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

                                   FORM 10-QSB

              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER 001-32255

                               GURUNET CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                                   98-0202855
  (STATE OR OTHER JURISDICTION OF           (I.R.S. EMPLOYER IDENTIFICATION NO.)
   INCORPORATION OR ORGANIZATION)


                            Jerusalem Technology Park
                                   Building 98
                             Jerusalem 91481 Israel

           (ADDRESS INCLUDING ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)

                                 +972-2-649-5123

              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Indicate by an (X) whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]

Indicate by an (X) whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ]  NO [X]

As of November 19, 2004, the registrant had outstanding 4,920,551 shares of
Common Stock, $0.001 par value per share.


<PAGE>

PART I.  FINANCIAL INFORMATION

<TABLE>
<S>      <C>                                                                                            <C>
Item 1.  Financial Statements

         Interim Consolidated Balance Sheets as of September 30, 2004 (unaudited) and December 31, 2003    1

         Interim  Consolidated  Statements of Operations  for the three and nine months ended
            September 30, 2004 (unaudited) and 2003 ...................................................    2

         Interim  Consolidated  Statements  of Cash Flows for the nine months ended
            September 30, 2004 (unaudited) and 2003 ...................................................    3

         Notes to Interim Consolidated Financial Statements of September 30, 2004 (unaudited) .........    5

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations ........   11

Item 3.  Quantitative and Qualitative Disclosures About Market Risk ...................................   19

Item 4.  Controls and Procedures ......................................................................   19

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings ............................................................................   21

Item 2.  Changes in Securities and Use of Proceeds ....................................................   21

Item 3.  Defaults Upon Senior Securities ..............................................................   21

Item 4.  Submission of Matters to a Vote of Security Holders ..........................................   21

Item 5.  Other Information ............................................................................   21

Item 6.  Exhibits and Reports on Form 8-K .............................................................   21

SIGNATURES ............................................................................................   22

CERTIFICATIONS ........................................................................................   24
</TABLE>

              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

      In addition to historical information, this Quarterly Report on Form
10-QSB contains forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. Forward-looking
statements are those that predict or describe future events or trends and that
do not relate solely to historical matters. You can generally identify
forward-looking statements as statements containing the words "believe,"
"expect," "will," "anticipate," "intend," "estimate," "project," "assume" or
other similar expressions, although not all forward-looking statements contain
these identifying words. All statements in this report regarding our future
strategy, future operations, projected financial position, estimated future
revenues, projected costs, future prospects, and results that might be obtained
by pursuing management's current plans and objectives are forward-looking
statements. You should not place undue reliance on our forward-looking
statements because the matters they describe are subject to known and unknown
risks, uncertainties and other unpredictable factors, many of which are beyond
our control. Our forward-looking statements are based on the information
currently available to us and speak only as of the date on which this report was
filed with the SEC. We expressly disclaim any obligation to issue any updates or
revisions to our forward-looking statements, even if subsequent events cause our
expectations to change regarding the matters discussed in those statements. Over
time, our actual results, performance or achievements will likely differ from
the anticipated results, performance or achievements that are expressed or
implied by our forward-looking statements, and such difference might be
significant and materially adverse to our stockholders. Many important factors
that could cause such a difference are described in our most recent registration
statement on Form SB-2 under the captions "Competition," "Proprietary Rights"
and "Risk Factors," all of which you should review carefully. Please consider
our forward-looking statements in light of those risks as you read this report.

                                        i

<PAGE>

GuruNet Corporation (Formerly Atomica Corporation) and Subsidiary
(A Development Stage Enterprise)
INTERIM CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                      SEPTEMBER 30, 2004     DECEMBER 31, 2003
                                                                                                       $                     $
                                                                                      ------------------     ----------------
                                                                                             (UNAUDITED)             (AUDITED)
                                                                                      ------------------     ----------------
<S>                                                                                          <C>                  <C>
ASSETS
CURRENT ASSETS:
 Cash and cash equivalents                                                                       651,871              123,752
 Receivables                                                                                      14,502               11,934
 Prepaid expenses                                                                                391,259               20,481
 Deferred charges, net                                                                         1,523,626              155,116
                                                                                          --------------       --------------
TOTAL CURRENT ASSETS                                                                           2,581,258              311,283
                                                                                          --------------       --------------

LONG-TERM DEPOSITS (RESTRICTED)                                                                  157,132              165,449
                                                                                          --------------       --------------

DEPOSITS IN RESPECT OF EMPLOYEE SEVERANCE OBLIGATIONS                                            422,701              339,651
                                                                                          --------------       --------------

PROPERTY AND EQUIPMENT, NET                                                                      200,571              206,408
                                                                                          --------------       --------------

OTHER ASSETS:
 Intangible asset, net                                                                            78,195                   --
 Capitalized software development costs, net                                                      31,760                   --
 Deferred tax asset, long-term                                                                    23,816               20,501
                                                                                          --------------       --------------
TOTAL OTHER ASSETS                                                                               133,771               20,501
                                                                                          --------------       --------------

TOTAL ASSETS                                                                                   3,495,433            1,043,292
                                                                                          ==============       ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable                                                                                757,311              215,684
 Accrued expenses                                                                                286,482              326,186
 Accrued compensation                                                                            336,275              293,113
 Advances on account of shares and stock warrants                                                     --              200,000
 Convertible promissory notes, net of unamortized discount of $1,095,003 as of
   September 30, 2004                                                                          3,904,997                   --
 Deferred revenues, short-term                                                                   133,763               29,234
                                                                                          --------------       --------------

 TOTAL CURRENT LIABILITIES                                                                     5,418,828            1,064,217
                                                                                          --------------       --------------

LONG-TERM LIABILITIES:
 Liability in respect of employee severance obligations                                          520,975              431,025
 Deferred tax liability, long-term                                                                92,430               55,092
 Deferred revenues, long-term                                                                    477,721              537,404
                                                                                          --------------       --------------

 TOTAL LONG-TERM LIABILITIES                                                                   1,091,126            1,023,521
                                                                                          --------------       --------------

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY  (DEFICIT):
 Convertible preferred stock:
  Series A; $0.01 par value; 130,325 shares authorized, issued, and outstanding
   as of December 31, 2003; aggregate liquidation preference of $300,000; zero
   shares outstanding as of September 30, 2004                                                        --                1,303
  Series B; $0.01 par value; 217,203 shares authorized; 181,112 shares issued and
   outstanding as of December 31, 2003; aggregate liquidation preference of
   $1,350,000; zero shares outstanding as of September 30, 2004                                       --                1,811
  Series C; $0.01 par value; 260,643 shares authorized; 238,119 shares issued and
   outstanding as of December 31, 2003; aggregate liquidation preference of
   $2,750,000; zero shares outstanding as of September 30, 2004                                       --                2,381
  Series D; $0.01 par value; 824,646 shares authorized as voting stock and 21,721
   shares authorized as non-voting stock; 807,468 shares of voting stock and
   15,024 shares of non-voting stock issued and outstanding as of December 31, 2003;
   aggregate liquidation preference of $28,400,000; zero shares outstanding as of
   September 30, 2004                                                                                 --                8,225
Common stock; $0.001 par value; 30,000,000 and 2,856,937 shares authorized as of
   September 30, 2004 and December 31, 2003, respectively; 1,727,373 and 353,876
   shares issued and outstanding as of September 30, 2004 and December 31, 2003,
   respectively                                                                                    1,727                  355
Additional paid-in capital                                                                    36,801,365           33,100,368
Deferred compensation                                                                            (49,209)            (125,873)
Accumulated other comprehensive loss                                                             (27,418)             (27,418)
Deficit accumulated during development stage                                                 (39,740,986)         (34,005,598)
                                                                                          --------------       --------------

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                                          (3,014,521)          (1,044,446)
                                                                                          --------------       --------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                           3,495,433            1,043,292
                                                                                          ==============       ==============
</TABLE>

See accompanying notes to the interim consolidated financial statements

                                        1

<PAGE>

GuruNet Corporation (Formerly Atomica Corporation) and Subsidiary
(A Development Stage Enterprise)

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED               NINE MONTHS ENDED       CUMULATIVE FROM
                                                                SEPTEMBER 30                    SEPTEMBER 30     DECEMBER 22, 1998
                                                 ---------------------------    ----------------------------   (INCEPTION) THROUGH
                                                         2004          2003            2004            2003     SEPTEMBER 30, 2004
                                                 ------------   ------------    ------------    ------------    ------------------
                                                            $              $               $               $                     $
                                                 ------------   ------------    ------------    ------------    ------------------
                                                  (UNAUDITED)    (UNAUDITED)     (UNAUDITED)     (UNAUDITED)           (UNAUDITED)
                                                 ------------   ------------    ------------    ------------    ------------------
<S>                                                <C>             <C>            <C>              <C>                  <C>
REVENUE                                                53,163         10,604         117,038          19,080             1,345,552
Cost of revenue                                       157,854        149,599         433,612         538,182             3,338,325
                                                 ------------   ------------    ------------    ------------    ------------------

GROSS MARGIN                                         (104,691)      (138,995)       (316,574)       (519,102)           (1,992,773)
                                                 ------------   ------------    ------------    ------------    ------------------

OPERATING EXPENSES
 Research and development                             271,489        233,688         789,962         736,647            18,335,551
 Sales and marketing                                  159,564        148,168         700,049         356,435             9,348,636
 General and administrative                           221,805        169,589         636,335         546,442             7,026,056
 Loss in connection with shut-down of operations           --             --              --              --             1,048,446
                                                 ------------   ------------    ------------    ------------    ------------------

TOTAL OPERATING EXPENSES                              652,858        551,445       2,126,346       1,639,524            35,758,689
                                                 ------------   ------------    ------------    ------------    ------------------

OPERATING LOSS                                       (757,549)      (690,440)     (2,442,920)     (2,158,626)          (37,751,462)

Interest income (expense), net                     (1,397,322)         1,128      (3,247,774)          6,105            (1,440,056)
Other income (expense), net                            (6,646)       (23,918)        (10,671)          3,498              (480,854)
                                                 ------------   ------------    ------------    ------------    ------------------

LOSS BEFORE INCOME TAXES                           (2,161,517)      (713,230)     (5,701,365)     (2,149,023)          (39,672,372)

Income tax expenses                                    (7,010)            --         (34,023)             --               (68,614)
                                                 ------------   ------------    ------------    ------------    ------------------

NET LOSS                                           (2,168,527)      (713,230)     (5,735,388)     (2,149,023)          (39,740,986)
                                                 ============   ============    ============    ============    ==================


BASIC AND DILUTED NET LOSS PER COMMON SHARE             (1.26)         (2.02)          (3.64)          (6.07)               (62.80)
                                                 ============   ============    ============    ============    ==================

WEIGHTED AVERAGE SHARES USED IN COMPUTING
BASIC AND DILUTED NET LOSS PER COMMON SHARE         1,727,373        353,876       1,574,923         353,876               632,857
                                                 ============   ============    ============    ============    ==================
</TABLE>



See accompanying notes to the interim consolidated financial statements.

