting aside reserves
         for taxes, continuing operations, and other contingencies. In
         connection with the distribution, all holders of options issued under
         the Company's stock option plans were notified that, in accordance with
         the terms of the plans, plan-related options would cease further
         vesting and then would terminate if not exercised prior to the
         ex-distribution date of January 30, 2006.

         Holders of non-plan options and warrants that remained outstanding on
         the ex-distribution date had an $0.85 per share reduction in their
         exercise prices of those options and warrants on January 30, 2006. As
         of that date all outstanding warrants and non-plan options were
         re-priced to reflect the $0.85 reduction. The Company was deemed to
         have cancelled the original warrants and options and issued new
         warrants and options of greater value, incurring additional
         compensation cost for that incremental value. The remaining expected
         life of the modified warrants and options remained the same and was not
         modified. Total compensation expense recorded for the re-priced
         warrants and options was $67,000.

         WARRANTS

         The Company has issued warrants in the past relating to certain
         acquisitions, issuances of stock, financing activities and as
         consideration for services to the Company.


                                      F-19



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         The following table summarizes the fair value of the re-priced warrant
         issuances and the assumptions used in determining fair value:


<TABLE>
             Original     Re-price                    Exercise      Estimated                              Fair value
              Grant         Grant      Number of      price per        life                  Risk-free         of
              date           date      warrants         share       (in years)  Volatility      rate        warrants(a)
          -------------------------------------------------------------------------------------------------------------
<S>                <C>                     <C>       <C>   <C>          <C>          <C>         <C>           <C>
          December 2002    January         200,000   $0.91-$1.55        1.9          135%        4.69%         $43,283
                           2006

          July 2003        January         180,000   $0.65 -$1.04       2.5          135%        4.66%         $49,320
                           2006

          December 2003    January         225,000   $0.50-$0.65        2.9          135%        4.65%         $70,823
                           2006

          December 2004    January         130,000      $0.71           3.9          135%        4.66%         $44,135
                           2006

(a) Fair value was determined using the Black-Scholes option-pricing model.

         The following table summarizes the warrant activity (number of shares
in thousands):

                                                 NUMBER OF
                                             SHARES UNDERLYING      WEIGHTED AVERAGE
                                                  WARRANTS           EXERCISE PRICE
                                             -----------------      ----------------

          Outstanding at March 31, 2004            1,435            $      9.38
          Issued                                     130                   1.56
          Exercised                                 (100)                  1.00
          Forfeited                                 (310)                 33.10
                                             -----------------

          Outstanding at March 31, 2005            1,155                   2.85
          Issued                                       -                      -
          Re-priced                                  970                   0.70
          Exercised                                 (160)                  0.15
          Forfeited                               (1,230)                  2.73
                                             -----------------
          Outstanding at March 31, 2006              735            $      0.79
                                             =================
</TABLE>


                                      F-20



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         The following table summarizes warrants outstanding and exercisable by
price range at March 31, 2006:

<TABLE>
                                              WARRANTS OUTSTANDING                      WARRANTS EXERCISABLE
                                ------------------------------------------------  -------------------------------
                                                WEIGHTED-AVERAGE
                                                   REMAINING       WEIGHTED-                          WEIGHTED-
           RANGE OF EXERCISE      NUMBER OF       CONTRACTUAL       AVERAGE       EXERCISABLE AT       AVERAGE
                PRICES             SHARES            LIFE        EXERCISE PRICE   MARCH 31, 2006   EXERCISE PRICE
           -----------------    --------------    -----------    --------------   --------------   --------------
<S>      <C>       <C>               <C>               <C>             <C>             <C>               <C>
         $  0.00 - $  0.50           50,000            2.8             $0.50           50,000            $0.50
         $  0.50 - $  0.75          365,000            3.0             $0.65          365,000            $0.65
         $  0.75 - $  1.00          185,000            1.9             $0.87          185,000            $0.87
         $  1.00 - $  1.25          110,000            2.1             $1.13          110,000            $1.13
         $  1.25 - $  1.75           25,000            1.8             $1.55           25,000            $1.55
                                --------------                                   --------------
                Total               735,000                                           735,000
                                ==============                                   ==============

         At March 31, 2006, the range of exercise prices and the weighted
         average remaining contractual life of outstanding options were $0.50 to
         $1.55 and 2.5 years, respectively.

         STOCK OPTION PLANS

         The Company has adopted the following employee stock option plans:

                                                                                                       SHARES
                                                             ADOPTED             TERMINATES          AUTHORIZED
                                                          -------------        -------------         ----------
         NetGuru, Inc. 2003 Stock Option Plan (the
             "2003 Plan")                                 December 2003        December 2013          1,000,000
         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 or non-qualified stock options. Options under all plans
         generally vest over 3 years, though the vesting periods may vary from
         option to option, and are exercisable subject to continued employment
         and other conditions. As of March 31, 2006, there were 1,000,000
         options available for grant under the 2003 Plan, there were 999,000
         options available for grant under the 2000 Plan, 883,000 options
         available for grant under the 1998 Plan, 377,000 options available for
         grant under the 1997 Plan, and 399,000 options available for grant
         under the 1996 Plan. There were no options outstanding and exercisable
         under any of the employee stock option plans as of March 31, 2006.


