<PAGE>

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

                                   FORM 10-KSB
(Mark One)

[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934
                    FOR THE FISCAL YEAR ENDED MARCH 31, 2005
                                       OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the transition period from __________ to __________

                         Commission file number: 0-28560

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

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

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

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

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

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

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

Check whether the issuer: (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]

The issuer's revenues for its most recent fiscal year were $15,843,000.

The aggregate market value of the voting common equity held by non-affiliates of
the registrant computed by reference to the closing sale price of the common
equity on July 5, 2005 was $13,095,713. The registrant has no outstanding
non-voting common equity.

The number of shares outstanding of the registrant's only class of common stock,
$0.01 par value, was 19,117,154 on July 5, 2005.

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








<PAGE>

<TABLE>
                                          TABLE OF CONTENTS

                                               PART I
                                                                                                PAGE
<S>               <C>                                                                            <C>
Item 1.           Description of Business.....................................................    3

Item 2.           Description of Property.....................................................   11

Item 3.           Legal Proceedings...........................................................   11

Item 4.           Submission of Matters to a Vote of Security Holders.........................   11


                                               PART II


Item 5.           Market for Common Equity, Related Stockholder Matters and Small
                  Business Issuer Purchases of Equity Securities..............................   12

Item 6.           Management's Discussion and Analysis or Plan of Operation...................   13

Item 7.           Financial Statements........................................................   34

Item 8.           Changes in and Disagreements with Accountants on Accounting and
                  Financial Disclosure........................................................   34

Item 8A.          Controls and Procedures.....................................................   35

Item 8B.          Other Information...........................................................   35

                                              PART III


Item 9.           Directors, Executive Officers, Promoters and Control Persons;
                              Compliance with Section 16 (a) of the Exchange Act..............   36

Item 10.          Executive Compensation......................................................   39

Item 11.          Security Ownership of Certain Beneficial Owners and Management and
                             Related Stockholder Matters......................................   44

Item 12.          Certain Relationships and Related Transactions..............................   48

Item 13.          Exhibits....................................................................   51

Item 14.          Principal Accountant Fees and Services......................................   55

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

Signatures....................................................................................   56

Index To Exhibits Filed With This Form 10-KSB.................................................   57


                                                 2
</TABLE>







<PAGE>

NETGURU, INC.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

OVERVIEW

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

         o        Structural and civil engineering and collaborative software
                  products and services for businesses worldwide; and

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

PRODUCTS AND SERVICES

     ENGINEERING AND COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         Over the past 24 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 is primarily 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 100 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,
STAAD.ETC, STAAD.FOUNDATION, ADLPipe and STARDYNE. 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. Projects that have been analyzed
and designed using STAAD include the chunnel (connecting England and France),
the MCI Stadium in Washington D.C., the Philadelphia Airport tower and thousands
of other buildings and structures.

         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 Tekla, AutoCAD and MicroStation. Our structural
and civil engineering products provide eight international language options and
over 60 local, multi-material design codes required by our worldwide markets.
For example, we have introduced additional local design codes for our structural
software to address the stringent building requirements adopted by Mexico,
Thailand, and China, to protect infrastructure against earthquakes and terrorist
attacks. We continue to introduce more local design codes in rapidly growing
construction markets such as Brazil and Southeast Asia. We also offer a Spanish
language version of STAAD.Pro in Mexico.


                                       3







<PAGE>

         We address the various facets of the engineering design chain, from the
software that engineers use to design infrastructure to managing all the
documents related to a specific design project. We partner with other software
vendors offering complementary solutions within the structural engineering
community to offer a complete solution to our customers, including customization
of our core software for various vertical niches such as the joist or
pre-engineering metal building industries. For example, we combined STAAD.Pro
with Tekla Corporation's ("Tekla") market-leading 3D modeler and created the new
building-based product, Tekla Structures. We combined STAAD.Pro and LARSA to
offer a full bridge management solution. We partnered with Omnitech Associates
to provide a full connection design package with STAAD.Pro. Using a customized
STAAD.Pro, we are working with New Columbia Joist Company ("NCJC") to automate
NCJC's mass-design and mass-production processes for steel joists.

         Since customer training is essential to our growth strategy, we
introduced the STAAD Certified Trainer and STAAD Certified Engineer programs
closer to where our customers are and established 15 new training centers across
the U.S. to facilitate year-round training sessions. We also developed training
digital videodiscs for our international markets in English, Spanish, German and
French. Our corporate licensing program targets large engineering companies at
the enterprise level. Our unlimited multi-year corporate licensing program
allows our clients to implement an enterprise-wide licensing strategy that
allows them to integrate and standardize their engineering design lifecycle on
our STAAD.Pro. We have implemented this licensing strategy with Bechtel
Corporation, one of the largest engineering companies in the world, and in many
of the ENR (Engineering News Record) Top 50 firms worldwide.

         In April 2000, we acquired Allegria Software, Inc., a developer of
Web-based document management and collaborative tools for engineers and
manufacturers, and we added Allegria Software's eReview and ForReview
collaborative products to our offerings. Our collaborative software innovations
are changing the way engineers conduct their day-to-day business. Once installed
at a host location, our eReview collaborative software enables a host and other
participants to engage in real-time Web-based conferencing and document sharing
anywhere and anytime in over 150 widely used document formats. eReview allows
our customers to bridge physical distances in their global business environments
by enabling decision makers to communicate without costly and time consuming
travel to geographically dispersed locations. Complementing eReview, our
WebWorks software provides comprehensive project-based document and team
management functions. Our collaborative products can be implemented as
stand-alone enterprise solutions or as an integrated system working in concert
with other products. For example, we are working with BIW Technologies of United
Kingdom utilizing our collaboration and review expertise to enhance BIW's visual
interface. We have secured new document collaboration projects with Sharp
Laboratories of America and Amtrak. Due to our engineering experience, our
collaborative software is ideally suited for multi-faceted A/E/C projects.
However, our collaborative software also has direct application for many other
industries. We have also developed workflow management solutions by embedding
our collaborative software in the software of our major original equipment
manufacturer, or OEM, partners, such as FileNet Corporation and Oracle
Corporation, who then market the combined solution to their customers.

         We generate revenues from software licensing fees and annual support
fees established at the time of the initial contract. Suggested list prices
range from approximately $850 to $7,000 for most of our engineering software
products. Suggested list prices range up to $1,000 per license for eReview and
related products. Most of our customers who purchase eReview buy a site license
to cover the entire company's requirements. These site licenses vary in price
from $100,000 to $300,000. With additional development and maintenance, total
project prices may reach $750,000. Since we have established a solid engineering
customer base through our analytical design software, we believe we possess the
necessary credibility to offer our collaborative solutions across our customer's
enterprise. However, our primary sales strategy is to develop closer
relationships with our OEM partners and to create recurring revenues through
royalties.


                                       4







<PAGE>

     IT SERVICES

         We are an IT total solutions provider, or TSP. Our IT services division
has provided contracted IT services and software solutions to a wide variety of
vertical industry markets (that is, a particular industry or group of
enterprises to whom similar goods and services can be sold), with an emphasis on
engineering, aerospace, e-commerce, semiconductors, finance, education,
insurance, manufacturing, distribution, retail, government, pharmaceuticals and
healthcare. As a TSP, we provide our business-to-business clients with services
that involve integration of multiple existing third party software. We also
offer value-added IT services by incorporating and customizing our proprietary
collaborative software technology and/or our engineering 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 service office located in Boston,
Massachusetts. We provide IT services both on a project basis and through
on-site consulting. When we provide IT services on a project basis, we assume
full project management responsibility. Typically, projects are of a fixed
duration and are charged at a fixed price. When we provide on-site consulting
services, we bill our clients on a time and materials basis. Our goal is to
migrate our staffing model to a project-based model where all the work will be
done by our India operations.

         Our IT services operations include EBPO, where we offer full
engineering technical support to other non-competing engineering software
companies, as well as to steel detailing and fabrication companies in North
America, a qualified labor pool of experienced engineers and detailers at our
wholly-owned subsidiary in India to expedite the production of erection drawings
necessary to construct a structure. Our model focuses on our core engineering
competencies rather than financial services or general call centers. Our goal is
not to replace U.S. steel detailing companies but to augment their current
workforce. This allows our customers to extend their organizational capabilities
and capacities and in turn provides a faster turnaround to their customers while
controlling their costs. The production of erection drawings is the ultimate
phase in the engineering design chain, whereas the analytical products we offer
(such as STAAD.Pro) are upstream tasks.

         We provide IT services to customers in the United Kingdom, India,
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.

CUSTOMERS

     ENGINEERING AND COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         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 engineering software customers include:

                  Jacobs Engineering              British Telecom
                  ExxonMobil Corporation          URS/Griner
                  Bechtel Corporation             Jet Propulsion Laboratories
                  NASA                            US Army Corps of Engineers
                  Siemens AG                      Toyo Engineering
                  Lockwood Greene                 Washington Group International
                  Parsons  Brinckerhoff           Mitsubishi


                                       5







<PAGE>

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

                  Agilent Technologies       Astley-Gilbert
                  Case New Holland           Constructware
                  Ebuild, Canada             Tejari-FZ, LLC.
                  United Defense             LG Engineering & Construction Corp.
                  BIW Technologies           MatrixOne
                  Fuji-Xerox                 Paxonix
                  Service Point              Bibbs and Associates
     IT SERVICES

         During the fiscal year ended March 31, 2005, we provided IT consulting
services to over 30 corporate customers in the United States, including Course
Technology, Inc., Applibiz, Inc., Deutsche Bank, and Sun Microsystems. Net
revenues from Course Technology, Inc. and Deutsche Bank, Inc. represented
approximately 15.6% and 14.0%, respectively, of our total net revenues from IT
services in fiscal 2005.

SALES AND MARKETING

     ENGINEERING AND COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         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 U.S., United Kingdom,
Germany, Japan, France, Scandinavia, Australia, China, Singapore, India,
Indonesia, Korea, Thailand, Malaysia, South Africa, Mexico, Russia, the Middle
East and Latin America. We use 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, we
create elaborate evaluation/demonstration software packages, complete with full
user manuals and working programs. 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. We offer online product demonstrations according to customer requests.

         Our strategy of partnering with OEM engineering software companies in
other vertical niches also generates a recurring revenue channel. Because of
changes in local and national building codes due to recent earthquakes or
terrorist activities, many of our customers are upgrading to the latest version
of our product, which reflects these changes.

         We market our eReview collaborative software both domestically and
internationally using direct marketing through our network office branches,
subsidiaries and reseller channels. We use print advertising, telemarketing,
e-mail and direct mail campaigns as our primary lead generation activities for
eReview. We intend to work more closely with OEM partners in the document
management space in the coming years.


                                       6







<PAGE>

     IT SERVICES

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

CUSTOMER SERVICE AND SUPPORT

     ENGINEERING AND COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         Purchasers of our engineering software products typically receive 15
days of warranty and a multimedia training CD-ROM. Following the 15-day period,
customers may elect to purchase ongoing support either on a one-year contract
basis or on an as-used fee basis. We also provide "gold level" support where our
engineering software customers who need a higher level of mission critical
technical support are given priority service. 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 Website, we provide e-mail technical support to
users of these products.

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

     IT SERVICES

         Our IT services are primarily project-based and time and
materials-based technology consulting services that do not generally involve
on-going customer service and support. Our IT services group can provide, on a
project-basis, on-going high quality support as contracted by the customer on a
24x7 basis to meet the customer's information management needs from our facility
in Boston, Massachusetts.

RESEARCH AND DEVELOPMENT

         Our current research and development efforts are focused on
collaborative technologies and enhancements to our current engineering software
product offerings. Our research and development efforts with respect to our
collaborative technologies have been focused on:

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

         We continue to enhance our engineering software with our revolutionary
"OpenSTAAD" architecture where we use an open application-programming interface
that allows for tight integration with complementary third-party applications,
customized look and feel for graphical user interface, and other
functionalities.


                                       7







<PAGE>

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

         Our research and development group includes specialists in engineering
and collaborative software and IT services. We have established research and
development facilities in the U.S., India and the United Kingdom. Our offshore
research and development facilities in India are used to provide technical
support and customer services for our engineering clients worldwide, to provide
IT services resources for our projects in the U.S., and to develop and maintain
local engineering software design codes. These projects require significant
man-hours. Due to the availability of skilled technical resources in India at a
fraction of the cost for comparable personnel in the U.S., these projects can be
completed 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. Our engineering software adheres
to the Nuclear Regulatory Commission's stringent quality guidelines expressed in
the Code of Federal Regulations at 10 CFR 50, "Domestic Licensing of Production
and Utilization Facilities" and 10 CFR 21, "Reporting of Defects and
Noncompliance."

         Research and development expenses were approximately $1,578,000 and
$2,042,000 during the fiscal years ended March 31, 2005 and 2004, respectively.
The costs of these activities are not borne directly by our customers.

COMPETITION

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

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

         o        longer operating histories;
         o        greater name recognition;
         o        larger customer base;
         o        significantly greater financial, technical and other
                  resources; and
         o        broader service and/or product offerings.

         To be competitive, we must be able to keep up with technological
advances and continue to enhance our products and services. We may not be able
to compete successfully in one or more of our target markets. Our inability to
do so could adversely impact our business, financial condition or results of
operations by decreasing our market share and the prices we receive for our
products and services, which in turn would decrease our revenues and profit
margins.


                                       8







<PAGE>

     ENGINEERING AND COLLABORATIVE 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:

         o        high caliber development effort;
         o        demonstrated understanding of the needs of the engineering
                  design industry;
         o        ability to attract and retain customers;
         o        capability to develop, acquire and implement emerging
                  technologies;
         o        ability to provide technical support; and
         o        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. Our
competitors to our engineering software products and services include Computers
and Structures, Inc., RISA Technologies, RAM International, GT Strudl, and CSC
Computers and Structures Corporation, 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, Excel and MathCAD) and
the vast amount of international design codes we support. 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.

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

     IT SERVICES

         Our competitors in the IT consulting services industry include IT
services companies such as Cognizant Technology Solutions and Scient
Corporation, other technology companies and in-house management information
services departments. We believe that the use of our proprietary collaborative
software to add value to our IT services may provide us a competitive advantage
over some of our competition. We believe we are among the smaller providers of
IT services in terms of revenue and size of operations.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

         Our intellectual property rights are an important aspect of our
business. We rely primarily on a combination of contract, copyright, trademark
and trade secret laws, domain registration, license and confidentiality
agreements and software security measures to protect our proprietary technology.
We require all of our employees and other parties with access to our
confidential information to execute agreements prohibiting the unauthorized use
or disclosure of our technology. In addition, we periodically review our
proprietary technology for patentability, although we currently do not have any


                                       9







<PAGE>

patents. Despite these precautions and even though we have experienced only one
misappropriation of our technology over our 24-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.

         Our protective measures may be even less effective in the emerging
Internet law field. Internet law is a relatively new and developing area of the
law, and online contracting, privacy and liability issues, among others, are
still being resolved. This lack of certainty is further exacerbated in India,
where the use of the Internet is less evolved than in the U.S. In addition,
effective copyright and trade secret protection may not be available in every
jurisdiction where we distribute our products, particularly in foreign countries
where the laws generally offer no protection or less protection than the laws of
the U.S.

         The laws of India and other foreign countries in which we operate do
not protect intellectual property rights to the same extent as those of the U.S.
For example, India's statutory laws do not protect service marks. Because a
significant portion of our sales of products and services comes from
international markets, this lack of copyright and trade secret protection could
adversely affect our business and results of operations if a third party were
successful in copying our products and services and marketing products and
services similar to ours.

         We distribute our engineering software products under "shrink-wrap"
software license agreements, which grant end-users non-exclusive licenses to use
(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(R),
ForReview(R), STAAD.etc.(R), ADLPIPE(R), STAAD(R), STAAD/Pro(R)and
CIVILMASTER(R), among others. We may not be able to secure adequate protection
for our trademarks in the U.S. and in the other countries in which we do
business.

GOVERNMENT REGULATION

         Regulations promulgated by the Nuclear Regulatory Commission, or NRC,
pursuant to the Atomic Energy Act of 1954, as amended (68 Stat. 919), and Title
II of the Energy Reorganization Act of 1974 (88 Stat. 1242) govern the
engineering software services we provide to all persons/entities who provide
components, equipment, materials, or other goods or services to any one who is
involved in providing services to nuclear production and utilization facilities.
A utilization facility is any nuclear reactor other than one designed or used
primarily for the formation of plutonium or U-233. Our engineering software
division is also governed by the federal regulations that require us to
immediately notify the NRC of any failure of our products to comply with the
Atomic Energy Act of 1954, as amended, relating to substantial safety hazards.

OTHER BUSINESS ACTIVITIES DURING THE PAST THREE YEARS

         During the past three years, our service offerings also included travel
services and telecommunications services. As a result of our efforts to focus on
our core software products and IT services businesses, we finalized the sale of
our travel services subsidiary in April 2004 and the sale of our Web-based
telecommunications services division in September 2004.


                                       10







<PAGE>

EMPLOYEES

         As of March 31, 2005, we had 307 employees, including 105 in product
development and related support services, 73 in IT consulting, 75 in sales and
marketing and 54 in finance and administration. Of the 307 employees, 305
employees were full time employees and two were part time employees. As of that
date, 67 of our employees were located in the U.S. and 240 were located in
international locations.

ITEM 2.  DESCRIPTION OF PROPERTY.

         Our corporate headquarters are located in Yorba Linda, California, in a
facility consisting of approximately 41,000 square feet of office and warehouse
space. On December 15, 1999, we entered into a 15-year operating lease for this
facility. The terms of this lease provide for monthly payments of approximately
$28,000. The monthly payment is adjusted every 3 years based on the consumer
price index. We are responsible for payment of any property taxes and are
required to maintain property insurance for the remainder of the lease term. In
fiscal 2005, we subleased a portion of the Yorba Linda facility for monthly
payments totaling approximately $18,000 per month. The subleases expire August
2007 and November 2009.

         We own a 22,000 square-foot research and development facility in
Kolkata, India, built in 1997. In addition, we own an adjacent 20,452
square-foot building in Kolkata, built in 2000, primarily housing our digital
media and steel detailing services.

         We also lease office space in various other locations domestically and
internationally where our operations are located. We believe that our existing
facilities are adequate to meet our current needs and that suitable additional
or alternative space will be available in the future on commercially reasonable
terms, although we have no assurance that future terms would be as favorable as
our current terms.

ITEM 3.  LEGAL PROCEEDINGS.

         We are not a party to any material pending legal proceedings.

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

         During the quarter ended March 31, 2005, no matters were submitted to a
vote of our common stockholders.


                                       11







<PAGE>

                                     PART II

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

         Since October 9, 2003, our common stock has traded on The Nasdaq
SmallCap Market under the ticker symbol "NGRU." Prior to that, our common stock
traded on The Nasdaq National Market. As of June 6, 2005, there were
approximately 121 holders of record of our common stock. Within the holders of
record of our common stock are brokerage firms that in turn, hold shares of
stock for beneficial owners.

         We have not paid any dividends to holders of our common stock. The
declaration and payment of dividends are at the sole discretion of the board of
directors and will depend upon our profitability, financial condition, cash
requirements, future prospects and other factors deemed relevant by our board of
directors. Our revolving credit facility with Laurus Master Fund, Ltd ("Laurus")
prohibits us from paying any dividends on our common stock without Laurus'
permission.

         The high and low closing sale prices of a share of our common stock, as
reported by The Nasdaq SmallCap or National Markets, respectively, for each
quarter of fiscal 2005 and 2004, are as follows:

<TABLE>
                                                           FISCAL 2005           FISCAL 2004
                                                        -----------------     -----------------
                                                         High       Low        High       Low
                                                        -------   -------     -------   -------
<S>                                                      <C>       <C>         <C>       <C>
         1st  Quarter (April 1 - June 30)                $1.65     $1.27       $1.90     $1.16
         2nd Quarter (July 1 - September 30)              1.53      0.89        1.76      1.14
         3rd Quarter (October 1 - December 31)            1.60      0.86        2.10      1.07
         4th Quarter (January 1 - March 31)               1.39      1.00        1.66      1.14
</TABLE>

         In February 2005, we issued to seven consultants five-year
non-qualified stock options to purchase 8,500 shares of our common stock at a
per share exercise price of $1.12 in consideration for consulting services
rendered or to be rendered, valued at $6,000. Of these, an option to purchase
2,500 shares of our common stock for consulting services to be rendered vests
ratably over a three-year period beginning in February 2006 and the options to
purchase 6,000 shares of our common stock vested and became exercisable
immediately.