                                        2

<PAGE>

GuruNet Corporation (Formerly Atomica Corporation) and Subsidiary
(A Development Stage Enterprise)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                CUMULATIVE FROM
                                                                                                              DECEMBER 22, 1998
                                                                                                                    (INCEPTION)
                                                                                                                        THROUGH
                                                                            NINE MONTHS ENDED SEPTEMBER 30        SEPTEMBER 30,
                                                                           -------------------------------    -----------------
                                                                                    2004              2003                 2004
                                                                           -------------     -------------    -----------------
                                                                                       $                 $                    $
                                                                           -------------     -------------    -----------------
                                                                             (UNAUDITED)       (UNAUDITED)          (UNAUDITED)
                                                                           -------------     -------------    -----------------
<S>                                                                           <C>               <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS                                                                      (5,735,388)       (2,149,023)         (39,740,986)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING
 ACTIVITIES:
 Depreciation and amortization of tangible and intangible assets                  92,061           202,164            2,184,990
 Deposits in respect of employee severance obligations                           (83,050)          (94,751)            (422,701)
 Loss on sale and write off of property and equipment in connection
  with shut-down of operations                                                        --                --              780,475
 Other loss on sale and write off of property and equipment                           --                --              549,802
 Settlement of obligations for other than cash                                        --                --              225,589
 Increase in liability in respect of employee severance obligations               89,950           101,273              520,975
 Deferred income taxes                                                            34,023                --               68,614
 Stock issued for domain name                                                         --                --                1,500
 Issuance of stock options and warrants to non-employees for
  services rendered                                                               16,570                --              222,603
 Revaluation of options issued to non-employees for services rendered                 --                --              (42,789)
 Amortization of deferred compensation                                            21,624                --              111,146
 Amortization of deferred charges relating to promissory notes                   660,826                --              660,826
 Amortization of discounts on promissory notes                                 2,190,008                --            2,190,008
CHANGES IN OPERATING ASSETS AND LIABILITIES:
 Decrease (increase) in accounts receivable and other current assets            (373,346)          363,659             (404,205)
 Increase (decrease) in accounts payable                                         (54,420)           96,563              161,264
 Increase (decrease) in accrued expenses and other current liabilities             3,458           (42,295)             634,441
 Increase in short-term deferred revenues                                         61,037             9,329               90,271
 Increase (decrease) in long-term deferred revenues                              (16,191)          460,174              521,213
                                                                           -------------     -------------        -------------
NET CASH USED IN OPERATING ACTIVITIES                                         (3,092,838)       (1,052,907)         (31,686,964)
                                                                           -------------     -------------        -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                                                            (82,479)          (23,183)          (3,985,505)
 Proceeds from sale of property and equipment                                         --                --               54,415
 Capitalization of software development costs                                    (33,500)               --              (33,500)
 Purchase of intangible asset                                                    (80,200)               --              (80,200)
 Decrease (increase) in long-term deposits                                         8,317            51,064             (150,265)
                                                                           -------------     -------------        -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                             (187,862)           27,881           (4,195,055)
                                                                           -------------     -------------        -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Repayment of loan                                                                    --                --              (20,000)
 Proceeds from loan                                                                   --                --                6,500
 Proceeds from issuance of convertible preferred stock, net                           --                             32,800,000
 Proceeds from issuance of common stock                                               --                --               57,500
 Proceeds from issuance of promissory notes                                    4,800,000           100,000            5,000,000
 Exercise of common stock options                                                     --                --                1,000
 Deferred charges relating to promissory notes and initial public offering      (991,181)               --           (1,146,297)
 Issuance costs                                                                       --                --             (130,697)
                                                                           -------------     -------------        -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                      3,808,819           100,000           36,568,006
                                                                           -------------     -------------        -------------

Effect of exchange rate changes on cash and cash equivalents                          --           (10,876)             (34,116)
                                                                           -------------     -------------        -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             528,119          (935,902)             651,871

Cash and cash equivalents at beginning of period                                 123,752         1,438,180                   --
                                                                           -------------     -------------        -------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       651,871           502,278              651,871
                                                                           =============     =============        =============
</TABLE>

See accompanying notes to the interim consolidated financial statements

                                        3


<PAGE>

GuruNet Corporation (Formerly Atomica Corporation) and Subsidiary
(A Development Stage Enterprise)

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)

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

<TABLE>
<CAPTION>
                                                                                                                CUMULATIVE FROM
                                                                                                              DECEMBER 22, 1998
                                                                                                                    (INCEPTION)
                                                                                                                        THROUGH
                                                                            NINE MONTHS ENDED SEPTEMBER 30        SEPTEMBER 30,
                                                                           -------------------------------    -----------------
                                                                                    2004              2003                 2004
                                                                           -------------     -------------    -----------------
                                                                                       $                 $                    $
                                                                           -------------     -------------    -----------------
                                                                             (UNAUDITED)       (UNAUDITED)          (UNAUDITED)
                                                                           -------------     -------------    -----------------
<S>                                                                           <C>               <C>                 <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Income taxes paid                                                                40,997             8,588               89,729
                                                                           =============     =============    =================

NON-CASH INVESTING AND FINANCING ACTIVITIES:
 Stock issued for domain name                                                         --                --               1,500
 Issuance of common stock in lieu of loan repayments                                  --                --               6,500
 Common stock issued in exchange for notes receivable                                 --                --           1,842,900
 Repurchase of stockholders' common stock and cancellation of notes
  receivable                                                                          --                --          (1,842,900)
 Conversion of preferred stock into common stock                                  13,720                --              13,720
 Issuance of warrants to non-employees                                           589,188                --             589,188
 Amortization of deferred charges relating to warrants                           147,080                --             147,080
 Deferred charges recorded to accounts payable                                   596,047                               596,047
 Forfeiture of options granted to an employee                                     55,040                --              55,040
</TABLE>


















See accompanying notes to the interim consolidated financial statements


                                        4

<PAGE>

NOTE 1 - BUSINESS

       GuruNet  Corporation  ("the  Parent"),  formerly  Atomica  Corporation (a
       Development  Stage  Enterprise),  was founded as a Texas  corporation  on
       December 22, 1998,  and  reorganized  as a Delaware  corporation in April
       1999.  On  December  27,  1998  the  Parent  formed  a  subsidiary  ("the
       Subsidiary")  based in Israel,  primarily  for the  purpose of  providing
       research and development services to the Parent.  GuruNet Corporation and
       the Subsidiary are collectively referred to as "the Company". The Company
       develops,   markets  and  sells   technology   that   intelligently   and
       automatically integrates and retrieves information from disparate sources
       and delivers the result in a single consolidated view.

       The Company incurred approximately $39.7 million and $31.7 million of net
       losses and negative cash flows from operations,  respectively, during its
       initial period of operations  through September 30, 2004. The Company had
       $651,871  in cash  and  cash  equivalents  at  September  30,  2004.  The
       Company's   working   capital   deficiency  at  September  30,  2004  was
       $2,837,570.  These factors raise  substantial  doubt as to the ability of
       the Company to continue as a going  concern as of the balance sheet date,
       September 30, 2004.  However,  as a result of funds raised in the initial
       public  offering  ("IPO")  (see note 12) and other  factors,  the Company
       believes that it will be able it to continue its  operations for at least
       the twelve month period subsequent to the balance sheet date.

       The accompanying unaudited interim consolidated financial statements were
       prepared  in  accordance  with  the  instructions  for Form  10-QSB  and,
       therefore,  do not  include  all  disclosures  necessary  for a  complete
       presentation  of financial  condition,  results of  operations,  and cash
       flows in conformity with generally accepted  accounting  principles.  All
       adjustments  which  are,  in  the  opinion  of  management,  of a  normal
       recurring nature and are necessary for a fair presentation of the interim
       financial  statements have been included.  Nevertheless,  these financial
       statements  should  be read in  conjunction  with the  Company's  audited
       financial statements for the year ended December 31, 2003. The results of
       operations  for the period ended  September 30, 2004 are not  necessarily
       indicative of the results that may be expected for the entire fiscal year
       or any other interim period.

NOTE 2 - REVENUE RECOGNITION

       (a)  In 2003,  the Company sold  lifetime  subscriptions  to its consumer
            product  and did not  recognize  revenue  from those sales since the
            obligation   to  continue   serving  such  content  had  no  defined
            termination  date and  adequate  history to estimate the life of the
            customer  relationship  was not  available.  Cash received from such
            lifetime licenses is reflected as long-term deferred revenues on the
            accompanying balance sheets. Beginning April 2004, certain users who
            purchased lifetime  subscriptions in 2003,  exchanged their lifetime
            subscriptions  for free two-year  subscriptions  to a newer enhanced
            version of the GuruNet  product.  The cash previously  received from
            such users will be  recognized  over the new two-year  subscription.
            During the three  months and nine months ended  September  30, 2004,
            the  Company  recognized  approximately  $10,000 and $16,000 of such
            revenues, respectively.

       (b)  The Company  generates  advertising  revenues through  pay-per-click
            keyword  advertising.  When a user searches sponsored  keywords,  an
            advertiser's   Website  is  displayed  in  a  premium  position  and
            identified  as a  sponsored  result to the  search.  Generally,  the
            Company does not contract  directly  with  advertisers,  but rather,
            those  advertisers  contract with a third party.  The third party is
            obligated  to pay the  Company a portion of the  revenue it receives
            from  advertisers,   as  compensation  for  the  Company's  sale  of
            promotional space on its Internet properties.  Amounts received from
            such third  parties  are  reflected  as revenue on the  accompanying
            statement  of  operations  in the period in which  such  advertising
            services were provided.

