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

                               AMENDMENT NO. 3 TO
                                   FORM 10-KSB
 (Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2002

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

                         Commission file number: 0-28560

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

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

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

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

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

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

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

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

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year: $24,284,000.

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 2, 2003 was $14,621,990.

The number of shares outstanding of the registrant's only class of Common Stock,
$.01 par value, was 17,325,150 on May 2, 2003.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      NONE



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                                TABLE OF CONTENTS

                                     PART I
                                                                            PAGE

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

                                     PART II

Item 6.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations........................................ 13

Item 7.   Financial Statements............................................. 35

                                    PART III

Item 10.  Executive Compensation............................................36

Item 13.  Exhibits and Reports on Form 8-K................................. 39

          Signatures....................................................... 42

          Certification.................................................... 43

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

          Index to Exhibits Filed With This Amendment No.3 to Form 10-KSB.. 44

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                                  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    Engineering software products, maintenance and services (including
              digital media and animation products and services) for businesses
              worldwide;

         o    Information technology, or IT, services (including value-added IT
              services); and

         o    Internet content and e-commerce activities (including
              collaborative software and commerce solutions, long-distance
              communication services that include call termination services and
              prepaid phone cards, travel services, and applications service
              provider, or ASP, solutions).

PRODUCTS AND SERVICES

     ENGINEERING SOFTWARE SOLUTIONS

         Over the past 21 years, we have continuously improved our core
competency and established a strong brand for our engineering software within
the architectural/engineering/construction, or A/E/C, markets worldwide. Our
engineering software primarily is used for the specific calculations required
for the design of civil and structural engineering projects. We have established
our leadership position in the engineering software industry by being the
first-to-market for personal computer-, or PC-, based engineering software and
by being the first mover to penetrate foreign markets. Currently, 46 of the 50
largest engineering design firms in the world use our engineering software. We
have 19,000 customers, with over 47,000 installations and approximately 160,000
users in 85 countries.

         Our stand-alone and network-based engineering software products provide
fully integrated, easy-to-use design automation and analysis solutions for use
by engineering analysis and design professionals worldwide. We have developed a
comprehensive line of structural, mechanical, civil and process/piping
engineering software products, including our STAAD.Pro(R) family of products,
FabriCAD, ADLPIPE, STARDYNE(R), CIVILSOFT and CIVILMASTER(R). Our products
assist engineers in performing mission-critical functions, including analysis
and design of industrial, commercial, transportation and utility structures;
pipelines, machinery, automotive and aerospace products; and survey, contour and
digital terrain modeling.

         All of our engineering software products use our proprietary
Windows-based graphics engine that provides a modern graphics environment for
model development, visualization/verification and drawing generation. These
products are also designed for use with third-party computer aided design, or
CAD, drafting systems, including AutoCAD and MicroStation. Our structural and
civil engineering products provide eight international language options and
twelve local design codes required by our worldwide markets.

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         We generate revenues from software licensing fees and annual
support fees established at the time of the initial contract. Suggested list
prices for most of our software products range from approximately $995 to
$7,000.

         We offer limited production for two-dimensional and three-dimensional
animation used by businesses in corporate promotions, Website design, gaming and
motion pictures.

     IT SERVICES

         We are an IT total solutions provider, or TSP. Our IT services division
has provided contracted IT services and software solutions to almost every
vertical industry market (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 solutions,
and we also offer value-added IT services by incorporating our proprietary
collaborative software technology and/or our engineering solution software 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 two service offices located in
Boston, Massachusetts and San Jose, California. 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.

         We provide IT services to customers in the United Kingdom, France and
Germany in addition to customers in North America. We strive to contain costs
while remaining competitive by utilizing our production centers in India to
support our IT services business.

     INTERNET CONTENT, E-COMMERCE AND COLLABORATIVE SOFTWARE SOLUTIONS

          Our Internet content and e-commerce solutions comprise long-distance
communication services that include call termination services and prepaid phone
cards and travel services targeted toward certain niche markets. Our
collaborative software solutions consist of our e-review and related products
and ASP solutions.

         Long-Distance Communication Services
         ------------------------------------

         We offer to communication service providers global long-distance call
termination services through our gateway in the U.S. by traditional delivery
methods such as international leased lines and satellite access. Our
long-distance call termination services involve a number of steps. We collect
voice traffic from long-distance service providers. We convert analog traffic to
digital traffic where necessary using software licensed from a third-party and
carry the traffic on our communications infrastructure. We then drop off the
traffic at a point where another service provider picks up this traffic and
carries it to its destination or to another service provider. We receive our
revenues from the long-distance service provider from whom we received the
traffic, and we pay the service provider to whom we drop off the traffic. As is
typical of other small long-distance call termination service providers, we do
not have long-term commitments with third parties to purchase or sell these
communication services.

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         Our managed communications network is designed to be a premium
communications and data network built with carrier-grade communications switches
and equipment linked by a combination of the Internet, international leased
lines and satellite access. We monitor and control our communications network
round-the-clock to deliver high quality voice communications. In the United
States, our communications gateway and switch is located in a leased
communications facility in Los Angeles, California.

         We sell prepaid phone cards through our automated proprietary Website.
The phone cards are available for both domestic and international long-distance
calls.

         Most phone cards are paid for by credit card. Long distance call
termination services are paid for by wire transfer or check within one or two
weeks after we provide the service.

         Travel Services
         ---------------

          We offer online international travel services that primarily are
targeted toward the Asian community and persons of Indian origin located
throughout the world. Our travel services primarily consist of domestic and
international flight reservations and ticketing, vacation travel planning and
services, and travel services specifically tailored to the needs of our business
client companies. Most online travel sales are paid for by credit card.

         Collaborative Software Solutions
         --------------------------------

         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 e-Review and ForReview
collaborative products to our offerings. Our collaborative software innovations
have changed 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 our other products. Due to our engineering experience, our collaborative
software is ideally suited for multi-faceted A/E/C projects but also has direct
application for many other industries.

         ASP Services
         ------------

         As an ASP, we offer our engineering products and solutions online at
WEB4ENGINEERS.COM. On this site, we offer versions of our current software
products such as STAAD.Pro(R), CIVILMASTER(R) and FabriCAD that are Web-enabled,
which means that our customers can use these products from our Website by paying
a fee instead of purchasing these products. We also offer our collaborative
software product, eReview, in a Web-enabled version, which our customers can use
for interactive Web-based meetings to view, annotate and markup documents online
in real-time.

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         We also provide ASP services to engineering and construction software
companies. Our services involve Web-hosting our clients' applications software
and data at our facilities. We generally collect our revenues from these
services through prepaid credit card sales or credit card sales at time of
usage.
         In addition, we have licensed our ASP technologies to other companies
and have contracted with them to supervise their development of specific
versions of the ASP model. We plan to continue to explore opportunities to
license our ASP technologies for use in various languages and countries as well
as in various industries other than engineering and construction.

CUSTOMERS

     ENGINEERING SOFTWARE SOLUTIONS

     We currently license our software products to more than 19,000 companies
accounting for over 47,000 software installations. Based on our customer
surveys, we estimate that there are approximately 160,000 users at these
installations worldwide. Our customers include:

             Bechtel Corporation             British Telecom
             Exxon Corporation               Fluor Daniel, Inc.
             General Dynamics                Jet Propulsion Laboratories
             NASA                            Rocketdyne
             Siemens AG                      Toyo Engineering

         IT SERVICES

         During the fiscal year ended March 31, 2002, we provided IT consulting
services to over 150 corporate customers in the U.S., including Fidelity, Sun
Microsystems, Cisco Systems and Hewlett Packard. No single customer represented
more than 5% of our business.

     INTERNET CONTENT, E-COMMERCE AND COLLABORATIVE SOFTWARE SOLUTIONS

         Our long distance call termination services are provided to companies
  offering similar services. Our prepaid phone card products are offered to
  consumers for retail consumption. Our travel services are offered to
  businesses and individual customers.

         In April 2000, we acquired Allegria Software, Inc., a developer of
  Web-based document management and collaborative tools for engineers and
  manufacturers, and added their e-Review and ForReview collaboration products
  to our offerings. Some of our eReview customers are:

             Agilent Technologies            Astley-Gilbert
             Case New Holland                CADopia, LLC
             Constructware                   Ebuild
             Engineered Software             LG Engineering & Construction Corp.
             Integrated Technical Software   MatrixOne
             Paxonix                         RISA Technologies
             (SRAC)/Dassault Systems         Structural Research Analysis Corp.
             Tekla, Inc.

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SALES AND MARKETING

     ENGINEERING  SOFTWARE SOLUTIONS

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

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

     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.

     INTERNET CONTENT, E-COMMERCE AND COLLABORATIVE SOFTWARE SOLUTIONS

         Our marketing efforts relating to Internet and e-commerce activities
have been significantly reduced. Our marketing resources are now being focused
on our other divisions. We continue to maintain our current customer base, and
we will service direct referrals from our existing customers.

         We market our eReview collaboration software both domestically and
internationally using direct marketing through our network office branches,
subsidiaries and reseller channels. We extensively use print advertising,
telemarketing, e-mail and direct mail campaigns as our primary lead generation
activities.

CUSTOMER SERVICE AND SUPPORT

     ENGINEERING SOFTWARE SOLUTIONS

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

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     IT SERVICES

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

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

     INTERNET CONTENT, E-COMMERCE AND COLLABORATIVE SOFTWARE SOLUTIONS

         Technical customer service and support services are generally not
required for Internet content and e-commerce activities.

         We provide full technical support to all our collaboration 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.

RESEARCH AND DEVELOPMENT

         Our current research and development efforts are focused on Internet
technologies, applications software Web-enabling and collaboration technologies
and enhancements to our current engineering software product offerings.

         Our research and development efforts with respect to Internet
technologies have been focused on creating, developing and implementing our
WEB4ENGINEERS.COM Web site. We developed a comprehensive Java-based content
management system in order to manage content, live broadcasts and video on a
remote basis. Audio and video compression technologies have also been developed
to increase the speed over which audio and video can be broadcast over the
Internet. We use an interactive viewing, markup and collaboration tool on Java
Servlet and RMI technologies on our WEB4ENGINEERS.COM portal to conduct real
time viewing and mark-up conferences. We have developed this system to permit
integration with major document management and enterprise resource planning
systems.

         We spent approximately $1,824,000 and $2,706,000, on research and
development activities during fiscal 2002 and 2001, respectively.

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

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

         To ensure our products meet the requirements of our users and that our
software development, validation and maintenance processes meet applicable
regulatory guidelines on software development, we have established an extensive
quality assurance and quality control process.

COMPETITION

         We face significant competition within each of our target markets:
engineering software products and ASP services for the worldwide engineering
community; Internet-based IT services for businesses worldwide; and traditional
telephony services to and from global destinations. We expect that competition
will intensify as the market for Internet-based solutions aimed at the global
community develops and expands. We compete primarily on the basis of 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 offering.

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

     ENGINEERING SOFTWARE PRODUCTS AND SERVICES

         The engineering 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 analysis tools
that are developed internally by engineering firms. We believe that we have
significant competitive advantages in the industry based on our high caliber
development effort, demonstrated understanding of the needs of the engineering
design industry, ability to attract and retain customers, capability to develop,
acquire and implement emerging technologies, ability to provide technical
support and demonstrated capability to provide attractive price points for our
products. There can be no assurance, however, that our competitors will not
develop products that are superior or achieve greater market acceptance compared
to ours or that we will be able to compete successfully in these markets.

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Our competitors in this segment, include Computers and Structures,
Inc., RISA Technologies, RAM International, GT Strudl, and MSC Software, to
name a few. Over the past twelve years, industry research has placed us among
the top providers of general-purpose structural engineering analysis and
design software. We believe we are among the leaders in this marketplace due
to our technical innovations such as the use of open architecture (enabling an
engineer to seamlessly integrate our software with other applications such as
AutoCAD, MicroStation and Excel) and graphical user interface in our structural
engineering software. We are among the top revenue generators in this
marketplace. We are also a leader in terms of worldwide market penetration
since we believe we were the first to incorporate international design codes
into our software.

     IT SERVICES

         The IT services business is extremely competitive since it is not
capital intensive. Our competitors in the IT consulting services industry
include IT services companies such as Cognizant Technology Solutions and Scient
Corporation, consulting affiliates of large accounting firms, other technology
companies and in-house management information services departments. We believe
that the use of our proprietary collaboration software to add value to our IT
services differentiates us and may provide us competitive advantage over some of
our competition. We believe we are among the smaller providers of IT services in
terms of revenue and size.

     INTERNET CONTENT, E-COMMERCE AND COLLABORATIVE SOFTWARE SOLUTIONS

        In our current long-distance calling card telephony business, as well
as in our call termination services, we face competition primarily from
international long distance telecommunications carriers and other wholesale
carriers, such as Startec Global Communication and Fusion Technologies.  Our
travel services face competition from travel sites of major airlines as well
as from full-service travel sites such as travelocity.com, orbitz.com and
expedia.com, and from independent travel agents and agencies.

         We are among the smallest providers of telephony and travel services
and our geographic focus is limited to India and the Asian market for such
services, because we believe we understand the needs of this target market. This
focus enables us to limit our advertising costs by targeting our advertisements
toward specialized ethnic-oriented media, which in turn enables us to offer
services that are attractive to this cost conscious market. Our ASP services
face competition from Informative Graphics Corporation, Cimmetry Systems, Inc.
and CoCreate Software. Based on revenue, we are one of the smallest providers of
ASP services. Although the ASP services model applies to a wide spectrum of
industries, our initial target for our ASP services is the structural
engineering and complementary industries market. We use our proprietary,
document-centered collaborative software as a tool to enhance our ASP services,
allowing us to offer a flexible and cost-effective solution because our services
are capable of supporting over 150 widely used document formats.

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

     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. Despite these precautions and even though we have not experienced any
misappropriation of our technology over our 21-year history, 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.

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          Our protective measures may be even less effective in the emerging
Internet law field. Internet law is a new and developing area of the law, and
online contracting, privacy and liability issues, among others, are still being
resolved. This lack of certainty is further exacerbated in India, where the use
of the Internet is less evolved 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.

          We distribute our engineering software products under "shrink-wrap"
software license agreements, which grant end-users licenses to (rather than
ownership of) our products and which contain various provisions intended to
protect our ownership and confidentiality of the underlying technology.
Shrink-wrap licenses, which are not signed by the end-user, may be unenforceable
in certain jurisdictions. In addition to shrink-wrap licenses, our software is
distributed with a third party "hardware lock" which is a security device that
is attached to the central processing unit to prevent unauthorized access to
licensed software.

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

GOVERNMENT REGULATION

     REGULATION OF THE INTERNET

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

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     REGULATION OF COMMUNICATIONS SERVICES

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

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

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

         INDIA. Our current plans for our telecommunications offerings
contemplate using third parties in India to provide required call termination
and call origination services. We believe that if such third parties are
properly licensed in India to provide such services, we will not be required to
comply with the Indian government's regulations concerning telecommunications.

EMPLOYEES

         As of March 31, 2002, we had 301 employees, including 96 in product
development and related support services, 102 in IT consulting, 39 in sales and
marketing and 64 in finance and administration. Of the 301 employees, 298
employees were full time employees and 3 were part time employees. As of that
date, 143 of our employees were located in the United States and 158 were
located in international locations.

                                       12



<PAGE>
                                    PART II

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

FORWARD-LOOKING STATEMENTS

         This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities Act,
and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. We intend that those forward-looking statements be subject to the
safe harbors created by those sections. These forward-looking statements
generally include the plans and objectives of management for future operations,
including plans and objectives relating to our future economic performance, and
can generally be identified by the use of the words "believe," "intend," "plan,"
"expect," "forecast," "project," "may," "should," "could," "seek," "pro forma,"
"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 achieve and maintain profitability and obtain
              additional working capital, if required;
         o    our ability to successfully implement our future business plans;
         o    our ability to attract strategic partners, alliances and
              advertisers;
         o    our ability to hire and retain qualified personnel;
         o    the risks of uncertainty of trademark protection;
         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 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.

                                       13



<PAGE>

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    Engineering software products, maintenance and services (including
              digital media and animation products and services) for businesses
              worldwide;

         o    Information technology, or IT, services (including value-added IT
              services); and

         o    Internet content and e-commerce activities (including Web-based
              engineering and collaborative software and commerce solutions,
              long-distance communication services that include call termination
              services and prepaid phone cards, and travel services).

         We have provided computer-aided engineering software solutions to our
customers for over 21 years. For the past 19 years, we have supported our
engineering software business with our India-based software programming and IT
resources. In 1999, we acquired two IT services companies in the U.S., which
further expanded our IT resources and capabilities. Our Internet portal services
were started in 1999 and were refocused in fiscal 2001 toward telecommunication
and travel services. A more expansive discussion of our business and services is
contained in the "Business" section of this report.