         In February 2005, we also issued to two previous owners of APEX Techno
Consultants (P) Ltd. ("APEX"), an IT service company in India, three-year
non-qualified stock options to purchase up to 15,000 shares of our common stock
each in connection with a stock purchase agreement by which we purchased APEX.
The exercise price of the options was $1.12 per share and the options vested and
became exercisable immediately. The total value of these options amounting to
$23,000 was recorded in goodwill.

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


                                       12







<PAGE>

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

FORWARD-LOOKING STATEMENTS

         This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended, (the "Exchange Act)". We intend that those forward-looking
statements be subject to the safe harbors created by those sections. These
forward-looking statements generally include the plans and objectives of
management for future operations, including plans and objectives relating to our
future economic performance, and can generally be identified by the use of the
words "believe," "intend," "plan," "expect," "forecast," "project," "may,"
"should," "could," "seek," "pro forma," "goal," "estimates," "continues,"
"anticipate" and similar words. The forward-looking statements and associated
risks may include, relate to, or be qualified by other important factors,
including, without limitation:

         o        our ability to achieve and maintain profitability and to
                  obtain additional working capital if required;
         o        our ability to re-pay our debt and service our interest costs;
         o        our ability to successfully implement our business plans,
                  including our engineering business process outsourcing
                  initiative;
         o        our ability to attract and retain strategic partners and
                  alliances;
         o        our ability to hire and retain qualified personnel;
         o        the risks of uncertainty of protection of our intellectual
                  property;
         o        risks associated with existing and future governmental
                  regulation to which we are subject; and
         o        uncertainties relating to economic conditions in the markets
                  in which we currently operate and in which we intend to
                  operate in the future.

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

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

OVERVIEW

         We 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        Structural and civil engineering and collaborative software
                  products and services for businesses worldwide; and
         o        Information technology, or IT, services (including engineering
                  business process outsourcing or EBPO).


                                       13







<PAGE>

         We have provided computer-aided engineering software solutions to our
customers for over 24 years. For the past 22 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. A more expansive discussion
of our business and services is contained in the "Business" section of this
report.

         In fiscal 2004, we began the process of streamlining our business
offerings to focus on our higher-margin, core structural and civil engineering
software products and services, where we also have an established presence
worldwide, as well as to focus on our proprietary collaborative software
products and IT services. Our goal is to address the various facets of the
engineering design chain from the software that the engineers use to design
infrastructure to managing all the documents related to a specific design
project. We partnered with other software vendors offering complementary
solutions within the structural engineering community, including the bridge and
industrial/plant building markets, to offer a complete solution to our
customers. We combined STAAD.Pro with Tekla's market-leading 3D modeler and
created the new building-based product, Tekla Structures. We combined STAAD.Pro
with LARSA to offer a full bridge management solution and began to sell and
market it on a worldwide basis. We partnered with Omnitech Associates to provide
a full connection design package with STAAD.Pro. These strategic alliances
enable us to tap into the vertical disciplines of the structural engineering
community that were not accessible to us in the past. To take advantage of the
opportunities for infrastructure projects in Latin America and Pacific Rim
countries, we deepened our presence in these international markets by
establishing regional offices in Mexico, Thailand, and China respectively. We
have introduced more local design codes for our structural software to address
the stringent building requirements adopted by these governments to protect
infrastructure against earthquakes and terrorist attacks. We have begun R&D as
well as continue to introduce more local design codes in rapidly growing
construction markets such as Brazil and Southeast Asia. We also introduced the
Spanish language version of STAAD.Pro in Mexico. Since customer training is
essential to our growth strategy, we introduced the STAAD Certified Trainer and
STAAD Certified Engineer programs and established 15 new training centers across
the U.S. to facilitate year-round training sessions closer to where our
customers are. We also developed training digital videodiscs in English,
Spanish, German and French for our international markets. Additionally, we
successfully launched our corporate licensing program, which targets large
engineering companies at the enterprise level. Our unlimited multi-year
corporate licensing program allows our clients to implement an enterprise wide
licensing strategy that allows companies to integrate and standardize their
engineering design lifecycle on our STAAD.Pro solution stack. We have
implemented this licensing strategy with Bechtel Corporation one of the world's
largest engineering companies and many of the ENR Top 50 firms worldwide.

         In our collaborative software business, we have won new customers and
partners worldwide. BIW Technologies, one of the largest construction project
management companies in the United Kingdom, will be enhancing its BIW visual
interface over the next two years with our document management and collaboration
products and services. We also secured new document collaboration projects with
Sharp Laboratories of America and Amtrak. We are one of several industry leaders
partnering with Oracle Corporation to provide enhanced functionality for Oracle
Files 10g, the content management solution developed for enterprise-wide
deployment. We are also partnering with FileNet Corporation's ValueNet program
to develop a workflow management solution specifically for the architectural,
engineering and construction industries. By taking advantage of the strong
relationships we have built with our 19,000 engineering clients worldwide, we
believe we have a good foundation on which to introduce software addressing the
upstream facets of the design chain.

         Our IT services net revenues declined from a high of $18,000,000 in
fiscal 2001 to $4,200,000 in fiscal 2005 due to the market decline for such
services as well as due to competition. As a result of the steep decline in the
IT services net revenues, we scaled back our domestic IT services operations in


                                       14







<PAGE>

fiscal 2004. In the third quarter of fiscal 2004, we expanded our IT services
operations to include EBPO services leveraging our technical expertise and
established infrastructure in India. Our model focuses on our core engineering
competencies rather than financial services or general call centers. Through our
EBPO services, we offer full engineering technical support to non-competing
engineering software companies as well as work with steel detailing and
fabrication companies in the U.S. to outsource their labor-intensive work to our
wholly-owned subsidiary in India. Our goal is not to replace U.S. steel
detailing companies but to augment their current workforce so they can take on
more jobs and provide a faster turnaround with higher margins. Whereas STAAD and
our other engineering products concentrate on the numerical analysis and design
of buildings and other infrastructure, the steel detailed drawings are produced
for the erectors to physically assemble the structure at hand.

CRITICAL ACCOUNTING POLICIES

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

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

REVENUE RECOGNITION

         We derive revenues from:

         o        engineering and collaborative software products and services;
                  and
         o        IT services.

         We recognize revenues 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.       Our price to the buyer is fixed or determinable; and

         4.       Collection is probable.

         At the time of sale of our pre-packaged engineering software products,
we provide a 15-day right of return on the purchase of the product during which
time the customer may return the product to us subject to a $50 restocking fee
on each returned item. 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 the maintenance contracts is deferred
and recognized ratably over the life of the contract, usually twelve months.

         We recognize revenues from software we customize to fit a customer's
requirements based on satisfactory completion of pre-determined milestones
(evidenced by written acceptance from the customer) and delivery of the product
to the customer, provided no significant obligations remain and collection of
the resulting receivable is probable.

         In 1997, the Accounting Standards Executive Committee ("AcSec") of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2 distinguishes
between significant and insignificant vendor obligations as a basis for


                                       15







<PAGE>

recording revenue and requires that elements of a software licensing arrangement
be separately identified and accounted for based on relative fair values of each
element. We determine the fair value of each element in multi-element
transactions based on vendor-specific objective evidence ("VSOE"). VSOE for each
element is based on the price charged when the same element is sold separately.

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

         We recognize revenues from our IT services primarily on a time and
materials basis, with time at a marked-up rate and materials and other
reasonable expenses at cost, as we perform IT services. Certain IT services
contracts are fixed price contracts where we measure progress toward completion
by mutually agreed upon pre-determined milestones and recognize revenue upon
reaching those milestones. Our fixed price IT contracts typically are for a
short duration of one to six months. We did not have any uncompleted fixed price
IT contracts at March 31, 2005.

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. Our standard
payment terms are net 30 days. We review our accounts receivable balances and
the collectibility of these balances on a periodic basis. Based on our analysis
of the length of time that the balances have been outstanding, the pattern of
customer payments, our understanding of the general business conditions of our
customers and our communications with our customers, we estimate the
recoverability of these balances. When 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. If
the historical data we use to calculate the allowance provided for doubtful
accounts does not reflect our future ability to collect outstanding receivables,
additional provisions for doubtful accounts may be needed and our future results
of operations could be materially affected.

IMPAIRMENT OF LONG-LIVED ASSETS, INCLUDING GOODWILL

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

         We apply the provisions of SFAS No. 142, "Goodwill and Other Intangible
Assets," which requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested at least annually for
impairment.

         We consider the following operating segments- engineering and
collaborative software products and services, and IT services - to be our
reporting units for purposes of testing for impairment.

         We use a two-step test to assess potential impairment to goodwill. In
the first step, the fair value of each reporting unit is compared to its
carrying value including goodwill. If the fair value exceeds the carrying value,
then goodwill is not considered impaired, and we do not need to proceed to the


                                       16







<PAGE>

second step. If the carrying value of a reporting unit exceeds its fair value,
then we have to determine and compare the implied fair value of the reporting
unit's goodwill to the carrying value of its goodwill. If the carrying value of
the reporting unit's goodwill exceeds its implied fair value, then we have to
record an impairment loss in the amount of the excess.

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

         Our annual test for impairment is performed as of March 31 every year.
The evaluation of goodwill impairment involves assumptions about the fair values
of assets and liabilities of each reporting unit. If these assumptions are
materially different from actual outcomes, the carrying value of goodwill will
be incorrect. In addition, future results of operations could be materially
impacted by the write-down of the carrying amount of goodwill to its estimated
fair value. There was no impairment of goodwill during either of the fiscal
years ended March 31, 2005 or March 31, 2004. As of March 31, 2005, our goodwill
balance was $3,088,000.

CONSOLIDATED RESULTS OF OPERATIONS

CONTINUING OPERATIONS

NET REVENUES

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

                                                       YEAR ENDED MARCH 31,
                                                  -----------------------------
                                                      2005              2004
                                                  -----------       -----------
NET REVENUES
    Engineering and collaborative
        software products and services            $    11,636       $    11,550
    % of total revenue                                   73.4%             69.7%

    IT services                                         4,207             5,012
    % of total revenue                                   26.6%             30.3%

                                                  -----------       -----------
     Total net revenues                           $    15,843       $    16,562
                                                  ===========       ===========

         Total net revenues decreased by $719,000 (4.3%) to $15,843,000 in
fiscal 2005 from $16,562,000 in fiscal 2004. Our total net revenues primarily
consisted of revenues from (1) engineering and collaborative software products
and services and (2) IT services.

         ENGINEERING AND COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         Engineering and collaborative software products and services net
revenues increased by $86,000 (0.7%) to $11,636,000 in fiscal 2005 from
$11,550,000 in fiscal 2004, primarily due to an increase in net revenues from
engineering software products and services in Asia and Europe offset by
decreases in the U.S. The decrease in the U.S. was primarily due to a decrease
in collaborative software net revenues.

         Net revenues from engineering software products and services for fiscal
2005 increased by $490,000 (4.2%) compared to fiscal 2004 primarily due to a
$263,000 increase in net revenues from Asia and a $263,000 increase in net
revenues from Europe offset by a $36,000 decrease in net revenues in the United


                                       17







<PAGE>

States. Net revenues from Asia increased due to increased direct sales efforts
and an increase in purchases by government entities and engineering colleges.
Net revenues from Asia also increased due to an increase in the number of
infrastructure projects requiring our engineering software, effective
anti-piracy initiatives, and training programs. Net revenues from Europe
increased due to increased emphasis on engineering software products and
services sales rather than IT services. The decrease in domestic net revenues
was primarily due to $450,000 in engineering software products and services
revenues recognized in fiscal 2004 in connection with a large domestic project
that did not recur in fiscal 2005. This decrease was partially offset by a
$336,000 increase in domestic net revenues from corporate sales. Our enhanced
focus on larger corporate clients has yielded significant customers such as
Bechtel Corporation. However, the timing of completion and recognition of our
large projects creates greater variability in our engineering software net
revenues between quarters. Our efforts to increase our maintenance sales to
mitigate this variability resulted in significantly increased maintenance
billings during the later part of fiscal 2005. However, most of these billings
are not reflected in the net revenues from maintenance sales recognized in
fiscal 2005, because maintenance sales are recognized as revenues over the term
of maintenance period, usually twelve months.

         The above increase was offset by a $404,000 decrease in collaborative
software net revenues to $602,000 in fiscal 2005 from $1,006,000 in fiscal 2004.
The decrease was due to the lower dollar value of a new project completed during
the fiscal 2005, compared to fiscal 2004 when three large projects amounting to
$495,000 were completed and revenues were recognized. The majority of our
collaborative software revenue is generated from service-oriented projects where
the revenue is recognized only upon completion of the entire project.

         IT SERVICES

         The trend of decreasing IT services net revenues continued in fiscal
2005. IT services net revenues decreased by $805,000 (16.1%) to $4,207,000 in
fiscal 2005 from $5,012,000 in fiscal 2004. IT services net revenues decreased
as a percentage of total net revenues to 26.6 % in fiscal 2005 from 30.3% in
fiscal 2004. Net revenues from domestic IT services have decreased due to
scaling down one of our IT services offices and due to lowering the prices we
charge our customers in order to be able to compete with our competitors and to
retain our current customers. For the past several years, the IT services
industry has been adversely affected by a slow economy, and many of our
customers reduced, and continue to reduce, spending on technology consulting and
systems integration services. The decline in domestic and European IT services
net revenues was offset by a $302,000 increase in IT services revenues in our
operations in India, of which $256,000 was due to the acquisition of a small IT
consulting company in April 2004. In the third quarter of fiscal 2004, we
initiated expansion of our IT services into the EBPO market, leveraging our
existing technical support infrastructure in India and our collaborative
software technology to offer these services to a broad array of companies
looking to outsource these functions. In fiscal 2005, our EBPO services business
did not bring significant revenues to the IT services segment. Although we
anticipate that our EBPO services business will bring in additional revenues for
the IT services segment, we cannot assure you that we will be successful in this
endeavor, due to competition among providers of such services and relatively few
barriers to entry since EBPO services are not capital-intensive.


                                       18







<PAGE>

     GROSS PROFIT AND GROSS MARGIN

         The following table presents our gross profit by segment and gross
profit as a percentage of each segment's revenue, or gross margin (dollars in
thousands):
                                                      YEAR ENDED MARCH 31,
                                                 ------------------------------
                                                     2005               2004
                                                 -----------        -----------
GROSS PROFIT
    Engineering and collaborative
      software products and services             $    10,850        $    10,539
    IT services                                        1,450              1,052
                                                 -----------        -----------
     Total gross profit                          $    12,300        $    11,591
                                                 ===========        ===========

GROSS MARGIN
    Engineering and collaborative
      software products and services                   93.2%              91.2%
    IT services                                        34.5%              21.0%
                                                 -----------        -----------
     Total gross profit                                77.6%              70.0%
                                                 ===========        ===========

         Consolidated gross margin increased to 77.6% in fiscal 2005 from 70.0%
in fiscal 2004 due to the growing proportion of revenues as well as higher gross
margin from engineering and collaborative software products and services
compared to IT services.

         ENGINEERING AND COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         Our engineering and collaborative software products and services
segment generally produces higher gross margin than our IT services segment due
to the relatively lower costs associated with each sale. Additionally, research
and development costs are typically written off when developing software, and
only certain amounts are capitalized and subsequently amortized. The cost of
revenues for the engineering and collaborative software products and services
segment includes printing services, direct supplies such as hardware locks that
are attached to the central processing unit to prevent unauthorized access to
licensed software, salaries for the technical support employees, freight out,
and software amortization expense. The increase in the gross margin in the
engineering and collaborative software products and services segment is
primarily the result of the increase in fiscal 2005 net revenues from fiscal
2004 levels. Some of the components of the cost of revenues, such as
amortization of capitalized software development and salaries, do not vary
significantly with changes in revenues.

         Gross margin in the engineering and collaborative software products and
services segment increased by 2.0 percentage points in fiscal 2005 compared to
fiscal 2004. The increase in gross margin in the engineering and collaborative
software product and services segment was primarily due to a $207,000 decrease
in software amortization costs in fiscal 2005, compared to fiscal 2004, as a
result of the completion of amortization during June 2004. Additionally, $88,000
and $35,000 decreases in supplies purchases and printing expense, respectively,
also contributed to the improvement in gross margin. These decreases were offset
by a $123,000 increase in royalty fees, primarily related to Tekla and Larsa
products.

         IT SERVICES

         Gross margin in the IT services segment increased by 13.5 percentage
points in fiscal 2005 compared to fiscal 2004. This increase was primarily the
result of our acquisition of a higher margin IT services company engaged in
steel detailing services in India. An increase in the emphasis on higher margin
IT services in India during fiscal 2005 compared to IT services that included a
lower margin hardware component during fiscal 2004 contributed to the
improvement in gross margin for this segment but was offset by increased costs


                                       19







<PAGE>

related to our EBPO services. In addition, better utilization of consultants and
scaling back of one of the domestic offices also contributed to the increase in
gross margin in fiscal 2005, compared to fiscal 2004.

         In dollar terms, IT services gross profit increased by $398,000 (37.8%)
to $1,450,000 in fiscal 2005 from $1,052,000 in fiscal 2004. 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 services 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 engineering and
collaborative software products and services segment.

         In order to maintain a higher level of overall gross profit, we
continue to focus our sales efforts on our segment with the highest gross
profit, namely, our engineering and collaborative software products and services
segment, by working to develop strategic relationships, to increase our volume
of telephone sales, and to re-engage with our international distributors. In our
IT services business, we are focusing more on project-based services instead of
the IT staffing services.

OPERATING EXPENSES

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

                                                     YEAR ENDED MARCH 31,
                                               --------------------------------
                                                   2005                2004
                                               -------------      -------------
OPERATING EXPENSES
    Selling, general and administrative
      expenses                                 $       9,753      $      10,602
    % of total net revenues                            61.6%              64.0%

    Research and development expenses                  1,578              2,042
    % of total net revenues                            10.0%              12.3%

    Bad debt expense                                     355                 60
     % of total net revenues                            2.2%               0.4%

    Depreciation                                         990                944
     % of total net revenues                            6.2%               5.7%
                                               -------------      -------------
    Total operating expenses                   $      12,676      $      13,648
     % of total net revenues                           80.0%              82.4%
                                               =============      =============

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative ("SG&A") expenses decreased by
$849,000 (8.0%) to $9,753,000 in fiscal 2005 from $10,602,000 in fiscal 2004
primarily due to the following as a result of our continued efforts to control
costs:

         o        strategic and investor relations expenses decreased $475,000
                  primarily due to warrant issuances in fiscal 2004 that did not
                  recur in fiscal 2005;
         o        severance-related expenses decreased $259,000;
         o        salaries and related expenses decreased $100,000 due to
                  employee terminations;
         o        rent expense decreased $149,000 due to sublease of portions of
                  the Yorba Linda, California facility; and
         o        consulting and professional fees decreased $114,000 due to our
                  efforts to control costs.


                                       20







<PAGE>

         SG&A expenses in fiscal 2004 included $713,000 in non-cash expenses
related to warrants issued for strategic consulting and investor relations
services and a stock option granted to an employee as part of a severance
package.

         The above decreases in SG&A expenses were offset by $89,000 in
travel-related expenses and $35,000 in expenses related to our operations in
China.

         RESEARCH AND DEVELOPMENT EXPENSES

         Research and development ("R&D") expenses consist primarily of software
developers' wages. In fiscal 2005, R&D expenses decreased by $464,000 (22.7%) to
$1,578,000 from $2,042,000 in fiscal 2004. As a percentage of engineering and
collaborative software net revenues, to which they mostly relate, R&D expenses
decreased to 13.6% in fiscal 2005 from 17.7% in fiscal 2004. The decrease in R&D
expenses is primarily related to a $335,000 decrease in salaries and related
expenses in fiscal 2005 due to employee terminations and reorganization, a
$101,000 decrease due to capitalization of software development expenses related
to STAAD X and a $52,000 decrease in consulting expenses. We believe R&D expense
may not decrease further from current levels.

         BAD DEBT EXPENSE

         Bad debt expense increased $295,000 (492%) to $355,000 from $60,000 in
fiscal 2004. The increase in bad debt expense was primarily due to one large
collaborative software customer and a $164,000 increase in the reserve balance
for our Indian subsidiary.

         DEPRECIATION

         In fiscal 2005, depreciation expense increased by $46,000 (4.9%) to
$990,000 from $944,000 due to an increase in fixed assets. We do not anticipate
that depreciation expenses will change significantly from these levels in fiscal
2006.

