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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998
Commission file number 0-20943

INTELLIGROUP, INC.
---------------------------------------------------------
(Exact Name of Registrant as Specified In Its Charter)


New Jersey 11-2880025
- --------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

499 Thornall Street, Edison, New Jersey 08837
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(Address of Principal Executive Offices) (Zip Code)


(732) 590-1600
---------------------------------
(Registrant's Telephone Number,
Including Area Code)

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


Name of each exchange
Title of each class on which registered
- --------------------- ----------------------------

None
- --------------------------- ----------------------------


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

Common Stock, $.01 par value
- --------------------------------------------------------------------------------
(Title of Class)






Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.


Yes: X No:
-------- --------


Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: $54,920,024 at March 22, 1999 based on the last sales price
on that date.

Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 22, 1999:


Class Number of Shares
- ----- ----------------

Common Stock, $.01 par value 15,558,751

The following documents are incorporated by reference into the Annual
Report on Form 10-K: Portions of the Registrant's definitive Proxy Statement for
its 1999 Annual Meeting of Shareholders are incorporated by reference into Part
III of this Report.




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TABLE OF CONTENTS
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Item Page
---- ----

PART I 1. Business.................................................... 4

2. Properties.................................................. 18

3. Legal Proceedings........................................... 18

4. Submission of Matters to a Vote of Security Holders......... 20

PART II 5. Market for the Company's Common Equity and Related
Shareholder Matters......................................... 21

6. Selected Financial Data..................................... 22

7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 24

7A. Quantitative and Qualitative Disclosure About Market Risk... 34

8. Financial Statements........................................ 34

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

PART III 10. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16 (a) of the
Exchange Act................................................ 35

11. Executive Compensation...................................... 35

12. Security Ownership of Certain Beneficial Owners
and Management.............................................. 35

13. Certain Relationships and Related Transactions.............. 35

PART IV 14. Exhibits, List and Reports on Form 8-K...................... 36

SIGNATURES ............................................................ 37

EXHIBIT INDEX ............................................................ 39

FINANCIAL STATEMENTS........................................................ F-1




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PART I


ITEM 1. BUSINESS.

GENERAL

Overview

Intelligroup, Inc. ("Intelligroup" or the "Company") provides a wide range
of information technology services, including management consulting,
enterprise-wide business process solutions, Internet applications services,
applications outsourcing and maintenance, web site design and customization, IT
training solutions, systems integration and custom software development based on
leading technologies.

The Company was incorporated in New Jersey in October 1987 under the name
Intellicorp, Inc. to provide systems integration and custom software
development. The Company's name was changed to Intelligroup, Inc. in July 1992.
In March 1994, the Company acquired Oxford Systems Inc. ("Oxford") in a
pooling-of-interests transaction. On December 31, 1996, Oxford was merged into
the Company and ceased to exist as an independent entity. The Company's
executive offices are located at 499 Thornall Street, Edison, New Jersey 08837
and its telephone number is (732) 590-1600.

The Company has grown rapidly since 1994 when it made a strategic decision
to diversify its customer base by expanding the scope of its integration and
development services and to utilize software developed by SAP AG, based in
Germany, and distributed through its other subsidiaries including SAP America,
Inc. (collectively "SAP") as a primary tool to implement enterprise-wide
business process solutions.

SAP's software is representative of a class of application products known
as Enterprise Resource Planning ("ERP") software. ERP products are pre-packaged
solutions for business areas, including financial information, manufacturing and
human resources. For prospective customers, ERP products are an alternative to
the custom design and development of their own applications. Although ERP
products are pre-packaged, there is a significant amount of technical work
involved in implementing them and tailoring their use for a particular
customer's needs. The Company recognized that this implementation and
customization services work represented a significant potential business
opportunity.

ERP vendors such as SAP, Oracle, PeopleSoft and Baan, have a vested
interest in encouraging third party service companies to provide implementation
and customization services to customers. These vendors have established formal
programs which are designed to recruit and authorize third party service
companies as service partners. Companies wishing to become authorized partners
must meet performance criteria established by the ERP vendor. They are then
allowed to use the vendor's partner designation and associated logo to promote
their own services. The ERP product vendors also promote these authorized
partners to customers and prospective customers of their ERP products. The
Company believes that such partner status with the ERP vendors has and will
continue to result in direct referrals and enhanced industry recognition.