RESULTS OF OPERATIONS

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

                                                                          YEAR ENDED MARCH 31,
                                                              ----------------------------------------------
                                                                       2002                       2001
                                                                       ----                       ----
<S>                                                                     <C>                        <C>
              Net revenues                                              100.0%                     100.0%
              Cost of revenues                                           52.8                       53.5
                                                              ---------------------      -------------------
              Gross profit                                               47.2                       46.5
                                                              ---------------------      -------------------
              Selling, general and
               administrative expenses                                   53.5                       44.1
              Research and development expenses                           7.5                        8.6
              Amortization of goodwill                                    5.3                        4.3
              Depreciation and other amortization                         5.1                        2.6
              Impairment charge                                           6.8                          -
              Restructuring                                               0.1                        7.7
                                                              ---------------------      -------------------

              Operating loss                                            (31.1)                     (20.8)

              Interest (expense) income, net                             (0.7)                       0.6
              Other (expense) income, net                                (0.1)                       0.5
                                                              ---------------------      -------------------
              Loss before income taxes                                  (31.9)                     (19.7)
              Income tax expense                                         (4.9)                      (1.5)
                                                              ---------------------      -------------------
              Net loss                                                  (36.8)%                    (21.2)%
                                                              =====================      ===================
</TABLE>

                                       14



<PAGE>

         NET REVENUES. Net revenues decreased by $7,018,000 (22.4%) to
$24,284,000 in fiscal 2002 from $31,302,000 in fiscal 2001. Our total net
revenues for the current year primarily consisted of revenues from (1) IT
services, (2) engineering software products, maintenance and services (including
digital media products and animation services), and (3) Internet content,
e-commerce, and collaborative software solutions.

         IT services net revenues represented 40.6% of total net revenues in
fiscal 2002 compared to 57.6% in fiscal 2001. In dollar terms, IT services net
revenues were $9,869,000 in fiscal 2002 compared to $18,019,000 in fiscal 2001,
a decrease of 45.2%. During the past year, the IT services industry was
adversely affected by a slow economy and many of our customers reduced spending
on technology consulting and systems integration services. Due to the slower
economy many companies were faced with financial constraints and as such
canceled or postponed many contracted jobs. In addition, the demand for some of
our services decreased during fiscal 2002, which caused us to reduce our billing
rates approximately 23% from fiscal 2001. As a result, our IT services revenues
declined in fiscal 2002 from prior fiscal years. In anticipation of improvement
in our IT services revenues toward the latter part of fiscal 2002, which
improvement did not materialize, we continued to employ consultants and thus
continued to incur costs with no resulting increase in our revenues. Subsequent
to year-end, we responded to these business conditions by eliminating excess
capacity through workforce reductions and aggressively reducing discretionary
costs to lower the cost of operating this segment of our business. We expect
that this period of economic uncertainty may continue to impact our IT services
revenue throughout fiscal 2003.

         Software sales, maintenance and services net revenues increased as a
percentage of total net revenues to 38.4% in fiscal 2002 from 32.2% in fiscal
2001 largely due to greater declines in other segments. In dollar terms,
software sales, maintenance and services net revenues were $9,313,000 in fiscal
2002 compared to $10,066,000 in fiscal 2001, a decrease of 7.5%. The decrease is
primarily the result of:

         o    decline in dealer sales revenue of approximately $385,000. In
              fiscal 2002, our dealers, who are primarily based in Asia, did not
              perform at the levels they had in the past due to the slow Asian
              economy.

         o    decline in digital media and animation services revenues of
              approximately $188,000. We were unable to secure new projects
              related digital media and animation services in India.

         o    decline in STAAD 3 user upgrade revenues of approximately
              $550,000. STAAD 3 is an older product and in order for our
              customers to upgrade to STAAD.Pro, the newer product, we charged
              them an upgrade fee. In fiscal 2002, the number of STAAD 3 users
              had significantly decreased as customers upgraded to STAAD.Pro,
              which in turn decreased our STAAD 3 upgrade revenues. This
              decrease was offset by an increase of approximately
              $318,000 in revenues from new licenses of STAAD.Pro.

         Internet content and e-commerce and collaborative software solutions
net revenues increased as a percentage of total revenues to 21.0% in fiscal 2002
from 10.3% in fiscal 2001. In dollar terms, net revenues from this segment were
$5,102,000 in fiscal 2002 compared to $3,217,000 in fiscal 2001, an increase
58.6% over the prior year. This increase is primarily the result of:

         o    increase in phone cards and call termination services revenues
              of approximately $1,073,000 due to a full year's revenues
              reflected in fiscal 2002 compared to seven months' revenues in the
              prior year; and

                                       15



<PAGE>

         o    increase in travel services revenues of approximately $667,000 due
              to a full year's revenues in fiscal 2002 as a ticket consolidator
              for a certain airlines compared to six months' revenues in the
              prior year as a ticket consolidator.

         GROSS PROFIT. Gross profit as a percentage of net revenues increased to
47.2% in fiscal year 2002, from 46.5% for fiscal 2001. In dollar terms, total
gross profit decreased by $3,098,000 (21.3%) to $11,462,000 in fiscal 2002 from
$14,560,000 in fiscal 2001, due to the decline in gross profit from the IT
services segment, but was offset by slight increases in other areas.

         Historically, the gross profit percentage from the IT services segment
has been lower than the gross profit percentage from the software sales and
support segment because service revenue has a higher cost of labor associated
with it, consisting largely of the cost of the consultants performing the
services. In fiscal 2002 IT services gross profit percentage declined to 24.2%
from 32.2% in fiscal 2001. In dollar terms, IT services gross profit decreased
by $3,411,000 (58.9%) to $2,385,000 from $5,796,000 as a result of the market
slowdown for the IT industry. As noted above, we continued to employ consultants
who remained idle and whose hours were not billable and thus incurred costs,
resulting in lower gross profit for fiscal 2002. The cost of revenues for IT
services includes the salaries, bonuses, and benefits for all of the consulting
employees including consultants who are "idle" and not billable to a particular
customer or project. Our IT service consultants generally receive higher
salaries than our technical support employees and we have employed more
consultants than technical support staff, both of which contributed to the lower
gross margin as compared to the software sales and support segment.

         The gross profit percentage in the software sales and support segment
increased to 88.1% in fiscal 2002 from 77.1% in fiscal 2001. Our software sales
and support segment generally produces a higher gross margin than our other
segments due to the lower costs associated with each sale. The cost of revenues
for the software sales and support segment includes amortization of capitalized
software development, printing services, direct supplies such as hardware locks
and recording media, salaries for the technical support employees, and freight
out. The increase in the gross profit percentage from the prior fiscal year is
due to a reduction in the cost of direct supplies and printing services,
consolidation of our technical support staff and decreased amortization of
software development. We have decreased the number of technical support staff in
the U.S. offices and instead are using our resources and staff we already have
in place in India.

         Gross profit from Internet, e-commerce and collaborative software
solutions declined to 17.1% in fiscal 2002 from 31.2% in fiscal 2001 primarily
due to a decrease in the gross profit percentage from our travel business. Our
travel business gross profit percentage decreased 14.8% from 29.1% in fiscal
2001 to 14.3% in fiscal 2002 due to pricing pressures and the market slowdown in
the travel industry. We believe this trend will continue due to competition from
other online travel services, many of which have greater resources than we have,
as well as due to reductions in travel agency commissions caused by pricing
pressures experienced by the airline industry. The cost of revenues for our
Internet, e-commerce and collaborative software solutions includes the cost of
buying minutes from another carrier and the cost of purchasing certain airline
tickets that we sell as a ticket consolidator. Due to the highly competitive
nature of telephony and travel services, the gross profit from this segment is
lower than the gross profit of our other two business segments.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses decreased by $814,000 (5.9%) to $13,001,000 in
fiscal 2002 from $13,815,000 in fiscal 2001 primarily due to cost control
measures put in place at the end of fiscal 2001. The major components of the
decrease in SG&A expenses were a $425,000 reduction in advertising expense due
to cost control measures, a $375,000 reduction in salaries expense due to
attrition, a $237,000 reduction in IT sales commissions due to decreased volume
of IT sales, a $181,000 reduction in bad debt expense due to improved accounts

                                       16



<PAGE>

receivable collections, and a $188,000 reduction in dealer sales commissions due
to a decrease in software revenues from dealers, offset by a $611,000 increase
in consulting expenses. Approximately, $525,000 of the $611,000 increase in
consulting expenses was non-cash related to the issuance of common stock in
consideration for services.

         RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D")
expenses consist primarily of software developers' wages. In fiscal 2002, R&D
expenses decreased by $882,000 (32.6%) to $1,824,000 from $2,706,000 in fiscal
2001. Approximately $507,000 of this was due to increased capitalization of
software development expenses as a result of achieving technological feasibility
on our WebWorks development efforts. The remainder of the decrease in R&D
expenses is due to cost control measures put in place during the fourth quarter
of fiscal 2001.

         DEPRECIATION AND AMORTIZATION EXPENSES. In fiscal 2002, depreciation
and other amortization expenses (excluding goodwill amortization) increased by
$445,000 as a result of a higher level of capital expenditures in fiscal 2001.

         IMPAIRMENT CHARGE. In fiscal 2002, we recorded an impairment charge of
$1,651,000. Of this amount $684,000 represented the write-off of capitalized
film production costs, $651,000 represented the write-off of assets of Interra
Global, one of our subsidiaries in India, and $316,000 represented the
write-down of goodwill related to the purchase of e-Destinations, our travel
services subsidiary. We wrote off capitalized film production costs, since
revenues-to-date and forecasted revenues from these film assets did not support
carrying value of the recorded amounts. We surrendered the license held by
Interra Global and recorded the above-noted impairment charge related to the
write-off of the assets of this subsidiary in the fourth quarter of fiscal 2002.
As a result of uncertainties faced by our travel business, in accordance with
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", we
recorded an impairment charge of $316,000 to write down the value of goodwill
associated with the acquisition of our travel subsidiary, e-Destinations, Inc.,
which is included in our Internet, e-commerce and collaborative software
segment. The amount of the write down represented the excess of the carrying
amount of goodwill over its fair value. The fair value of goodwill associated
with the acquisition of e-Destinations was determined by calculating the present
value of estimated expected future cash flows in accordance with SFAS No. 121.
There may be further impairment in the future when we implement SFAS No. 142,
"Goodwill and Other Intangible Assets" beginning in April 2002.

         SEGMENT PROFITABILITY. Operating loss in the software sales,
maintenance and services segment increased to $4,021,000 in fiscal 2002 from
$3,773,000 in fiscal 2001. Operating loss in the software sales, maintenance and
services segment included an impairment charge of $684,000 related to the
write-off of capitalized film production costs in fiscal 2002 and restructuring
costs of $208,000 in fiscal 2001. In the IT services segment, a higher level of
gross profit in fiscal 2001 contributed to operating income of $1,994,000,
whereas in fiscal 2002 the amount of gross profit was not enough to cover the
operating expenses, resulting in an operating loss of $749,000. Operating loss
in the Internet, e-commerce and collaborative software solutions segment
decreased to $2,802,000 in fiscal 2002 from $4,740,000 in fiscal 2001. Operating
loss in the Internet, e-commerce and collaborative software solutions segment in
fiscal 2001 included $2,192,000 of restructuring costs.

         RESTRUCTURING. In March 2001, we announced plans to restructure our
operations. As a result of this restructuring plan, we recorded a restructuring
charge of $2,400,000 in the fourth quarter of fiscal 2001. The restructuring
plan consisted of four major points: 1) refocused strategic direction of
Internet service provider (ISP) initiatives; 2) refocused strategic direction of
Internet portal initiatives; 3) consolidation of technical support activities;
and 4) elimination of our in-house legal department.

                                       17



<PAGE>

         With regard to our ISP initiatives in India, we redirected our primary
focus toward communication and connectivity services targeted at the corporate
market. Our original focus related to ISP services was that we planned to offer
ISP services to both consumers and businesses in India. With the proposed
acquisition of a 30% ownership interest in Vital Communications, Ltd., an IT
communications technology company, we had planned to start providing ISP
services for the 10,000 customers of Vital Communications as a first step toward
becoming an ISP in India.

         The total amount charged for the refocus of ISP operations in fiscal
2001 was $1,998,000. This total charge consisted of $171,000 in contractual
obligations and $1,827,000 in asset write-offs related to ISP operations in
India. These charges did not include any employee costs. However, they included
the write-off of $537,000 paid toward our proposed acquisition of a 30%
ownership interest in Vital Communications, the write-off of $346,000 related
to capitalized connectivity charges for the ISP business, and the write-off of
$944,000 of ISP infrastructure equipment. The ISP infrastructure equipment
related to the Voice Over Internet Protocol (VOIP) technology. The equipment
was determined to have no resale value because VOIP technology was not
permitted in India and because it was not cost-effective to sell the equipment
in countries where VOIP was permitted since the technology had changed. The
restructuring related to the ISP operations resulted in elimination of
depreciation and amortization expenses that would have resulted from the ISP
related assets.

         In the Internet portal business, we redirected our primary focus
toward the telephony and travel services offered through the portal. The
restructuring of ISP and portal operations mainly consisted of the write-off of
non-performing assets and therefore did not affect ongoing operations. The
refocus of ISP initiatives and portal operations enabled us to focus on those
areas of the Internet based operations that we believed we could be successful.
The restructuring related to the ISP initiatives and portal operations resulted
in elimination of depreciation and amortization expenses that would have
resulted if these assets were not written off. The amount of future depreciation
and amortization expense that would have resulted from these assets if they were
not written off is approximately $399,000 per year.

         In March 2001, we closed our Boston technical support office. The
technical support function in the Boston area was a redundant operation while it
was ongoing, since we had a comparable technical support capability at our
California facility. Technical support activities previously offered from that
office have been consolidated into the California facility. By consolidating the
technical support functions, beginning in April 2001, we reduced employee costs
by approximately $221,000 per year and reduced facility costs by approximately
$51,000 per year.

         The elimination of the in-house legal department primarily consisted of
the termination of one employee whose position was not refilled. Due to the size
of our operations, a full-fledged internal legal department was unnecessary. We
are able to obtain cost-effective legal services, as and when needed from our
continuing external legal counsel. By eliminating the in-house legal department,
we reduced employee costs by approximately $127,000 per year beginning in April
2001.

         Of the total restructuring charge of $2,400,000, cash payments totaling
$2,100,000 were expended in fiscal 2001 and $177,000 in fiscal 2002. In March
2002, we increased our restructure liability by $25,000 due to additional
expenses related to the restructuring plans announced in March 2001. The
remaining personnel costs and contractual obligations related to the
restructuring amounted to $157,000 at March 31, 2002.

         As of the date of filing of this report, the remaining personnel costs
had been satisfied. The remaining contractual obligations will be satisfied at
the termination of the Boston facility lease in September 2003.

         OTHER EXPENSE (INCOME). Net interest changed by $353,000 to net
interest expense of $160,000 in fiscal 2002 as compared to net interest income
of $193,000 in fiscal 2001. The change is primarily due to the decrease in cash
balances invested in interest earning accounts.

         INCOME TAXES. Net income tax expense increased to $1,192,000 in fiscal
2002 compared to net income tax expense of $457,000 in fiscal 2001. In fiscal
2002 we increased our valuation allowance against deferred tax assets by
$1,334,000. In assessing the realizability of the net deferred tax assets, we
consider whether it is more likely than not that some or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon either the generation of future taxable income during the periods
in which those temporary differences become deductible or the carryback of
losses to recover income taxes previously paid during the carryback period. The
valuation allowance was offset by approximately $305,000 of income tax benefits
due to recovery of taxes paid in prior years, as described in Note 10 of the
notes to our audited consolidated financial statements included in this report.

                                       18



<PAGE>

CRITICAL ACCOUNTING POLICIES

         We have identified the following as accounting policies critical to our
company:
         o    revenue recognition;
         o    capitalization of software development and purchased technology;
         o    allowances for accounts receivable;
         o    impairment of long-lived assets including goodwill; and
         o    deferred income taxes.

Revenue Recognition
-------------------

         We recognize revenue when the following criteria are met:
         1.   Persuasive evidence of an arrangement exists, such as agreements,
              purchase orders or written or online requests;
         2.   Delivery has been completed and no significant obligations remain;
         3.   Our price to the buyer is fixed and determinable; and
         4.   Collectibility is probable.

         Our revenues arise from the following segments: IT services; software
sales, maintenance and services (including digital media products and services);
and products and services sold via Internet portals, including telecommunication
and travel services.

         IT services revenue is 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 we recognize revenue upon achieving the milestones. Our fixed price IT
contracts are typically for a short duration ranging from one to three months.

         Revenue from software sales is recognized upon shipment, provided that
no significant post-contract support obligations remain outstanding and
collection of the resulting receivable is probable. Our software sales
do not provide a specific right of return. At the time of sale, we typically
provide free 120-day initial maintenance and support to the customer. Costs
relating to this initial 120-day support period, which consist primarily of
telephone support, are not considered material. After the initial support
period, customers may choose to purchase ongoing maintenance contracts that
include telephone, e-mail and other methods of support, and the right to receive
upgrades. Revenue from these maintenance contracts is deferred and recognized
ratably over the life of the contract, usually twelve months. Revenues from
digital media and animation services are recognized upon achievement of certain
pre-determined milestones.