NOTE 3 - FUNCTIONAL CURRENCY

       Beginning  January 2004, the financial  statements of the Subsidiary were
       measured  using  the  U.S.  dollar  as its  functional  currency,  due to
       significant changes in economic facts and circumstances.

NOTE 4 - ACCOUNTING FOR STOCK-BASED COMPENSATION

       As allowed by Statement of Financial Accounting Standards (SFAS) No. 123,
       "ACCOUNTING  FOR  STOCK-BASED  COMPENSATION",  the Company  utilizes  the
       intrinsic-value   method  of  accounting  prescribed  by  the  Accounting
       Principles  Board (APB) Opinion No. 25,  "ACCOUNTING  FOR STOCK ISSUED TO
       EMPLOYEES",  and related  interpretations,  to account  for stock  option
       plans for employees and directors.  Compensation  cost for stock options,
       if any, would be measured as the excess of the estimated  market price of
       the Company's stock at the date of grant over the amount an employee must
       pay to acquire the stock.

                                        5

<PAGE>

       The Company has adopted the disclosure  requirements  of SFAS No. 123 and
       SFAS No. 148,  "ACCOUNTING FOR STOCK-BASED  COMPENSATION--TRANSITION  AND
       DISCLOSURE",  for awards to its directors and  employees.  For disclosure
       purposes  only,  the fair  value of  options  granted  to  employees  and
       directors  is  estimated  on the date of grant  using  the  minimum-value
       method  with the  following  weighted  average  assumptions:  no dividend
       yield;  risk-free  interest rates of 2.18% to 6.68%; and an expected life
       of three to five years.  The fair value of options  granted to  employees
       and  directors  subsequent  to May 12,  the date of the  Company's  first
       filing with the U.S.  Securities  and Exchange  Commission  in connection
       with its IPO, are measured,  for disclosure  purposes only,  according to
       the  Black-Scholes  option-pricing  model  with  the  following  weighted
       average  assumptions:  . no dividend yield;  risk-free  interest rates of
       3.58% to 3.78%; volatility of 67.45%; and an expected life of four years.

       The following  illustrates  the effect on net loss and net loss per share
       if the Company had  applied  the fair value  method of SFAS No. 123,  for
       accounting purposes:

<TABLE>
<CAPTION>
                                                                                            NINE MONTHS ENDED   CUMULATIVE FROM
                                                            THREE MONTHS ENDED   ----------------------------         INCEPTION
                                                                  SEPTEMBER 30                   SEPTEMBER 30           THROUGH
                                                ------------------------------   ----------------------------     SEPTEMBER 30,
                                                         2004             2003            2004           2003              2004
                                                -------------    -------------   -------------  -------------   ---------------
                                                            $                $               $              $                 $
                                                -------------    -------------   -------------  -------------   ---------------
                                                  (UNAUDITED)      (UNAUDITED)     (UNAUDITED)    (UNAUDITED)       (UNAUDITED)
                                                -------------    -------------   -------------  -------------   ---------------
<S>                                                <C>                <C>           <C>            <C>              <C>
Net loss, as reported                              (2,168,527)        (713,320)     (5,735,388)    (2,149,023)      (39,740,986)
Add:
 Stock-based compensation expense to
 employees included in reported net
 loss, net of related tax effects                       4,063               --          21,624             --            36,619
Deduct:
 Stock-based compensation expense to
 employees and directors determined
 under fair value based method for all
 awards, net of related tax effects                   (24,064)          (4,507)        (47,580)       (14,236)         (197,934)
                                                -------------    -------------   -------------  -------------   ---------------

Net loss, pro-forma                                (2,188,528)        (717,737)     (5,761,344)    (2,163,259)      (39,902,301)
                                                =============    =============   =============  =============   ===============

Net loss per common share, basic and diluted:

As reported                                             (1.26)           (2.02)          (3.64)         (6.07)           (62.80)
                                                =============    =============   =============  =============   ===============
Pro-forma                                               (1.27)           (2.03)          (3.66)         (6.11)           (63.05)
                                                =============    =============   =============  =============   ===============
</TABLE>

NOTE 5 - NET LOSS PER SHARE DATA

       Basic and diluted net loss per common share are  presented in  conformity
       with the SFAS No. 128,  "EARNINGS PER SHARE".  Diluted net loss per share
       is the same as  basic  net loss per  share as the  inclusion  of  839,900
       outstanding  stock options and  1,372,048  convertible  preferred  stock,
       until  their   conversion  in  January  2004  (see  Note  10),  would  be
       anti-dilutive.   Share  and  per-share  data  presented   throughout  the
       financial  statements  and notes  reflect a 1-for-23  reverse stock split
       that the Company declared in January 2004.

NOTE 6 - INTANGIBLE ASSETS

       In March 2004,  the Company  purchased  the domain name  Answers.com  for
       $80,200.  The domain name is being  amortized  over the life of the asset
       which is estimated at 10 years.

NOTE 7 - CAPITALIZED SOFTWARE DEVELOPMENT COSTS

       Beginning the second quarter of 2004, the Company has capitalized certain
       internal use software and Website  development costs totaling $33,500, in
       accordance  with  Statement of Position (SOP) 98-1,  "ACCOUNTING  FOR THE
       COST OF COMPUTER  SOFTWARE  DEVELOPED OR OBTAINED FOR INTERNAL  USE", and
       EITF 00-2,  "ACCOUNTING FOR WEB SITE DEVELOPMENT  COSTS". The capitalized
       costs are  amortized  over their  estimated  useful  lives,  which varies
       between two and four years.

                                        6

<PAGE>

NOTE 8 - DEFERRED CHARGES, NET

<TABLE>
<CAPTION>
                                                                             SEPTEMBER 30,       DECEMBER 31,
                                                                                      2004               2003
                                                                             -------------      -------------
                                                                                         $                  $
                                                                             -------------      -------------
                                                                               (UNAUDITED)          (AUDITED)
                                                                             -------------      -------------
<S>                                                                              <C>                 <C>
       Issuance costs relating to convertible promissory notes                   1,118,734           130,018
       Issuance costs relating to warrants                                         147,080            25,098
       Issuance costs relating to IPO                                            1,065,718                --
                                                                             -------------      -------------

                                                                                 2,331,532           155,116
       Less:
        Charges deducted from paid-in capital                                     (147,080)               --
        Amortization to interest expense                                          (660,826)               --
                                                                             -------------      -------------

                                                                                 1,523,626           155,116
                                                                             =============      =============
</TABLE>

       The costs incurred in connection with obtaining the promissory  notes and
       warrants (see Note 9) and with the IPO,  which  transpired  subsequent to
       balance  sheet date on October 13, 2004 (the "IPO  Effective  Date") (See
       Note 12), were recorded as deferred charges on the  accompanying  balance
       sheet.  The charges  relating to the  promissory  notes are  amortized to
       interest  expense  over one  year,  the life of the  notes.  The  charges
       relating to the warrants were deducted from  additional  paid-in  capital
       upon  issuance of the warrants.  The charges  relating to the IPO will be
       reflected as a reduction to equity on the IPO  Effective  Date.  Further,
       upon conversion of the notes into common shares on such date, the Company
       will  reduce  its paid in  capital by any  unamortized  deferred  charges
       relating  to the notes  converted.  The portion of the  deferred  charges
       relating to the notes that are repaid at the IPO  Effective  Date will be
       charged to interest expense.

NOTE 9 - CONVERTIBLE PROMISSORY NOTES

       On January 30,  2004,  and  February 17,  2004,  the Company  issued,  in
       aggregate,  $5 million of 8% Convertible  Promissory Notes (the "Notes").
       The aggregate  principal amount of the Notes includes $200,000 previously
       advanced to the Company by investors,  in 2003,  that was converted  into
       Notes in conjunction with the $5 million  funding.  The Notes were due on
       the earlier of one year after their  issuance or the  consummation  of an
       IPO. Upon consummation of an IPO, a minimum of 50% (and up to 100% at the
       election of each note holder) of the  principal  amount of the Notes were
       to be converted  into shares of Common Stock at a conversion  price equal
       to  75%  of  the  offering  price  of the  IPO  (the  "Offering  Price").
       Notwithstanding,  in October 2004,  prior to the IPO Effective Date, note
       holders, holding $1,350,000 of the notes, were contractually obligated to
       surrender  their Notes to the Company for  repayment and were not able to
       convert any portion into shares (See Note 12b).

       On October 13, 2004, the Company  completed its IPO and $1,840,000 of the
       Notes  converted  into  490,678  shares of common  stock.  The  remaining
       $3,160,000 of the Notes was repaid subsequent to the IPO closing date.

       The Notes were secured by substantially all of the assets of the Company,
       other  than the stock of the  Subsidiary,  which was to be  pledged  upon
       receipt  of all  third  party  consents  required  for  such  pledge.  In
       connection  with the  issuance  of the Notes,  the  Company  also  issued
       warrants to acquire an aggregate  1,700,013  shares of Common Stock at an
       exercise  price per share equal to 120%  multiplied by the greater of (1)
       $6.00,  and (2) the  Offering  Price (the  "Warrants").  Each note holder
       received  one  warrant for every $3 funded  through  the Notes,  with the
       exception of the note holders who advanced the Company $200,000, in 2003,
       who  received one warrant for every $2 funded.  The warrants  will become
       exercisable  on December 31,  2004.  Notwithstanding,  subsequent  to the
       balance  sheet  date  the  Company  cancelled  450,004  of the  aforesaid
       1,700,013 warrants (see Note 12b).

       In connection with the original issuance of the Bridge Notes and warrants
       in January 2004,  the Company also issued a warrant to the lead purchaser
       in the  financing,  to  purchase  265,837  shares of  common  stock at an
       exercise price equal to 75% of the Offering Price per share.