                                      F-21



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


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

                                                                     WEIGHTED
                                                                     AVERAGE
                                                     NUMBER OF    EXERCISE PRICE
                                                      SHARES        PER OPTION
                                                     -----------  --------------
                                                         2,027         2.38
                Outstanding at March 31, 2004
                Granted                                    218         1.38
                Exercised                                    -             -
                Forfeited                                 (182)        2.28
                                                     -----------
                Outstanding at March 31, 2005            2,063         2.38
                Granted                                     45         1.02
                Re-priced                                  308         3.27
                Exercised                                    -             -
                Forfeited                               (2,078)        2.27
                                                     -----------
                Outstanding at March 31, 2006              338        $3.08
                                                     ===========

         The following table summarizes options outstanding and exercisable by
price range at March 31, 2006:

<TABLE>
                                       OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                          ------------------------------------------------  -------------------------------
                                          WEIGHTED-AVERAGE
                                             REMAINING       WEIGHTED-                          WEIGHTED-
     RANGE OF EXERCISE      NUMBER OF       CONTRACTUAL       AVERAGE       EXERCISABLE AT       AVERAGE
          PRICES             SHARES            LIFE        EXERCISE PRICE   MARCH 31, 2006   EXERCISE PRICE
     -----------------    --------------    -----------    --------------   --------------   --------------
<S>      <C>       <C>               <C>               <C>             <C>             <C>            <C>
      $  0.00 - $  1.00          208,490           3.2              $0.22          206,824     $     0.22
      $  1.00 - $  5.00           30,000           3.9              $1.12           30,000     $     1.12
      $  5.00 - $ 10.00          100,000           3.8              $9.61          100,000     $     9.61
                          --------------                                    --------------
             Total               338,490                                           336,824
                          ==============                                    ==============
</TABLE>

         At March 31, 2006, the range of exercise prices and the weighted
         average remaining contractual life of outstanding options were $0.22 to
         $9.61 and 3.4 years, respectively.

(5)      RELATED PARTY TRANSACTIONS

         The Company and Laurus were parties to various debt financing
         arrangements, as described in Note 3.

         On June 28, 2005, the Company and Laurus, who was then a secured
         creditor and beneficial owner of more than 5% of our outstanding common
         stock, entered into a waiver and extension pursuant to which Laurus
         waived the Company's failure to meet a January 22, 2005 resale
         registration statement filing date deadline under a December 23, 2004
         registration rights agreement and extended to September 1, 2005 a May
         22, 2005 effectiveness date deadline imposed by that agreement in
         exchange for the Company's payment to Laurus of $10,000 liquidated
         damages.

         In connection with the Company's entry into the asset sale agreement
         with Bentley, the Company and Laurus entered into a Stand Still
         Agreement as of August 19, 2005. Under the Stand Still Agreement,
         Laurus consented to the Company's entry into and consummation of the
         transactions contemplated by the sale agreement, temporarily agreed not
         to exercise its outstanding warrants, and agreed to release its
         security interest in the assets being sold, subject to Laurus being
         paid in full at the closing all of our obligations under the
         convertible promissory notes described below held by Laurus. The Stand
         Still Agreement did not, however, limit the right of Laurus to transfer
         or vote shares of the Company's common stock.


                                      F-22



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         As of August 19, 2005, Peter R. Kellogg, a beneficial owner of more
         than 5% of the Company's outstanding common stock, and Santanu K. Das
         each entered into a voting agreement with Bentley. Pursuant to the
         voting agreements, Mr. Kellogg and Mr. Das each delivered to Bentley
         irrevocable proxies that empowered two executive officers of Bentley to
         vote shares of common stock owned by Mr. Kellogg and Mr. Das, at any
         time prior to the earlier to occur of the consummation or termination
         of the Bentley asset sale agreement, in favor of approval and adoption
         of the agreement and approval of the asset sale contemplated by the
         asset sale agreement, against approval of any proposal that would
         result in a breach by us of the asset sale agreement, and against any
         proposal made in opposition to, or in competition with, consummation of
         the asset sale contemplated by the asset sale agreement.

         On November 18, 2005, the Company used part of the sale proceeds from
         the Bentley transaction to pay the remaining total outstanding debt and
         accrued interest owed to Laurus in the amount of approximately $2.25
         million. This amount also included 4% prepayment penalty charges
         aggregating approximately $86,000. Upon receiving payment in full for
         all of the Company's obligations under the convertible promissory notes
         held, Laurus released all financing statements filed against the
         Company's assets. In addition, the revolving credit facility with
         Laurus was terminated.

         In October 2003, the Company borrowed $100,000 from Mr. Amrit Das, its
         Chief Executive Officer, and issued to him a 7.25% interest bearing
         unsecured promissory note. The proceeds were used for working capital.
         The principal along with the accrued interest was paid in full in
         August 2005.