         SEGMENT PROFITABILITY AND OPERATING INCOME (LOSS)

         In fiscal 2005, consolidated operating loss was $376,000 compared to a
consolidated operating loss of $2,057,000 in fiscal 2004. Consolidated operating
loss in fiscal 2005 consisted of operating income from the engineering and
collaborative software products and services segment and the IT services segment
offset by an operating loss for the corporate center. Operating income in the
engineering and collaborative software products and services segment was
$1,247,000 in fiscal 2005 compared to an operating loss of $539,000 in fiscal
2004. Operating loss in fiscal 2004 included expenses related to a terminated
executive and to strategic and investor relations services totaling $734,000,
which did not recur in fiscal 2005. In the IT services segment, the operating
income in fiscal 2005 was $136,000 compared to an operating loss of $446,000 in
fiscal 2004. The operating loss related to the corporate center in fiscal 2005
increased $687,000 (64.1%) to $1,759,000 compared to $1,072,000 in fiscal 2004
primarily due to professional and consulting expenses totaling $640,000 incurred
in fiscal 2005.


                                       21







<PAGE>

OTHER EXPENSE (INCOME)

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

                                                     YEAR ENDED MARCH 31,
                                               --------------------------------
                                                   2005               2004
                                               -------------      -------------
OTHER EXPENSE (INCOME)
    Interest expense, net                      $        543       $        658
    % of total revenue                                  3.4%               4.0%

    Other income                               $       (102)      $       (128)
    % of total revenue                                 (0.6)%             (0.8)%

    Total other expense                        $        441       $        530
     % of total revenue                                 2.8%               3.2%

         INTEREST EXPENSE, NET

         Net interest expense decreased $115,000 (17.5%) in fiscal 2005 to
$543,000 from $658,000 during fiscal 2004. The decrease in net interest expense
is primarily due to lower average convertible debt balances during fiscal 2005
compared to fiscal 2004, due to conversions of portions of our convertible debt
into equity as well as a reduction in interest due to the refinancing of bank
debt by one of our subsidiaries. The interest expense due to convertible debt
decreased $64,000 (15.5%) in fiscal 2005 to $349,000 from $413,000 in fiscal
2004. The annual interest rate on the convertible notes with Laurus is based on
the greater of 5% or the prime rate plus 1%. The Federal Reserve has increased
interest rates, which increased the stated rate on our convertible notes issued
to Laurus from 5% to 6.75% at March 31, 2005. Interest expense in the upcoming
quarters may increase if the prime rate increases further or if we borrow
additional amounts, but may decrease if additional portions of debt outstanding
under the outstanding convertible notes issued to Laurus are converted into
equity. Net interest expense on long-term debt of one of our foreign
subsidiaries decreased $46,000 (42.6%) to $62,000 in fiscal 2005 from $108,000
in fiscal 2004 due to refinancing of this debt.

         OTHER INCOME

         Other income decreased by $26,000 to $102,000 in fiscal 2005 from
$128,000 in fiscal 2004 primarily due to the sale of certain assets in the prior
year that were previously written off or fully depreciated. This decrease was
offset by the recognition of a $38,000 increase in cash surrender value of a
life insurance policy in fiscal 2005.

         INCOME TAXES

         For fiscal 2005, we recorded an income tax expense of $38,000 relating
to certain state and foreign taxes compared to $15,000 in fiscal 2004.

DISCONTINUED OPERATIONS

         In our continuing efforts to focus on our core software products and IT
services businesses, we sold our travel services subsidiary, "e-Destinations,"
in April 2004 for its approximate book value of $155,000 and sold our Web-based
telecommunications services division in September 2004 for $130,000, which
amount was $117,000 greater than its book value. Accordingly, the results of
operations of the travel services subsidiary and the Web-based
telecommunications services division are excluded from continuing operations and
reported as discontinued operations.


                                       22







<PAGE>

         Income from discontinued operations in fiscal 2005 was $67,000,
compared to a loss from discontinued operations of $508,000 in fiscal 2004. We
recorded no gain or loss from the sale of e-Destinations since it was written
down to its potential recoverable value at the end of fiscal 2004, and recorded
a $117,000 gain from the sale of the Web-based telecommunications services
division in fiscal 2005.

         The total sales price was $155,000 for the sale of e-Destinations in
April 2004 and $130,000 for the sale of the Web-based telecommunications
services division. We received the entire proceeds from the sales of
e-Destinations and the Web-based telecommunications services division during
fiscal 2005.

LIQUIDITY AND CAPITAL RESOURCES

         Historically, we have relied upon cash from financing activities to
fund the majority of the cash requirements of our operating and investing
activities. Currently, we finance our operations (including capital
expenditures) primarily through existing cash and cash equivalent balances and
issuance of convertible notes. We have used debt and equity financing when
appropriate and practicable, such as by issuing to Laurus a $2,400,000
convertible note in December 2003 ("2003 Note"), as amended in April 2004, and a
$1,000,000 convertible Note in December 2004 ("2004 Note"). Our principal
sources of liquidity at March 31, 2005 consisted of $3,681,000 of cash and cash
equivalents. Cash and cash equivalents increased by $2,035,000 (123.6%) during
fiscal 2005. The primary reason for this increase was the issuance of the
convertible notes.

         Net cash used in operations was $210,000 in fiscal 2005 compared to
$1,029,000 in fiscal 2004.
The following contributed to cash usage in fiscal 2005:

         o        A $1,329,000 increase in accounts receivable primarily due to
                  a $650,000 increase as a result of higher proportion of credit
                  sales to domestic customers and a $548,000 increase in Asian
                  operations due to slower collection;
         o        A $270,000 increase in prepaid expenses and other current
                  assets primarily due to $127,000 in prepaid dealer commissions
                  for sales not yet recognized, and a $73,000 increase in cash
                  surrender value of an insurance policy; and
         o        A $136,000 decrease in accounts payable due to payments.

The above were partially offset by an $849,000 increase in deferred revenues due
to a higher level of maintenance billings and deferral of certain engineering
and collaborative software project billings since the projects had not been
completed at the close of the fiscal year and therefore the related revenues
were not yet earned.

         The following contributed to cash usage in fiscal 2004:

         o        A $561,000 increase in accounts receivable due to a large
                  proportion of sales on credit at the end of the fiscal year;
         o        A $240,000 decrease in deferred revenues due to a lower level
                  of new maintenance billings;
         o        A $199,000 decrease in accrued restructuring costs due to
                  payments; and
         o        A $160,000 increase in prepaid expenses and other current
                  assets primarily due to advance payments to vendors in Asia.

The above were offset by a $610,000 decrease in deposits due to payment of legal
settlements and a $202,000 increase in accrued expenses.


                                       23







<PAGE>

         Net cash used in investing activities in fiscal 2005 consisted of
capital expenditures amounting to $408,000, partially offset by proceeds from
the sale of assets of $286,000 and the sale of short-term investment of
$100,000.

         Net cash used in investing activities in fiscal 2004 consisted of the
purchase of a short-term investment of $100,000 and capital expenditures of
$94,000.

         Financing activities provided $2,229,000 and $357,000, in fiscal 2005
and fiscal 2004, respectively. Cash provided by financing activities during
fiscal 2005 primarily resulted from the additional borrowings under the amended
and restated 2003 Note and the issuance of the 2004 Note, and the refinancing of
an existing loan by one of our subsidiaries. We paid back $280,000 to Laurus.
Cash provided by financing activities during fiscal 2004 primarily resulted from
the issuance of the 2003 Note and additional borrowings by one of our
international subsidiaries. We paid back $519,000 to Laurus, and the
international subsidiary paid back $1,293,000 in bank debt, during fiscal 2005.
We also paid $175,000 in financing fees to Laurus in fiscal 2004.

         During fiscal 2005, we converted $730,000 of the principal balance of
the 2002 Note and $479,000 of the principal balance of the 2003 Note into equity
by issuing 930,000 shares of common stock to Laurus at the fixed conversion
price of $1.30 per share.

         We incurred net losses of $788,000 and $3,110,000 and used cash in
operations of $210,000 and $1,029,000 in fiscal years 2005 and 2004,
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.

         Historically, we have relied upon cash from financing activities to
fund the majority of the cash requirements of our operating and investing
activities. We have not been able to generate sufficient cash from our operating
activities in the past, and there is no assurance we will be able to do so in
the future. 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 net cash outflow both domestically and abroad and are working to increase
sales of our software products.

         We believe we will be able to generate sufficient cash from operations
or through existing or additional sources of debt and equity financing. 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 hinder our ability to fund our continued operations and our
product development efforts that historically have contributed significantly to
our competitiveness.


                                       24







<PAGE>

         The following table summarizes our contractual obligations and
commercial commitments at March 31, 2005 (in thousands of dollars):

<TABLE>
                                          ----------------------------------------------------------------
                                                               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 *                           3,927          1,619         2,107           198             3
Capital Lease Obligations **                 619            207           337            75            --
Operating Leases                           2,710            311           510           333         1,556

                                          ----------------------------------------------------------------
Total Contractual Cash Obligations         7,256          2,137         2,954           606         1,559
                                          ================================================================
</TABLE>

* Excludes debt discount of $422 primarily related to warrant and beneficial
conversion adjustments.
** Represents future minimum lease payments excluding deductions for imputed
interest of $132.

         On July 31, 2003, we received a $4,000,000 revolving credit facility
from Laurus. The availability of funds under this credit facility is limited by
the amount of the unpaid balances on the 2003 Note and the 2004 Note
(collectively, the "Laurus Notes"). At March 31, 2005, we had a total
availability of $1,359,000 under the revolving credit facility.

         We are required to use the net proceeds from this financing for general
corporate purposes only. We are also required not to permit for any fiscal
quarter commencing April 1, 2003, the net operating cash flow deficit to be
greater than $500,000, excluding extraordinary items, as determined by Laurus.
At March 31, 2005, we were in compliance with this covenant.

         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 our 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.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

EXCHANGES OF NONMONETARY ASSETS

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


                                       25







<PAGE>

SHARE-BASED PAYMENT

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

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 CONTINUING TO CUT COSTS IN A VARIETY OF AREAS, WHICH
         MAY NOT BE FEASIBLE.

         We incurred net losses of $788,000 and $3,110,000 in fiscal 2005 and
fiscal 2004, respectively. We used cash in operations totaling $210,000 and
$1,029,000 for fiscal years 2005 and 2004, respectively. During the past year,
our operating expenses decreased approximately $972,000, primarily due to our
efforts to control costs. 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.

         We intend to continue these combined efforts and are tailoring our cost
containment measures with the goal of having each of our operating units or
costs centers 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.


                                       26







<PAGE>

         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, 2005, we had working capital of $3,402,000 and an accumulated
deficit of $31,232,000. As of that date, we had $3,681,000, of cash and cash
equivalents and $4,334,000 of accounts receivable, net of allowance for doubtful
accounts.

         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. At
March 31, 2005, we had used $2,641,000 out of a total of $4,000,000 in available
credit from Laurus, leaving a credit availability of $1,359,000. 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 our 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.

         THE VOTING POWER OF YOUR INVESTMENT AND OUR EARNINGS PER SHARE WOULD BE
         SUBSTANTIALLY DILUTED IF ALL OR A SIGNIFICANT PORTION OF THE LAURUS
         NOTES WAS CONVERTED INTO SHARES OF OUR COMMON STOCK AT THE INITIAL
         CONVERSION PRICES.

         Through March 31, 2005, we had converted $730,000 of convertible debt
under the 2002 Note and $479,000 of convertible debt under the 2003 Note into
930,000 shares of our common stock. As of March 31, 2005, the outstanding
principal balances of $1,641,000 and $1,000,000 under the 2003 Note and 2004
Note, respectively, were convertible by Laurus into up to 1,262,308 shares and
775,194 shares of our common stock, respectively, at the initial fixed
conversion prices of $1.30 and $1.29 per share, respectively. At March 31, 2005,
19,117,154 shares of our common stock were issued and outstanding. If the
2,037,502 aggregate number of shares of common stock underlying the Laurus Notes
had been issued and outstanding as of that date, disregarding conversion
limitations described in the agreements, then Laurus would have beneficially
owned approximately 9.6% of the 21,154,656 shares of common stock that would
have been outstanding on March 31, 2005. We may borrow additional amounts under
the revolving credit facility from time to time, which would increase the
principal balance that could potentially be converted into shares of our common
stock in the future. As a result, if the entire principal balance of the Laurus
Notes and/or any additional amounts we may borrow under the revolving credit
facility were converted at their initial fixed conversion prices, 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 THE REMAINING BALANCE OF THE LAURUS
         NOTES 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 LAURUS NOTES AND THEN
         RESOLD INTO THE MARKET.


                                       27







<PAGE>

         If the conversion prices at which the balances of the Laurus Notes are
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
Laurus Notes, or even the perception that such sales could occur, could
adversely affect the market price of our common stock, which would mean that the
Laurus Notes 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
remaining balance on the Laurus Notes.

         THE VOTING POWER AND VALUE OF YOUR INVESTMENT COULD DECLINE IF THE
         LAURUS NOTES ARE CONVERTED AT A REDUCED PRICE DUE TO OUR ISSUANCE OF
         LOWER-PRICED SHARES.

         The $1.30 initial fixed conversion price of the Amended and Restated
2003 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 $1.30 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 $1.28 per share, and approximately
25,601 additional shares of common stock would become issuable upon conversion
of the principal amount of the Laurus Notes. Consequently, the voting power and
value of your investment would decline if conversions occurred at the new lower
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 LAURUS NOTES WERE CONVERTED ON ONE
         OR MORE OCCASIONS AT AN ALTERNATE CONVERSION PRICE THAT APPLIES IF WE
         ISSUE A CALL NOTICE UNDER ONE OR BOTH OF THE LAURUS NOTES, PARTICULARLY
         IF LAURUS SEQUENTIALLY CONVERTS PORTIONS OF THE LAURUS NOTES INTO
         SHARES OF OUR COMMON STOCK AT ALTERNATE CONVERSION PRICES AND RESELLS
         THOSE SHARES INTO THE MARKET.

         If we are in default or if we issue call notices under Laurus Notes,
then an alternate conversion price based on a discount from the market price of
our common stock may apply, and the Laurus Notes could become convertible into
an unlimited number of additional shares of our common stock, particularly if
Laurus sequentially converts portions of the Laurus Notes into shares of our
common stock at alternate conversion prices and resells those shares into the
market. If Laurus sequentially converts portions of the Laurus Notes 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. Consequently, if Laurus
repeatedly converts portions of the Laurus Notes 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 Laurus
Notes.


                                       28







<PAGE>

         THE MARKET PRICE OF OUR COMMON STOCK COULD SUBSTANTIALLY DECLINE AND
         THE VOTING POWER AND VALUE OF YOUR INVESTMENT COULD BE SUBJECT TO
         ADDITIONAL DILUTION IF THE LAURUS NOTES ARE CONVERTED ON ONE OR MORE
         OCCASIONS AT AN ALTERNATE CONVERSION PRICE THAT APPLIES IF WE
         PREVIOUSLY ELECTED TO PAY ALL OR A PORTION OF OUR MONTHLY PAYMENT IN
         SHARES OF OUR COMMON STOCK AND OUR STOCK IS TRADING AT LESS THAN $1.43
         FOR THE TEN TRADING DAYS PRECEDING THE MONTHLY PAYMENT DATE,
         PARTICULARLY IF LAURUS SEQUENTIALLY CONVERTS PORTIONS OF THESE NOTES
         INTO SHARES OF OUR COMMON STOCK AT ALTERNATE CONVERSION PRICES AND
         RESELLS THOSE SHARES INTO THE MARKET.

         If we elect to pay all or a portion of a monthly payment in shares of
our common stock and the average closing price of our common stock for the 10
trading days preceding the monthly payment date is less than $1.43, then we, at
our sole discretion, must determine whether to pay the monthly payment in cash
or to require Laurus to convert all or part of the monthly payment amount that
we had elected to pay in shares of our common stock at a conversion price equal
to 85% of the average of the three lowest closing prices during the 20 trading
days immediately preceding the conversion date. If Laurus sequentially converts
portions of the Laurus Notes 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. Consequently, if we elect to have Laurus repeatedly convert
portions of the Laurus Notes at alternate conversion prices and then Laurus
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 Laurus Notes.

         For example, if we elect to pay Laurus in shares of our common stock
and the average closing price of our common stock for the 10 trading days
preceding the monthly payment date is less than $1.43, then the conversion price
of the monthly payment will be equal to 85% of the average of the three lowest
closing prices our common stock during the preceding 20 trading days. So, if our
stock price meets the above conditions and we elect to convert $100,000 of the
monthly payment of the note at a time when the fixed conversion price was $1.30
per share and the average of the three lowest closing prices of our common stock
during the 20 preceding trading days also was $1.30, then the applicable
conversion price would be $1.105 rather than $1.30, and the number of shares
issuable upon the conversion would be 90,498 based upon the alternate conversion
price rather than 76,923 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 90,498 shares at a price of $1.20,
which is $0.095 above the hypothetical $1.105 alternate conversion price but
$0.10 below the $1.30 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 $1.30 to $1.20 during the 20 trading days preceding Laurus' next conversion
at an alternate conversion price, then, upon our election, Laurus must convert
all or any remaining portion of the monthly payment at a conversion price equal
to 85% of $1.20, or $1.02, 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 $1.10 and still realizing a $0.08 profit while causing the market
price to go to $1.10. Consequently, the market price of our common stock could
decline and the voting power and value of your investment could be subject to
unlimited additional dilution if we elect to have Laurus repeatedly convert
portions of the Laurus Notes monthly payment at alternate conversion prices and
then Laurus resells those underlying shares into the market.


                                       29







<PAGE>

         CONTRACTUAL LIMITATIONS THAT RESTRICT LAURUS' ABILITY TO CONVERT THE
         LAURUS NOTES 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 Laurus Notes into, or the exercise of the December 2002 Warrant or the July
2003 warrant (collectively, "Laurus Warrants") for 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
Laurus Notes 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
Laurus Notes 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 notes 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 Laurus Notes 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 Laurus Notes into shares of common stock and then reselling those
shares in stages over time where Laurus and its affiliates 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 two notes if,
and to the extent, the conversion would result in Laurus and its affiliates
beneficially owning more than 3,563,524 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.

         CONVERSIONS OF THE LAURUS NOTES 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 Laurus Notes occur at
dramatically reduced conversion prices, such as if Laurus sequentially converts
portions of the Laurus Notes 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 2003 NOTE AND 2004 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 SMALLCAP
         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.


                                       30







<PAGE>

         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 Laurus Notes occur at dramatically reduced
conversion prices, such as if Laurus sequentially converts portions of the
Laurus Notes 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 Laurus Notes 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 The Nasdaq SmallCap 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 notes 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 SmallCap 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 MAINTAINING COMPLIANCE WITH OR MODIFYING OUR
         REGISTRATION OBLIGATIONS WITH REGARD TO THE LAURUS NOTES AND RELATED
         WARRANTS, WE MAY INCUR SUBSTANTIAL MONETARY PENALTIES.

         The agreements we entered into in connection with our issuance of the
Laurus Notes require us to, among other things, register for resale the shares
of common stock issued or issuable under the Laurus Notes and the accompanying
warrants and maintain the effectiveness of the registration statement for an
extended period of time. We are currently in compliance with our registration
obligations. If we are unable to maintain effectiveness of the required
registration statement, or to modify our registration obligations, 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 adversely affecting our cash flows.

         OUR ADOPTION OF SFAS NO. 142 INCREASED OUR LOSSES FOR FISCAL 2003 BY
         $5,824,000 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 ADDITIONAL IMPAIRMENT OF
         GOODWILL.

         We assess the fair value of our reporting units by considering their
projected cash flows, using risk-adjusted discount rates, and other valuation
techniques. Accordingly, as of April 1, 2002, we recorded an impairment charge
of $5,824,000 to IT services goodwill in fiscal 2003 as a cumulative effect of a
change in accounting principle. 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 an additional impairment
charge, or the amount of any such charge. If the charge is significant, it could
cause the market price of our common stock to decline. The unamortized balance
of goodwill as of March 31, 2005 was $3,088,000.


                                       31







<PAGE>

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

         Our founder, Chairman and Chief Executive Officer, Amrit K. Das, and
our Chief Operating Officer, Santanu K. Das, have been with us for at least 24
years and 14 years, respectively. Their experience, expertise, industry
knowledge and historical company knowledge would be extremely difficult to
replace if we were to lose the services of either of them. The precise impact of
the loss of services of either of them is extremely difficult to predict, but
would likely result in, at a minimum, significant costs to recruit, hire and
retain a successor and impair operating results while the successor was being
recruited and transitioning into the position.

