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                                  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, 2003
                                       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 pursuant to 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]

State issuer's revenues for its most recent fiscal year: $20,033,000.

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 7, 2003 was $17,513,623. 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 17,325,150 on July 7, 2003.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      None


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                                TABLE OF CONTENTS

                                     PART I
                                                                            PAGE

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

Item 2.  Description of Property............................................. 12

Item 3.  Legal Proceedings................................................... 12

Item 4.  Submission of Matters to a Vote of Security Holders................. 12

                            PART II

Item 5.  Market for Common Equity and Related Stockholder Matters............ 13

Item 6.  Management's Discussion and Analysis or Plan of Operation........... 16

Item 7.  Financial Statements................................................ 39

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure................................................ 39

                           PART III

Item 9.  Directors and Executive Officers of the Registrant.................. 40

Item 10. Executive Compensation.............................................. 43

Item 11. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters......................................... 45

Item 12. Certain Relationships and Related Transactions...................... 49

Item 13. Exhibits, List and Reports on Form 8-K.............................. 50

Item 14. Controls and Procedures............................................. 53

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

Signatures................................................................... 54

Certifications............................................................... 55

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

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                                  NETGURU, INC.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

OVERVIEW

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

         o        Engineering and collaborative software products and services
                  for businesses worldwide;

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

         o        Web-based telecommunications and travel services (including
                  long-distance communication services that include call
                  termination services and prepaid phone cards, and travel
                  services).

PRODUCTS AND SERVICES

     ENGINEERING AND COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         Over the past 21 years, we have continuously improved our core
competency and established a strong brand for our engineering software within
the architectural/engineering/construction, or A/E/C, markets worldwide. Our
engineering software 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 85 countries.

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

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

         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

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at a host location, our eReview collaborative software enables a host and other
participants to engage in real-time Web-based conferencing and document sharing
anywhere and anytime in over 150 widely used document formats. eReview allows
our customers to bridge physical distances in their global business environments
by enabling decision makers to communicate without costly and time consuming
travel to geographically dispersed locations. Complementing eReview, our
WebWorks software provides comprehensive project-based document and team
management functions. Our collaborative products can be implemented as
stand-alone enterprise solutions or as an integrated system working in concert
with our other products. Due to our engineering experience, our collaborative
software is ideally suited for multi-faceted A/E/C projects. However, our
collaborative software also has direct application for many other industries.

         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.

     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 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 two service offices located in
Boston, Massachusetts and San Jose, California. We provide IT services both on a
project basis and through on-site consulting. When we provide IT services on a
project basis, we assume full project management responsibility. Typically,
projects are of a fixed duration and are charged at a fixed price. When we
provide on-site consulting services, we bill our clients on a time and materials
basis.

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

     WEB-BASED TELECOMMUNICATIONS AND TRAVEL SERVICES

         Our Web-based telecommunications and travel services comprise
long-distance communication services that include call termination services and
prepaid phone cards, and travel services targeted toward certain niche markets.

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         Long-Distance Communications Services
         -------------------------------------

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

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

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

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

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

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

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:

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

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

     IT SERVICES

         During the fiscal year ended March 31, 2003, we provided IT consulting
services to over 75 corporate customers in the United States, including
Fidelity, Sun Microsystems, Sprint PCS and Course Thomson Learning. No single
customer represented more than 5% of our revenues.

     WEB-BASED TELECOMMUNICATIONS AND TRAVEL SERVICES

         We provide our long-distance call termination services to companies
that offer similar services. We offer our prepaid phone card products to
consumers for retail consumption. We offer our travel services to businesses and
individual customers.

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

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

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

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     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.

     WEB-BASED TELECOMMUNICATIONS AND TRAVEL SERVICES

         Our marketing efforts relating to Web-based telecommunications and
travel services have been significantly reduced. Our marketing resources are now
being focused on our other divisions. We continue to maintain our current
customer base, and we service direct referrals from our existing customers.

CUSTOMER SERVICE AND SUPPORT

     ENGINEERING AND COLLABORATIVE SOFTWARE PRODUCTS AND SERVICES

         Purchasers of our engineering and 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 all 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
24x7x365 basis to meet the customer's information management needs from our
facilities in Boston, Massachusetts and San Jose, California.

     WEB-BASED TELECOMMUNICATIONS AND TRAVEL SERVICES

         Technical customer service and support services are generally not
required for these activities.

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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 original equipment manufacturer
                  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.

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

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

         To ensure that 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.

         Research and development expenses were approximately $1,935,000 and
$1,824,000 during the fiscal years ended March 31, 2003 and 2002, 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; Internet-based IT services for businesses worldwide; and traditional
telephony services to and from global destinations. We expect that competition
will intensify as the market for Internet-based solutions aimed at the global
community develops and expands. We compete primarily based on service,
reliability and customer support, and to a lesser extent on price, ease of use
and content.

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         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.

     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 high caliber
development effort, demonstrated understanding of the needs of the engineering
design industry, ability to attract and retain customers, capability to develop,
acquire and implement emerging technologies, ability to provide technical
support and demonstrated capability to provide attractive price points for our
products. There can be no assurance, however, that our competitors will not
develop products that are superior or achieve greater market acceptance compared
to ours or that we will be able to compete successfully in these markets. 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 and Excel) and graphical
user interface in our structural engineering software. We are among the top
revenue generators in this marketplace. We are also a leader in terms of
worldwide market penetration since we believe we were the first to incorporate
international design codes into our software.

         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.

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     IT SERVICES

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

     WEB-BASED TELECOMMUNICATIONS AND TRAVEL SERVICES

         In our long-distance calling card telephony and our call termination
services businesses, we face competition primarily from international
long-distance telecommunications carriers and other wholesale carriers, such as
Startec Global Communication and Fusion Technologies. Our travel services
business faces competition from travel sites of major airlines as well as from
full-service travel sites such as travelocity.com, orbitz.com and expedia.com,
and from independent travel agents and agencies. We are among the smallest
providers of telephony and travel services, and our geographic focus is limited
to India and the Asian market for such services.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

         Our intellectual property rights are an important aspect of our
business. We rely primarily on a combination of contract, copyright, trademark
and trade secret laws, domain registration, license and confidentiality
agreements and software security measures to protect our proprietary technology.
We require all of our employees and other parties with access to our
confidential information to execute agreements prohibiting the unauthorized use
or disclosure of our technology. In addition, we periodically review our
proprietary technology for patentability, although we currently do not have any
patents. Despite these precautions and even though we have not experienced any
misappropriation of our technology over our 21-year history, we believe that
existing laws provide limited protection for our technology and that it may be
possible for a third party to misappropriate our technology or to independently
develop similar technology.

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

         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
United States. For example, India's statutory laws do not protect service marks.
Because a significant portion of our sales of products and services comes from
international markets, this lack of copyright and trade secret protection could
adversely affect our business and results of operations if a third party were
successful in copying our products and services and marketing products and
services similar to ours.

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

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is attached to the central processing unit to prevent unauthorized access to
licensed software. Our trademarks include NETGURU.COM, NETGURUINDIA.COM,
WEB4ENGINEERS.COM, Allegria Software, ForReview, eReview, QSE, FabriCAD,
STAAD.etc. and ADLPIPE. Our registered trademarks include STAAD(R),
STAAD/Pro(R), STARDYNE(R) and CIVILMASTER(R). We may not be able to secure
adequate protection for our trademarks in the United States and in the other
countries in which we do business.

GOVERNMENT REGULATION

     REGULATION OF THE INTERNET

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

     REGULATION OF COMMUNICATIONS SERVICES

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

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

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

EMPLOYEES

         As of March 31, 2003, we had 307 employees, including 109 in product
development and related support services, 68 in IT consulting, 61 in sales and
marketing and 69 in finance and administration. Of the 307 employees, 303
employees were full time employees and 4 were part time employees. As of that
date, 121 of our employees were located in the United States and 186 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.

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

         We also lease office space in various other locations domestically and
internationally where our operations are located. We believe that our existing
facilities are adequate to meet our current needs and that suitable additional
or alternative space will be available in the future on commercially reasonable
terms, 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, 2003, no matters were submitted to a
vote of our common stockholders.

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                                     PART II

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

         Our common stock trades on The Nasdaq National Market under the ticker
symbol, "NGRU." As of June 13, 2003, there were approximately 122 holders of
record of our common stock. Within the holders of record of our common stock are
brokerage firms, which, in turn, hold shares of stock for beneficial owners.

         We have 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.

         The high and low closing sales prices of a share of our common stock,
as reported by The Nasdaq National Market for each quarter of fiscal 2003 and
2002, are as follows:

<TABLE>
<CAPTION>
                                                       Fiscal 2003             Fiscal 2002
                                                    -------------------     -------------------
                                                      High      Low           High      Low
                                                    --------- ---------     --------- ---------
<S>                                                    <C>       <C>           <C>       <C>
       1st  Quarter (April 1 - June 30)                $7.49     $1.92         $3.63     $2.19
       2nd Quarter (July 1 - September 30)              3.65      1.90          2.95      1.50
       3rd Quarter (October 1 - December 31)            2.19      1.25          2.73      1.35
       4th Quarter (January 1 - March 31)               1.75      0.80          4.59      2.00
</TABLE>

         On December 13, 2002, we entered into a Securities Purchase Agreement
(the "Agreement") with Laurus Master Fund, Ltd. ("Laurus"). Pursuant to the
Agreement, we issued to Laurus a 6% Convertible Note (the "Note") in the
principal amount of $2,000,000 that matures on December 13, 2004. The proceeds,
net of fees and expenses, from this Note were $1,786,000. The net proceeds from
the Note were used for general working capital. The Note, which is being
amortized over a 20-month period commencing May 1, 2003, may be repaid, at our
option, in cash or through the issuance of shares our common stock under certain
circumstances described below.

         In conjunction with this transaction, we issued to Laurus a warrant to
purchase 200,000 shares of our common stock (the "Warrant"). In addition, we
paid a $200,000 fee to Laurus Capital Management, LLC, which is an affiliate of
Laurus. The Warrant exercise price is computed as follows: $1.76 per share for
the purchase of up to 125,000 shares; $2.08 per share for the purchase of an
additional 50,000 shares; and $2.40 per share for the purchase of an additional
25,000 shares. The Warrant exercise price may be paid in cash, in shares of our
common stock (if the fair market value of a single share of common stock exceeds
the value of the per share Warrant exercise price), or by a combination of both.
The Warrant expiration date is December 13, 2007. The Warrant exercise price and
the number of shares underlying the Warrant are subject to adjustments for
mergers, acquisitions, stock splits, combinations and dividends.

         As security for payment of the Note, each of our United States
subsidiaries and we granted to Laurus a general security interest in our assets.
Each of our United States subsidiaries also signed a guaranty of payment in
favor of Laurus. 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 in accordance with
accounting principles generally accepted in the United States.

                                       13

<PAGE>

         We were required to file a registration statement (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") by January
12, 2003, to register the public resale by Laurus of the common stock to be
issued upon conversion of the Note and/or exercise of the Warrant, and to obtain
effectiveness of the Registration statement by April 12, 2003. As of July 10,
2003, we were not in compliance with our registration obligations and remained
subject to liquidated damage assessments of 1% of the principal amount of the
note for the first 45 days of non-compliance and 2% of the principal amount of
the note for each month of non-compliance thereafter, subject to pro ration for
partial months. On July 10, 2003, we received a commitment to modify and expand
to $4,000,000 our financing arrangement with Laurus. The modification and
expansion may, among other things, modify our registration obligations. If we
are unable to file and obtain and maintain effectiveness of the required
registration statement or to modify our registration obligations, we may be
required to pay additional liquidated damages, which would adversely affect our
business, operating results, financial condition, and ability to service our
other indebtedness by negatively impacting our cash flows.

         The Note is convertible at a fixed conversion price of $1.60 per share
of our common stock, 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, if we are in default under the
Agreement or the Note, the Note will be convertible at a per share conversion
price equal to the lower of the fixed conversion price or 70% of the average of
the three lowest closing prices for our common stock during the preceding 30
trading days. Also, if a conversion occurs pursuant to a call notice as
described below, then the conversion price will be equal to the lesser of the
fixed conversion price and 90% of the average of the closing prices of our
common stock during the 15 trading days preceding the date of the call notice.
At any time before the Note is fully paid, Laurus may choose to convert all or
part of the accrued interest on and/or principal of the Note at the conversion
price then in effect, subject to the beneficial ownership limitations described
below and subject to a volume limitation. The volume limitation prohibits Laurus
from converting on any date any portion of the principal of or accrued interest
on the Note that would result in the issuance of a number of shares of common
stock with a dollar value exceeding 25% of the aggregate dollar trading volume
during the 30 trading days preceding the date of conversion.

         At our election, the monthly payment may be made in cash or in shares
of our common stock, or in any combination of both, except that during periods
in which the registration statement is not
effective or in which we are in default under the Note, we must make payments
solely in cash. If we do not elect at least 20 days prior to a monthly payment
date, then the payment shall be made in cash. If all or part of a monthly
payment is made in cash, then the amount of cash paid to Laurus must equal 107%
of the principal and interest due that month. If all or part of a monthly
payment is made in shares of our common stock, then the then-effective
conversion price is to be used to determine the number of shares to be issued.
Notwithstanding the above, if we have elected to make 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 110% of the
fixed conversion price, then we may make the monthly payment in cash or, at our
option, Laurus may convert, at a mutually agreed upon conversion price, all or
part of the monthly payment amount that we had elected to pay in shares of our
common stock.

         During any period when the Registration Statement remains effective, we
may issue a call notice to Laurus stating that, at least 30 days from the date
of the call notice, we wish to convert into shares of our common stock a portion
or all of the principal of and interest accrued on the Note. No more than 20% of
the aggregate dollar trading volume of our common stock for the 22 trading days
preceding the date of the call notice may be converted under any call notice.
The conversion price will be equal to the lesser of the fixed conversion price
and 90% of the average of the closing prices of our common stock during the 15
trading days preceding the date of the call notice.

                                       14

<PAGE>

         During any period when the Registration Statement remains effective and
we are not in default under the Note, we will have the right under the Agreement
to redeem all or any portion of the remaining outstanding principal balance of
the Note. To effect a redemption, we must issue Laurus a redemption notice that
provides that we will pay Laurus a cash redemption price that is equal to 120%
of the outstanding principal amount of the Note to be redeemed, plus all accrued
but unpaid interest and other sums payable to Laurus, if any. Laurus may elect,
within five business days, to convert all or any portion of the redemption price
into shares of our common stock at the then-effective conversion price instead
of receiving cash. On or before the seventh business day after Laurus receives
the redemption notice, we must pay Laurus in cash an amount equal to the
redemption price stated in the redemption notice less any portion of the
redemption price Laurus elected to convert into shares of our common stock.

         Laurus has contractually agreed to two separate beneficial ownership
limitations that restrict conversion of the Note and the exercise of the
Warrant. Laurus has agreed that the Note shall not be converted and the Warrant
shall not be exercised to the extent that conversion of the Note or exercise of
the Warrant would result in Laurus, together with its affiliates, beneficially
owning in excess of 4.99% of the number of shares of our common stock
outstanding at that time. Laurus may terminate this 4.99% limitation by
providing us 75 days' advance notice of its intention to do so. This 4.99%
limitation does not preclude conversion of the Note or exercise of the Warrant
over time, so long as Laurus' beneficial ownership of our 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 Note.

         Laurus has also agreed that the Note shall not be converted, and the
Warrant shall not be exercised, to the extent that conversion of the Note or
exercise of the Warrant would result in Laurus, together with its affiliates,
beneficially owning more than 3,463,625 shares of our common stock, unless and
until we obtain stockholder approval in accordance with Nasdaq corporate
governance rules, or an exemption from the applicable provision of Nasdaq
corporate governance rules is available. If Laurus requests, we must file a
preliminary proxy statement seeking such approval within 30 days of the request,
and we must also take the other steps necessary to obtain the approval within 90
days of the request.

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

                                       15

<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 obtain
                  additional working capital, if required;
         o        our ability to successfully implement our future business
                  plans;
         o        our ability to attract strategic partners, alliances and
                  advertisers;
         o        our ability to hire and retain qualified personnel;
         o        the risks of uncertainty of trademark protection;
         o        risks associated with existing and future governmental
                  regulation to which we are subject; and
         o        uncertainties relating to economic conditions in the markets
                  in which we currently operate and in which we intend to
                  operate in the future.

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

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

OVERVIEW

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

         o        Engineering and collaborative software products and services
                  for businesses worldwide;
         o        Information technology, or IT, services (including value-added
                  IT services); and
         o        Web-based telecommunications and travel services (including
                  long-distance communication services that include call
                  termination services and prepaid phone cards, and travel
                  services).

                                       16

<PAGE>

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

CRITICAL ACCOUNTING POLICIES

         The SEC's Financial Reporting Release No. 60 requires all companies to
include a discussion of critical accounting policies or methods used in the
preparation of financial statements. In this discussion, the SEC requires all
companies to address the implications of uncertainties for the methods,
assumptions and estimates used for recurring and pervasive accounting
measurements, so that investors are made aware of the susceptibility of reported
amounts to change, including rapid change.

         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        accounting for software development costs and purchased
                  technology;
         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;
         o        IT services; and
         o        Web-based telecommunications and travel 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.

         Revenues from our pre-packaged engineering software products are
recognized upon shipment, provided no significant post-contract support
obligations remain outstanding and collection of the resulting receivable is
deemed probable. At the time of sale, 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.

                                       17

<PAGE>

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

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

         We recognize revenues from our IT services primarily on a time and
materials basis, with time at a marked-up rate and materials and other
reasonable expenses at cost, as we perform IT services. Certain IT services
contracts are fixed price contracts where we measure progress toward completion
by mutually agreed upon pre-determined milestones and recognize revenue upon
reaching those milestones. Our fixed price IT contracts typically are for a
short duration of one to three months.

         We recognize revenues from call termination services at gross sales
value, with the applicable cost separately stated in cost of revenues. We
recognize revenues from our own phone cards based on usage. We recognize
revenues from our resale of third-party phone cards net of returns because no
significant obligations remain once the phone cards are delivered. We recognize
revenues from certain travel services, where we are a ticket consolidator and
where we have entered into a firm purchase commitment with the airlines, at the
gross sales value, with purchase costs stated as a separate cost of revenues in
accordance with Emerging Issues Task Force Issue ("EITF") No. 99-19, "Recording
Revenue Gross as a Principal Versus Net as an Agent." We recognize revenues from
other products and services sold via Internet portals, including travel
services, where we are a travel discounter or an agent, net of purchase costs
when the products and services are delivered and collection is probable.

         ACCOUNTING FOR SOFTWARE DEVELOPMENT COSTS AND PURCHASED TECHNOLOGY

         We develop software in-house, employ third parties to develop software
for us and purchase software technology for sale to our customers. We capitalize
costs related to the development of software products for sale. Capitalization
of costs begins when technological feasibility is established, and ends when the
product is available for general release to customers. We expense any additional
costs to enhance products after release as those costs are incurred.

         We amortize capitalized software development costs and purchased
technology using either the straight-line method over two to five years, or the
ratio of actual sales to anticipated sales, whichever is greater. We
periodically review the resulting net book value of the capitalized software
asset for recoverability based on estimated future revenues from products based
on that particular technology. When significant uncertainties exist with respect
to the recoverability of the capitalized cost of the asset, we write the cost of
the asset down to its potential recoverable value, which may materially affect
the future results of our operations.

                                       18

<PAGE>

         We estimate future revenues from a product as part of our budgeting
process. These estimates include various assumptions, risks and uncertainties
inherent in such estimates, including market conditions, availability of
competing products, and continued acceptance of our product in the marketplace.