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In 1995, the Company achieved the status of a SAP National Implementation
Partner. In the same year, the Company also began to utilize Oracle's ERP
application products to diversify its service offerings. In 1997, the Company
enhanced its partner status with SAP, by first achieving National Logo Partner
status and then AcceleratedSAP Partner Status. Also, in 1997, the Company
further diversified its ERP-based service offerings, by beginning to provide
PeopleSoft and Baan implementation services. In July 1997, the Company was
awarded PeopleSoft implementation partnership status. In September 1997, the
Company was awarded Baan international consulting partnership status. In June
1998, the Company also expanded its Oracle applications implementation services
practice and added upgrade services to meet market demand of mid-size to large
companies that are implementing or upgrading Oracle applications.

The Company's software implementation, custom development and maintenance
services are enhanced by round-the-clock access to qualified and experienced
programmers at its offices in the United States, United Kingdom, New Zealand and
at its Advanced Development Center ("ADC") located in India. The ADC is
connected by dedicated, high speed satellite links to certain customer sites, as
well as to the Company's operations centers in the United States, the United
Kingdom and New Zealand.

The Company believes that the ADC is one of the world's largest offshore
SAP development centers. In 1998, the ADC was awarded ISO 9001 certification for
offshore SAP development. ISO 9001 is an international certification for
organizations, which achieve and demonstrate required levels of quality in
software development processes. The Company believes that, at this time, no
other services company has achieved ISO 9001 certification for offshore SAP
development.

The ADC is operated by Intelligroup Asia Private Ltd. ("Intelligroup
Asia"). The Company owns 99.8% of the shares of Intelligroup Asia. The remaining
shares are expected to be transferred to the Company by the founders in 1999.
Upon consummation of such transfer, Intelligroup Asia will be a wholly owned
subsidiary of the Company.

The Company provides its services directly to end-user organizations, or as
a member of consulting teams assembled by other information technology
consulting firms. The number of customers billed by the Company has grown
substantially from three customers in 1993 to approximately 750 customers in
1998. The Company's customers are Fortune 1000 and other large and mid-sized
companies in the United States and abroad. They include Armstrong World
Industries, AT&T, Block Drug Company, Bristol-Myers Squibb, IMC Global and Simon
& Schuster. The Company has also participated in project teams lead by
information technology consulting firms such as Ernst & Young LLP, IBM Global
Services, KPMG LLP and PricewaterhouseCoopers LLP.

During 1998, the Company made the decision to expand the portfolio of
services offered to existing and potential ERP customers, as well as customers
wishing to implement Internet-based solutions. These service offerings include
management consulting, Internet solutions and ERP and Internet application
outsourcing. This decision was based on the Company's business assessment of
customer needs over the life cycle of their solution. This assessment showed
that:

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o many ERP and non-ERP customers need business and technology consulting
------------------------------------
assistance to prepare and optimize systems plans to support their
organization's business strategies;

o many ERP and non-ERP customers need assistance in designing, implementing
and managing Internet and advanced technology applications, in areas such
--------------------------------
as web commerce and procurement, customer relationship management and
supply chain management; and

o many customers who install ERP or related Internet solutions need
assistance to maintain, manage and operate those solutions and are open to
proposals to outsource those functions.
---------

By providing a set of services throughout a customers' solution life cycle
and adding Internet solutions services, the Company believes that it is
leveraging its strengths in the ERP market, and broadening and expanding the
potential sources of future business opportunity.

The Company's stated direction is to expand its service offerings through
an appropriate mix of internal growth and acquisitions. During 1998, the Company
expanded its service operations, both domestically and internationally, through
a number of acquisitions. In May 1998, the Company expanded its PeopleSoft
services business in Europe, by acquiring the outstanding capital stock of each
of CPI Consulting Limited and CPI Resources Limited (the "CPI Companies")
located in the United Kingdom. The CPI Companies provide consulting and
implementation services related to PeopleSoft applications. In November 1998,
the Company acquired the outstanding capital stock of each of Azimuth Consulting
Limited, Azimuth Holdings Limited, Braithwaite Richmond Limited and Azimuth
Corporation Limited (the "Azimuth Companies") located primarily in New Zealand.
The Azimuth Companies provide business and management consulting services in
Australia, New Zealand and Southeast Asia. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

In December 1998, the Application Management Services practice was
reorganized as the worldwide Enterprise Sourcing Services ("ESS") practice. The
ESS practice will focus on selling, delivering and supporting outsourced ERP and
Internet implementation and maintenance services. The offshore ADC in Hyderabad,
India is part of the ESS practice. The ADC enables ESS to take on larger and
more complex implementation projects and outsourcing arrangements, while
maintaining our aggressive implementation schedules and cost-effective services.

In January 1999, in order to augment the Internet/Advanced Technology
practice, the Company acquired the outstanding capital stock of Network
Publishing, Inc. ("NPI") located in Provo, Utah. NPI provides web site design
and front-end application solutions services. In February 1999, by way of merger
transactions, the Company augmented the PeopleSoft practice in North America by
acquiring Empower Solutions, L.L.C. and its affiliate Empower, Inc. (the
"Empower Companies") located in Plymouth, Michigan.