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

         The engineering and collaborative software products and services and IT
services markets, including our EBPO services, each is highly competitive. The
market for IT services, including EBPO services, is characterized by an
increasing number of entrants due to low start-up costs. Some of our competitors
and potential competitors have larger technical staffs, more established and
larger marketing and sales organizations and significantly greater financial
resources than those we have. Our competitors may develop products and services
that are superior to ours or that achieve greater market acceptance. Our future
success will depend significantly upon our ability to increase our share of our
target markets and to sell additional products, product enhancements and
services to our customers. We are experiencing pricing pressures as we work to
expand our software products and services market share. We also are experiencing
pricing pressures in our telecommunications operations due to the turmoil in
that market sector. As a result of these pricing pressures, we may experience
declines in our revenues, gross margins and market share.

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

         We have established and acquired international subsidiaries that
prepare their balance sheets in the relevant foreign currency. In order to be
included in our consolidated financial statements, these balance sheets are
converted, at the then current exchange rate, into U.S. dollars, and the
statements of operations are converted using weighted average exchange rates for
the applicable periods. Foreign currency denominated sales may result in gains
and losses on the conversion to U.S. dollars. 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 57.2% and 54.6% of our total net revenues for
the fiscal years ended March 31, 2005 and March 31, 2004, respectively. Our
intellectual property rights are an important aspect of our international
business. We rely primarily on a combination of contract, copyright, trademark
and trade secret laws, domain name registration, license and confidentiality
agreements and software security measures to protect our proprietary technology.
However, we believe that existing laws provide limited protection for our
technology and that it may be possible for a third party to misappropriate our
technology or to independently develop similar technology. Protective measures
we take may be even less effective in the emerging Internet law field because
online contracting, privacy and liability issues, among others, are still being
resolved. This lack of certainty is even greater in India, where the use of the
Internet is less evolved than in the U.S. In addition, effective copyright and


                                       32







<PAGE>

trade secret protection may not be available in every jurisdiction where we
distribute our products, particularly in foreign countries where the laws
generally offer no protection or less protection than the laws of the U.S. The
laws of India and other foreign countries in which we operate do not protect
intellectual property rights to the same extent as the laws of the U.S. For
example, India's statutory laws do not protect service marks. Because a
significant portion of our sales of products and services comes from
international markets, this lack of copyright and trade secret protection could
adversely affect our business and results of operations if a third party were
successful in copying our products and services and marketing products and
services similar to ours.

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

         During the fiscal years ended March 31, 2005 and March 31, 2004, we
derived approximately 17.3% and 16.1%, respectively, of our total net revenues
from sales made by our Indian operations primarily to customers in India.
However, more than one-half of our employees, many of whom are engaged in
non-sales activities such as engineering business process outsourcing, technical
support and research and development, were based in India. India has from time
to time experienced civil unrest and hostilities with its neighboring countries.
Although the Indian government has changed several times in recent years, the
government of India has pursued policies of economic liberalization throughout
the past decade and the new government that came to power in 2004 has promised
to continue the same. These policies have resulted in significantly increased
opportunities for publicly and privately held businesses in the information
technology services markets in which we operate in India. However, we cannot
assure you that the current government will remain in power or that these
policies will continue. A significant change in the Indian government's policies
could cause our operations in India to become more expensive or more difficult,
and in either case cause us to have to re-evaluate the economic viability of
operating there. Moreover, if civil unrest or hostilities involving India and
any of its neighboring countries should occur, it could have an adverse effect
on the communication infrastructure in India, which could, in turn, cause our
operations there to cease making economic sense. In that event, we may need to
expend significant time and resources in relocating and conducting our Indian
operations elsewhere.

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

         Our ability to compete successfully depends upon the continued
compatibility and interoperability of our services with products and
architectures offered by various vendors. Although we intend to support emerging
standards in the market for Internet access, industry standards may not be
established and, if they become established, we may not be able to conform to
these new standards in a timely fashion or maintain a competitive position in
the market. The announcement or introduction of new products or services by us
or our competitors and any change in industry standards could cause our
customers to defer or cancel purchases of existing products or services.

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

         The market prices of securities of technology-based companies like ours
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
July 5, 2005, the high and low sale prices of a share of our common stock were
$2.08 and $0.75, 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


                                       33







<PAGE>

generally. Additionally, until the full effects of our cost-cutting become
clear, including whether those cuts have a long-term adverse effect 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.

         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, 2005, we had available net operating loss carryforwards
of $21,000,000 for federal income tax purposes and $12,100,000 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 OF CONTROL.

         As of July 5, 2005, our executive officers and directors and their
family members together beneficially owned approximately 39.3% 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 of control of our
company, even if the change of control would benefit our stockholders. A
perception in the investment community of an anti-takeover environment at our
company could cause investors to value our stock lower than in the absence of
such a perception.

ITEM 7.  FINANCIAL STATEMENTS.

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

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

         None.


                                       34







<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES.

         Our Chief Executive Officer and Chief Financial Officer (our principal
executive officer and principal financial officer, respectively) have concluded,
based on their evaluation as of March 31, 2005, that the design and operation of
our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended ("Exchange Act")) are effective to
ensure that information required to be disclosed by us in the reports filed or
submitted by us under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms,
including to ensure that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding whether or not
disclosure is required.

         During the quarter ended March 31, 2005, there were no changes in our
"internal controls over financial reporting" (as defined in Rule 13a-15(f) under
the Exchange Act) that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.

ITEM 8B. OTHER INFORMATION.

         None.


                                       35







<PAGE>

                                    PART III

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

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

         Our directors, executive officers and key employees as of July 5, 2005,
were as follows:

<TABLE>
              Name                           Age                        Position
              ----                           ---                        --------
<S>                                          <C>      <C>
Amrit K. Das                                 58       Chairman of the Board, Chief Executive Officer,
                                                      President and Director
Santanu K. Das                               31       Executive Vice President, Chief Operating Officer
                                                      and Director
Stephen W. Owen                              45       Corporate Vice President, President of European
                                                      Operations
Bruce K. Nelson                              50       Chief Financial Officer
Clara Y.M. Young                             50       Corporate Vice President, Chief Administrative
                                                      Officer and Secretary
Biren Parikh                                 37       Director of Corporate Sales and Marketing
D. Dean McCormick III (1) (2)(3)             52       Director
Stanley W. Corbett (1) (2)(3)                71       Director
Benedict A. Eazzetta (1) (2)(3)              41       Director
</TABLE>
------------------------
(1) Member of Audit Committee.
(2) Member of Compensation and Stock Option Committee.
(3) Member of Nominating and Governance Committee.

DIRECTORS AND EXECUTIVE OFFICERS

         AMRIT K. DAS is the founder of our company. He has served as our Chief
Executive Officer and Chairman of our board of directors since our inception in
1981 and as our President since November 2003. Mr. Das also served as our
President from our inception until March 1999. Mr. Das holds a B.S. in
Civil/Structural Engineering from Calcutta University, India, and an M.S. in
Structural Engineering from the University of South Carolina. Mr. Das is the
father of Santanu K. Das.

         SANTANU K. DAS has served as our Executive Vice President and Chief
Operating Officer and Director since November 2003. Prior to that, he served as
Corporate Vice President and President of Engineering and Collaborative Software
from April 2002 to November 2003, as our Vice President of New Technology from
July 1999 to November 2003 and as a director from September 1996 to July 2003.
Prior to that, Mr. Das served as our Corporate Vice President and President of
Engineering and Animation Software and ASP from January 2001 to March 2002.
Prior to that, Mr. Das served as our Manager of New Technology from May 1997
until June 1999, and as a Senior Engineering Analyst for our company from 1991
to April 1997. Mr. Das holds a B.S. in Structural Engineering from the
University of Southern California and an M.S. in Structural Engineering from the
Massachusetts Institute of Technology. Santanu Das is the son of Amrit K. Das.

         STEPHEN W. OWEN has served as our Corporate Vice President since
September 2001 and as President of European Operations since October 1999. He
served as a director of netGuru from September 2001 to July 2003. Prior to that,
he served as our Director of European Operations from 1987 to 1999. Mr. Owen


                                       36







<PAGE>

holds a B.S. in Civil Engineering from the University College Swansea, United
Kingdom and is a Chartered Engineer for both Civil and Marine Technology
Engineering.

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

         CLARA Y.M. YOUNG has served as our Corporate Vice President and Chief
Administrative Officer since January 2001 and as our Secretary since March 2001.
Ms. Young served as our Vice President, Administration from December 1987 to
December 2000. Prior to that, Ms. Young served as program analyst with The
Technical Group, Inc. from December 1982 to December 1987. Ms. Young holds a
B.S. in Computer Science from California State University, Fullerton.

         D. DEAN MCCORMICK III is a certified public accountant and has been
president of the consulting and accounting firm of McCormick Consulting, Inc.
since July 1993. He has been a member of the Audit and Budget Committee for the
Catholic Diocese of Orange since February 2004. Mr. McCormick has been a member
of the Forum for Corporate Directors since June 2003 and an advisor to the
Family Business Program at the University of Southern California since September
2003. He served as president of the Orange County Chapter of the Association for
Corporate Growth from 1995 to 1996. Mr. McCormick holds a B.A. degree in
Economics from the University of Redlands and an M.B.A. from the University of
Southern California.

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

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

KEY EMPLOYEE

         BIREN PARIKH has served as our Director of Corporate Sales and
Marketing since April 2000. Prior to joining netGuru, Mr. Parikh served as
director of marketing for Infosys Corporation, which serves the e-Business
markets. Prior to that, Mr. Parikh launched Digitech International, Inc., which
serves the GIS/engineering markets and served as its president. Mr. Parikh holds
a B.S. in Information Systems Management from the University of San Francisco.


                                       37







<PAGE>

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

CODE OF BUSINESS CONDUCT AND ETHICS

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

         We intend to satisfy the disclosure requirement under Item 10 of Form
8-K relating to amendments to or waivers from provisions of the code that relate
to one or more of the items set forth in Item 406(b) of Regulation S-B, by
describing on our Internet Website, within five business days following the date
of a waiver or a substantive amendment, the date of the waiver or amendment, the
nature of the amendment or waiver, and the name of the person to whom the waiver
was granted.

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

AUDIT COMMITTEE MATTERS

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

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

         Based solely upon a review of copies of such reports furnished to us
during the fiscal year ended March 31, 2005 and thereafter, or any written
representations received by us from reporting persons that no other reports were
required, we believe that, during our fiscal 2005, all Section 16(a) filing
requirements applicable to our reporting persons were met.


                                       38







<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

         The following table sets forth information concerning the annual and
long-term compensation for services rendered during the last three fiscal years
to our company in all capacities as an employee by our Chief Executive Officer
and our other executive officers whose aggregate cash compensation exceeded
$100,000 (collectively, the "named executive officers") during fiscal 2005 shown
below.

<TABLE>
<S>     <C>
                                                          Annual Compensation                      Long-Term Compensation
                                                                                              -------------------------------
                                                                                                 Awards            Payouts
                                             ---------------------------------------------    ------------     --------------
                                                                                               Securities
                                                                           Other Annual        Underlying        All Other
         Name and                              Salary        Bonus        Compensation (1)      Options        Compensation
    Principal Position              Year        ($)           ($)               ($)                 (#)             ($)
    ------------------              ----     ----------    ----------     ----------------    ------------     --------------

Amrit K. Das                        2005       217,000         ---               ---              ---            11,749 (3)
   Chairman, Chief Executive        2004       330,462         ---               ---              ---            12,324 (4)
   Officer, President               2003       335,513         ---             34,259 (2)         ---            15,524 (5)

Santanu K. Das                      2005       120,000         ---               ---              ---             8,750 (6)
    Corporate Vice President,       2004       121,615         ---               ---              ---             8,750 (7)
    Chief Operating Officer         2003       120,150         ---               ---              ---            11,242 (8)
                                                               ---
Bruce K. Nelson                     2005       102,423                           ---             20,000           3,073 (9)
   Chief Financial Officer          2004         ---           ---               ---              ---              ---  (*)
                                    2003         ---           ---               ---              ---              ---  (*)

Clara Y.M. Young                    2005       111,370         ---               ---              ---             3,613 (10)
   Corp. Vice President,            2004       126,231         ---               ---             12,000           3,910 (11)
   Chief Administrative             2003       128,682         ---               ---              ---             6,340 (12)
     Officer

Stephen W. Owen                     2005       159,904        9,243              ---              ---             3,376 (13)
   Corporate Vice President,        2004       157,477         ---               ---              ---               767 (13)
   President, European              2003       142,610         ---               492 (14)         ---               680 (13)
     Operations
</TABLE>

--------------------------
*    Not reportable.
(1)  The costs of certain benefits are not included because they did not exceed,
     in the case of each named executive officer, the lesser of $50,000 or 10%
     of the total annual salary and bonus as reported above.
(2)  Represent personal expenses paid on behalf of the named executive officer,
     none of which expenses exceeded 25% of the total expenses reported.
(3)  Includes $6,324 in premiums paid by us pursuant to a split-dollar life
     insurance policy established for the benefit of Amrit Das and $5,425 in
     company contributions to the 401(k) plan.
(4)  Includes $6,324 in premiums paid by us pursuant to a split-dollar life
     insurance policy established for the benefit of Amrit Das and $6,000 in
     company contributions to the 401(k) plan
(5)  Includes $6,324 in premiums paid by us pursuant to a split-dollar life
     insurance policy established for the benefit of Amrit Das and $9,200 in
     company contributions to the 401(k) plan.
(6)  Includes $5,150 in premiums paid by us pursuant to a life insurance policy
     established for the benefit of Santanu Das and $3,600 in company
     contributions to the 401(k) plan.
(7)  Includes $5,150 in premiums paid by us pursuant to a life insurance policy
     established for the benefit of Santanu Das and $3,600 in company
     contributions to the 401(k) plan.
(8)  Includes $5,150 in premiums paid by us pursuant to a life insurance policy
     established for the benefit of Santanu Das and $6,092 in company
     contributions to the 401(k) plan.
(9)  Represent company contributions to the 401(k) plan.
(10) Includes $400 in premiums paid by us pursuant to a long-term disability
     insurance policy for the benefit of Clara Young and $3,213 in company
     contributions to the 401(k) plan.
(11) Includes $400 in premiums paid by us pursuant to a long-term disability
     insurance policy for the benefit of Clara Young and $3,510 in company
     contributions to the 401(k) plan.
(12) Includes $400 in premiums paid by us pursuant to a long-term disability
     insurance policy for the benefit of Clara Young and $5,940 in company
     contributions to the 401(k) plan.
(13) Represents premiums paid by us pursuant to a life insurance policy for the
     benefit of Stephen Owen. (14) Represents imputed interest for Stephen
     Owen's non-interest bearing loan.


                                       39







<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

         The following table provides information regarding options granted in
fiscal 2005 to the named executive officers. We have never granted any stock
appreciation rights.

<TABLE>
                                                                       PERCENT
                                                                       OF TOTAL
                                                                       OPTIONS
                                                    NUMBER OF          GRANTED TO
                                                    SECURITIES         EMPLOYEES      EXERCISE
                                      GRANT         UNDERLYING         IN FISCAL      PRICE PER      EXPIRATION
    NAME                              DATE        OPTIONS GRANTED      YEAR (1)        SHARE            DATE
    ----                              -----       ---------------      ----------     ---------      ----------
    <S>                             <C>              <C>                 <C>           <C>            <C>
    Bruce K. Nelson.............    7/7/2004         20,000 (2)          9.2%          $1.45          7/7/2014
    Stephen W. Owen.............    7/7/2004          7,500 (3)          3.4 %         $1.45          7/7/2014
</TABLE>
-------------

(1) Based on options to purchase 218,190 shares granted to our employees during
fiscal 2005.
(2) The option vested and became exercisable immediately.
(3) The option vests and become exercisable in three equal annual installments
commencing on the date of grant.

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

          The following table provides information regarding the number of
shares of our common stock underlying exercisable and unexercisable in-the-money
stock options held by the named executive officers and the values of those
options at fiscal year-end. An option is "in-the-money" if the fair market value
for the underlying securities exceeds the exercise price of the option. The
named executive officers did not hold any stock appreciation rights or exercise
any options during fiscal 2005.

<TABLE>
                                                               Number of Securities
                                                           Underlying Unexercised Options      Value of Unexercised In-the-Money
                             Shares                             At Fiscal Year-End (#)         Options at Fiscal Year-End ($)(1)
                          Acquired on        Value              ----------------------         ---------------------------------
          Name            Exercise (#)    Realized ($)      Exercisable      Unexercisable      Exercisable        Unexercisable
          ----            ------------    ------------      -----------      -------------      -----------        -------------
<S>     <C>
Amrit K. Das                  ---            ---              200,000             ---             222,000               ---
Clara Y.M. Young              ---            ---               90,000             ---              99,900              8,880
Stephen W. Owen               ---            ---               92,000             ---             102,120              8,325
Santanu K. Das                ---            ---              200,000             ---             222,000               ---
Bruce K. Nelson               ---            ---               50,000             ---              55,500               ---
</TABLE>
------------------
(1) Based on the $1.11 closing price of our common stock on The Nasdaq SmallCap
Market on March 31, 2005, the last trading of fiscal year 2005, less the
exercise price of the options.

LONG-TERM INCENTIVE PLAN AWARDS

         In fiscal 2005, no awards were made to the named executive officers
under long-term incentive plans.


                                       40







<PAGE>

DIRECTORS' COMPENSATION

         From July 2003 to December 2003, Messrs. McCormick, Eazzetta and
Corbett, our non-employee directors, were eligible to receive $1,000 per month,
each, in consideration for their services on our board of directors. This amount
was increased to $1,500 per month in January 2004 and to $2,000 per month
effective June 1, 2005. In addition, effective June 1, 2005, the Chairman of the
Audit Committee receives an additional $500 per month in consideration for his
services as Audit Committee Chairman. Non-employee directors are reimbursed for
certain expenses in connection with attendance at board of directors and
committee meetings.

         We also periodically award options to our directors under our existing
stock option plans and otherwise. During fiscal 2005, we granted fully
vested non-qualified stock options to purchase 10,000 shares of common stock
each to D. Dean McCormick III, Benedict A. Eazzetta and Stanley W. Corbett. The
options have an exercise price of $1.45 per share (which price was the fair
market value of a share of our common stock on the date of the grant), vested
immediately on the date of the grant, which was July 7, 2004, and expire July 7,
2014.In addition, the vesting of outstanding options granted to non-employee
directors shall be accelerated under the circumstances described below with
regard to a change in control.

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

         o        The annual grants were effective automatically on June 7, 2005
                  and will be effective on each April 1 thereafter.
         o        The options will be granted under one of our stock option
                  plans to the extent shares are then available under a plan and
                  the grants under a plan can be made in compliance with
                  applicable securities laws.
         o        The exercise price of the options will be equal to the Fair
                  Market Value of a share of our common stock as defined in the
                  applicable stock option plan or, if the options are being
                  granted outside of a plan, then the exercise price of the
                  options will be equal to the Fair Market Value of a share of
                  our common stock as defined in our stock option plan most
                  recently approved by our stockholders ("Recent Plan").
         o        The expiration date of the options shall be ten years after
                  their date of grant or such earlier date as is provided for
                  non-employee directors (or if there is no such provision for
                  non-employee directors, then as is provided for employee
                  optionees) in the applicable stock option plan or, if there is
                  no applicable stock option plan, then in the Recent Plan.
         o        The options shall vest and become exercisable in nine equal
                  monthly installments commencing one month after their date of
                  grant.
         o        If the director's service on the board of directors terminates
                  as a result of, and concurrently or within three months
                  following the consummation of, a Change in Control, then the
                  unvested and unexpired options shall vest immediately prior to
                  termination of the director's service. A "Change in Control"
                  means a change in control of a nature that would be required
                  to be reported in response to Item 6(e) of Schedule 14A of
                  Regulation 14A promulgated under the Exchange Act, whether or
                  not We are then subject to such reporting requirement;
                  provided that, without limitation, a Change in Control will be
                  deemed to have occurred if:
                    (i) any "person" (as such term is used in Sections 13(d) and
                        14(d) of the Exchange Act), other than a trustee or
                        other fiduciary holding securities under an employee
                        benefit plan of our company, is or becomes the
                        "beneficial owner" (as defined in Rule 13d-3 under the
                        Exchange Act), directly or indirectly, of securities of
                        our company representing 35% or more of the combined
                        voting power of our company's then outstanding voting
                        securities;
                  (ii)  there is a merger or consolidation of our company in
                        which our company does not survive as an independent
                        public company;
                  (iii) business or businesses of our company that generated at
                        least 50% of our consolidated revenues for the then most
                        recently completed fiscal year are disposed of by us
                        pursuant to a partial or complete liquidation of our
                        company, a sale of assets (including stock of a
                        subsidiary) of the company, or otherwise; or


                                       41





<PAGE>

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

         In addition, effective June 1, 2005, our board of directors and audit
committee resolved that the vesting of outstanding options previously granted to
non-employee directors shall be accelerated under the circumstances described
above.