       The  Notes  were  also   subject  to  various   restrictions,   including
       limitations on the Company's ability to merge with another

                                        7

<PAGE>



       business  entity,  using proceeds  solely for working  capital  purposes,
       selling a  substantial  portion of assets not in the  ordinary  course of
       business,  incurring indebtedness greater than $100,000, paying dividends
       and  entering  into  transactions  that  result in a change  of  control.
       Further, the Notes also provided that upon an event of default, including
       the  Company's  bankruptcy,  or the  Company's  failure  to make any cash
       payment  required under any of the documents  executed in connection with
       the issuance of the Notes,  termination  of the Company's  planned IPO or
       violation of any of the restrictions  noted above, the Note holders could
       require the Company to  repurchase  the Notes at 115% of the  outstanding
       principal  amount,  plus  accrued  interest.  In the event an IPO was not
       consummated  within 180 days of the Notes  issue  dates ("IPO Due Date"),
       the  Company  was  obligated  to file  with  the  Securities  &  Exchange
       Commission a "shelf"  registration which will cover the resale of all the
       shares of common stock issuable upon conversion of the Promissory  Notes,
       and  upon  exercise  of the  Warrants  for an  offering  to be  made on a
       continuous basis pursuant to Rule 415. In addition,  the Company would be
       liable to pay the note holders  liquidated damages in the amount of 1% or
       1.5%  of the  aggregate  purchase  price  of the  Notes  for  each  month
       subsequent to the uncured occurrence of certain events, as defined in the
       Securities Purchase  Agreement,  including if the IPO had not occurred on
       or prior to the IPO Due Date or a shelf  registration was not filed on or
       prior to the fifth  day  following  the IPO Due Date or was not  declared
       effective.  During the three months ended September 30, 2004, the Company
       incurred  approximately  $161,000 of such  liquidated  damages,  and such
       amount is included in interest expense on the  accompanying  Statement of
       Operations.

       In the Company's estimation,  approximately  $809,000 of the aforesaid $5
       million  related  to the  value  of  the  Warrants,  resulting  in a note
       discount of $809,000.  Additionally,  the Company  recorded an additional
       note  discount,  with a  corresponding  increase in paid-in  capital,  of
       approximately  $2,476,000, to account for the beneficial conversion terms
       that the promissory note holders received,  in comparison to the expected
       IPO offering  price.  In accordance  with EITF 00-27,  the aforesaid note
       discount  was  amortized  to  interest  expense  over  the  life  of  the
       promissory  notes,  which was one year.  On the IPO Effective  Date,  the
       unamortized  discount relating to the portion of the notes that converted
       into shares will be immediately  recognized as interest  expense.  To the
       extent  that the notes are  repaid,  the  portion of equity  recorded  in
       respect of the beneficial conversion feature will be decreased, pro-rata,
       and gain on extinguishment of debt will be recorded.

NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT)

       (a)    As of December 31, 2003, the Company's share capital was comprised
              of common stock and four separate classes of convertible preferred
              stock.  In January 2004, in connection  with and as a condition to
              the issuance of the convertible promissory notes (see Note 9), the
              Company declared a 1-for-23 reverse stock split. In addition,  the
              preferred  stockholders,  as a class, agreed to convert all of the
              1,372,048 shares of the Company's issued and outstanding preferred
              stock into common stock.

       (b)    In January  2004,  the Company  adopted the 2004 Stock Option Plan
              (the 2004 Plan), authorizing 866,000 options for future grants. As
              a result, no further grants can be made under the 2003 Option Plan
              and the remaining shares reserved under this plan were canceled.

       (c)    In July 2004,  the  Company  decided  to grant the  holders of the
              Convertible  Promissory Notes and Warrants an aggregate of 750,002
              additional warrants, of which 198,530 were cancelled subsequent to
              balance   sheet  date  (see  Note  12b).   Each  holder   received
              approximately  0.44  warrants for each bridge  warrant  previously
              held. In connection therewith,  the Company recorded an additional
              deferred charge with a corresponding  increase in paid-in capital,
              of approximately  $357,000,  to account for the additional benefit
              that the convertible  promissory  holders received.  The aforesaid
              deferred  charge  was  amortized  to  interest  expense  over  the
              remaining life of the promissory notes. On the IPO Effective Date,
              the  unamortized   balance  of  such  deferred   charges  will  be
              immediately recognized as interest expense.

       (d)    During the nine  months  ended  September  30,  2004,  the Company
              granted in aggregate 412,664 stock options to directors, officers,
              employees and non-employees.  No stock options were granted during
              the third quarter of 2004.

                                        8

<PAGE>

NOTE 11 - COMMITMENTS AND CONTINGENCIES

       (a)    Future  minimum  lease  payments  under  non-cancelable  operating
              leases as of September 30, 2004 are as follows:

              YEAR ENDING DECEMBER 31                              $
                                                         -----------
              2004                                            44,934
              2005                                           179,736
              2006                                            47,980
              2007                                            12,930
                                                         -----------

                                                             285,580
                                                         ===========

       (b)    As security for future rental commitments the Subsidiary  provided
              a bank guarantee in the amount of approximately $112,000.

       (c)    All of the  Subsidiary's  obligations  to its bank,  including the
              bank guarantee that such bank made to the  Subsidiary's  landlord,
              are secured by a lien on all of the Subsidiary's  deposits at such
              bank. As of September 30, 2004,  deposits at such bank amounted to
              $274,215, including a long-term deposit of $101,359.

       (d)    In the  ordinary  course of  business,  the  Company  enters  into
              various  arrangements  with vendors and other  business  partners,
              principally for content,  web-hosting and marketing  arrangements.
              Effective  January 1, 2004,  the Company  entered into a licensing
              agreement with one of its content  providers through December 2006
              at a total cost of $50,000.  On May 25, 2004, the Company  entered
              into an  additional  agreement to license  content from one of its
              providers,  through  August  2007,  for  an  aggregate  amount  of
              $215,000.

       (e)    In December 2002, the Company  implemented a  reorganization  (the
              "December 2002  Reorganization")  which substantially  reduced the
              Company's expenditures.  The December 2002 Reorganization included
              staff reductions of fifteen persons,  or approximately  52% of the
              Company's work force,  including senior  management,  professional
              services,  sales  and  marketing,  research  and  development  and
              administrative   staff.  The  December  2002  Reorganization  also
              included  the  shutdown  of the  Company's  California  office and
              resulted in a loss on the disposal of fixed assets.  In total, the
              Company incurred a loss of approximately  $1,048,000 in connection
              with the December 2002  Reorganization,  of which $780,000 related
              to the disposal of fixed assets and $265,000 related to an accrual
              for salaries,  benefits and office and equipment lease obligations
              that the Company  recorded as of December 31, 2002.  Of the amount
              accrued,  $218,000 was paid during  2003,  $13,000 was paid during
              the first three  quarters of 2004 and $34,000  which  relates to a
              lease   obligation  for  equipment  no  longer  in  use,   remains
              outstanding as of September 30, 2004.

NOTE 12 - SUBSEQUENT EVENTS

       (a)    On October 13, 2004, the Company completed its IPO of 2.35 million
              shares of common stock at $5 per share  pursuant to a Registration
              Statement   on   Form   SB-2   (Registration   no.    333-115424).
              Additionally,  the  underwriters  exercised  their  over-allotment
              option and purchased  352,500  additional  shares of the Company's
              common  stock,  at $5 per share,  on  November  18,  2004..  Total
              proceeds  of  this   offering,   including  the  exercise  of  the
              over-allotment  option,  were  approximately  $10,800,000 , net of
              underwriting fees and estimated offering expenses of approximately
              $2,700,000.  In conjunction  with the offering,  $1,840,000 of the
              promissory notes converted into 490,678 shares of common stock and
              the remaining $3,160,000 was repaid.

              The  following  table  summarizes  our  balance  sheet  data as of
              September 30, 2004 as adjusted for the following events:

              o      proceeds  of  the  IPO,   including  the  exercise  of  the
                     over-allotment option, of approximately $10,800,000, net of
                     underwriting  fees  and  estimated   offering  expenses  of
                     approximately $2,700,000;


                                        9

<PAGE>

              o      interest (cash and non-cash  charges relating to the bridge
                     note  discounts  and  deferred  charges)  through  the  IPO
                     effective date, October 13, 2004; and

              o      the  conversion  of  $1,840,000  principal  amount  of  our
                     outstanding  bridge  notes  into  490,678  shares of common
                     stock,  and the repayment of the other $3,160,000 of bridge
                     notes.

<TABLE>
<CAPTION>
                                                                       AS OF SEPTEMBER 30, 2004
                                                               --------------------------------
                                                                      ACTUAL        AS ADJUSTED
                                                               -------------      -------------
                                                                 (UNAUDITED)        (UNAUDITED)
                                                               -------------      -------------
                                                                           $                  $
                                                               -------------      -------------
<S>                                                               <C>                 <C>
                Cash and cash equivalents                            651,871          8,658,646
                Working capital (deficiency)                      (2,837,570)         8,139,791
                Total assets                                       3,495,433          9,953,582
                Long-term liabilities                              1,091,126          1,091,126
                Total stockholders' equity (deficit)              (3,014,521)         7,962,840
</TABLE>

              In connection with the aforesaid events, the Company will record
              interest of approximately $195,000 (cash and non-cash charges
              relating to the bridge notes, bridge note discounts and deferred
              charges) for the period October 1, 2004 through October 12, 2004.
              The Company will record additional interest expense of
              approximately $684,000, on October 13, 2004, the IPO effective
              date, in connection with the amortizations of the bridge note
              discounts and deferred charges, at such date. In the fourth
              quarter of 2004, the Company will also record a gain on
              extinguishment of debt of approximately $1,022,000 to reverse
              amounts previously recorded as interest expense, to the extent
              that the bridge notes were repaid and thus the beneficial
              conversion feature was not realized. Finally, the Company will
              record a gain on extinguishment of debt of approximately $195,000
              to reverse amounts previously recorded as interest expense that
              stemmed from warrants which were cancelled in October 2004 (see
              note 12).


       (b)    In October  2004,  prior to the IPO Effective  Date,  the National
              Association of Securities Dealers,  Inc. deemed that $1,350,000 of
              the Convertible  Promissory  Notes and related Warrants of 648,534
              received by certain  Purchasers were  underwriter's  compensation,
              because of the relationship  between those note holders and one of
              the Company's underwriters. As a result of this finding, such note
              holders were contractually obligated to surrender such warrants to
              the Company without consideration, and to surrender their Notes to
              the Company  for  prepayment.  In  connection  with the  aforesaid
              surrender, the Company will, in the fourth quarter of 2004, reduce
              deferred  charges by approximately  $95,000,  and reverse non-cash
              interest  expense of $40,000 that was  previously  recorded in the
              third quarter of 2004.