         In June 2005, the Company entered into Change in Control and Executive
         Retention Agreements with each of Mr. Amrit Das, Mr. Santanu Das, Ms.
         Young and Mr. Nelson, on the terms described in Item 10 of the
         Company's Form 10-KSB for the fiscal year ended March 31, 2006 with
         regard to Mr. Amrit Das' retention agreement. In connection with the
         asset sale to Bentley in November 2005, Mr. Santanu Das and Ms. Young
         terminated their employment agreements with us and were immediately
         employed by Bentley. Both Mr. Santanu Das and Ms. Young waived their
         rights to any claim under the retention agreements at that time.

         In November 2005, Mr. Nelson received a cash bonus of $25,000, which
         had been contingent upon the closing of the asset sale to Bentley.


                                      F-23



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         The Company is a party to director and executive officer compensation
         arrangements, employment, change in control and retention agreements
         with related parties, as more particularly described in Item 10 of the
         Company's Form 10-KSB for the fiscal year ended March 31, 2006. In
         addition, Sormistha Das is the daughter of Mr. Amrit
         Das and sister of Santanu K. Das and serves as the Company's assistant
         Controller.

(6)      RETIREMENT PLANS

         The Company and certain of its subsidiaries have adopted qualified cash
         or deferred 401(k) retirement savings plans. The domestic plan covers
         substantially all domestic employees who have attained age 21 and have
         had one year of service. Employees may contribute up to 14% of their
         compensation. The Company makes matching contributions to the plan of
         37% to 50% of the employees' elective contributions for the first 6% of
         compensation. Employees in the Indian subsidiary contribute up to
          12% of their compensation and the Company matches 100% of that.
          For the years ended March 31, 2006 and 2005, Company contributions to
          the domestic retirement plans were approximately $55,000 and $76,000,
          respectively.

(7)      COMMITMENTS AND CONTINGENCIES

         OPERATING LEASES

         The Company leases certain facilities and equipment under
         non-cancelable 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, 2006, future minimum annual rental commitments under these
         lease obligations were as follows (in thousands):

                     Year ending March 31:
                         2007                             $          64
                         2008                                         -
                         2009                                         -
                         2010                                         -
                         2011                                         -
                         Thereafter                                   -
                                                          -------------
                                                          $          64
                                                          =============

         Rent expense was $124,000 and $113,000 for the years ended March 31,
         2006 and 2005, respectively.

         LITIGATION

         ASH BRAHMA, ET AL. V. NETGURU, INC

         The Company was named as a defendant in a civil action commenced
         against it by plaintiffs Ash Brahma, Sujit Kumar, and Venture
         International on August 18, 2005, in the Commonwealth of Massachusetts,
         Essex County, Superior Court Department of the Trial Court, Civil
         Action No. 05-1446 B, entitled ASH BRAHMA, ET AL. V. NETGURU, INC.


                                      F-24



<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         In the Action, plaintiffs alleged breach of contract and fraud on the
         Company's part, and they sought alleged damages of $4,885,000. On
         October 5, 2005, the Company timely filed a Notice of Removal of the
         Action to the United States District Court, District of Massachusetts.

         On October 13, 2005, the Company filed its answer and counterclaim in
         the action. The Company denied any breach of contract or other
         wrongdoing on its part, and denied that plaintiffs were entitled to
         equitable relief or damages. The Company's counterclaim sought
         recission of contract and/or breach of contract, restitution and/or
         damages for consulting fees paid to plaintiffs, damages for time and
         money spent pursuant to the contract's alleged objectives (plus
         interest, costs and attorneys' fees).

         In an effort to resolve the case in a timely and cost effective manner
         the Company sought, and plaintiffs agreed, to early-stage mediation
         before a U. S. judge magistrate. The mediation was held on April 26,
         2006, in the U. S. District Court in Boston. At mediation the case
         settled, in its entirety, for the sum of $50,000, in return for a
         dismissal with prejudice of all claims asserted by plaintiffs in their
         complaint, and comprehensive, mutual releases between the parties. The
         entire $50,000 settlement has been recorded under accrued expenses on
         the March 31, 2006 balance sheet.

         EOP-CENTRAL PARK PLAZA. LLC V. R-CUBE TECHNOLOGIES, INC.

         The Company's wholly-owned subsidiary, R-Cube Technologies, Inc.
         ("R-Cube") was named as a defendant in a civil action commenced against
         it by plaintiff EOP-Central Park Plaza, LLC ("EOP") on December 27,
         2005, in Orange County Superior Court, Case No. 05NL25236, entitled,
         EOP-CENTRAL PARK PLAZA. LLC V. R-CUBE TECHNOLOGIES, INC.

         In the action, EOP alleged causes of action for (1) breach of contract;
         (2) open book account; and (3) account stated on the part of R-Cube,
         and seeks alleged damages of approximately $21,300. The Company denied
         any breach of contract or other wrongdoing and/or contended that its
         performance under the agreement was excused. The Company further denied
         that EOP is entitled to the claimed damages.