REPRICING OF OPTIONS AND SARS

         No adjustments to or repricing of stock options previously awarded to
named executives occurred in fiscal 2005.

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

         In June 2001, we entered into five-year employment agreements with each
of Amrit Das, our Chairman, Chief Executive Officer and President; Santanu Das,
our Chief Operating Officer and Executive Vice President; and Clara Young, our
Corporate Vice President, Chief Administrative Officer and Secretary.

         The agreements provide that Mr. Amrit Das, Mr. Santanu Das and Ms.
Young will receive minimum base annual salaries of $312,000, $120,000, and
$117,000, respectively. Each agreement also provides for the grant of an annual
bonus in the discretion of the Compensation Committee of the board of directors.
The annual salaries may be adjusted upward in the discretion of the Compensation
Committee. Each employment agreement will terminate prior to its expiration if
the employee dies or becomes permanently disabled, if we cease to conduct
business, or at our election for good cause as defined in the agreements. If we
terminate an agreement other than 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.

         Each of the agreements contains provisions for confidentiality and
assignments of intellectual property rights. In addition, each of the agreements
prohibits the employees from competing with us and from recruiting our
employees, suppliers or independent contractors within one year after
termination of the agreements.

         In December 2003, Amrit Das voluntarily agreed to reduce his annual
salary by $100,000, effective April 2004. The $100,000 is to be used toward the
expansion of our EBPO services, which Mr. Das is managing from India. Every pay
period, $3,846 is transferred into a separate bank account set aside
specifically for EBPO service expenses. We anticipate that after our EBPO
services reach annual targeted revenues, we may award Mr. Das in future periods
all or any portion of the amount by which his salary has been reduced. In March
2004, Ms. Young voluntarily agreed to reduce her annual salary by $6,000 from
$117,000 to $111,000 effective April 2004.

         In June 2005, the annual salaries of Mr. Santanu Das and Ms. Young were
increased to $165,000 and $123,000, respectively. In addition, the annual salary
of Mr. Bruce Nelson, Chief Financial Officer was increased to $127,000. Each of
Mr. Amrit Das, Mr. Santanu Das, Mr. Nelson and Ms. Young (collectively, the
"Executives"), may also receive an annual bonus at the discretion of the
Compensation Committee of the board of directors based upon achievement of
certain operating income targets and contribution of the recipient to
profitability during fiscal 2006. The annual discretionary bonuses may be up to
50% of Mr. Santanu Das' base salary or up to 30% of the annual base salaries of
the other three Executives.

                                       42





<PAGE>

         In addition, in June 2005, we also entered into Change in Control and
Executive Retention Agreements with each of Mr. Amrit Das, Mr. Santanu Das, Ms.
Young and Mr. Nelson. The retention agreements will continue in effect through
March 31, 2006. Commencing on April 1, 2006 and each April 1 thereafter, the
term of the retention agreements shall automatically be extended for one
additional year unless, not later than December 31 of the preceding year, we
give notice to each or all of the Executives of our intention not to continue
the retention agreements.

         The retention agreements generally provide for payment of severance
benefits if the Executives are terminated following a change in control during
the term of the retention agreements, unless the termination is due to an
Executive's death or disability, is made by us for cause, or is made by an
Executive other than for good reason. The retention agreements also contain
certain provisions regarding a "Change in Control" as defined Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or
not we are then subject to such reporting requirement. A Change in Control will
be deemed to have occurred if:
    (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
        Exchange Act), other than a trustee or other fiduciary holding
        securities under our employee benefit plan is or becomes the "beneficial
        owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
        indirectly, of our securities representing 35% or more of the combined
        voting power of our then outstanding voting securities;
   (ii) there is a merger or consolidation of our company in which our company
        does not survive as an independent public company;
  (iii) the business or businesses of our company for which the services
        principally performed by any of the Executives are disposed of by us
        pursuant to a partial or complete liquidation of our company, a sale of
        assets (including stock of a subsidiary) of our company, or otherwise;
        or
   (iv) during any period of two consecutive years during the term of the
        agreements, individuals who, at the beginning of such period constitute
        the board of directors, cease for any reason to constitute at least a
        majority thereof, unless the election of each director who was not a
        director at the beginning of such period has been approved in advance by
        directors representing at least two-thirds of the directors then in
        office who were directors at the beginning of the period. However, no
        transaction that effects a mere reincorporation of our company or
        reorganizes our company, will be considered a "Change in Control" for
        purposes of these agreements.

Following a Change in Control during the term of the retention agreements, each
Executive will be entitled to:

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

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

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

        o   full base salary plus other amounts otherwise due through the date
            of termination;

        o   vesting of all unvested benefits the Executive has accrued under any
            stock option, retirement or deferred compensation plan, program or
            agreement of our company in which the Executive participates,
            payable subject to the same actuarial and interest factors
            applicable and in accordance with the options available and selected
            by the Executive under such plans or programs.

        o   a lump sum severance payment equal to the sum of the Executive's
            annual base salary in effect immediately prior to the occurrence of
            the circumstance that gives rise to the termination ("Circumstance")
            plus the bonus paid to the Executive during the twelve calendar
            months preceding the Circumstance;

        o   for twelve months after termination, receive for the Executive and
            its dependents life, disability, accident and health insurance
            benefits substantially similar to those received immediately prior
            to the notice of termination, provided that the Executive must
            continue to make the required employee contribution payments; and

                                       43





<PAGE>

        o   payment of legal fees and expenses incurred by the Executive as a
            result of the termination.

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


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

BENEFICIAL OWNERSHIP TABLE

     GENERAL

         As of July 5, 2005, 19,117,154 shares of our common stock were
outstanding. The following table sets forth information as of that date
regarding the beneficial ownership of our common stock by:

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

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

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

     SHARES BENEFICIALLY OWNED BY LAURUS MASTER FUND, LTD.

         Laurus is a security holder named in the table below. Laurus holds a
warrant to purchase up to 200,000 shares of our common stock that we issued in
December 2002 ("2002 Warrant") in connection with the issuance of a secured
convertible note. Laurus also holds a warrant to purchase up to 180,000 shares
of our common stock that we issued in July 2003 ("2003 Warrant") in connection
with a revolving credit facility and the 2003 Note. Laurus also holds a warrant
to purchase up to 130,000 shares of our common stock that we issued in April
2004 ("2004 Warrant") in connection with the 2004 Note described below. The 2002
Warrant, 2003 Warrant and 2004 Warrant (collectively, "Laurus Warrants") are
exercisable at various fixed exercise prices. The exercise prices and number of
shares underlying those warrants are subject to anti-dilution adjustments in
connection with mergers, acquisitions, stock splits, dividends and the like.

         The 2003 Note is convertible at a fixed conversion price of $1.30 per
share, subject to anti-dilution adjustments in connection with mergers,
acquisitions, stock splits, dividends and the like, and in connection with
future issuances of our common stock at prices per share below the
then-applicable conversion price. However, under certain circumstances, such as
if we are in default under the note or if a conversion occurs pursuant to a call
notice, an alternate conversion price based on a discount from the market price
of our common stock may apply. As of the date of the table, the outstanding
principal balance of the 2003 Note was $1,510,000. For purposes of calculating
the number of shares shown in the table as underlying the note, we have used a
conversion price of $1.30.

                                       44





<PAGE>

         The 2004 Note is convertible at a fixed conversion price of $1.29 per
share, subject to anti-dilution adjustments in connection with mergers,
acquisitions, stock splits, dividends and the like, and in connection with
future issuances of our common stock at prices per share below the
then-applicable conversion price. However, under certain circumstances, such as
if we are in default under the note or if a conversion occurs pursuant to a call
notice, an alternate conversion price based on a discount from the market price
of our common stock may apply. As of the date of the table, the outstanding
principal balance of the 2004 Note was $970,000. For purposes of calculating the
number of shares shown in the table as underlying the note, we have used a
conversion price of $1.29.

         Laurus is subject to various beneficial ownership and conversion volume
limitations with regard to the Laurus Notes and the Laurus Warrants. Laurus may
not on any given date exercise or convert these instruments if, and to the
extent, that the exercise or 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 exercises or conversions that do
not exceed this limitation.

         In addition, Laurus is subject to a contractual 4.99% beneficial
ownership limitation that prohibits Laurus from converting the Laurus Notes and
exercising the Laurus Warrants if and to the extent that the conversion or
exercise 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 Laurus
Notes, 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
Laurus Notes into or exercising the Laurus Warrants for shares of common stock
and then reselling those shares in stages over time where Laurus and its
affiliates 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 Laurus Notes or exercising the Laurus Warrants if, and to the
extent, the conversion or exercise would result in Laurus and its affiliates
beneficially owning more than 3,565,514 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.

         To our knowledge, Laurus has sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by it, except
that Laurus Capital Management, LLC, a Delaware limited liability company, may
be deemed a control person of the shares held by Laurus. David Grin and Eugene
Grin are directors of Laurus and the sole members of Laurus Capital Management,
LLC, and their address is 825 3rd Avenue, 14th Floor, New York, New York 10022.


                                       45







<PAGE>

<TABLE>
     Name and Address                        Amount and Nature of Beneficial             Percent of Class
   of Beneficial Owner                          Ownership of Common Stock                of Common Stock
   -------------------                          -------------------------                ---------------
<S>                                                   <C>                                   <C>
     Amrit K. Das                                     2,770,018 (1)                         14.3%

     Santanu K. Das                                   2,750,900 (2)                         14.2%

     Bruce K. Nelson                                     50,000 (3)                           *

     Clara Y.M. Young                                   125,372 (4)                           *

     Stephen W. Owen                                    175,524 (5)                           *

     D. Dean McCormick III                                6,000 (3)                           *

     Benedict A. Eazzetta                                 6,000 (3)                           *

     Stanley W. Corbett                                  12,000 (3)                           *

     Sormistha Das                                    1,874,924 (6)                          9.8%

     Peter Kellogg                                    3,835,800 (7)                         20.1%

     Diker Management LLC                               967,424 (8)                          5.1%

     Laurus Master Fund, Ltd.                         2,447,196 (9)                         11.3%

     All directors and executive
      officers as a group (8 persons)                 5,895,814 (10)                        29.8%
</TABLE>

---------------
(1)    Includes 1,279,759 shares of common stock held by the A. and P. Das
       Living Trust, of which trust Amrit Das is the trustee, and 200,000 shares
       of common stock underlying options. Also includes 50,000 shares of common
       stock held by the Purabi Das Foundation, Inc., of which foundation Amrit
       Das is the trustee. Mr. Das disclaims beneficial ownership of the shares
       held by the foundation.
(2)    Includes 200,000 shares of common stock underlying options.
(3)    Represents shares of common stock underlying options.
(4)    Includes 90,000 shares of common stock underlying options.
(5)    Includes 38,202 shares of common stock held indirectly through Mr. Owen's
       spouse and 92,000 shares of common stock underlying options.
(6)    Includes 12,000 shares of common stock underlying options.
(7)    The address for Mr. Kellogg is 120 Broadway, New York, New York, 10271.
(8)    Power to dispose of the shares beneficially owned by the Diker
       Management, LLC is held by Messrs. Charles M. Diker and Mark N. Diker as
       Managing Members. The address for Diker Management, LLC, is 745 Fifth
       Avenue, Suite 1409, New York, NY 10151 as reported on a Schedule 13G
       filed April 20, 2005.
(9)    Represents 510,000 shares of common stock underlying warrants and
       1,937,196 shares of common stock underlying convertible promissory notes.
(10)   Includes 656,000 shares of common stock underlying options, 50,000 shares
       of common stock that are held indirectly by Amrit Das and as to which Mr.
       Das disclaims beneficial ownership, and 38,202 shares of common stock
       that are held indirectly by Mr. Owen's spouse.


                                       46







<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

         The following table gives information about our common stock that may
be issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of March 31, 2005. The existing equity
compensation plans include Research Engineers, Inc. 1996 Stock Option Plan (the
"1996 Plan"), Research Engineers, Inc. 1997 Stock Option Plan (the "1997 Plan"),
Research Engineers, Inc. 1998 Stock Option Plan (the "1998 Plan") netGuru, Inc.
2000 Stock Option Plan (the "2000 Plan"), netGuru, Inc. 2003 Stock Option Plan
(the "2003 Plan") and net Guru, Inc. 2004 Stock Option Plan (together "the
option plans").

<TABLE>
                                                                                      Number of Securities
                                                                                     Remaining Available for
                                                                                      Future Issuance Under
                               Number of Securities to be      Weighted Average        Equity Compensation
                                Issued Upon Exercise of       Exercise Price of         Plans (Excluding
                                Outstanding Options and      Outstanding Options     Securities Reflected in
       Plan Category                  Warrants (1)              and Warrants               Column (a))
       -------------                  ------------              -------------              -----------
                                          (a)                       (b)                        (c)
<S>                                    <C>                           <C>                    <C>
Equity compensation
   plans approved by                   1,725,000                     $1.97                  1,930,000
   security holders
Equity compensation
   plans not approved by                 953,000                     $2.76                     ---
   security holders(2)

                              ----------------------------- ----------------------- ------------------------
Total                                  2,678,000                     $2.25                  1,930,000
                              ============================= ======================= ========================
</TABLE>

(1)      Number of shares is subject to adjustment for changes in capitalization
         for stock splits, stock dividends and similar events.
(2)      Represents 745,000 warrants and 208,000 options outstanding under
         equity compensation plans not approved by security holders

         Options outstanding under equity compensation plans that were not
approved by security holders at March 31, 2005, were 208,000 at a weighted
average exercise price per share of $1.07, including an option to purchase
200,000 shares granted to a former executive pursuant to a separation agreement,
and options granted to consultants to purchase 8,000 shares for services
rendered and to be rendered.

         Warrants outstanding under equity compensation plans that were not
approved by security holders at March 31, 2005, were 745,000 at a weighted
average exercise price per share of $3.73 issued as consideration for investor
relations and business advisory services.


                                       47







<PAGE>

         Options outstanding under equity compensation plans approved by
security holders at March 31, 2005, were (see Note 4 "Stockholders' Equity" of
Notes to Consolidated Financial Statements included in this report for further
information regarding the option plans):

                                                               Weighted Average
                                                                Exercise Price
                       Plan           Options Outstanding          Per Share
                       ----           -------------------          ---------

                       1996                 291,000                  $1.39
                       1997                 268,000                  $1.49
                       1998                 412,000                  $2.22
                       2000                 591,000                  $2.46
                       2003                 163,000                  $1.43
                 ---------------     ---------------------    -----------------
                      Total                 1,725,000                $1.97
                 ===============     =====================    =================

         The option plans permit grants of both incentive stock options and
non-qualified stock options. Options under all plans generally vest over 3
years, though the vesting periods may vary from person to person, and are
exercisable subject to continued service and other conditions.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         As described in Item 11 of this report, in December 2002, we entered
into a Securities Purchase Agreement with Laurus, which was amended on August 4,
2003. Pursuant to that amended agreement, we issued to Laurus the 2002 Note and
2002 Warrant. The net proceeds from the 2002 Note were used for general working
capital. In connection with this financing, we paid a $200,000 fee to an
affiliate of Laurus.

         On July 31, 2003, we obtained a three-year, renewable, $4,000,000
revolving accounts receivable credit facility ("Facility") from Laurus. In
connection with this financing, we issued to Laurus the 2003 Warrant. The amount
available under this revolving credit facility is reduced by the balances
outstanding on the 2003 Note and the 2004 Note.

         On December 4, 2003, we issued to Laurus a three-year, 5% secured
convertible note ("2003 Note"), which consisted of $900,000 that we had borrowed
under the credit facility and $500,000 in additional borrowings. The net
proceeds from the 2003 Note were used for general working capital. At March 31,
2005, we had no borrowings under the Facility. The interest rate on the 2003
Note was equal to the greater of 5% or prime rate plus 1 %. The 2003 Note was to
mature on December 3, 2006. The fixed conversion price, upon which potential
issuances of the Company's common stock to satisfy the obligations of the 2003
Note were based, was $1.30. In connection with this financing, we paid a
$140,000 fee to an affiliate of Laurus.

         In April 2004, the 2003 Note was amended and restated ("Amended and
Restated 2003 Note") to include $1,000,000 in additional borrowings. The Amended
and Restated 2003 Note requires monthly principal payments of $50,000 plus
accrued interest (payable in arrears) commencing August 1, 2004, with the entire
remaining principal balance becoming due on December 3, 2006. At March 31, 2005,
the Company had an outstanding balance of $1,641,000, excluding unamortized fees
and unamortized beneficial conversion adjustments, under the Amended and
Restated 2003 Note.

         On December 23, 2004, we issued to Laurus a secured convertible note
(the "2004 Note") in the amount of $1,000,000. In connection with the financing,
we issued the 2004 Warrant. The net proceeds from the 2004
Note were used for general working capital. The 2004 Note matures on December
23, 2007. The fixed conversion price, upon which potential issuances of our


                                       48







<PAGE>

common stock to satisfy the obligations of the 2004 Note are based, is $1.29.
The 2004 Note, which is being amortized over a 36-month period terminating on
December 23, 2007, must be repaid through the issuance of shares our common
stock under certain conversion criteria. Any amount of the 2004 monthly payment
that cannot be converted into our common stock due to failure to meet the
conversion criteria must be paid in cash at a rate of 102% of the monthly
principal amount. Beginning with July 1, 2005, through November 2007, we are
required to pay principal payments of $30,000 plus accrued interest. On December
23, 2007, we are required to pay the entire remaining balance of the 2004 Note
plus accrued interest. In connection with this financing, we paid a $140,000 fee
to an affiliate of Laurus. As of March 31, 2005, the outstanding principal
balance on the 2004 Note was $1,000,0000.

         As a result of these transactions, Laurus became the beneficial owner
of more than 5% of our outstanding common stock if contractual beneficial
ownership and conversion limitations (as described in Item 11 of this report)
are disregarded.

         In October 2003, we borrowed $100,000 from Mr. Amrit Das, our Chief
Executive Officer, and issued to him a 7.25% interest bearing unsecured
promissory note. The proceeds were used for working capital. The principal along
with the accrued interest are due on or before March 31, 2006. As of March 31,
2005, the total outstanding principal balance on this note was $100,000, which
is included in the current portion of our long-term debt.

         In December 2004, Mr. Amrit Das personally guaranteed a term loan from
a bank in India. The term loan is secured by substantially all of our assets
located in India. The loan bears an annual interest of 9.5% payable monthly. The
principal is payable in quarterly installments beginning January 2005 and ending
December 2009. At March 31, 2005, the balance on this loan was $440,000.

         We are a party to director and executive officer compensation
arrangements, employment, change in control and separation agreements with
related parties, as more particularly described in Item 10 of this report. In
addition, Sormistha Das, who beneficially owned 9.8% of our outstanding shares
of common stock as of July 5, 2005, and is the daughter of Mr. Amrit Das and
sister of Santanu K. Das, serves as our assistant controller.

         On June 28, 2005, we entered into a waiver and extension with Laurus,
pursuant to which we agreed to amend the definition of "Effectiveness Date"
contained in a registration rights agreement (the "Agreement") dated December
23, 2004 that we entered into simultaneously with the issuance of the 2004 Note
and the 2004 Warrant. Pursuant to the Agreement, we were required to file by a
January 22, 2005 initial filing date a resale registration statement with the
SEC covering the shares of common stock issuable upon conversion of the
2004 Note and upon exercise of the 2004 Warrant. We were also required to obtain
effectiveness of the registration statement by a May 22, 2005 initial
Effectiveness Date.

         The Agreement provides that:

         o        if a registration statement is not filed on or prior to the
                  initial filing date, or

         o        if the registration statement is not declared effective by the
                  SEC by the Effectiveness Date, or

         o        if after the registration statement is filed with and declared
                  effective by the SEC, the registration statement ceases to be
                  effective as to all registrable securities to which it is
                  required to relate at any time prior to the time that all of
                  the registrable securities have been sold or may be sold
                  without volume restrictions under Rule 144(k) of the
                  Securities Act, or

         o        if trading of our common stock is suspended for more than
                  three trading days,


                                       49







<PAGE>

then subject to certain grace periods, until the event described above is cured,
we must pay to Laurus cash liquidated damages equal to 1.0% for each 30-day
period (prorated for partial periods) of the original principal amount of the
2004 Note.

