<PAGE>

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

                               AMENDMENT NO. 2 TO
                                   FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

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

            FOR THE TRANSITION PERIOD FROM __________ TO __________

                         Commission file number: 0-28560

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

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

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

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

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

The number of shares outstanding of the registrant's only class of Common Stock,
$.01 par value, was 17,405,150 on January 17, 2003.

Transitional Small Business disclosure Format (Check one):  Yes  [ ]  No [X]





<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

                                                                            PAGE
Item 1.  Financial Statements

         Condensed Consolidated Statements of Operations for the three and
         six month periods ended September 30, 2002 and 2001(unaudited ).....  3

         Condensed Consolidated Balance Sheets as of
         September 30, 2002 (unaudited) and March 31, 2002...................  4

         Condensed Consolidated Statements of Cash Flows for the
         six month periods ended September 30, 2002 and 2001 (unaudited).....  5

         Notes to Condensed Consolidated Financial Statements (unaudited)....  7

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations............................................... 16

Item 3.  Controls and Procedures............................................. 27

                                     PART II
                                OTHER INFORMATION

Item 1.  Legal Proceedings................................................... 28

Item 2.  Changes in Securities and Use of Proceeds........................... 28

Item 3.  Defaults Upon Senior Securities..................................... 28

Item 4.  Submission of Matters to a Vote of Security Holders................. 28

Item 5.  Other Information................................................... 28

Item 6.  Exhibits and Reports on Form 8-K.................................... 28

Signatures................................................................... 29

Certifications of Principal Executive Officer and Principal Financial Officer 30

Exhibits Filed with this Report on Form 10-QSB............................... 32

                                       2





<PAGE>
<TABLE>

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                             NETGURU, INC. AND SUBSIDIARIES
                                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                       (Unaudited)
                                   (In thousands, except share and per share amounts)
<CAPTION>

                                                           THREE MONTHS       THREE MONTHS       SIX MONTHS         SIX MONTHS
                                                               ENDED             ENDED              ENDED              ENDED
                                                           SEPTEMBER 30,      SEPTEMBER 30,      SEPTEMBER 30,      SEPTEMBER 30,
                                                               2002               2001              2002               2001
                                                           ----------------------------------------------------------------------
<S>                                                        <C>                <C>                <C>                <C>
Net revenues:
     Engineering and collaborative software solutions      $      2,390       $      2,106       $      4,261       $      4,501
     IT services                                                  1,369              2,724              2,783              6,072
     Web-based telecommunication and travel services              1,984              1,474              3,116              2,512
                                                           -------------      -------------      -------------      -------------

               Total net revenues                                 5,743              6,304             10,160             13,085

Cost of revenues:
     Engineering and collaborative software solutions               243                194                535                546
     IT services                                                  1,024              2,019              2,100              4,365
     Web-based telecommunication and travel services              1,860              1,318              2,847              2,231
                                                           -------------      -------------      -------------      -------------

               Total cost of revenues                             3,127              3,531              5,482              7,142
                                                           -------------      -------------      -------------      -------------
               Gross profit                                       2,616              2,773              4,678              5,943
                                                           -------------      -------------      -------------      -------------

Operating expenses:
     Selling, general and administrative                          2,841              3,001              5,457              6,115
     Research and development                                       547                481              1,011                968
     Amortization of goodwill                                        --                282                 --                616
     Depreciation and other amortization                            274                305                542                578
     Impairment charge                                               67                 --                 67                 --
     Restructuring                                                   11                 --                104                 --
                                                           -------------      -------------      -------------      -------------
               Total operating expenses                           3,740              4,069              7,181              8,277
                                                           -------------      -------------      -------------      -------------

               Operating loss                                    (1,124)            (1,296)            (2,503)            (2,334)
                                                           -------------      -------------      -------------      -------------

Other expense (income):
     Interest, net                                                   54                 41                116                 72
     Other                                                           (4)                (1)                (6)                (8)
                                                           -------------      -------------      -------------      -------------
               Total other expense                                   50                 40                110                 64
                                                           -------------      -------------      -------------      -------------

Loss before income taxes                                         (1,174)            (1,336)            (2,613)            (2,398)
Income tax (benefit) expense                                         68                 48               (301)               137
                                                           -------------      -------------      -------------      -------------

               Net loss                                    $     (1,242)      $     (1,384)      $     (2,312)      $     (2,535)
                                                           =============      =============      =============      =============

Net loss per common share:
         Basic                                             $      (0.07)      $      (0.08)      $      (0.13)      $      (0.15)
                                                           =============      =============      =============      =============
         Diluted                                           $      (0.07)      $      (0.08)      $      (0.13)      $      (0.15)
                                                           =============      =============      =============      =============

Common shares used in computing net loss per
   common share:
         Basic                                               17,326,965         16,920,848         17,306,583         16,989,116
                                                           =============      =============      =============      =============
         Diluted                                             17,326,965         16,920,848         17,306,583         16,989,116
                                                           =============      =============      =============      =============

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

                                                           3





<PAGE>
<TABLE>

                                        NETGURU, INC. AND SUBSIDIARIES
                                     CONDENSED CONSOLIDATED BALANCE SHEETS
                              (In thousands, except share and per share amounts)
<CAPTION>

                                                                              SEPTEMBER 30,   MARCH 31,
                                                                                  2002           2002
                                                                               ---------      ---------
                                                                              (Unaudited)

                                                    ASSETS
<S>                                                                            <C>            <C>
Current assets:
     Cash and cash equivalents                                                 $  2,065       $  3,466
     Accounts receivable (net of allowance for doubtful accounts
        of $1,017 and $981, as of September 30, 2002 and
        March 31, 2002, respectively)                                             2,565          3,325
     Income tax receivable                                                            5            305
     Notes and related party loans receivable                                       158            269
     Prepaid expenses and other current assets                                      981          1,543
                                                                               ---------      ---------

               Total current assets                                               5,774          8,908

Property, plant and equipment, net                                                3,843          4,169
Goodwill (net of accumulated amortization of $4,438 as of
   September 30, 2002 and March 31, 2002)                                         9,105          9,105
Other assets                                                                        759            884
                                                                               ---------      ---------
                                                                               $ 19,481       $ 23,066
                                                                               =========      =========

                                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Current portion of long-term bank debt                                    $    262       $    259
     Current portion of capital lease obligations                                   431            417
     Accounts payable                                                               902          1,012
     Accrued expenses                                                               734          1,082
     Income taxes payable                                                            24            196
     Deferred revenues                                                            1,383          1,760
     Deferred income taxes                                                           --             60
     Other liabilities                                                              176            199
     Accrued restructuring costs                                                     67            157
                                                                               ---------      ---------

               Total current liabilities                                          3,979          5,142

Long-term bank debt, net of current portion                                         389            567
Capital lease obligations, net of current portion                                   821          1,027
Deferred income taxes, non-current                                                   --            112
Deferred gain on sale-leaseback                                                     863            887
                                                                               ---------      ---------

               Total liabilities                                                  6,052          7,735
                                                                               ---------      ---------

Stockholders' equity:
     Preferred stock, par value $.01 (Authorized 5,000,000 shares;
        no shares issued and outstanding)                                            --             --
     Common stock, par value $.01; authorized 150,000,000 shares;
        issued and outstanding 17,405,150 and 17,265,850 shares
        (net of 10,965 treasury shares) as of September 30, 2002
        and March 31, 2002, respectively                                            174            173
     Additional paid-in capital                                                  33,343         33,057
     Accumulated deficit                                                        (19,117)       (16,805)
     Accumulated other comprehensive loss:
        Cumulative foreign currency translation adjustments                        (971)        (1,094)
                                                                               ---------      ---------

               Total stockholders' equity                                        13,429         15,331
                                                                               ---------      ---------
                                                                               $ 19,481       $ 23,066
                                                                               =========      =========

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

                                                      4





<PAGE>
<TABLE>

                                        NETGURU, INC. AND SUBSIDIARIES
                                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (Unaudited)
                                                 (In thousands)
<CAPTION>