         Both R-Cube and EOP have reached a settlement agreement in principal.
         The agreement calls for the payment of $12,000 by R-Cube to EOP in
         exchange for dismissal of the action with prejudice. The settlement
         agreements was completed and executed on June 28, 2006.

         REPL V. VITAL COMMUNICATIONS, AND VITAL COMMUNICATIONS V. REPL
         (REPL was amalgamated into the Company's subsidiary, NetGuru Limited)

         The Company's wholly-owned India-based subsidiary, netGuru Limited
         (formerly Research Engineers Private Limited, "REPL") is a plaintiff in
         a civil action commenced by REPL and is a defendant in a counter suit
         by Vital Communications stemming from actions in 2001 in Tiz Hazari
         Court, India and Delhi High Court, India, SUIT NO. 256 OF 2001 LYING
         PENDING AT THE HIGH COURT OF DELHI, INDIA.

         In the actions, REPL alleges causes of action for breach of contract
         and seeks alleged damages of approximately $450,000. Vital
         Communications denies any breach of contract or other wrongdoing and/or
         contends and alleges that REPL is in breach of contract and is
         demanding $1,350,000 in damages. The Company further denies that Vital
         Communications is entitled to the claimed damages.


                                      F-25



<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         Both REPL and Vital Communications are engaged in settlement
         discussions. No reserves regarding this dispute have been recorded
         under accrued expenses in the March 31, 2006 consolidated balance
         sheet.

         AUTODESK, INC. V. NETGURU SYSTEMS LIMITED AND RESEARCH ENGINEERS PVT.
         LTD. (NetGUru Systems Limited and Research Engineers Pvt. Limited were
         amalgamated into the Company's subsidiary, NetGuru Limited)

         The Company's India based subsidiary, NetGuru Limited is a defendant in
         a civil action commenced against it by plaintiff Autodesk, Inc.
         ("Autodesk") on May 4, 2006, SUIT NO. 752 OF 2006, IN THE HIGH COURT OF
         DELHI, INDIA.

         In the action, plaintiffs alleged infringement of copyright on account
         of unlicensed use of software programs being utilized by the
         defendants. A settlement agreement is now in negotiations whereby the
         defendants would purchase all software programs allegedly being used
         and would agree to periodic audits by plaintiff over a period of 12
         months.

         The Company anticipates the dispute will settle for approximately
         $120,000, which has been accrued under accrued expenses in the March
         31, 2006 consolidated balance sheet. The Company anticipates that the
         settlement agreements will be completed and executed in July 2006.

         OTHER LITIGATION

         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 impact on the Company's consolidated
         financial condition or results of operations.

(8)      INCOME TAXES

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

                                                         2006            2005

                        United States                $   (5,255)     $   (2,520)
                        Foreign                          (1,268)           (264)
                                                     ----------      ----------
                          Total                          (6,523)         (2,784)
                                                     ==========      ==========


                                      F-26



<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         The (benefit) provision for taxes on income from continuing operations
         is comprised of the following for the years ended March 31, (in
         thousands):

                                                            2006         2005
                                                          --------     --------
                    Current:
                        Federal                           $     -      $      -
                        State                                  22             7
                        Foreign                                23            -
                                                          --------     --------
                                                               45            7
                    Deferred:
                        Federal                                 -             -
                        State                                   -             -
                        Foreign                                 -             -
                                                          --------     --------
                                                                -             -
                                                          --------     --------
                          Total                           $    45      $     7
                                                          ========     ========

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

                                                          2006          2005
                                                       -----------   ---------

              Income tax benefit at statutory rate     $   (2,218)   $   (218)
              State taxes, net of federal benefits             22           7
              Foreign income tax rate differential            454        (135)
              U.S. tax on foreign earnings,
                 previously deferred under APB 23               -         165
              Change in valuation allowance                 1,787         223
              Research and development credits                  -         (15)
                 Other                                          -         (20)
                                                       -----------   ---------
                    Total                              $       45    $      7
                                                       ===========   =========

       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 for
       continuing operations at March 31 are as follows (in thousands):


                                      F-27



<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


<TABLE>
<CAPTION>
                                                                           2006          2005
                                                                           ----          ----
                 Deferred tax assets:
<S>                                                                 <C>                  <C>
                     Accrued vacation                               $        15          $ 58
                     Allowance for doubtful accounts                          8            56
                      Amortization of intangibles                             -         1,570
                      Net operating loss carryforwards                    3,414         7,871
                      Research and development credit
                         carryforwards                                      151           198
                     Alternative minimum tax credit
                          carryforwards                                     261             -
                      Gain on sale of property                              237           271
                      State taxes                                           119             -
                      Legal reserve                                          20             -
                      Other                                                   3             -
                                                                     -------------------------
                            Total deferred tax assets                     4,228        10,024
                            Less: valuation allowance                    (4,108)       (9,052)
                                                                     -------------------------
                            Net deferred tax assets                 $       120          $972
                                                                     =========================

                 Deferred tax liabilities:
                     Depreciation                                          (120)         (157)
                     U.S. tax on foreign earnings, net of
                        Foreign tax credit                                    -          (815)
                                                                     -------------------------
                            Total deferred tax liabilities          $      (120)         (972)
                                                                     -------------------------
</TABLE>

         At March 31, 2006, the Company had tax net operating loss carryforwards
         of approximately $9.0 million for federal income tax purposes and $5.8
         million for state income tax purposes, which expire at varying dates
         beginning in 2019 and 2007, respectively. Due to the "change in
         ownership" provisions of the Tax Reform Act of 1986, the Company's net
         operating loss carryforwards may be subject to an annual limitation on
         the utilization of these carryforwards against taxable income in future
         periods if a cumulative change in ownership of more than 50% occurs
         within any three-year period.