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Trademarks and Service Marks

"Intelligroup," "4Sight," "4Sight Plus", and the Company's logo are service
marks and "OIM" are trademarks of the Company.

"Azimuth" is a trademark of Azimuth Consulting.

"Empower Solutions" is a trademark of Empower Solutions.

All other trade names, trademarks or service marks referenced herein are
the property of their respective owners and are not the property of the Company.

Safe Harbor Statements

This Form 10-K contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, including,
without limitation, statements regarding the Company's intention to shift to
higher margin turnkey management assignments and more complex projects and to
utilize its proprietary implementation methodology in an increasing number of
projects. In addition, statements regarding the Company's intent to expand its
service offerings through internal growth and acquisitions are also
forward-looking statements. Such forward-looking statements include risks and
uncertainties, including, but not limited to:

o the substantial variability of the Company's quarterly operating results
caused by a variety of factors, many of which are not within the Company's
control, including (a) patterns of software and hardware capital spending
by customers, (b) information technology outsourcing trends, (c) the
timing, size and stage of projects, (d) timing and impact of acquisitions,
(e) new service introductions by the Company or its competitors and the
timing of new product introductions by the Company's ERP partners, (f)
levels of market acceptance for the Company's services, (g) general
economic conditions, (h) the hiring of additional staff and (i) fixed price
contracts;

o changes in the Company's billing and employee utilization rates;

o the Company's ability to manage its growth effectively, which will require
the Company (a) to continue developing and improving its operational,
financial and other internal systems, as well as its business development
capabilities, (b) to attract, train, retain, motivate and manage its
employees, (c) to continue to maintain high rates of employee utilization
at profitable billing rates, (d) to successfully integrate the personnel
and businesses acquired by the Company, and (e) to maintain project
quality, particularly if the size and scope of the Company's projects
increase;

o the Company's ability to maintain an effective internal control structure;

o the Company's limited operating history within its current line of
business;

o the Company's reliance on a continued relationship with SAP America and the
Company's present status as a SAP National Logo Partner;


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o the Company's substantial reliance on key customers and large projects;

o the highly competitive nature of the markets for the Company's services;

o the Company's ability to successfully address the continuing changes in
information technology, evolving industry standards and changing customer
objectives and preferences;

o the Company's reliance on the continued services of its key executive
officers and leading technical personnel;

o the Company's ability to attract and retain a sufficient number of highly
skilled employees in the future;

o the Company's ability to continue to diversify its offerings, including
growth in its Oracle, Baan and PeopleSoft services;

o uncertainties resulting from pending litigation matters and from potential
administrative and regulatory immigration and tax law matters;

o the Company's ability to protect its intellectual property rights; and

o Year 2000 compliance of vendors' products and related issues, including
impact of the Year 2000 problem on customer buying patterns.

As a result of these factors and others, the Company's actual results may
differ materially from the results disclosed in such forward-looking statements.

INDUSTRY BACKGROUND

Many large and mid-sized businesses face a rapidly changing business
environment, including intense global competition, accelerating technological
change, and the need to embrace emerging web commerce and procurement
strategies. Such businesses continually seek to improve the quality of products
and services, lower costs, reduce cycle times, optimize their supply chain and
increase value to customers. Businesses are implementing and utilizing advanced
information and Internet technology solutions, that enable them to redesign
their business processes in such areas as product development, service delivery,
manufacturing, sales and human resources.

Many businesses have adopted information systems strategies using
client/server architectures based on personal computers, local area network/wide
area network ("LAN/WAN"), shared databases and packaged software applications.
Frequently these strategies are intended to replace legacy systems, which are
often mainframe-based, running proprietary software and applications. Such
client/server systems, when developed and implemented appropriately, enable the
creation and utilization of more functional, flexible and cost effective
applications, which are critical to the competitive needs of businesses.

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As part of their client/server strategies, organizations often acquire, or
consider acquisition of, packaged enterprise-wide business software
applications, including those offered by leading ERP vendors, such as SAP,
Oracle, PeopleSoft or Baan. These applications are then implemented or
customized to meet their particular business needs. Alternatively, the
organizations may develop, or commission development of, customized software
applications to meet their needs.