       (c)    In November 2004,  the Company's  compensation  committee  granted
              260,896 options to purchase shares of common stock, under the 2004
              Plan.

                                       10

<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following  discussion  of our financial  condition and results of operations
should be read in  conjunction  with the financial  statements  and the notes to
those statements  included  elsewhere in this report.  This discussion  includes
forward-looking  statements  that involve  risks and  uncertainties.  Our actual
results may differ  materially from those  anticipated in these  forward-looking
statements.

GENERAL

          We possess technology that helps integrate and retrieve online
information from disparate sources and delivers the result in a single
consolidated browser view. Our answer engine delivers snapshot, multi-faceted
definitions and explanations from attributable reference sources about numerous
topics in our database. We seek to differentiate ourselves by providing our
users with relevant reference information that enhances results achieved through
traditional search engines. Most search engines respond to an Internet user's
query with a long list, often thousands, of links to more Websites that in some
way relate to the query term. Our answer engine automatically displays relevant,
narrative responses to a user's query without requiring the user to review a
list of hyperlinks sequentially. Our answer engine also directly displays
information in various formats such as charts, graphs and maps.

RECENT EVENTS

INITIAL PUBLIC OFFERING

On October 13, 2004, the Company completed its initial public offering of 2.35
million shares of its common stock at $5 per share pursuant to a Registration
Statement on Form SB-2 (Registration no. 333-115424). Additionally, the
underwriters exercised their over-allotment option and purchased an additional
352,500 shares of the Company's common stock, at $5 per share, on November 18,
2004. Total proceeds of this offering, including the exercise of the
over-allotment option, were approximately $10,800,000 million, net of
underwriting fees and offering expenses of approximately $2,700,000 million. In
conjunction with the offering, $1,840,000 of the $5 million of promissory notes
we owed to Bridge Note holders, converted into 490,678 shares of common stock
and the remaining $3,160,000 was repaid from the net proceeds of the offering

GURUNET.COM

We currently offer two versions of the GuruNet: a free version with basic
reference sources and a premium pay version containing more reference sources. A
user who does not want to pay for our full content offering may access those
limited content sources we make available as part of our free offering, either
through our Website or by downloading our free software or free toolbar. By
purchasing a subscription to our premium pay version the subscriber has access
our full content during the life of the subscription. The Company is currently
evaluating the efficacy of this model, and is considering distributing what is
currently the premium pay version of GuruNet, for free. If we decide to take
that route, GuruNet will be monetized on the internet solely based on
advertising revenue. When a user searches sponsored keywords, a link to an
advertiser's Website is displayed in a premium position and identified as a
sponsored result to the search. Further, if we take this route we may decide
that the Company does not wish to support two brands, GuruNet.com and
Answers.com, and we may decide to unite the product brands under the brand name
that we feel is most effective.

In September  2004, we introduced a beta version of a feature called My Computer
Search  ("MCS") in the  GuruNet  software  download.  MCS added  desktop  search
functionality  to the premium  GuruNet  product by allowing  users to  instantly
locate files or email on the user's  computer hard drive.  In November 2004, due
the  introduction  of  competing  technologies,   we  decided  not  to  continue
developing  this beta  product.  MCS will no longer be a feature of the  GuruNet
software download.

ANSWERS.COM

In August  2004 we  launched a beta  version of  Answers.com,  an answer  engine
destination site similar to the web-based version of GuruNet.  Our revenue model
for this product is based solely on  advertising  revenue and has been since its
inception  in  beta.  When a user  searches  sponsored  keywords,  a link  to an
advertiser's  Website is displayed in a premium  position  and  identified  as a
sponsored  result to the search.  Our beta version of  Answers.com  is currently
available by accessing our destination  Website without the need to download any
software.  Beginning  January 2005, we plan to also make  Answers.com  available
using software downloaded,  without any fee, as is the case at GuruNet.com. Once
a user agrees to the license agreement entered into coincident with the download
of  the  software,   the  user  working  in  any  application  such  as  e-mail,
spreadsheet, word processing, database or other program or application

                                       11

<PAGE>

need only  "alt-click"  on a word or phrase  within a  document  and our  answer
engine will access our online library and display information about that word or
phrase  in a pop-up  window.  While Web users  enjoy  our  integrated  reference
information,  our Web-based  product does not provide the  "alt-click"  command,
reference  source library tree view and context  analysis that we include in our
software,  therefore we expect that the addition of the "alt-click"  software to
our Website will impact favorably on our usage metrics.

OTHER

     o    In July 2004, the Company decided to grant the holders of the
          Convertible Promissory Notes and warrants an aggregate of 750,002
          additional warrants, of which 198,530 were cancelled in October 2004.
          Each holder received approximately 0.44 additional warrants for each
          bridge warrant previously held.

     o    In October 2004, prior to the IPO Effective Date, the National
          Association of Securities Dealers, Inc deemed that $1,350,000 of the
          Convertible Promissory Notes and related Warrants of 648,534 received
          by certain Purchasers were underwriter's compensation, because of the
          relationship between those Note Holders and one of the Company's
          underwriters. As a result of this finding, such Note Holders were
          contractually obligated to surrender such warrants to the Company
          without consideration, and to surrender their Notes to the Company for
          prepayment. In connection with the aforesaid surrender, the Company
          will, in the fourth quarter of 2004, reduce deferred charges by
          approximately $95,000, and reverse non-cash interest expense of
          $40,000 that was previously recorded in the third quarter of 2004.

     o    Over the course of December 2004 and January 2005, we expect to make
          changes to the user interface of Answers.com and GuruNet.com that we
          believe will make the websites more attractive to potential users.

REVENUES

Revenues for the three months ended September 30, 2004 were $53,163 compared to
$10,604 for the three months ended September 30, 2003, an increase of $42,559 or
401%. Revenues for the nine months ended September 30, 2004 were $117,038
compared to $19,080 for the nine months ended September 30, 2003, an increase of
$97,958 or 513%. Revenues during the three and nine months ended September 30,
2004 resulted primarily from amortization of deferred subscriptions license
revenues, amounting to approximately $42,000 and $93,000, maintenance contracts
on our corporate enterprise software of approximately $5,000 and $15,000, and
advertising revenues of approximately $6,000 and $9,000, respectively. In
contrast, revenues during the three and nine months ended September 30, 2003
resulted almost entirely from maintenance contracts on the corporate enterprise
systems that we sold in 2002. Subscriptions sold in the three and nine months
ended September 30, 2003 had no impact on those periods' revenues because at
that time we sold lifetime subscriptions. Since the obligation to continue
serving content had no defined termination date and we could not estimate the
time period over which the service would be provided, we did not recognize
revenue from those sales. Beginning December 2003, we began offering GuruNet
subscriptions to the public on an annual subscription basis, rather than a
lifetime fee basis. Revenues from such subscriptions are amortized over the life
of the related subscription. During the second quarter of 2004, we began
offering selected users who purchased lifetime licenses the opportunity to
exchange their lifetime license for an initial free defined-term license to a
newer enhanced version of GuruNet. The cash received from previous sales of
lifetime subscriptions is being recognized over the new defined-term
subscription period for users who agree to this offer.

Cash received from subscriptions sold in the three and nine months ended
September 30, 2004 was approximately $44,000 and $125,000, respectively,
compared to approximately $183,000 and $460,000 for the same periods in 2003.
The decrease is due to a number of factors, including the decrease in our
product price from $40 to $30, our offering one-year subscriptions rather than
lifetime subscriptions, and that we are in development stage and are still
testing various marketing approaches, which tends to cause variability in
subscription volume. Further, in October 2002, we began charging a fee for our
individual reference product, now known as GuruNet. Prior to such time, our
individual reference product was available to the public for free. During the
second and third quarter of 2003 we converted a significant number of users of
our free product, which had been available to the public between 1999 and
October 2002, to a paid subscription of our upgraded GuruNet product. Finally,
during second and third quarter of 2003, we entered into a distribution
arrangement with another company that sold a co-branded version of our product
during that period. Under our arrangement with that company, we earned
approximately $55,000, representing half the revenue that they earned from their
sales of the co-branded product.

COST OF REVENUES

Cost of revenues for the three months ended September 30, 2004 was $157,854
compared to $149,599 for the three months ended September 30, 2003, an increase
of $8,255 or 5.5%. The net decrease resulted primarily from a decrease in our
content costs that resulted from the discontinuation of some of our content
providers in 2004 offset by the addition of one person to the Technical Support
Department.

                                       12

<PAGE>

Cost of revenues for the nine months ended September 30, 2004 was $433,612
compared to $538,182 for the nine months ended September 30, 2003, a decrease of
$104,570 or 19.4%. The decrease is primarily attributable to higher content
costs incurred in the first three months of 2003 than we typically incur each
quarter as well as discontinuation of some of our content providers in the year
2004, as mentioned above.

Cost of revenues is comprised of fees to third party providers of content, web
hosting services, technical and customer support and professional services
salaries, benefits and overhead costs.

GROSS MARGIN

Gross margin for the three months ended September 30, 2004 was ($104,691)
compared to ($138,995) for the three months ended September 30, 2003, a decrease
in the negative margin of $34,304 or 24.7%. Further, our gross margin for the
nine months ended September 30, 2004 was ($316,574) compared to ($519,102) for
the nine months ended September 30, 2003, a decrease in the negative margin of
$202,528 or 39.0%. The decrease in the loss for the three months and nine months
ended September 30, 2004 was primarily due to increased subscription revenue
recognized and reduced content costs, as discussed above.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses for the three months ended September 30, 2004
was $271,489 compared to $233,688 for the three months ended September 30, 2003,
an increase of $37,801 or 16.2%. The increase is primarily attributable to an
increase in compensation costs as a result of increases in research and
development personnel added after September 30, 2003.

Research and development expenses for the nine months ended September 30, 2004
was $789,962 compared to $736,647 for the nine months ended September 30, 2003,
an increase of $53,315 or 7.2%. The increase in research and development costs
was due to an increase in compensation costs as discussed above.