         In addition to the net operating loss carryforwards, the Company has,
         for federal income tax purposes, approximately $151,000 of research and
         development credit carryforwards, which expire at varying dates
         beginning in 2013 and $261,000 of federal alternative minimum tax
         credit carryforwards which have an indefinite life.

         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 depends 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, 2006, the Company had provided a valuation allowance of
         approximately $4.1 million to reduce the net deferred tax assets due in
         part to the potential expiration of certain tax credits and net
         operating loss carryforwards prior to their utilization. The net change
         in the valuation allowance for fiscal year 2006 was a decrease of $4.9
         million which resulted primarily from the utilization of net operating
         losses against the gain on the sale of assets in the Bentley
         transaction. The benefit of the decrease in the valuation allowance is
         reflected in the gain on sale of assets which is presented net of tax
         on the income statement in discontinued operations.


                                      F-28



<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         Deferred taxes have been provided for U.S. federal and state income
         taxes and foreign withholding taxes on the portion of undistributed
         earnings on non-U.S. subsidiaries expected to be remitted. Applicable
         foreign taxes have also been provided. On October 22, 2004, the
         American Jobs Creation Act of 2004 ("AJCA") was signed into law. The
         AJCA provides several incentives for U.S. multinational corporations
         and U.S. manufacturers. Subject to certain limitations, the incentives
         include an 85% dividend received deduction for certain dividends from
         controlled foreign corporations that repatriate accumulated income
         abroad, and a deduction for domestic qualified production activities
         taxable income. The U.S. Treasury Department is expected to issue
         additional guidance with regard to these provisions. In December 2004,
         the FASB issued FSP 109-2, "Accounting and Disclosure Guidance for the
         Foreign Repatriation Provision within the American Jobs Creation Act of
         2004." FSP 109-2 states that an enterprise is allowed time beyond the
         financial reporting period of enactment to evaluate the effect of the
         Act on its plan for reinvestment or repatriation of foreign earnings
         for the purposes of applying FASB Statement No. 109. The Company is in
         the process of analyzing whether to take advantage of this opportunity
         or the potential impact on the Company's income tax provision, if any.

(9)      SEGMENT AND GEOGRAPHIC DATA

         The Company is an integrated Internet and IT technology and services
         company. The Company's operating segments are:

         o        Collaborative software products and services; and

         o        IT services.

         The Company applies the provisions of SFAS No. 131, "Disclosures about
         Segments of an Enterprise and Related Information." SFAS No. 131
         requires segments to be determined and reported based on how management
         measures performance and makes decisions about allocating resources.
         The Company's management monitors unallocable expenses related to the
         Company's corporate activities in a separate "Center," which is
         reflected in the tables below.

         The significant components of worldwide operations by reportable
         operating segment are:


                                      F-29



<PAGE>

<TABLE>
                                 NETGURU, INC. AND SUBSIDIARIES

                           Notes to Consolidated Financial Statements
                              Years Ended March 31, 2006 and 2005


                                                                  FOR THE YEAR ENDED MARCH 31,
                                                                  ----------------------------
                                                                    2006                 2005
                                                                  -------              -------
                                                                           (IN THOUSANDS)
                                  NET REVENUES
<S>                                                               <C>                  <C>
         Collaborative software
            products and services                                 $   969              $   748
         IT services                                                2,902                3,801
                                                                  -------              -------
                  Consolidated                                    $ 3,871              $ 4,549
                                                                  =======              =======

                                GROSS PROFIT
         Collaborative software
            products and services                                 $   865              $   675
         IT services                                                  764                1,315
                                                                  -------              -------
                  Consolidated                                    $ 1,629              $ 1,990
                                                                  =======              =======

                          OPERATING INCOME (LOSS)
         Collaborative software
            products and services                                 $(1,817)             $  (332)
         IT services                                               (1,955)                 (61)
         Center                                                    (2,355)              (1,996)
                                                                  -------              -------
                  Consolidated                                    $(6,127)             $(2,389)
                                                                  =======              =======

                           IMPAIRMENT CHARGE
         Collaborative software
            products and services                                 $ 1,787              $    --
         IT services                                                1,137                   --
                                                                  -------              -------
                  Consolidated                                    $ 2,924              $    --
                                                                  =======              =======

                           DEPRECIATION EXPENSE CHARGED TO OPERATIONS
         Collaborative software
            products and services                                 $    21              $    66
         IT services                                                   73                   30
         Center                                                       234                  247
                                                                  -------              -------
                  Consolidated                                    $   328              $   343
                                                                  =======              =======