         In October 1997, the Accounting Standards Executive Committee ("AcSEC")
of the AICPA issued Statement of Position ("SOP") 97-2, SOFTWARE REVENUE
RECOGNITION. We adopted SOP 97-2 in the first quarter of fiscal 1999. 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. 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 modifies SOP 97-2 to allow for use of the residual method of
revenue recognition provided that certain criteria have been met. We adopted SOP
98-9 in

                                       19



<PAGE>

the first quarter of fiscal 2000. 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.

         We recognize revenues from products and services sold via Internet
portals, including telecommunication and travel services, net of purchase costs
when the products and services are delivered and collectibility is probable.
Revenues from certain phone card transactions are deferred and
recognized on the basis of usage. Certain travel services, based on their
nature, are recognized at the gross sales value with purchase costs stated as a
separate cost of revenues in accordance with Emerging Issues Task Force Issue
No. 99-19, "RECORDING REVENUE GROSS AS A PRINCIPAL VERSUS NET AS AN AGENT."
Accounting for Software Development Cost and Purchased Technology
-----------------------------------------------------------------

         We develop software in-house, employ third parties to develop software
for us as well as purchase software technology. Costs related to the development
of certain software products are capitalized. Capitalization of costs begins
when technological feasibility has been established and ends when the product is
available for general release to customers. Additional costs to enhance products
after release are expensed as they are incurred.

         Capitalized software development costs and purchased technology are
amortized using the straight-line method over three to five years, or the ratio
of actual sales to anticipated sales, whichever is greater. The resulting net
book value of the capitalized software asset is reviewed periodically for
recoverability based on estimated future revenues from products based on that
particular technology. When significant uncertainties exist with respect to the
recoverability of the capitalized cost of the asset, we write the cost of the
asset down to its potential recoverable value.

Allowance for 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 the
customers, we estimate the recoverability of these balances. When recoverability
is uncertain and the unrecoverable amounts can be reasonably estimated, we
record bad debt expense and increase the allowance for accounts receivable by an
amount equal to the amount estimated to be unrecoverable.

Impairment of Long-lived Assets Including Goodwill
--------------------------------------------------

         We apply the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This statement
requires that long-lived assets and certain identifiable intangibles (including
Goodwill) be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net undiscounted cash flows expected to be
generated by the asset. If the asset is considered to be impaired, the
impairment to be recognized is measured as the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. We apply the provisions of SFAS No. 86 (SFAS 86), "ACCOUNTING FOR THE COST
OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED" for evaluating
unamortized capitalized software development costs. At each balance sheet date,

                                       20



<PAGE>

we compare the unamortized software development cost of each product to the net
realizable value of the product. The amount by which the unamortized software
development cost exceeds the net realizable value of the product is written off.

Deferred Income Taxes
---------------------

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

         In assessing the realizability of the net deferred tax assets, we
consider whether it is more likely than not that some or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon either the generation of future taxable income during the periods
in which those temporary differences become deductible or the carryback of
losses to recover income taxes previously paid during the carryback period.

LIQUIDITY AND CAPITAL RESOURCES

         Historically, we have relied upon cash from financing activities to
fund most of the cash requirements of our operating and investing activities.
Currently we finance our operations (including capital expenditures) primarily
through existing cash and cash equivalent balances. We have used debt and equity
financing when appropriate and practicable. Our principal sources of liquidity
at March 31, 2002 consisted of $3,466,000 of cash and cash equivalents. Cash and
cash equivalents decreased by $4,492,000 or 56.4% during the fiscal year ended
March 31, 2002. The primary reasons for this decline were cash used in
operations, capital expenditures, repayment of bank debt, payments toward
capital lease obligations and repurchase of common stock. Although cash
expenditures were higher than usual in April and May 2002, cash consumption is
anticipated to be approximately $150,000 per month through the end of March
2003.

         Net cash used in operations was $3,225,000 in fiscal 2002 compared to
$661,000 in fiscal 2001. Net loss was the primary reason for the decrease in
cash during fiscal 2002. Increases in prepaid expenses and other current assets,
and income tax receivable, along with decreases in accounts payable, accrued
expenses, accrued restructuring charges and deferred revenues contributed to the
usage of cash in fiscal 2002, offset by a decrease in accounts receivable, net
of bad debt expense of $358,000. In fiscal 2001, the primary reason for net cash
used in operations was the net loss for fiscal 2001, offset largely by the
return of a large deposit balance. Increases in accounts receivable (net of bad
debt expense of $590,000), prepaid expenses and other assets, and decreases in
accrued expenses, income taxes payable and accrued restructuring costs offset by
increases in accounts payable and deferred revenues contributed to the usage of
cash in fiscal 2001.

         Net cash used in investing activities in fiscal 2002 consisted
primarily of capital expenditures of $394,000 compared to $4,598,000 in fiscal
2001. In fiscal 2001, capital expenditures included purchases of hardware for
our Internet portal, ASP services and ISP businesses. Payments to acquire
companies, net of cash acquired, accounted for approximately $72,000 in fiscal
2002 and $2,042,000 in fiscal 2001, which were largely attributable to the
acquisitions of Allegria and Interra Global.

         In fiscal 2002, cash was used in financing activities whereas in fiscal
2001 financing activities provided cash. We used $943,000 in fiscal 2002 to
repay bank debt and capital lease obligations and to repurchase common stock in
settlement of repurchase obligations entered into at the time of acquisition of

                                       21



<PAGE>

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

         We incurred net losses of $8,944,000 and $6,637,000 and have used cash
in operations of $3,225,000 and $661,000 in fiscal years 2002 and 2001,
respectively. Our future capital requirements will depend upon many factors,
including sales and marketing efforts, the development of new products and
services, possible future strategic acquisitions, the progress of research and
development efforts, and the status of competitive products and services. We
believe we will be able to generate cash from operations or through additional
sources of debt and equity financing. We have continued our program to reduce
costs and expenses. If adequate funds are not available, we may be required to
delay, scale back, or eliminate our research and development programs and our
marketing efforts or to obtain funds through arrangements with partners or
others who may require us to relinquish rights to certain of our technologies or
potential products or assets.

         The following table summarizes our contractual obligations and
commercial commitments at March 31, 2002 (in thousand dollars):
<TABLE>
<CAPTION>

                                           -------------------------------------------------------
                                                             PAYMENTS DUE BY PERIOD
                                           -------------------------------------------------------
                                                      LESS THAN                             AFTER
CONTRACTUAL OBLIGATIONS                    TOTAL       1 YEAR      1-3 YEARS   4-5 YEARS   5 YEARS
-----------------------                    -----       ------      ---------   ---------   -------
<S>                                        <C>          <C>           <C>        <C>        <C>
Long-Term Debt                               826          259         542         15           10
Capital Lease Obligations                  1,444          417         737        290           --
Operating Leases                           4,483          590         837        690        2,366

                                          --------------------------------------------------------
Total Contractual Cash Obligations         6,753        1,266       2,116        995        2,376

                                      TOTAL AMOUNTS  LESS THAN 1
OTHER COMMERCIAL COMMITMENTS            COMMITTED       YEAR       1-3 YEARS   4-5 YEARS   OVER 5 YEARS
----------------------------            ---------       ----       ---------   ---------   ------------

Purchase commitment                          800          800          --         --           --
                                          -------------------------------------------------------------
Total Commercial Commitments                 800          800          --         --           --
                                          =============================================================

</TABLE>

         As indicated above, we historically have relied upon cash from
financing activities to fund most 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. However, we believe that current and future available
capital resources will be adequate to fund our operations for the next twelve
months, because we are continuing to implement cost containment measures in an
effort to reduce cash consumption both domestically and abroad and are working
to increase sales of our software products. The results of these combined
efforts have reduced our cash used in operations to approximately $150,000 per
month. We intend to continue these combined efforts with the goal of eliminating
our monthly cash consumption by March 31, 2003.

                                       22



<PAGE>

         Our line of credit expired in August 2001 and we are currently in
negotiations with financial institutions to secure a new line of credit. We
currently are seeking financing but do not have any final commitments for
additional financing other than a $500,000 credit line from a major stockholder
under which we have not made any borrowings. We may use a portion of any funds
we receive from financing to intensify our current marketing efforts. Because
the benefits of enhanced marketing efforts likely would not be realized for at
least several months after the efforts are expended, the elimination of our cash
consumption likely would be postponed.

         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. Any debt financing or other
financing of securities senior to common stock likely will include financial and
other covenants that will restrict our flexibility. At a minimum, we expect
these covenants to include restrictions on our ability to pay dividends on our
common stock.

         If adequate funds from operating or financing activities are not
available, we may be required to delay, scale back or eliminate portions of our
operations and product development efforts or to obtain funds through
arrangements with strategic partners or others that may require us to relinquish
rights to certain of our technologies or potential products or other assets.
Accordingly, 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.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         During July 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"),
"BUSINESS COMBINATIONS." This statement requires that all business combinations
be accounted for using the purchase method of accounting and redefines
goodwill and other intangibles that should be recognized separate from goodwill.
SFAS 141 is effective for all business combinations initiated after June 30,
2001.

         During July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "GOODWILL AND OTHER INTANGIBLE ASSETS." This
statement requires that goodwill and other intangibles with an indefinite useful
life not be amortized, but be tested for impairment at least annually. SFAS 142
is effective for fiscal years beginning after December 15, 2001; however, for
new business combinations that occur after June 30, 2001, SFAS 142 is effective
for those transactions. We will adopt SFAS 142 beginning April 1, 2002 and are
currently evaluating the impact of SFAS 142 on our consolidated financial
statements.

         In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 ("SFAS 143"), "ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS."
This statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development, or normal use of the asset. SFAS 143 is effective for
fiscal years beginning after June 15, 2002. We do not expect the adoption of
SFAS 143 to have a material impact on our consolidated financial position or
results of operations.

                                       23



<PAGE>

         In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS." This statement addresses financial accounting and reporting
for the impairment of long-lived assets and supersedes SFAS 121, and the
accounting and reporting provisions of APB No. 30, "REPORTING THE RESULTS OF
OPERATIONS FOR A DISPOSAL OF A SEGMENT OF A BUSINESS." SFAS 144 is effective for
fiscal years beginning after December 15, 2001. We will adopt SFAS 144 beginning
April 1, 2002. We do not expect the adoption of SFAS 144 to have a material
impact on our consolidated financial position or results of operations.

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.

     OUR PLANS TO RETURN TO PROFITABILITY DEPEND ON OUR ABILITY TO INCREASE
     REVENUES DESPITE CUTTING COSTS IN A VARIETY OF AREAS, WHICH MAY NOT BE
     FEASIBLE.

         We incurred net losses of $8,944,000 and $3,172,000 for the fiscal year
ended March 31, 2002 and the nine months ended December 31, 2002, respectively.
We used cash in operations totaling $3,225,000 and $2,284,000 for the fiscal
year ended March 31, 2002 and the nine months ended December 31, 2002,
respectively. During the past year we have significantly reduced our operating
expenses. However, in order to achieve profitability, we must increase our
revenues while continuing to control our expenses. We are continuing to
implement cost containment measures in an effort to reduce our cash consumption
from operations both domestically and abroad, and we are working to increase
sales of our software products. The results of these combined efforts have
reduced our cash used in operations to approximately $150,000 per month.

         We intend to continue these combined efforts with the goal of
generating positive cash flow from operations in the quarter ending
June 30, 2003. To accomplish this goal, we are tailoring our cost containment
measures to ensure that each of our operating units or costs centers will
generate positive cash flow. If adequate funds from operating activities are
not available, we may be required to delay, scale back or eliminate portions
of our operations and product development efforts or to obtain funds through
arrangements with strategic partners or others that may require us to relinquish
rights to certain portions of our technologies or potential products or other
assets. Furthermore, because some of the areas of expense cutting, such as
sales and marketing and research and development, involve activities that we
ordinarily undertake with the expectation that they will contribute to future
revenues, obtaining and maintaining profitability may be difficult, even with
reduced expenses. Even if near-term profitability can be achieved through
cost-cutting, it will not be sustainable if the effect of cost-cutting is
to impede future revenue growth.

     IF WE ARE UNABLE TO RAISE CAPITAL IN THE FUTURE, WE MAY BE UNABLE TO FUND
     OPERATING CASH SHORTFALLS.

         Our future capital requirements will depend upon many factors,
including sales and marketing efforts, the development of new products and
services, possible future strategic acquisitions, the progress of our research
and development efforts, and the status of competitive products and services. As
of March 31, 2002 and December 31, 2002, we had working capital of $3,766,000
and $2,271,000, respectively, and an accumulated deficit of $16,805,000 and
$19,977,000, respectively. As of those dates, we had $3,466,000 and $2,656,000,
respectively, in cash and cash equivalents and $3,325,000 and $3,321,000,
respectively, of accounts receivable, net of allowance for doubtful accounts.

                                       24



<PAGE>

         We believe that current and future available capital resources will be
adequate to fund our operations for the next twelve months. However,
historically we have not been able to generate sufficient cash from our
operating activities and have relied upon cash from financing activities to fund
most of the cash requirements of our operating and investing activities. To the
extent we are in need of any additional financing, it may not be available to us
on acceptable terms, or at all. 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.

         Any financing may cause significant dilution to existing stockholders.
Any debt financing or other financing of securities senior to common stock
likely will include financial and other covenants that will restrict our
flexibility. At a minimum, we expect these covenants to include restrictions on
our ability to pay dividends on our common stock.

     WE ANTICIPATE THAT OUR ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING
     STANDARDS NO. 142 "GOODWILL AND OTHER INTANGIBLE ASSETS" WILL INCREASE OUR
     LOSSES FOR THE FISCAL YEAR ENDED MARCH 31, 2003 BY AN ESTIMATED $5.4
     MILLION DUE TO AN IMPAIRMENT WRITE DOWN FOR OUR IT SERVICES DIVISION AND
     COULD ALSO CAUSE US TO INCUR LARGE LOSSES IN FUTURE ACCOUNTING PERIODS IF
     WE DETERMINE THAT THERE HAS BEEN A SIGNIFICANT IMPAIRMENT OF GOODWILL.

         In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement 142, "Goodwill and Other Intangible Assets." We adopted this statement
effective April 1, 2002. Under this statement, goodwill is no longer amortized
and became subject to annual testing for impairment beginning April 1, 2002. The
provisions of this statement require us to perform a two-step test to assess
goodwill for impairment. In the first step, we compare the fair value of each
reporting unit to its carrying value. If the fair value exceeds the carrying
value, then goodwill is not impaired and we need not proceed to the second step.
If the carrying value of a reporting unit exceeds its fair value, then we must
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 will record an
impairment loss in the amount of the excess. With regard to a reporting unit's
goodwill balance at April 1, 2002, we were required to perform the first step of
the annual testing for impairment by September 30, 2002. If the results of that
step indicated that goodwill may be impaired, we were then required to complete
the second step as soon as possible, but no later than March 31, 2003.

         We assessed the fair value of our three reporting units by considering
their projected cash flows, using risk-adjusted discount rates, and by the
market approach in evaluating the market valuation of the units as compared to
competing companies. Given consideration of relevant factors, we concluded that,
as of April 1, 2002, an impairment write-down for our IT services division was
required. We currently estimate the impairment write-down for our IT services
division to be approximately $5.4 million. The actual amount of the impairment
and, therefore, the write-down for our IT services division, will be reported
with our results for the year ended March 31, 2003.

         We are required to perform additional reviews for impairment
annually, or more frequently if events occur or circumstances change that would
more likely than not reduce the fair value of the net carrying amount. We cannot
predict whether or when there will be additional impairment charges, or the
amount of any such charges. If the charges are significant, the market price of
our common stock may decline.

                                        25



<PAGE>
     THE VOTING POWER OF YOUR INVESTMENT AND OUR EARNINGS PER SHARE WOULD BE
     SUBSTANTIALLY DILUTED IF ALL OR A SIGNIFICANT PORTION OF THE DECEMBER 2002
     NOTE WERE CONVERTED INTO SHARES OF OUR COMMON STOCK AT THE INITIAL
     CONVERSION PRICE.

         The 6% convertible note in the original principal amount of $2,000,000,
or the December 2002 note, that we issued to Laurus Master Fund, Ltd., or
Laurus, on December 13, 2002, initially was convertible by Laurus into up to
1,250,000 shares of our common stock at an initial fixed conversion price of
$1.60 per share. This number of shares represented approximately 7.2% of the
17,325,150 shares of our common stock that were outstanding on May 2, 2003.
As a result, if the entire principal balance of the December 2002 note were
converted at the initial conversion price, substantial dilution of the voting
power of your investment and of our earnings per share would occur.

     THE MARKET PRICE OF OUR COMMON STOCK AND THE VALUE OF YOUR INVESTMENT COULD
     SUBSTANTIALLY DECLINE IF ALL OR A SIGNIFICANT PORTION OF THE DECEMBER 2002
     NOTE WERE CONVERTED INTO SHARES OF OUR COMMON STOCK AND RESOLD INTO THE
     MARKET, OR IF A PERCEPTION EXISTS THAT A SUBSTANTIAL NUMBER OF SHARES WILL
     BE ISSUED UPON CONVERSION OF THE NOTE AND THEN RESOLD INTO THE MARKET.