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

         Through March 31, 2002, we applied the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This
statement required that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. We measured
recoverability of an asset to be held and used by comparing the carrying amount
of the asset to future net undiscounted cash flows expected to be generated by
the asset. If we considered the asset impaired, we recognized an impairment loss
equal to the amount by which the carrying value of the asset exceeded the fair
value of the asset. We reported assets to be disposed of at the lower of their
carrying amounts or fair values less costs to sell. In August 2001, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." This statement addresses
financial accounting and reporting for the impairment of long-lived assets and
supersedes SFAS No. 121, and the accounting and reporting provisions of
Accounting Principles Bulletin ("APB") No. 30, "Reporting the Results of
Operations for a Disposal of a Segment of a Business." SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. We adopted SFAS No. 144
beginning April 1, 2002. The adoption of SFAS No. 144 did not materially impact
our consolidated financial condition or results of operations.

         We apply the provisions of SFAS No. 86, "Accounting for the Cost of
Computer Software to be Sold, Leased, or Otherwise Marketed" to evaluate
unamortized capitalized 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 the amount by which the
unamortized software development cost exceeds the net realizable value of the
product as cost of sales of the product.

         In 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
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. We determined that we did not have any intangible assets other
than goodwill.

                                       19

<PAGE>

         SFAS No. 142 required us to perform an assessment of whether there was
an indication that goodwill was impaired as of the date of adoption. To
accomplish this, we identified our reporting units and determined the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill, to the following reporting units as of April 1, 2002:

         1.       Engineering and collaborative software products and services;
         2.       IT services; and
         3.       Web-based telecommunications and travel services.

         Annually, or more frequently if evidence of impairment to goodwill
exists, we compare the implied fair value of the reporting unit goodwill with
its carrying amount, both of which are measured as of the end of the period
being reported. If the implied fair value of the reporting unit goodwill is less
than the carrying amount of the reporting unit goodwill, we write down the
carrying amount of the reporting unit goodwill to its implied fair value and
recognize an impairment loss equal to the difference between the implied fair
value and the carrying amount of reporting unit goodwill. If, in subsequent
periods, the implied fair value of the reporting unit goodwill is higher than
its carrying amount, we do not reverse an impairment loss recognized earlier or
adjust the carrying amount to the higher amount.

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

         We assessed the fair value of our three reporting units by considering
their projected cash flows, using risk-adjusted discount rates and other
valuation techniques. Given consideration of relevant factors, we concluded that
as of April 1, 2002, an impairment write-down for our IT services division was
required. In accordance with the provisions of SFAS No. 142, we recorded an
impairment charge of $5,824,000 to IT services goodwill in fiscal 2003, and
recorded this as a cumulative effect of a change in accounting principle.

         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
potential recoverable value.

                                       20

<PAGE>

RESULTS OF OPERATIONS

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

                                                     YEAR ENDED MARCH 31,
                                                   -----------------------

                                                      2003        2002
                                                   ---------    ---------

         Net revenues .......................        100.0%       100.0%
         Cost of revenues ...................         49.2         52.8
                                                   ---------    ---------
         Gross profit .......................         50.8         47.2
                                                   ---------    ---------

         Selling, general and
            administrative expenses .........         56.8         53.5
         Research and development expenses ..          9.7          7.5
         Amortization of goodwill ...........          --           5.3
         Depreciation .......................          5.4          5.1
         Impairment charge ..................          1.3          6.8
         Restructuring charge ...............          1.0          0.1
                                                   ---------    ---------

         Operating loss .....................        (23.4)       (31.1)

         Other (expense) income:
         Interest, net ......................         (1.3)        (0.7)
         Other ...............................         0.2         (0.1)
                                                   ---------    ---------

         Loss before income taxes and
             cumulative effect of a change
             in accounting principle ........        (24.5)       (31.9)
         Income tax benefit (expense) .......          1.0         (4.9)
                                                   ---------    ---------
         Loss before cumulative effect of
             a change in accounting principle        (23.5)%      (36.8)%
         Cumulative effect of a change in
            accounting principle ............        (29.1)%       --
                                                   ---------    ---------

         Net loss ...........................        (52.6)%      (36.8)%
                                                   =========    =========

         NET REVENUES. Net revenues decreased by $4,251,000 (17.5%) to
$20,033,000 in fiscal 2003 from $24,284,000 in fiscal 2002. Our total net
revenues primarily consisted of revenues from (1) engineering and collaborative
software products and services, (2) IT services, and (3) Web-based
telecommunications and travel services.

         Engineering and collaborative software products and services net
revenues increased as a percentage of total net revenues to 47.2% in fiscal 2003
from 40.9% in fiscal 2002, largely due to a greater decline in the IT services
segment. In dollar terms, engineering and collaborative software products and
services net revenues decreased by $482,000 (4.9%) to $9,450,000 in fiscal 2003
from $9,932,000 in fiscal 2002. The decrease was primarily the result of:

         o        a decline in collaborative software net revenues of
                  approximately $695,000. 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. In fiscal 2002, we completed two large
                  collaborative software contracts amounting to $532,000,
                  whereas in fiscal 2003, we did not complete any large
                  collaborative software contracts, which resulted in a decrease
                  in net revenues from fiscal 2002 to fiscal 2003; and

                                       21

<PAGE>

         o        a decline in engineering software net revenues in North
                  America of approximately $177,000, offset by a $400,000
                  increase in engineering software net revenues from the
                  Asia-Pacific region. The decrease in engineering software net
                  revenues in North America was due to the special promotional
                  sales offered in the prior year, which resulted in higher
                  sales volume and higher revenues in the previous year. The
                  increase in engineering software net revenues from the
                  Asia-Pacific region was due to sales from the newly
                  established sales office in the Middle East and increases in
                  sales of new STAAD/Pro licenses as well as upgrades.

         IT services net revenues decreased by $4,283,000 (43.4%) to $5,586,000
in fiscal 2003 from $9,869,000 in fiscal 2002. IT services net revenues
decreased as a percentage of total net revenues to 27.9% in fiscal 2003 from
40.6% in fiscal 2002. During the past year, the slow economy continued to affect
the IT services industry. Many of our customers reduced spending on technology
consulting and systems integration services. Due to the slower economy, many
companies faced financial constraints and canceled or postponed contracted jobs.
In addition, the demand for some of our services decreased during fiscal 2003,
which caused us to reduce our billing rates approximately 20% from fiscal 2002
levels. As a result, our IT services revenues continued to decline in fiscal
2003. In fiscal 2003, we responded to the declining business conditions of the
IT industry by eliminating excess capacity through workforce reductions and by
aggressively reducing discretionary costs to lower the cost of operating this
segment of our business. This period of economic uncertainty may continue to
impact our IT services business during fiscal 2004.

         Web-based telecommunications and travel services net revenues increased
as a percentage of total net revenues to 24.9% in fiscal 2003 from 18.5% in
fiscal 2002. In dollar terms, Web-based telecommunications and travel services
net revenues increased by $514,000 (11.5%) to $4,997,000 in fiscal 2003 from
$4,483,000 in fiscal 2002. This increase was primarily the result of:

         o        an increase in revenues from call termination services of
                  approximately $1,213,000 due to the ramp-up efforts that began
                  during the latter part of fiscal 2002 and continued into
                  fiscal 2003;

         o        a decrease of $516,000 in retail phone card net revenues in
                  fiscal 2003 compared to those net revenues in fiscal 2002 due
                  to pricing pressures; and

         o        a decrease in travel services net revenues of approximately
                  $307,000 for fiscal 2003 compared to the prior fiscal year due
                  in part to the effect of geopolitical events on the global
                  travel industry.

         Although total net revenues from our Web-based telecommunications
services increased in fiscal 2003 over the levels in fiscal 2002, total net
revenues declined in the fourth quarter of fiscal 2003 due to pricing pressures.
In addition, the recent turmoil in the telecommunications industry has increased
the uncertainty of the viability of smaller service providers, some of whom are
our customers. As a result, we anticipate that telecommunications services net
revenues will not improve from current levels for the indefinite future.

         Travel services net revenues decreased during the fourth quarter and
fiscal year ended March 31, 2003, compared to the same periods in the prior
fiscal year due to competition from other online travel services and reductions
in travel agency commissions. Additionally, the decline in travel services
revenues in the aftermath of September 11, 2001 (during the second quarter of
our fiscal 2002) was further exacerbated by the general decline in travel due to

                                       22

<PAGE>

geopolitical events and concerns regarding the threat of the Severe Acute
Respiratory Syndrome, or SARS, virus. As a result, in the fourth quarter of
fiscal 2003, we did not renew our purchase commitment with the airline for which
we are a ticket consolidator. We anticipate that travel services net revenues
will not improve from current levels for the indefinite future.

         GROSS PROFIT. Gross profit as a percentage of total net revenues
increased to 50.8% in fiscal 2003 from 47.2% in fiscal 2002. In dollar terms,
total gross profit decreased by $1,277,000 (11.1%) to $10,185,000 in fiscal 2003
from $11,462,000 in fiscal 2002, due primarily to the decline in gross profit
from the IT services segment.

         Historically, the gross profit percentage from the engineering and
collaborative software products and services segment has been higher than the
gross profit percentage from the IT services segment because service revenues
have a higher cost of labor associated with them, consisting largely of the cost
of the consultants performing the services. The gross profit percentage in the
engineering and collaborative software products and services segment decreased
slightly to 88.1% in fiscal 2003 from 88.6% in fiscal 2002. Nevertheless, our
engineering and collaborative software products and services segment generally
produces a higher gross margin than our other segments due to the relatively
lower costs associated with each sale. The cost of revenues for the engineering
and collaborative software products and services segment includes amortization
of capitalized software development, printing services, direct supplies such as
hardware locks and recording media, salaries for the technical support
employees, and freight out. The decrease in the gross profit percentage in the
engineering and software products and services segment from the prior fiscal
year is primarily the result of reduction in revenues in fiscal 2003 from fiscal
2002 levels, with the cost of revenues remaining flat, since some of the
components of the cost of revenues, such as amortization of capitalized software
development and salaries, do not vary with changes in revenues.

         In fiscal 2003, IT services gross profit percentage increased slightly
to 24.6% from 24.2% in fiscal 2002, because of our efforts to control IT
services cost of revenues. In dollar terms, IT services gross profit decreased
by $1,013,000 (42.5%) to $1,372,000 in fiscal 2003 from $2,385,000 in fiscal
2002 due to the continued market slowdown for the IT industry. The cost of
revenues for IT services includes the salaries, bonuses and benefits for all of
the consulting employees, including consultants who are "idle" and not billable
to a particular customer or project. Our IT service consultants generally
receive higher salaries than our technical support employees, and we have
employed more consultants than technical support staff, both of which
contributed to the lower gross margin as compared to the engineering and
collaborative software products and services segment.

         Gross profit from the Web-based telecommunications and travel services
segment increased to $487,000 or 9.7% in fiscal 2003 compared to $273,000 or
6.1% in fiscal 2002. Gross profit from Web-based telecommunications services
increased to 10.9% in fiscal 2003 from 8.1% in fiscal 2002 due to better pricing
on phone minutes purchases as compared to the previous fiscal year. Gross profit
percentage from travel services increased to 17.0% in fiscal 2003 from 14.3% in
fiscal 2002. Fiscal 2002 gross margins for travel services were negatively
impacted by the events of September 11, 2001.

                                       23

<PAGE>

         The cost of revenues for our Web-based telecommunications services
includes the cost of buying minutes from another carrier. Although gross profit
from our Web-based telecommunications services increased in fiscal 2003 from the
levels in fiscal 2002, gross profit declined in the fourth quarter of fiscal
2003 due to pricing pressures. In addition, the turmoil in the
telecommunications industry has increased the uncertainty of the viability of
smaller service providers, some of whom are our customers. As a result, we
anticipate that our Web-based telecommunications services net revenues will not
improve from current levels for the indefinite future.

         The cost of travel services includes the cost of purchasing certain
airline tickets as a ticket consolidator. The events of September 11, 2001
negatively impacted our travel services. Although the travel business improved
after this initial downturn, continuing threats in the worldwide political
climate and concerns about the SARS virus have hampered the recovery.
Competition from other online travel services, many of which have greater
resources than we have, as well as reductions in travel agency commissions due
to pricing pressures experienced by the airline industry, may also impact the
gross profit from our travel business in the near future.

         Due to the highly competitive nature of Web-based telecommunications
and travel services, the gross profit from this segment is lower than the gross
profit of our other two business segments.

         In order to improve overall gross profit and gross profit percentage,
we are refocusing our sales efforts toward 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. We
have cut and will continue to cut the costs of our IT services segment in an
effort to prevent further deterioration of gross profit and will continue to
closely monitor our costs related to the Web-based telecommunications and travel
services businesses.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses decreased by $1,616,000 (12.4%) to $11,385,000
in fiscal 2003 from $13,001,000 in fiscal 2002 primarily due to our continued
efforts to control costs. The major components of the decrease in SG&A expenses
were a $723,000 reduction in consulting fees, a $446,000 reduction in
advertising expense due to cost control measures, a $460,000 reduction in
salaries and related expenses due to employee terminations, a $90,000 reduction
in IT sales commissions due to decreased volume of IT sales, and a $193,000
reduction in bad debt expense due to improved accounts receivable collections,
offset by a $357,000 increase in dealer sales commissions due to an increase in
engineering software revenues from dealers and a $138,000 increase in legal
fees. Approximately $525,000 of the $723,000 decrease in consulting expenses was
non-cash and related to the issuance during the prior fiscal year of common
stock in consideration for services.

         SG&A expenses during the fourth quarter of fiscal 2003 decreased
$708,000 (17.7%) to $3,300,000 from $4,008,000 during the same period in the
prior fiscal year primarily due to a $554,000 decrease in consulting fees, a
$295,000 decrease in bad debt expense due to improved accounts receivable
collections, a $213,000 decrease in salaries and related benefits due to
employee terminations, and a $53,000 decrease in advertising expense due to cost
control measures, offset by a $64,000 increase in legal fees and $54,000
increase in accounting fees, and a $63,000 increase in dealer commissions due to
increase in engineering software revenues from dealers.

         RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D")
expenses consist primarily of software developers' wages. In fiscal 2003, R&D
expenses increased by $111,000 (6.1%) to $1,935,000 from $1,824,000 in fiscal
2002, due to increased capitalization in fiscal 2002 of software development
expenses because of achieving technological feasibility on our WebWorks
development efforts.

         AMORTIZATION OF GOODWILL. Amortization of goodwill decreased
$1,290,000, to zero dollars in fiscal 2003 from $1,290,000 in fiscal 2002, as a
result of our adoption of SFAS No. 142 in fiscal 2003.

         DEPRECIATION. In fiscal 2003, depreciation decreased by $146,000
(11.7%) to $1,097,000 from $1,243,000. In the fourth quarter of fiscal 2003,
depreciation decreased $127,000 (31.1%) to $281,000 from $408,000 during the
same period in the prior year. Depreciation decreased during the fourth quarter
of fiscal 2003 and the full year because many assets were fully depreciated and
were not being replaced at the same rate.

                                       24

<PAGE>

         IMPAIRMENT CHARGE. In fiscal 2003, we recorded an impairment charge of
$259,000 as compared to the $1,651,000 impairment charge we recorded in fiscal
2002. The impairment charge in fiscal 2003 consisted of $67,000 to write off a
capitalized software project and $192,000 to write down a telecommunications
switch to its estimated resale value. Due to uncertainties faced by our
telecommunications business, in accordance with SFAS No. 144, we recorded an
impairment charge of $192,000, equal to the difference between the book value
and the estimated resale value of the telecommunications switch. The $1,651,000
impairment charge recorded in fiscal 2002 consisted of $684,000 to write-off
capitalized film production costs, $651,000 to write-off assets of Interra
Global, one of our subsidiaries in India, and $316,000 to write-down goodwill
related to the purchase of e-Destinations, our travel services subsidiary. We
wrote off capitalized film production costs, since revenues-to-date and
forecasted revenues from these film assets did not support carrying value of the
recorded amounts. We surrendered the license held by Interra Global and recorded
the above-noted impairment charge related to the write-off of the assets of this
subsidiary in the fourth quarter of fiscal 2002. As a result of uncertainties
faced by our travel business, in accordance with SFAS No. 121, we recorded an
impairment charge of $316,000 to write-down the value of goodwill associated
with the acquisition of e-Destinations, which is included in our Web-based
telecommunications and travel services segment. The amount of the write-down
represented the excess of the carrying amount of goodwill over its fair value.

         SEGMENT PROFITABILITY. Operating loss in the engineering and
collaborative software products and services segment decreased by $1,218,000
(26.4%) to $3,387,000 in fiscal 2003 from $4,605,000 in fiscal 2002. Operating
loss in the engineering and collaborative software products and services segment
in fiscal 2003 included $194,000 in restructuring charges and $67,000 in
impairment charges related to the write-off of capitalized software development
costs for software that was developed by a third party. In fiscal 2002, the
operating loss in the engineering and collaborative software products and
services segment included $684,000 related to the write-off of capitalized film
production costs. In the IT services segment, the operating loss decreased by
$593,000 (79.2%) to $156,000 in fiscal 2003 from $749,000 in fiscal 2002.
Operating loss in the Web-based telecommunications and travel services segment
decreased by $1,075,000 (48.5%) to $1,143,000 in fiscal 2003 from $2,218,000 in
fiscal 2002. Operating loss in the Web-based telecommunications and travel
services segment in fiscal 2003 included $192,000 related to an impairment
write-down of a telecommunications switch.

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

         With regard to our ISP initiatives in India, we redirected our primary
focus toward communication and connectivity services targeted at the corporate
market. Our original focus related to ISP services was that we planned to offer
ISP services to both consumers and businesses in India. With the proposed
acquisition of a 30% ownership interest in Vital Communications, Ltd., a
communications technology company, we had planned to start providing ISP
services for the 10,000 customers of Vital Communications as a first step toward
becoming an ISP in India. The total amount charged for the refocus of ISP
operations in fiscal 2001 was $1,998,000. This total charge consisted of
$171,000 in contractual obligations and $1,827,000 in asset write-offs related
to ISP operations in India. These charges did not include any employee costs.
However, they included the write-off of $537,000 paid toward our proposed
acquisition of a 30% ownership interest in Vital Communications, the write-off
of $346,000 related to capitalized connectivity charges for the ISP business,
and the write-off of $944,000 of ISP infrastructure equipment. The ISP
infrastructure equipment related to the Voice Over Internet Protocol ("VOIP")
technology. The equipment was determined to have no resale value because VOIP
technology was not permitted in India and because it was not cost-effective to
sell the equipment in countries where VOIP was permitted since the technology
had changed. The restructuring related to the ISP operations resulted in
elimination of depreciation and amortization expenses that would have resulted
from the ISP-related assets.

                                       25

<PAGE>

         In the Internet portal business, we redirected our primary focus toward
the telephony and travel services offered through the portal. The refocus of ISP
initiatives and portal operations enabled us to focus on those areas of the
Internet-based operations that we believed we could be successful. The
restructuring of ISP and portal operations mainly consisted of the write-off of
non-performing assets and therefore did not affect ongoing operations. The
initial restructuring charge related to the refocus of the portal business was
$194,000, of which $168,000 was related to asset write-offs, and $26,000 was
related to contractual obligations. These charges did not include any employee
costs. The entire $194,000 was paid in fiscal 2001. During fiscal 2002, an
additional $67,000 relating to contractual obligations for the portal operations
was paid. The restructuring related to the ISP initiatives and portal operations
resulted in elimination of depreciation and amortization expenses that would
have resulted if these assets were not written off. The amount of future
depreciation and amortization expense that would have resulted from these assets
if they had not been written off is approximately $399,000 per year.

         In March 2001, we closed our Boston technical support office as part of
consolidating our technical support activities. Technical support activities
previously offered from that office have been consolidated into the California
facility. The closing of this office resulted in the termination of two
employees. The restructuring charge related to the consolidation of technical
support facilities was $166,000, of which $49,000 related to accrued severance
payments for the two terminated employees and $117,000 related to contractual
lease obligations for the vacated space. We made cash payments totaling $58,000
in fiscal 2002 toward settlement of obligations related to this activity. By
consolidating the technical support functions, beginning in April 2001, we
reduced employee costs by approximately $221,000 per year and reduced facility
costs by approximately $51,000 per year. During fiscal 2003, we made cash
payments of $55,000 for severance expenses relating to the termination of one
employee and $47,000 for lease payments for the vacated office space. We expect
that employee costs and the facility costs (once the lease obligations are
satisfied) will decrease as a result of this restructuring.