                        EXPENDITURES FOR ADDITIONS TO LONG-LIVED ASSETS
         Collaborative software
            products and services                                 $    16              $    28
         IT services                                                  281                   91
         Center                                                        60                   31
                                                                  -------              -------
                  Consolidated                                    $   357              $   150
                                                                  =======              =======


                                             F-30
</TABLE>



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         The Company's operations are based worldwide through foreign and
         domestic subsidiaries and branch offices in the U.S., 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,
                                                    ----------------------------
                                                        2006            2005
                                                    -----------       ----------
                                                           (IN THOUSANDS)
                              NET REVENUE
                United States                       $     2,670       $    3,196
                Europe                                      291              368
                Asia-Pacific                                910              985
                                                    -----------       ----------
                         Consolidated               $     3,871       $    4,549
                                                    ===========       ==========

                             EXPORT SALES
                United States                       $       163       $      502
                                                    ===========       ==========

                                                       AT MARCH 31,
                           LONG-LIVED ASSETS               2006
                                                     --------------
                                                     (in thousands)
                United States                        $          257
                Europe                                           31
                Asia-Pacific                                    874
                                                     --------------

                         Consolidated                $        1,162
                                                     ==============

10.      DISCONTINUED OPERATIONS

         On November 18, 2005, the Company completed the sale of assets of its
         REI business and STAAD product lines to Bentley for $23,500,000 in cash
         and recorded a net gain of approximately $21,615,000, net of
         approximately $608,000 in net tax expense. Net operating losses from
         prior years are being utilized to significantly reduce the Company's
         taxable income. The primary difference in the Company's federal
         statutory rate compared to the effective tax rate resulted from a
         change of approximately $7,300,000 in the Company's valuation
         allowance. The change decreased the expected tax from approximately
         $8,000,000 to approximately $608,000. The Company continues to record a
         full valuation allowance against the remaining net deferred tax assets,
         which includes state net operating losses, research and development tax
         credits, reserves, and other accruals. In November 2005, the Company
         set aside cash reserve of $1.07 million in accordance with the purchase
         agreement with Bentley. As of May 17, 2006 the sum of the prepaid
         assets assigned to Bentley at closing and assigned accounts receivable
         for which payments have been received by Bentley was less than the
         aggregate amount of the assumed current liabilities, which resulted in
         a shortfall of approximately $760,000. Per the asset sale agreement,
         the Company was obligated to pay the amount of the shortfall to
         Bentley. The entire amount of the shortfall has been recorded under
         accrued settlement for REI sale on the balance sheet as of March 31,
         2006. In addition to the $23,500,000, the Company also received
         $250,000 for reimbursement of expenses relating to legal and financial
         services in connection with the asset sale.


                                      F-31



<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         The asset sale included the worldwide operations associated with REI,
         including the STAAD structural analysis and design product line,
         software and product development, customer support and relationships,
         and offices associated with the worldwide business. The Yorba Linda
         office sale-leaseback was assigned to Bentley on November 17, 2005.
         Effective as of that date, the Company assigned to Bentley all of its
         right, title, and interest in and to the lease. Bentley assumed all of
         the Company's obligations under the lease, and agreed to make all
         payments and to perform all covenants and agreements of tenant under
         the lease, however the assignment did not alter the primary
         responsibility of the Company for the payment of rent if Bentley
         defaults or breaches the lease assignment. As such, the deferred gain
         on the sale-leaseback that was recorded in November 1999 remains on the
         balance sheet as a liability and is being recognized over the remaining
         period of the original lease.

         On January 5, 2006, the Company sold its France subsidiary to Mr.
         Badreddine Ziane for approximately $100,000 and recorded a net loss of
         approximately $120,000. The France subsidiary was in the business of
         selling the Company's STAAD structural analysis and design product
         lines and provided technical support and maintenance for their
         customer. Mr. Ziane has agreed to purchase all the outstanding shares
         of the subsidiary and has indicated that he intends to sell the REI
         products and offer related consulting services as an independent
         contractor to Bentley. Per the agreement, $65,000 was due upon signing
         of the agreement and $35,000 is due over the next 6 months. As of March
         31, 2006, we had still not received the initial payment of $65,000. The
         entire $100,000 has been recorded under notes and other party
         receivable on the balance sheet as of March 31, 2006. In April 2006, we
         received a payment of $65,000.

         The Company's condensed consolidated financial statements have been
         reclassified for all periods presented to reflect the REI business as
         discontinued operations. The Company first reflected these operations
         as discontinued in the second quarter of fiscal 2006 when the Company
         decided to sell the operations. In accordance with GAAP, the revenues,
         costs, and expenses directly associated with the REI business have been
         reclassified as discontinued operations on the condensed consolidated
         statements of operations for all periods presented. Corporate expenses
         such as general corporate overhead and interest have not been allocated
         to discontinued operations. Additionally, assets and liabilities of the
         REI business segment have been reclassified as held for sale on the
         Company's condensed consolidated balance sheets for all periods
         presented, and the Company's condensed consolidated statements of cash
         flows have been reclassified to reflect the operations of the REI
         business segment as discontinued operations for all periods presented.