         If the conversion prices at which the December 2002 note is converted
are lower than the price at which you made your investment, immediate dilution
of the value of your investment will occur. In addition, sales of a substantial
number of shares of common stock issued upon conversion of the note, or even the
perception that such sales could occur, could adversely affect the market price
of our common stock, which would mean that the note would be convertible into an
increased number of shares of our common stock in cases where, as described
elsewhere in these risk factors, the conversion price is based upon a discount
from the closing price of our common stock. You could, therefore, experience a
substantial decline in the value of your investment as a result of both the
actual and potential conversion of the December 2002 note.

     THE VOTING POWER AND VALUE OF YOUR INVESTMENT COULD DECLINE IF THE DECEMBER
     2002 NOTE IS CONVERTED AT A REDUCED PRICE DUE TO OUR ISSUANCE OF
     LOWER-PRICED SHARES.

         The $1.60 initial fixed conversion price of the December 2002 note
will be subject to downward weighted-average anti-dilution adjustments in most
cases where we issue securities at a purchase, exercise or conversion price that
is less than the then-applicable fixed conversion price of the note. For
example, if the fixed conversion price were $1.60 per share and we were to issue
1,000,000 shares of common stock at a price of $1.00 per share in a transaction
that is not excluded from the anti-dilution provisions, then the fixed
conversion price would be reduced to $1.57 per share, and an additional
approximate 23,885 shares of common stock would become issuable upon conversion
of the principal amount of the note. Consequently, the voting power and value of
your investment would decline if conversions occurred at the new
fixed conversion price.

     THE MARKET PRICE OF OUR COMMON STOCK COULD SUBSTANTIALLY DECLINE AND THE
     VOTING POWER AND VALUE OF YOUR INVESTMENT COULD BE SUBJECT TO UNLIMITED
     ADDITIONAL DILUTION IF THE DECEMBER 2002 NOTE WERE CONVERTED ON ONE OR MORE
     OCCASIONS AT AN ALTERNATE CONVERSION PRICE THAT APPLIES IF WE ARE IN
     DEFAULT OR IF WE ISSUE A CALL NOTICE UNDER THAT NOTE, PARTICULARLY IF
     LAURUS SEQUENTIALLY CONVERTS PORTIONS OF THE NOTE INTO SHARES OF OUR COMMON
     STOCK AT ALTERNATE CONVERSION PRICES AND RESELLS THOSE SHARES INTO THE
     MARKET.

         If we are in default or we issue call notices under the December 2002
note, then an alternate conversion price based on a discount from the market
price of our common stock may apply, and the note could become convertible into
an unlimited number of additional shares of our common stock, particularly if
Laurus sequentially converts portions of the note into shares of our common
stock at alternate conversion prices and resells those shares into the market.
If Laurus sequentially converts portions of the December 2002 note into shares
of our common stock at alternate conversion prices and resells those shares into
the market, then the market price of our common stock could decline due to the
additional shares available in the market, particularly in light of the
relatively thin trading volume of our common stock. This decline would reduce
the alternate conversion price, which in turn would permit Laurus to convert
additional portions of the December 2002 note into a greater number of shares of
our common stock at the reduced alternate conversion price while a default is
continuing under the note. Consequently, if a default occurs and is continuing,
and if Laurus repeatedly converts portions of the note at alternate conversion
prices and then resells those underlying shares into the market, a continuous
downward spiral of the market price of our common stock could occur that would
benefit Laurus at the expense of other existing or potential holders of our
common stock, creating a conflict of interest between Laurus and investors
who purchase the shares of common stock resold by Laurus following conversion
of the note.
                                       26



<PAGE>

         For example, if a conversion of the note occurs while we are in default
under the note or the related purchase agreement, then the conversion price of
the note will be equal to the lesser of the fixed conversion price or 70% of the
average of the three lowest closing prices of our common stock during the
preceding 30 trading days. So, if we were in default under the note and Laurus
then elected to convert $100,000 of the principal amount of the note at a time
when the fixed conversion price was $1.60 per share and the average of the three
lowest closing prices of our common stock during the thirty preceding trading
days also was $1.60, then the applicable conversion price would be $1.12 rather
than $1.60, and the number of shares issuable upon the conversion would be
89,286 based upon the alternate conversion price rather than 62,500 based upon
the fixed conversion price. The resale of those shares into the market would
very likely depress the market price of our common stock because our stock is
thinly traded and because Laurus could resell those shares at a discount to the
market price and still realize a profit.

         For example, Laurus could resell the 89,286 shares at a price of
$1.30, which is $0.18 above the hypothetical $1.12 alternate conversion price
but $0.30 below the $1.60 hypothetical market price. If such a sale were to
cause the average of the three lowest closing prices of our common stock to
decline from $1.60 to $1.30 during the thirty trading days preceding Laurus'
next conversion at an alternate conversion price, then Laurus could convert all
or any remaining portion of the note at a conversion price equal to 70% of
$1.30, or $0.91, and then resell those shares at a discount from this new,
lower market price while still making a profit on the resale, such as selling
for $1.00 and still realizing a $0.09 profit while causing the market price
to go to $1.00. Consequently, the market price of our common stock could
substantially decline and the voting power and value of your investment could
be subject to unlimited additional dilution if Laurus repeatedly converts
portions of the note at alternate conversion prices and then resells those
underlying shares into the market.

     CONTRACTUAL LIMITATIONS THAT RESTRICT LAURUS' ABILITY TO CONVERT THE
     DECEMBER 2002 NOTE MAY NOT NECESSARILY PREVENT SUBSTANTIAL DILUTION OF
     THE VOTING POWER AND VALUE OF YOUR INVESTMENT.

         The contractual limitations that restrict Laurus' ability to convert
the December 2002 note into shares of our common stock are limited in their
application and effect and may not prevent substantial dilution of your
investment. Laurus may not on any given date convert the note if, and to the
extent, that the conversion would result in the issuance of a number of shares
of common stock with a dollar value that exceeds 25% of the aggregate dollar
trading volume of our common stock during the preceding 30 trading days.
However, Laurus may make a series of smaller conversions that do not exceed this
limitation but that result in a decline in the market price of our common stock
and a decline in the voting power and value of your investment, particularly if
Laurus sequentially converts portions of the note into shares of our common
stock at alternate conversion prices and resells those shares into the market,
as described elsewhere in these risk factors.

         In addition, Laurus is subject to a contractual 4.99% beneficial
ownership limitation that prohibits Laurus from converting the note if and to
the extent that the conversion would result in Laurus, together with its
affiliates, beneficially owning more than 4.99% of our outstanding common stock.
However, this 4.99% limitation automatically becomes void upon an event of
default under the note and can be waived by Laurus upon 75 days' advance notice
to us. In addition, this 4.99% limitation does not prevent Laurus from
converting the note into shares of common stock and then reselling those shares
in stages over time where Laurus and its affiliates to do not, at any given
time, beneficially own shares in excess of the 4.99% limitation. Further, a
contractual limitation that prohibits Laurus from converting the note if, and to
the extent, the conversion would result in Laurus and its affiliates
beneficially owning more than 3,463,625 shares of our common stock, will be
removed if and when we obtain stockholder approval at Laurus' request or if an
exemption from applicable Nasdaq corporate governance rules becomes available.
Consequently, these limitations will not necessarily prevent substantial
dilution of the voting power and value of your investment.

                                       27



<PAGE>

     CONVERSIONS OF THE DECEMBER 2002 NOTE AT DRAMATICALLY REDUCED CONVERSION
     PRICES COULD RESULT IN A CHANGE OF CONTROL OF OUR COMPANY.

         A change of control of our company could occur if, as discussed
elsewhere in these risk factors, conversions of the December 2002 note occur at
dramatically reduced conversion prices, such as if Laurus sequentially converts
portions of the note at alternate conversion prices into shares of our common
stock and resells those shares into the market. If a change of control occurs,
then the stockholders who historically have controlled our company would no
longer have the ability to exert significant control 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 involving our
company. Instead, one or more other stockholders could gain the ability to exert
this type of control and may also, through control of the board of directors and
voting power, be able to control 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.

     IF CONVERSIONS OF THE DECEMBER 2002 NOTE AT DRAMATICALLY REDUCED CONVERSION
     PRICES RESULT IN A CHANGE OF CONTROL OF OUR COMPANY OR THE FAILURE
     OF OUR COMMON STOCK TO MEET NASDAQ MINIMUM BID PRICE REQUIREMENTS, THEN WE
     COULD BE DELISTED FROM THE NASDAQ NATIONAL MARKET, WHICH COULD REDUCE THE
     LIQUIDITY OF OUR COMMON STOCK AND INHIBIT OR PRECLUDE OUR ABILITY TO RAISE
     ANY NEEDED WORKING CAPITAL FROM EQUITY INVESTORS.

         A change of control of our company or a substantial decline in the
market value of our common stock could occur if, as discussed elsewhere in these
risk factors, conversions of the December 2002 note occur at dramatically
reduced conversion prices, such as if Laurus sequentially converts portions of
the note into shares of our common stock and resells those shares into the
market. 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 Nasdaq determines that a
change of control has occurred due to conversions of the December 2002 note or
otherwise, 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 either The Nasdaq National Market or The Nasdaq Small Cap
Market.

         In addition, Nasdaq's quantitative listing standards require, among
other things, that listed companies maintain a minimum bid price of $1.00. If
our bid price falls and remains below $1.00 for at least 30 consecutive trading
days, whether due to sequential conversions of the note and resales of the
underlying shares or otherwise, we may be delisted if we do not regain
compliance with the bid price requirement within any applicable grace period.

         If we are delisted from The Nasdaq National Market, 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.

     IF WE ARE UNSUCCESSFUL IN ACHIEVING AND MAINTAINING COMPLIANCE WITH OUR
     REGISTRATION OBLIGATIONS WITH REGARD TO THE DECEMBER 2002 NOTE
     AND RELATED WARRANT, WE WILL INCUR SUBSTANTIAL MONETARY PENALTIES.

         The agreements we entered into in connection with our issuance of the
December 2002 note require us to, among other things, register for resale the
shares of common stock issued or issuable under the note and the accompanying
warrant and maintain the effectiveness of the registration statement for an
extended period of time. We currently are not in compliance with our
registration obligations and are subject to liquidated damage assessments of 1%
of the principal amount of the note for the first 45 days of non-compliance and
2% of the principal amount of the note for each month of non-compliance
thereafter, subject to pro ration for partial months. If we are unable to obtain
and maintain effectiveness of the required registration statement, then we may
be required to pay additional liquidated damages, which would adversely affect
our business, operating results, financial condition, and ability to service our
other indebtedness by negatively impacting our cash flows.

                                       28



<PAGE>

     OUR LIMITED OPERATING HISTORY AND LACK OF EXPERIENCE IN OUR NEW OR PROPOSED
     LINES OF BUSINESS MAKES IT DIFFICULT TO PREDICT OUR FUTURE SUCCESS.

         We have only recently diversified our business and are now offering
Internet-based business-to-business services and telephony services to the
global community. We intend to provide integrated communications services to and
from global destinations to consumers, carriers and businesses. As a result, we
have limited or no operating histories in each of these new or proposed lines of
business. Therefore, our historical financial information is of limited value in
projecting our future success in these markets.

     OUR EXPANSION INTO NEW LINES OF BUSINESS MAY DIVERT MANAGEMENT'S ATTENTION
     FROM OUR EXISTING OPERATIONS AND PROVE TO BE TOO COSTLY.

         We have been in the engineering software business for over 21 years,
and our two IT consulting businesses have a combined 14 years of operating
experience. We have only recently entered the Internet content and commerce
services, Internet-based IT business-to-business services, and telephony
services markets. In the future, we may expand into the integrated
Indian-focused communications markets. Our expansion into these new and proposed
lines of business may be difficult for us to manage because they involve
different disciplines and require different expertise than our core businesses.
Consequently, this expansion may detract management's time and attention away
from our core businesses, and we may need to incur significant expenses in order
to develop the expertise and reputation we desire, which could prevent us from
generating revenues from these lines of business in amounts sufficient to
justify the expenses we incur in operating them.

     OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN OUR CURRENT MANAGEMENT TEAM.

         Our founder, Chairman and Chief Executive Officer, Amrit K. Das, and
our President and Chief Operating Officer, Jyoti Chatterjee, have each been with
us for more than 21 years. 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 impaired operating results while the successor was being recruited
and transitioning into the position. We do not currently maintain life insurance
on the lives of either of these officers.

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

         The Internet-based services, Internet-based engineering software
products and services and telephony services markets each are highly
competitive. The market for Internet-based products and services is
characterized by an increasing number of entrants due to low start-up costs.
Some of our competitors and potential competitors have larger technical staffs,
more established and larger marketing and sales organizations and significantly
greater financial resources than ours. 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 and
margin pressures as we work to expand our software products and services market
share. We also are experiencing lower profit margins in our telephony operations
due to the turmoil in that market sector. As a result of these pricing and
margin pressures, we may experience declines in our revenues and market share.

                                       29



<PAGE>

     IF THE QUALITY AND MAINTENANCE OF THE THIRD-PARTY COMMUNICATIONS
     INFRASTRUCTURE ON WHICH WE RELY SUFFERS, OUR SERVICE COULD BE DISRUPTED,
     OUR REPUTATION COULD BE HARMED AND WE COULD LOSE CUSTOMERS.

         We rely on a third-party communications infrastructure to carry our
voice traffic. We have no control over whether the infrastructure on which we
rely will be adequately maintained by the third parties or whether the third
parties will be able to upgrade or improve their equipment and prevent it from
becoming obsolete. If the third parties fail to maintain, upgrade or improve
their equipment, our ability to provide services would be impaired or
interrupted. Impairments or interruptions, particularly impairments or
interruptions that are frequent or long-lasting, could harm our reputation and
cause us to lose existing or potential customers.

     OUR OPERATING RESULTS MAY BE ADVERSELY IMPACTED 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. Therefore, exchange rate
fluctuations can have a detrimental effect on our reported operating results. We
do not engage in hedging activities to protect against the risk of currency
fluctuations.

     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 24.8% and 19.1% of our net revenue for the
fiscal years ended March 31, 2002 and March 31, 2001, respectively, and 33.3% of
our net revenue for the nine months ended December 31, 2002. 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 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.

                                       30



<PAGE>

         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 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.

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

         During the fiscal year ended March 31, 2002 and the nine months ended
December 31, 2002, we derived only approximately 5.5% and 5.2%, respectively, of
our total net revenues from sales made by our Indian operations, primarily to
customers in India. However, nearly one-half of our employees, many of whom are
engaged in non-sales activities such as technical support and research and
development, were based in India. India has from time to time experienced civil
unrest and hostilities with its neighboring countries. Although the Indian
government has changed three times since 1996, the government of India has
pursued policies of economic liberalization throughout the past decade. These
policies have resulted in significantly increased opportunities for publicly and
privately held businesses in the information technology services markets in

                                       31



<PAGE>

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.

     THE WAR IN THE MIDDLE EAST COULD ADVERSELY AFFECT INTERNATIONAL
     TRAVEL WHICH, IN TURN, COULD NEGATIVELY IMPACT REVENUES FROM OUR TRAVEL
     BUSINESS AND FOR OUR COMPANY OVERALL.

         The war between Iraq and the coalition forces may adversely
impact international travel.  Since our travel division derives over 80% of its
revenues from international travel, decreases in international travel are likely
to reduce revenues from our travel business and for our company overall.  If the
war or subsequent factors affect international travel patterns for more than a
short period, our revenues and results of operations cold be negatively
impacted.

     REVENUES FOR OUR TRAVEL SERVICES DIVISION AND FOR OUR COMPANY OVERALL
     COULD BE NEGATIVELY AFFECTED IF INTERNATIONAL TRAVEL DECLINES DUE TO THE
     OUTBREAK OF SEVERE ACUTE RESPIRATORY SYNDROME, OR SARS.

         Our travel business, which focuses on travel to India and
neighboring countries could be adversely affected if the cause or mode of
transmission of SARS is not determined soon.  The uncertainty regarding SARS
may cause travelers to become reluctant to travel by air, which could reduce
the demand for our travel services. This, in turn, could negatively impact
revenues from our travel division and for our company overall.

                                       32



<PAGE>

     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.

     U.S. FEDERAL OR STATE GOVERNMENTS MAY INCREASE TELEPHONY REGULATION, WHICH
     COULD CAUSE THAT BUSINESS TO BECOME ECONOMICALLY UNVIABLE, EITHER AS A
     RESULT OF INCREASED EXPENSES OR AS A RESULT OF LIMITATIONS ON GROWING THAT
     BUSINESS.

         Our provision of telecommunication services is subject to government
regulation in the U.S. Federal law regulates international and interstate
telecommunications, while states have jurisdiction over telecommunications that
originate and terminate within the same state. Changes in existing policies or
regulations by Congress, by the Federal Communications Commission, or the FCC,
or any state could cause operating in this field to become more expensive or
could cause expansion to become more difficult, such as by limiting the ability
to obtain necessary licenses. We cannot assure you that the regulatory
authorities in one or more states or the FCC will not take action causing this
business to become unviable for us.

     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.

         The market prices of securities of technology-based companies like
ours, particularly Internet-related companies, currently are highly volatile.
The market price of our common stock has fluctuated significantly in the past.
In fact, during the 52-week period ended May 2, 2003, the high and low sale
prices of a share of our common stock were $3.95 and $0.68, 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, until the full effects of
our cost-cutting efforts that began over a year ago become clear, including
whether those cuts have a long-term negative impact on revenues, it is likely
that our quarter-to-quarter performance will be unpredictable and our stock
price particularly volatile.