For many customers, the issue of Year 2000 compliance has driven their
decisions to migrate to new client/server-based ERP solutions. Others have
decided to retain their legacy mainframe applications and make them Year 2000
compliant, rather than replacing them. In both cases, these customers now have a
set of core operations applications which they use to support their central
business processes. These customers may now face competing internal demands
against their budgets and resources. The customers must balance demands from
their user departments for new, innovative business applications against the
absolute requirement to maintain, manage and optimize the core operations
applications. These competing demands reflect areas of potential business
opportunity for the Company in the areas of management consulting, Internet
solutions and the outsourcing of ERP applications maintenance.

Intense competitive and market pressures continue to force many
organizations to look for improvements in the quality, efficiency and
responsiveness of their end-to-end business models. This would normally require
an in-depth analysis of their business strategies, operational processes and
supporting delivery mechanisms, including information systems. Customers will
sometimes retain external business and management consulting organizations to
assist with this analysis and the preparation of relevant recommendations.

Two consistent conclusions result from customers' analyses. The first is
the importance of timely access to relevant information, tools and applications,
at reasonable cost, for customers, suppliers, business partners and employees.
The second conclusion is that, because of its low cost and universal
availability, the Internet and associated browser and web technology is becoming
the de-facto information access and delivery standard for many organizations
around the world. Together, these are leading to a new class of web site,
commonly called "enterprise information portals". These sites need to be
designed and implemented to provide access to all information, applications and
communications tools required for internal and external users to perform their
designated business functions.

The majority of customers who have implemented, or are implementing, ERP
solutions have been Fortune 2000 companies. The Company believes that
opportunities for new ERP implementations will continue to exist in this
segment, as these companies deploy ERP solutions to subsidiaries and operating
units. In addition, these customers are also faced with the need to manage and
maintain their ERP applications. The Company believes that there is significant
potential business opportunity for implementing ERP version-to-version upgrades
and also for application outsourcing.

Because of the ERP penetration of Fortune 2000 customers, the marketing
focus of the ERP vendors has turned toward mid-market clients. In addition, the
leading ERP vendors are also realigning their sales organizations along industry
segments (e.g. manufacturing, finance etc.). The mid-market segment presents the
most opportunity for new ERP product sales and


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implementations. Many of these companies are growing rapidly and are likely to
have the need for core financial and other operations systems that can be
addressed by ERP products. The Company believes that opportunity exists for ERP
implementation services to mid-market clients. This segment is very cost
conscious and will require a highly efficient services delivery model.

In both the Fortune 2000 and mid-market segments, the Company believes that
enterprise information portals will become a focus of many customers'
information systems plans. Enterprise information portals provide customized,
integrated access to information, tools and applications. Much of the demand for
new applications, to be accessed via the portals, will be driven by the
customers' need to compete on such fronts as web commerce, customer relationship
management, sales force automation and supply chain integration. A new wave of
product vendors has emerged, which address these new application requirements.
These include providers of packaged applications, as well as providers of
middleware frameworks designed to simplify the task of building or integrating
custom applications. Often, integration of these new applications with the
customers' core ERP or legacy-based business systems will be critical.

The task of developing and implementing enterprise-wide, mission-critical,
information solutions is complex. It presents significant challenges for most
customer organizations and can be a time consuming and costly undertaking, which
typically requires significant allocation of organizational resources.
Information technology managers must integrate and manage information systems
environments consisting of multiple computing platforms, operating systems,
databases and networking protocols, and as well as multiple packaged and custom
developed applications.

Companies must also continually keep pace with a broad and often confusing
array of new technological developments, which can render internal information
technology skills obsolete. Professionals with the requisite technology skills
often are in short supply and many organizations are reluctant to expand their
internal information systems department for particular projects. At the same
time, external economic factors encourage organizations to focus on their core
competencies and trim work forces in the information technology management area.
Accordingly, organizations often lack sufficient, and/or appropriate, technical
resources necessary to design, develop, implement and manage the information
technology solutions needed to support their business needs.

To support their information technology needs, many businesses increasingly
engage experienced outside specialists for assistance across the full life cycle
of their solutions. Because of the heightened business pressures they face,
these customers are demanding innovative solutions, in shorter timeframes, with
lower life cycle cost of ownership, at higher levels of quality and service, all
with lower risk to themselves and their businesses.

As a result of these industry dynamics, demand for information technology
services has grown significantly and changed. It has moved from an
implementation focus to one addressing an integrated view of corporate business
and information processes; it has also moved to a focus on value-based pricing
and cost of ownership over the total life cycle of the solution. These changes
favor services companies which can provide high quality, low cost life cycle
services, and which address high value solution areas for clients' businesses.

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THE INTELLIGROUP SOLUTION

Intelligroup improves its clients' business performance, through the
intelligent application of information technology. Intelligroup provides a
continuum of services throughout our clients' solution life cycle. These
services comprise management consulting, ERP solutions design and
implementation, Internet consulting and solution development and enterprise
outsourcing.