                                                                                     SIX MONTHS     SIX MONTHS
                                                                                        ENDED          ENDED
                                                                                    SEPTEMBER 30,  SEPTEMBER 30,
                                                                                        2002          2001
                                                                                      --------      --------
<S>                                                                                   <C>           <C>
Cash flows from operating activities:
     Net loss                                                                         $(2,312)      $(2,535)
     Adjustments to reconcile net loss to net cash used in operating activities:
           Depreciation and amortization                                                  707         1,307
           Bad debt expense                                                                68            --
           Deferred income taxes                                                         (172)           (7)
           Compensation expense recognized on issuance of stock options                    (4)           64
           Restructuring                                                                  104            --
           Impairment charge                                                               67            --
           Expense recognized on issuance of stock                                        236            --
           Loss on disposal of property                                                     3            --
           Changes in operating assets and liabilities (net of acquisitions):
              Accounts receivable                                                         779         1,063
              Notes and related party loans receivable                                    112            (2)
              Income tax receivable                                                       300            --
              Prepaid expenses and other current assets                                   575          (519)
              Other assets                                                                (54)          (38)
              Accounts payable                                                           (123)          (57)
              Accrued expenses                                                           (353)         (460)
              Income taxes payable                                                       (174)           84
              Accrued restructuring costs                                                (195)           --
              Other current liabilities                                                   (47)          (30)
              Deferred revenues                                                          (416)         (689)
              Deferred gain on sale-leaseback                                             (35)          (35)
                                                                                      --------      --------

                        Net cash used in operating activities                            (934)       (1,854)
                                                                                      --------      --------

Cash flows from investing activities:
     Purchase of property, plant and equipment                                           (203)         (712)
     Payments to acquire companies, net of cash acquired                                   --           (69)
                                                                                      --------      --------

                        Net cash used in investing activities                            (203)         (781)
                                                                                      --------      --------

Cash flows from financing activities:
     Proceeds from issuance of bank debt                                                    1            41
     Repayment of bank debt                                                              (132)         (273)
     Repayment of capital lease obligations                                              (208)          (68)
     Issuance of common stock                                                              55            27
     Repurchase common stock                                                               --          (140)
                                                                                      --------      --------

                        Net cash used in financing activities                            (284)         (413)
                                                                                      --------      --------

     Effect of exchange rate changes on cash and cash equivalents                          20           (64)
                                                                                      --------      --------

                        Decrease in cash and cash equivalents                          (1,401)       (3,112)

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

Cash and cash equivalents, end of period                                              $ 2,065       $ 4,846
                                                                                      ========      ========
</TABLE>

                                                  (Continued)

                                                      5





<PAGE>
<TABLE>

                                        NETGURU, INC. AND SUBSIDIARIES

                               Consolidated Statements of Cash Flows (Continued)
                                                  (Unaudited)
                                                 (In thousands)
<CAPTION>

                                                                                 SIX MONTHS      SIX MONTHS
                                                                                   ENDED            ENDED
                                                                                SEPTEMBER 30,   SEPTEMBER 30,
                                                                                    2002             2001
                                                                                ------------    ------------
<S>                                                                             <C>             <C>
Supplemental disclosure of cash flow information:
   Amounts paid for:
            Interest                                                            $       133     $       128
                                                                                ============    ============
            Income taxes                                                        $        25     $        32
                                                                                ============    ============

Supplemental disclosure of non-cash investing and financing activities:
Acquisition of equipment under capital leases                                   $        28     $         -
                                                                                ============    ============

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

                                                      6





<PAGE>

                         NETGURU, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

      BASIS OF PRESENTATION

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

            These condensed consolidated financial statements have been prepared
by the Company and include all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position at
September 30, 2002 and the results of operations and the cash flows for the
three and six months ended September 30, 2002 and 2001, pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for annual
consolidated financial statements. Results of operations for the three and six
months ended September 30, 2002 are not necessarily indicative of the results to
be expected for the full year ending March 31, 2003.

      USE OF ESTIMATES

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

      FAIR VALUE OF FINANCIAL INSTRUMENTS

            Statement of Financial Accounting Standards ("SFAS") No. 107,
DISCLOSURES ABOUT FAIR VALUE OF Financial INSTRUMENTS, requires management to
disclose the estimated fair value of certain assets and liabilities defined by
SFAS No. 107 as financial instruments. Financial instruments are generally
defined by SFAS No. 107 as cash or contractual obligations that convey to one
entity a right to receive cash or other financial instruments from another
entity, and impose on the other entity the obligation to deliver cash or other
financial instruments to the first entity. At September 30, 2002, management
believes the carrying amounts of cash and cash equivalents, receivable and
payable amounts, and accrued expenses approximate fair value because of the
short maturity of these financial instruments. The Company also believes that
the carrying amounts of its long-term debt and capital lease obligations
approximate their fair value as the interest rates approximate a rate that the
Company could obtain under similar terms at the balance sheet date.

      GOODWILL

            In June 2001, the Financial Accounting Standards Board issued SFAS
No. 141, BUSINESS COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS, SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. SFAS No. 141 specifies criteria that intangible
assets acquired in a business combination must meet to be recognized and
reported separately from goodwill. SFAS No. 142 also requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets
with estimable useful lives be amortized over their respective estimated useful
lives to their estimated residual values. In addition, SFAS No. 142 includes
provisions, upon adoption, for the reclassification of certain existing
recognized intangibles as goodwill, reclassification of certain intangibles out
of previously reported goodwill, reassessment of the useful lives of recognized
intangibles and testing for impairment of those intangibles.

                                       7





<PAGE>

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

            In connection with the SFAS No. 142 transitional goodwill impairment
evaluation, the statement requires the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of

adoption. To accomplish this, the Company identified its reporting units and
determined the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill, to those reporting units as of
April 1, 2002. Pursuant to paragraphs 30-31 of SFAS No. 142, the Company
identified three "reporting units" as defined in paragraph 17 of SFAS No. 131:

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

            Each of these reporting units was identical to its related operating
segment and met the specified criteria as distinct operating units: the
component constitutes a business; discrete financial data is available for the
component; and segment management routinely reviews the component's operating
results. The aggregation criteria for each of the components met the test of:

            (a)         similar economic characteristics over the long term;
            (b)         similar products or services;
            (c)         similar production processes; and
            (d)         similar types or classes of customers.

            As of March 31, 2002, goodwill balances for each of the reporting
units were as follows:

            Engineering and collaborative software solutions      $ 1,859,000
            IT services                                           $ 6,765,000
            Web based telecommunication and travel services       $   481,000

            In connection with adopting this standard, during the second quarter
of fiscal year 2003, the Company completed step one of the test for impairment,
which indicated that the carrying value of its IT services segment exceeded its
estimated fair value, as determined utilizing various valuation techniques
including discounted cash flow and comparative market analysis. For the fiscal
year ended March 31, 2002, net revenue for the IT Services reporting unit
declined $8,150,000, from $18,019,000 for the year ended March 31, 2001 to
$9,869,000 for the year ended March 31, 2002. This decline in the revenues for
IT Services is not anticipated to substantially improve and may further decline
in the next 12 months because the Company does not expect the demand for IT
services to improve during this period. In accordance with SFAS No. 142, the
Company is currently determining the extent of the impairment in the IT services
segment and will report the level of impairment for each reporting unit by
fiscal year end.

            The Company is required to complete the second step of the test for
impairment as soon as possible, but no later than March 31, 2003, the end of the
year of adoption. In the second step, the Company must compare the implied fair
value of the reporting unit goodwill with the carrying amount of the reporting
unit goodwill, both of which would be measured as of the date of adoption. The
implied fair value of goodwill is determined by allocating the fair value of the
reporting unit to all of the assets (recognized and unrecognized) and
liabilities of the reporting unit in a manner similar to a purchase price
allocation, in accordance with SFAS No. 141. The residual fair value after this
allocation is the implied fair value of the reporting unit goodwill. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in the Company's statement of operations.

                                       8





<PAGE>

            As of September 30, 2002, the Company had unamortized goodwill in
the amount of $9,105,000, all of which will be subject to the transition
provisions of SFAS No. 142. Approximately $6,765,000 of this amount represents
unamortized goodwill related to the IT services segment. No amortization expense
was recorded during the six month period ended September 30, 2002. The Company
will continue to assess for impairment at each reporting date or at any time it
becomes aware of factors or circumstances that would warrant the assessment for
impairment, including whether it will be required to recognize any transitional
impairment losses as the cumulative effect of a change in accounting principle.