         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.

                                       33



<PAGE>

     OUR NET OPERATING LOSS CARRYFORWARDS MAY BE SUBJECT TO AN ANNUAL LIMITATION
     ON THEIR UTILIZATION, WHICH MAY INCREASE OUR TAXES AND DECREASE AFTER-TAX
     INCOME AND CASH FLOWS.

         As of March 31, 2002, we had available net operating loss carryforwards
of $9,321,000 for federal income tax purposes and $5,133,000 for state income
tax purposes. Due to the "change in ownership" provisions of the Tax Reform Act
of 1986, our 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. To the extent we are unable to fully use these net
operating loss carryforwards to offset future taxable income, we will be subject
to income taxes on future taxable income, which will decrease our after-tax
income and cash flows.

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

         As of May 2, 2003, our executive officers and directors and their
family members together beneficially owned approximately 45.1% of the issued and
outstanding shares of our common stock. As a result, these persons have the
ability to exert significant control 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 involving our company. In
addition, through control of the board of directors and voting power, they may
be able to control 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 in control of our
company, even if the change in 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.

                                        34



<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.

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

                                       35



<PAGE>
                                    PART III

ITEM 10.  EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

         Information concerning the annual and long-term compensation for
services in all capacities to our company of our Chief Executive Officer and our
other executive officers whose aggregate cash compensation exceeded $100,000
(collectively, the "Named Executives") during the fiscal years ended March 31,
2002, 2001 and 2000 is shown below.
<TABLE>

                           SUMMARY COMPENSATION TABLE
<CAPTION>

                                                                       Long-Term
                                                                      Compensation
                                           Annual Compensation           Awards
                                        --------------------------    ------------
                                                                      Securities
                                                     Other Annual     Underlying        All Other
         Name and                       Salary       Compensation       Options       Compensation
    Principal Position       Year         ($)           (1)($)            (#)             ($)
    ------------------       ----         ---           ------            ---             ---
<S>                          <C>        <C>             <C>             <C>           <C>
Amrit K. Das                 2002       335,100         73,219            ---          6,972(2)
  Chief Executive Officer    2001       334,500         73,183          30,000        15,568(2)
                             2000       333,600           ---             ---         16,855(2)

Jyoti Chatterjee             2002       221,568         37,797            ---           ---
  President and Chief        2001       221,100         36,573          30,000          ---
  Operating Officer          2000       220,276           ---             ---           ---

Clara Young                  2002       132,405         24,890            ---           ---
  Corp. Vice President,      2001       128,790         16,203           9,000          ---
  Chief Administrative       2000       129,211           ---             ---           ---
  Officer

Stephen Owen                 2002       156,181         17,932(3)         ---            ---
  Corporate Vice President,  2001       137,625         21,164(3)       12,000           ---
  President, European        2000       147,621         23,995(3)         ---            ---
  Operations

Santanu Das                  2002       135,458           ---             ---          5,150(4)
  Corporate Vice President,  2001       132,093           ---           30,000         5,150(4)
  President, Engineering     2000        72,662           ---             ---          6,929(4)
  and Animation Software
  and ASP

</TABLE>

________________________________________________________________________________
(1)  The costs of certain benefits are not included because they did not exceed,
     in the case of each Named Executive, the lesser of $50,000 or 10% of the
     total annual salary and bonus as reported above.
(2)  Represents premiums paid by us pursuant to a split-dollar life insurance
     policy established for the benefit of Amrit Das.
(3)  Represents car allowance and imputed interest for Mr. Owen's non-interest
     bearing loan in the amount of $5,100 in 2002, $7,820 in 2001, and $9,520 in
     2000.
(4)  Represents premiums paid by us pursuant to a life insurance policy
     established for the benefit of Santanu Das.

                                       36



<PAGE>

STOCK OPTION GRANTS IN 2002

         In fiscal 2002, no options or stock appreciation rights were granted to
the Named Executives.

OPTION EXERCISES AND FISCAL YEAR-END VALUES

         Shown below is information with respect to the number of shares of our
common stock acquired upon the exercise of options, the value realized, the
number of unexercised options at March 31, 2002 and the value of unexercised
in-the-money options at March 31, 2002 for the Named Executives in the Summary
Compensation Table above. The Named Executives did not hold any stock
appreciation rights during fiscal 2002.
<TABLE>

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

                                                            Number of Securities           Value of Unexercised In-the-Money
                                                       Underlying Unexercised Options      Options at Fiscal Year-End ($) (a)
                                                           At Fiscal Year-End (#)
                          Shares
                       Acquired on        Value
        Name           Exercise(#)     Realized($)      Exercisable      Unexercisable      Exercisable        Unexercisable
        ----           -----------     -----------      -----------      -------------      -----------        -------------
<S>                        <C>             <C>            <C>                <C>             <C>                     <C>

Amrit K. Das               ---             ---            180,000            20,000           826,200                91,800

Jyoti Chatterjee           ---             ---            236,000            20,000         1,083,240                91,800

Clara Young                ---             ---             80,000             6,000           367,200                27,540

Stephen Owen               ---             ---             84,000             8,000           385,560                36,720

Santanu Das                ---             ---            180,000            20,000           826,200                91,800
</TABLE>

(a) Calculated based on the difference between $4.59, the closing price of our
common stock at March 31, 2002, and grant price of the underlying options.

LONG-TERM INCENTIVE PLAN AWARDS

         In fiscal 2002, no awards were given to Named Executives under
long-term incentive plans.

SALARY DEFERRAL ARRANGEMENT

         Stephen Owen, who is one of the Named Executives, elected to defer
portions of his salary on a pretax basis to a retirement account of his choice
during the fiscal years ended March 31, 2002, 2001 and 2000. The amounts
deferred in those periods were $29,641, $30,144 and $36,619, respectively. We
did not match his contributions.

DIRECTORS' COMPENSATION

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

                                       37



<PAGE>

REPRICING OF OPTIONS AND SARS

         No adjustments to or repricing of stock options previously awarded to
named executives occurred in fiscal 2002.

EMPLOYMENT AGREEMENTS

         In May 1996, we entered into five-year employment agreements with each
of Amrit Das (Chairman and Chief Executive Officer) Jyoti Chatterjee (President,
Chief Operating Officer, Director) and Clara Young (Corporate Vice President,
Chief Administrative Officer, Secretary). In June 2001, we entered into new
five-year agreements with each of these individuals and in addition, a five-year
employment agreement with Santanu Das (Corporate Vice President, and President,
Engineering, Animation Software and ASP).

         The new agreements provide that Mr. Amrit Das, Mr. Chatterjee, Ms.
Young and Mr. Santanu Das will receive minimum base annual salaries of $312,000,
$202,800, $117,000 and $120,000, respectively. Each employment agreement also
provides for the grant of an annual bonus. The annual salaries and bonuses may
be adjusted at the discretion of the Compensation Committee of the Board of
Directors. In the event of early termination from employment, except for good
cause, the employee shall (a) continue to be paid base salary and bonuses for
the remainder of the term of the agreement, (b) continue to receive all benefits
and perquisites which he or she had been receiving immediately prior to such
termination for the remainder of the term of the agreement, and (c) be
immediately vested in all stock options to which he or she would have been
entitled during the full term of the agreement had the termination not occurred.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

         Each of Messrs. Amrit K. Das, Jyoti Chatterjee and Garret Vreeland
served as a member of the compensation committee of the board of directors
during fiscal year 2002. None of the members of the compensation committee
served as a member of the compensation committee of the board of directors of
any other publicly or privately held company.

                                       38



<PAGE>

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

         (a) Exhibits

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

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

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

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

         3.1      Form of Certificate of Incorporation of the registrant filed
                  with the Delaware Secretary of State on August 28, 2000.******

         3.5      Bylaws of the registrant.*

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

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

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

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

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

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

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

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

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

                                       39



<PAGE>

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

         10.11    netGuru, Inc. 2000 Stock Option Plan.++++

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

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

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

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

         10.16    Standard Industrial/Commercial Single-Tenant Lease-Net dated
                  November 30, 1999 by and between Lowenberg Corporation and the
                  registrant.++++++

         10.17    Employee Loan Agreement and Promissory Note dated May 3, 2001
                  by and between the registrant and Santanu Das.++++++

         10.18    Employee Loan Agreement and Promissory Note dated November 1,
                  2000 by and between the registrant and Stephen Owen.++++++

         10.19    Salary Deferral Arrangement for Executives of Research
                  Engineers (Europe) Ltd.

         21.1     Subsidiaries of the registrant.+++++

         23.1     Consent of KPMG LLP.

         99.1     Certifications 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

         (b) Reports on Form 8-K
             None.

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

*        Filed as an exhibit to our Registration Statement on Form SB-2 dated
         May 21, 1996 or amendment thereto dated June 14, 1996 (Registration No.
         333-4844-LA) and incorporated herein by reference.

                                       40



<PAGE>
**       Filed as an exhibit to our Form 10-KSB for the fiscal year ended March
         31, 1997 that was filed with Securities and Exchange Commission on June
         30, 1997, or amendment thereto filed on August 19, 1997 and
         incorporated herein by reference.
***      Filed as an exhibit to our Form 10-QSB for the quarterly period ended
         December 31, 1998 that was filed with the Securities and Exchange
         Commission on February 11, 1999, and incorporated herein by reference.
****     Filed as an exhibit to our Form 8-K dated February 26, 1999 that was
         filed with the Securities and Exchange Commission on March 5, 1999, and
         incorporated herein by reference.
*****    Filed as an exhibit to our Form 8-K dated September 14, 1999 that was
         filed with the Securities Exchange Commission on September 29, 1999,
         and incorporated by reference.
******   Filed as an exhibit to our information statement that was filed with
         the Securities and Exchange Commission pursuant to Section 14 (c) of
         the Securities Act on July 27, 2000, and incorporated herein by
         reference.
+        Filed as an exhibit to our Proxy Statement that was filed with the
         Securities and Exchange Commission. pursuant to Section 14(a) of the
         Securities Act on November 12, 1998, and incorporated herein by
         reference.
++       Filed as an exhibit to our Form 10-KSB for March 31, 1999 that was
         filed with the Securities and Exchange Commission on June 30, 1999, and
         incorporated herein by reference.
+++      Filed as an exhibit to our Form 10-KSB for March 31, 2000 that was
         filed with the Securities Exchange Commission on June 26, 2000 and
         incorporated herein by reference.
++++     Filed as an exhibit to our Form 10-KSB for March 31, 2001 that was
         filed with the Securities Exchange Commission on July 13, 2001, and
         incorporated herein by reference.
+++++    Filed as an exhibit to our Form 10-KSB for March 31, 2002 that was
         filed with the Securities Exchange Commission on July 1, 2002, and
         incorporated herein by reference.
++++++   Filed as an exhibit to Amendment No. 1 to our Form 10-KSB for March 31,
         2002 that was filed with the Securities and Exchange Commission on
         December 3, 2002, and incorporated herein by reference.

                                       41



<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: May 5, 2003
                                           /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>
<CAPTION>

         Name                                 Title                                Date
---------------------------      --------------------------------------      -------------------
<S>                               <C>                                         <C>

/s/ Amrit K. Das                  Chairman of the Board, Chief
---------------------------       Executive Officer and Director              May 5, 2003
Amrit K. Das                      (principal executive officer)

/s/ Jyoti Chatterjee              President, Chief Operating Officer,         May 5, 2003
---------------------------       Director
Jyoti Chatterjee

/s/ Bruce K. Nelson               Chief Financial Officer (principal          May 5, 2003
---------------------------       financial and accounting officer)
Bruce K. Nelson

/s/ Santanu Das                   Corporate Vice President, President,        May 5, 2003
---------------------------       Engineering, Collaboration and
Santanu Das                       Animation and Director

/s/ Stephen Owen                  Corporate Vice President, President,        May 5, 2003
---------------------------       European Operations and Director
Stephen Owen

                                  Director                                    May 5, 2003
---------------------------
Stanley W. Corbett

                                  Director                                    May 5, 2003
---------------------------
Garret Vreeland

                                  Director                                    May 5, 2003
---------------------------
L.M. Singhvi

</TABLE>
                                       42



<PAGE>

                                 CERTIFICATIONS

         I, Amrit K. Das, certify that:

         1. I have reviewed this amendment no. 3 to annual report on Form 10-KSB
of netGuru, Inc. ("annual report");

         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Date: May 5, 2003
                                          /s/ Amrit K. Das
                                          -------------------------------------
                                           Amrit K. Das, Chief Executive Officer
                                           (principal executive officer)

         I, Bruce Nelson, certify that:

         1. I have reviewed this amendment no. 3 to annual report on Form 10-KSB
of netGuru, Inc. ("annual report");

         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.

Date: May 5, 2003
                                    Bruce K. Nelson
                                    --------------------------------------------
                                    Bruce K. Nelson, Chief Financial Officer
                                    (principal financial and accounting officer)

                                       43



<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

1. Independent Auditors' Report                                             F-2

2. Consolidated Financial Statements:

         Consolidated Balance Sheet as of March 31, 2002                    F-3

         Consolidated Statements of Operations for the years ended
         March 31, 2002 and 2001                                            F-4

         Consolidated Statements of Stockholders' Equity and
         Comprehensive Loss for the years ended
         March 31, 2002 and 2001                                            F-5

         Consolidated Statements of Cash Flows for the years ended
         March 31, 2002 and 2001                                            F-6

         Notes to Consolidated Financial Statements                         F-8

                                      F-1



<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
netGuru, Inc.:

We have audited the consolidated financial statements of netGuru, Inc. and
subsidiaries as listed in the accompanying index. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of netGuru, Inc. and
subsidiaries as of March 31, 2002, and the results of their operations and their
cash flows for the years ended March 31, 2002 and 2001, in conformity with
accounting principles generally accepted in the United States of America.

                                                     /s/ KPMG LLP

Orange County, California
May 30, 2002

                                      F-2



<PAGE>

<TABLE>

                             NETGURU, INC. AND SUBSIDIARIES

                               Consolidated Balance Sheet

                                     March 31, 2002

                   (In thousands, except share and per share amounts)

<CAPTION>
<S>                                                                           <C>

                                         ASSETS

Current assets:
    Cash and cash equivalents                                                 $  3,466
    Accounts receivable (net of allowance for doubtful accounts of $981)         3,325
    Income tax receivable                                                          305
    Notes and related party loans receivable                                       269
    Prepaid expenses and other current assets                                    1,543
                                                                              ---------

           Total current assets                                                  8,908

Property, plant and equipment, net                                               4,169
Goodwill (net of accumulated amortization of $4,438)                             9,105
Other assets                                                                       884
                                                                              ---------

                                                                              $ 23,066
                                                                              =========

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Current portion of long-term debt                                         $    259
    Current portion of capital lease obligations                                   417
    Accounts payable                                                             1,012
    Accrued expenses                                                             1,281
    Income taxes payable                                                           196
    Deferred maintenance revenue                                                 1,760
    Deferred income taxes                                                           60
    Accrued restructuring costs                                                    157
                                                                              ---------

           Total current liabilities                                             5,142

Long-term debt, net of current portion                                             567
Capital lease obligations, net of current portion                                1,027
Deferred income taxes, non-current                                                 112
Deferred gain on sale-leaseback                                                    887
                                                                              ---------

           Total liabilities                                                     7,735
                                                                              ---------

Commitments and contingencies  (note 9)

Stockholders' equity:
    Preferred stock, par value $.01; authorized 5,000,000 shares; no shares
      issued and outstanding                                                        --
    Common stock, par value $.01; authorized 150,000,000 shares; issued and
      outstanding 17,265,850 shares (net of 10,965 treasury shares)                173
    Additional paid-in capital                                                  33,057
    Accumulated deficit                                                        (16,805)
    Accumulated other comprehensive loss:
      Cumulative foreign currency translation adjustments                       (1,094)
                                                                              ---------

           Total stockholders' equity                                           15,331
                                                                              ---------

                                                                              $ 23,066
                                                                              =========

See accompanying notes to consolidated financial statements.