The salaries, benefits and overhead costs of personnel, conducting research and
development of software and Internet products comprise research and development
expenses.

SALES AND MARKETING EXPENSES

Sales and marketing expenses for the three months ended September 30, 2004 were
$159,564 compared to $148,168 for the three months ended September 30, 2003, an
increase of $11,396 or 7.7%. The net increase was due primarily to increases in
our advertising, promotion and marketing consulting costs of $48,000 that were
offset, in part, by decreases in sales and marketing compensation related
expenses and overhead.

Sales and marketing expenses for the nine months ended September 30, 2004 were
$700,049 compared to $356,435 for the nine months ended September 30, 2003, an
increase of $343,614 or 96.4%. The increase was due to an increase in
advertising, promotion and marketing consulting costs by approximately $263,000
during the first nine months in 2004 as compared to the comparable period in
2003 due to our increased focus on promoting our product, and an increase in
sales and marketing compensation related expenses during the first nine months
in 2004 of approximately $57,000 as compared to the comparable period in 2003,
due to the addition of sales and marketing personnel. Salaries, benefits and
overhead costs of personnel, and public relations services and advertising
programs, including Internet-based keyword-targeted advertising services,
comprise sales and marketing expenses.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the three months ended September 30,
2004 were $221,805 compared to $169,589 for the three months ended September 30,
2003, an increase of $52,216 or 30.8%. General and administrative expenses for
the nine months ended September 30, 2004 were $636,335 compared to $546,442 for
the nine months ended September 30, 2003, an increase of $89,893 or 16.5%. The
increases relate primarily to personnel and salary increases.

General and administrative expenses consist primarily of salaries, benefits and
overhead costs for executive and administrative personnel, e-commerce fees,
insurance, fees for professional services, including consulting, legal, and
accounting fees, travel costs, non-cash stock compensation expense for the
issuance of stock options and other general corporate expenses.

INTEREST INCOME (EXPENSE), NET

Interest income (expense), net for the three and nine months ended September 30,
2004 was ($1,397,322) and ($3,247,774), compared to $1,128 and $6,105 for the
comparable periods in 2003, representing net increases in interest expense of
$1,398,450 and

                                       13

<PAGE>

$3,253,879, respectively. Interest expense, net for the three and nine months
ended September 30, 2004 is comprised of approximately $1,165,000 and
$2,852,000, respectively, of amortization of note discounts and deferred charges
relating to the convertible promissory notes, which are described in the
footnotes to the accompanying financial statements. The remainder is comprised
of 8% interest on the face of the $5.0 million convertible promissory notes and
of monthly liquidated damages in the amount of 1% to 1.5% of the aggregate
purchase price of the Notes, approximating $235,000 and $403,000 for the three
and nine months ended September 30, 2004, respectively, less interest income.
Interest income, net for the first three and nine months of 2003 consisted of
interest income earned.

OTHER INCOME (EXPENSE), NET

Other income (expense), net for the three months ended September 30, 2004 was
($6,646) as compared to ($23,918) for the three months ended September 30, 2003,
representing a decrease in other expenses of $17,272 or 72.2%. Other income
(expense), net for the nine months ended September 30, 2004 was ($10,671) as
compared to $3,498 for the nine months ended September 30, 2003, representing an
increase in other expenses of $14,169. The changes in other income (expense) net
for the three and nine months ended September 30, 2004 as compared to the same
periods in 2003, resulted primarily from differences in the amount of foreign
exchange gains/(losses) in the respective periods.

INCOME TAX EXPENSE

Our effective tax rate differs from the statutory federal rate due to
differences between income and expense recognition prescribed by the United
States and Israeli tax laws and Generally Accepted Accounting Principles. We
utilize different methods and useful lives for depreciating property and
equipment. The recording of certain provisions result in expense for financial
reporting but the amount is not deductible for income tax purposes until
actually paid. Our deferred tax assets are mostly offset by a valuation
allowance because realization depends on generating future taxable income,
which, in our estimation, is not more likely to transpire, than to not
transpire.

We had net operating loss carryforwards for federal and state income tax
purposes of approximately $26 million at December 31, 2003 and $20.1 million at
December 31, 2002. The federal net operating losses will expire if not utilized
on various dates from 2019 through 2023. The state net operating losses will
expire if not utilized on various dates from 2009 through 2013. Our Israeli
subsidiary has capital loss carryforwards of approximately $604,000 that can be
applied to future capital gains for an unlimited period of time under current
tax rules.

The Tax Reform Act of 1986 imposed substantial restrictions on the utilization
of net operating losses and tax credits in the event of an ownership change of a
corporation. The bridge financing and the offering are likely to result in a
change of control in ownership, as defined in Section 382 of the Internal
Revenue Code.

Accordingly, our ability to utilize net operating losses and credit
carryforwards may be limited as the result of such an ownership change.

Our subsidiary had income in 2003 and 2002, resulting from its cost plus
agreement with the parent company, whereby it charges us for research and
development services it provides to us, plus 12.5%. However, the subsidiary is
an "approved enterprise" under Israeli law, which means that income arising from
the subsidiary's approved activities is subject to zero tax under the
"alternative benefit" path for a period of ten years. In the event of
distribution by the subsidiary of a cash dividend out of retained earnings which
were tax exempt due to the "approved enterprise" status, the subsidiary would
have to pay a 10% corporate tax on the amount distributed, and the recipient
would have to pay a 15% tax (to be withheld at source) on the amounts of such
distribution received.

As of September 30, 2004, we accrued approximately $66,000, net, to reflect the
estimated taxes that our subsidiary would have to pay if it distributed its
accumulated earnings to us. Should the subsidiary derive income from sources
other than the approved enterprise during the relevant period of benefits, this
income will be taxable at the tax rate in effect at that time (currently 35%,
gradually being reduced to 30% in 2005-2008). Through September 30, 2004, our
Israeli subsidiary received tax benefits of approximately $660,000.

NET LOSS

Our net loss increased to $2,168,527 and $5,735,388 in the three and nine months
ended September 30, 2004, respectively, from $713,230 and $2,149,023 for the
comparable periods in 2003, as a result of the changes in our revenues, cost of
sales and expenses as described above. As of September 30, 2004, our accumulated
deficit was $39,740,986.

                                       14

<PAGE>

CRITICAL ACCOUNTING POLICIES

While our significant accounting policies are more fully described in the notes
to the Company's audited consolidated financial statements for the year ended
December 31, 2003 and updated in the consolidated financial statements included
in this Form 10-QSB, we believe the following accounting policies to be the most
critical in understanding the judgments and estimates we use in preparing our
consolidated financial statements.

USE OF ESTIMATES

Our discussion and analysis of our financial condition and results of operations
is based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of our consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. On an ongoing basis, we evaluate our estimates and
judgments, including those related to revenue recognition, accrued expenses and
the fair value of our common and preferred stock particularly as it relates to
stock-based compensation. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions and could have a material impact on our reported
results.

REVENUE RECOGNITION

In 2003, the Company sold lifetime subscriptions to its consumer product and did
not recognize  revenue from those sales since the obligation to continue serving
such content had no defined  termination  date and adequate  history to estimate
the life of the customer relationship was not available. Cash received from such
lifetime   licenses  is  reflected  as  long-term   deferred   revenues  on  the
accompanying  balance sheets.  Beginning April 2004, certain users who purchased
lifetime  subscriptions in 2003 exchanged their lifetime  subscriptions for free
two-year  subscriptions to a newer enhanced version of the GuruNet product.  The
cash  previously  received  from  such  users is being  recognized  over the new
two-year subscription.

We currently,  generally,  offer consumers one-year subscriptions.  We recognize
the  amounts  we  receive  from  subscriptions  over  the  life  of the  related
subscription.

As noted in the Recent Events section  above,  we are  considering  changing our
consumer  business  model to an  advertising-only  model rather than our current
model, which is based on both subscription  revenue and advertising.  Should the
Company make such a change,  we may decide to exercise our legal  prerogative to
terminate  fixed-term  and lifetime  subscriptions  and ask those users to avail
themselves  to our free website and software  tools,  just as any other user may
do.  However,  we may decide not to terminate  subscriptions  outstanding at the
time we make such a change.  This means that those  users will  receive our full
content  and  will  not  have to  upgrade  their  software.  The  software  they
downloaded in conjunction with their subscription will be supported. The Company
is currently analyzing the accounting impact of the aforesaid two scenarios.

ACCOUNTING FOR STOCK-BASED COMPENSATION

In January 2003, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123" ("SFAS 148"), which provides alternative methods of transition for a
voluntary change to a fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require prominent disclosures in annual financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. We have determined that until
required otherwise, we will continue to account for stock-based compensation for
employees under APB 25, and elect the disclosure-only alternative under SFAS 123
and provide the enhanced disclosures as required by SFAS 148.

We record deferred stock-based compensation expense for stock options granted to
employees and directors if the fair value of the stock at the date of grant
exceeds the exercise price of the option. We recognize expenses as we amortize
the deferred stock-based compensation amounts over the related vesting periods.
The fair value of our stock, so long as we were a private company, was
determined by us based on a number of factors including input from our advisors,
and comparisons to private equity investments in us. These valuations are
inherently highly uncertain and subjective. If we had made different
assumptions, our deferred stock-based compensation amount, our stock-based
compensation expense, our net loss and our net loss per share could have been
significantly different.