         Separately, in September 2004, the Company sold its Web-based
         telecommunications services division in its continuing efforts to focus
         on its core software products and IT services businesses. Accordingly,
         the results of the operations of the Web-based telecommunications
         services division are excluded from continuing operations and reported
         as discontinued operations for the fiscal year ended March 31, 2005.
         The total sales price was $130,000 for the sale of the Web-based
         telecommunications services division in September 2004. The Company
         received the entire proceeds from the sale of the Web-based
         telecommunications services division prior to March 31, 2005.

         The net revenues, net income (loss), gain on sale, and income tax
         expense of the Company's discontinued operations, were as follows:

                                                               YEAR ENDED
                                                               MARCH 31,
                                                         ----------------------
                                                           2006          2005
                                                         --------      --------
Net revenues:
   Web-based telecommunications services business        $     --      $    327
    REI business                                            7,058        10,832
    France subsidiary                                         471           461
                                                         --------      --------
                                                         $  7,529      $ 11,620
Net (loss) income from operations of:
   Web-based telecommunications services business        $     --      $    (50)
    REI business                                             (292)        1,936
    France subsidiary                                          34            --
                                                         --------      --------
                                                         $   (258)     $  1,886

Gain (loss) on sale before income taxes from:
   Web-based telecommunications services business        $     --      $    117
    REI business                                           22,223            --
    France subsidiary                                        (120)
                                                         --------      --------
                                                         $ 22,103      $    117
Income tax expense:
    REI business                                         $    608      $     --
                                                         --------      --------


                                      F-32



<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


(11)     LOSS PER SHARE

         Basic earnings (loss) 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.

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

<TABLE>
                                                                             2006          2005
                                                                           --------      --------
<S>                                                                        <C>           <C>
                  Numerator:
                  Net income (loss) -- numerator for basic and
                     diluted net loss per share                            $ 14,669      $   (788)

                  Denominator:
                  Denominator for basic net loss per share -
                     weighted average number of common shares
                     outstanding during the year                             19,121        18,858
                  Incremental common shares attributable to
                     exercise of outstanding options and warrants                63            --
                                                                           --------      --------

                  Denominator for diluted net loss per share                 19,184        18,858
                                                                           ========      ========

                  Basic net income (loss) per share                        $   0.77      $  (0.04)
                                                                           ========      ========

                  Diluted net income (loss) per share                      $   0.77      $  (0.04)
                                                                           ========      ========
</TABLE>

         Options and warrants to purchase 90,000 shares outstanding at March 31,
         2006 were excluded from the computation of diluted EPS because of their
         anti-dilutive effect on EPS for fiscal 2006. Options, warrants and
         their equivalents amounting to 1,538,000 were excluded from the
         computations of diluted loss per share for fiscal 2005 because the
         effect would have been antidilutive. Of this amount, potential common
         shares from the possible conversion of the Laurus Notes in fiscal 2005
         amounted to 1,470,000.

(12)     IMPAIRMENT CHARGE

         On April 1, 2002, the Company adopted the provisions of SFAS No. 142,
         "Goodwill and Other Intangible Assets." SFAS No. 142 requires that
         goodwill and intangible assets with indefinite useful lives no longer
         be amortized, but instead be tested at least annually for impairment.

         The Company considers the following operating segments- collaborative
         software products and services and IT services - to be our reporting
         units for purposes of testing for impairment.

         The Company uses a two-step test to assess potential impairment to
         goodwill. In the first step, the fair value of each reporting unit is
         compared to its carrying value including goodwill. If the fair value
         exceeds the carrying value, then goodwill is not considered impaired,
         and the Company does not need to proceed to the second step. If the
         carrying value of a reporting unit exceeds its fair value, then the
         Company has to determine and compare the implied fair value of the
         reporting unit's goodwill to the carrying value of its goodwill. If the
         carrying value of the reporting unit's goodwill exceeds its implied
         fair value, then the Company has to record an impairment loss in the
         amount of the excess.


                                      F-33



<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         The implied fair value of goodwill is determined by allocating the fair
         value of the reporting unit to all of the assets (recognized and
         unrecognized) and liabilities of the reporting unit in a manner similar
         to a purchase price allocation, in accordance with SFAS No. 141,
         "Business Combinations." The residual fair value after this allocation
         is the implied fair value of the reporting unit goodwill.

         In accordance with SFAS No. 142, the Company assessed the fair value of
         its two reporting units by considering their projected cash flows,
         using risk-adjusted discount rates and other valuation techniques.
         Given consideration of relevant factors, such as the decline in revenue
         of these reporting units and the projected cash flows being negatively
         affected due to the Company's total operating costs being charged
         against the remaining operations after the REI sale, the Company
         concluded that as of December 31, 2005, impairment write-downs in its
         IT services division and collaborative service division were required.
         In accordance with the provisions of SFAS No. 142, the Company recorded
         an impairment charge of $2,924,000 during the three months ended
         December 31, 2005 for the write-down of goodwill related to the
         purchases of netGuru Systems, Inc., R-Cube Technologies, Inc., Apex
         Technology, and Allegria, Inc. The amount of the write-downs
         represented the excess of the carrying amounts of goodwill over their
         fair values. As of March 31, 2006, the Company had no remaining
         goodwill balance.