                                          F-3
</TABLE>



<PAGE>
<TABLE>
                               NETGURU, INC. AND SUBSIDIARIES

                           Consolidated Statements of Operations

                            Years ended March 31, 2002 and 2001

                    (In thousands, except share and per share amounts)

<CAPTION>

                                                                 2002            2001
                                                             -------------   -------------
<S>                                                          <C>             <C>
Net revenues:
    Software sales, maintenance and services                 $      9,313    $     10,066
    IT services                                                     9,869          18,019
    Internet, e-commerce and collaborative
      software solutions                                            5,102           3,217
                                                             -------------   -------------

           Total net revenues                                      24,284          31,302

Cost of revenues:
    Software sales, maintenance and services                        1,108           2,305
    IT services                                                     7,484          12,223
    Internet, e-commerce and collaborative
      software solutions                                            4,230           2,214
                                                             -------------   -------------

           Total cost of revenues                                  12,822          16,742

           Gross profit                                            11,462          14,560
                                                             -------------   -------------

Operating expenses:
    Selling, general and administrative                            13,001          13,815
    Research and development                                        1,824           2,706
    Amortization of goodwill                                        1,290           1,360
    Depreciation and other amortization                             1,243             798
    Impairment charge                                               1,651              --
    Restructuring                                                      25           2,400
                                                             -------------   -------------

           Total operating expenses                                19,034          21,079
                                                             -------------   -------------

           Operating loss                                          (7,572)         (6,519)
                                                             -------------   -------------

Other expense (income):
    Interest, net                                                     160            (193)
    Other                                                              20            (146)
                                                             -------------   -------------

           Total other expense (income)                               180            (339)
                                                             -------------   -------------

Loss before income taxes                                           (7,752)         (6,180)

Income tax expense                                                  1,192             457
                                                             -------------   -------------

           Net loss                                          $     (8,944)   $     (6,637)
                                                             =============   =============

Net loss per common share:
     Basic                                                   $      (0.53)   $      (0.45)
                                                             =============   =============
     Diluted                                                 $      (0.53)   $      (0.45)
                                                             =============   =============
Common shares used in computing net loss per common share:
     Basic                                                     16,982,496      14,781,331
                                                             =============   =============
     Diluted                                                   16,982,496      14,781,331
                                                             =============   =============

See accompanying notes to consolidated financial statements.

                                           F-4
</TABLE>



<PAGE>
<TABLE>
                                                  NETGURU, INC. AND SUBSIDIARIES

                              Consolidated Statements of Stockholders' Equity and Comprehensive Loss

                                                Years ended March 31, 2002 and 2001

                                               (In thousands, except share amounts)
<CAPTION>
                                        COMMON STOCK                 RETAINED    ACCUMULATED
                                     ------------------ ADDITIONAL   EARNINGS        OTHER          TOTAL           TOTAL
                          PREFERRED   NUMBER OF   PAR     PAID-IN  (ACCUMULATED  COMPREHENSIVE   STOCKHOLDERS'   COMPREHENSIVE
                            STOCK      SHARES    VALUE    CAPITAL    DEFICIT)    INCOME (LOSS)      EQUITY       INCOME(LOSS)
                          ---------  -----------  -----  ---------  -----------  -------------   -------------   -------------
<S>                              <C> <C>          <C>    <C>        <C>          <C>             <C>             <C>
Balance, March 31, 2000          --  13,264,035   $ 133  $ 28,500   $   (1,224)  $      (344)    $     27,065
                          ---------  -----------  -----  ---------  -----------  ------------    -------------

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

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

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

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

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

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

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

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

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

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

Balance, March 31, 2001   $      --  16,864,604   $ 169  $ 32,621   $   (7,861)  $    (1,037)    $     23,892
                          =========  ===========  =====  =========  ===========  ============    =============

Net loss                         --          --      --        --       (8,944)           --           (8,944)   $     (8,944)

Foreign currency
   translation                   --          --      --        --           --           (57)             (57)            (57)
                          ---------  -----------  -----  ---------  -----------  ------------    -------------   -------------

Comprehensive loss for
   the year ended March
   31, 2002                      --          --      --        --       (8,944)          (57)              --    $     (9,001)
                                                                                                                 =============

Issuance of common
   stock to consultants          --     325,000       3       703           --            --              706

Exercise of stock
   options                       --      88,246       1        55           --            --               56

Repurchase of common
   stock                         --     (12,000)     --      (400)          --            --             (400)

Compensation expense
   for stock options
   issued to employees
   below fair value              --          --      --        78           --            --               78
                          ---------  -----------  -----  ---------  -----------  ------------    -------------   -------------

Balance, March 31, 2002   $      --  17,265,850   $ 173  $ 33,057   $  (16,805)  $    (1,094)    $     15,331
                          =========  ===========  =====  =========  ===========  ============    =============

See accompanying notes to consolidated financial statements.
                                                                F-5
</TABLE>



<PAGE>
<TABLE>

                                   NETGURU, INC. AND SUBSIDIARIES

                               Consolidated Statements of Cash Flows

                                Years ended March 31, 2002 and 2001

                                           (In thousands)
<CAPTION>

                                                                               2002         2001
                                                                             ---------   ---------
<S>                                                                          <C>         <C>
Cash flows from operating activities:
    Net loss                                                                 $ (8,944)   $ (6,637)
    Adjustments to reconcile net loss to net cash used in
      operating activities:
        Depreciation and amortization                                           2,731       2,442
        Bad debt expense                                                          358         590
        Deferred income taxes                                                   1,334         318
        Compensation expense recognized on issuance of stock options               78         136
        Restructuring                                                              25       2,400
        Impairment charge                                                       1,651          --
        Consulting expense recognized on issuance of common stock                 525          --
        Loss on disposal of property                                              146          --
        Changes in operating assets and liabilities (net of acquisitions):
          Accounts receivable                                                   1,161      (1,419)
          Notes and related party loans receivable                               (256)        210
          Income tax receivable                                                  (305)         --
          Deposits                                                                 --       2,381
          Prepaid expenses and other current assets                              (761)       (697)
          Other assets                                                            (38)       (794)
          Accounts payable                                                       (164)        317
          Accrued expenses                                                       (426)       (382)
          Income taxes payable                                                     29         (91)
          Accrued restructuring costs                                            (177)        (96)
          Other current liabilities                                               111          --
          Deferred revenues                                                      (233)        731
          Deferred gain on sale-leaseback                                         (70)        (70)
                                                                             ---------   ---------

                  Net cash used in operating activities                        (3,225)       (661)
                                                                             ---------   ---------

Cash flows from investing activities:
    Purchase of property, plant and equipment                                    (394)     (4,598)
    Payments to acquire companies, net of cash acquired                           (72)     (2,042)
                                                                             ---------   ---------

                  Net cash used in investing activities                          (466)     (6,640)
                                                                             ---------   ---------

Cash flows from financing activities:
    Proceeds from issuance of bank debt                                            93         385
    Repayment of bank debt                                                       (314)     (1,147)
    Payment of capital lease obligations                                         (265)       (132)
    Issuance of common stock                                                       79       9,907
    Repurchase of preferred stock                                                  --      (6,560)
    Repurchase of common stock                                                   (364)        (76)
                                                                             ---------   ---------

                  Net cash (used) provided by financing activities               (771)      2,377
                                                                             ---------   ---------

    Effect of exchange rate changes on cash and cash equivalents                  (30)       (383)
                                                                             ---------   ---------

                  Decrease in cash and cash equivalents                        (4,492)     (5,307)

Cash and cash equivalents, beginning of year                                    7,958      13,265
                                                                             ---------   ---------

Cash and cash equivalents, end of year                                       $  3,466    $  7,958
                                                                             =========   =========

                                            (Continued)

                                                F-6
</TABLE>



<PAGE>
<TABLE>

                               NETGURU, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows, Continued

<CAPTION>

                                                                            2002      2001
                                                                          --------  --------
<S>                                                                       <C>       <C>
Supplemental disclosure of cash flow information:
    Cash paid for:
      Interest                                                            $   268   $   154
                                                                          ========  ========
      Income taxes                                                            105       152
                                                                          ========  ========

Supplemental disclosure of non-cash investing and financing activities:
    Acquisition of equipment under capital leases                         $   677   $   334
    Acquisition of equipment - received in lieu of payment on accounts         70        --
      receivable
    Write-off of assets against accrued restructure reserve                    --     1,995
    Issuance of common stock, warrants and options in connection with
      acquisitions                                                             --       750

Acquisitions:
    Fair value of assets acquired, net of cash                            $    72   $ 2,868
    Liabilities assumed                                                        --       (76)
                                                                          --------  --------

    Net assets acquired                                                        72     2,792
    Less: non-cash consideration given                                         --      (750)
                                                                          --------  --------

    Payments to acquire companies, net of cash acquired                   $    72   $ 2,042
                                                                          ========  ========

See accompanying notes to consolidated financial statements.

                                            F-7
</TABLE>



<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       ORGANIZATION

       The Company was incorporated in 1981 in the state of New Jersey and
       reincorporated in the state of Delaware in 1996 under the name Research
       Engineers, Inc. Effective February 25, 2000, the name was changed to
       netGuru, Inc. (the "Company" or "netGuru"). netGuru is an integrated
       Internet technology and services company providing Internet and PC-based
       engineering software products and services, including digital media and
       animation services, information technology ("IT") services, and IP
       telephony services and Internet based phone card and travel 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, which
       requires management to make estimates and assumptions that affect the
       reported amounts of assets and liabilities at the date of the financial
       statements and the reported amounts of revenues and expenses during the
       reporting periods. Actual results could differ from those estimates.

       FAIR VALUE OF FINANCIAL INSTRUMENTS

       Statement of Financial Accounting Standards ("SFAS") No. 107, DISCLOSURES
       ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires management to
       disclose the estimated fair value of certain assets and liabilities
       defined by SFAS No. 107 as financial instruments. Financial instruments
       are generally defined by SFAS No. 107 as cash or a contractual obligation
       that conveys to one entity a right to receive cash or other financial
       instruments from another entity, as well as impose on the other entity
       the obligation to deliver cash or other financial instruments to the
       first entity. At March 31, 2002, management believes the carrying amounts
       of cash and cash equivalents, receivable and payable amounts, and accrued
       expenses approximate fair value because of the short maturity of these
       financial instruments. The Company also believes that the carrying
       amounts of its long-term debt and capital lease obligations approximate
       their fair value as the interest rates approximate a rate that the
       Company could obtain under similar terms at the balance sheet date.

       FOREIGN CURRENCY TRANSLATION

       The financial position and results of operations of the Company's foreign
       subsidiaries are accounted for using the local currency as the functional
       currency. Assets and liabilities of the subsidiaries are translated into
       U.S. dollars (the reporting currency) at the exchange rate in effect at
       the year-end. Statements of operations accounts are translated at the
       average rate of exchange prevailing during the respective years.
       Translation adjustments arising from the use of differing exchange rates
       from period to period are included in accumulated other comprehensive
       income (loss) in the consolidated statement of stockholders' equity.
       Gains and losses resulting from foreign currency transactions are
       included in operations and are not material for fiscal 2002 and 2001.

                                      F-8



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       CASH AND CASH EQUIVALENTS

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

       PROPERTY, PLANT AND EQUIPMENT

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

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

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

       GOODWILL

       The Company amortizes costs in excess of the fair value of net assets of
       businesses acquired ("Goodwill") using the straight-line method over the
       estimated useful lives of the businesses acquired, usually a period of
       5-15 years. Goodwill amortization was $1,290,000 and $1,360,000 for the
       years ended March 31, 2002 and 2001, respectively.

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

       The Company applies the provisions of SFAS No. 121, ACCOUNTING FOR THE
       IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
       OF. This statement requires that long-lived assets and certain
       identifiable intangibles (including Goodwill) be reviewed for impairment
       whenever events or changes in circumstances indicate that the carrying
       amount of an asset may not be recoverable. Recoverability of assets to be
       held and used is measured by a comparison of the carrying amount of an
       asset to future net undiscounted cash flows expected to be generated by
       the asset. If such asset is considered to be impaired, the impairment to
       be recognized is measured as the amount by which the carrying amount of
       the asset exceeds the fair value of the asset. Assets to be disposed of
       are reported at the lower of the carrying amount or fair value less costs
       to sell. The Company applies the provisions of SFAS No. 86 (SFAS 86),
       "ACCOUNTING FOR THE COST OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR
       OTHERWISE MARKETED" for evaluating unamortized capitalized software
       development costs. At each balance sheet date, the Company compares the
       unamortized software development cost of each product to the net
       realizable value of the product. The amount by which the unamortized
       software development cost exceeds the net realizable value of the product
       is written off. At March 31, 2002, the Company had no write-off of
       unamortized software development costs.

                                      F-9



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       In fiscal 2002, the Company recorded an impairment charge of $1,651,000.
       Of this amount, $684,000 was related to the write-off of capitalized film
       production costs; $651,000 was related to the write-off of assets of

       Interra Global, one of the Company's subsidiaries in India; and $316,000
       represented the write-down of goodwill related to the purchase of
       e-Destinations, the Company's travel services subsidiary. The Company
       wrote off capitalized film production costs, since revenues-to-date and
       forecasted revenues from these film assets did not support carrying value
       of the recorded amounts. The Company surrendered the license held by
       Interra Global and recorded the above-noted impairment charge related to
       the write-off of the assets of this subsidiary in the fourth quarter of
       fiscal 2002. As a result of uncertainties faced by the travel business,
       the Company recorded an impairment charge of $316,000 to write down the
       value of goodwill associated with the acquisition of its travel
       subsidiary, e-Destinations, Inc., which is included in the Company's
       Internet, e-commerce and collaborative software segment. The amount of
       the write down represented the excess of the carrying amount of goodwill
       over its fair value. The fair value of goodwill associated with the
       acquisition of e-Destinations was determined by calculating the present
       value of estimated expected future cash flows in accordance with SFAS No.
       121. As of March 31, 2002, the Company had $340,000 of unamortized
       goodwill related to the acquisition of this subsidiary.

       SOFTWARE DEVELOPMENT COSTS AND PURCHASED TECHNOLOGY

       The Company capitalizes costs related to the development of certain
       software products in accordance with SFAS 86. Capitalization of costs
       begins when technological feasibility has been established and ends when
       the product is available for general release to customers. As of March
       31, 2002, capitalized costs of approximately $671,000, net of accumulated
       amortization, were included in other assets. Approximately $303,000 of
       this amount represents software developed in-house and $240,000
       represents the cost of software developed on the Company's behalf by
       third parties. The remaining $128,000 represents purchased technology.
       Additions to capitalized software were $545,000 and $254,000 during
       fiscal 2002 and 2001, respectively.

       The Company amortizes capitalized software development costs and
       purchased technology using the straight-line method over three to five
       years, or the ratio of actual sales to anticipated sales, whichever is
       greater. Amortization of software development costs and purchased
       technology charged to cost of revenues was approximately $198,000 and
       $284,000 for the years ended March 31, 2002 and 2001, respectively.
       Accumulated amortization on capitalized software was $1,420,000 and
       $966,000 as of March 31, 2002 and 2001, respectively.

       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 and determinable; and 4. collectibility is
       probable. The Company's revenues arise from the following segments:
       software sales, maintenance and services (including digital media
       products and services); information technology ("IT") services; and
       products and services sold via Internet portals, including ASP services,
       telecommunication and travel services.

       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 we recognize revenue upon
       achieving such milestones. The Company's fixed price IT contracts are
       typically for a short duration of one to three months.

                                      F-10



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

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

       In October 1997, the Accounting Standards Executive Committee ("AcSEC")
       of the AICPA issued Statement of Position ("SOP") 97-2, SOFTWARE REVENUE
       RECOGNITION. SOP 97-2 distinguishes between significant and insignificant
       vendor obligations as a basis for recording revenue with a requirement
       that each element of a software licensing arrangement be separately
       identified and accounted for based on relative fair values of each
       element. The Company adopted SOP 97-2 in the first quarter of fiscal
       1999. In 1998 the AICPA issued SOP 98-9, MODIFICATION OF SOP 97-2,
       SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS, which
       modifies SOP 97-2 to allow for use of the residual method of revenue
       recognition provided that certain criteria have been met. The Company
       adopted SOP 98-9 in the first quarter of fiscal 2000.

       The Company sells its engineering and collaborative software along with a
       maintenance package. This constitutes a multiple element arrangement. The
       price charged for maintenance portion is the same as when the maintenance
       is sold separately. The fair values of the maintenance contracts sold in
       all multiple element arrangements are recognized over the terms of the
       maintenance contracts. The engineering and collaborative software portion
       is recognized when delivery is complete and no significant obligations
       remain.

       Revenues from call termination services are recognized at gross sales
       value with the applicable cost separately stated in the cost of revenues.
       Revenues from the Company's own phone card sales are deferred and
       recognized on the basis of usage, whereas revenues from re-sale of
       third-party phone cards are recognized net of returns since no
       significant obligations remain once product is delivered. Certain travel
       services, based on their nature, are recognized at the gross sales value
       with purchase costs stated as a separate cost of revenues in accordance
       with Emerging Issues Task Force Issue No. 99-19, RECORDING REVENUE GROSS
       AS A PRINCIPAL VERSUS NET AS AN AGENT. Other products and services sold
       via Internet portals, including certain travel services, where the
       Company is a travel discounter or an agent, are recognized net of
       purchase costs when the products and services are delivered and
       collectibility is probable. Revenues from ASP services are
       recognized when the services are complete and collectibility is
       probable.

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

                                      F-11



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       DEFERRED REVENUES

       The Company defers revenues for its maintenance contracts, for its
       collaborative software sales and for its phone card revenues 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. The Company defers revenues from the sales of its own phone cards
       when the cards are sold, and then recognizes revenues from these phone
       card sales based on usage. Revenues from any unused portion of phone card
       minutes are recognized upon expiration of the phone cards.

       RESEARCH AND DEVELOPMENT

       The Company's research and development ("R&D") costs consist mainly of
       developers' salaries. The major thrust of the Company's R&D efforts has
       been and continues to be toward developing software products for sale and
       toward enhancing existing software products. To a lesser extent, the
       Company's R&D efforts are expended toward enhancing and maintaining its
       Websites. The Company follows the guidance of EITF 00-2, "ACCOUNTING FOR
       WEB SITE DEVELOPMENT COSTS" to account for its Website development costs
       and the guidance of SOP 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER
       SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE" to account for the costs
       of internal use software.