         The elimination of the in-house legal department primarily consisted of
the termination of one employee whose position was not refilled. Due to the size
of our operations, a full-fledged internal legal department was unnecessary. We
are able to obtain cost-effective legal services, as and when needed, from our
continuing external legal counsel. By eliminating the in-house legal department,
we reduced employee costs by approximately $127,000 per year beginning in April
2001. In fiscal 2001, we estimated the restructure charge related to the
elimination of the in-house legal department to be $42,000. Additional charges
of $41,000 and $199,000 were recorded in fiscal 2002 and in fiscal 2003,
respectively, since the original estimate of severance expenses was
insufficient. During fiscal 2002 and fiscal 2003, we paid $52,000 and $50,000,
respectively, toward settlement of obligations due to the terminated employee.

         OTHER EXPENSE (INCOME). Net interest expense increased $33,000 (62.2%)
and $107,000 (66.9%) to $86,000 and $267,000 during the quarter and full year
ended March 31, 2003, respectively, from the same periods in the prior fiscal
year. The increase is primarily due to a decrease in investment income and an
increase in debt balances in fiscal 2003 compared to the same periods in the
prior fiscal year.

                                       26

<PAGE>

         INCOME TAXES. For fiscal 2003, we recorded an income tax benefit of
$204,000, as compared to an income tax expense of $1,192,000 for the prior
fiscal year. The tax benefit in fiscal 2003 resulted from changes in estimates
of certain tax liabilities that were no longer deemed necessary. The tax expense
in fiscal 2002 resulted when we increased our valuation allowance against
deferred tax assets by $1,334,000. In assessing the realizability of the net
deferred tax assets, we consider whether it is more likely than not that some or
all of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon either the generation of future taxable
income during the periods in which those temporary differences become deductible
or the carryback of losses to recover income taxes previously paid during the
carryback period. The valuation allowance was offset by approximately $305,000
of income tax benefits due to recovery of taxes paid in prior years, as
described in Note 9 "Income Taxes" of notes to our consolidated financial
statements included in this report.

         CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE. We adopted SFAS
No. 142 on April 1, 2002. In accordance with SFAS No. 142, we assessed the fair
value of our three reporting units by considering their projected cash flows,
using risk-adjusted discount rates, and other valuation techniques. Given
consideration of relevant factors, we concluded that, as of April 1, 2002, an
impairment write-down for our IT services division was required. In accordance
with the provisions of SFAS No. 142, we recorded an impairment charge of
$5,824,000 to IT services goodwill in fiscal 2003, and recorded this as a
cumulative effect of a change in accounting principle.

LIQUIDITY AND CAPITAL RESOURCES

         Historically, we have relied upon cash from financing activities to
fund most of the cash requirements of our operating and investing activities.
Currently, we finance our operations (including capital expenditures) primarily
through existing cash and cash equivalent balances. We have used debt and equity
financing when appropriate and practicable, such as by issuing to Laurus Master
Fund, Ltd. a $2,000,000, 6% convertible note in December 2002. Our principal
sources of liquidity at March 31, 2003 consisted of $2,861,000 of cash and cash
equivalents. Cash and cash equivalents decreased by $605,000 (17.5%) during
fiscal 2003. The primary reasons for this decline were cash used in operations,
capital expenditures, repayment of bank debt, financing fees and payments toward
capital lease obligations, which were offset by the issuance of the 6%
convertible note. In fiscal 2003, our consolidated average monthly net cash
outflow from operations was approximately $172,000. We expect our average
consolidated monthly net cash outflow from operations, excluding certain cash
payments related to litigation settlement and professional service payments, to
be approximately $100,000 through September 2003.

         Net cash used in operations was $2,068,000 in fiscal 2003 compared to
$3,225,000 in fiscal 2002. Net loss was the primary reason for the decrease in
cash used in operating activities during fiscal 2003. A $231,000 decrease in
accounts payable, a $184,000 increase in deposits, a $152,000 decrease in
accrued restructuring costs, and a $118,000 decrease in income taxes payable
contributed to the usage of cash in fiscal 2003, and were offset by a $440,000
decrease in accounts receivable, a $305,000 decrease in income tax receivable, a
$288,000 increase in deferred revenues, a $224,000 decrease in prepaid expenses
and other current assets and a $182,000 decrease in notes and related party
loans receivable. In fiscal 2002, a $426,000 decrease in accrued expenses, a
$411,000 increase in deposits, a $350,000 increase in prepaid expenses and other
current assets, a $305,000 increase in income tax receivable, a $233,000
decrease in deferred revenues, a $177,000 decrease in accrued restructuring
charges, and a $164,000 decrease in accounts payable contributed to the usage of
cash, and were offset by a $1,161,000 decrease in accounts receivable and a
$111,000 increase in other current liabilities.

         Net cash used in investing activities in fiscal 2003 consisted solely
of capital expenditures of $233,000 compared to $394,000 in fiscal 2002. In
fiscal 2002, an additional $72,000 was used for payments to acquire companies,
net of cash acquired.

                                       27

<PAGE>

         In fiscal 2003, financing activities provided cash, whereas in fiscal
2002 we used cash in financing activities. Cash provided by financing activities
during fiscal 2003 primarily resulted from the convertible debt we issued to
Laurus Master Fund, Ltd. on December 13, 2002. The proceeds from this financing
activity, net of financing fees, were $1,786,000. We used $647,000 in fiscal
2003 to repay bank debt and capital lease obligations. In fiscal 2002, we used
$943,000 to repay long-term debt and capital lease obligations and to repurchase
common stock in settlement of repurchase obligations entered into at the time of
acquisition of Allegria Software.

         We incurred net losses of $10,529,000 and $8,944,000 and used cash in
operations of $2,068,000 and $3,225,000 in fiscal years 2003 and 2002,
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.

         The following table summarizes our contractual obligations and
commercial commitments at March 31, 2003 (in thousands of dollars):

<TABLE>
<CAPTION>
                                             -------------------------------------------------------------------
                                                                    PAYMENTS DUE BY PERIOD
                                             -------------------------------------------------------------------
                                                          LESS THAN 1
                                                          ------------
CONTRACTUAL OBLIGATIONS                           TOTAL       YEAR      1-3 YEARS   4-5 YEARS    AFTER 5 YEARS
-----------------------                           -----       ----      ---------   ---------    -------------
<S>                                                <C>         <C>        <C>           <C>              <C>
Long-Term Debt                                     2,610       1,340      1,112         107              51
Capital Lease Obligations                          1,039         412        498         129               -
Operating Leases                                   3,876         541        873         680           1,782

                                             -------------------------------------------------------------------
Total Contractual Cash Obligations                 7,525       2,293       2,483        916            1,833
</TABLE>

         As indicated above, we historically have relied upon cash from
financing activities to fund most of the cash requirements of our operating and
investing activities. We have not been able to generate sufficient cash from our
operating activities in the past, and there is no assurance we will be able to
do so in the future. However, we believe that current and future available
capital resources will be adequate to fund our operations for the next twelve
months, because we are continuing to implement cost containment measures in an
effort to reduce net cash outflow both domestically and abroad and are working
to increase sales of our software products. The results of these combined
efforts have reduced our consolidated monthly net cash outflow from operations
to approximately $100,000 per month excluding certain items related to legal
settlement and other professional service payments. We intend to continue these
combined efforts with the goal of eliminating our monthly net cash outflow from
operations by September 30, 2003.

         Our bank line of credit expired in August 2001 and our $500,000 line of
credit from a major stockholder expired March 31, 2003. On July 10, 2003, we
received a commitment to modify and expand to $4,000,000 our financing
arrangement with Laurus Master Fund, Ltd. The modification and expansion may
have a dilutive effect to the existing stockholders. If the final terms are
acceptable to both parties, the modification and expansion could be finalized
in the quarter ending September 30, 2003. If the proposed modification and
expansion does not occur, we may seek other sources of debt or equity funding.

         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.

                                       28

<PAGE>

         We believe we will be able to generate cash from operations or through
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.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         As described above under the heading "Critical Accounting Policies -
Impairment of Long-Lived Assets, Including Goodwill," in June 2001 the FASB
issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and
Other Intangible Assets."

         We adopted the provisions of SFAS No. 141 as of July 1, 2001, and SFAS
No. 142 became effective for us on April 1, 2002.

         We assessed the fair value of our three reporting units by considering
their projected cash flows, using risk-adjusted discount rates and other
valuation techniques. Given consideration of relevant factors, we concluded
that, as of April 1, 2002, an impairment write-down for our IT services division
was required. We recorded an impairment charge of $5,824,000 to IT services
goodwill in fiscal 2003, and recorded this 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.

         As described above under the heading "Critical Accounting Policies -
Impairment of Long-Lived Assets, Including Goodwill," in August 2001, the FASB
issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." We adopted SFAS No. 144 on April 1, 2002. The adoption of SFAS No. 144
has not materially impacted our consolidated financial condition or results of
operations.

         In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated with
a restructuring, discontinued operations, plant closing, or other exit or
disposal activities. We adopted the provisions of SFAS No. 146 on January 1,
2003. This statement applies on a prospective basis to exit or disposal
activities that are initiated after December 31, 2002, and therefore has not
materially impacted our consolidated financial condition or results of
operations.

         We adopted the initial recognition and measurement provisions of FASB
Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others," on January 1, 2003, which provisions apply on a prospective basis to
guarantees issued or modified after December 31, 2002. We adopted the disclosure
provisions of FIN No. 45 during the quarter ended March 31, 2003. In the
ordinary course of business, we are not subject to potential obligations under

                                       29


<PAGE>

guarantees that fall within the scope of FIN No. 45 except for standard
indemnification and warranty provisions that are contained within many of our
customer license and service agreements, and these give rise only to the
disclosure requirements prescribed by FIN No. 45. In addition, under previously
existing accounting principles generally accepted in the United States, we
continue to monitor the conditions that are subject to the guarantees and
indemnifications to identify whether it is probable that a loss has occurred,
and will recognize any such losses under the guarantees and indemnifications
when those losses are estimable.

         Indemnification and warranty provisions contained within our customer
license and service agreements are generally consistent with those prevalent in
our industry. The duration of our service warranties generally does not exceed
15 days following completion of our services. We have not incurred significant
obligations under customer indemnification or warranty provisions historically
and do not expect to incur significant obligations in the future. Accordingly,
we do not maintain accruals for potential customer indemnification or
warranty-related obligations. The maximum potential amount of future payments
that we could be required to make is generally limited under the indemnification
provisions in our customer license and service agreements.

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires us to record the fair value of an
asset retirement obligation as a liability in the period in which we incur a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development or normal use of the
assets. We also record a corresponding asset, which is depreciated over the life
of the asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation will be adjusted at the end of each period to reflect
the passage of time and changes in the estimated future cash flows underlying
the obligation. We adopted SFAS No. 143 on April 1, 2003. The adoption of SFAS
No. 143 has not materially impacted our consolidated financial condition or
results of operations.

         On January 17, 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities," which requires extensive disclosures and will
require companies to evaluate variable interest entities created after January
31, 2003, and existing entities to determine whether to apply the
interpretation's consolidation approach to them. Companies must apply the
interpretation to entities with which they are involved if the entity's equity
has specified characteristics. If it is reasonably possible that a company will
have a significant variable interest in a variable interest entity at the date
the interpretation's consolidation requirements become effective, the company
must disclose the nature, purpose, size and activities of the variable interest
entity and the consolidated enterprise's maximum exposure to loss resulting from
its involvement with the variable interest entity in all financial statements
issued after January 31, 2003, regardless of when the variable interest entity
was created. Since we have no interest in any variable interest entity, we
believe the adoption of this interpretation will not materially impact our
consolidated financial condition or results of operations.

         The EITF recently reached a consensus for EITF 00-21, "Revenue
Arrangements with Multiple Deliverables." EITF 00-21 provides accounting
guidance for allocation of revenue where delivery or performance of products or
services may occur at different points in time or over different periods.
Companies are required to adopt this consensus for fiscal periods beginning
after June 15, 2003. We believe the adoption of EITF 00-21 will not materially
impact our financial condition or results of operations.

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope

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as a liability (or as an asset in some circumstances). Many of those instruments
were previously classified as equity. This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective for our quarter that began July 1, 2003. For financial instruments
created before the issuance date of this statement and still existing at the
beginning of the interim period of adoption, transition shall be achieved by
reporting the cumulative effect of a change in accounting principle by initially
measuring the financial instruments at fair value or other measurement attribute
required by this statement. We believe the adoption of SFAS No. 150 will not
materially impact our consolidated financial condition or results of operations.

RISK FACTORS

         AN INVESTMENT IN SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF
RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS ANNUAL REPORT ON FORM 10-KSB, YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS BEFORE DECIDING TO INVEST OR MAINTAIN AN INVESTMENT
IN SHARES OF OUR COMMON STOCK. THIS ANNUAL REPORT CONTAINS OR INCORPORATES BY
REFERENCE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS ANNUAL REPORT. IF ANY
OF THE FOLLOWING RISKS ACTUALLY OCCURS, IT IS LIKELY THAT OUR BUSINESS,
FINANCIAL CONDITION AND OPERATING RESULTS WOULD BE HARMED. AS A RESULT, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE PART OR ALL
OF YOUR INVESTMENT.

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

         We incurred net losses of $10,529,000 and $8,944,000 for the fiscal
years ended March 31, 2003 and 2002, respectively. We used cash in operations
totaling $2,068,000 and $3,225,000 for the fiscal years ended March 31, 2003 and
2002, respectively. During the past year, we have significantly reduced our
operating expenses. However, in order to achieve profitability, we must increase
our revenues while continuing to control our expenses. We are continuing to
implement cost containment measures in an effort to reduce our cash consumption
from operations both domestically and abroad, and we are working to increase
sales of our software products. We expect the results of these combined efforts
to reduce our average monthly net cash used in operations from $172,000 per
month in fiscal 2003 to approximately $100,000 per month excluding certain cash
payments related to settlement of litigation and other professional services in
the first half of fiscal 2004.

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

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<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, 2003 and 2002, we had working capital of $1,077,000 and $3,766,000,
respectively, and an accumulated deficit of $27,334,000 and $16,805,000,
respectively. As of those dates, we had $2,861,000 and $3,466,000, respectively,
in cash and cash equivalents and $2,889,000 and $3,325,000, respectively, 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. On July
10, 2003, we received a commitment to modify and expand to $4,000,000 our
financing arrangement with Laurus Master Fund, Ltd., or Laurus. The modification
and expansion may have a dilutive effect to the existing stockholders. If the
final terms are acceptable to both parties, the modification and expansion
could be finalized in the quarter ending September 30, 2003. If the proposed
modification and expansion does not occur, we may seek other sources of debt
or equity funding. 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.

         OUR ADOPTION OF SFAS NO. 142 INCREASED OUR LOSSES FOR THE YEAR ENDED
         MARCH 31, 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.

         In July 2001, the FASB issued SFAS No. 142. We adopted this statement
effective April 1, 2002. Under this statement, goodwill is no longer amortized
and became subject to annual testing for impairment beginning April 1, 2002. The
provisions of this statement required us to perform a two-step test to assess
goodwill for impairment. In the first step, we compare the fair value of each
reporting unit to its carrying value. If the fair value exceeds the carrying
value, then goodwill is not impaired and we need not proceed to the second step.
If the carrying value of a reporting unit exceeds its fair value, then we must
determine and compare the implied fair value of the reporting unit's goodwill to
the carrying value of its goodwill. If the carrying value of the reporting
unit's goodwill exceeds its implied fair value, then we will record an
impairment loss for the excess amount.

         We assessed the fair value of our three reporting units by considering
their projected cash flows, using risk-adjusted discount rates, and other
valuation techniques. Given consideration of relevant factors, we concluded
that, as of April 1, 2002, an impairment write-down for our IT services division
was required. In accordance with the provisions of the statement, 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.

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<PAGE>

         OUR LIMITED OPERATING HISTORY IN OUR TELECOMMUNICATIONS AND TRAVEL
         SERVICES BUSINESS MAKES IT DIFFICULT TO PREDICT OUR FUTURE SUCCESS.

         We have only been offering Internet-based business-to-business services
and telephony and travel services to the global community for the past three
years. As a result, we have limited operating histories in each of these lines
of business. Therefore, our historical financial information is of limited value
in projecting our future success in these markets.

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

         The 6% convertible note in the original principal amount of $2,000,000,
or the December 2002 note, that we issued to Laurus on December 13, 2002,
initially was convertible by Laurus into up to 1,250,000 shares of our common
stock at an initial fixed conversion price of $1.60 per share. This number of
shares represented approximately 7.2% of the 17,325,150 shares of our common
stock that were outstanding on July 7, 2003. As a result, if the entire
principal balance of the December 2002 note were converted at the initial
conversion price, substantial dilution of the voting power of your investment
and of our earnings per share would occur.

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

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

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

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

                                       33

<PAGE>

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

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

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

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

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

                                       34

<PAGE>

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

         A change of control of our company could occur if, as discussed
elsewhere in these risk factors, conversions of the December 2002 note occur at
dramatically reduced conversion prices, such as if Laurus sequentially converts
portions of the note at alternate conversion prices into shares of our common
stock and resells those shares into the market. If a change of control occurs,
then the stockholders who historically have controlled our company would no
longer have the ability to exert significant control over matters that could
include the election of directors, changes in the size and composition of the
board of directors, and mergers and other business combinations involving our
company. Instead, one or more other stockholders could gain the ability to exert
this type of control and may also, through control of the board of directors and
voting power, be able to control certain decisions, including decisions
regarding the qualification and appointment of officers, dividend policy, access
to capital (including borrowing from third-party lenders and the issuance of
additional equity securities), and the acquisition or disposition of our assets.

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

         A change of control of our company or a substantial decline in the
market value of our common stock could occur if, as discussed elsewhere in these
risk factors, conversions of the December 2002 note occur at dramatically
reduced conversion prices, such as if Laurus sequentially converts portions of
the note into shares of our common stock and resells those shares into the
market. Nasdaq's qualification standards require, among other things, that
issuers apply for initial inclusion on Nasdaq following a change of control.
Nasdaq looks at many factors in determining whether a change of control has
occurred, including without limitation, changes in the management, board of
directors, voting power and ownership of a company. If Nasdaq determines that a
change of control has occurred due to conversions of the December 2002 note or
otherwise, we would need to file a new listing application if we want to
maintain our Nasdaq listing. We do not know whether, at the time, if any, that
we would file a new listing application with Nasdaq, we would meet the initial
listing standards of either The Nasdaq National Market or The Nasdaq 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 note and resales of the
underlying shares or otherwise, we may be delisted if we do not regain
compliance with the bid price requirement within any applicable grace period.

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

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

                                       35

<PAGE>

         The agreements we entered into in connection with our issuance of the
December 2002 note require us to, among other things, register for resale the
shares of common stock issued or issuable under the note and the accompanying
warrant and maintain the effectiveness of the registration statement for an
extended period of time. We currently are not in compliance with our
registration obligations and are subject to liquidated damage assessments of 1%
of the principal amount of the note for the first 45 days of non-compliance and
2% of the principal amount of the note for each month of non-compliance
thereafter, subject to pro ration for partial months. On July 10, 2003, we
received a commitment to modify and expand to $4,000,000 our financing
arrangement with Laurus. The modification and expansion may, among other things,
modify our registration obligations. If we are unable to file and obtain and
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 negatively impacting
our cash flows.

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

         Our founder, Chairman and Chief Executive Officer, Amrit K. Das, and
our President and Chief Operating Officer, Jyoti Chatterjee, have each been with
us for at least 17 years. Their experience, expertise, industry knowledge and
historical company knowledge would be extremely difficult to replace if we were
to lose the services of either of them. The precise impact of the loss of
services of either of them is extremely difficult to predict, but would likely
result in, at a minimum, significant costs to recruit, hire and retain a
successor and 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
         LOWER PROFIT MARGINS AND MAY RESULT IN REDUCED REVENUES OR LOSS OF
         MARKET SHARE.