            The following table reconciles previously reported net income (loss)
as if the provisions of SFAS No. 142 were in effect in fiscal year 2002 and at
fiscal year end 2002 and 2001 (in thousands except per share amounts):

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED                 SIX MONTHS ENDED                 YEAR ENDED
                                                SEPTEMBER 30,                     SEPTEMBER 30,                   MARCH 31,
                                            2002            2001              2002            2001           2002           2001
                                            ----            ----              ----            ----           ----           ----
        <S>                           <C>              <C>              <C>              <C>            <C>            <C>
        Reported net loss             $     (1,242)    $     (1,384)    $     (2,312)    $     (2,535)  $     (8,944)  $     (6,637)
        Add back:  Goodwill
        amortization, net of taxes               -              269                -              569          1,052          1,282
                                      -------------    -------------    -------------    -------------  -------------  -------------

        Adjusted net loss             $     (1,242)    $     (1,115)    $     (2,312)    $     (1,966)  $     (7,892)  $     (5,355)

        Reported basic and diluted
        loss per common share         $      (0.07)    $      (0.08)    $      (0.13)    $      (0.15)  $      (0.53)  $      (0.45)
        Add back: Goodwill
        amortization, net of taxes               -             0.01                -             0.03           0.06           0.09
                                      -------------    -------------    -------------    -------------  -------------  -------------
        Adjusted basic and diluted
        loss per common share         $      (0.07)    $      (0.07)    $      (0.13)    $      (0.12)  $      (0.47)  $      (0.36)
                                      -------------    -------------    -------------    -------------  -------------  -------------
</TABLE>

      SOFTWARE DEVELOPMENT COSTS AND PURCHASED TECHNOLOGY

            The Company capitalizes costs related to the development of certain
software products. Capitalization of costs begins when technological feasibility
has been established and ends when the product is available for general release
to customers. As of September 30, 2002, capitalized costs of approximately
$521,000, net of accumulated amortization, were included in other assets.
Approximately $285,000 of this amount represents software developed in-house and
$236,000 represents the cost of software developed on the Company's behalf by
third parties. Additions to capitalized software were $28,000 and $208,000
during the six months ended September 30, 2002 and 2001, respectively.

            The Company amortizes capitalized software development costs and
purchased technology using the straight-line method over three to five years, or
the ratio of actual sales to anticipated sales, whichever is greater. During the
quarter ended September 30, 2002, the Company recognized a capitalized software
impairment loss of approximately $67,000 in the software sales, maintenance, and
services segment, since revenues-to-date and forecasted revenues from these
assets did not support the carrying value of the recorded amounts. Amortization
of software development costs and purchased technology charged to cost of
revenues was approximately $69,000 and $50,000 for the quarter ended September
30, 2002 and 2001 respectively and $112,000 and $104,000 for the six months
ended September 30, 2002 and 2001 respectively. Accumulated amortization on
capitalized software was $444,000 and $525,000 as of September 30, 2002 and
2001, respectively.

                                       9





<PAGE>

      REVENUE RECOGNITION

            The Company recognizes revenue when the following criteria are met:
1. Persuasive evidence of an arrangement, such as agreements, purchase orders or
written or online requests, exists; 2. Delivery has been completed and no
significant obligations remain; 3. The Company's price to the buyer is fixed and
determinable; and 4. Collectibility is reasonably assured. The Company's
revenues arise from the following segments: enterprise engineering and
collaborative software solutions (including digital media products and animation
services); IT services; and Web-based telecommunication and travel services.

            Revenue from software sales is recognized upon shipment, provided
that no significant post-contract support obligations remain outstanding and
collection of the resulting receivable is reasonably assured. At the time of
sale, the Company provides a 15-day right of return on the purchase of the
product during which time the customer may return the product subject to a $50
restocking fee per item returned. Customers may choose to purchase maintenance
contracts that include telephone, e-mail and other methods of support, and the
right to receive upgrades. Revenue from these maintenance contracts is deferred
and recognized ratably over the life of the contract, usually twelve months.
Revenues from digital media and animation services are recognized upon
achievement of certain pre-determined milestones.

            In October 1997, the Accounting Standards Executive Committee
("AcSEC") of the AICPA issued Statement of Position ("SOP") 97-2, SOFTWARE
REVENUE RECOGNITION. The Company adopted SOP 97-2 in the first quarter of fiscal
1999. SOP 97-2 distinguishes between significant and insignificant vendor
obligations as a basis for recording revenue with a requirement that each
element of a software licensing arrangement be separately identified and
accounted for based on relative fair values of each element. The Company
determines the fair value of each element in multi-element transactions based on
vendor-specific objective evidence ("VSOE"). VSOE for each element is based on
the price charged when the same element is sold separately. In 1998, the AICPA
issued SOP 98-9, MODIFICATION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION, WITH
RESPECT TO CERTAIN TRANSACTIONS, which modifies SOP 97-2 to allow for use of the
residual method of revenue recognition provided that certain criteria have been
met. The Company adopted SOP 98-9 in the first quarter of fiscal 2000. If
evidence of fair value of all undelivered elements exists but evidence does not
exist for one or more delivered elements, then revenue is recognized using the
residual method. Under the residual method, the fair value of the undelivered
elements is deferred and the remaining portion of the transaction fee is
recognized as revenue.

            Revenue from providing IT services are recognized primarily on a
time and materials basis, with time at a marked-up rate and materials and other
reasonable expenses at cost, as services are performed. Certain IT services
contracts are fixed price contracts where progress toward completion is measured
by mutually agreed upon pre-determined milestones for which we recognize revenue
upon achieving such milestones. The Company's fixed price IT contracts are
typically for a short duration of one to three months.

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

                                       10





<PAGE>

      RECLASSIFICATIONS

            Certain reclassifications have been made to the fiscal 2002
condensed consolidated financial statements to conform to the fiscal 2003
presentation.

      PROVISION FOR RESTRUCTURING OPERATIONS

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

            With regard to the Company's ISP initiatives in India, the Company
redirected its primary focus towards the communication and connectivity services
targeted at the corporate market. The total amount charged for the refocus of
ISP operations in fiscal 2001 was $1,998,000. This total charge consisted of
$117,000 in contractual obligations and $1,827,000 in asset write-offs related
to ISP operations in India. These charges did not include any employee costs.
The restructuring related to the ISP operations resulted in elimination of
depreciation and amortization expenses that would have resulted from the ISP
related assets.

            With regard to the Internet portal business, the Company redirected
its primary focus towards the telephony and travel services offered through the
portal. The initial restructuring charge related to the refocus of the portal
business was $194,000, of which $168,000 was related to asset write-offs, and
$26,000 was related to contractual obligations. The entire $194,000 was paid in
fiscal 2001. During fiscal 2002, an additional $67,000 relating to contractual
obligations for the portal operations was paid.

            In March 2001, the Company closed its Boston technical support
office as part of consolidating the Company's technical support activities.
Technical support activities previously offered from the Boston office were
consolidated into the California facility. The closing of this office resulted
in the termination of two employees. The restructure charge related to the
consolidation of technical support facilities was $166,000, of which $49,000
related to accrued severance payments for the two terminated employees and
$117,000 related to contractual lease obligations for the vacated space. The
Company made cash payments totaling $58,000 in fiscal 2002 towards settlement of
obligations related to this activity. During fiscal 2003, the Company made cash
payments of $30,000 for severance expenses relating to the termination of one of
the employees and $25,000 for lease payments for the vacated office space. The
Company expects that employee costs, and the facility costs (once the lease
obligations are satisfied) would decrease as a result of this restructure
charge.

            The elimination of the in-house legal department primarily consisted
of the termination of one employee whose position was not filled. Legal services
are being obtained from the Company's continuing external legal counsel. In
fiscal 2001, the Company estimated that the restructure charge related to the
elimination of the in-house legal department to be $42,000. In fiscal 2002, the
Company paid $52,000 toward this restructure charge. An additional charge of
$41,000 and $108,000 was recorded in fiscal 2002 and during fiscal 2003,
respectively, since the original estimate of severance expenses was
insufficient. During the six-months ended September 30, 2002, the Company paid
$139,000 to settle all severance payments due to the terminated employee.

                                       11





<PAGE>

            Activity relating to the restructuring charge is as follows (in
thousands):
<TABLE>
<CAPTION>
                         REFOCUS OF    REFOCUS OF  CONSOLIDATION  ELIMINATION
                             ISP         PORTAL    OF TECHNICAL     OF LEGAL
                         OPERATIONS    OPERATIONS     SUPPORT      DEPARTMENT      TOTAL
                          --------      --------      --------      --------      --------
<S>                       <C>           <C>           <C>           <C>           <C>
March 31, 2000                 --            --            --            --            --
Restructuring charge      $ 1,998       $   194       $   166       $    42       $ 2,400

Cash payments              (1,897)         (194)           --            --        (2,091)
                          --------      --------      --------      --------      --------

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

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

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

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

Cash payments                  --            --           (55)         (139)         (194)

Adjustments                   (34)  c        --            30   c       108   c       104
                          --------      --------      --------      --------      --------

September 30, 2002        $    --       $    --       $    67       $    --       $    67
                          ========      ========      ========      ========      ========
</TABLE>

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

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

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

            The balance at September 30, 2002 includes $42,000 of lease payments
for vacated office space scheduled for payment through September 2003. The
remaining personnel costs and contractual obligations are expected to be paid by
the end of fiscal 2003.

      STOCKHOLDERS' EQUITY

            In April 2000, the Company issued 25,000 shares of common stock as a
portion of the purchase price for the acquisition of Allegria Software, Inc
("Allegria"). The recipients of these shares were given the right to demand the
Company to repurchase these shares at a price of $28.60 per share at the end of
one year. In April 2001, each of the three former owners exercised this right.
The total repurchase price was $715,000. Agreements were reached with the former
owners to extend the cash payment for this repurchase over a period of twelve
months.