       The Company follows the provisions of SFAS No. 86, "ACCOUNTING FOR THE
       COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED" to
       capitalize software development costs when technological feasibility has
       been established and 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. Deferred tax assets and liabilities are measured
       using enacted tax rates expected to apply to taxable income in the years
       in which those temporary differences are expected to be recovered or
       settled.

       NET LOSS PER SHARE

       Basic Earnings Per Share ("EPS") is calculated by dividing net income
       (loss) by the weighted-average common shares outstanding during the
       period. Diluted EPS reflects the potential dilution to basic EPS that
       could occur upon conversion or exercise of securities, options, or other
       such items, to common shares using the treasury stock method based upon
       the weighted-average fair value of the Company's common shares during the
       period. See Note 12 "Loss Per Share" of Notes to Consolidated Financial
       Statements for computation of EPS.

                                      F-12



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       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).

       STOCK-BASED COMPENSATION

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

       SEGMENT REPORTING

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

       RECLASSIFICATIONS

       Certain reclassifications have been made to the 2001 consolidated
       financial statements to conform to the 2002 presentation. Included in
       amendment no. 2 and amendment no. 3 to the Form 10-KSB is a
       reclassification of the amortization of software development costs from
       "depreciation and other amortization" to "cost of revenues."

(2)    ACQUISITIONS

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

       ALLEGRIA SOFTWARE, INC.

       On April 1, 2000, we acquired all of the outstanding capital stock of
       Allegria Software, Inc. ("Allegria") for $1,500,000 in cash and 25,000
       shares of our common stock, valued at approximately $750,000 at the date
       of acquisition. Allegria was a developer of Internet-based document
       management and collaborative software tools primarily for engineering and

                                      F-13



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       manufacturing companies. The acquisition included stand-alone software
       products, as well as technology. The technology is being used in the
       development of the Company's ASP services business. The purchase price
       allocation (including acquisition costs of $11,000) is summarized as
       follows (in thousands):

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

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

       INTERRA GLOBAL, LIMITED.

       In May 2000, the Company acquired India-based Interra Global, Limited, an
       Internet service provider that had obtained the license to operate as
       such in India. The Company had also intended to use this license to offer
       Voice Over Internet Protocol ("VOIP") services when VOIP was allowed
       within India. The total purchase price was approximately $348,000 and
       substantially the entire purchase price was recorded as goodwill, which
       was being amortized over five years. With the deregulation of the
       telephony industry in India starting April 2002, the Company revised its
       business model for offering VOIP services within the India from becoming
       a direct service provider to a more cost-effective model of partnering
       with local companies. The Company surrendered the license held by Interra
       Global and recorded an impairment charge of $651,000 related to the
       write-off of the assets of this subsidiary in the fourth quarter of
       fiscal 2002.

       Based on the respective acquisition dates, pro forma disclosures have not
       been provided for the above noted acquisition, as they would not have
       significantly changed the actual results of operations for the fiscal
       years ended March 31, 2002 and 2001.

(3)    PROVISION FOR RESTRUCTURING OPERATIONS

       In March 2001, the Company announced plans to restructure its operations.
       As a result of this restructuring plan, the Company recorded a
       restructuring charge of $2,400,000 in fiscal 2001. The restructuring plan
       consisted of four major points: 1) refocused strategic direction of
       Internet service provider ("ISP") initiatives; 2) refocused strategic
       direction of Internet portal initiatives; 3) consolidation of the
       Company's technical support activities; and 4) elimination of the
       Company's in-house legal department.

       With regard to the Company's ISP initiatives in India, the Company
       redirected its primary focus toward communication and connectivity
       services targeted at the corporate market. The Company's original focus
       related to ISP services was that the Company planned to offer ISP
       services to both consumers and businesses in India. With the proposed
       acquisition of a 30% ownership interest in Vital Communications, Ltd.,
       an IT communications technology company, the Company had planned to start
       providing ISP services for the 10,000 customers of Vital Communications
       as a first step toward becoming an ISP in India.

       The total amount charged for the refocus of ISP operations in fiscal 2001
       was $1,998,000. This total charge consisted of $171,000 in contractual
       obligations and $1,827,000 in asset write-offs related to ISP operations
       in India. These charges did not include any employee costs. However, they
       included the write-off of $537,000 paid toward the Company's proposed
       acquisition of a 30% ownership interest in Vital Communications, the
       write-off of $346,000 related to capitalized connectivity charges for
       the ISP business, and the write-off of $944,000 of ISP infrastructure
       equipment. The ISP infrastructure equipment related to the VOIP
       technology.  The equipment was determined to
       have no resale value because VOIP technology was not permitted in
       India and because it was not cost-effective to sell the equipment in
       countries where VOIP was permitted since the technology had changed.
       The restructuring related to the ISP operations resulted in elimination
       of depreciation and amortization expenses that would have resulted from
       the ISP related assets.

                                      F-14



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       With regard to the Internet portal business, the Company redirected its
       primary focus toward the telephony and travel services offered through
       the portal. The initial restructuring charge related to the refocus of
       the portal business was $194,000, of which $168,000 was related to asset
       write-offs, and $26,000 was related to contractual obligations. These
       charges did not include any employee costs. The entire $194,000 was paid
       in fiscal 2001. During fiscal 2002, an additional $67,000 relating to
       contractual obligations for the portal operations was paid.

       In March 2001, the Company closed its Boston technical support office as
       part of consolidating the Company's technical support activities.
       Technical support activities previously offered from the Boston office
       were consolidated into the California facility. The closing of this
       office resulted in the termination of two employees. The restructure
       charge related to the consolidation of technical support facilities was
       $166,000, of which $49,000 related to accrued severance payments for the
       two terminated employees and $117,000 related to contractual lease
       obligations for the vacated space. In fiscal 2002, the Company made cash
       payments totaling $58,000 toward settlement of obligations related to
       this activity. The employee costs related to technical support
       operations decreased beginning in April 2001 and the Company expects
       facility costs to decrease beginning in October 2003, after the
       termination of the lease in September 2003.

       The elimination of the in-house legal department primarily consisted of
       the termination of one employee whose position was not filled. Legal
       services are being obtained from the Company's continuing external legal
       counsel. In fiscal 2001, the Company estimated that the restructure
       charge related to the elimination of the in-house legal department to be
       $42,000. An additional charge of $41,000 was recorded in fiscal 2002
       since the original estimate of severance expenses was insufficient. In
       fiscal 2002, the Company paid $52,000 toward this restructure charge.

       Activity relating to the restructuring charge is as follows (in
       thousands):
<TABLE>
<CAPTION>

                                 REFOCUS OF       REFOCUS OF      CONSOLIDATION   ELIMINATION
                                     ISP            PORTAL        OF TECHNICAL      OF LEGAL           TOTAL
                                 OPERATIONS       OPERATIONS        SUPPORT        DEPARTMENT
                                ------------     ------------     ------------     ------------     ------------
<S>                             <C>              <C>              <C>              <C>              <C>
       March 31, 2000                    --                --              --               --               --

       Restructuring charge     $     1,998      $        194     $       166      $        42      $     2,400
       Cash payments                 (1,897)             (194)             --               --           (2,091)
                                ------------     ------------     ------------     ------------     ------------

       March 31, 2001           $       101               --      $       166      $        42      $       309
                                ------------     ------------     ------------     ------------     ------------

       Cash payments                     --              (67)             (58)             (52)            (177)

       Adjustments                      (67) a            67   a          (16)  b           41   b          25
                                ------------     ------------     ------------     ------------     ------------

       March 31, 2002           $        34      $        --      $        92      $        31      $       157
                                ============     ============     ============     ============     ============
</TABLE>

a.         Represents reversal of over-accrual for contractual obligations for
           ISP operations and additional amounts accrued for contractual
           obligations related to the portal operations.

b.         Represents reversal of over-accrual for technical support severance
           costs and additional amounts accrued for anticipated severance costs
           for the elimination of the legal department.

                                      F-15



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       The balance at March 31, 2002 includes $67,000 of lease payments for
       vacated office space scheduled for payment through September 2003. The
       remaining personnel costs and contractual obligations are expected to be
       completed by the end of fiscal 2003.

(4)    PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment, at cost, as of March 31, 2002 consists of
       the following (in thousands):

            Land                                              $           24
            Buildings and leasehold improvements                         711
            Office and computer equipment, software
                and furniture                                          5,822
            Assets under capital lease                                   909

                                                              ---------------
                                                                       7,466
            Less accumulated depreciation                             (3,297)
                                                              ---------------
            Net property, plant and equipment                 $        4,169
                                                              ===============

       On December 15, 1999, the Company consummated a sale and leaseback
       transaction involving its Yorba Linda, California facility. The gross
       selling price of the property was $3,200,000, $1,689,000 of which was
       utilized to pay off the balance of the mortgage on the property. The
       Company received approximately $1,017,000 in cash proceeds, net of
       transaction costs, and a $250,000 short term note receivable for the sale
       of the property (payment on note was received prior to March 31, 2000).
       The proceeds were used to purchase the remaining 20% of NetGuru Systems
       in December 1999 and for operating purposes. Concurrent with the sale,
       the Company entered into a fifteen year operating lease on the facility
       (see Note 9). The net book value of the land and building and the related
       mortgage were removed from the Company's consolidated balance sheet and
       the lease payments are being charged to expense as incurred. The gain on
       the sale transaction of $1,047,000 has been deferred and is being
       recognized 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 $887,000 as of March 31, 2002.

(5)    LONG-TERM DEBT

       Long-term debt, including capital lease obligations, consists of the
       following at March 31, 2002 (in thousands):

      Term loan from a bank in India, bearing interest
          at 3.5% over the bank's medium term prime rate
          (for an effective rate of 16.0% at March 31, 2002)
          payable monthly, principal due in quarterly
          installments beginning June 2000 and ending March
          2005, secured by substantially all of the Company's
          assets located in India and guaranteed by a major
          shareholder                                                   $    703

      Capital lease obligations maturing at dates ranging
          from July 2003 to December 2006, secured by the
          leased assets                                                    1,444
      Other                                                                  123
                                                                        --------
               Total                                                       2,270
               Less current portion                                          676
                                                                        --------

                                                                        $  1,594
                                                                        ========

                                      F-16



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

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

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

          2003                                $    259       $    548
          2004                                     366            506
          2005                                     176            370
          2006                                       8            189
          2007                                       7            133
          Thereafter                                10             --
                                              ---------      ---------

          Total minimum payments              $    826          1,746
                                              ========

          Less amount representing interest                      (302)
                                                             ---------

          Present value of minimum capital
              lease payments                                    1,444
                                                             ==========

(6)    STOCKHOLDERS' EQUITY

       In September 1999, the Company issued warrants to purchase 170,000 shares
       of its common stock at exercise prices ranging from $4.71 to $4.84 per
       share to third parties related to the acquisition of NetGuru systems.
       Each warrant is convertible into one share of common stock. Through March
       31, 2002, 135,000 of these warrants had been converted into common stock.
       The remaining 35,000 warrants expire between September 2002 and September
       2004.

       In February 2000, the Company issued warrants to purchase 200,000 shares
       of common stock at an exercise price of $38.00 per share to an investor
       in consideration for the holder's decision to exercise previously issued
       warrants for cash rather than via a cashless exercise. These warrants
       expire February 2005.

       In March 2000, in a private transaction not involving a public offering,
       the Company issued 12,000 shares of Series B 5% Cumulative Convertible
       Preferred Stock (which were later repurchased and retired in November 29,
       2000) and warrants to purchase 102,000 shares of the Company's common
       stock at an exercise price of $28.50 per share for approximately
       $11,380,000, net of offering costs. These warrants expire between March
       2003 and March 2005.

       In April 2000, the Company issued 25,000 shares of common stock as a
       portion of the purchase price for the acquisition of Allegria Software,
       Inc ("Allegria"). The recipients of these shares were given the right to
       demand the Company to repurchase these shares at a price of $28.60 per
       share at the end of one year. In April 2001, each of the former owners
       exercised this right. The total repurchase price is $715,000. Agreements
       were reached with all parties to extend cash payment for this repurchase
       over a twelve-month period. As of March 31, 2002, the Company had paid
       $146,000 to one of the former owners for the repurchase of 6,000 shares.
       The remaining $26,000 is to be paid by November 30, 2002, and has been
       accrued under "accrued expenses." The repurchase of 6,000 shares from
       another former owner was settled for a total of $100,000. As of March 31,
       2002, $90,000 was paid and the remaining $10,000 has been accrued under
       "accrued expenses." The owner of the remaining 13,000 shares is holding

                                      F-17



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       the stock certificates until full payment is received for these shares.
       The total cash to be paid for this repurchase was $372,000, of which
       $128,000 has been paid as of March 31, 2002. Due to a dispute as a result
       of an apparent breach of the purchase agreement by the former owner, the
       Company believes that it is probable that the balance of $244,000 will
       not be paid and therefore has not accrued this amount as a liability.

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

       On November 29, 2000, the Company issued warrants to purchase an
       aggregate of 200,000 shares of the Company's common stock at an exercise
       price of $3.93 per share to a third party in a transaction involving the
       purchase and retirement of all of its outstanding preferred stock. These
       warrants expire in November 2005.

       On January 2, 2002, in a private transaction not involving a public
       offering, the Company issued 300,000 shares of its common stock to three
       consultants (100,000 shares each) for $0.25 per share. The shares were
       issued as consideration for consulting services to be provided by the
       consultants for a period of three years ending January 2, 2005, but were
       fully earned when issued with no additional conditions to be satisfied.
       The Company recorded an expense of $525,000 for this transaction.

       On March 19, 2002, in a private transaction not involving a public
       offering, the Company issued 25,000 shares of its common stock to its
       external legal counsel as consideration for services provided and as a
       retainer.

       WARRANTS

       The following table summarizes the fair value of warrant issuances
       detailed above and the assumptions used in determining fair value.
<TABLE>
<CAPTION>
                                        Exercise      Estimated                                 Fair value of
                          Number of     price per     life (in                     Risk-free       warrants
         Grant date       warrants       share         years)       Volatility        rate          ($)(a)
         ----------       --------       -----         ------       ----------        ----          ------
<S>                        <C>       <C>                <C>            <C>            <C>          <C>
      September 1999       170,000    $4.71 - $4.84     3 - 5           93%           6.72%          541,500
      February 2000        200,000       $38.00          5              93%           6.72%        4,666,000
      March 2000           102,000       $28.50         3 - 5           93%           6.72%        4,302,780
      June 2000             60,000       $19.00          5             146%           4.87%          979,200
      May-June 2000         53,300   $16.50 - $23.46     3             146%           4.87%          716,896
      November 2000        200,000       $3.93           5             146%           4.87%        1,188,000
</TABLE>

                                      F-18



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

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

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

                                                               Weighted
                                           Number of            average
                                           warrants          exercise price
                                          -----------      -----------------
       Outstanding at March 31, 2000          417          $       26.53
       Issued                                 313          $        9.03
       Exercised                              (80)         $        4.84
                                          -----------      -----------------

       Outstanding at March 31, 2001          650          $       20.76
       Issued                                   -          $        -
       Exercised                                -          $        -
                                          -----------      -----------------

       Outstanding at March 31, 2002          650          $       20.76
                                          ===========      =================

       STOCK OPTION PLANS

       The Company has adopted the following employee stock option plans:
<TABLE>
<CAPTION>

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

       Each plan provides for the granting of shares as either Incentive Stock
       Options (ISOs) or Non-Qualified Stock Options (NQOs). Options under all
       plans generally vest over 3 years, though the vesting periods may vary
       from person to person, and are exercisable subject to continued
       employment and other conditions. As of March 31, 2002, there were 563,000
       options available for grant and 131,000 options exercisable under the
       2000 Plan, 137,000 options available for grant and 722,000 options
       exercisable under the 1998 Plan, 34,000 options available for grant and
       354,000 options exercisable under the 1997 Plan, and 21,000 options
       available for grant and 395,000 options exercisable under the 1996 Plan.

                                      F-19



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                              WEIGHTED
                                                                              AVERAGE
                                                           NUMBER OF       EXERCISE PRICE
                                                            SHARES           PER OPTION
                                                        ----------------  -----------------
<S>                                                        <C>                 <C>
                Outstanding at March 31, 2000              2,000               $2.71
                Granted                                      534                4.11
                Exercised                                   (100)               2.06
                Forfeited                                   (176)               4.49
                                                        ----------------
                Outstanding at March 31, 2001              2,258               $2.93
                Granted                                       54                1.35
                Exercised                                   (145)               1.42
                Forfeited                                   (134)               5.61
                                                        ----------------
                Outstanding at March 31, 2002              2,033               $2.81
                                                        ================
</TABLE>

       As discussed in Note 1, the Company accounts for our stock options issued
       to employees based on the intrinsic value of a grant as of the date of
       the grant in accordance with APB No. 25. Generally, the Company issues
       stock options to employees with a grant price equal to the market value
       of common stock on the grant date. The Company has, in prior fiscal
       years, issued certain stock options with a grant price below the market
       value at the grant date. Compensation expense on these grants is
       recognized over the vesting period, generally three to four years.
       Compensation expense recognized in the Company's consolidated financial
       statements for these grants for fiscal years 2002 and 2001 was $78,000
       and $136,000, respectively.