(13)     SUBSEQUENT EVENT

         On May 16, 2006, the Company received a notice from Bentley regarding
         the accounts receivable payoff shortfall pursuant to the asset purchase
         agreement dated August 19, 2005. As of May 16, 2006, the sum of the
         prepaid assets assigned to Bentley at the closing and the assigned
         accounts receivable for which payments had been received by Bentley was
         $760,000 less than the aggregate amount of the current liabilities
         assumed by Bentley. This difference is referred to as the accounts
         receivable payoff shortfall. Per the asset sale agreement, the Company
         was obligated to pay the amount of the shortfall to Bentley. On May 22,
         2006, the Company made a payment to Bentley for the entire amount of
         the shortfall and, subsequently, the cash reserve account that was
         established in the amount of $1.07 million per the asset sale agreement
         was released.

(14)     LIQUIDITY

         The Company incurred net losses from continuing operations of
         $6,568,000 and $2,791,000 and used cash in operations of $2,213,000 and
         $2,592,000 in fiscal 2006 and 2005, respectively. The Company
         anticipates entering into a merger and/or sale agreement(s) with one or
         more parties by August 2006. In the event that such transaction(s) do
         not take place at all and/or are unreasonably delayed, the Company's
         future capital requirements will depend upon many factors. These
         factors include but are not limited to sales and marketing efforts, the
         development of new products and services, possible future corporate
         mergers or strategic acquisitions or divestitures, the progress of
         research and development efforts, and the status of competitive
         products and services. The Company believes that the proceeds that
         remain from the sale of its REI business, together with its operating
         revenues and the proceeds from the sale of its France subsidiary, will
         be adequate to extinguish all remaining liabilities of the Company and
         fund its current operations through October 2006.


                                      F-34



<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2006 and 2005


         However, to the extent the Company is in need of any additional
         financing, such additional financing may not be available on acceptable
         terms or at all.. In addition, any future financing may cause
         significant dilution to existing stockholders. This uncertainty,
         recurring losses from operations, excluding gains on the sale of a
         significant portions of the Company's operating assets, limited cash
         resources, an accumulated deficit and the contemplated sale of
         additional operating assets, among other factors, raised doubt about
         the Company's ability to continue as a going concern and led the
         Company's independent registered public accounting firm to include an
         explanatory paragraph related to the Company's ability to continue as a
         going concern in their report that accompanies these financial
         statements. Reports of independent auditors questioning a company's
         ability to continue as a going concern generally are viewed unfavorably
         by analysts and investors. This report may make it difficult for the
         Company to raise additional debt or equity financing to the extent
         needed for the Company's continued operations or for planned expansion,
         particularly if the Company is unable to attain and maintain profitable
         operations in the future. Consequently, future losses may adversely
         affect the Company's business, prospects, financial condition, results
         of operations and cash flows.

(15)     CASH FLOWS FROM DISCONTINUED OPERATIONS

         At March 31, 2006, the Company has separately disclosed the operating,
         investing and financing portions of the cash flows attributable to its
         discontinued operations, which in prior periods were reported on a
         combined basis as a single amount.


                                      F-35



<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: June 29, 2006                   /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.

<TABLE>
      Name                                Title                                            Date

<S> <C>
                                  Chairman of the Board, Chief Executive Officer        June 29, 2006
/s/ Amrit K. Das                  (principal executive officer), President and
--------------------------
Amrit K. Das                      Director

/s/ Bruce K. Nelson               Chief Financial Officer (principal financial          June 29, 2006
--------------------------
Bruce Nelson                      and accounting officer)


/s/ D. Dean McCormick III         Director                                              June 29, 2006
--------------------------
D. Dean McCormick III


/s/ Stanley W. Corbett            Director                                              June 29, 2006
--------------------------
Stanley W. Corbett


/s/ Benedict A. Eazzetta          Director                                              June 29, 2006
--------------------------
Benedict A. Eazzetta

</TABLE>

                                                 53



<PAGE>

                  INDEX TO EXHIBITS FILED WITH THIS FORM 10-KSB

    EXHIBIT NO.           DESCRIPTION

         10.27    Description of Non-Employee Director Regular Compensation

         21       Subsidiaries of the Registrant

         23       Consent of Independent Registered Public Accounting Firm
                  (Haskell & White LLP)

         31.1     Certification of Principal Executive Officer Required by Rule
                  13a-14(a) of the Securities Exchange Act of 1934, as amended,
                  as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
                  of 2002

         31.2     Certification of Principal Financial Officer Required by Rule
                  13a-14(a) of the Securities Exchange Act of 1934, as amended,
                  as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
                  of 2002

         32       Certification of Chief Executive Officer and Chief Financial
                  Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


                                       54