The fair value of stock options granted to non-employees is measured throughout
the vesting period as they are earned, at which time we recognize a charge to
stock-based compensation. The fair value is determined using the Black-Scholes
option-pricing model,

                                       15

<PAGE>

which  considers the exercise price relative to the fair value of the underlying
stock, the expected stock price volatility,  the risk-free interest rate and the
dividend yield. As discussed  above,  the fair value of the underlying stock was
based on  assumptions  of  matters  that are  inherently  highly  uncertain  and
subjective.  As there has been no public market for our stock,  our  assumptions
about stock price  volatility  are based on the  volatility  rates of comparable
publicly  held  companies.  These  rates may or may not  reflect our stock price
volatility  following the offering.  If we had made different  assumptions about
the fair value of our stock or stock price  volatility,  the related stock based
compensation  expense and our net loss and net loss per share amounts could have
been  significantly  different.  We  are  required  in  the  preparation  of the
disclosures  required under SFAS 148 to make certain  estimates when ascribing a
value to stock options granted during the year. These estimates include, but are
not  limited  to,  an  estimate  of the  average  time  option  grants  will  be
outstanding  before they are  ultimately  exercised  and  converted  into common
stock.  These estimates are integral to the valuing of these option grants.  Any
changes in these  estimates may have a material  effect on the value ascribed to
these  option  grants.  This would in turn affect the  amortization  used in the
disclosures  we make under SFAS 148,  which could be  material.  For  disclosure
purposes only,  the fair value of options  granted to employees was estimated on
the date of grant using the  minimum-value  method with the  following  weighted
average  assumptions:  no dividend yield;  risk-free  interest rates of 2.18% to
6.68%;  and an expected  life of three to five years.  The fair value of options
granted  to  employees  subsequent  to May 12, the date of the  Company's  first
filing with the U.S.  Securities and Exchange  Commission in connection with its
initial  public  offering  will  be  measured,  for  disclosure  purposes  only,
according to the Black-Scholes option-pricing model.

Finally,  the rules  governing  accounting for option grants continue to evolve.
Should  we be  required  in  future  periods  to  adopt  grant-date  fair  value
accounting for employee awards and to recognize the cost over the service period
our results of operations would be adversely effected.

ACCOUNTING FOR INCOME TAXES

As part of the process of preparing our consolidated financial statements, we
are required to estimate our income taxes in each of the jurisdictions in which
we operate. This process involves management estimating our actual current tax
exposure together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within our consolidated
balance sheet. We must then assess the likelihood that our deferred tax assets
will be recovered from future taxable income and, to the extent we believe that
recovery is not likely, we must establish a valuation allowance. To the extent
we establish a valuation allowance or increase this allowance in a period, we
must include an expense within the tax item in the statement of operations.
Significant management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We have fully offset our
US deferred tax asset with a valuation allowance. Our lack of earnings history
and the uncertainty surrounding our ability to generate taxable income prior to
the expiration of such deferred tax assets were the primary factors considered
by management in establishing the valuation allowance. Deferred tax assets and
liabilities in the financial statements result from the tax amounts that would
result if our Israeli subsidiary distributed its retained earnings to us. This
subsidiary continues to generate taxable income in respect of services provided
to us, and therefore we believe that the deferred tax asset relating to the
Israeli subsidiary will be realized. In the event that our subsidiary's products
would not generate such taxable income, we would need to write off the deferred
tax asset as an expense in the statement of operations. It should be noted that
as the income is derived from us, it is eliminated upon consolidation.

FOREIGN CURRENCY TRANSLATION

Beginning February 2004, our Israeli subsidiary began paying substantially all
of its salaries linked to the dollar, rather than the New Israeli Shekel
("NIS"). Based on this change, and in conjunction with all other relevant
factors our management has determined that the subsidiary's functional currency,
beginning the first quarter of 2004, is the U.S. dollar ("USD").

FAS 52, Appendix A, paragraph 42 cites economic factors that, among others,
should be considered when determining functional currency. We determined that
the cash flow, sales price and expense factors for our subsidiary, which prior
to 2004 all indicated functional currency in foreign currency, have changed in
2004 to indicate functional currency in our currency.

Our subsidiary's revenue is derived based on a cost plus methodology. Prior to
2004, salary expense, its primary expense, was determined in the foreign
currency resulting in income and expenses being based on foreign currency.
However, in 2004, a triggering event occurred that, in our opinion, warranted a
change of the functional currency of our subsidiary to that of our currency,
USD. Salary expense, the primary expense of our subsidiary, began to be
denominated in USD. This led to a change with respect to the currency of the
cash flow, sales price and expense economic factors and resulted in a
determination that our subsidiary's functional currency had changed to that of
our functional currency.

Had we determined that our subsidiary's functional currency was different than
what was actually used, whether in the three and

                                       16

<PAGE>

nine months  ended  September  30, 2004 or prior  periods,  we believe  that the
effect  of such  determination  would  not have  had a  material  impact  on our
financial statements.

NOTE DISCOUNT ON CONVERTIBLE PROMISSORY NOTES

In January and February  2004, we issued an aggregate of $5.0 million  principal
amount of 8%  convertible  promissory  notes.  We  estimate  that  approximately
$809,000 of the $5.0 million relates to the value of the warrants,  resulting in
a note discount of $809,000.  In accordance with EITF 00-27,  such note discount
was being  amortized  over the life of the bridge  notes.  In October  2004,  in
conjunction  with our IPO,  $1,840,000 of the $5 million of promissory  notes we
owed to Bridge Note holders,  converted  into 490,678 shares of common stock and
the remaining  $3,160,000 was repaid. On the IPO Effective Date, the unamortized
discount relating to the portion of the notes that converted into shares will be
immediately  recognized  as interest  expense.  To the extent that the notes are
repaid,  the portion of equity recorded in respect of the beneficial  conversion
feature will be decreased,  pro-rata, and gain on extinguishment of debt will be
recorded.

Further, in July 2004, the Company decided to grant the holders of the
Convertible Promissory Notes and Warrants an aggregate of 750,002 additional
warrants, of which 198,530 were cancelled subsequent to balance sheet date (see
Note 12b). Each holder received approximately 0.44 warrants for each bridge
warrant previously held. In connection therewith, the Company recorded an
additional deferred charge with a corresponding increase in paid-in capital, of
approximately $357,000, to account for the additional benefit that the
convertible promissory holders received. The aforesaid deferred charge was
amortized to interest expense over the remaining life of the promissory notes.
On the IPO Effective Date, the unamortized balance of such deferred charges will
be immediately recognized as interest expense.

The fair value of the warrants was determined by us based on a number of factors
including the exercise price, the expected volatility in the share price and
input from our advisors. Such valuation is inherently highly uncertain and
subjective. Furthermore, the discount on the beneficial conversion feature of
the convertible promissory notes was calculated taking into consideration our
estimate of the fair value of these warrants. If we had made different
assumptions, our note discounts, additional paid in capital, interest expense in
respect of the amortization, our net loss and our net loss per share could have
been significantly different.

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2003

From our inception through September 30, 2004, our operations have been funded
almost entirely through the proceeds we received from issuance of four series of
convertible preferred stock and convertible promissory notes between December
1998 and February 2004. The amounts raised were used primarily to fund research
and development, sales and marketing, business development and general and
administrative costs.

As of September 30, 2004, we had $3,495,433 of assets consisting of $651,871 in
cash and cash equivalents, $1,929,387 in other current assets and the remaining
balance in property and equipment, long-term deposits, domain name, capitalized
software development costs and deferred tax asset. Total liabilities as of
September 30, 2004 reflect current liabilities of $5,418,828, consisting of
convertible promissory notes, net of discounts, of $3,904,997, accounts payable
of $757,311, accrued expenses of $286,482, short-term deferred revenue of
$133,763 and accrued compensation of $336,275. Long-term liabilities in respect
of employee severance obligations, deferred tax liability and deferred revenue
were $1,091,126 at September 30, 2004.

Cash flows for the nine months ended September 30, 2004 and 2003 were as
follows:

<TABLE>
<CAPTION>
                                                            SEPTEMBER 30, 2004        SEPTEMBER 30, 2003
                                                            ------------------        ------------------
<S>                                                              <C>                      <C>
Net cash used in operating activities                            $  (3,092,838)           $   (1,052,907)
Net cash (used in) provided by investing activities              $    (187,862)           $       27,881
Net cash provided by financing activities                        $  3, 808,819            $      100,000
</TABLE>

                                       17

<PAGE>

The increase in net cash used in operating activities during the first nine
months of 2004 compared to 2003 was primarily related to the overall increase in
operating expenses. Cash used in operating activities of $3,092,838 in 2004
consisted of net loss of $5,735,388 adjusted for certain non-cash items of
$3,022,012, and ($379,462) of changes to operating assets and liabilities. The
$3,022,012 of adjustments for certain non-cash items was comprised primarily by
the amortization of deferred charges and discounts relating to the Bridge Notes.
Cash used in operating activities in the first nine months of 2003 of $1,052,907
consisted of a net loss of $2,149,023 adjusted for non-cash items of $208,686
and changes to operating assets and liabilities of $887,430. The changes to
operating assets and liabilities in the first nine months of 2003 is what caused
net cash used in operating activities to be significantly less than the net
loss, and it was driven primarily by increases in long-term deferred revenue due
to the sale of lifetime subscriptions and decreases to accounts receivable that
resulted from the collection of accounts relating to 2002 enterprise sales, in
early 2003.

Cash used in investing activities of $187,862 in the first nine months of 2004
is attributable to the purchase of a domain name for $80,200, capitalization of
software development costs of $33,500, and capital expenditures of $82,479,
partially offset by a decrease in long-term deposits of $8,317. Cash provided by
investing activities during the first nine months of 2003 of $27,881 is
attributable to a net decrease in long-term deposits of $51,064 offset by net
capital expenditures of $23,183.

Cash and cash equivalents at December 31, 2003 were insufficient to provide the
capital we needed to operate. In January and February 2004, we issued $5.0
million aggregate principal amount of bridge notes. The bridge notes were due on
the earlier of the first anniversary of their issuance or the consummation of
our IPO. After deducting transaction fees, including finders fees and legal
fees, we received approximately $4,325,000 from the issuance of the convertible
promissory notes, including the $200,000 received from the sale of promissory
notes to four investors in 2003. The proceeds of the convertible promissory
notes enabled us to continue operating during the first nine months of 2004. Net
cash provided by financing activities during the first nine months of 2004 of
$3,808,819 resulted primarily from our receipt of $4,800,000 from the issuance
of convertible promissory notes in January and February 2004, offset by $991,181
of deferred charges representing costs associated with the convertible
promissory notes and the IPO. The sole cash flow from financing activities
during the first nine months of 2003 was the $100,000 we received from the sale
of a promissory note to one of the four investors noted above.

CURRENT AND FUTURE FINANCING NEEDS

We incurred net losses and negative cash flows from operations of  approximately
$39.8  million and $31.7  million,  respectively,  during our initial  period of
operation  through  September  30,  2004.  We had  $651,871  of  cash  and  cash
equivalents at September 30, 2004. Our working  capital  deficiency at September
30, 2004 was $2,837,570.