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

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

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

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<PAGE>

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

         We have established and acquired international subsidiaries that
prepare their balance sheets in the relevant foreign currency. In order to be
included in our consolidated financial statements, these balance sheets are
converted, at the then current exchange rate, into United States 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 United States 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
United States accounted for approximately 37.7% and 24.8% of our total net
revenues for the fiscal years ended March 31, 2003 and March 31, 2002,
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 United States.
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 United States. 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 United States. 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, 2003 and March 31, 2002, we
derived only approximately 6.2% and 5.5%, respectively, of our total net
revenues from sales made by our Indian operations primarily to customers in
India. However, nearly one-half of our employees, many of whom are engaged in
non-sales activities such as technical support and research and development,
were based in India. India has from time to time experienced civil unrest and
hostilities with its neighboring countries. Although the Indian government has
changed three times since 1996, the government of India has pursued policies of
economic liberalization throughout the past decade. These policies have resulted
in significantly increased opportunities for publicly and privately held
businesses in the information technology services markets in 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.

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<PAGE>

         THE RECENT WAR AND CONTINUING TENSIONS IN THE MIDDLE EAST COULD
         ADVERSELY AFFECT INTERNATIONAL TRAVEL, WHICH, IN TURN, COULD NEGATIVELY
         IMPACT REVENUES FROM OUR TRAVEL BUSINESS.

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

         REVENUES FOR OUR TRAVEL SERVICES DIVISION AND FOR OUR COMPANY OVERALL
         COULD BE NEGATIVELY AFFECTED IF INTERNATIONAL TRAVEL DECLINES DUE TO
         CONCERNS OVER THE OUTBREAK OF SARS.

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

         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.

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

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

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

         The market prices of securities of technology-based companies like
ours, particularly Internet-related companies, currently are highly volatile.
The market price of our common stock has fluctuated significantly in the past.
In fact, during the 52-week period ended July 7, 2003, the high and low sale
prices of a share of our common stock were $3.70 and $0.68, respectively. Our
market price may continue to exhibit significant fluctuations in response to a
variety of factors, many of which are beyond our control. These factors include,
among others, deviations in our results of operations from the estimates of
securities analysts, changes in securities analysts' estimates of our financial

                                       38

<PAGE>

performance, changes in market valuations of similar companies and stock market
price and volume fluctuations generally. Additionally, until the full effects of
cost-cutting that began more than a year ago become clear, including whether
those cuts have a long-term negative impact on revenues, it is likely that our
quarter-to-quarter performance will be unpredictable and our stock price
particularly volatile.

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

         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, 2003, we had available net operating loss carryforwards
of $15,601,000 for federal income tax purposes and $8,710,000 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 7, 2003, our executive officers and directors and their
family members together beneficially owned approximately 45.2% 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.

                                       39


<PAGE>

                                    PART III

ITEM 9.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

         Our directors, executive officers and key employees as of July 7, 2003
were as follows:

<TABLE>
<CAPTION>

                 Name                    Age                                 Position
                 ----                    ---                                 --------
<S>                                      <C>      <C>
Amrit K. Das (2)                         57       Chairman of the Board, Chief Executive Officer and
                                                     Director
Jyoti Chatterjee (2)                     47       President, Chief Operating Officer and Director
Santanu Das                              30       Corporate Vice President, President of Engineering and
                                                     Collaborative Software and Director
Stephen Owen                             44       Corporate Vice President, President of European
                                                     Operations and Director
Bruce K. Nelson                          48       Chief Financial Officer
Clara Young                              48       Corporate Vice President, Chief Administrative Officer
                                                     and Secretary
Garret Vreeland (1) (2)                  43       Director
Stanley W. Corbett (1) (2)               70       Director
Dr. Laxmi Mall Singhvi (1)               70       Director
</TABLE>
----------------------------
(1) Member of Audit Committee.
(2) Member of Compensation and Stock Option Committee.

         AMRIT K. DAS is the founder of our company and has served as our Chief
Executive Officer and as a director since our inception in 1981. 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.

         JYOTI CHATTERJEE has served as our President since March 1999 and has
served as our Chief Operating Officer and as a director since April 1990. Mr.
Chatterjee served as our Chief Financial Officer from March 2001 to March 2002,
as our Executive Vice President from April 1990 to March 1999 and as our Chief
Consulting Engineer from 1985 to 1990. Mr. Chatterjee holds a B.S. in Structural
Engineering from the Indian Institute of Technology and an M.S. in Structural
Engineering from the University of Pennsylvania.

         SANTANU DAS has served as our Corporate Vice President and President of
Engineering and Collaborative Software since April 2002, as our Vice President
New Technology since July 1999 and as a director since September 1996. Prior to
that, Mr. Das served as our Corporate Vice President and President, 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 Das.

         STEPHEN OWEN has served as our Corporate Vice President and as a
director since September 2001 and as President of our European Operations since
October 1999. He served as Senior Vice President from October 1999 to September
2001. Prior to that, he served as our Director of European Operations from 1987
to 1999. Mr. Owen holds a B.S. in Civil Engineering from the University College
Swansea, United Kingdom. Mr. Owen is a Chartered Engineer for both Civil and
Marine Technology Engineering.

                                       40

<PAGE>

         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 YOUNG has served as our Vice President and Chief Administrative
Officer since January 2001 and as 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.

         GARRET VREELAND has served as one of our directors since December 2000.
Mr. Vreeland is Vice President, National Sales at Looksmart, Ltd. He has been
with Looksmart, Ltd. since February 2002. Prior to that, he was Vice President
of United States advertising sales at Lycos from June 1998 to January 2002. From
November 1995 to June 1998, Mr. Vreeland was in advertising sales at Time, Inc.
Prior to that, Mr. Vreeland spent 11 years in the advertising agency business at
Ogilvy & Mather. Mr. Vreeland holds a B.S. in Marketing from University of
Vermont.

         STANLEY W. CORBETT has served as one of our directors since October
2002 and as Chairman of our Audit Committee since November 2002. Since 1989, Mr.
Corbett has been providing consulting services for software system
implementations to first and second tier defense contractors as well as to
commercial manufacturers. Prior to that, Mr. Corbett was a manufacturing
executive in the aerospace industry. Mr. Corbett holds a B.S. in Mechanical
Engineering from Lehigh University, and an M.S. in Industrial Engineering from
Stanford University. Mr. Corbett has also completed the UCLA Executive Program.

         DR. LAXMI MALL SINGHVI has served as one of our directors since
November 2001. Dr. Singhvi at present is a member of the Rajya Sabha
(1998-2004), the Upper House of the Federal Legislature (the Parliament of
India); a Senior Advocate in the Supreme Court of India; President of Indira
Gandhi National Centre for Arts; Chairman of a National High Level Committee on
Persons of Indian Origin and Non-Resident Indians with the rank of Cabinet
Minister in the Central Government of India; and President of the Centre for
Contemporary Culture. He received the Padma Bhushan, one of the highest civilian
honors in India, in 1998 in recognition of his pre-eminent contributions to
public law and public affairs. From 1991 to 1997, he served as a High
Commissioner for India in the United Kingdom, and in 1987 he was elected
Honorary Bencher and Master of the Middle Temple, one of the highest honors for
those in the legal profession in the United Kingdom. From 1970 to 1977, he
served as the Advocate General of India. Dr. Singhvi is also a recipient of the
U Thant Peace Award.

         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.

                                       41

<PAGE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended (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
SEC. 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, 2003 and thereafter, or any written
representations received by us from reporting persons that no other reports were
required, we believe that, during our 2003 fiscal year, all Section 16(a) filing
requirements applicable to our reporting persons were met.

                                       42

<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

         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 year 2003 is shown below.

<TABLE>
<CAPTION>
                                             Annual Compensation              Long-Term Compensation
                                      ---------------------------------    ---------------------------
                                                                              Awards          Payouts
                                                                              ------          -------

                                                                            Securities
                                                        Other Annual        Underlying       All Other
          Name and                       Salary       Compensation (1)        Options      Compensation
     Principal Position        Year        ($)              ($)                 (#)            ($)
     ------------------        ----   --------------- -----------------   -------------- -------------
<S>                           <C>        <C>               <C>                <C>         <C>
Amrit K. Das                  2003       335,513           34,259 (2)           ---       15,524  (3)
   Chief Executive Officer    2002       348,923           43,024 (2)           ---       18,599  (4)
                              2001       340,615           57,414 (2)         30,000      26,068  (5)

Jyoti Chatterjee              2003       214,665              ---               ---       13,756  (6)
    President and Chief       2002       223,062              ---               ---       15,128  (7)
    Operating Officer         2001       214,292           28,325 (2)         30,000      17,926  (8)

Clara Young                   2003       128,682              ---               ---        6,340  (9)
    Corp. Vice President,     2002       133,962              ---               ---       11,305 (10)
    Chief Administrative      2001       125,192              ---              9,000       7,600 (11)
    Officer

Stephen Owen                  2003       142,610              492 (12)          ---          680 (13)
    Corporate Vice President, 2002       169,043            5,100 (12)          ---          646 (13)
    President, European       2001       150,967            7,820 (12)        12,000         672 (13)
    Operations

Santanu Das                   2003       120,150              ---               ---       11,242 (14)
    Corporate Vice President, 2002       124,616              ---               ---       15,992 (15)
    President, Engineering &  2001       124,616              ---             30,000      12,627 (16)
    Collaborative Software
</TABLE>

--------------------------------------------------------------------------------
(1)  The costs of certain benefits are not included because they did not exceed,
     in the case of each named executive officer, the lesser of $50,000 or 10%
     of the total annual salary and bonus as reported above.
(2)  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 $9,200 in
     company contributions to the 401(k) plan.
(4)  Includes $7,499 in premiums paid by us pursuant to a split-dollar life
     insurance policy established for the benefit of Amrit Das and $11,100 in
     company contributions to the 401(k) plan.
(5)  Includes $15,568 in premiums paid by us pursuant to a split-dollar life
     insurance policy established for the benefit of Amrit Das and $10,500 in
     company contributions to the 401(k) plan.
(6)  Includes $2,471 in premiums paid by us pursuant to a life insurance policy
     established for the benefit of Jyoti Chatterjee, $1,689 in premiums paid by
     us pursuant to a long-term disability insurance policy and $9,596 in
     company contributions to the 401(k) plan.
(7)  Includes $2,471 in premiums paid by us pursuant to a life insurance policy
     established for the benefit of Jyoti Chatterjee, $1,689 in premiums paid by
     us pursuant to a long-term disability insurance policy and $10,968 in
     company contributions to the 401(k) plan.
(8)  Includes $5,737 in premiums paid by us pursuant to a life insurance policy
     established for the benefit of Jyoti Chatterjee, $1,689 in premiums paid by
     us pursuant to a long-term disability insurance policy and $10,500 in
     company contributions to the 401(k) plan.
(9)  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.
(10) Includes $400 in premiums paid by us pursuant to a long-term disability
     insurance policy for the benefit of Clara Young and $10,905 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 $7,290 in company
     contributions to the 401(k) plan.
(12) Represents imputed interest for Mr. Owen's non-interest bearing loan.
(13) Represents premiums paid by us pursuant to a life insurance policy
     established for the benefit of Stephen Owen.

                                       43

<PAGE>

(14) 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.
(15) Includes $5,150 in premiums paid by us pursuant to a life insurance policy
     established for the benefit of Santanu Das and $10,842 in company
     contributions to the 401(k) plan.
(16) Includes $5,150 in premiums paid by us pursuant to a life insurance policy
     established for the benefit of Santanu Das and $7,477 in company
     contributions to the 401(k) plan.

STOCK OPTION GRANTS IN FISCAL 2003

         In fiscal 2003, no stock options were granted to the named executive
officers. We have never granted any stock appreciation rights.

OPTION EXERCISES AND FISCAL YEAR-END VALUES

         Shown below is information with respect to the number of shares of our
common stock underlying unexercised options at March 31, 2003 and the value of
unexercised in-the-money options at March 31, 2003 for the named executive
officers. The named executive officers did not hold any stock appreciation
rights or exercise any options during fiscal 2003.

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

                                                              Number of Securities
                                                         Underlying Unexercised Options        Value of Unexercised In-the-Money
                           Shares                            At Fiscal Year-End (#)              Options at Fiscal Year-End ($)
                        Acquired on         Value            ----------------------              ------------------------------
         Name           Exercise (#)     Realized ($)        Exercisable      Unexercisable      Exercisable      Unexercisable
         ----           ------------     ------------        -----------      -------------      -----------      -------------
<S>                          <C>             <C>             <C>                <C>              <C>                  <C>
Amrit K. Das                 ---             ---             190,000            10,000           319,200              16,800

Jyoti Chatterjee             ---             ---             246,000            10,000           413,280              16,800

Clara Young                  ---             ---              83,000             3,000           139,440               5,040

Stephen Owen                 ---             ---              88,000             4,000           147,840               6,720

Santanu Das                  ---             ---             190,000            10,000           319,200              16,800

</TABLE>

LONG-TERM INCENTIVE PLAN AWARDS

         In fiscal 2003, no awards were made to the named executive officers
under long-term incentive plans.

DIRECTORS' COMPENSATION

         During fiscal 2003, our directors did not receive any cash compensation
for service on our board of directors or any committee thereof, but were
reimbursed for certain expenses in connection with attendance at board of
directors and committee meetings. At the discretion of the Stock Option
Committee of the board of directors, directors may be granted stock options. In
fiscal 2003, Stanley W. Corbett was awarded a non-qualified option to purchase
12,000 shares of our common stock upon his appointment to our board of directors
in July 2002. This option has an exercise price of $2.63 per share and vests in
three equal annual installments commencing July 24, 2002.

                                       44

<PAGE>

REPRICING OF OPTIONS AND SARS

         No adjustments to or repricing of stock options previously awarded to
named executives occurred in fiscal 2003.

EMPLOYMENT AGREEMENTS

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

         The agreements provide that Mr. Amrit Das, Mr. Chatterjee, Ms. Young
and Mr. Santanu Das will receive minimum base annual salaries of $312,000,
$202,800, $117,000 and $120,000, respectively. Each 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.

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

BENEFICIAL OWNERSHIP TABLE

     GENERAL

         As of July 7, 2003, 17,325,150 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.

                                       45

<PAGE>

         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
1.00%.

         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 the purpose of computing the percentage ownership
of any other person or group.

     SHARES BENEFICIALLY OWNED BY LAURUS MASTER FUND, LTD.

         Laurus Master Fund, Ltd., or 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 and a 6% secured convertible note that we issued in December 2002.
The warrant is exercisable at various fixed exercise prices. The exercise prices
and number of shares underlying the warrant are subject to anti-dilution
adjustments in connection with mergers, acquisitions, stock splits, dividends
and the like.

         The note is convertible at a fixed conversion price of $1.60 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
note was $1,800,000. For purposes of calculating the number of shares shown in
the table as underlying the note, we have used a conversion price of $1.60.

         Laurus is subject to various beneficial ownership and conversion volume
limitations with regard to the note and the warrant. Laurus may not on any given
date convert the note if, and to the extent, that the conversion would result in
the issuance of a number of shares of common stock with a dollar value that
exceeds 25% of the aggregate dollar trading volume of our common stock during
the preceding 30 trading days. However, Laurus may make a series of smaller
conversions that do not exceed this limitation.

         In addition, Laurus is subject to a contractual 4.99% beneficial
ownership limitation that prohibits Laurus from converting the note or
exercising the warrant 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 note and can be
waived by Laurus upon 75 days' advance notice to us. In addition, this 4.99%
limitation does not prevent Laurus from converting the note into or exercising
the warrant 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 note or
exercising the warrant if, and to the extent, the conversion or exercise would
result in Laurus and its affiliates beneficially owning more than 3,463,625
shares of our common stock, will be removed if and when we obtain stockholder
approval at Laurus' request or if an exemption from applicable Nasdaq corporate
governance rules becomes available.

                                       46

<PAGE>

         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 the principals of Laurus Capital Management, LLC, and their address is
152 West 57th Street, New York, New York 10019.

<TABLE>
<CAPTION>

     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                                  2,760,018 (1)                           15.8%

     Jyoti Chatterjee                                517,490 (2)                            2.9%

     Clara Young                                     118,372 (3)                              *

     Stephen Owen                                    171,524 (4)                              *

     Santanu Das                                   2,740,900 (5)                           15.6%

     Garret W. Vreeland                                6,667 (6)                              *

     Stanley W. Corbett                                8,000 (7)                              *

     Dr. Laxmi M. Singhvi                              4,167 (8)                              *

     Peter Kellogg                                 3,776,500 (9)                           21.8%

     Sormistha Das                                1,865,924 (10)                           10.8%

     Laurus Master Fund, Ltd.                     1,346,082 (11)                            7.2%

     All directors and executive
      officers as a group (9
      persons)                                    6,327,138 (12)                           34.9%
</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 190,000 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 246,000 shares of common stock underlying options.
(3)    Includes 83,000 shares of common stock underlying options.
(4)    Includes 38,202 shares of common stock held indirectly through Mr.
       Owen's spouse and 88,000 shares of common stock underlying options.
(5)    Includes 190,000 shares of common stock underlying options.
(6)    Represents shares of common stock underlying options.
(7)    Represents shares of common stock underlying options.
(8)    Represents shares of common stock underlying options.
(9)    Includes 145,000 shares of common stock held indirectly through I.A.T.
       Reinsurance Syndicate, Ltd., a Bermuda corporation of which Mr. Kellogg
       is the sole holder of voting stock. Mr. Kellogg disclaims beneficial
       ownership of the shares held by that corporation. The address for Mr.
       Kellogg is 120 Broadway, New York, New York, 10271.

                                       47

<PAGE>

(10)   Includes 3,000 shares of common stock underlying options.
(11)   Represents 200,000 shares of common stock underlying warrants and
       1,146,082 shares of common stock underlying a convertible promissory
       note.
(12)   Includes 815,834 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.

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, 2003. 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") and netGuru,
Inc. 2000 Stock Option Plan (the "2000 Plan") (together "the option plans").

<TABLE>
<CAPTION>
                                                                                    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 (a) (1)           and Warrants (b)             Column (a))
      -------------              ----------------           ----------------             -----------
<S>                                  <C>                          <C>                      <C>
Equity compensation
   plans approved by
   security holders                  1,826,000                    $2.18                    872,000
Equity compensation
   plans not approved by
   security holders                     --                        --                         ---
                            ---------------------------- ------------------------ --------------------------
Total                                1,826,000                    $2.18                    872,000
                            ============================ ======================== ==========================
</TABLE>

(1)      Number of shares is subject to adjustment for changes in capitalization
         for stock splits, stock dividends and similar events.

         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 employment and other conditions.

         At March 31, 2003, there were 368,000 options outstanding under the
1996 Plan at a weighted average exercise price of $1.39; 330,000 options
outstanding under the 1997 Plan at a weighted average exercise price of $1.48;
598,000 options outstanding under the 1998 Plan at a weighted average exercise
price of $2.28; and 530,000 options outstanding under the 2000 Plan at a
weighted average exercise price of $3.06 (see Note 5 "Stockholders' Equity" of
Notes to Consolidated Financial Statements included in this report).

                                       48


<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         As described in Items 5 and 11 of this report, in December 2002, we
entered into a Securities Purchase Agreement with Laurus Master Fund, Ltd.
Pursuant to that agreement, we issued to Laurus Master Fund, Ltd. a 6%
convertible note in the principal amount of $2,000,000 that matures on December
13, 2004, and a warrant to purchase up to 200,000 shares of our common stock at
various exercise prices. The net proceeds from the note were used for general
working capital. The note, which is being amortized over a 20-month period
commencing on May 1, 2003, may be repaid, at our option, in cash or through the
issuance of shares our common stock under certain circumstances. As a result of
this financing, Laurus Master Fund, Ltd. became the beneficial owner of more
than 5% of our outstanding common stock if contractual beneficial ownership and
conversion limitations are disregarded. In connection with this financing, we
paid a $200,000 fee to an affiliate of Laurus Master Fund, Ltd. On July 10,
2003, we received a commitment to modify and expand to $4,000,000 our financing
arrangement with Laurus Master Fund, Ltd. The modification and expansion may
have a dilutive effect to the existing stockholders. If the final terms are
acceptable to both parties, the modification and expansion could be finalized
in the quarter ending September 30, 2003.