            As of September 30, 2002, the Company had paid $163,000 to one of
the former owners for the repurchase of 6,000 shares. The remaining $9,000 is to
be paid by November 30, 2002, and has been accrued under "accrued expenses." The
repurchase of 6,000 shares from another former owner was settled for a total of
$100,000, and the entire amount was paid as of September 30, 2002.

                                       12





<PAGE>

            The owner of the remaining 13,000 shares is holding the stock
certificates until full payment is received for these shares. The total cash to
be paid for this repurchase was $372,000, of which $128,000 has been paid as of
September 30, 2002. Due to a dispute as a result of an apparent breach of the
purchase agreement by the former owner, the Company believes that it is probable
that the balance of $244,000 will not be paid and therefore has not accrued this
amount as a liability.

      FOREIGN CURRENCY TRANSLATION

            The financial position and results of operations of the Company's
foreign subsidiaries are accounted for using the local currency as the
functional currency. Assets and liabilities of the subsidiaries are translated
into U.S. dollars (the reporting currency) at the exchange rate in effect at the
period-end. Statements of operations accounts are translated at the average rate
of exchange prevailing during the respective periods. Translation adjustments
arising from the use of differing exchange rates from period to period are
included in accumulated other comprehensive loss in the consolidated balance
sheets. Gains and losses resulting from foreign currency transactions are
included in operations and are not material to the three and six-month periods
ended September 30, 2002 and 2001.

      COMPREHENSIVE INCOME (LOSS)

            The Company applies the provisions of SFAS No. 130, REPORTING
COMPREHENSIVE INCOME, which prescribes rules for the reporting and display of
comprehensive income (loss) and its components. SFAS No. 130 requires foreign
currency translation adjustments, which are reported separately in stockholders'
equity, to be included in other comprehensive income (loss). Total comprehensive
loss was $1,213,000 and $1,398,000 for the three months ended September 30, 2002
and 2001, respectively, and was $2,189,000 and $2,640,000 for the six months
ended September 30, 2002 and 2001 respectively.

      NET LOSS PER SHARE

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

            The following table illustrates the computation of basic and diluted
net loss per share (in thousands except per share amounts):

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                            SEPTEMBER 30,               SEPTEMBER 30,
                                                                   -----------------------------------------------------------
                                                                          2002         2001          2002             2001
                                                                   -----------------------------------------------------------
<S>                                                                      <C>          <C>           <C>              <C>
Numerator:
Net loss                                                                 (1,242)      (1,384)       (2,312)          (2,535)
                                                                   -----------------------------------------------------------
Numerator for basic and diluted loss per share
                                                                         (1,242)      (1,384)       (2,312)          (2,535)
                                                                   ===========================================================
Denominator:
Denominator for basic net loss per share - average
number of common shares outstanding during the period                    17,327       16,921        17,307           16,989
Incremental common shares attributable to exercise of
outstanding options, warrants and other common stock
equivalents                                                                 --            --            --               --
                                                                   -----------------------------------------------------------
Denominator for diluted net loss per share                                17,327      16,921        17,307           16,989
                                                                   ===========================================================

Basic net loss per share                                                $ (0.07)     $ (0.08)      $ (0.13)         $ (0.15)
                                                                   ===========================================================
Diluted net loss per share                                              $ (0.07)     $ (0.08)      $ (0.13)         $ (0.15)
                                                                   ===========================================================
</TABLE>

                                       13





<PAGE>

            Options, warrants and other common stock equivalents amounting to
493,000 and 614,000 potential common shares for the three and six month periods
ended September 30, 2002 respectively and 455,000 and 538,000 potential common
shares for the three and six month periods ended September 30, 2001,
respectively were excluded from the computation of diluted EPS for the periods
presented because the Company reported net losses and, therefore, the effect
would be antidilutive.

      SEGMENT AND GEOGRAPHIC DATA

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

            The Company has provided computer-aided engineering software
solutions to customers for over 20 years. During the past 18 years, the Company
has supported the engineering software business with India-based software
programming and IT resources. In addition, based upon the Company's knowledge
and understanding of the engineering software market, combined with the
Company's Internet technology resources and experience, the Company launched
Web4engineers.com, an engineering applications service provider ("ASP") portal
hosting the Company's engineering software applications online and providing ASP
services to engineering software providers and their licensees worldwide. With
the acquisitions of R-Cube Technologies in February 1999 and NetGuru Systems
completed in December 1999, the Company further expanded its IT resources and
capabilities and its presence in the IT services industry, providing expertise
in data-mining and embedded technologies, Internet/Intranet design and
development and systems and software integration and implementation to companies
in North America. The Company has expanded its IT services business into Europe
and intends to further expand its services in India and Southeast Asia.

            The Company applies the provisions of SFAS No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires
segments to be determined and reported based on how management measures
performance and makes decisions about allocating resources.

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

<TABLE>
<CAPTION>

                                               THREE MONTHS ENDED             SIX MONTHS ENDED
                                                  SEPTEMBER 30,                 SEPTEMBER 30,
                                            ------------------------      ------------------------
                                               2002           2001           2002           2001
                                            ---------      ---------      ---------      ---------
           NET REVENUE
<S>                                         <C>            <C>            <C>            <C>
Engineering and collaborative software
   solutions                                $  2,390       $  2,106       $  4,261       $  4,501
IT services                                    1,369          2,724          2,783          6,072
Web-based telecommunication and travel
   services                                    1,984          1,474          3,116          2,512
                                            ---------      ---------      ---------      ---------
       Consolidated                         $  5,743       $  6,304       $ 10,160       $ 13,085
                                            =========      =========      =========      =========

        OPERATING (LOSS)/INCOME
Engineering and collaborative software
   solutions                                $   (767)      $ (1,014)      $ (1,884)      $ (1,916)
IT services                                      (76)           (24)          (161)           158
Web-based telecommunication and travel
   services                                     (281)          (258)          (458)          (576)
                                            ---------      ---------      ---------      ---------
       Consolidated                         $ (1,124)      $ (1,296)      $ (2,503)      $ (2,334)
                                            =========      =========      =========      =========
</TABLE>

                                       14





<PAGE>

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

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED         SIX MONTHS ENDED
                                          SEPTEMBER 30,            SEPTEMBER 30,
                                     ---------------------     ---------------------
                                       2002         2001         2002         2001
                                     --------     --------     --------     --------
<S>                                  <C>          <C>          <C>          <C>
             NET REVENUE
United States                        $ 4,073      $ 5,104      $ 7,273      $10,822
The Americas (other than U.S.)           223           82          330          202
Europe                                   614          541        1,109        1,038
Asia-Pacific                             833          577        1,448        1,023
                                     --------     --------     --------     --------

            Consolidated             $ 5,743      $ 6,304      $10,160      $13,085
                                     ========     ========     ========     ========

             EXPORT SALES
United States                        $   444      $    97      $   676      $   221
                                     ========     ========     ========     ========
</TABLE>

                                                  SEPTEMBER 30,   SEPTEMBER 30,
                                                       2002            2001
                                                   -----------     -----------
                                                        (IN THOUSANDS)
            LONG-LIVED ASSETS
            United States                          $   12,033      $   13,366
            Europe                                        350             366
            Asia-Pacific                                1,324           2,441
                                                   -----------     -----------

                        Consolidated               $   13,707      $   16,173
                                                   ===========     ===========

      CONTINGENCIES

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

                                       15





<PAGE>

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

FORWARD-LOOKING STATEMENTS

            This report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, or the Securities Act,
and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. We intend that those forward-looking statements be subject to the
safe harbors created by those sections. These forward-looking statements
generally include the plans and objectives of management for future operations,
including plans and objectives relating to our future economic performance, and
can generally be identified by the use of the words "believe," "intend," "plan,"
"expect," "forecast," "project," "may," "should," "could," "seek," "pro forma,"
"estimates," "continues," "anticipate" and similar words. The forward-looking
statements and associated risks may include, relate to, or be qualified by other
important factors, including, without limitation:

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

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

            Any of the factors described above or in the "Risk Factors" section
of our most recent annual report on Form 10-KSB could cause our financial
results, including our net income (loss) or growth in net income (loss) to
differ materially from prior results, which in turn could, among other things,
cause the price of our common stock to fluctuate substantially.

OVERVIEW

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

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

            We have provided computer-aided engineering software solutions to
our customers for over 20 years. For the past 18 years, we have supported our
engineering software business with our India-based software programming and IT
resources. In 1999, we acquired two IT services companies in the U.S., which
further expanded our IT resources and capabilities. Our Internet portal services
were started in 1999 and were refocused in fiscal 2001 toward telecommunications
and travel services. A more expansive discussion of our business and services is
contained in the "Business" section of our most recent annual report on Form
10-KSB.