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

        For the fiscal years ended March 31,               2002         2001
                                                    ------------   ------------

        Net loss - as reported                      $   (8,944)    $   (6,637)
        Net loss - pro forma                           (11,504)        (9,181)
                                                    ============   ============
        Basic net loss per share -
            as reported                             $    (0.53)    $    (0.45)
            pro forma                                    (0.68)         (0.60)
        Diluted net loss per share -
             as reported                                 (0.53)         (0.45)
             pro forma                                   (0.68)         (0.60)
                                                    ============   ============
        Weighted average fair value of options
            granted                                 $     1.35     $     3.41
                                                    ============   ============
        Black-Scholes option pricing model
            assumptions:
                 Dividend yield                             --             --
                 Expected volatility                       120%           146%
                 Risk-free interest rate                  5.07%          4.87%
                 Expected option lives (in years)          7.0            7.5

                                      F-20



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       The following table summarizes options outstanding and exercisable by
price range at March 31, 2002.
<TABLE>
<CAPTION>

                                 OPTIONS OUTSTANDING                                     OPTIONS EXERCISABLE
                                               Weighted-
                                               Average
                                               Remaining         Weighted-                              Weighted-
       Range Of Exercise      Number Of      Contractual          Average         Exercisable At         Average
             Prices            Options           Life          Exercise Price     March 31, 2002     Exercise Price
             ------            -------           ----          --------------     --------------     --------------
<S>                           <C>                     <C>           <C>              <C>                   <C>
      $  0.00 - $  3.80       1,893,632               6.3            $2.21           1,568,466              $2.04
      $  3.80 - $  7.60          10,200               7.5            $4.25              10,200              $4.25
      $  7.60 - $ 11.40         114,000               6.9           $10.36              80,666             $10.32
      $ 11.40 - $ 19.00           8,000               8.3           $18.06               2,667             $18.06
      $ 19.00 - $ 22.80           7,000                -            $21.68               7,000             $21.68
</TABLE>

       At March 31, 2002, the range of exercise prices and the weighted average
       remaining contractual life of outstanding options were $1.35 - $21.68 and
       6.3 years, respectively.

(7)    RELATED PARTY TRANSACTIONS

       The Company has previously provided digital media production services to
       Ruby Pictures, Inc. ("Ruby"). Ruby is a movie production house owned and
       operated by the Purabi Das Foundation, Inc., a charitable organization
       founded by Amrit Das, the Company's Chairman and CEO. In fiscal 2001, the
       Company entered into an agreement with Ruby to purchase the rights to a
       digital film produced by Ruby for $500,000, net of any un-reimbursed
       costs incurred by the Company in the production of this film. The
       outstanding receivable balance due from Ruby was offset against the
       purchase price, and a net payment was made in April 2001. In fiscal 2002,
       the Company recorded an impairment charge of $684,000 related to the
       write-off of capitalized film production costs.

       On May 3, 2001, the Company entered into an interest bearing secured loan
       agreement and promissory note with Mr. Santanu Das, an officer and
       director of the Company, in the amount of $70,000 at an annual interest
       rate of 6%. The loan was payable through payroll withholdings commencing
       on August 24, 2001 through August 4, 2006. Shares of netGuru common stock
       owned by Mr. Das as well as all vested but unexercised options granted
       him secured the loan. At March 31, 2002, the total outstanding balance on
       this loan was $64,000, which is included in notes and related party
       receivable. In April 2002, Mr. Das paid-off the outstanding balance of
       this loan in full.

       In November 2000, the Company entered into a non-interest bearing secured
       loan agreement and promissory note with Mr. Stephen Owen, an officer and
       director of the Company, in the amount of $85,000. The loan is secured by
       Mr. Owen's pledge of the proceeds from the exercise and sale of his
       vested options. As of March 31, 2002, the entire amount of the loan is
       outstanding and is included in notes and related party receivable. In
       April 2002, Mr. Owen repaid $7,030 toward this loan.

                                      F-21



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(8)    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 75%
       to 100% of the employees' elective contributions for the first 6% of
       compensation. For the years ended March 31, 2002 and 2001, Company
       contributions to the retirement plans were $231,000 and $218,000,
       respectively. The international employees are not covered by any retire-
       ment plans. However, the Company's subsidiary in the United Kingdom
       allows executives to defer a portion of their salary on a pretax basis to
       a retirement account of their choice. The Company does not match these
       contributions.

(9)    COMMITMENTS AND CONTINGENCIES

       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, 2002, future minimum annual rental commitments under these
       lease obligations were as follows (in thousands):

              Year ending March 31:
                  2003                               $          590
                  2004                                          455
                  2005                                          382
                  2006                                          374
                  2007                                          316
                  Thereafter                                  2,366
                                                     ---------------

                                                     $        4,483
                                                     ===============

       Rent expense was $708,000 and $738,000 for the years ended March 31, 2002
       and 2001, respectively.

       The Company has entered into a renewable firm purchase commitment in the
       amount of $800,000 to purchase airline tickets it sells as a ticket
       consolidator for a period of six months ending in August 15, 2002. If the
       Company is unable to meet this commitment during this period, the Company
       will owe the airlines the difference between commitment amount and the
       amounts received by the airlines from the Company's ticket sales during
       this period, subject to certain conditions.

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

                                      F-22



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(10)   INCOME TAXES

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

                                                      2002           2001
                                                ------------    ------------

             United States                      $   (6,176)     $   (5,914)
             Foreign                                (1,576)           (266)
                                                ------------    ------------
               Total                                (7,752)         (6,180)
                                                ============    ============

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

                                              2002             2001
                                         -------------    -------------
             Current:
                 Federal                 $       (167)    $         --
                 State                              2                4
                 Foreign                           70              136
                                         -------------    -------------
                                                  (95)             140
             Deferred:
                 Federal                        1,066              271
                 State                            228               46
                 Foreign                           (7)              --
                                         -------------    -------------
                                                1,287              317
                                         -------------    -------------
                   Total                 $      1,192     $        457
                                         =============    =============

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

                                                        2002           2001
                                                     ------------   -----------

          Income tax benefit at statutory rate       $    (2,636)   $   (2,101)
          State taxes, net of federal benefits               (36)         (255)
          Foreign income tax rate differential               649           123
          Change in valuation allowance                    2,529         2,564
          Tax portion intangible asset write-off             424            --
          Rate differential on net operating
           loss carry back benefit                           100            --
          Research and development credits                   (25)          (18)
          Nondeductible amortization                          58            83
          Other                                              129            61
                                                     ------------   -----------
                Total                                $     1,192    $      457
                                                     ============   ===========

                                      F-23



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       The Company provides deferred income taxes for temporary differences
       between assets and liabilities recognized for financial reporting and
       income tax purposes. The tax effects of temporary differences at March
       31, 2002 are as follows (in thousands):

          Deferred tax assets:
              Accrued vacation                                  $          127
              Allowance for doubtful accounts                              267
              Amortization of intangibles                                  571
               Net operating loss carryforwards                          3,469
               Foreign tax credit carryforwards                            133
               Research and development credit
                  carryforwards                                            167
               Gain on sale of property                                    367
               Restructuring reserve                                        62
               Other                                                         1

                     Total deferred tax assets                           5,164
                     Less: valuation allowance                          (5,164)

                     Net deferred tax assets                                 -

          Deferred tax liabilities:
              Depreciation                                                (116)
              Cash to accrual adjustment                                   (56)
                                                                ---------------
                     Total deferred tax liabilities             $         (172)
                                                                ===============

       At March 31, 2002, the Company had tax net operating loss carryforwards
       of approximately $9,321,000 for federal and $5,133,000 for state income
       tax purposes, which expire at varying dates beginning in 2019 and 2004,
       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, $108,000 of research and development credit
       carryforwards and $133,000 of foreign tax credit carryforwards, which
       expire at varying dates beginning in 2013 and 2003, respectively.
       Additionally, the Company has, for state income tax purposes, $90,000 of
       research and development credit, which carries forward indefinitely.

       In assessing the realizability of the net deferred tax assets, management
       considers whether it is more likely than not that some or all of the
       deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets is dependent upon either the generation of future
       taxable income during the periods in which those temporary differences
       become deductible or the carryback of losses to recover income taxes
       previously paid during the carryback period. As of March 31, 2002, the
       Company had provided a valuation allowance of $5,164,000 to reduce the
       net deferred tax assets due in part to the potential expiration of
       certain tax credit and net operating loss carryforwards prior to their
       utilization.

                                      F-24



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Undistributed earnings of certain of the Company's foreign subsidiaries
       in the cumulative amount of $1,436,000 are considered to be indefinitely
       reinvested and, accordingly, no provision for United States federal and
       state income taxes has been provided thereon. Upon distribution of those
       earnings in the form of dividends or otherwise, the Company would be
       subject to both federal income taxes (subject to an adjustment for
       foreign tax credits) and withholding taxes payable to the various foreign
       countries.

(11)   SEGMENT AND GEOGRAPHIC DATA

       The Company is an integrated Internet and IT technology and services
       company operating in three primary business segments: 1) engineering
       software products, maintenance and services, including digital media
       products and animation services; 2) IT services; and 3) Internet content
       and e-commerce focused on telecommunication and travel services, and
       collaborative software solutions.

       The Company has provided computer-aided engineering software solutions to
       customers for over 21 years. During the past 19 years, the Company has
       supported the engineering software business with India-based software
       programming and IT resources. In addition, based upon the Company's
       knowledge and understanding of the engineering software market, combined
       with the Company's Internet technology resources and experience, the
       Company launched Web4engineers.com, an engineering applications service
       provider ("ASP") portal hosting the Company's engineering software
       applications online and providing ASP services to engineering software
       providers and their licensees worldwide. With the acquisitions of R-Cube
       Technologies in February 1999 and NetGuru Systems completed in December
       1999, the Company further expanded its IT resources and capabilities and
       its presence in the IT services industry, providing expertise in
       data-mining and embedded technologies, Internet/Intranet design and
       development and systems and software integration and implementation to
       companies in North America. The Company has expanded its IT services
       business into Europe and intends to further expand its services in India
       and Southeast Asia.

       With the Company's experience in India and understanding of the global
       Indian community, it began offering online Internet portal services in
       1999. In fiscal 2001, the Company's portal offerings were refocused
       primarily on telecommunication and travel services Asian expatriates.
       The Company continues to provide digital media services, including
       computer animation, and has used this expertise to enhance its Internet
       portal offerings.

                                      F-25



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       The significant components of worldwide operations by reportable
       operating segment (in thousands) are:

<TABLE>
<CAPTION>
                                                                    FOR THE YEAR ENDED MARCH 31
                                                                    ---------------------------
                                                                        2002           2001
                                                                      ---------     ---------
                                                                          (IN THOUSANDS)
             NET REVENUE
<S>                                                                   <C>           <C>
           Software sales, maintenance and services                   $  9,313      $ 10,066
           IT services                                                   9,869        18,019
           Internet, e-commerce and collaborative
             software solutions                                          5,102         3,217
                                                                      ---------     ---------
                    Consolidated                                      $ 24,284      $ 31,302
                                                                      =========     =========

                     GROSS PROFIT
           Software sales, maintenance and services                   $  8,205      $  7,761
           IT services                                                   2,385         5,796
           Internet, e-commerce and collaborative
             software solutions                                            872         1,003
                                                                      ---------     ---------
                    Consolidated                                      $ 11,462      $ 14,560
                                                                      =========     =========

                     OPERATING (LOSS)/INCOME
           Software sales, maintenance and services                   $ (4,021)     $ (3,773)
           IT services                                                    (749)        1,994
           Internet, e-commerce and collaborative
             software solutions                                         (2,802)       (4,740)
                                                                      ---------     ---------
                    Consolidated                                      $ (7,572)     $ (6,519)
                                                                      =========     =========

                    AMORTIZATION OF GOODWILL

         Software sales, maintenance and services                     $    290      $    489
         IT Services                                                       550           549
         Internet, e-commerce, collaborative
           software solutions                                              450           322
                                                                      ---------     ---------
                  Consolidated                                        $  1,290      $  1,360
                                                                      =========     =========

                    AMORTIZATION EXPENSE CHARGED TO COST OF REVENUES

         Software sales, maintenance and services                     $    118      $    248
         IT Services                                                        --            --
         Internet, e-commerce, collaborative
           software solutions                                               80            36
                                                                      ---------     ---------
                  Consolidated                                        $    198      $    284
                                                                      =========     =========

                    DEPRECIATION & AMORTIZATION EXPENSE CHARGED TO OPERATIONS

         Software sales, maintenance and services                     $  1,164      $    764
         IT Services                                                        60            32
         Internet, e-commerce, collaborative
           software solutions                                               19             2
                                                                      ---------     ---------
                  Consolidated                                        $  1,243      $    798
                                                                      =========     =========

                    RESTRUCTURE CHARGE

         Software sales, maintenance and services                     $     25      $    208
         IT Services                                                        --            --
         Internet, e-commerce, collaborative
           software solutions                                               --         2,192
                                                                      ---------     ---------
                  Consolidated                                        $     25      $  2,400
                                                                      =========     =========

                                             F-26
</TABLE>



<PAGE>
                                                   FOR THE YEAR ENDED MARCH 31
                                                  -----------------------------
                                                      2002            2001
                                                  -------------   -------------
                                                         (IN THOUSANDS)

                    IMPAIRMENT CHARGE

         Software sales, maintenance and services $        684    $          -
         IT Services                                         -               -
         Internet, e-commerce, collaborative
           software solutions                              967               -
                                                  -------------   -------------
                  Consolidated                    $      1,651    $          -
                                                  =============   =============

                  EXPENDITURES FOR ADDITIONS TO LONG-LIVED ASSETS

         Software sales, maintenance and services $        374    $      1,837
         IT Services                                         6               4
         Internet, e-commerce, collaborative
           software solutions                               14           2,757
                                                  -------------   -------------
                  Consolidated                    $        394    $      4,598
                                                  =============   =============

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

                                                    FOR THE YEAR ENDED MARCH 31
                                                  -----------------------------
                                                      2002            2001
                                                  ------------    -------------
                                                            (IN THOUSANDS)
                       NET REVENUE
         United States                            $     18,260    $     25,316
         The Americas (other than U.S.)                    574             728
         Europe                                          2,757           2,755
         Asia-Pacific                                    2,693           2,503
                                                  -------------   -------------
                  Consolidated                    $     24,284    $     31,302
                                                  =============   =============

                      EXPORT SALES
         United States                            $        615    $      1,078
                                                  =============   =============

                    LONG-LIVED ASSETS
         United States                            $     12,434    $     14,621
         Europe                                            284             324
         Asia-Pacific                                    1,440           2,710
                                                  -------------   -------------
                  Consolidated                    $     14,158    $     17,655
                                                  =============   =============

                                      F-27



<PAGE>
                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(12)   LOSS PER SHARE

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

                                                            2002          2001
                                                        ----------    ----------
        Numerator:
        Net loss -- numerator for basic and diluted
           net loss per share                           $  (8,944)    $  (6,637)

        Denominator:
        Denominator for basic net loss per share -
           average number of common shares outstanding
           during the year                                 16,982        14,781
        Incremental common shares attributable to
           exercise of outstanding options and warrants        --            --
                                                        ----------    ----------

        Denominator for diluted net loss per share         16,982        14,781
                                                        ==========    ==========

        Basic net loss per share                        $   (0.53)    $   (0.45)
                                                        ==========    ==========

        Diluted net loss per share                      $   (0.53)    $   (0.45)
                                                        ==========    ==========

       Options, warrants and other common stock equivalents amounting to 485,000
       and 1,700,000 potential common shares were excluded from the computation
       of diluted EPS for fiscal 2002 and 2001, respectively, because the
       Company reported a net loss and, therefore, the effect would be
       antidilutive.

(13)   LIQUIDITY

       The Company incurred net losses of $8,944,000 and $6,637,000 and has used
       cash in operations of $3,225,000 and $661,000 in fiscal years 2002 and
       2001, respectively. The Company's future capital requirements will depend
       upon many factors, including sales and marketing efforts, the development
       of new products and services, possible future strategic acquisitions, the
       progress of research and development efforts, and the status of
       competitive products and services. The Company believes it will be able
       to generate cash from operations or through additional sources of debt
       and equity financing. The Company has continued its program to reduce
       costs and expenses. If adequate funds are not available, the Company may
       be required to delay, scale back, or eliminate its research and
       development programs and its marketing efforts or to obtain funds through
       arrangements with partners or others who may require the Company to
       relinquish rights to certain of its technologies or potential products or
       assets.

                                      F-28



<PAGE>

        INDEX TO EXHIBITS FILED WITH THIS AMENDMENT NO. 3 TO FORM 10-KSB

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

                  10.19    Salary deferral arrangement for executives of
                           Research Engineers (Europe) Ltd.

                  23.1     Consent of KPMG LLP.

                  99.1     Certifications 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

                                       44