         In July 2002, Mr. Peter Kellogg, one of our major stockholders,
executed a letter of commitment to provide us with a revolving line of credit
expiring March 31, 2003, in the amount of $500,000 at annual interest rates
varying from 2.0% over prime rate to 10.0% over prime rate depending on the
outstanding balance. The revolving line of credit had no loan covenant or ratio
requirements. We did not borrow any funds under this line of credit prior to its
expiration on March 31, 2003.

         In February 2002, Mr. Amrit Das and Mr. Jyoti Chatterjee pledged some
of their personal assets as collateral to finance our telephony switch for
$500,000.

         On May 3, 2001, we entered into an interest bearing secured loan
agreement and promissory note with Mr. Santanu Das, an officer and director of
our company, in the amount of $70,000 at an annual interest rate of 6%. The loan
was payable through payroll withholdings from August 24, 2001 through August 4,
2006. Shares of netGuru common stock owned by Mr. Das, as well as all vested but
unexercised options held by him, secured the loan. In April 2002, Mr. Das repaid
the balance of this loan in full.

         In November 2000, we entered into a non-interest bearing secured loan
agreement and promissory note with Mr. Stephen Owen, an officer and director of
our company, in the amount of $85,000. The loan was secured by Mr. Owen's pledge
of the proceeds from the exercise and sale of his vested options. As of March
31, 2003, the total outstanding balance on this loan was $7,879, which is
included in notes and related party receivable in the accompanying consolidated
financial statements. In June 2003, Mr. Owen repaid this loan in full.

         In March 1999, 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 term loan bears an annual interest of 16.6% payable
monthly. The principal is payable in quarterly installments beginning June 2000
and ending March 2005. At March 31, 2003, we owed $541,000 on this loan.

         We are a party to employment agreements with related parties, as more
particularly described in Item 10 of this report. In addition, Sormistha Das,
who beneficially owned more than 10% of our outstanding shares of common stock
as of July 7, 2003, serves as our assistant controller.

                                       49

<PAGE>

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

         (a)      Exhibits

                  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)

                  3.1      Form of Restated Certificate of Incorporation of the
                           registrant filed with the Delaware Secretary of State
                           on August 28, 2000 (2)

                  3.5      Bylaws of the registrant (4)

                  4.1      netGuru, Inc. Securities Purchase Agreement dated
                           December 13, 2002 by and between the registrant and
                           Laurus Master Fund, Ltd. (3)

                  4.2      Amendment No. 1 to Securities Purchase Agreement
                           dated as of December 13, 2002 by and between the
                           registrant and Laurus Master Fund, Ltd.

                  4.3      6% Convertible Note dated December 13, 2002 in the
                           principal amount of $2,000,000 made by the registrant
                           in favor of Laurus Master Fund, Ltd. (3)

                  4.4      Amendment No. 1 to Convertible Note in the principal
                           amount of amount of $2,000,000 dated June 4, 2003 by
                           and between the registrant and Laurus Master Fund,
                           Ltd.

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

                  4.6      Security Agreement dated December 13, 2002 by and
                           between the registrant and Laurus Master Fund, Ltd.
                           (3)

                  4.7      Security Agreement dated December 13, 2002 by and
                           between United States subsidiaries of the registrant
                           and Laurus Master Fund, Ltd. (3)

                  4.8      Guarantee Agreement dated December 13, 2002 by and
                           between United States subsidiaries of the registrant
                           and Laurus Master Fund, Ltd. (3)

                  10.1     Research Engineers, Inc. 1996 Stock Option Plan
                           (4)(#)

                  10.2     Research Engineers, Inc. 1997 Stock Option Plan
                           (5)(#)

                  10.3     Research Engineers, Inc. 1998 Stock Option Plan
                           (6)(#)

                  10.4     netGuru, Inc. 2000 Stock Option Plan (5) (#)

                  10.5     Employment Agreement dated June 1, 2001, by and
                           between the registrant and Amrit K. Das (7) (#)

                                       50

<PAGE>

                  10.6     Employment Agreement dated June 1, 2001, by and
                           between the registrant and Jyoti Chatterjee (7) (#)

                  10.7     Employment Agreement dated June 1, 2001, by and
                           between the registrant and Clara Y. M. Young (7) (#)

                  10.8     Employment Agreement dated June 1, 2001, by and
                           between the registrant and Santanu Das (7) (#)

                  10.9     Employee Loan Agreement and Promissory Note dated May
                           3, 2001 by and between the registrant and Santanu
                           Das(8)

                  10.10    Employee Loan Agreement and Promissory Note dated
                           November 1, 2000 by and between the registrant and
                           Stephen Owen (8)

                  10.11    Standard Industrial/Commercial Single-Tenant
                           Lease-Net dated November 30, 1999 by and between
                           Lowenberg Corporation and the registrant (8)

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

                  10.13    netGuru, Inc. Securities Purchase Agreement dated
                           December 13, 2002 by and between the registrant and
                           Laurus Master Fund, Ltd. (3)

                  10.14    Amendment No. 1 to Securities Purchase Agreement
                           dated as of December 13, 2002 by and between the
                           registrant and Laurus Master Fund, Ltd. (filed as
                           Exhibit 4.2 to this Form 10-KSB)

                  10.15    6% Convertible Note dated December 13, 2002 in the
                           principal amount of $2,000,000 made by the registrant
                           in favor of Laurus Master Fund, Ltd. (3)

                  10.16    Amendment No. 1 to Convertible Note in the principal
                           amount of amount of $2,000,000 dated June 4, 2003 by
                           and between the registrant and Laurus Master Fund,
                           Ltd. (filed as Exhibit 4.4 to this Form 10-KSB)

                  10.17    Common Stock Purchase Warrant dated December 13, 2002
                           issued by the registrant in favor of Laurus Master
                           Fund, Ltd. (filed as Exhibit 4.5 to this Form 10-KSB)

                  10.18    Security Agreement dated December 13, 2002 by and
                           between the registrant and Laurus Master Fund, Ltd.
                           (3)

                  10.19    Security Agreement dated December 13, 2002 by and
                           between United States subsidiaries of the registrant
                           and Laurus Master Fund, Ltd. (3)

                  10.20    Guarantee Agreement dated December 13, 2002 by and
                           between United States subsidiaries of the registrant
                           and Laurus Master Fund, Ltd. (3)

                  21.1     Subsidiaries of the registrant

                  23.1     Independent Auditors' Consent

                                       51

<PAGE>

                  99.1     Certifications of chief executive officer and chief
                           financial officer pursuant to 18 U.S.C section 1350,
                           as adopted pursuant to section 906 of the
                           Sarbanes-Oxley Act of 2002

         (b)      Reports on Form 8-K

                 The registrant filed a Form 8-K for March 27, 2003 that
                 contained "Item 5 - Other Events" and "Item 7 - financial
                 Statements and Exhibits." The Form 8-K contained an earnings
                 release and discussions of anticipated impacts of the
                 registrant's adoption of SFAS No. 142, "Goodwill and Other
                 Intangible Assets," and changes in the registrant's reporting
                 segments and updates to the registrant's business description.
                 The registrant filed an amendment to this Form 8-K on May 5,
                 2003.

------------------------------------------------------------
#        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 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.

(3)      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.

(4)      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.

(5)      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.

(6)      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.

(7)      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.

(8)      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.

                                       52

<PAGE>

ITEM 14.  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 June 23, 2003 ("Evaluation Date"), that the
design and operation of our "disclosure controls and procedures" (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended (the "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 accumulated, recorded, processed, summarized and reported 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.

         There were no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to the
Evaluation Date, nor were there any significant deficiencies or material
weaknesses in our internal controls. As a result, no corrective actions were
required or undertaken.

                                       53

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

1. Independent Auditors' Report                                              F-2

2. Consolidated Financial Statements:

         Consolidated Balance Sheet as of March 31, 2003                     F-3

         Consolidated Statements of Operations for the years ended
         March 31, 2003 and 2002                                             F-4

         Consolidated Statements of Stockholders' Equity and
         Comprehensive Loss for the years ended
         March 31, 2003 and 2002                                             F-6

         Consolidated Statements of Cash Flows for the years ended
         March 31, 2003 and 2002                                             F-7

         Notes to Consolidated Financial Statements                          F-9

                                      F-1

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
netGuru, Inc.:

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

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of netGuru, Inc. and
subsidiaries as of March 31, 2003, and the results of their operations and their
cash flows for the years ended March 31, 2003, and 2002, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for goodwill and other intangible assets as
required by Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," on April 1, 2002.

                                                     /s/ KPMG LLP

Costa Mesa, California
June 9, 2003, except as to the second paragraph of Note 4 and
Note 12, which are as of July 10, 2003

                                      F-2

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

                                     Consolidated Balance Sheet

                                           March 31, 2003

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

                                              ASSETS

<S>                                                                                         <C>
Current assets:
    Cash and cash equivalents                                                               $  2,861
    Accounts receivable (net of allowance for doubtful accounts of $735)                       2,889
    Notes and related party loans receivable                                                      88
    Deposits                                                                                     670
    Prepaid expenses and other current assets                                                    858
                                                                                            ---------

           Total current assets                                                                7,366

Property, plant and equipment, net                                                             3,113
Goodwill (net of accumulated amortization of $4,438)                                           3,281
Other assets                                                                                     553
                                                                                            ---------

                                                                                            $ 14,313
                                                                                            =========

                             LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Current portion of long-term debt                                                       $  1,340
    Current portion of capital lease obligations                                                 412
    Accounts payable                                                                             802
    Accrued expenses                                                                           1,129
    Income taxes payable                                                                          79
    Deferred revenues                                                                          2,094
    Other liabilities                                                                            234
    Accrued restructuring costs                                                                  199
                                                                                            ---------

           Total current liabilities                                                           6,289

Long-term debt, net of current portion                                                         1,270
Capital lease obligations, net of current portion                                                627
Deferred gain on sale-leaseback                                                                  817
                                                                                            ---------

           Total liabilities                                                                   9,003
                                                                                            ---------

Commitments and contingencies  (note 8)

Stockholders' equity:
    Preferred stock, par value $.01; authorized 5,000,000 shares; no shares issued and
      outstanding                                                                                 --
    Common stock, par value $.01; authorized 150,000,000 shares; issued and
      outstanding 17,325,150                                                                     173
    Additional paid-in capital                                                                33,322
    Accumulated deficit                                                                      (27,334)
    Accumulated other comprehensive loss:
      Cumulative foreign currency translation adjustments                                       (851)
                                                                                            ---------

           Total stockholders' equity                                                          5,310
                                                                                            ---------

                                                                                            $ 14,313
                                                                                            =========

                      See accompanying notes to consolidated financial statements.
</TABLE>
                                                F-3

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

                                Consolidated Statements of Operations

                                 Years ended March 31, 2003 and 2002

                         (In thousands, except share and per share amounts)

                                                                          2003           2002
                                                                       ---------      ---------
<S>                                                                    <C>            <C>
Net revenues:
    Engineering and collaborative software products and services       $  9,450       $  9,932
    IT services                                                           5,586          9,869
    Web-based telecommunications and travel services                      4,997          4,483
                                                                       ---------      ---------

           Total net revenues                                            20,033         24,284

Cost of revenues:
    Engineering and collaborative software products and services          1,124          1,128
    IT services                                                           4,214          7,484
    Web-based telecommunications and travel services                      4,510          4,210
                                                                       ---------      ---------

           Total cost of revenues                                         9,848         12,822

           Gross profit                                                  10,185         11,462
                                                                       ---------      ---------

Operating expenses:
    Selling, general and administrative                                  11,385         13,001
    Research and development                                              1,935          1,824
    Amortization of goodwill                                                 --          1,290
    Depreciation                                                          1,097          1,243
    Impairment charge                                                       259          1,651
    Restructuring charge                                                    194             25
                                                                       ---------      ---------

           Total operating expenses                                      14,870         19,034
                                                                       ---------      ---------

           Operating loss                                                (4,685)        (7,572)
                                                                       ---------      ---------

Other expense (income):
    Interest, net                                                           267            160
    Other                                                                   (43)            20
                                                                       ---------      ---------

           Total other expense                                              224            180
                                                                       ---------      ---------

Loss before income taxes and cumulative effect of a
    change in accounting principle                                       (4,909)        (7,752)

Income tax (benefit) expense                                               (204)         1,192
                                                                       ---------      ---------

Loss before cumulative effect of a change in accounting principle        (4,705)        (8,944)
Cumulative effect of a change in accounting principle                    (5,824)            --
                                                                       ---------      ---------

           Net loss                                                    $(10,529)      $ (8,944)
                                                                       =========      =========
</TABLE>

                                    (continued on following page)

                                                F-4

<PAGE>
<TABLE>

                                   NETGURU, INC. AND SUBSIDIARIES

                       Consolidated Statements of Operations (Continued)

                                Years Ended March 31, 2003 and 2002

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

                                                                           2003                 2002
                                                                     --------------       --------------
<S>                                                                  <C>                  <C>
Basic and diluted loss per common share:

Loss per common share before cumulative effect of a change in
    accounting principle                                             $       (0.27)       $       (0.53)
Cumulative per share effect of a change in accounting principle              (0.34)                  --
                                                                     --------------       --------------
Basic and diluted loss per common share                              $       (0.61)       $       (0.53)
                                                                     ==============       ==============
Common shares used in computing basic and diluted loss
   per common share:                                                    17,309,704           16,982,496
                                                                     ==============       ==============

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

<PAGE>
<TABLE>

                                             NETGURU, INC. AND SUBSIDIARIES

                       Consolidated Statements of Stockholders' Equity and Comprehensive Loss

                                         Years ended March 31, 2003 and 2002

                                        (In thousands, except share amounts)
<CAPTION>
                                                                                                                             TOTAL
                                            COMMON STOCK                                    ACCUMULATED                   COMPREHEN-
                                       -----------------------    ADDITIONAL                   OTHER           TOTAL         SIVE
                          PREFERRED      NUMBER OF      PAR        PAID-IN    ACCUMULATED   COMPREHENSIVE   STOCKHOLDERS'   INCOME
                            STOCK         SHARES       VALUE       CAPITAL      DEFICIT     INCOME (LOSS)      EQUITY       (LOSS)
                          -----------  -----------     -------   -----------  ------------  --------------   ------------  ---------
<S>                       <C>          <C>             <C>       <C>          <C>           <C>             <C>            <C>
Balance, March 31, 2001   $     --     16,864,604      $  169    $   32,621   $    (7,861)  $      (1,037)  $     23,892

    Net loss                    --           --            --            --        (8,944)             --         (8.944)  $ (8,944)

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

Comprehensive loss for
   the year ended March
   31, 2002                     --           --            --            --        (8,944)            (57)            --    $(9,001)
                                                                                                                            ========
Issuance of common
   stock to consultants         --        325,000           3           703            --              --            706

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

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

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

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

    Net loss                    --           --            --            --       (10,529)             --        (10,529)  $(10,529)

    Foreign currency
    translation                 --           --            --            --            --             243            243        243
                          -----------  -----------     -------   -----------  ------------  --------------   ------------  ---------

Comprehensive loss for
   the year ended March
   31, 2003                     --           --            --            --       (10,529)            243             --   $(10,286)
                                                                                                                           =========

Exercise of stock options       --         32,800          --            55            --              --             55

Issuance of common stock        --         26,500          --            56            --              --             56

Issuance of warrants            --           --            --           199            --              --            199

Other                           --           --            --           (45)           --              --            (45)
                          -----------  -----------     -------   -----------  ------------  --------------   ------------

Balance, March 31, 2003   $     --     17,325,150      $  173    $   33,322   $   (27,334)  $        (851)   $     5,310
                          ===========  ===========     =======   ===========  ============  ==============   ============

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

                                                               F-6

<PAGE>
<TABLE>

                                   NETGURU, INC. AND SUBSIDIARIES

                                Consolidated Statements of Cash Flows

                                 Years ended March 31, 2003 and 2002

                                           (In thousands)
<CAPTION>
                                                                                  2003            2002
                                                                                ---------      ---------
<S>                                                                             <C>            <C>
Cash flows from operating activities:
    Net loss                                                                    $(10,529)      $ (8,944)
    Adjustments to reconcile net loss to net cash used in operating
      activities:
        Depreciation and amortization                                              1,488          2,731
        Cumulative effect of a change in accounting principle                      5,824             --
        Bad debt expense                                                             129            358
        Deferred income taxes                                                       (172)         1,334
        Expense recognized on issuance of stock and stock options                     52            603
        Restructuring charge                                                         194             25
        Impairment charge                                                            259          1,651
        Loss on disposal of property                                                   1            146
        Changes in operating assets and liabilities (net of acquisitions):
          Accounts receivable                                                        440          1,161
          Notes and related party loans receivable                                   182           (256)
          Income tax receivable                                                      305           (305)
          Prepaid expenses and other current assets                                  224           (350)
          Deposits                                                                  (184)          (411)
          Other assets                                                               (22)           (38)
          Accounts payable                                                          (231)          (164)
          Accrued expenses                                                            39           (426)
          Income taxes payable                                                      (118)            29
          Accrued restructuring costs                                               (152)          (177)
          Other current liabilities                                                  (15)           111
          Deferred revenues                                                          288           (233)
          Deferred gain on sale-leaseback                                            (70)           (70)
                                                                                ---------      ---------

                  Net cash used in operating activities                           (2,068)        (3,225)
                                                                                ---------      ---------

Cash flows from investing activities:
    Purchase of property, plant and equipment                                       (233)          (394)
    Payments to acquire companies, net of cash acquired                               --            (72)
                                                                                ---------      ---------

                  Net cash used in investing activities                             (233)          (466)
                                                                                ---------      ---------

Cash flows from financing activities:
    Proceeds from issuance of long-term debt                                       2,239             93
    Financing fees                                                                  (214)            --
    Repayment of long-term debt                                                     (225)          (314)
    Payment of capital lease obligations                                            (422)          (265)
    Issuance of common stock                                                          55             79
    Repurchase of common stock                                                        --           (364)
                                                                                ---------      ---------

                  Net cash provided by (used in) financing activities              1,433           (771)
                                                                                ---------      ---------

    Effect of exchange rate changes on cash and cash equivalents                     263            (30)
                                                                                ---------      ---------

                  Decrease in cash and cash equivalents                             (605)        (4,492)

Cash and cash equivalents, beginning of year                                       3,466          7,958
                                                                                ---------      ---------

Cash and cash equivalents, end of year                                          $  2,861       $  3,466
                                                                                =========      =========
                        (continued on the following page)
</TABLE>

                                                F-7

<PAGE>
<TABLE>

                                   NETGURU, INC. AND SUBSIDIARIES

                          Consolidated Statements of Cash Flows (Continued)

                                 Years Ended March 31, 2003 and 2002

                                           (In thousands)
<CAPTION>
                                                                                2003          2002
                                                                            -----------   -----------
<S>                                                                         <C>           <C>
Supplemental disclosure of cash flow information: Cash paid for:
      Interest                                                              $      308    $      268
                                                                            ===========   ===========
      Income taxes                                                          $       72    $      105
                                                                            ===========   ===========

Supplemental disclosure of non-cash investing and financing activities:
    Acquisition of equipment under capital leases                           $       28    $      677
    Acquisition of equipment - received in lieu of payment on accounts
      receivable                                                                     -            70

Acquisitions:
    Fair value of assets acquired, net of cash                              $        -    $       72
    Liabilities assumed                                                              -             -
                                                                            -----------   -----------

    Net assets acquired                                                              -            72
    Less: non-cash consideration given                                               -             -
                                                                            -----------   -----------

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

                   See accompanying notes to consolidated financial statements.

</TABLE>

                                                F-8

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                       Years Ended March 31, 2003 and 2002

(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 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 software products and services, information technology ("IT")
       services, and Web-based telephony, phone card and travel services.