                                       16





<PAGE>

CRITICAL ACCOUNTING POLICIES

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

      REVENUE RECOGNITION
      -------------------

            We recognize revenue when the following criteria are met: 1.
persuasive evidence of an arrangement, such as agreements, purchase orders or
written or online requests exists; 2. delivery has been completed and no
significant obligations remain; 3. our price to the buyer is fixed and
determinable; and 4. collectibility is reasonably assured. Our revenues arise
from the following segments: enterprise engineering and collaborative software
solutions (including digital media products and animation services); IT
services; and Web-based telecommunication and travel services.

            Revenue from software sales is recognized upon shipment, provided
that no significant post-contract support obligations remain outstanding and
collection of the resulting receivable is reasonably assured. Our software sales
do not provide a specific right of return. At the time of sale, we typically
provide a 15-day right of return on the purchase of the product. Customers may
choose to purchase ongoing maintenance contracts that include telephone, e-mail
and other methods of support, and the right to receive upgrades. Revenue from
these maintenance contracts is deferred and recognized ratably over the life of
the contract, usually twelve months. Revenues from digital media and animation
services are recognized upon achievement of certain pre-determined milestones.

            In October 1997, the Accounting Standards Executive Committee
("AcSEC") of the AICPA issued Statement of Position ("SOP") 97-2, SOFTWARE
REVENUE RECOGNITION. We adopted SOP 97-2 in the first quarter of fiscal 1999.
SOP 97-2 distinguishes between significant and insignificant vendor obligations
as a basis for recording revenue with a requirement that each element of a
software licensing arrangement be separately identified and accounted for based
on relative fair values of each element. We determine the fair value of each
element in multi-element transactions based on vendor-specific objective
evidence ("VSOE"). VSOE for each element is based on the price charged when the
same element is sold separately. In 1998 the AICPA issued SOP 98-9, MODIFICATION
OF SOP 97-2, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS,
which modifies SOP 97-2 to allow for use of the residual method of revenue
recognition provided that certain criteria have been met. We adopted SOP 98-9 in
the first quarter of fiscal 2000. If evidence of fair value of all undelivered
elements exists but evidence does not exist for one or more delivered elements,
then revenue is recognized using the residual method. Under the residual method,
the fair value of the undelivered elements is deferred and the remaining portion
of the transaction fee is recognized as revenue.

            Revenues from providing IT services are recognized primarily on a
time and materials basis, with time at a marked-up rate and materials and other
reasonable expenses at cost, as services are performed. Certain IT services
contracts are fixed price contracts where progress toward completion is measured
by mutually agreed upon pre-determined milestones for which we recognize revenue
upon achieving such milestones. Our fixed price IT contracts are typically for a
short duration of one to three months.

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

                                       17





<PAGE>

      ACCOUNTING FOR SOFTWARE DEVELOPMENT COST AND PURCHASED TECHNOLOGY
      -----------------------------------------------------------------

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

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

      ALLOWANCE FOR ACCOUNTS RECEIVABLE
      ---------------------------------

            We sell to our customers on credit and grant credit to those who are
deemed credit worthy based on our analysis of their credit history. We review
our accounts receivable balances and the collectibility of these balances on a
periodic basis. Based on our analysis of the length of time that the balances
have been outstanding, the pattern of customer payments, our understanding of
the general business conditions of our customers and our communications with the
customers, we estimate the recoverability of these balances. When recoverability
is uncertain and the unrecoverable amounts can be reasonably estimated, we
record bad debt expense and increase the allowance for accounts receivable by an
amount equal to the amount estimated to be unrecoverable.

      IMPAIRMENT OF LONG-LIVED ASSETS
      -------------------------------

            Through March 31, 2002, we applied the provisions of SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF. This statement required that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net undiscounted cash
flows expected to be generated by the asset. If the asset was considered to be
impaired, the impairment to be recognized was measured as the amount by which
the carrying amount of the asset exceeded the fair value of the asset. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. In August 2001, the Financial Accounting Standards Board
(FASB) issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
LONG-LIVED ASSETS. This statement addresses financial accounting and reporting
for the impairment of long-lived assets and supersedes SFAS No. 121, and the
accounting and reporting provisions of Accounting Principles Bulletin (APB) No.
30, REPORTING THE RESULTS OF OPERATIONS FOR A DISPOSAL OF A SEGMENT OF A
BUSINESS. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001. We have adopted SFAS No. 144 beginning April 1, 2002. The adoption of
SFAS No. 144 did not have a material impact on our consolidated financial
position or results of operations. We apply the provisions of SFAS No. 86,
ACCOUNTING FOR THE COST OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE
MARKETED for evaluating unamortized capitalized software development costs. At
each balance sheet date, we compare the unamortized software development cost of
each product to the net realizable value of the product. The amount by which the
unamortized software development cost exceeds the net realizable value of the
product is written off. During the three month period ended September 30, 2002,
we recognized a capitalized software impairment loss of $67,000 in the software,
maintenance, and services reporting segment, since revenues-to-date and
forecasted revenues from these assets did not support the carrying value of the
recorded amounts.

                                       18





<PAGE>

      DEFERRED INCOME TAXES
      ---------------------

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

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

      RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED        SIX MONTHS ENDED
                                                       SEPTEMBER 30,             SEPTEMBER 30,
                                                  ----------------------    ----------------------
                                                     2002         2001         2002         2001
                                                  ---------    ---------    ---------    ---------
<S>                                                 <C>          <C>          <C>          <C>
Net revenues                                        100.0%       100.0%       100.0%       100.0%
Cost of revenues                                     54.4         56.0         54.0         54.6
                                                  ---------    ---------    ---------    ---------

Gross profit                                         45.6         44.0         46.0         45.4
                                                  ---------    ---------    ---------    ---------

Selling, general and administrative expenses         49.5         47.6         53.7         46.7
Research and development expenses                     9.5          7.6         10.0          7.4
Amortization of goodwill                             --            4.5         --            4.7
Depreciation and software amortization                4.7          4.8          5.3          4.4
Impairment charge                                     1.2         --            0.7         --
Restructuring                                         0.2         --            1.0         --
                                                  ---------    ---------    ---------    ---------
       Total operating expenses                      65.1         64.5         70.7         63.2

Operating loss                                      (19.5)       (20.5)       (24.7)       (17.8)

Interest (income) expense, net                        0.9          0.7          1.1          0.6
Other (income) expense, net                          --           --           --           (0.1)
                                                  ---------    ---------    ---------    ---------

Loss before income taxes                            (20.4)       (21.2)       (25.8)       (18.3)
Income tax expense (benefit)                          1.2          0.8         (3.0)         1.1
                                                  ---------    ---------    ---------    ---------

Net loss                                            (21.6)%      (22.0)%      (22.8)%      (19.4)%
                                                  =========    =========    =========    =========
</TABLE>

            NET REVENUES. Net revenues for the three months ended September 30,
2002 declined by $561,000 (8.9%) to $5,743,000, from $6,304,000 for the three
months ended September 30, 2001. Net revenues for the six months ended September
30, 2002, declined $2,925,000 (22.4%) to $10,160,000 from $13,085,000 for the
six months ended September 30, 2001. Our net revenues consisted primarily of
revenues from (1) enterprise engineering and collaborative software solutions
(including digital media products and animation services), (2) IT services, and
(3) Web-based telecommunication and travel services. The overall declines in our
net revenues for the three and six months ended September 30, 2002 primarily
resulted from the decline in net revenues of our IT services segment, which was
partially offset by increases in net revenues of our engineering and
collaborative software solutions and increases of our net revenues for Web-based
telecommunication and travel service segments during the three and six months
ended September 30, 2002.

                                       19





<PAGE>

            Engineering and collaborative software solutions net revenues
increased during the three months ended September 30, 2002 as compared to the
comparable period in the prior year, but declined during the six months ended
September 30, 2002 as compared to the comparable period in the prior year.
Engineering and collaborative software solutions net revenues increased by
$284,000 (13.5%) to $2,390,000 for the three months ended September 30, 2002
from $2,106,000 for the three months ended September 30, 2001. This increase was
primarily due to lower revenues during the three months ended September 30,
2001, resulting from the events of September 11, 2001 global economic slowdown
and customer postponements. Engineering and collaborative software solutions net
revenues declined $240,000 (5.3%) to $4,261,000 for the six months ended
September 30, 2002 from $4,501,000 for the six months ended September 30, 2001.
The decline in net revenues during the six months ended September 30, 2002
primarily consisted of a decline in collaborative software solutions net
revenues compared to such sales during the same period in the prior year. The
majority of our collaborative software revenue is generated from
service-oriented projects, where the revenue is not recognized until the entire
project is completed. Collaborative software sales decreased approximately
$310,000 in the six months ended September 30, 2002 as compared to the
comparable period in the prior year primarily due to one large contract
amounting to approximately $300,000 that was completed and recognized in the
three months ended June 30, 2001. This decrease was offset by an increase in
engineering sales in Asia of approximately $140,000. We believe our sales in
Asia increased due to improvements in the Asian economy. As a percentage of
total net revenues, engineering and collaborative software solutions net
revenues increased to 41.9% for the six months ended September 30, 2002 as
compared to 34.4% for the six months ended September 30, 2001 primarily due to
greater declines in our IT services segment.