On October 13, 2004, the Company  completed its initial public  offering of 2.35
million  shares of its common stock at $5 per share  pursuant to a  Registration
Statement  on  Form  SB-2  (Registration  no.  333-115424).   Additionally,  the
underwriters  exercised their over-allotment  option and purchased an additional
352,500 shares of the Company's  common stock,  at $5 per share, on November 18,
2004.   Total  proceeds  of  this  offering,   including  the  exercise  of  the
over-allotment option, were approximately $10,800,000,  net of underwriting fees
and offering expenses of approximately  $2,700,000  million. In conjunction with
the offering, $1,840,000 of the $5 million of promissory notes we owed to Bridge
Note holders,  converted  into 490,678  shares of common stock and the remaining
$3,160,000 was repaid from the net proceeds of the offering.

We have  spent,  and  expect  to  continue  to  spend,  substantial  amounts  in
connection with implementing our business strategy.  Based on our current plans,
we believe that after consideration of the net proceeds of the offering, we have
sufficient  funds to enable us to meet our planned  operating needs for at least
the twelve month period  subsequent  to the balance  sheet date,  September  30,
2004. We may decide to raise funds in the future, via public or private sales of
our shares or debt and other sources to finance acquisitions and growth.

OFF-BALANCE SHEET ARRANGEMENTS

We have not entered into any transactions with unconsolidated entities in which
we have financial guarantees, subordinated retained interests, derivative
instruments or other contingent arrangements that expose us to material
continuing risks, contingent liabilities or any other obligations under a
variable interest in an unconsolidated entity that provides us with financing,
liquidity, market risk or credit risk support.

                                       18

<PAGE>

OBLIGATIONS AND COMMITMENTS

As of September 30, 2004, we had the following known contractual obligations,
commitments and contingencies:

<TABLE>
<CAPTION>
   =================================================================================================
     Year Ending December 31         Purchasing        Operating        Short-term         Total
                                    Contracts (1)        Leases        Note Payable
   -------------------------------------------------------------------------------------------------
<S>                                     <C>              <C>            <C>              <C>
    October 1 - December 31,
              2004                      $57,725          $44,934        $5,000,000       $5,102,659

              2005                       39,225          179,736                --          218,961

              2006                           --           47,980                --           47,980

              2007                           --           12,930                --           12,930
   -------------------------------------------------------------------------------------------------

              Total                     $96,950         $285,580        $5,000,000       $5,382,530
   =================================================================================================
</TABLE>

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

You should  carefully  consider the risks  described below and elsewhere in this
report,  which could  materially and adversely  affect our business,  results of
operations  or financial  condition.  In those cases,  the trading  price of our
common stock could decline and you may lose all or part of your investment.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK.  The primary  objective of our  investment  activities is to
preserve  principal while at the same time maximizing the income we receive from
our investments without significantly increasing risk. Some of the securities in
which we invest may have  market  risk.  This means that a change in  prevailing
interest  rates may cause the principal  amount of the  investment to fluctuate.
For example, if we hold a security that was issued with a fixed interest rate at
the  then-prevailing  rate and the  prevailing  interest  rate later rises,  the
principal amount of our investment will probably decline. Our portfolio includes
or may include in the future,  cash equivalents and short-term  interest bearing
securities,  including  corporate  debt,  money market funds and government debt
securities.  Due to the short-term  nature of these  investments,  we believe we
have no material exposure to interest rate risk arising from our investments.

FOREIGN  CURRENCY  RATE  FLUCTUATIONS.  While our Israeli  subsidiary  transacts
business in New Israel Shekels or NIS, most operating  expenses and  commitments
are linked to the US dollar. As a result, there is currently minimal exposure to
foreign currency rate fluctuations.

ITEM 4.   CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.  Based on their evaluations as
of the end of the period covered in this report, our principal executive officer
and principal  financial officer have concluded that our disclosure controls and
procedures (as defined in Exchange Act Rules 13a, 14(c) and 15(d)) are effective
to ensure that  information  required to be  disclosed  by us in reports that we
file or  submit  under  the  Securities  Exchange  Act is  recorded,  processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC.

We believe that a controls system, no matter how well designed and operated,  is
based in part upon certain assumptions about the

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<PAGE>

likelihood of future  events,  and therefore can only provide,  reasonable,  not
absolute,  assurance that the objectives of the controls  system are met, and no
evaluation of controls can provide  absolute  assurance  that all control issues
and instances of fraud, if any, within a company have been detected.

In addition, we have reviewed our internal controls over financial reporting and
have made no changes  during the quarter  ended  September  30,  2004,  that our
certifying officers concluded materially  affected,  or are reasonably likely to
materially affect, our internal control over financial reporting.




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<PAGE>

PART II.  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

We are not currently  involved in any legal proceedings.  However,  from time to
time we may be subject to legal proceedings and claims in the ordinary course of
business.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

On October 13, 2004, our registration  statement on Form SB-2  (Registration No.
333-115424) was declared effective for our initial public offering,  pursuant to
which we registered 2,702,500 shares of common stock to be sold by us, including
352,500 shares subject to the underwriters' over-allotment option. The stock was
offered at a price of $5.00 per share.  The offering  closed on October 18, 2004
after  the sale of a total of  2,350,000  shares  of our  common  stock  and the
over-allotment  was exercised,  in full, on November 18, 2004. Total proceeds of
this  offering,  including  the  exercise  of the  over-allotment  option,  were
approximately  $10,800,000,  net of  underwriters'  discounts and commissions of
$1,216,125 and other offering  expenses of approximately  $1,495,000  (including
underwriters non-accountable expense allowance of $352,500). The underwriters of
the  offering  were Maxim  Group LLC and  EarlyBird  Capital,  Inc.  No offering
expenses  were paid  directly or  indirectly  to  directors,  officers (or their
associates),  or to persons owning 10% or more of any of our equity  securities,
or to our  affiliates.  To date,  we have not used any part of the net  proceeds
from the  offering,  apart from the  repayment of  $3,160,000 to the bridge note
holders.  We intend to use the  remaining  net  proceeds  from the  offering  of
approximately  $7,640,000  to expand  our sales and  marketing  activities,  for
research and development expenses, for product support and for general corporate
purposes,  including working capital,  general and  administrative  expenses and
capital  expenditures.  We may also use a portion  of the net  proceeds  to fund
possible investments in, or acquisitions of, complementary businesses,  products
or technologies or in establishing joint ventures. We have no current agreements
or  commitments  with  respect  to any  such  investment,  acquisition  or joint
venture,  and we currently are not engaged in  negotiations  with respect to any
such investment,  acquisition or joint venture.  Pending use of the net proceeds
of this  offering,  we have invested the funds in short-term,  interest  bearing
investments.  The  Registration  Statement also registered (a) 490,678 shares of
common  stock that were issued to investors  in our 2004 bridge  financing,  (b)
2,067,318 shares of common stock underlying  warrants issued to those investors;
and (c) 117,500 shares of common stock underlying  purchase option issued to the
underwriters.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6.  EXHIBITS

              (a) Exhibits

                  The exhibits  listed on the Exhibit  Index are  included  with
this report.

                  31.1     Certification of Principal Executive Officer required
                           under  Rule   13a-14(a)  or  Rule  15d-14(a)  of  the
                           Securities and Exchange Act of 1934, as amended.

                  31.2     Certification of Principal Financial Officer required
                           under  Rule   13a-14(a)  or  Rule  15d-14(a)  of  the
                           Securities and Exchange Act of 1934, as amended.

                  32.1*    Certification of Principal Executive Officer required
                           under  Rule   13a-14(a)  or  Rule  15d-14(a)  of  the
                           Securities and Exchange Act of 1934, as amended,  and
                           18 U.S.C. Section 1350.

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<PAGE>




                  32.2*    Certification of Principal Financial Officer required
                           under  Rule   13a-14(a)  or  Rule  15d-14(a)  of  the
                           Securities and Exchange Act of 1934, as amended,  and
                           18 U.S.C. Section 1350.

*    The  certifications  attached  as  Exhibits  32.1 and 32.2  accompany  this
     Quarterly   Report  on  Form   10-QSB   pursuant  to  Section  906  of  the
     Sarbanes-Oxley  Act of 2002 and  shall  not be deemed  "filed"  by  GuruNet
     Corporation  for purposes of Section 18 of the  Securities  Exchange Act of
     1934, as amended.

                                   SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                    GURUNET CORPORATION



Date: November 29, 2004             /s/ Robert S. Rosenschein
                                    -------------------------
                                    Robert S. Rosenschein
                                    Chief Executive Officer
                                    (Principal Executive Officer)


                                    /s/ Steven S. Steinberg
                                    -----------------------
                                    Steven S. Steinberg
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)



                                       22

<PAGE>

                                  EXHIBIT INDEX

The  following  exhibits  are  filed as part of this  Quarterly  Report  on Form
10-QSB:

                  31.1     Certification of Principal Executive Officer required
                           under  Rule   13a-14(a)  or  Rule  15d-14(a)  of  the
                           Securities and Exchange Act of 1934, as amended.

                  31.2     Certification of Principal Financial Officer required
                           under  Rule   13a-14(a)  or  Rule  15d-14(a)  of  the
                           Securities and Exchange Act of 1934, as amended.

                  32.1*    Certification of Principal Executive Officer required
                           under  Rule   13a-14(a)  or  Rule  15d-14(a)  of  the
                           Securities and Exchange Act of 1934, as amended,  and
                           18 U.S.C. Section 1350.

                  32.2*    Certification of Principal Financial Officer required
                           under  Rule   13a-14(a)  or  Rule  15d-14(a)  of  the
                           Securities and Exchange Act of 1934, as amended,  and
                           18 U.S.C. Section 1350.

*    The  certifications  attached  as  Exhibits  32.1 and 32.2  accompany  this
     Quarterly   Report  on  Form   10-QSB   pursuant  to  Section  906  of  the
     Sarbanes-Oxley  Act of 2002 and  shall  not be deemed  "filed"  by  GuruNet
     Corporation  for purposes of Section 18 of the  Securities  Exchange Act of
     1934, as amended.

                                       23