       PRINCIPLES OF CONSOLIDATION

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

       USE OF ESTIMATES

       The preparation of financial statements in conformity with accounting
       principles generally accepted in the United States of America 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, 2003, management believed the carrying amounts of cash and cash
       equivalents, receivable and payable amounts, and accrued expenses
       approximates 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 at March 31, 2003, determined by using the
       effective rate of interest on this indebtedness, was approximately $2.2
       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 United States 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 income (loss) in the consolidated
       statements of stockholders' equity. Gains and losses resulting from
       foreign currency transactions are included in operations and are not
       material for fiscal 2003 and 2002.

                                      F-9

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       CASH AND CASH EQUIVALENTS

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

       PROPERTY, PLANT AND EQUIPMENT

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

                           Buildings                                   39 years
                           Computer equipment                          5 years
                           Computer software                           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

       In June 2001, the Financial Accounting Standards Board ("FASB") issued
       SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and
       Other Intangible Assets". SFAS No. 141 requires that the purchase method
       of accounting be used for all business combinations initiated after June
       30, 2001 and eliminates the pooling-of-interests method. SFAS No. 141
       specifies criteria that intangible assets acquired in a business
       combination must meet to be recognized and reported separately from
       goodwill. 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 in accordance with the provisions of SFAS
       No. 142. 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. 121 and subsequently, SFAS No. 144 after its
       adoption.

       The Company adopted the provisions of SFAS No. 141 as of July 1, 2001,
       and SFAS No. 142 became effective for the Company on April 1, 2002. Upon
       adoption of SFAS No.142, the Company was required to evaluate its
       existing intangible assets and goodwill that were acquired in purchase
       business combinations, and make any necessary reclassifications in order
       to conform to the new classification criteria in SFAS No. 141 for
       recognition separate from goodwill. The Company determined that it did
       not have any intangible assets other than goodwill. 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. To accomplish
       this, the Company identified its reporting units and determined the
       carrying value of each reporting unit by assigning the assets and
       liabilities, including the existing goodwill, to the following reporting
       units as of April 1, 2002:

       1.     Engineering and collaborative software products and services;
       2.     IT services; and
       3.     Web-based telecommunications and travel services.

                                      F-10

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       The provisions of this statement required the Company to perform a
       two-step test to assess goodwill impairment. In the first step, the fair
       value of each reporting unit was compared to its carrying value. If the
       fair value exceeded the carrying value, then goodwill was not impaired,
       and the Company did not need to proceed to the second step. If the
       carrying value of a reporting unit exceeded its fair value, then the
       Company had 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 exceeded its implied fair
       value, then the Company had to record an impairment loss in the amount of
       the excess.

       The Company assessed the fair value of its three reporting units by
       considering their projected cash flows, using risk-adjusted discount
       rates and other valuation techniques. Given consideration of relevant
       factors, the Company concluded that as of April 1, 2002, an impairment
       write-down for its IT services division was required. In accordance with
       the provisions of SFAS No. 142, the Company 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. 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 recorded goodwill amortization expense for $1,290,000 for the
       year ended March 31, 2002. No goodwill amortization expense was recorded
       for the year ended March 31, 2003.

       The following table presents details of the Company's goodwill (in
       thousands of dollars):

                                         GROSS       ACCUMULATED
                                    CARRYING AMOUNT  AMORTIZATION   BALANCE
                                    ---------------  -------------  -------
MARCH 31, 2003
--------------

ASSETS SUBJECT TO AMORTIZATION:

     None                                $    --      $    --      $    --

ASSETS NOT SUBJECT TO AMORTIZATION:

     Goodwill                            $ 7,719      $ 4,438      $ 3,281

MARCH 31, 2002
--------------

ASSETS SUBJECT TO AMORTIZATION:

     None                                $    --      $    --      $    --

ASSETS NOT SUBJECT TO AMORTIZATION:

     Goodwill                            $13,543      $ 4,438      $ 9,105

                                      F-11

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       The following table reconciles changes to goodwill for the year ended
       March 31, 2003 (in thousands of dollars):

      Balance as of March 31, 2002                                    $   9,105

           Cumulative effect of a change in accounting principle         (5,824)
                                                                      ----------

      Balance as of March 31, 2003                                    $   3,281
                                                                      ==========

       The Company did not record any goodwill amortization expense for the year
       ended March 31, 2003.

       The following table reconciles previously reported net loss as if the
       provisions of SFAS No. 142 were in effect in the prior fiscal year (in
       thousands, except per share amounts):

                                                         Years Ended March 31,
                                                         ---------------------
                                                         2003             2002
                                                      -----------     ----------

Reported net loss                                     $  (10,529)     $  (8,944)
Add back:  Goodwill amortization, net of taxes                --          1,052
                                                      -----------     ----------

Adjusted net loss                                     $  (10,529)     $  (7,892)
                                                      ===========     ==========

Reported basic and diluted loss per common share      $    (0.61)     $   (0.53)
Add back:  Goodwill amortization, net of taxes               --             0.06
                                                      -----------     ----------
Adjusted basic and diluted loss per common share      $    (0.61)     $   (0.47)
                                                      ===========     ==========

       IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

       In August 2001, the FASB issued SFAS No. 144, "Accounting for the
       Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
       financial accounting and reporting for the impairment or disposal of
       long-lived assets. SFAS No. 144 requires that long-lived assets be
       reviewed for impairment whenever events or changes in circumstances
       indicate that the carrying amount of an asset may not be recoverable.
       Recoverability of assets to be held and used is measured by a comparison
       of the carrying amount of an asset to future net cash flows expected to
       be generated by the asset. If the carrying amount of an asset exceeds its
       estimated future cash flows, an impairment charge is recognized in the
       amount by which the carrying amount of the asset exceeds the fair value
       of the asset. SFAS No. 144 requires companies to separately report
       discontinued operations and extends that reporting to a component of an
       entity that either has been disposed of (by sale, abandonment, or in a
       distribution to owners) or is classified as held for sale. Assets to be
       disposed of are reported at the lower of the carrying amount or fair
       value less costs to sell. The Company adopted SFAS No. 144 on April 1,
       2002. The Company has determined that the effect of the adoption of SFAS
       No. 144 had no material impact on its consolidated financial condition or
       results of operations.

                                      F-12

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       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, 2003, capitalized costs of approximately
       $346,000, net of accumulated amortization, were included in other assets.
       Approximately $190,000 of this amount represents software developed
       in-house and $156,000 represents the cost of software developed on the
       Company's behalf by third parties. Additions to capitalized software were
       $28,000 and $545,000 during fiscal 2003 and 2002, 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. During fiscal 2003, the Company recognized a capitalized
       software impairment loss of approximately $67,000 in the engineering and
       collaborative software solutions segment, since revenues-to-date and
       forecasted revenues from these assets did not support the carrying value
       of the recorded amounts. Amortization of software development costs and
       purchased technology charged to cost of revenues was approximately
       $287,000 and $198,000 for fiscal 2003 and 2002, respectively. Accumulated
       amortization of capitalized software was $625,000 and $1,420,000 as of
       March 31, 2003 and 2002, 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; IT services; and Web-based
       telecommunications and travel services.

       Revenue from software sales is recognized upon shipment if no significant
       post-contract support obligations remain outstanding and collection of
       the resulting receivable is probable. Since the second quarter of fiscal
       2003, the Company has provided 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.

       In October 1997, the Accounting Standards Executive Committee ("AcSEC")
       of the AICPA issued Statement of Position ("SOP") 97-2, "Software Revenue
       Recognition." The Company adopted SOP 97-2 in the first quarter of fiscal
       1999. SOP 97-2 distinguishes between significant and insignificant vendor
       obligations as a basis for recording revenue with a requirement that each
       element of a software licensing arrangement be separately identified and
       accounted for based on relative fair values of each element. The Company
       determines the fair value of each element in multi-element transactions
       based on vendor-specific objective evidence ("VSOE"). VSOE for each
       element is based on the price charged when the same element is sold
       separately.

                                      F-13

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       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. The Company adopted SOP
       98-9 in the first quarter of fiscal 2000. If evidence of fair value of
       all undelivered elements exists but evidence does not exist for one or
       more delivered elements, then revenue is recognized using the residual
       method. Under the residual method, the fair value of the undelivered
       elements is deferred and the remaining portion of the transaction fee is
       recognized as revenue.

       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 delivery is complete 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 three months.

       Revenues from call termination services are recognized at gross sales
       value, with the applicable cost separately stated in the cost of
       revenues. Revenues from the Company's own phone card sales are deferred
       and recognized based on usage, whereas revenues from resale of
       third-party phone cards are recognized net of returns since no
       significant obligations remain once the product is delivered. Certain
       travel services, based on their nature, are recognized at the gross sales
       value, with purchase costs stated as a separate cost of revenues in
       accordance with EITF No. 99-19, "Recording Revenue Gross as a Principal
       Versus Net as an Agent." Other products and services sold via Internet
       portals, including certain travel services, where the Company is a travel
       discounter or an agent, are recognized net of purchase costs when the
       products and services are delivered and collection is probable.

       DEFERRED REVENUES

       The Company defers revenues for its maintenance contracts, for its
       collaborative software sales and for its phone card revenues that are not
       considered earned. The Company defers its maintenance revenues when the
       maintenance contracts are sold, and then recognizes the maintenance
       revenues over the term of the maintenance contracts. The Company defers
       its collaborative software sales revenues if it invoices or receives
       payment prior to the completion of a project, and then recognizes these
       revenues upon completion of the project when no significant obligations
       remain. The Company defers revenues from the sales of its own phone cards
       when the cards are sold, and then recognizes revenues from these phone
       card sales based on usage. Revenues from any unused portion of phone card
       minutes are recognized upon expiration of the phone cards.

                                      F-14

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       RESEARCH AND DEVELOPMENT

       The Company's research and development ("R&D") costs consist mainly of
       developers' salaries. The major thrust of the Company's R&D efforts has
       been and continues to be toward developing software products for sale and
       toward enhancing existing software products. To a lesser extent, the
       Company's R&D efforts are expended toward enhancing and maintaining the
       Company's Websites. The Company follows the guidance of EITF No. 00-2,
       "Accounting for Website Development Costs," to account for its Website
       development costs and the guidance of SOP 98-1, "Accounting for the Costs
       of Computer Software Developed or Obtained for Internal Use," to account
       for the costs of internal use software.

       The Company follows the provisions of SFAS No. 86 to capitalize software
       development costs when technological feasibility has been established and
       stop capitalization when the product is available for general release to
       customers. The Company expenses development costs when they are related
       to enhancement of existing software products.

       INCOME TAXES

       The Company accounts for income taxes using the asset and liability
       method. Deferred tax assets and liabilities are recognized for the future
       tax consequences attributable to differences between the financial
       statement carrying amounts of existing assets and liabilities and their
       respective tax bases, 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 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 Accounting Principles Board ("APB")
       Opinion No. 25, "Accounting for Stock Issued to Employees." Consequently,
       compensation related to stock options is the difference between the grant
       price and the fair market value of the underlying common shares at the

                                      F-15

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       grant date. Generally, the Company issues stock options to employees with
       a grant price equal to the market value of common stock on the grant
       date. The Company has issued certain stock options with a grant price
       below the market value at the grant date. The Company recognizes
       compensation expense on these grants over the vesting period, generally
       three to four years.

       As required by SFAS No. 123, the Company discloses below the pro forma
       effect on operations, and the Black-Scholes option pricing model
       assumption information for stock options, as if compensation costs were
       recorded at the estimated fair value of the stock options granted
       (dollars in thousands, except amounts per share):
<TABLE>
<CAPTION>
              For the fiscal years ended March 31,              2003          2002
                                                             -----------   -----------
              <S>                                            <C>           <C>
              Net loss - as reported                         $(10,529)     $ (8,944)
              Net loss - pro forma                            (12,104)      (11,504)
                                                             ===========   ===========
              Basic net loss per share -
                  as reported                                $  (0.61)     $  (0.53)
                   pro forma                                    (0.70)        (0.68)
              Diluted net loss per share -
                   as reported                                  (0.61)        (0.53)
                   pro forma                                    (0.70)        (0.68)
                                                             ===========   ===========
              Weighted average fair value of options
                  granted                                    $   1.97      $   1.35
                                                             ===========   ===========
              Black-Scholes option pricing model
                  assumptions:
                       Dividend yield                              --            --
                       Expected volatility                      111%          120%
                       Risk-free interest rate                    3.19%         5.07%
                       Expected option lives (in years)           6.8           7.0
</TABLE>

       SEGMENT REPORTING

       The Company applies the provisions of SFAS No. 131. SFAS No. 131 requires
       segments to be determined and reported based on how management measures
       performance and makes decisions about allocating resources. See Note 10
       "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 2002 consolidated
       financial statements to conform to the 2003 presentation.

                                      F-16

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

       In June 2001, the FASB issued SFAS No. 141, "Business Combinations,"
       ("SFAS No. 141") and SFAS No. 142, "Goodwill and Other Intangible Assets"
       ("SFAS No. 142"). SFAS No. 141 requires that the purchase method of
       accounting be used for all business combinations initiated after June 30,
       2001 and eliminates the pooling-of-interests method. SFAS No. 141
       specifies criteria that intangible assets acquired in a business
       combination must meet to be recognized and reported separately from
       goodwill. 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 in accordance with the provisions of SFAS
       No. 142. SFAS No. 142 requires that intangible assets with estimable
       useful lives be amortized over their respective estimated useful lives to
       their estimated residual values. In addition, SFAS No. 142 includes
       provisions upon adoption for the reclassification of certain existing
       recognized intangibles as goodwill, reclassification of certain
       intangibles out of previously reported goodwill, reassessment of the
       useful lives of recognized intangibles and testing for impairment of
       those intangibles.

       The Company adopted the provisions of SFAS No. 141 as of July 1, 2001,
       and SFAS No. 142 became effective for the Company on April 1, 2002.
       Intangible assets identified as having indefinite useful lives were
       required to be tested for impairment in accordance with the provisions of
       SFAS No. 142. Impairment is measured as the excess of carrying value over
       the fair value of an intangible asset with an indefinite life. The
       Company determined that it did not have any intangible assets other than
       goodwill.

       SFAS No. 142 required the Company to perform a two-step test to assess
       goodwill for impairment. In the first step, the fair value of each
       reporting unit is compared to its carrying value. If the fair value
       exceeds the carrying value, then goodwill is not impaired and the Company
       need not proceed to the second step. If the carrying value of a reporting
       unit exceeds its fair value, then the Company must determine and compare
       the implied fair value of the reporting unit's goodwill to the carrying
       value of its goodwill. If the carrying value of the reporting unit's
       goodwill exceeds its implied fair value, then the Company must record an
       impairment loss for the excess amount.

       The Company assessed the fair value of its three reporting units by
       considering their projected cash flows, using risk-adjusted discount
       rates, and other valuation techniques. Given consideration of relevant
       factors, the Company concluded that, as of April 1, 2002, an impairment
       write-down for its IT services division was required. In accordance with
       the provisions of SFAS No. 142, the Company recorded an impairment charge
       of $5,824,000 to IT services goodwill in fiscal 2003, and recorded this
       as a cumulative effect of a change in accounting principle. 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.

       In August 2001, the FASB issued SFAS No. 144, "Accounting for the
       Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No.
       144 addresses financial accounting and reporting 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 by the amount by which the carrying amount of the asset
       exceeds the fair value of the asset. SFAS No. 144 requires companies to

                                      F-17

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       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. The Company adopted SFAS No. 144
       on April 1, 2002. The adoption of SFAS No. 144 has not materially
       impacted its consolidated financial condition or results of operations.

       In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
       Associated with Exit or Disposal Activities."  SFAS No. 146 requires
       companies to recognize costs associated with exit or
       disposal activities when they are incurred rather than at the date of a
       commitment to an exit or disposal plan. Examples of costs covered by the
       standard include lease termination costs and certain employee severance
       costs that are associated with a restructuring, discontinued operations,
       plant closing, or other exit or disposal activities. The Company adopted
       the provisions of SFAS No. 146 on January 1, 2003. This statement applies
       on a prospective basis to exit or disposal activities that are initiated
       after December 31, 2002.

       The Company adopted the initial recognition and measurement provisions of
       FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and
       Disclosure Requirements for Guarantees, Including Indirect Guarantees of
       Indebtedness of Others", on January 1, 2003, which provisions apply on a
       prospective basis to guarantees issued or modified after December 31,
       2002. The Company adopted the disclosure provisions of FIN No. 45 during
       the quarter ended March 31, 2003. In the ordinary course of business, the
       Company is not subject to potential obligations under guarantees that
       fall within the scope of FIN No. 45 except for standard indemnification
       and warranty provisions that are contained within many of its customer
       license and service agreements, and these give rise only to the
       disclosure requirements prescribed by FIN No. 45. In addition, under
       previously existing accounting principles generally accepted in the
       United States, the Company continues to monitor the conditions that are
       subject to the guarantees and indemnifications to identify whether it is
       probable that a loss has occurred, and will recognize any such losses
       under the guarantees and indemnifications when those losses are
       estimable.

       Indemnification and warranty provisions contained within the Company's
       customer license and service agreements are generally consistent with
       those prevalent in the Company's industry. The duration of the Company's
       service warranties generally does not exceed 15 days following completion
       of its services. The Company has not incurred significant obligations
       under customer indemnification or warranty provisions historically and
       does not expect to incur significant obligations in the future.
       Accordingly, the Company does not maintain accruals for potential
       customer indemnification or warranty-related obligations. The maximum
       potential amount of future payments that the Company could be required to
       make is generally limited under the indemnification provisions in its
       customer license and service agreements.

       In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
       Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires the
       Company to record the fair value of an asset retirement obligation as a
       liability in the period in which it incurs a legal obligation associated
       with the retirement of tangible long-lived assets that result from the
       acquisition, construction, development or normal use of the assets. The
       Company also records a corresponding asset, which is depreciated over the

                                      F-18

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       life of the asset. Subsequent to the initial measurement of the asset
       retirement obligation, the obligation will be adjusted at the end of each
       period to reflect the passage of time and changes in the estimated future
       cash flows underlying the obligation. The Company adopted SFAS No. 143 on
       April 1, 2003. The adoption of SFAS No. 143 has not materially impacted
       its consolidated financial condition or results of operations.

       On January 17, 2003, the FASB issued FIN No. 46, "Consolidation of
       Variable Interest Entities," which requires extensive disclosures and
       will require companies to evaluate variable interest entities created
       after January 31, 2003 and existing entities to determine whether to
       apply the interpretation's consolidation approach to them. Companies must
       apply the interpretation to entities with which they are involved if the
       entity's equity has specified characteristics. If it is reasonably
       possible that a company will have a significant variable interest in a
       variable interest entity at the date the interpretation's consolidation
       requirements become effective, the company must disclose the nature,
       purpose, size and activities of the variable interest entity and the
       consolidated enterprise's maximum exposure to loss resulting from its
       involvement with the variable interest entity in all financial statements
       issued after January 31, 2003, regardless of when the variable interest
       entity was created. Since the Company has no interest in any variable
       interest entity, the Company believes that the adoption of this
       interpretation will not materially impact its consolidated financial
       condition or results of operations.

       The EITF recently reached a consensus for EITF 00-21, "Revenue
       Arrangements with Multiple Deliverables." EITF 00-21 provides accounting
       guidance for allocation of revenue where delivery or performance of
       products or services may occur at different points in time or over
       different periods. Companies are required to adopt this consensus for
       fiscal periods beginning after June 15, 2003. The Company believes the
       adoption of EITF 00-21 will not materially impact the Company's financial
       condition or results of operations.