         We were unable to meet either the initial filing deadline or the
initial Effectiveness Date. Accordingly, we and Laurus entered into the June 28,
2005 waiver and extension. The waiver and extension provides that the January
22, 2005 initial filing deadline is waived. The waiver and extension also
provides that the amended Effectiveness Date for the initial registration
statement filed under the Agreement is September 1, 2005, and with respect to
each additional registration statement that may be required to be filed in the
future, a date no later than 30 days following the applicable filing date. We
paid $10,000 in liquidated damages for the delay in the registration statement
being declared effective by the SEC.


                                       50







<PAGE>

ITEM 13.  EXHIBITS.

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

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

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

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

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

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

         3.2      Bylaws of the registrant (5)

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

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

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

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

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

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

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

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

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

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


                                       51







<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

         10.26    Separation and Release Agreement dated December 24, 2003 by
                  and between the registrant and Jyoti Chatterjee (9) (#)

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

         10.28    Description of Non-Employee Director Compensation (17) (#)


                                       52







<PAGE>

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

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

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

         21       Subsidiaries of the registrant

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

         23.2     Consent of Independent Registered Public Accounting Firm (KPMG
                  LLP)

         31       Certifications Required by Rule 13a-14(a) of the Securities
                  Exchange Act of 1934, as amended, as Adopted Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

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

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

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

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

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

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

(5)      Filed as an exhibit to the registrant's registration statement on Form
         SB-2 dated May 21, 1996 or amendment thereto dated June 14, 1996
         (Registration No. 333-4844-LA), and incorporated herein by reference.

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

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

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

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


                                       53







<PAGE>

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

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

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

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

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

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

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

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

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


                                       54







<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         The following table presents fees for professional audit services
rendered by Haskell & White LLP ("Haskell & White") for the year ended March 31,
2005 and KPMG LLP ("KPMG") for the year ended March 31, 2004.

                                                        2005            2004
                                                        ----            ----
             Audit Fees (1)                        $  163,000      $  235,000
             Audit-Related Fees (2)                         -               -
             Tax Fees (3)                                   -               -
             All Other Fees (4)                             -               -
                                                    ---------------------------
                 Total                              $  163,000      $  235,000
                                                    ===========================

(1) Audit Fees: Includes $119,000 of fees for professional services performed by
Haskell & White in fiscal 2005, for the audit of our annual financial statements
and review of financial statements included in our 10-QSB filings, and services
that are normally provided in connection with statutory and regulatory filings
or engagement, such as the filing of Form S-3 or Form S-8.

(2) Audit-Related Fees: Haskell & White and KPMG did not provide any
audit-related services.

(3) Tax Fees: Haskell & White and KPMG did not provide any professional services
with respect to tax compliance, such as preparation and filing of original and
amended returns for us and our consolidated subsidiaries, refund claims, payment
planning, tax audit assistance and tax work stemming from "Audit-Related" items.

(4) All Other Fees: Haskell & White and KPMG did not provide other permissible
work for us that does not meet the above category descriptions.


PRE-APPROVAL POLICY

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


                                       55







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


1. Reports of Independent Registered Public Accounting Firms                F-2

2. Consolidated Financial Statements:

       Consolidated Balance Sheet as of March 31, 2005                      F-4

       Consolidated Statements of Operations for the years ended
       March 31, 2005 and 2004                                              F-5

       Consolidated Statements of Stockholders' Equity and
       Comprehensive Loss for the years ended
       March 31, 2005 and 2004                                              F-7

       Consolidated Statements of Cash Flows for the years ended
       March 31, 2005 and 2004                                              F-8

       Notes to Consolidated Financial Statements                           F-10


                                      F-1







<PAGE>

                                    REPORT OF


                  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
netGuru, Inc.:


We have audited the consolidated balance sheet of netGuru, Inc. and subsidiaries
as of March 31, 2005 and the related consolidated statement of operations,
consolidated stockholders' equity and comprehensive loss, and statement of cash
flows. 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 audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion or the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides 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, 2005, and the results of their operations and their
cash flows for the year ended March 31, 2005, in conformity with U.S. generally
accepted accounting principles.



                                                     /s/ Haskell & White LLP

July 12, 2005
Irvine, California


                                      F-2







<PAGE>

                                    REPORT OF


                  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
netGuru, Inc.:


We have audited the accompanying consolidated statements of operations,
stockholders' equity and comprehensive loss, and cash flows of netGuru, Inc. and
subsidiaries (the Company) for the year ended March 31, 2004. 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 audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
netGuru, Inc. and subsidiaries for the year ended March 31, 2004, in conformity
with U.S. generally accepted accounting principles.


/s/ KPMG LLP

June 16, 2004, except as to notes 9 and 10, which are as of March 11, 2005.
Costa Mesa, California


                                      F-3







<PAGE>

<TABLE>
                             NETGURU, INC. AND SUBSIDIARIES

                               Consolidated Balance Sheet

                                     March 31, 2005

                   (In thousands, except share and per share amounts)

                                         ASSETS

<S>                                                                          <C>
Current assets:
    Cash and cash equivalents                                                $  3,619
    Restricted cash                                                                62
                                                                             --------
                  Total cash and cash equivalents                               3,681

    Accounts receivable (net of allowance for doubtful accounts of $705)        4,334
    Income tax receivable                                                          15
    Notes and related party loans receivable                                       12
    Deposits                                                                       96
    Prepaid expenses and other current assets                                   1,343
                                                                             --------

           Total current assets                                                 9,481

Property, plant and equipment, net                                              1,682
Goodwill                                                                        3,088
Other assets                                                                      242
                                                                             --------

                                                                             $ 14,493
                                                                             ========
                          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Current portion of long-term debt, net of discount of $222               $  1,297
    Related party loans payable                                                   100
    Current portion of capital lease obligations                                  144
    Accounts payable                                                              464
    Income tax payable                                                             29
    Accrued expenses                                                            1,136
    Deferred revenues                                                           2,697
    Other liabilities                                                             212
                                                                             --------

           Total current liabilities                                            6,079

Long-term debt, net of current portion and net of discount of $200              2,108
Capital lease obligations, net of current portion                                 343
Deferred gain on sale-leaseback                                                   678
                                                                             --------

           Total liabilities                                                    9,208
                                                                             --------

Commitments and contingencies  (note 7)
Subsequent event (note 12)

Stockholders' equity:
    Preferred stock, par value $.01; authorized 5,000,000
      shares; no shares issued and outstanding                                     --
    Common stock, par value $.01; authorized 150,000,000
      shares; 19,117,154  shares issued and outstanding                           191

    Additional paid-in capital                                                 36,869
    Accumulated deficit                                                       (31,232)
    Accumulated other comprehensive loss:
      Cumulative foreign currency translation adjustments                        (543)
                                                                             --------

           Total stockholders' equity                                           5,285
                                                                             --------

                                                                             $ 14,493
                                                                             ========

              See accompanying notes to consolidated financial statements.


                                          F-4
</TABLE>







<PAGE>

<TABLE>
                                    NETGURU, INC. AND SUBSIDIARIES

                                Consolidated Statements of Operations

                                 Years ended March 31, 2005 and 2004

                          (In thousands, except share and per share amounts)

                                                                          2005              2004
                                                                      ------------      ------------
<S>                                                                   <C>               <C>
Net revenues:
    Engineering and collaborative software products and services      $     11,636      $     11,550
    IT services                                                              4,207             5,012
                                                                      ------------      ------------

           Total net revenues                                               15,843            16,562

Cost of revenues:
    Engineering and collaborative software products and services               786             1,011
    IT services                                                              2,757             3,960
                                                                      ------------      ------------

           Total cost of revenues                                            3,543             4,971

           Gross profit                                                     12,300            11,591
                                                                      ------------      ------------

Operating expenses:
    Selling, general and administrative                                      9,753            10,602
    Research and development                                                 1,578             2,042
    Bad debt expense                                                           355                60
    Depreciation                                                               990               944
                                                                      ------------      ------------

           Total operating expenses                                         12,676            13,648
                                                                      ------------      ------------

           Operating loss                                                     (376)           (2,057)
                                                                      ------------      ------------

Other expense (income):
    Interest, net                                                              543               658
    Other                                                                     (102)             (128)
                                                                      ------------      ------------

           Total other expense                                                 441               530
                                                                      ------------      ------------

Loss from continuing operations before income taxes                           (817)           (2,587)

Income tax expense                                                              38                15
                                                                      ------------      ------------
Loss from continuing operations                                               (855)           (2,602)
                                                                      ------------      ------------

Discontinued operations (note 10):
    Loss from operations of e-Destinations                                      --              (148)
    Loss from operations of Web-based telecommunications services              (50)              (69)
    Impairment loss from e-destinations                                         --              (291)
    Gain on sale of Web-based telecommunications services                      117                --
                                                                      ------------      ------------
                   Income (loss) from discontinued operations                   67              (508)
                                                                      ------------      ------------

                   Net loss                                           $       (788)     $     (3,110)
                                                                      ============      ============

                                    (continued on following page)


                                                 F-5







<PAGE>

                                   NETGURU, INC. AND SUBSIDIARIES

                          Consolidated Statements of Operations (Continued)

                                 Years Ended March 31, 2005 and 2004

                          (In thousands, except share and per share amounts)


                                                                          2005              2004
                                                                      ------------      ------------
Basic and diluted loss per common share:

Loss per common share from continuing operations                      $      (0.05)     $      (0.15)
Income (loss) from discontinued operations                                    0.01             (0.03)
                                                                      ------------      ------------
Basic and diluted loss per common share                               $      (0.04)     $      (0.18)
                                                                      ============      ============
Weighted average shares used in computing basic and diluted loss
   per common share                                                     18,857,866        17,602,584
                                                                      ============      ============


                    See accompanying notes to consolidated financial statements.


                                                 F-6
</TABLE>







<PAGE>

<TABLE>

                                                    NETGURU, INC. AND SUBSIDIARIES

                               Consolidated Statements of Stockholders' Equity and Comprehensive Loss

                                                 Years ended March 31, 2005 and 2004

                                                (In thousands, except share amounts)


                                                                                               ACCUMULATED
                                              COMMON STOCK                                        OTHER        TOTAL         TOTAL
                                         ------------------------   ADDITIONAL                   COMPRE-       STOCK      COMPREHEN-
                            PREFERRED    NUMBER OF      PAR         PAID-IN     ACCUMULATED     HENSIVE       HOLDERS'      SIVE
                              STOCK        SHARES       VALUE       CAPITAL       DEFICIT        (LOSS)        EQUITY      (LOSS)
                           -----------   ----------   ----------   ----------    ----------    ----------   ----------    ----------
<S>                        <C>           <C>          <C>          <C>           <C>           <C>          <C>          <C>
Balance, March 31, 2003    $        --   17,325,150   $      173   $   33,322    $  (27,334)   $     (851)  $    5,310


    Net loss                        --           --           --           --       (3,110)           --       (3,110)    $  (3,110)

    Foreign currency
   translation                      --           --           --           --           --           168          168           168
                           -----------   ----------   ----------   ----------    ----------    ----------   ----------    ----------

Comprehensive loss for
   the year ended March
   31, 2004                         --           --           --           --       (3,110)          168           --     $  (2,942)
                           ===========   ==========   ==========   ==========    ==========    ==========   ==========    ==========

Issuance of common stock            --      762,004            8        1,149            --            --        1,157

Issuance of warrants
   and options                      --           --           --          881            --            --          881

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

Balance, March 31, 2004             --   18,087,154          181       35,352       (30,444)         (683)       4,406

    Net loss                        --           --           --           --         (788)           --         (788)    $   (788)

    Foreign currency
       translation                  --           --           --           --            --           140          140          140
                           -----------   ----------   ----------   ----------    ----------    ----------   ----------    ----------

Comprehensive loss for
   the year ended March
   31, 2005                         --           --           --           --          (788)          140           --    $    (648)
                           ===========   ==========   ==========   ==========    ==========    ==========   ==========    ==========

Issuance of common stock            --      930,000            9        1,286            --            --        1,295

Exercise of warrants                --      100,000            1           99            --            --          100

Issuance of warrants
   and options                      --           --           --          103            --            --          103

Compensation expense                --           --           --           29            --            --           29

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

Balance, March 31, 2005    $        --   19,117,154   $      191   $   36,869    $  (31,232)   $     (543)  $    5,285

                           ===========   ==========   ==========   ==========    ==========    ==========   ==========

                                    See accompanying notes to consolidated financial statements.


                                                                F-7
</TABLE>







<PAGE>

<TABLE>
                                  NETGURU, INC. AND SUBSIDIARIES

                              Consolidated Statements of Cash Flows

                               Years ended March 31, 2005 and 2004
                                          (In thousands)


                                                                              2005         2004
                                                                            -------      -------
<S>                                                                         <C>          <C>
Cash flows from operating activities:
    Net loss                                                                $  (788)     $(3,110)
    Income (loss) from discontinued operations                                   67         (508)
                                                                            -------      -------
    Loss from continuing operations                                            (855)      (2,602)
    Adjustments to reconcile loss from continuing operations to net
      cash used in operating activities:
        Depreciation and amortization                                         1,059        1,221
        Bad debt expense                                                        355           64
        Expense recognized on issuance of stock, stock options and
          warrants                                                               86          713
        Amortization of discount on loan                                        227           70
        Loss on disposal of property                                             20           --
        Changes in operating assets and liabilities:
          Accounts receivable                                                (1,329)        (561)
          Notes and related party loans receivable                               24           52
          Income tax receivable                                                   5          (15)
          Prepaid expenses and other current assets                            (270)        (160)
          Deposits                                                              (29)         610
          Other assets                                                          (94)           4
          Accounts payable                                                     (136)         (28)
          Accrued expenses                                                      (17)         202
          Income taxes payable                                                  (32)         (35)
          Accrued restructuring costs                                            --         (199)
          Other current liabilities                                              (3)         (55)
          Deferred revenues                                                     849         (240)
          Deferred gain on sale-leaseback                                       (70)         (70)
                                                                            -------      -------

                  Net cash used in operating activities                        (210)      (1,029)
                                                                            -------      -------
Cash flows from investing activities:
    Purchase of property, plant and equipment                                  (408)         (94)
    Proceeds from sale of property, plant and equipment                          37           --
    Sale (purchase) of short-term investment                                    100         (100)
    Payments to acquire companies                                               (76)          --
    Proceeds from sale of assets                                                286           --
                                                                            -------      -------

                  Net cash used in investing activities                         (61)        (194)
                                                                            -------      -------
Cash flows from financing activities:
    Proceeds from issuance of long-term debt                                  3,035        2,559
    Financing fees                                                              (21)        (175)
    Repayment of long-term debt                                                (754)      (1,812)
    Payment of capital lease obligations                                       (131)        (215)
    Issuance of common stock                                                    100           --
                                                                            -------      -------

                  Net cash provided by financing activities                   2,229          357
                                                                            -------      -------

    Effect of exchange rate changes on cash and cash equivalents                203          109
                                                                            -------      -------

       Net cash provided by (used in) continuing operations                   2,161         (757)
            Net cash used in discontinued operations                           (126)        (369)

                                                                            -------      -------
Cash and cash equivalents, beginning of year                                  1,646        2,772
                                                                            -------      -------

Cash and cash equivalents, end of year                                      $ 3,681      $ 1,646
                                                                            =======      =======

                                (continued on the following page)


                                               F-8







<PAGE>

                                  NETGURU, INC. AND SUBSIDIARIES

                        Consolidated Statements of Cash Flows (Continued)

                               Years ended March 31, 2005 and 2004
                                          (In thousands)


                                                                              2005         2004
                                                                            -------      -------

Supplemental disclosure of cash flow information: Cash paid for:
      Interest                                                              $   396      $   316
                                                                            =======      =======
      Income taxes                                                          $    77      $    61
                                                                            =======      =======

Supplemental disclosure of non-cash investing and financing activities:
    Acquisition of equipment under capital leases                           $   118      $    --
    Repayment of convertible debt with common stock                         $ 1,209      $   991
    Issuance of warrants                                                    $   103      $   201
     Acquisition of a company:
          Net assets acquired                                               $    54      $    --
          Net liabilities assumed                                           $    29      $    --
          Promissory note issued toward consideration, net of discount      $   108      $    --
          Common stock issued toward consideration                          $    23      $    --

                  See accompanying notes to consolidated financial statements.


                                               F-9
</TABLE>







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         ORGANIZATION

         netGuru, Inc. (the "Company") was incorporated in 1981 in the state of
         New Jersey and reincorporated in the state of Delaware in 1996 under
         the name Research Engineers, Inc. Effective February 18, 2000, the
         Company's name was changed to netGuru.com. Effective February 25, 2000,
         the Company's name was changed to netGuru, Inc. netGuru is an
         integrated Internet technology and services company providing Internet
         and PC-based engineering and collaborative software products and
         services and information technology ("IT") services.

         PRINCIPLES OF CONSOLIDATION

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

         USE OF ESTIMATES

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

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         Statement of Financial Accounting Standards ("SFAS") No. 107,
         "Disclosures About Fair Value Of Financial Instruments," requires
         management to disclose the estimated fair value of certain assets and
         liabilities defined by SFAS No. 107 as financial instruments. At March
         31, 2005, management believed the carrying amounts of cash and cash
         equivalents, receivable and payable amounts, and accrued expenses
         approximated fair value because of the short maturity of these
         financial instruments. The Company also believed that the carrying
         amounts of its capital lease obligations approximated their fair value,
         as the interest rates approximated a rate that the Company could have
         obtained under similar terms at the balance sheet date. The estimated
         fair value of the Company's long-term debt payable at March 31, 2005,
         determined by using the effective rate of interest on this
         indebtedness, was approximately $3.9 million.

         FOREIGN CURRENCY TRANSLATION

         The financial condition and results of operations of the Company's
         foreign subsidiaries are accounted for using the local currency as the
         functional currency. Assets and liabilities of the subsidiaries are
         translated into U.S. dollars (the reporting currency) at the exchange
         rate in effect at the fiscal year-end. Statements of operations
         accounts are translated at the average rate of exchange prevailing
         during the respective fiscal years. Translation adjustments arising
         from the use of differing exchange rates from period to period are
         included in accumulated other comprehensive (loss) in the consolidated
         statements of stockholders' equity and comprehensive loss. Gains and
         losses resulting from foreign currency transactions are included in
         operations and are not material for fiscal 2005 and 2004.


                                      F-10







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         CASH AND CASH EQUIVALENTS

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

         PROPERTY, PLANT AND EQUIPMENT

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

                           Buildings                                    39 years
                           Computer equipment                            5 years
                           Computer software                           2-3 years
                           Office equipment and furniture              3-7 years

         Assets subject to capital lease agreements and leasehold improvements
         are amortized over the lesser of the life of the asset or the term of
         the lease.

         GOODWILL

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

         The Company is required to perform 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. The Company performed its annual reviews and
         determined that, as of March 31, 2005 and March 31, 2004, no impairment
         of goodwill existed.

         The balance of goodwill at March 31, 2005 was $3,088,000.

         IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

         The Company accounts for its long-lived assets under SFAS No. 144,
         "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
         No. 144 requires that long-lived assets be reviewed for impairment
         whenever events or changes in circumstances indicate that the carrying
         amount of an asset may not be recoverable. Recoverability of assets to
         be held and used is measured by a comparison of the carrying amount of
         an asset to future net cash flows expected to be generated by the
         asset. If the carrying amount of an asset exceeds its estimated future
         cash flows, an impairment charge is recognized in the amount by which
         the carrying amount of the asset exceeds the fair value of the asset.


                                      F-11







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         SFAS No. 144 requires companies to separately report discontinued
         operations and extends that reporting to a component of an entity that
         either has been disposed of (by sale, abandonment, or in a distribution
         to owners) or is classified as held for sale. Assets to be disposed of
         are reported at the lower of the carrying amount or fair value less
         costs to sell.

         SOFTWARE DEVELOPMENT COSTS AND PURCHASED TECHNOLOGY

         The Company capitalizes costs related to the development of certain
         software products in accordance with SFAS No. 86, "Accounting for the
         Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed."
         Capitalization of costs begins when technological feasibility is
         established and ends when the product is available for general release
         to customers. As of March 31, 2005, capitalized costs of approximately
         $101,000, net of accumulated amortization, were included in other
         assets, all of which represents software developed in-house. Additions
         to capitalized software were $101,000 and $0 during fiscal 2005 and
         2004, respectively.

         The Company amortizes capitalized software development costs and
         purchased technology using the straight-line method over two 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 $69,000 and
         $276,000 for fiscal 2005 and 2004, respectively. Accumulated
         amortization of capitalized software was $1,002,000 and $933,000 as of
         March 31, 2005 and 2004, 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 or determinable; and
       4.   collection is probable.