The Company delivers to our clients timely, cost-effective and innovative
ERP, Internet and maintenance solutions by combining our:

Proven Offshore Development and Maintenance Model: The Company has the
ability to develop, implement and maintain business solutions through its
offshore ADC, at high quality and low cost. The ADC, which the Company believes
is one of the world's largest SAP offshore development and maintenance centers,
is ISO 9001 certified for SAP offshore development. The center is process driven
and connected to the Company's operations centers in Asia/Pacific, the United
States and Europe via high-speed satellite links. The center operates on a 24x7,
round-the-clock basis, allowing next business day turn-around of work units to
clients. Combining the center's quality processes, skilled development team and
low cost of operation allows the Company to compete for implementation and
maintenance contracts on a fixed price/fixed time basis.

Expertise in a Wide Range of Technologies, Industries and Disciplines: The
Company's consultants have expertise with SAP, Oracle, PeopleSoft and Baan
products and with a wide variety of leading computing technologies, including
Internet, client/server architectures, object-oriented technologies, CASE,
distributed database management systems, mainframe connectivity, LAN/WAN and
telecommunications technologies. The Company believes that its personnel are
effective because of their technical excellence, their industry experience and
their strong grounding in the disciplines of project implementation and
management.

Customer-Driven Approach: The Company's project managers and consultants
maintain on-going communication and close interaction with customers to ensure
that they are involved in all facets of a project and that the solutions
designed and implemented by the Company meet the customer's needs. The Company's
goal is to provide training to its customers during a project to achieve high
levels of self-sufficiency among its customers' end users and internal
information technology personnel. The Company believes that its ability to
deliver the requisite knowledge base to its customers is critical to fostering
long-term relationships with, and generating referrals from, existing customers.

Accelerated Implementation Methodology and Toolset: The Company has
developed a proprietary implementation methodology, 4Sight, as well as a
software-based implementation toolset, 4Sight Plus, which are designed to
minimize the time required to develop and implement SAP, Oracle, PeopleSoft and
Baan solutions for its customers. 4Sight and 4Sight Plus are designed to be
technology independent and modular, and have also been extended to support the
Company's Internet solutions engagements.


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INTELLIGROUP SERVICES

Intelligroup provides a wide range of information technology services,
including (i) management consulting services; (ii) ERP solutions utilizing SAP,
as well as Oracle, PeopleSoft and Baan products, all of which are leading
software applications; (iii) internet solution services; and (iv) enterprise
sourcing services (outsourcing) for the maintenance, administration and
operations of customers' ERP and Internet solutions.

Historically, the Company's services have ranged from providing customers
with a single consultant to multi-personnel full-scale projects. The Company
provides these services to its customers primarily on a time and materials basis
and pursuant to agreements, which are terminable upon relatively short notice.
As the Company has re-oriented itself towards serving our clients' needs over
their solutions' entire life cycle, we are beginning to enter into outsourcing
agreements with customers. The contractual arrangements in these situations will
typically be fixed term, fixed price and multi-year, as is common in the
outsourcing market. The Company's focus on life cycle services is also intended
to encourage ongoing and recurring service relationships, rather than one-time
implementation engagements.

MANAGEMENT CONSULTING

During 1998, the Company's management consulting practice has focused on
two areas: (i) Business Consulting (covering Business Process Re-engineering,
Change Management, IT Strategy and Software selection); and (ii) Leasing & Asset
Management.

The Company believes that significant value is provided to customers, by
providing business consulting services. Such services also have the potential to
stimulate additional revenue opportunities for the Company, in the execution of
recommendations made to clients. The acquisition of Azimuth Consulting
significantly strengthens Intelligroup's management consulting capabilities.
Founded in 1984, Azimuth has built a strong IT management consulting
organization with operations in New Zealand, Australia, the Philippines and
other Southeast Asian countries. Azimuth operates as a wholly-owned subsidiary
of Intelligroup with headquarters in Wellington, New Zealand. The Company
intends to integrate its existing management consulting services groups in the
United States and Europe, under Azimuth worldwide. The Company is currently
re-evaluating its Leasing and Asset Management solution offerings.

ENTERPRISE RESOURCE PLANNING SOLUTIONS

The Company designs, develops, integrates and implements sophisticated
business process solutions based on SAP, Oracle, PeopleSoft and Baan products,
utilizing our best business practices, methodologies and toolsets. The Company
believes that its expertise in a wide variety of technologies, coupled with its
ability to provide comprehensive business process solutions and timely and
cost-effective implementation of new business systems, enables its customers to
achieve substantial improvements in efficiency and effectiveness in their
businesses and fosters long-term customer relationships.