       In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
       Financial Instruments with Characteristics of Both Liabilities and
       Equity." SFAS No. 150 establishes standards for how an issuer classifies
       and measures certain financial instruments with characteristics of both
       liabilities and equity. It requires that an issuer classify a financial
       instrument that is within its scope as a liability (or as an asset in
       some circumstances). Many of those instruments were previously classified
       as equity. This statement is effective for financial instruments entered
       into or modified after May 31, 2003, and otherwise is effective for the
       Company's quarter that began July 1, 2003. For financial instruments
       created before the issuance date of this statement and still existing at
       the beginning of the interim period of adoption, transition shall be
       achieved by reporting the cumulative effect of a change in accounting
       principle by initially measuring the financial instruments at fair value
       or other measurement attribute required by this statement. The Company
       believes the adoption of SFAS No. 150 will not materially impact its
       consolidated financial condition or results of operations.

(2)    PROVISION FOR RESTRUCTURING OF OPERATIONS

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

                                      F-19

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       With regard to the Company's ISP initiatives in India, the Company
       redirected its primary focus toward communication and connectivity
       services targeted at the corporate market. The Company's original focus
       related to ISP services was that the Company planned to offer ISP
       services to both consumers and businesses in India. With the proposed
       acquisition of a 30% ownership interest in Vital Communications, Ltd., an
       Internet communications technology company, the Company had planned to
       start providing ISP services for the 10,000 customers of Vital
       Communications as a first step toward becoming an ISP in India. The total
       amount charged for the refocus of ISP operations in fiscal 2001 was
       $1,998,000. This total charge consisted of $171,000 in contractual
       obligations and $1,827,000 in asset write-offs related to ISP operations
       in India. These charges did not include any employee costs. However, they
       included the write-off of $537,000 paid toward the Company's proposed
       acquisition of a 30% ownership interest in Vital Communications, the
       write-off of $346,000 related to capitalized connectivity charges for the
       ISP business, and the write-off of $944,000 of ISP infrastructure
       equipment. The ISP infrastructure equipment related to the Voice Over
       Internet Protocol ("VOIP") technology. The equipment was determined to
       have no resale value because VOIP technology was not permitted in India
       and because it was not cost-effective to sell the equipment in countries
       where VOIP was permitted since the technology had changed. The
       restructuring related to the ISP operations resulted in elimination of
       depreciation and amortization expenses that would have resulted from the
       ISP-related assets.

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

       In March 2001, the Company closed its Boston technical support office as
       part of consolidating the Company's technical support activities.
       Technical support activities previously offered from the Boston office
       were consolidated into the California facility. The closing of this
       office resulted in the termination of two employees. The restructuring
       charge related to the consolidation of technical support facilities was
       $166,000, of which $49,000 related to accrued severance payments for the
       two terminated employees and $117,000 related to contractual lease
       obligations for the vacated space. The Company made cash payments
       totaling $58,000 in fiscal 2002 toward settlement of obligations related
       to this activity. During fiscal 2003, the Company made cash payments of
       $55,000 for severance expenses relating to the termination of one of the
       employees and $47,000 for lease payments for the vacated office space.
       The Company expects that employee costs and the facility costs (once the
       lease obligations are satisfied) will decrease as a result of this
       restructuring.

       The elimination of the in-house legal department primarily consisted of
       the termination of one employee whose position was not refilled. Legal
       services are being obtained from the Company's continuing external legal
       counsel. In fiscal 2001, the Company estimated the restructure charge
       related to the elimination of the in-house legal department to be
       $42,000. In fiscal 2002, the Company paid $52,000 toward this restructure
       charge. Additional charges of $41,000 and $199,000 were recorded in
       fiscal 2002 and in fiscal 2003, respectively, since the original estimate
       of severance expenses was insufficient. During the year ended March 31,
       2003, the Company paid $50,000 toward settlement of obligations due to
       the terminated employee. Subsequent to year-end, the entire remaining
       balance was paid.

                                      F-20

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       Activity relating to the restructuring charge is as follows (in
       thousands):
<TABLE>
<CAPTION>
                                 REFOCUS OF      REFOCUS OF     CONSOLIDATION   ELIMINATION
                                     ISP           PORTAL        OF TECHNICAL     OF LEGAL
                                 OPERATIONS      OPERATIONS        SUPPORT       DEPARTMENT      TOTAL
                                ------------   --------------   -------------   ------------  ----------
<S>                             <C>            <C>              <C>             <C>           <C>
       March 31, 2000                     -                -               -              -           -

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

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

       Cash payments                      -              (67)            (58)           (52)       (177)
       Adjustments                      (67) a            67  a          (16) b          41 b        25
                                ------------   --------------   -------------   ------------  ----------

       March 31, 2002           $        34   $            -    $         92    $        31   $     157
                                ------------   --------------   -------------   ------------  ----------

       Cash payments                      -                -            (102)           (50)       (152)
       Adjustments                      (34) c             -              29 c          199 c       194
                                ------------   --------------   -------------   ------------  ----------

       March 31, 2003           $         -    $           -    $          19   $       180   $     199
                                ============   ==============   =============   ============  ==========
</TABLE>

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

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

       c.     Represents reversal of over-accrual for contractual obligations
              for ISP operations and additional amounts accrued for severance
              costs for the elimination of the legal department and the
              consolidation of technical support.

       The balance at March 31, 2003 includes $19,000 of lease payments for
       vacated office space scheduled for payment through September 2003. The
       remaining personnel costs and contractual obligations were paid
       subsequent to March 31, 2003.

                                      F-21

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

(3)    PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment, at cost, as of March 31, 2003 consisted of
       the following (in thousands):

                     Land                                          $        24
                     Buildings and leasehold improvements                  724
                     Office and computer equipment, software
                         and furniture                                   5,987
                     Assets under capital lease                            937

                                                                   ------------
                                                                         7,672
                     Less accumulated depreciation                      (4,559)
                                                                   ------------
                     Net property, plant and equipment             $     3,113
                                                                   ============

       On December 15, 1999, the Company consummated a sale and leaseback
       transaction involving its Yorba Linda, California facility. The gross
       selling price of the property was $3,200,000, $1,689,000 of which was
       utilized to pay off the balance of the mortgage on the property. The
       Company received approximately $1,017,000 in cash proceeds, net of
       transaction costs, and a $250,000 short-term note receivable for the sale
       of the property. Concurrent with the sale, the Company entered into a
       fifteen-year operating lease on the facility (see Note 8 "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 $817,000 as of March 31, 2003.

(4)    LONG-TERM DEBT

       On December 13, 2002, the Company entered into a Securities Purchase
       Agreement (the "Agreement") with Laurus Master Fund, Ltd. ("Laurus").
       Pursuant to the Agreement, the Company issued to Laurus a 6% Convertible
       Note (the "Note") in the principal amount of $2,000,000 that matures on
       December 12, 2004 and a warrant to purchase up to 200,000 shares of the
       Company's common stock at the following exercise prices: $1.76 per share
       for the purchase of up to 125,000 shares; $2.08 per share for the
       purchase of an additional 50,000 shares; and $2.40 per share for the
       purchase of an additional 25,000 shares. The warrant exercise price may
       be paid in cash, in shares of the Company's common stock (if the fair
       market value of a single share of common stock exceeds the value of the
       per share warrant exercise price), or by a combination of both. The
       warrant expiration date is December 13, 2007. The warrant exercise price
       and the number of shares underlying the warrant are subject to
       adjustments for mergers, acquisitions, stock splits, combinations and
       dividends.

       The Company was required to file a registration statement (the
       "Registration Statement") with the Securities and Exchange Commission
       (the "SEC") by January 12, 2003 to register the public resale by Laurus
       of the common stock to be issued upon conversion of the Note and/or
       exercise of the warrant and to obtain effectiveness of the Registration
       Statement by April 12, 2003. As of July 10, 2003, the Company was not in
       compliance with its registration obligations and remained subject to
       liquidated damage assessments of 1% of the principal amount of the note
       for the first 45 days of non-compliance and 2% of the principal amount of
       the note for each month of non-compliance thereafter, subject to pro
       ration for partial months. As discussed in Note 12 "Liquidity," on July
       10, 2003, the Company received a commitment to modify and expand to
       $4,000,000 the Company's financing arrangement with Laurus. The
       modification and expansion may include a modification of the Company's
       registration obligations. If the Company is unable to file and obtain and
       maintain effectiveness of the Registration Statement or to modify its
       registration obligations, then the Company may be required to pay
       additional liquidated damages, which would adversely affect the Company's
       business, operating results, financial condition, and ability to service
       the Company's other indebtedness by negatively impacting the Company's
       cash flows.

                                      F-22

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       The Note was recorded net of a discount representing the value of the
       warrant. The proceeds, net of fees and expenses, from this Note were
       $1,786,000. The Note, which is being amortized over a 20 month period
       commencing May 1, 2003, is convertible at a fixed conversion price of
       $1.60 per share of the Company's common stock, 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. However, if the Company is in default under the
       Agreement or the Note, the Note will be convertible at a per share
       conversion price equal to the lower of the fixed conversion price or 70%
       of the average of the three lowest closing prices for the Company's
       common stock during the preceding 30 trading days. Also, if a conversion
       occurs pursuant to a call notice as described below, then the conversion
       price will be equal to the lesser of the fixed conversion price and 90%
       of the average of the closing prices of the Company's common stock during
       the 15 trading days preceding the date of the call notice. At any time
       before the Note is fully paid, Laurus may choose to convert all or part
       of the accrued interest on and/or principal of the Note at the conversion
       price then in effect, subject to certain contractual beneficial ownership
       and volume limitations.

       At the Company's election, the monthly payment may be made in cash or in
       shares of the Company's common stock, or in any combination of both,
       except that during periods in which the Registration Statement is not
       effective or in which the Company is in default under the Note, the
       Company must make payments solely in cash. If the Company does not elect
       at least 20 days prior to a monthly payment date, then the payment shall
       be made in cash. If all or part of a monthly payment is made in cash,
       then the amount of cash paid to Laurus must equal 107% of the principal

       and interest due that month. If all or part of a monthly payment is made
       in shares of the Company's common stock, then the then-effective
       conversion price is to be used to determine the number of shares to be
       issued. Notwithstanding the above, if the Company has elected to make a
       monthly payment in shares of the Company's common stock and the average
       closing price of the Company's common stock for the 10 trading days
       preceding the monthly payment date is less than 110% of the fixed
       conversion price, then the Company may make the monthly payment in cash
       or, at the Company's option, Laurus may convert, at a mutually agreed
       upon conversion price, all or part of the monthly payment amount that the
       Company had elected to pay in shares of the Company's common stock.

       During any period when the Registration Statement is effective, the
       Company may issue a call notice to Laurus stating that, at least 30 days
       from the date of the call notice, the Company wishes to convert into
       shares of the Company's common stock a portion or all of the principal of
       and interest accrued on the Note. No more than 20% of the aggregate
       dollar trading volume of the Company's common stock for the 22 trading
       days preceding the date of the call notice may be converted under any
       call notice. The conversion price will be equal to the lesser of the
       fixed conversion price and 90% of the average of the closing prices of
       the Company's common stock during the 15 trading days preceding the date
       of the call notice.

                                      F-23

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       During any period when the Registration Statement is effective and the
       Company is not in default under the Note, the Company will have the right
       under the Agreement to redeem all or any portion of the remaining
       outstanding principal balance of the Note. To effect a redemption, the
       Company must issue Laurus a redemption notice that provides that the
       Company will pay Laurus a cash redemption price that is equal to 120% of
       the outstanding principal amount of the Note to be redeemed, plus all
       accrued but unpaid interest and other sums payable to Laurus, if any.
       Laurus may elect, within five business days, to convert all or any
       portion of the redemption price into shares of the Company's common stock
       at the then-effective conversion price instead of receiving cash. On or
       before the seventh business day after Laurus receives the redemption
       notice, the Company must pay Laurus in cash an amount equal to the
       redemption price stated in the redemption notice less any portion of the
       redemption price Laurus elected to convert into shares of the Company's
       common stock.

       The Note is secured by a general security interest in the Company's
       assets and the assets of the Company's domestic subsidiaries. Each of the
       Company's domestic subsidiaries also signed a guaranty of payment in
       favor of Laurus. The Company was required to use the proceeds from this
       financing for general corporate purposes. The Company also is required
       not to permit for any fiscal quarter commencing on or after April 1, 2003
       the net operating cash flow deficit to be greater than $500,000,
       excluding extraordinary items, as determined in accordance with
       accounting principles generally accepted in the United States.

       Long-term debt, including capital lease obligations, consisted of the
       following at March 31, 2003 (in thousands):
<TABLE>
<CAPTION>
<S>                                                                                              <C>
      Term loan from a bank in India, bearing interest at 16.6% per annum payable monthly,
          principal due in quarterly installments beginning June 2000 and ending March 2005,
          secured by substantially all of the Company's assets located in India and
          guaranteed by a major stockholder                                                      $          541

      Revolving line of credit from a bank in India, bearing interest at 6.75% per annum,
          secured by the fixed deposit account held at the same bank, maturing in 2008. the
          Company cannot withdraw more than 90% of the fixed deposit account                                237

      Convertible note, bearing 6% 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 $100,000 and interest due from May 2003 to November
          2004                                                                                            1,800

      Capital lease obligations maturing at dates ranging from July 2003 to December 2006,
          secured by the leased assets                                                                    1,039

      Other                                                                                                  32
                                                                                                 ---------------
               Total                                                                                      3,649
               Less current portion                                                                       1,752
                                                                                                 ---------------
                                                                                                 $        1,897
                                                                                                 ===============
</TABLE>

                                      F-24

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

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

<TABLE>
<CAPTION>
                                                               LONG-TERM        CAPITAL LEASE
                                                                  DEBT           OBLIGATIONS
                                                             ---------------   -----------------
                   <S>                                       <C>               <C>
                   2004                                      $        1,340    $          505
                   2005                                               1,058               380
                   2006                                                  54               199
                   2007                                                  54               135
                   2008                                                  53                 -
                   Thereafter                                            51                 -
                                                             ---------------   ---------------
                   Total minimum payments                    $        2,610             1,219
                                                             ===============

                   Less amount representing interest                                     (180)
                                                                               ---------------
                   Present value of minimum capital
                       lease payments                                                   1,039
                                                                               ===============
</TABLE>

(5)    STOCKHOLDERS' EQUITY

       In September 1999, the Company issued warrants to purchase 170,000 shares
       of its common stock at exercise prices ranging from $4.71 to $4.84 per
       share to third parties in connection with the acquisition of NetGuru
       Systems. Through March 31, 2003, these warrants had been exercised for
       135,000 shares of common stock, and warrants to purchase 15,000 shares of
       common stock had expired. The remaining warrants to purchase 20,000
       shares of common stock expire in September 2004.

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

       In March 2000, in a private transaction not involving a public offering,
       the Company issued 12,000 shares of Series B 5% Cumulative Convertible
       Preferred Stock (which were later repurchased and retired in November 29,
       2000) and warrants to purchase 102,000 shares of the Company's common
       stock at an exercise price of $28.50 per share for approximately
       $11,380,000, net of offering costs. Of these, warrants to purchase 12,000
       shares of common stock expired in September 2002 and warrants to purchase
       90,000 shares of common stock expire in March 2005.

       In April 2000, the Company issued 25,000 shares of common stock as a
       portion of the purchase price for the acquisition of Allegria Software,
       Inc. The recipients of these shares were given the right to demand that
       the Company repurchase these shares at a price of $28.60 per share at the
       end of one year. In April 2001, each of the former owners exercised this
       right. The total repurchase price was $715,000. Agreements were reached
       with all parties to extend cash payment for this repurchase over a
       twelve-month period. As of March 31, 2003, the Company had paid $172,000
       to one of the former owners for the repurchase of 6,000 shares. The

                                      F-25

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       repurchase of 6,000 shares from another former owner was settled for a
       total of $100,000, which was paid in full as of March 31, 2003. The owner
       of the remaining 13,000 shares is holding the stock certificates until
       full payment is received for these shares. The total cash to be paid for
       this repurchase was $372,000, of which $128,000 had been paid as of March
       31, 2003. Due to a dispute as a result of an apparent breach of the
       purchase agreement by the former owner, the Company believes that it is
       probable that the balance of $244,000 will not be paid and therefore has
       not accrued this amount as a liability.

       On June 22, 2000, the Company closed a private equity financing involving
       two investors. As part of this transaction, the Company issued warrants
       to purchase 60,000 shares of its common stock at an exercise price of
       $19.00 per share. These warrants expire in June 2005. The Company issued
       additional warrants to purchase 53,300 shares of its common stock at
       exercise prices ranging from $16.50 to $23.46 per share to third parties
       in connection with this financing transaction. These warrants expired in
       May and June 2003.

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

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

       On March 19, 2002, in a private transaction not involving a public
       offering, the Company issued 25,000 shares of its common stock, valued at
       $106,000, to its external legal counsel as consideration for services
       provided and as a retainer.

       On December 13, 2002, in a private transaction not involving a public
       offering, the Company consummated a $2,000,000 convertible debt offering
       to Laurus (see Note 4 "Long-Term Debt"). In connection with this
       transaction, Laurus received a warrant to purchase 200,000 shares of the
       Company's common stock. The warrant exercise price is: $1.76 per share
       for the purchase of up to 125,000 shares; $2.08 per share for the
       purchase of an additional 50,000 shares; and $2.40 per share for the
       purchase of an additional 25,000 shares. The warrant exercise price may
       be paid in cash, in shares of the Company's common stock (if the fair
       market value of a single share of common stock exceeds the value of the
       per share warrant exercise price), or by a combination of both. The
       warrant expiration date is December 13, 2007. The warrant exercise price
       and the number of shares underlying the warrant are subject to
       adjustments for stock splits, combinations and dividends.

                                      F-26

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       WARRANTS

       The following table summarizes the fair value of warrant issuances
detailed above and the assumptions used in determining fair value.

<TABLE>
<CAPTION>
                                                          Estimated
                         Number of     Exercise price     life (in                                    Fair value of
         Grant date       warrants        per share         years)      Volatility   Risk-free rate   warrants ($)(a)
         ----------       --------        ---------         ------      ----------   --------------   --------------
      <S>                     <C>        <C>                <C>              <C>            <C>          <C>
      September 1999          170,000    $4.71-$4.84        3 - 5             93%           6.72%          541,500

      February 2000           200,000       $38.00            5               93%           6.72%        4,666,000

      March 2000              102,000       $28.50          3 - 5             93%           6.72%        4,302,780

      June 2000                60,000       $19.00            5              146%           4.87%          979,200

      May-June 2000            53,300  $16.50 - $23.46        3              146%           4.87%          716,896

      November 2000           200,000       $3.93             5              146%           4.87%        1,188,000

      December 2002           200,000    $1.76-$2.40          5              100%           3.0%           199,638
</TABLE>

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

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

                                           NUMBER OF SHARES          WEIGHTED
                                             UNDERLYING              AVERAGE
                                              WARRANTS            EXERCISE PRICE
                                            ------------            -----------
       Outstanding at March 31, 2001               650              $    20.76
       Issued                                        -                    -
       Exercised                                     -                    -
                                            ------------            -----------

       Outstanding at March 31, 2002               650              $    20.76
       Issued                                      200                    1.92
       Exercised                                     -                    -
       Forfeited                                   (27)                  15.28
                                            ------------            -----------

       Outstanding at March 31, 2003               823              $    16.37
                                            ============            ===========

                                      F-27

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       STOCK OPTION PLANS

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

       Each plan provides for the granting of shares as either incentive stock
       options or 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 employment and other
       conditions. As of March 31, 2003, there were 469,000 options available
       for grant and 260,000 options exercisable under the 2000 Plan, 285,000
       options available for grant and 598,000 options exercisable under the
       1998 Plan, 47,000 options available for grant and 330,000 options
       exercisable under the 1997 Plan, and 31,000 options available for grant
       and 368,000 options exercisable under the 1996 Plan.