         The Company's revenues arise from the following segments: engineering
         and collaborative software products and services, and IT services.

         Revenue from software sales is recognized when persuasive evidence of
         an arrangement exists, delivery has been completed and if no
         significant post-contract support obligations remain outstanding, the
         price to the Company's buyer is fixed or determinable and collection of
         the resulting receivable is probable. The Company provides a 15-day
         right of return (from the date of purchase) on the purchase of a
         product during which time the customer may return the product subject
         to a $50 restocking fee per item returned. Since the Company's product
         returns have historically not been material, the Company does not make
         any provisions for such returns. Customers may choose to purchase
         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.


                                      F-12







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         In October 1997, the Accounting Standards Executive Committee ("AcSEC")
         of the AICPA issued Statement of Position ("SOP") 97-2, "Software
         Revenue Recognition." SOP 97-2 distinguishes between significant and
         insignificant vendor obligations as a basis for recording revenue, with
         a requirement that each element of a software licensing arrangement be
         separately identified and accounted for based on relative fair values
         of each element. The Company determines the fair value of each element
         in multi-element transactions based on vendor-specific objective
         evidence ("VSOE"). VSOE for each element is based on the price charged
         when the same element is sold separately.

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

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

         Revenues from providing IT services are recognized primarily on a time
         and materials basis, with time at a marked-up rate and materials and
         other reasonable expenses at cost, once the services are completed and
         no significant obligations remain. Certain IT services contracts are
         fixed price contracts where progress toward completion is measured by
         mutually agreed upon pre-determined milestones for which the Company
         recognizes revenue upon achieving such milestones. Fixed price IT
         contracts are typically for a short duration of one to six months. The
         Company did not have any fixed price contracts at March 31, 2005. Other
         products and services sold via Internet portals, where the Company is
         an agent, are recognized net of purchase costs when the products and
         services are delivered and collection is probable.

         DEFERRED REVENUES

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

         RESEARCH AND DEVELOPMENT

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


                                      F-13







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         INCOME TAXES

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

         EARNINGS (LOSS) PER SHARE

         Basic earnings (loss) per share ("EPS") is calculated by dividing net
         income (loss) by the weighted-average common shares outstanding during
         the period. Diluted EPS reflects the potential dilution to basic EPS
         that could occur upon conversion or exercise of securities, options, or
         other such items, to common shares using the treasury stock method
         and/or if converted method based upon the weighted-average fair value
         of the Company's common shares during the period. See Note 11 "Loss Per
         Share" for a computation of EPS.

         COMPREHENSIVE INCOME (LOSS)

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

         STOCK-BASED COMPENSATION

         The Company applies the provisions of SFAS No. 123, "Accounting for
         Stock-Based Compensation." As permitted by SFAS No. 123, the Company
         continues to follow the guidance of APB Opinion No. 25, "Accounting for
         Stock Issued to Employees." Consequently, compensation related to stock
         options is the difference between the grant price and the fair market
         value of the underlying common shares at the grant date. Generally, the
         Company issues stock options to employees with a grant price equal to
         the market value of common stock on the grant date. The Company has
         issued certain stock options with a grant price below the market value
         at the grant date. The Company recognizes compensation expense on these
         grants over the vesting period, generally three to four years.


                                      F-14







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         As required by SFAS No. 123, the Company discloses below the pro forma
         effect on operations, and the Black-Scholes option pricing model
         assumption information for stock options, as if compensation costs were
         recorded at the estimated fair value of the stock options granted
         (dollars in thousands, except amounts per share):

              For the fiscal years ended March 31,      2005          2004
                                                     ---------      --------

Net loss - as reported                               $   (788)      $(3,110)
Deduct: Stock-based compensation expense
    determined under the fair value based
    method for all awards, net of tax                     283           694
                                                     ---------      --------
Net loss - pro forma                                 $ (1,071)      $(3,804)
                                                     =========      ========

Basic and diluted net loss per share -
    as reported                                      $  (0.04)      $ (0.18)

     pro forma                                          (0.06)        (0.22)
                                                     =========      ========
Weighted average fair value of options
    granted                                          $   1.38       $  1.24
                                                     =========      ========

Black-Scholes option pricing model
    assumptions:
         Dividend yield                                    --            --
         Expected volatility                               81%          108%
         Risk-free interest rate                          4.3%         3.09%
         Expected option lives (in years)                 6.7           6.5

         SEGMENT REPORTING

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

         RECLASSIFICATIONS

         Certain reclassifications have been made to the 2004 consolidated
         financial statements to conform to the 2005 presentation.

         IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         In December 2004, the FASB issued SFAS No. 153, "Exchanges of
         Nonmonetary Assets," an Amendment of APB Opinion No. 29, "Accounting
         for Nonmonetary Transactions." SFAS No. 153 requires companies to
         measure exchanges of nonmonetary assets, including similar productive
         assets that have commercial substance, based on the fair value of the
         assets exchanged, recognizing a gain or loss. SFAS No. 153 is effective


                                      F-15







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         for interim periods beginning after June 15, 2005 and, thus, will be
         effective for the Company beginning with the second quarter of fiscal
         2006. Early adoption is encouraged but not required. The Company
         believes that adoption of SFAS No. 153 will not have a material effect
         on its consolidated financial condition or results of operations.

         In December 2004, the FASB issued SFAS No. 123(R), "Share-Based
         Payment". SFAS No. 123(R) requires companies to measure and recognize
         compensation expense for all stock-based payments at fair value. For
         small businesses, SFAS No. 123(R) is effective the first quarter of the
         fiscal year beginning after December 15, 2005 and, thus, will be
         effective for the interim periods beginning with first quarter of
         fiscal 2007. Early adoption is encouraged and retroactive application
         of the provisions of SFAS No. 123(R) to the beginning of the fiscal
         year that includes the effective date is permitted, but not required.
         The Company is currently evaluating the effect of adopting SFAS No.
         123(R) and believes the adoption of SFAS No. 123(R) will have a
         material effect on its consolidated results of operations, similar to
         the pro forma results described in "Stock-Based Compensation" in note
         1, but has not yet determined the amount of the effect.

(2)     PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment, at cost, as of March 31, 2005 consisted
of the following (in thousands):

                     Land                                               $    26
                     Buildings and leasehold improvements                   899
                     Office and computer equipment, software
                         and furniture                                    5,832
                     Assets under capital lease                             942
                     Automobiles                                            232
                                                                        --------
                                                                          7,931
                     Less accumulated depreciation and amortization      (6,249)
                                                                        --------
                     Property, plant and equipment, net                 $ 1,682
                                                                        ========

         On December 15, 1999, the Company consummated a sale and leaseback
transaction involving its Yorba Linda, California facility. Concurrent with the
sale, the Company entered into a fifteen-year operating lease on the facility
(see Note 7 "Commitments and Contingencies"). 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
$678,000 as of March 31, 2005.

(3)      LONG-TERM DEBT

         2002 NOTE

         On December 13, 2002, the Company entered into a Securities Purchase
Agreement ("Agreement") with Laurus Master Fund, Ltd. ("Laurus"). Pursuant to
the Agreement, the Company issued to Laurus a 6% Convertible Note ("2002 Note")
in the principal amount of $2,000,000 and a five-year warrant to purchase up to
200,000 shares of the Company's common stock at exercise prices ranging from
$1.76 to $2.40 per share.


                                      F-16







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         On August 4, 2003, the terms of the 2002 Note were amended as follows:
(1) the interest rate was amended from 6% to the greater of 5% or the prime rate
plus 1%, payable in arrears; (2) the amortization period was extended from 20
months ending on November 13, 2004 to 24 months ending on July 31, 2005; (3) the
penalty for repayments of the outstanding balance in cash was removed; and (4)
the fixed conversion price, upon which potential issuances of the Company's
common stock to satisfy the obligations of the convertible note are based, was
reduced from $1.60 to $1.30.

         In April 2004, Laurus converted $650,000 of principal balance of the
2002 Note into 500,000 shares of the Company's common stock. In December 2004,
Laurus converted the remaining balance of $80,000 into 61,538 shares of the
Company's common stock. At March 31, 2005, the Company had no principal balance
outstanding under the 2002 Note.

         REVOLVING CREDIT FACILITY

         On July 31, 2003, the Company obtained a three-year, renewable,
$4,000,000 revolving accounts receivable credit facility from Laurus
("Facility"). The amount available under this Facility is reduced by the
balances outstanding on the Amended and Restated 2003 Note (defined below) and
the 2004 Note defined below).

         Borrowings under the Facility accrued interest, initially, at an annual
rate equal to the greater of 5% or the prime rate plus 1%. Since November 1,
2003, the interest rate may be adjusted every month based on certain
registration requirements and on the volume weighted average price of the
Company's common stock. The interest rate was adjusted up to 6.75% in March 2005
as a result of increases in the prime rate from 4% to 5.75% in fiscal 2005.
Obligations owed under this Facility may be repaid at the Company's option in
cash or through the issuance of shares of the Company's common stock at the
fixed conversion price of $1.30 per share, subject to volume limitations, as
described in the Facility. An early termination fee of up to $120,000 will be
payable if the Facility is terminated prior to August 1, 2006. The Facility also
provides the Company, under certain conditions, the flexibility to borrow
additional amounts up to $1,000,000 above what is available based upon eligible
accounts receivable. Any such additional borrowings will accrue interest at a
rate of 0.6% per month, payable monthly.

         In connection with this Facility, the Company issued to Laurus a
five-year warrant to purchase 180,000 shares of the Company's common stock,
exercisable at various prices ranging from $1.50 to $1.89 per share. Laurus may
also receive additional five-year warrants to purchase up to 400,000 shares of
the Company's common stock at an exercise price equal to 125% of the fixed
conversion price based upon how much of the outstanding obligation under the
Facility is converted to equity. As of March 31, 2005, none of the additional
five-year warrants had been issued. The Facility is secured by a general
security interest in the assets of the Company and its subsidiaries and
prohibits the Company from paying any dividends on its common stock without
Laurus' permission.

         On December 4, 2003, the outstanding balance of $900,000 under the
Facility was refinanced with Laurus along with $500,000 of additional borrowings
into a three-year, 5% secured convertible note ("2003 Note"). At March 31, 2005,
the Company had no borrowings under the Facility.


                                      F-17







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         2003 NOTE

         The interest rate on the 2003 Note was equal to the greater of 5% or
the prime rate plus 1%. The 2003 Note was to mature on December 4, 2006. The
fixed conversion price, upon which potential issuances of the Company's common
stock to satisfy the obligations of the 2003 Note were based, was $1.30. On
April 27, 2004, the Company amended and restated the 2003 Note to reflect an
additional $1,000,000 that it borrowed on April 27, 2004, so that the principal
amount of the 2003 Note was increased to $2,400,000 from $1,400,000 (the
"Amended and Restated December 2003 Note"). The net proceeds from the sale of
the Amended and Restated December 2003 Note were used for working capital.

         The Amended and Restated 2003 Note requires monthly principal payments
of $50,000 plus accrued interest (payable in arrears) on the first business day
of each month, commencing August 1, 2004, with the entire remaining principal
balance becoming due on December 3, 2006. Monthly payments under the original
2003 Note had been scheduled to begin in April 2004. The amount of monthly
principal payment was increased from $30,000 to $50,000. The Company is required
to pay any remaining balance of principal, including any accrued and unpaid
interest, on the maturity date. The final payment due at maturity was increased
from $440,000 to $710,000. The Company recorded approximately $173,000 as
additional discount to the Amended and Restated 2003 Note, which included the
$11,000 in fees it paid to an affiliate of Laurus and the $162,000 it recorded
in April 2004 due to the beneficial conversion feature of the debt related to
the additional borrowings. This additional discount, along with approximately
$133,000 in unamortized discount remaining at the time of the amendment for a
total discount of $306,000, is being amortized to interest expense over the
remainder of the term of the Amended and Restated 2003 Note. In April 2004 and
December 2004, Laurus converted $260,000 and $219,000 of the principal balance
under the Amended and Restated 2003 Note into 200,000 and 168,462 shares of the
Company's common stock, respectively. At March 31, 2005, the Company had an
outstanding balance of $1,641,000, excluding unamortized fees and unamortized
beneficial conversion adjustments, under the Amended and Restated 2003 Note.

         The Amended and Restated 2003 Note is secured by a general security
interest in the assets of the Company and its domestic subsidiaries. The Company
was required to use the net proceeds from the Amended and Restated 2003 Note for
general corporate purposes only. The Company is also required not to permit for
any fiscal quarter commencing April 1, 2003, the net operating cash flow deficit
to be greater than $500,000, excluding extraordinary items, as determined by
Laurus. At March 31, 2005, the Company was in compliance with this covenant.

         2004 NOTE

         On December 23, 2004 ("Closing Date"), the Company entered into a
Securities Purchase Agreement ("2004 Agreement") with Laurus. Pursuant to the
2004 Agreement, the Company sold to Laurus a secured convertible note in the
original principal amount of $1,000,000 ("2004 Note") that is scheduled to
mature on December 23, 2007 ("Maturity Date"). The Company paid Laurus Capital
Management, LLC, an affiliate of Laurus, a $5,000 fee, and reimbursed Laurus for
$5,000 of expenses in connection with the offering. The net proceeds from the
sale of the 2004 Note are being used for working capital. In connection with the
2004 Note, we issued to Laurus a warrant to purchase up to 130,000 shares of the
Company's common stock at any time or from time to time on or before December
23, 2009 at an exercise price of $1.56 per share ("2004 Warrant"). On March 31,
2005, the outstanding principal balance of the 2004 Note was $1,000,000.


                                      F-18







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

          The 2004 Note bears an annual interest rate equal to the greater of 5%
or prime rate plus 1% based on a 360-day year, and requires monthly interest
payments in arrears on the first business day of each month beginning February
1, 2005 through the Maturity Date. The interest rate may be adjusted downward
(but not below 0%) following effective registration of the shares underlying the
2004 Note with the SEC if certain increases occur in the closing price of the
Company's common stock. The 2004 Note requires monthly principal repayments of
$30,000 along with any related accrued but unpaid interest (together the
"Monthly Payment") beginning July 1, 2005 and through the Maturity Date. The
remaining balance of principal including any accrued and unpaid interest is due
on the Maturity Date. The Monthly Payment must be paid through conversion into
shares of the Company's common stock at the initial fixed conversion price of
$1.29 per share (subject to anti-dilution adjustments in connection with
mergers, acquisitions, stock splits, dividends and the like, and in connection
with future issuances of the Company's common stock at prices per share below
the then-applicable conversion price) if the following conversion criteria are
met:

         (1)      the shares are registered with the SEC for public resale;
         (2)      the average closing price of the Company's common stock for
                  the 5 trading days preceding a repayment date is at least 110%
                  of the fixed conversion price; and
         (3)      the amount of such conversion does not exceed 25% of the
                  aggregate dollar trading volume of the Company's common stock
                  for the 30-day trading period immediately preceding the
                  applicable repayment date.

         Any amount of Monthly Payment that cannot be converted into common
stock due to failure to meet the conversion criteria must be paid in cash at a
rate of 102% of the monthly principal amount. Laurus may convert at the fixed
conversion price amounts due under the 2004 Note if the underlying shares are
registered for resale or an exemption from registration is available and no
event of default under the 2004 Note remains uncured or remains unwaived by
Laurus.

         The Company may also prepay the amount of the 2004 Note in cash by
paying 104% of the principal balance together with any accrued but unpaid
interest.

         In the event of a default and continuation of a default, Laurus may
accelerate the payment of the principal balance requiring us to pay 115% of the
entire principal balance of the 2004 Note outstanding on that date. In the event
of a default and continuation of default, the interest rate will increase by 5%
per annum on the unpaid principal balance until the default is cured or waived.
Events of default that would give rise to automatic acceleration of payment of
the principal balance and an increase in annual interest rate on unpaid
principal balance include:

         o        A failure to pay principal, interest or fees;
         o        Breach of covenant, representations and warranties;
         o        A receiver or trustee for the Company is appointed;
         o        Any judgment against the Company or any of its assets in
                  excess of $250,000 remains unvacated, unbonded or unstayed for
                  ninety days;


                                      F-19







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         o        Bankruptcy, insolvency, liquidation or reorganization
                  proceedings against the Company are not resolved within 30
                  days;
         o        Trading stop in the Company's common stock is in effect for
                  more than five days;
         o        Failure to deliver the Company's common stock or replacement
                  note;
         o        Occurrence of default or continuation of default in related or
                  other agreements with Laurus; and
         o        Change in control of ownership of the Company.

         As security for payment of the 2004 Note, the Company granted to Laurus
a continuing general security interest in the Company's assets.

         The Company has undertaken registration obligations as described in
Note 12, "Subsequent Events."

         With the exception of previously disclosed issuances of stock and the
exception of stock options granted to employees and directors, the Company is
prohibited from issuing any securities with a continuously variable/floating
conversion feature that could become free-trading prior to the full repayment or
conversion of the 2004 Note together with all related accrued and unpaid
interest and fees.

         The five-year 2004 Warrant permits Laurus to purchase up to 130,000
shares of common stock, at any time or from time to time, at the exercise price
of $1.56 per share. The exercise price and the number of shares underlying the
2004 Warrant are fixed but are subject to anti-dilution adjustments in
connection with mergers, acquisitions, stock splits, dividends and the like.


                                      F-20







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         Laurus has contractually agreed to two separate beneficial ownership
limitations that restrict conversion of the 2004 Note and the exercise of the
2004 Warrant. Laurus has agreed that the 2004 Note shall not be converted and
the 2004 Warrant shall not be exercised to the extent such conversion would
result in Laurus, together with its affiliates, beneficially owning in excess of
4.99% of the number of shares of the Company's common stock outstanding at that
time. Laurus may cause this 4.99% limitation to expire by providing the Company
with 75 days' advance notice of its intention to do so. This 4.99% limitation
does not preclude conversion of the 2004 Note or exercise of the 2004 Warrant
over time, so long as Laurus' beneficial ownership of the Company's common
stock, together with its affiliates, does not exceed the limitation amount. This
4.99% limitation automatically becomes void upon an event of default under the
2004 Note.

         The Company recorded a debt discount as a result of the issuance of the
2004 Warrant of approximately $103,000 and a debt discount as a result of
$10,000 in fees paid to Laurus and its affiliate. The total debt discount of
$113,000 will be charged to interest expense, ratably, over the term of the 2004
Note.