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Accelerated Implementation Methodology and Toolset: As a result of our
experience in implementing ERP software, the Company has developed a proprietary
methodology (4Sight) and associated toolset (4Sight Plus) for implementing
enterprise business software applications. 4Sight Plus also contains a project
management and tracking tool, which the Company utilizes to monitor
implementation projects undertaken for clients. The Company believes that the
use of 4Sight and 4Sight Plus, throughout an implementation project, may enable
its customers to realize significant savings in time and resources. Furthermore,
the Company believes that use of 4Sight Plus also shortens the turn-around time
for program development, as it streamlines the information flow between the
Company's offices and customer sites.

4Sight and 4Sight Plus, initially used by the Company in projects
implementing SAP, were designed to be portable to other packaged software
applications and to be adaptable to the scope of a particular project. 4Sight
and 4Sight Plus have been adapted for Baan, Oracle and PeopleSoft
implementations.

INTERNET SOLUTIONS SERVICES

In 1998, the Company created a practice focusing on providing Internet
consulting and application development services, designed to help companies
develop innovative ways to reach their customers, suppliers and target markets
by leveraging the power of the Internet and corporate intranets. This practice
developed expertise in Internet technologies as well as the integration of those
technologies with ERP and legacy systems.

The Company's core expertise has been in the technical development and
integration of the solutions. However, a key element of the new breed of
Internet solution relates to the projection of the customers' offering to their
intended Internet audience. The Company, however, did not possess this required
expertise in brand marketing, graphic and multimedia design. With the
acquisition of NPI, the Company is now able to provide those services and
provide a complete Internet solution which combines NPI's web design capability
with Intelligroup's expertise in Internet application development and
integration with ERP systems.

NPI has built a strong track record in designing web-sites that enable
clients to achieve the desired sales and marketing impact. Its customers include
a number of Fortune 500 companies in such industries as automotive, technology
and entertainment. The Company intends to leverage its proven 4Sight
methodologies and offshore development model to pursue Internet business
opportunities. The Company believes that the existing set of ERP customers will
be a receptive audience for the Company's Internet solutions. These customers
represent a large and well-defined target, which can be reached by the Company's
direct sales and marketing activities.

A wide variety of Internet solutions may be offered to prospective clients,
including electronic commerce, customer interaction, sales force automation and
web training. The Company intends to promote the use of enterprise information
portals in marketing its Internet solutions services.


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ENTERPRISE SOURCING SERVICES

The ESS practice focuses on selling, delivering and supporting outsourced
ERP and Internet implementation and maintenance services. The offshore ADC in
Hyderabad, India is part of the ESS practice. ESS provides full life cycle
support of ERP and Internet applications through the following service
offerings:

o Offshore Support: These services are provided in conjunction with the
Company's ERP and Internet practices, allowing them to provide
clients with high quality, low cost and time-dependent project
implementation services.

o Outsourcing: The Company provides clients with application
management, support and maintenance services. These services may be
provided on-site, off-site through the Company's operations centers
and ADC, or a combination of both on-site and off-site. The Company's
low cost, high quality ADC delivery model allows the Company to
compete for long term fixed price/fixed time contracts.

The ESS practice teams with the Company's various ERP and Internet
practices on their implementation projects, and will take the lead role in
selling and delivering longer term outsourcing relationships.

Advanced Development Center: The ADC is an important component of the
Company's value proposition to customers. The Company utilizes the programmers
at the ADC, in conjunction with its consultants in the United States who are on
site at customer locations, to provide its customers with savings in development
and implementation costs and time to project completion. The center allows the
Company to provide cost-effective, timely and high quality software development,
maintenance and support services to customers throughout the world. We are able
to deliver high value services at attractive prices due to the following: (i)
the high level of expertise and experience of our ADC consultant programmers;
(ii) the rigorous application of the Company's proprietary 4Sight software
project methodologies, tools and project management disciplines; and (iii) the
cost structures associated with the ADC's offshore location in Hyderabad, India.

The ADC is connected by dedicated, high-speed satellite links, to certain
customer sites, as well as the Company's headquarters in the United States, its
European headquarters in the United Kingdom and its office in New Zealand. The
ADC is staffed by over 200 qualified and experienced programmers. The ADC has
performed work on projects with SAP, as well as with Baan and certain custom
Internet solutions. As the Company expands both its ERP and Internet businesses,
the ADC is being prepared to undertake projects in any of the four ERP practices
(SAP, Baan, Oracle and PeopleSoft), as well as certain Internet and other
advanced technologies.