            Historically, our engineering software sales have improved during
the second half of each fiscal year. We expect this trend to continue in the
current fiscal year. Additionally, we anticipate improvements in engineering
software sales as a result of our efforts to refocus our sales initiatives and
to re-engage our international distributors as well as due to improvements in
the Asian economy. We also anticipate, but cannot assure you, that collaborative
software solutions net revenues will improve during the remainder of the current
fiscal year due in part to several agreements and strategic relationships that
have come to fruition during the six months ended September 30, 2002.

            IT services net revenues declined during both the three and
six-month periods ended September 30, 2002 as compared to the comparable periods
in the prior fiscal year. In dollar terms, IT services net revenues were
$1,369,000 and $2,783,000 during the three and six month periods ended September
30, 2002, respectively, compared to $2,724,000 and $6,072,000 for the comparable
periods in the prior fiscal year, a decrease of $1,355,000 (49.7%) and
$3,289,000 (54.2%), respectively. IT services net revenues represented 23.8% and
27.4% of total net revenues for the three and six month periods ended September
30, 2002, respectively, compared to 43.2% and 46.4% for the comparable periods
in the prior fiscal year. During the past year, the IT services industry has
been adversely affected by a slow economy, and as many of our customers reduced
spending on technology consulting and systems integration services. We do not
anticipate significant recovery to occur in the IT services segment as we expect
that this period of economic uncertainty may continue to impact our IT services
revenue throughout fiscal 2003.

            In dollar terms, telecommunications and travel services net revenues
were $1,984,000 and 3,116,000 during the three and six months ended September
30, 2002 as compared to $1,474,000 and $2,512,000 during the comparable periods
in the prior fiscal year, representing increases of $510,000 (34.6%) and
$604,000 (24.1%), respectively. These increases were due to $821,000 and
$1,185,000 increases in call termination services net revenues during the three
and six months ended September 30, 2002, respectively, as compared to the
comparable periods in the prior fiscal year, offset by declines in travel
services and phone cards revenue. The ramp-up of the call termination services
did not start until the beginning of the current fiscal year. Telecommunication
and travel services net revenues represented 34.5% and 30.7% of total net
revenues for the three and six month periods ended September 30, 2002,
respectively, as compared to 23.4% and 19.2%, respectively, for the comparable
periods in the prior fiscal year primarily due to declines in our IT services
segment. Although telecommunications services net revenues increased during the
three and six month periods ended September 30, 2002 as compared to the

                                       20





<PAGE>

comparable periods in the prior fiscal year, the recent turmoil in the
telecommunications industry has increased the uncertainty of the viability of
smaller service providers, some of whom are our customers. As a result, we
anticipate that during the remainder of the current fiscal year,
telecommunications services net revenues will not improve from current levels.
Travel services net revenues declined $312,000 and $217,000 for the three- and
six-month periods ended September 30, 2002, due to competition from other online
travel services and reductions in travel agency commissions. We do not
anticipate that travel services net revenues will improve from current levels
during the remainder of the current fiscal year.

            GROSS PROFIT. In dollar terms, gross profit declined by $1,265,000
(21.3%) to $4,678,000 for the six months ended September 30, 2002 from
$5,943,000 for the comparable period in the prior fiscal year. The decrease is
mainly due to the decline in gross profit from our IT services business. Gross
profit represented 45.6% and 46.0% of total net revenues for the three and six
months ended September 30, 2002, respectively, as compared to 44.0% and 45.4%
for the comparable periods in the prior fiscal year.

            In dollar terms, engineering and collaborative software solutions
gross profit declined $229,000 (5.8%) for the six-month period ended September
30, 2002 from the comparable period of the prior fiscal year. Gross profit
percentage in the engineering and collaborative software solutions segment
decreased slightly to 87.4% for the six months ended September 30, 2002 from
87.9% for the six months ended September 30, 2001. Our engineering and
collaborative software solutions segment generally produces higher gross margins
than our other segments due to the relatively lower costs associated with each
sale. The cost of revenues for the engineering and collaborative software
solutions segment includes printing services, direct supplies such as hardware
locks, which are security devices that are attached to the central processing
unit to prevent unauthorized access to licensed software, salaries for the
technical support employees, freight out, and software amortization expense.

            In dollar terms, IT services gross profit declined $1,024,000 (60%)
for the six month period ended September 30, 2002 from the comparable period of
the prior year. IT services gross profit percentage for the six months ended
September 30, 2002 declined to 24.5% for the six months ended September 30, 2002
from 28.1% for the six months ended September 30, 2001. As a result of the
market slowdown for the IT industry, net revenues from this segment declined
significantly without proportionate declines in our IT services costs, which
resulted in lower gross profit. In addition, the demand for some of our services
declined during the six months ended September 30, 2002, which caused us to
reduce our billing rates from the comparable period in the prior fiscal year.
Historically, the IT services gross profit percentage has been lower than the
engineering and collaborative software solutions gross profit percentage due to
the higher cost of labor associated with service revenue, including salaries,
bonuses, and benefits for all of the consulting employees. Our IT service
consultants generally receive higher salaries than our technical support
employees and we have employed more consultants than technical support staff,
both of which contributed to the lower gross profit percentage as compared to
the engineering and collaborative software solutions segment.

            In dollar terms, telecommunication and travel services gross profit
declined $12,000 (4.3%) for the six months ended September 30, 2002,
respectively, from the comparable period in the prior fiscal year.
Telecommunication and travel services gross profit percentage declined to 8.6%
for the six months ended September 30, 2002 from 11.2% for the six months ended
September 30, 2001. Gross profit declined due to lower revenues from higher
margin areas within this segment. The cost of revenues for our Web-based
telecommunications and travel services segment includes the cost of buying
minutes from another carrier and the cost of purchasing certain airline tickets.
The events of September 11, 2001 negatively impacted our travel services.
Although the travel business has improved after this initial downturn,
continuing threats in the worldwide political climate has hampered the recovery.
Competition from other online travel services, many of which have greater
resources than we have, as well as reductions in travel agency commissions due
to pricing pressures experienced by the airline industry, may also impact the
gross profit from our travel business in the near future.

                                       21





<PAGE>

            In order to improve overall gross profit and gross profit
percentage, we are refocusing our sales efforts toward our division with the
highest gross profit, namely, our engineering and collaborative software
solutions division, by working to develop strategic relationships and to
increase our volume of telephone sales, and re-engage with our international
distributors. We have cut and will continue to cut the costs of our IT services
division in an effort to prevent further deterioration of gross profit and will
continue to closely monitor our costs related to the telephony and travel
businesses.

            SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses decreased by $160,000 (5.3%) and $658,000
(10.8%) during the three- and six-month periods ended September 30, 2002 to
$2,841,000 and $5,457,000, respectively. The decrease in SG&A expenses for the
six months ended September 30, 2002 is due primarily to a $269,000 reduction in
salaries and benefits due to employee terminations, a $231,000 reduction in
advertising expenses, and a $49,000 reduction in marketing consulting expenses
due to continuing cost control measures, along with an $80,000 reduction in IT
sales commissions due to decreased IT revenues. Although the full effects of our
cost-cutting measures are not yet known, we do not presently anticipate that our
efforts to control SG&A expenses will adversely impact our current sales and
marketing initiatives because these initiatives are designed to derive
operational efficiencies while controlling costs.

            RESEARCH AND DEVELOPMENT EXPENSES. Research and development ("R&D")
expenses consist primarily of software developers' wages. For the three and six
months ended September 30, 2002, R&D expenses increased by $66,000 (13.7%) and
$43,000 (4.4%) to $547,000 and $1,011,000 from $481,000 and $968,000,
respectively, during the comparable periods in the prior fiscal year. The
increase in R&D expenses is due to the fact that all of the R&D expenses during
three and six months ended September 30, 2002 related to enhancement of our
software products that have already been released, and therefore were expensed,
whereas during the comparable periods in the prior year certain R&D expenses
were capitalized because they related to development of software products.

            DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and other
amortization expenses (excluding goodwill amortization and amounts charged to
cost of revenues) declined by $31,000 (10.2%) to $274,000 from $305,000 during
the three months ended September 30, 2002 as compared to the three months ended
September 30, 2001. Depreciation and amortization expenses decreased by $36,000
(6.2%) to $542,000 for the six months ended September 30, 2002 from $578,000 for
the six month period ended September 30, 2001 due to a lower level of capital
expenditures as part of our continuing efforts to control costs. We anticipate
that depreciation and amortization expenses will remain at this lower level
through the end of the current fiscal year.

            RESTRUCTURING. In March 2001, we announced plans to restructure our
operations. As a result of this restructuring plan, we recorded a restructuring
charge of $2,400,000 in the fourth quarter of fiscal 2001. The restructuring
plan consisted of four major points: 1) refocused strategic direction of ISP
initiatives; 2) refocused strategic direction of Internet portal initiatives; 3)
consolidation of technical support activities; and 4) elimination of our
in-house legal department. In the Internet portal business, we redirected our
primary focus toward the Web-based telecommunication and travel services. In
March 2001, we closed our Boston technical support office. Technical support
activities previously offered from that office have been consolidated into our
California facility. The elimination of the in-house legal department primarily
consisted of the termination of one employee whose position was not refilled.
Legal services are being obtained, as needed, through our continuing external
legal counsel. During the six months ended September 30, 2002, we provided
another $104,000 toward additional expenses from the restructuring plans
announced in March 2001 primarily due to additional amounts needed for severance
costs for the elimination of the legal department and the consolidation of
technical support. As of September 30, 2002, approximately $67,000 remained to
be paid, representing lease payments for vacated office space, personnel costs
and contractual obligations.

            IMPAIRMENT CHARGE. We recorded an impairment charge of $67,000 for
the six months ended September 30, 2002 as a result of the write-down of a
capitalized software asset to its net realizable value.

            INTEREST EXPENSE. Net interest for the three and six months ended
September 30, 2002 increased by $13,000 and $44,000 to $54,000 and $116,000,
respectively, from the three and six months ended September 30, 2001. The
increase during the six-month period ended September 30, 2002 as compared to the
six months ended September 30, 2001was primarily due to a decrease in investment
interest income of $36,000 and an increase of $11,000 in interest expense
related to capital lease obligations.

                                       22





<PAGE>

            INCOME TAXES. We recorded an income tax benefit of $301,000 for the
six months ended September 30, 2002 as compared to net income tax expense of
$137,000 for the six months ended September 30, 2001. Due to our net operating
loss position, we reversed tax liabilities recorded in prior periods that are no
longer required, which resulted in a tax benefit for the six months ended
September 30, 2002. Tax expense for the six months ended September 30, 2001
resulted from provisions for local and state taxes.

      LIQUIDITY AND CAPITAL RESOURCES

            Currently we finance our operations (including capital expenditures)
primarily through existing cash and cash equivalent balances. We have used debt
and equity financing when appropriate and practicable. Our principal sources of
liquidity at September 30, 2002 consisted of $2,065,000 of cash and cash
equivalents. Cash and cash equivalents declined by $1,401,000 or 40.4% during
the six months ended September 30, 2002. As discussed below, the primary reasons
for this decline were $934,000 cash used in operations, $203,000 in capital
expenditures, $132,000 in repayment of bank debt and $208,000 in payments toward
capital lease obligations.

            Net cash used in operations was $934,000 during the six months ended
September 30, 2002 as compared to $1,854,000 during the six months ended
September 30, 2001. Net loss was the primary contributor to net cash used in
both periods. A $123,000decrease in accounts payable, a $353,000decrease in
accrued expenses, a $174,000decrease in income tax payable, a $195,000 decrease
in accrued restructuring costs and a $416,000 decrease in deferred revenues
contributed to the usage of cash in the six months ended September 30, 2002,
offset by cash provided by a $779,000 decrease in accounts receivable balances
(net of bad debt expense), a $112,000 decrease in notes and related party loans
receivable, a $300,000 decrease in income tax receivable and a $575,000 decrease
in prepaid expenses and other current assets. In the comparable period of the
prior fiscal year, the primary reason for net cash used in operations was the
net loss, offset largely by a $1,063,000 decrease in accounts receivable
balance. A $519,000 increase in prepaid expenses and other assets, a $460,000
decrease in accrued expenses and a $689,000 decrease in deferred revenues were
primary contributors to cash used in operations during the first six months
ended September 30, 2001.

            Net cash used in investing activities during the six months ended
September 30, 2002 consisted of capital expenditures of $203,000, as compared to
capital expenditures of $712,000 during the same period in the prior fiscal
year, along with $69,000 of cash used to acquire companies.

            During the six months ended September 30, 2002, we used $284,000 in
financing activities primarily to repay bank debt and to pay capital lease
obligations. During the comparable period in the prior fiscal year, we used
$341,000 primarily to repay bank debt and capital lease obligations and $140,000
to repurchase common stock.

            We incurred net losses of $2,312,000 and $2,535,000 and used cash in
operations of $934,000 and $1,854,000 in the six months ended September 30, 2002
and 2001, respectively. Our future capital requirements will depend upon many
factors, including sales and marketing efforts, the development of new products
and services, possible future strategic acquisitions, the progress of research
and development efforts, and the status of competitive products and services.

                                       23





<PAGE>

            The following tables summarize our contractual obligations and
commercial commitments at September 30, 2002 (in thousands of dollars):

<TABLE>
<CAPTION>
                                    --------------------------------------------------------------------------------
                                                                   PAYMENTS DUE BY PERIOD
                                    --------------------------------------------------------------------------------
                                                   LESS THAN 1
                                                   ------------
CONTRACTUAL OBLIGATIONS                 TOTAL          YEAR          1-3 YEARS       4-5 YEARS      AFTER 5 YEARS
-----------------------                 -----          ----          ---------       ---------      -------------
<S>                                     <C>            <C>              <C>              <C>              <C>
Long-Term Debt                            651            262              374               14                1
Capital Lease Obligations               1,252            431              605              216                -
Operating Leases                        5,389            732            1,223              840            2,594
                                      ------------------------------------------------------------------------------
Total Contractual Cash Obligations      7,292          1,425            2,202            1,070            2,595
                                      ==============================================================================

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

Purchase commitment                          600             600           -                -              -
                                      ---------------------------------------------------------------------------
Total Commercial Commitments                 600             600           -                -              -
                                      ===========================================================================
</TABLE>

            During the quarter ended September 30, 2002, one of our major
stockholders executed a letter of commitment to provide us with a revolving line
of credit expiring March 31, 2003, in the amount of $500,000 at annual interest
rates varying from 2.0% over prime rate to 10.0% over prime rate depending on
the outstanding balance. The revolving line of credit has no loan covenant or
ratio requirements. As of September 30, 2002, we had no borrowings against this
revolving line of credit.

            Although we expect our existing cash and cash equivalent balances to
decline further during the next twelve months, we believe that our current cash
and cash equivalents balances along with the line of credit mentioned above will
be sufficient to meet our working capital needs at currently anticipated levels
for the next twelve months. We have made, and will continue to make, budget cuts
to maintain adequate capital reserves. However, our operational plan calls for
the raising of additional funds to finance growth through public or private
equity or debt financing. We cannot be certain that additional financing will be
available, if needed, or, if available, will be on terms satisfactory to us. If
we obtain additional equity funding, our existing shareholders will experience
dilution. If adequate funds are not available, we may be required to delay,
scale back, or eliminate our research and development programs and our marketing
efforts or to obtain funds through arrangements with partners or others who may
require us to relinquish rights to certain of our technologies or potential
products or assets.

      IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

            In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 141, BUSINESS
COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method of accounting. SFAS No. 141 specifies criteria that
intangible assets acquired in a business combination must meet to be recognized
and reported separately from goodwill. SFAS No. 142 also requires that goodwill
and intangible assets with indefinite useful lives no longer be amortized, but

                                       24





<PAGE>

instead be tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets
with estimable useful lives be amortized over their respective estimated useful
lives to their estimated residual values. In addition, SFAS No. 142 includes
provisions, upon adoption, for the reclassification of certain existing
recognized intangibles as goodwill, reclassification of certain intangibles out
of previously reported goodwill, reassessment of the useful lives of recognized
intangibles and testing for impairment of those intangibles.

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

            In connection with the SFAS No. 142 transitional goodwill impairment
evaluation, the statement requires us to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this, we identified our reporting units and determined the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill, to those reporting units as of April 1, 2002. Pursuant to
paragraphs 30-31 of SFAS No.142, we identified three "reporting units" as
defined in paragraph 17 of SFAS No. 131:

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

            Each of these reporting units was identical to its related operating
segment and met the specified criteria as distinct operating units: the
component constitutes a business; discrete financial data is available for the
component; and segment management routinely reviews the component's operating
results. The aggregation criteria for each of the components met the test of:

            (a)         similar economic characteristics over the long term;
            (b)         similar products or services;
            (c)         similar production processes; and
            (d)         similar types or classes of customers.