         Long-term debt, including capital lease obligations, consisted of the
         following at March 31, 2005 (dollars in thousands):

         Term loan from a bank in India, bearing interest at 9.5%
           per annum payable monthly, principal due in monthly
           installments beginning January 2005 and ending December
           2009, secured by substantially all of the Company's
           assets located in India and guaranteed by a major
           stockholder (see Note 5)                                      $  440

         Revolving line of credit from a bank in India, bearing
           interest at 11.0% per annum, secured by substantially
           all of the Company's assets located in India, maturing
           December 2009                                                    562

         Convertible note (2003 Note), bearing 6.75% interest per
           annum, secured by a general security interest in the
           Company's assets and the assets of its domestic
           subsidiaries. Applicable interest with principal monthly
           payments of $30 in May 2005; $50 from June 2005
           through October 2006 and terminal payment of $710 in
           November 2006                                                  1,641

         Convertible note (2004 Note), bearing 6.75% interest per
           annum, secured by a general security interest in the
           Company's assets and the assets of its domestic
           subsidiaries. Principal monthly payments of $30 and
           interest due through December 2006                             1,000

         Capital lease obligations maturing at dates ranging from
           June 2005 to August 2009, secured by the leased assets
                                                                            487
         Note payable, bearing interest at 1.0% plus the prime rate
           per annum, principal and accrued interest due on or before
           March 31, 2006 (see Note 5)                                      100

         Note payable, at an imputed interest rate of 14.5% per annum,
           principal and accrued interest due on or before April 1, 2007    153

         Other                                                               31
                                                                         -------
               Total long-term debt before unamortized discount           4,414
                          Less: Unamortized discount                       (422)
                                                                         -------
                     Long-term debt                                       3,992
                    Less: current portion                                 1,541
                                                                         -------
                                                                         $2,451
                                                                         =======


                              F-21







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

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

<TABLE>
                                                         LONG-TERM DEBT   CAPITAL LEASE
                                                                           OBLIGATIONS
                                                         --------------   -------------
<S>                <C>                                   <C>                     <C>
                   2006                                  $       1,619           $ 207
                   2007                                          1,638             189
                   2008                                            469             148
                   2009                                            109              68
                   2010                                             89               7
                   Thereafter                                        3               -
                                                         --------------   -------------
                   Total minimum payments                $       3,927             619
                                                         ==============

                   Less amount representing interest                              (132)
                                                                          -------------
                   Present value of minimum capital
                       lease payments                                            $ 487
                                                                          =============

</TABLE>

(4)      STOCKHOLDERS' EQUITY

         WARRANTS

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

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

<TABLE>
                                                           Estimated
                           Number of     Exercise price     life (in                     Risk-free     Fair value of
         Grant date        warrants        per share         years)      Volatility          rate       warrants(a)
         ----------        --------        ---------         ------      ----------      ---------     -------------
<S>                            <C>           <C>               <C>           <C>            <C>         <C>
      June 2000                60,000        $19.00            5             146%           4.87%       $  979,000
      November 2000           200,000        $3.93             5             146%           4.87%       $1,188,000
      December 2002           200,000     $1.76-$2.40          5             100%           3.0%        $  200,000
      July 2003               180,000     $1.50-$1.89          5             122%           3.24%       $  201,000
      December 2003           485,000     $1.00-$1.50          5             116%           3.14%       $  504,000
      December 2004           130,000        $1.56             5              84%           2.20%       $  103,000

</TABLE>

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


                                      F-22







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

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


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

       Outstanding at March 31, 2003                823          $        16.37
       Issued                                       665                    1.33
       Exercised                                      -                       -
       Forfeited                                    (53)                  16.93
                                                ----------       ---------------

       Outstanding at March 31, 2004              1,435                    9.38
       Issued                                       130                    1.56
       Exercised                                   (100)                   1.00
       Forfeited                                   (310)                  33.10
                                                ----------       ---------------
       Outstanding at March 31, 2005              1,155          $         2.85
                                                ==========       ===============

       STOCK OPTION PLANS

       The Company has adopted the following employee stock option plans:

<TABLE>
                                                                                                      SHARES
                                                          ADOPTED              TERMINATES           AUTHORIZED
                                                    --------------------  ----------------------  ---------------
<S>                                                             <C>                    <C>             <C>
         NetGuru, Inc. 2003 Stock Option Plan          December 2003          December 2013            1,000,000
             (the "2003 Plan")
         NetGuru, Inc. 2000 Stock Option Plan
              (the "2000 Plan")                        December 2000          November 2010            1,000,000
         Research Engineers, Inc. 1998 Stock
             Option Plan (the "1998 Plan")             December 1998          November 2008            1,000,000
         Research Engineers, Inc. 1997 Stock
             Option Plan (the "1997 Plan")             February 1997          February 2007              600,000
         Research Engineers, Inc. 1996 Stock
             Option Plan (the "1996 Plan")                April 1996             April 2006              588,000

</TABLE>

         Each plan provides for the granting of shares as either incentive stock
         options or non-qualified stock options. Options under all plans
         generally vest over 3 years, though the vesting periods may vary from
         option to option, and are exercisable subject to continued employment
         and other conditions. As of March 31, 2005, there were 837,000 options
         available for grant and 163,000 outstanding and exercisable under the
         2003 Plan, there were 408,000 options available for grant and 591,000
         options exercisable under the 2000 Plan, 471,000 options available for
         grant and 412,000 options exercisable under the 1998 Plan, 109,000
         options available for grant and 268,000 options exercisable under the
         1997 Plan, and 108,000 options available for grant and 291,000 options
         exercisable under the 1996 Plan.


                                      F-23







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

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

                                                                     WEIGHTED
                                                                     AVERAGE
                                                     NUMBER OF    EXERCISE PRICE
                                                       SHARES       PER OPTION
                                                     -----------  --------------
                Outstanding at March 31, 2003             1,926       $2.61
                Granted                                     468        1.24
                Exercised                                     -           -
                Forfeited                                  (367)       2.15
                                                     -----------
                Outstanding at March 31, 2004             2,027        2.38
                Granted                                     218        1.38
                Exercised                                     -           -
                Forfeited                                  (182)       2.28
                                                     -----------
                Outstanding at March 31, 2005             2,063       $2.28
                                                     ===========


       The following table summarizes options outstanding and exercisable by
price range at March 31, 2005:

<TABLE>
<S>     <C>
                                           OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
                             ------------------------------------------------    ---------------------------------
                                              WEIGHTED-
                                              AVERAGE
                                             REMAINING
                                            CONTRACTUAL      WEIGHTED-AVERAGE    EXERCISABLE AT   WEIGHTED-AVERAGE
       RANGE OF                 NUMBER OF      LIFE           EXERCISE PRICE      MARCH 31, 2005   EXERCISE PRICE
      EXERCISE PRICES            SHARES
      -----------------      -----------    -----------      ----------------    ---------------  ----------------
      $  0.00 - $  1.35          374,000        5.7               $1.15               328,000         $1.14
      $  1.35 - $  1.50          911,000        4.2               $1.44               723,000         $1.44
      $  1.50 - $  3.80          660,000        4.8               $2.62               636,000         $2.65
      $  3.80 - $  7.60           10,000        4.5               $4.25                10,000         $4.25
      $  7.60 - $ 11.40          100,000        4.8              $10.46               100,000        $10.46
      $ 11.40 - $ 19.00            8,000        5.3              $18.06                 8,000        $18.06
                             -----------                                            ----------
             Total             2,063,000                                            1,805,000
                             ===========                                            ==========

</TABLE>

       At March 31, 2005, the range of exercise prices and the weighted average
       remaining contractual life of outstanding options were $1.07 to $18.06
       and 4.7 years, respectively.

(5)    RELATED PARTY TRANSACTIONS

       As discussed in Note 3 "Long-Term Debt" and Note 13 "Liquidity," the
       Company issued two convertible debt instruments, the 2003 Note and the
       2004 Note, to Laurus. As a result of this financing, Laurus became the
       beneficial owner of more than 5% of the Company's outstanding common
       stock if contractual beneficial ownership and conversion limitations are
       disregarded. In connection with the 2003 Note and the 2004 Note, the
       Company paid fees of $140,000 and $5,000, respectively, to an affiliate
       of Laurus.


                                      F-24







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         In October 2003, the Company issued a promissory note bearing interest
         at 1.0% plus the prime rate for $100,000 to Mr. Amrit Das, the
         Company's chief executive officer. The proceeds from this financing
         were used for working capital. The principal along with the accrued
         interest is due on or before March 31, 2006. As of March 31, 2005, the
         total outstanding principal balance on this note was $100,000, which is
         included in the current portion of long-term debt.

         In January 2005, Mr. Amrit Das personally guaranteed a term loan from a
         bank in India. The term loan is secured by substantially all of the
         Company's assets located in India. The loan bears an annual interest of
         9.5% payable monthly. The principal is payable in quarterly
         installments beginning January 2005 and ending December 2009. At March
         31, 2005, the Company owed $440,000 on this loan (see Note 3 "Long-Term
         Debt").

(6)      RETIREMENT PLANS

         The Company and certain of its subsidiaries have adopted qualified cash
         or deferred 401(k) retirement savings plans. The domestic plan covers
         substantially all domestic employees who have attained age 21 and have
         had one year of service. Employees may contribute up to 14% of their
         compensation. The Company makes matching contributions to the plan of
         37% to 50% of the employees' elective contributions for the first 6% of
         compensation. The international employees are not covered by any
         retirement plans. For the years ended March 31, 2005 and 2004, Company
         contributions to the domestic retirement plans were approximately
         $76,000 and $95,000, respectively.

(7)      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, 2005, future minimum annual rental commitments under these
         lease obligations were as follows (in thousands):

                     Year ending March 31:
                         2006                             $    311
                         2007                                  300
                         2008                                  210
                         2009                                  150
                         2010                                  183
                         Thereafter                          1,556
                                                          --------

                                                          $  2,710
                                                          ========


       Rent expense was $429,000 and $627,000 for the years ended March 31, 2005
and 2004, respectively.


                                      F-25







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

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

(8)      INCOME TAXES

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

                                      2005         2004
                                    -------      -------
                  United States     $(1,126)     $(2,639)

                  Foreign               484           52
                                    -------      -------
                    Total              (642)      (2,587)
                                    =======      =======

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

                                    2005        2004
                                  -------     -------
                  Current:
                      Federal     $    --     $    --
                      State             7           6
                      Foreign          31           9
                                  -------     -------
                                       38          15
                  Deferred:
                      Federal          --          --
                      State            --          --
                      Foreign          --          --
                                  -------     -------
                                       --          --
                                  -------     -------
                        Total     $    38     $    15
                                  =======     =======


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

                                                         2005        2004
                                                       --------   ---------

              Income tax benefit at statutory rate    $   (276)   $   (880)
              State taxes, net of federal benefits           7         (50)
              Foreign income tax rate differential        (135)         (8)
              U.S. tax on foreign earnings,
                 previously deferred under APB 23          165          22
              Change in valuation allowance                281         950
              Research and development credits             (15)        (16)
                 Other                                      11          (3)
                                                       --------   ---------
                    Total                             $     38    $     15
                                                       ========   =========



                                      F-26







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         The Company provides deferred income taxes for temporary differences
         between assets and liabilities recognized for financial reporting and
         income tax purposes. The tax effects of temporary differences for
         continuing operations at March 31, 2005 are as follows (in thousands):

                                                                        2005
                                                                     ----------
                 Deferred tax assets:
                     Accrued vacation                                $      58
                     Allowance for doubtful accounts                        56
                     Amortization of intangibles                         1,570
                      Net operating loss carryforwards                   7,927
                      Research and development credit
                         carryforwards                                     198
                      Gain on sale of property                             271
                                                                     ----------
                            Total deferred tax assets                   10,082
                            Less: valuation allowance                   (9,110)
                                                                     ----------
                            Net deferred tax assets                        972
                                                                     ==========

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

                                                                     ----------
                            Net                                      $      --
                                                                     ==========

         At March 31, 2005, the Company had tax net operating loss carryforwards
         of approximately $21,000,000 for federal income tax purposes and
         $12,100,000 for state income tax purposes, which expire at varying
         dates beginning in 2019 and 2006, 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, $112,000 of research and development
         credit carryforwards, which expire at varying dates beginning in 2013.
         Additionally, the Company has, for state income tax purposes, $86,000
         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 depends upon either the generation
         of future taxable income during the periods in which those temporary
         differences become deductible or the carryback of losses to recover
         income taxes previously paid during the carryback period. As of March
         31, 2005, the Company had provided a valuation allowance of $9,110,000
         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. The net change in the deferred tax asset
         valuation allowance for fiscal year 2005 was $281,000.


                                      F-27







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

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

(9)      SEGMENT AND GEOGRAPHIC DATA


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

         o        Engineering and collaborative software products and services;
                  and
         o        IT services

       The Company's management monitors its unallocable expenses related to the
       Company's corporate activities in a separate "Center," which is reflected
       in the tables below.

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

<TABLE>
<S> <C>
                                                                                FOR THE YEAR ENDED MARCH 31,
                                                                                ----------------------------
                                                                                 2005                 2004
                                                                                --------            --------
                                                                                       (IN THOUSANDS)
                                         NET REVENUES
                  Engineering and collaborative software
                     products and services                                      $ 11,636            $ 11,550
                  IT services                                                      4,207               5,012
                                                                                --------            --------
                           Consolidated                                         $ 15,843            $ 16,562
                                                                                ========            ========

                                         GROSS PROFIT
                  Engineering and collaborative software
                     products and services                                      $ 10,850            $ 10,539
                  IT services                                                      1,450               1,052
                                                                                --------            --------
                           Consolidated                                         $ 12,300            $ 11,591
                                                                                ========            ========


                                      F-28







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

                                   OPERATING INCOME (LOSS)
                  Engineering and collaborative software
                     products and services                                      $  1,247            $   (539)
                  IT services                                                        136                (446)
                  Center                                                          (1,759)             (1,072)
                                                                                --------            --------
                           Consolidated                                         $   (376)           $ (2,057)
                                                                                ========            ========

                   DEPRECIATION AND AMORTIZATION EXPENSE CHARGED TO COST OF
                                             REVENUES
                  Engineering and collaborative software
                     products and services                                      $     69            $    276
                                                                                --------            --------
                           Consolidated                                         $     69            $    276
                                                                                ========            ========

                          DEPRECIATION EXPENSE CHARGED TO OPERATIONS
                  Engineering and collaborative software
                     products and services                                      $    960            $    935
                  IT services                                                         30                   9
                                                                                --------            --------
                           Consolidated                                         $    990            $    944
                                                                                ========            ========

                       EXPENDITURES FOR ADDITIONS TO LONG-LIVED ASSETS
                  Engineering and collaborative software
                     products and services                                      $    318            $     94
                  IT services                                                         90                  --
                                                                                --------            --------
                           Consolidated                                         $    408            $     94
                                                                                ========            ========

                                                                           AT MARCH 31,
                                  GOODWILL                                    2005
                                                                         --------------
                                                                         (IN THOUSANDS)
           Engineering and collaborative software
              products and services                                      $        1,945
           IT services                                                            1,143
                                                                         --------------
                    Consolidated                                         $        3,088
                                                                         ==============
</TABLE>

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

                                                    FOR THE YEAR ENDED MARCH 31,
                                                    ----------------------------
                                                      2005                2004
                                                    -------              -------
                                                           (IN THOUSANDS)
                                NET REVENUE
                  United States                     $ 6,781              $ 7,516
                  The Americas (other than U.S.)        728                  692
                  Europe                              3,540                3,939
                  Asia-Pacific                        4,794                4,415
                                                    -------              -------
                           Consolidated             $15,843              $16,562
                                                    =======              =======

                               EXPORT SALES
                  United States                     $ 1,985              $ 2,137
                                                    =======              =======

                                      F-29







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

                                                              AT MARCH 31,
                           LONG-LIVED ASSETS                      2005
                                                            --------------
                                                            (in thousands)
                United States                               $       3,466
                Europe                                                201
                Asia-Pacific                                        1,345
                                                            --------------

                         Consolidated                       $       5,012
                                                            ==============

10.      DISCONTINUED OPERATIONS

         In its continuing efforts to focus on its core software products and IT
services businesses, the Company finalized the sale of its travel services
subsidiary, "e-Destinations," in April 2004 and sold its Web-based
telecommunications services division in September 2004. Accordingly, the results
of the operations of e-Destinations and the Web-based telecommunications
services division are excluded from continuing operations and reported as
"Discontinued Operations."

         Income from discontinued operations for the year ended March 31, 2005
was $67,000 compared to a loss from discontinued operations of $508,000 for the
year ended March 31, 2004. The Company recorded no gain or loss from the sale of
e-Destinations and a $117,000 gain from the sale of the Web-based
telecommunications division during the year ended March 31, 2005.

         The sales price was $155,000 for the sale of e-Destinations in April
2004 and $130,000 for the sale of the Web-based telecommunications services
division in September 2004. The entire proceeds from the sale of e-Destinations
were received in April 2004. As of March 31, 2005, we received $129,500 in
proceeds from the sale of the Web-based telecommunications services division.

         The following table summarizes financial information for the
discontinued operations (in thousands):

                                                        YEAR ENDED MARCH 31,
                                                         2005         2004
                                                        -------      -------
Discontinued operations:
     e-Destinations, Inc. revenues                      $    --      $   309
     Web-based telecommunications services revenues         327        1,136
                                                        -------      -------
                                                            327        1,445
                                                        -------      -------

    Income (loss) from operations of
        e-destinations, Inc.                            $    --      $  (148)
         Web-based telecommunications services              (50)         (69)
          Impairment loss from e-Destinations                --         (291)
      Gain on sale of Web-based
             telecommunications services                    117           --

                                                        -------      -------
Income (loss) from discontinued operations              $    67      $  (508)
                                                        =======      =======


                                      F-30







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

(11)     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, except
         per share amounts):

                                                             2005        2004
                                                           --------    --------
         Numerator:
         Net loss -- numerator for basic and diluted
            net loss per share                             $   (788)   $ (3,110)

         Denominator:
         Denominator for basic net loss per share -
            weighted average number of common shares
            outstanding during the year                      18,858      17,603
         Incremental common shares attributable to
            exercise of outstanding options and warrants         --          --
                                                           --------    --------

         Denominator for diluted net loss per share          18,858      17,603
                                                           ========    ========

         Basic net loss per share                          $  (0.04)   $  (0.18)
                                                           ========    ========

         Diluted net loss per share                        $  (0.04)   $  (0.18)
                                                           ========    ========

         Options, warrants and their equivalents amounting to 1,538,000 and
         957,000 potential common shares were excluded from the computations of
         diluted loss per share for fiscal 2005and 2004 respectively, because
         the effect would have been antidilutive. Of these amounts, potential
         common shares from the possible conversion of the Laurus Notes in
         fiscal 2005 and 2004 amounted to 1,470,000 and 909,000, respectively.

(12)     SUBSEQUENT EVENT

         WAIVER

         On June 28, 2005, the Company and Laurus entered into a waiver and
extension, pursuant to which they agreed to amend the definition of
"Effectiveness Date" contained in a Registration Rights Agreement (the
"Agreement") dated December 23, 2004 that they entered into simultaneously with
the issuance of the 2004 Note and the 2004 Warrant. Pursuant to the Agreement,
the Company was required to file by a January 22, 2005 initial filing date a
resale registration statement with the SEC covering the shares of common
stock issuable upon conversion of the 2004 Note and upon exercise of the 2004
Warrant. The Company was also required to obtain effectiveness of the
registration statement by a May 22, 2005 initial Effectiveness Date.

         The Agreement provides that:

         o        if a registration statement is not filed on or prior to the
                  initial filing date, or

         o        if the registration statement is not declared effective by the
                  SEC by the Effectiveness Date, or


                                      F-31







<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                       Years Ended March 31, 2005 and 2004

         o        if after the registration statement is filed with and declared
                  effective by the SEC, the registration statement ceases
                  to be effective as to all registrable securities to which it
                  is required to relate at any time prior to the time that all
                  of the registrable securities have been sold or may be sold
                  without volume restrictions under Rule 144(k)of the Securities
                  Act of 1933, as amended, or

         o        if trading of our common stock is suspended for more than
                  three trading days,

then subject to certain grace periods, until the event described above is cured,
the Company must pay to Laurus cash liquidated damages equal to 1.0% for each
30-day period (prorated for partial periods) of the original principal amount of
the 2004 Note.

         The Company was unable to meet the initial filing either deadline or
the initial Effectiveness Date. Accordingly, the Company and Laurus entered into
the June 28, 2005 waiver and extension. The waiver and extension provides that
the January 22, 2005 initial filing deadline is waived. The waiver and extension
also provides that the amended Effectiveness Date for the initial registration
statement filed under the Agreement is September 1, 2005, and with respect to
each additional registration statement that may be required to be filed in the
future, a date no later than 30 days following the applicable filing date. The
Company paid $10,000 in liquidated damages for the delay in the registration
statement being declared effective by the Commission.

(13)     LIQUIDITY

         The Company incurred net losses of $788,000 and $3,110,000 and used
cash in operations of $210,000 and $1,029,000 in fiscal 2005 and 2004,
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 sufficient cash from operations
or through existing or additional sources of debt and/or equity financing.


                                      F-32







<PAGE>

                                   SIGNATURES

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

                                           NETGURU, INC


Dated: July 12, 2005                       /s/ Amrit K. Das
                                           -------------------------------------
                                           Amrit K. Das, Chief Executive Officer


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

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


/s/ Amrit K. Das             Chairman of the Board, Chief          July 12, 2005
-------------------------    Executive Officer(principal
Amrit K. Das                 executive officer), President and
                             Director

/s/ Santanu K. Das           Executive Vice President, Chief       July 12, 2005
-------------------------    Operating Officer, Director
Santanu Das

/s/ Bruce K. Nelson          Chief Financial Officer (principal    July 12, 2005
-------------------------    financial and accounting officer)
Bruce Nelson

/s/ D. Dean McCormick III    Director                              July 12, 2005
-------------------------
D. Dean McCormick III

/s/ Stanley W. Corbett       Director                              July 12, 2005
-------------------------
Stanley W. Corbett

/s/ Benedict A. Eazzetta     Director                              July 12, 2005
-------------------------
Benedict A. Eazzetta


                                       56







<PAGE>


                  INDEX TO EXHIBITS FILED WITH THIS FORM 10-KSB


         EXHIBIT NO.         DESCRIPTION
         -----------         -----------
         21                  Subsidiaries of the Registrant

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

         23.2                Consent of Independent Registered Public Accounting
                             Firm (KPMG LLP)

         31                  Certifications Required by Rule 13a-14(a) of the
                             Securities Exchange Act of 1934, as amended, as
                             Adopted Pursuant to Section 302 of the
                             Sarbanes-Oxley Act of 2002

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


                                  57