SALES AND MARKETING

The Company historically has generated new sales leads from (i) referrals
from existing customers, (ii) introductions to potential customers by the
Company's alliance partners, which often need to recommend qualified systems
integrators to implement their software products, and (iii) internally generated
sales. In addition, the Company has been introduced to customers by

- 14 -


certain of its competitors, such as the "Big Five" accounting firms, which at
times require the Company's expertise and ability to deliver qualified personnel
for complex projects.

The Company has dedicated an increased level of resources to sales and
marketing efforts. The Company will continue to market to potential customers
with demonstrated needs for the Company's expertise in ERP and Internet
solutions. The Company intends to implement focused sales management programs,
to leverage its relationships with existing customers, as well as those with ERP
and other product vendors. In particular, the Company has reorganized its SAP
practice along industry lines and will endeavor to partner with SAP's industry
sales organization to seek and close business opportunities.

Among its sales and marketing efforts, the Company's has exhibited and
presented the Company's expertise at trade events associated with the primary
ERP offerings. These include events such as SAPPHIRE, the annual SAP conference
for SAP service providers and end-users, the Americas SAP User Group, the Oracle
Americas User Group, BaanWorld and the PeopleSoft Users Group. The Company
intends to continue participation in such industry-recognized programs and trade
shows.

Most importantly, however, the Company believes that satisfying customer
expectations within budgets and time schedules is critical to gaining repeat
business and obtaining new business from referrals. The Company believes that it
has consistently met customer expectations with respect to budgets and time
schedules.

As of December 31, 1998, the Company's sales and marketing group consisted
of 35 employees in the United States, 2 for Europe, and 9 for the Asia Pacific
region. The Company markets and delivers its services to customers on an
international basis through its network of offices. The Company's headquarters
in New Jersey and its branch offices in Phoenix, AZ; Foster City, CA;
Washington, DC; Miami, FL; Atlanta, GA; Chicago, IL; Detroit, MI; Dallas, TX and
Reston, VA serve the United States market. In addition, the Company, also
maintains offices in Europe (Denmark, the United Kingdom and Belgium); Asia
Pacific (Australia, India, Japan, New Zealand, Philippines and Singapore).
Azimuth Consulting will operate worldwide, as a wholly owned subsidiary of
Intelligroup with headquarters in Wellington, New Zealand. The Company's
existing management consulting services groups in the United States and Europe,
will be merged with Azimuth worldwide.

The Company's services require a substantial financial commitment by
customers and, therefore, typically involve a long sales cycle. Once a lead is
generated, the Company endeavors to understand quickly the potential customer's
business needs and objectives in order to develop the appropriate solution and
bid accordingly. The Company's project managers are involved throughout the
sales cycle to ensure mutual understanding of customer goals, including time to
completion, and technological requirements. Sales cycles for complex business
solutions projects typically range from one to six months from the time the
Company initially meets with a prospective customer until the customer decides
whether to authorize commencement of an engagement.


- 15 -

CUSTOMERS

The Company provides its services directly to Fortune 2000 and other large
and mid-sized companies, many of which have information-intensive, multinational
operations, or as a member of a consulting team assembled by other information
technology consultants, such as "Big Five" accounting firms. The number of
customers billed by the Company has grown substantially from three customers in
1993 to approximately 750 customers in the year ended December 31, 1998.

The Company's ten largest customers accounted for, in the aggregate,
approximately 50%, 46% and 34% of its revenue in 1996, 1997 and 1998,
respectively. During 1996 and 1997, PricewaterhouseCoopers LLP and Bristol-Myers
Squibb each accounted for more than 10% of revenue. During 1998, no single
customer accounted for more than 10% of revenue. In 1996, 1997 and 1998, 34%,
32% and 25% respectively, of the Company's revenue was generated by serving as a
member of consulting teams assembled by leading information technology
consulting firms retained by organizations to manage projects to provide
enterprise-wide business process solutions.

Although the Company has contracts with many of its large customers to
provide its services, in general such contracts are terminable upon relatively
short notice, typically not more than 30 days. Under the ESS practice, the
Company expects to compete for multi-year fixed term, fixed price contracts.
There can be no assurance that the Company's customers will continue to enter
into contracts with the Company or that existing contracts will not be
terminated.

Many of the Company's engagements involve projects that are critical to the
operations of its customers' businesses and provide benefits that may be
difficult to quantify. The Company's failure or inability to meet a customer's
expectations in the performance of its services could result in a material
adverse change to the customer's operations giving rise to claims for damages
against the Company or causing damage to the Company's reputation, adversely
affecting its business, financial condition and results of operations. In
addition, certain of the Company's agreements with its customers require the
Company to indemnify the customer for damages arising from services provided to,
or on behalf of, such customer. Under certain of the Company's customer
contracts, the Company warrants that it will repair errors or defects in its
deliverables without additional charge to the customer. The Company has not
experienced, to date, any material claims against such warranties. The Company
has purchased and maintains errors and omissions insurance to insure the Company
for damages and expenses incurred in connection with alleged negligent acts,
errors or omissions.