            As of March 31, 2002, goodwill balances for each of the reporting
units were as follows:

            Engineering and collaborative software solutions     $ 1,859,000
            IT services                                          $ 6,765,000
            Web based telecommunication and travel services      $   481,000

            In connection with adopting this standard, during the second
quarter, we completed step one of the test for impairment, which indicated that
the carrying value of our IT services segment exceeded its estimated fair value,
as determined utilizing various valuation techniques including discounted cash
flow and comparative market analysis. Net revenue for the IT Services reporting
unit declined $8,150,000, from $18,019,000 for the year ended March 31, 2001 to
$9,869,000 for the year ended March 31, 2002. This decline in the revenues for
IT Services is not anticipated to substantially improve and may worsen in the
next 12 months because we do not expect the demand for IT services to improve
during this period. In accordance with SFAS No. 142, we are currently
determining the extent of the impairment in the IT services segment and will
report the level of impairment for each reporting unit by fiscal year end.

            We are required to complete the second step of the test for
impairment as soon as possible, but no later than March 31, 2003, the end of the
year of adoption. In the second step, we must compare the implied fair value of
the reporting unit goodwill with the carrying amount of the reporting unit
goodwill, both of which would be measured as of the date of adoption. The
implied fair value of goodwill is determined by allocating the fair value of the
reporting unit to all of the assets (recognized and unrecognized) and
liabilities of the reporting unit in a manner similar to a purchase price

                                       25





<PAGE>

allocation, in accordance with SFAS No. 141. The residual fair value after this
allocation is the implied fair value of the reporting unit goodwill. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in our statement of operations.

            As of September 30, 2002, we had unamortized goodwill in the amount
of $9,105,000, all of which will be subject to the transition provisions of SFAS
No. 142. Approximately $6,765,000 of this amount represents unamortized goodwill
related to the IT services segment. No amortization expense was recorded during
the six month period ended September 30, 2002. We will continue to assess for
impairment at each reporting date or at any time we become aware of factors or
circumstances that would warrant the assessment for impairment, including
whether we will be required to recognize any transitional impairment losses as
the cumulative effect of a change in accounting principle.

            The following table reconciles previously reported net income (loss)
as if the provisions of SFAS No. 142 were in effect in fiscal year 2002 and at
fiscal year end 2002 and 2001 (in thousands except per share amounts):

<TABLE>
<CAPTION>

                                             THREE MONTHS ENDED           SIX MONTHS ENDED              YEAR ENDED
                                                SEPTEMBER 30,               SEPTEMBER 30,                MARCH 31,
                                              2002         2001          2002          2001         2002          2001
                                         ------------  ------------ ------------  ------------  ------------  ------------
        <S>                              <C>            <C>          <C>           <C>           <C>           <C>
        Reported net loss                $    (1,242)  $    (1,384) $    (2,312)  $    (2,535)  $    (8,944)  $    (6,637)
        Add back:  Goodwill
        amortization, net of taxes                 -           269            -           569         1,052         1,282
                                         ------------  ------------ ------------  ------------  ------------  ------------

        Adjusted net loss                $    (1,242)  $    (1,115) $    (2,312)  $    (1,966)  $    (7,982)  $    (5,355)

        Reported basic and diluted
        loss per common share            $     (0.07)  $     (0.08) $     (0.13)  $     (0.15)  $     (0.53)  $     (0.45)
        Add back: Goodwill
        amortization, net of taxes                 -          0.01            -           0.03         0.06          0.09
                                         ------------  ------------ ------------  ------------  ------------  ------------
        Adjusted basic and diluted
        loss per common share            $     (0.07)  $     (0.07) $     (0.13)  $     (0.12)  $     (0.47)  $     (0.36)
                                         ------------  ------------ ------------  ------------  ------------  ------------
</TABLE>

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

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

                                       26





<PAGE>

            In April 2002, the FASB issued SFAS No. 145, RESCISSION OF THE FASB
STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS. SFAS No. 145 eliminates the requirement to classify gains and
losses from the extinguishments of indebtedness as extraordinary, requires
certain lease modifications to be treated the same as a sale-leaseback
transaction, and makes other non-substantive technical corrections to existing
pronouncements. SFAS No. 145 is effective for fiscal years beginning after May
15, 2002, with earlier adoption encouraged. We do not expect the adoption of
SFAS No. 145 to have a material impact on our consolidated financial position or
results of operations.

            In July 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operations, plant closing, or other exit or disposal activities.
SFAS No. 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged. As the
provisions of SFAS No. 146 are required to be applied prospectively after the
adoption date, we cannot determined the potential effects that adoption of SFAS
No. 146 will have on our consolidated financial statements.

      ITEM 3.           CONTROLS AND PROCEDURES.

            Our Chief Executive Officer and Chief Financial Officer (our
principal executive officer and principal financial officer, respectively) have
concluded, based on their evaluation as of November 8, 2002 ("Evaluation Date"),
that the design and operation of our "disclosure controls and procedures" (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934, as amended ("Exchange Act")) are effective to ensure that information
required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is accumulated, recorded, processed, summarized and reported to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding whether or not disclosure is
required.

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

                                       27





<PAGE>

PART II -- OTHER INFORMATION

ITEM 1.          LEGAL PROCEEDINGS

                 None.

ITEM 2.          CHANGES IN SECURITIES AND USE OF PROCEEDS

            In August 2002, we issued 80,000 shares of common stock valued at
$180,000 to two former employees in consideration for services rendered. In
September 2002, we issued 26,500 shares of common stock valued at $55,915 to a
former employee and a former consultant in consideration for services rendered.
Exemption from the registration provisions of the Securities Act of 1933 for the
transactions described above is claimed under Section 4(2) of the Securities Act
of 1933, among others, on the basis that such transactions did not involve any
public offering and the purchasers were sophisticated with access to the kind of
information registration would provide. In each case, appropriate investment
representations were obtained, stock certificates were issued with restricted
stock legends, and stop transfer orders were placed with our transfer agent.

ITEM 3.          DEFAULTS UPON SENIOR SECURITIES

                 None

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

                 None.

ITEM 5.          OTHER INFORMATION

                 None

ITEM 6.          EXHIBITS AND REPORTS ON FORM 8-K

                 (a)  Exhibit
                      Number                   Description
                      ------                   -----------

                        10.1        Agreement to provide credit facility dated
                                    August 12, 2002 between netGuru, Inc. and
                                    Peter R. Kellogg. (1)

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

                 --------------------
                        (1)         Filed as an exhibit to the initial filing of
                                    this Form 10QSB on November 14, 2002 and
                                    incorporated herein by reference.

                 (b) Reports on Form 8-K

                        On November 5, 2002, we filed a current report on Form
                        8-K for October 30, 2002, announcing the appointment of
                        Stanley W. Corbett to our board of directors following
                        the resignation of Dr. John Pepin from our board of
                        directors. The Form 8-K included Item 5. Other Events
                        and Item 7. Financial Statements and Exhibits. The
                        exhibit attached was a press release dated October 30,
                        2002 relating to the appointment.

                                       28





<PAGE>

SIGNATURES
----------

In accordance with 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.

Date:  January 27, 2003

                                                  NETGURU, INC.

                                                  By: /S/ BRUCE K. NELSON
                                                      -------------------
                                                       Bruce K. Nelson
                                                       Chief Financial Officer
                                                      (duly authorized officer
                                                       and principal financial
                                                       and accounting officer)

                                       29





<PAGE>

                                 CERTIFICATIONS

            I, Amrit K. Das, certify that:

            1. I have reviewed this amendment no. 2 to quarterly report on Form
10-QSB of netGuru, Inc. ("quarterly report");

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

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

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

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

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

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

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

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

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

            6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: January 27, 2003                     /s/ AMRIT K. DAS
                                           ------------------------
                                           Amrit K. Das, Chief Executive Officer
                                           (principal executive officer)

                                       30





<PAGE>

            I, Bruce Nelson, certify that:

            1. I have reviewed this amendment no. 2 to quarterly report on Form
10-QSB of netGuru, Inc. ("quarterly report");

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

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

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

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

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

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

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

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

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

            6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: January 27, 2003                     /s/ BRUCE K. NELSON
                                           --------------------
                                           Bruce Nelson, Chief Financial Officer
                                           (principal financial officer)

                                       31





<PAGE>

        EXHIBITS FILED WITH THIS AMENDMENT NO. 2 TO REPORT ON FORM 10-QSB

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

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

                                       32