       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, 2001           2,258          $2.93
                Granted                                    54           1.35
                Exercised                                (145)          1.42
                Forfeited                                (251)          5.39
                                                     -----------
                Outstanding at March 31, 2002           1,916          $2.67
                Granted                                   125           1.97
                Exercised                                 (30)          1.53
                Forfeited                                 (85)          3.54
                                                     -----------
                Outstanding at March 31, 2003           1,926          $2.61
                                                     ===========

       As discussed in Note 1, the Company accounts for its stock options issued
       to employees based on the intrinsic value of a grant as of the date of
       the grant in accordance with APB No. 25. Generally, the Company issues
       stock options to employees with a grant price equal to the market value
       of common stock on the grant date. In prior fiscal years, the Company has
       issued certain stock options with a grant price below the market value at
       the grant date. Compensation expense on these grants is recognized over
       the vesting period, generally three to four years. In fiscal 2003, the
       Company recognized a $4,000 net reduction to compensation expense due to
       cancellations of unvested portions of terminated options, whereas in
       fiscal 2002, it recognized $78,000 of compensation expense.

                                      F-28

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       The following table summarizes options outstanding and exercisable by
       price range at March 31, 2003:
<TABLE>
<CAPTION>
                                            OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
                             -------------------------------------------------    ---------------------------------
                                            WEIGHTED-AVERAGE
       RANGE OF EXERCISE       NUMBER OF       REMAINING      WEIGHTED-AVERAGE    EXERCISABLE AT   WEIGHTED-AVERAGE
             PRICES             OPTIONS     CONTRACTUAL LIFE  EXERCISE PRICE      MARCH 31, 2003   EXERCISE PRICE
             ------             -------     ----------------  --------------      --------------   --------------
      <S>                      <C>                    <C>           <C>               <C>                 <C>
      $  0.00 - $  2.00        1,258,963              5.2            $1.51            1,113,530            $1.48
      $  2.00 - $  3.80          548,634              7.2            $3.44              426,601            $3.48
      $  3.80 - $  7.60           10,200              6.5            $4.25               10,200            $4.25
      $  7.60 - $ 11.00          100,000              6.8           $10.46              100,000           $10.46
      $ 11.00 - $ 19.00            8,000              7.3           $18.06                5,333           $18.06
</TABLE>

       At March 31, 2003, the range of exercise prices and the weighted average
       remaining contractual life of outstanding options were $1.35 to $18.06
       and 5.9 years, respectively.

(6)    RELATED PARTY TRANSACTIONS

       As discussed in Note 4 "Long-Term Debt" and Note 12 "Liquidity," in
       December 2002, the Company entered into a Securities Purchase Agreement
       with Laurus Master Fund, Ltd. ("Laurus"). Pursuant to the that agreement,
       the Company issued to Laurus Master Fund, Ltd. a 6% convertible note in
       the principal amount of $2,000,000 that matures on December 13, 2004, and
       a warrant to purchase up to 200,000 shares of the Company's common stock
       at various exercise prices. The net proceeds from the Note were used for
       general working capital. The Note, which is being amortized over a
       20-month period commencing on May 1, 2003, may be repaid, at the
       Company's option, in cash or through the issuance of shares the Company's
       common stock under certain circumstances described above. As a result of
       this financing, Laurus Master Fund, Ltd. 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 this financing, the Company paid a $200,000 fee to an
       affiliate of Laurus Master Fund, Ltd.

       In July 2002, Mr. Peter Kellogg, one of the Company's major stockholders,
       executed a letter of commitment to provide the Company with a revolving
       line of credit expiring March 31, 2003, in the amount of $500,000 at
       annual interest rates varying from 2.0% over prime rate to 10.0% over
       prime rate depending on the outstanding balance. The revolving line of
       credit had no loan covenant or ratio requirements. The Company did not
       borrow any funds under this line of credit prior to its expiration on
       March 31, 2003.

                                      F-29

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       In February 2002, Mr. Amrit Das and Mr. Jyoti Chatterjee pledged some of
       their personal assets as collateral to finance the Company's $500,000
       telephony switch.

       On May 3, 2001, the Company entered into an interest-bearing secured loan
       agreement and promissory note with Mr. Santanu Das, an officer and
       director of the Company, for $70,000 at an annual interest rate of 6%.
       The loan was payable through payroll withholdings from August 24, 2001
       through August 4, 2006. Shares of netGuru common stock owned by Mr. Das,
       as well as all vested but unexercised options granted him, secured the
       loan. In April 2002, Mr. Das repaid the balance of this loan in full.

       In November 2000, the Company entered into a non-interest bearing secured
       loan agreement and promissory note in the amount of $85,000 with Mr.
       Stephen Owen, an officer and director of the Company, in the amount of
       $85,000. The loan is secured by Mr. Owen's pledge of the proceeds from
       the exercise and sale of his vested options. As of March 31, 2003, the
       total outstanding balance on this loan was $7,879, which is included in
       notes and related party receivable. Subsequent to year-end, Mr. Owen
       repaid the balance of this loan in full.

       In March 1999, 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
       16.6% payable monthly. The principal is payable in quarterly installments
       beginning June 2000 and ending March 2005. At March 31, 2003, the Company
       owed $541,000 on this loan (see Note 4 "Long-Term Debt").

(7)    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. However, the Company's subsidiary in the United Kingdom
       allows executives to defer a portion of their salary on a pretax basis to
       a retirement account of their choice. The Company does not match these
       contributions. For the years ended March 31, 2003 and 2002, Company
       contributions to the retirement plans were approximately $153,000 and
       $231,000, respectively.

(8)    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.

                                      F-30

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       At March 31, 2003, future minimum annual rental commitments under these
       lease obligations were as follows (in thousands):

                     Year ending March 31:
                         2004                               $          541
                         2005                                          459
                         2006                                          414
                         2007                                          358
                         2008                                          322
                         Thereafter                                  1,782
                                                            ---------------

                                                            $        3,876
                                                            ===============

       Rent expense was $698,000 and $708,000 for the years ended March 31, 2003
       and 2002, respectively.

       The Company fulfilled its renewable firm purchase commitment for $600,000
       to purchase airline tickets it sells as a ticket consolidator. This
       renewable purchase commitment expired March 31, 2003. The Company did not
       renew this purchase commitment in light of the uncertainty in the global
       travel industry.

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

(9)    INCOME TAXES

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

                                                   2003          2002

                        United States           $  (4,928)    $  (6,176)
                        Foreign                        19        (1,576)
                                                ----------    ----------
                          Total                    (4,909)       (7,752)
                                                ==========    ==========

                                      F-31

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

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

                                                           2003          2002
                                                       ----------    ----------
                    Current:
                        Federal                        $    (159)    $    (167)
                        State                                  2             2
                        Foreign                              125            70
                                                       ----------    ----------
                                                             (32)          (95)
                    Deferred:
                        Federal                             (134)        1,066
                        State                                (38)          228
                        Foreign                                -            (7)
                                                       ----------    ----------
                                                            (172)        1,287
                                                       ----------    ----------
                          Total                        $    (204)    $   1,192
                                                       ==========    ==========

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

<TABLE>
<CAPTION>
                                                               2003              2002
                                                         ---------------   ---------------
              <S>                                        <C>               <C>
              Income tax benefit at statutory rate       $       (1,669)   $       (2,636)
              State taxes, net of federal benefits                 (144)              (36)
              Foreign income tax rate differential                  119               649
              U.S. tax on foreign earnings,
                 previously deferred under APB 23                   600                 -
              Change in valuation allowance                         887             2,529
              Tax portion intangible asset write-off                  -               424
              Rate differential on net operating
               loss carry back benefit                                -               100
              Research and development credits                        -               (25)
              Nondeductible amortization                              -                58
              Other                                                   3               129
                                                         ---------------   ---------------
                    Total                                $         (204)   $        1,192
                                                         ===============   ===============
</TABLE>

                                      F-32

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       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, 2003, are as follows (in thousands):

                 Deferred tax assets:
                     Accrued vacation                           $          113
                     Allowance for doubtful accounts                       112
                     Amortization of intangibles                         1,800
                     Net operating loss carryforwards                    5,813
                     Research and development credit
                         carryforwards                                     167
                     Gain on sale of property                              326
                     Restructuring reserve                                  81
                     Other                                                   1
                                                                ---------------
                            Total deferred tax assets                    8,413
                            Less: valuation allowance                   (7,679)
                                                                ---------------
                            Net deferred tax assets                        734

                 Deferred tax liabilities:
                     Depreciation                                         (134)
                     U.S. tax on foreign earnings, net of
                        Foreign tax credit                                (600)
                                                                ---------------
                            Total deferred tax liabilities      $            -
                                                                ===============

       At March 31, 2003, the Company had tax net operating loss carryforwards
       of approximately $15,601,000 for federal income tax purposes and
       $8,710,000 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, $108,000 of research and development credit
       carryforwards, which expire at varying dates beginning in 2013.
       Additionally, the Company has, for state income tax purposes, $90,000 of
       research and development credit, which carries forward indefinitely.

       In assessing the realizability of the net deferred tax assets, management
       considers whether it is more likely than not that some or all of the
       deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets 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, 2003, the Company had
       provided a valuation allowance of $7,679,000 to reduce the net deferred
       tax assets due in part to the potential expiration of certain tax credit
       and net operating loss carryforwards prior to their utilization.

                                      F-33

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

       During the current year, 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.

(10)   SEGMENT AND GEOGRAPHIC DATA

       The Company is an integrated Internet and IT technology and services
       company operating in three primary business segments: 1) engineering and
       collaborative software products and services; 2) IT services; and 3)
       Web-based telecommunications and travel services.

       Through March 31, 2002, the Company included its collaborative software
       division in the Web-based telecommunications and travel services segment
       and referred to that segment as the Internet, e-commerce and
       collaborative software solutions segment. Effective April 1, 2002, the
       Company realigned its operating segments to reflect, more appropriately,
       the manner in which its business divisions were managed and its resources
       were allocated.

       As a result, since April 1, 2002, the collaborative software division has
       been included in the engineering and collaborative software products and
       services segment. The following table presents the segment disclosures
       required by SFAS No. 131 as if the collaborative software division had
       been included in the engineering and collaborative software products and
       services segment as of April 1, 2001. The significant components of
       worldwide operations by reportable operating segment are:
<TABLE>
<CAPTION>
                                                                       FOR THE YEAR ENDED MARCH 31
                                                                         -----------------------
                                                                            2003         2002
                                                                         ----------   ----------
                                                                             (IN THOUSANDS)
                                  NET REVENUES
           <S>                                                           <C>          <C>
           Engineering and collaborative software
              products and services                                      $   9,450    $   9,932
           IT services                                                       5,586        9,869
           Web-based telecommunications and travel services                  4,997        4,483
                                                                         ----------   ----------
                    Consolidated                                         $  20,033    $  24,284
                                                                         ==========   ==========

                                  GROSS PROFIT
           Engineering and collaborative software
              products and services                                      $   8,326    $   8,804
           IT services                                                       1,372        2,385
           Web-based telecommunications and travel services                    487          273
                                                                         ----------   ----------
                    Consolidated                                         $  10,185    $  11,462
                                                                         ==========   ==========

                                 OPERATING LOSS
           Engineering and collaborative software
              products and services                                      $  (3,386)   $  (4,605)
           IT services                                                        (156)        (749)
           Web-based telecommunications and travel services                 (1,143)      (2,218)
                                                                         ----------   ----------
                    Consolidated                                         $  (4,685)   $  (7,572)
                                                                         ==========   ==========

                                      F-34

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

                                                                       FOR THE YEAR ENDED MARCH 31
                                                                         -----------------------
                                                                            2003         2002
                                                                         ----------   ----------
                                                                             (IN THOUSANDS)

            DEPRECIATION AND AMORTIZATION EXPENSE CHARGED TO COST OF
                                      REVENUES
           Engineering and collaborative software
              products and services                                      $     291    $     198
           IT services                                                           -            -
           Web-based telecommunications and travel services                    100            -
                                                                         ----------   ----------
                    Consolidated                                         $     391    $     198
                                                                         ==========   ==========

                   DEPRECIATION EXPENSE CHARGED TO OPERATIONS
           Engineering and collaborative software
              products and services                                      $   1,054    $   1,179
           IT services                                                          22           59
           Web-based telecommunications and travel services                     21            5
                                                                         ----------   ----------
                    Consolidated                                         $   1,097    $   1,243
                                                                         ==========   ==========

                              RESTRUCTURING CHARGE
           Engineering and collaborative software
              products and services                                      $     194    $      25
           IT services                                                           -            -
           Web-based telecommunications and travel services                      -            -
                                                                         ----------   ----------
                    Consolidated                                         $     194    $      25
                                                                         ==========   ==========

                               IMPAIRMENT CHARGE
           Engineering and collaborative software
              products and services                                      $      67    $     684
           IT services                                                           -            -
           Web-based telecommunications and travel services                    192          967
                                                                         ----------   ----------
                    Consolidated                                         $     259    $   1,651
                                                                         ==========   ==========

             CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
           Engineering and collaborative software
              products and services                                      $       -    $       -
           IT services                                                       5,824            -
           Web-based telecommunications and travel services                      -            -
                                                                         ----------   ----------
                    Consolidated                                         $   5,824    $       -
                                                                         ==========   ==========

                EXPENDITURES FOR ADDITIONS TO LONG-LIVED ASSETS
           Engineering and collaborative software
              products and services                                      $     222    $     374
           IT services                                                           -            6
           Web-based telecommunications and travel services                     11           14
                                                                         ----------   ----------
                    Consolidated                                         $     233    $     394
                                                                         ==========   ==========
</TABLE>

                                      F-35

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

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

                                        FOR THE YEAR ENDED MARCH 31
                                           ---------------------
                                             2003         2002
                                           --------     --------
                                              (IN THOUSANDS)
                    NET REVENUE
       United States                       $12,475      $18,260
       The Americas (other than U.S.)          772          574
       Europe                                3,271        2,757
       Asia-Pacific                          3,515        2,693
                                           --------     --------
                Consolidated               $20,033      $24,284
                                           ========     ========

                    EXPORT SALES
       United States                       $ 1,747      $   615
                                           ========     ========

                  LONG-LIVED ASSETS
       United States                       $ 5,434      $12,434
       Europe                                  324          284
       Asia-Pacific                          1,189        1,440
                                           --------     --------

                Consolidated               $ 6,947      $14,158
                                           ========     ========

(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):

                                                          2003            2002
                                                        ---------      ---------
       Numerator:
       Net loss -- numerator for basic and diluted
          net loss per share                            $(10,529)      $ (8,944)

       Denominator:
       Denominator for basic net loss per share -
          average number of common shares outstanding
          during the year                                 17,310         16,982
       Incremental common shares attributable to
          exercise of outstanding options and warrants        --             --
                                                        ---------      ---------

       Denominator for diluted net loss per share         17,310         16,982
                                                        =========      =========

       Basic net loss per share                         $  (0.61)      $  (0.53)
                                                        =========      =========

       Diluted net loss per share                       $  (0.61)      $  (0.53)
                                                        =========      =========

       Options, warrants and other common stock equivalents amounting to 837,000
       and 485,000 potential common shares were excluded from the computation of
       diluted loss per common share for fiscal 2003 and 2002, respectively,
       because the effect would have been antidilutive. Potential common shares
       amounting to 370,000 from the possible conversion of the convertible note
       issued to Laurus were excluded from the computation of diluted loss per
       share as their effect would heave been antidilutive.

                                      F-36

<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                       Years Ended March 31, 2003 and 2002

(12)   LIQUIDITY

       The Company incurred net losses of $10,529,000 and $8,944,000 and used
       cash in operations of $2,068,000 and $3,225,000 in fiscal 2003 and 2002,
       respectively. The Company's future capital requirements will depend upon
       many factors, including sales and marketing efforts, the development of
       new products and services, possible future strategic acquisitions, the
       progress of research and development efforts, and the status of
       competitive products and services. The Company believes it will be able
       to generate cash from operations or through additional sources of debt
       and equity financing. On July 10, 2003, the Company received a commitment
       to modify and expand to $4,000,000 the financing arrangement with Laurus
       that is described in Note 4 "Long-Term Debt." The modification and
       expansion may have a dilutive effect to the existing stockholders. If
       the final terms are acceptable to both parties, the modification and
       expansion could be finalized in the quarter ending September 30, 2003.
       If the proposed modification and expansion does not occur, the Company
       may seek other sources of debt or equity funding. The Company has
       continued its program to reduce costs and expenses. If adequate funds
       are not available, the Company may be required to delay, scale back,
       or eliminate its research and development programs and its marketing
       efforts or to obtain funds through arrangements with partners or others
       who may require the Company to relinquish rights to certain of its
       technologies or potential products or assets.

                                      F-37

<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

                                           /s/ Amrit K. Das
                                           -------------------------------------
Dated: July 15, 2003                       Amrit K. Das, Chief Executive Officer

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

<TABLE>
<CAPTION>

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

<S>                                               <C>                                         <C>
/s/ Amrit K. Das                                  Chairman of the Board, Chief                July 15, 2003
----------------                                  Executive Officer and Director
Amrit K. Das                                      (principal executive officer)

/s/ Jyoti Chatterjee                              President, Chief Operating Officer,         July 15, 2003
--------------------                              Director
Jyoti Chatterjee

/s/ Bruce Nelson                                  Chief Financial Officer (Principal          July 15, 2003
----------------                                  financial and accounting Officer)
Bruce Nelson

/s/ Santanu Das                                   Corporate Vice President, President,        July 15, 2003
---------------                                   Engineering, and Collaborative
Santanu Das                                       Software and Director

/s/ Stephen Owen                                  Corporate Vice President, President,        July 15, 2003
----------------                                  European Operations and Director
Stephen Owen

/s/ Stanley Corbett                               Director                                    July 15, 2003
-------------------
Stanley W. Corbett

/s/ Garret Vreeland                               Director                                    July 15, 2003
-------------------
Garret Vreeland

/s/ L.M. Singhvi                                  Director                                    July 15, 2003
----------------
L.M. Singhvi

</TABLE>

                                       54

<PAGE>

                                 CERTIFICATIONS

         I, Amrit K. Das, certify that:

         1. I have reviewed this annual report on Form 10-KSB of netGuru, Inc.
("annual report");

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

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

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

         b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date");

         c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions);

         a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

         6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: July 15, 2003                        /s/ Amrit K. Das
                                           ----------------
                                           Amrit K. Das, Chief Executive Officer
                                           (principal executive officer)

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<PAGE>

         I, Bruce Nelson, certify that:

         1. I have reviewed this annual report on Form 10-KSB of netGuru, Inc.
("annual report");

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

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

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

         b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date");

         c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions);

         a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

         6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: July 15, 2003                        /s/ Bruce Nelson
                                           ----------------
                                           Bruce Nelson, Chief Financial Officer
                                           (principal financial officer)

                                       56

<PAGE>

                  INDEX TO EXHIBITS FILED WITH THIS FORM 10-KSB

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

         4.2      Amendment No. 1 to Securities Purchase Agreement dated as of
                  December 13, 2002 by and between the registrant and Laurus
                  Master Fund, Ltd.

         4.4      Amendment No. 1 to Convertible Note in the principal amount of
                  amount of $2,000,000 dated June 4, 2003 by and between the
                  registrant and Laurus Master Fund, Ltd.

         4.5      Common Stock Purchase Warrant dated December 13, 2002 issued
                  by the registrant in favor of Laurus Master Fund, Ltd. 10.12
                  Salary Deferral Arrangement for Executives of Research
                  Engineers (Europe) Ltd.

         10.14    Amendment No. 1 to Securities Purchase Agreement dated as of
                  December 13, 2002 by and between the registrant and Laurus
                  Master Fund, Ltd. (filed as Exhibit 4.2 to this Form 10-KSB)

         10.16    Amendment No. 1 to Convertible Note in the principal amount of
                  amount of $2,000,000 dated June 4, 2003 by and between the
                  registrant and Laurus Master Fund, Ltd. (filed as Exhibit 4.4
                  to this Form 10-KSB)

         10.17    Common Stock Purchase Warrant dated December 13, 2002 issued
                  by the registrant in favor of Laurus Master Fund, Ltd. (filed
                  as Exhibit 4.5 to this Form 10-KSB)

         21.1     Subsidiaries of the registrant

         23.1     Independent Auditors' Consent

         99.1     Certifications of chief executive officer and chief financial
                  officer pursuant to 18 U.S.C section 1350, as adopted pursuant
                  to section 906 of the Sarbanes-Oxley Act of 2002

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