COMPETITION

The markets for the Company's services are highly competitive. The Company
believes that its principal competitors include the internal information systems
groups of its prospective customers, as well as the following classes of
companies (some of which are also customers of the Company):

- 16 -


o Consulting and software integration firms: including Andersen
Consulting, IBM Global Services, Cambridge Technology Partners, MCI
Systemhouse, Computer Sciences Corporation and others.

o "Big Five" accounting firms: Deloitte & Touche, Ernst & Young, KPMG,
PricewaterhouseCoopers.

o Software applications vendors: SAP, Oracle, Baan and PeopleSoft.

In addition, the Company competes with smaller companies such as Plaut,
Clarkson-Potomac, Whittman-Hart and Origin.

Many of the Company's competitors have longer operating histories, possess
greater industry and name recognition and have significantly greater financial,
technical and marketing resources than the Company. In addition, there are
relatively low barriers to entry into the Company's markets and the Company has
faced, and expects to continue to face, additional competition from new entrants
into its markets.

The Company believes that the principal competitive factors in its markets
include quality of service and deliverables, speed of development and
implementation, price, project management capability and technical and business
expertise. The Company believes that its ability to compete also depends in part
on a number of competitive factors outside its control, including the ability of
its competitors to hire, retain and motivate project managers and other senior
technical staff, the development by others of services that are competitive with
the Company's services and the extent of its competitors' responsiveness to
customer needs.

The Company believes that it competes based on its expertise across the
full life cycle of our clients' ERP and Internet solutions. This expertise
includes management consulting skills, plus design and implementation skills in
ERP products (primarily SAP, Oracle, PeopleSoft and Baan), Internet and
application integration and application outsourcing related to those solutions.
There can be no assurance that the Company will be able to continue to compete
successfully with existing and new competitors.

EMPLOYEES

As of December 31, 1998, the Company employed 1,260 full-time employees, of
whom 957 were engaged as consultants or as software developers, 46 were engaged
in sales and marketing, and 257 were engaged in sales and delivery management,
finance and administration. Of the total number of employees, 631 were based in
the United States, 522 were based in the Asia Pacific region and 107 were based
in Europe. In addition, the Company engaged 102 independent contractors to
perform information technology services.

None of the Company's employees is covered by a collective bargaining
agreement. Substantially all of the Company's employees have executed employment
agreements containing non-competition, non-disclosure and non-solicitation
clauses. In addition, the Company requires that all new employees execute such
agreements as a condition of employment by the Company. The Company believes
that it has been successful in attracting and retaining skilled and


- 17 -


experienced personnel. There is increasing competition for experienced sales and
marketing personnel and technical professionals. The Company's future success
will depend in part on its ability to continue to attract, retain, train and
motivate highly qualified personnel. The Company considers relations with its
employees to be good.

INTELLECTUAL PROPERTY RIGHTS

The Company's success is dependent, in part, upon its proprietary
accelerated implementation methodology, development tools and other intellectual
property rights. The Company relies upon a combination of trade secret,
non-disclosure and other contractual arrangements, and copyright and trademark
laws, to protect its proprietary rights. The Company generally enters into
confidentiality agreements with its employees, consultants and customers, and
limits access to and distribution of its proprietary information. The Company
also requires that substantially all of its employees and consultants assign to
the Company their rights in intellectual property developed while employed or
engaged by the Company. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of its
proprietary information or that the Company will be able to detect unauthorized
use of and take appropriate steps to enforce its intellectual property rights.


ITEM 2. PROPERTIES.

As of December 31, 1998, the Company owns no real property and currently
leases or subleases all of its office space. The Company leases its headquarters
in Edison, New Jersey, totaling approximately 48,475 square feet. Such lease has
an initial term of ten (10) years, which commenced in September 1998. The
Company uses such facility for certain technical and support personnel, sales
and marketing, administrative, finance and management personnel. The Company
also leases or subleases offices for its sales and operations in Phoenix, AZ;
Foster City, CA; Washington, DC; Miami, FL; Atlanta, GA; Chicago, IL; Detroit,
MI; Dallas, TX; and Reston, VA; and operations in Hyderabad, India; Australia;
Denmark; Japan; New Zealand; Singapore and the United Kingdom. The Company is in
the process of opening a sales office in Brussels, Belgium. In October 1998, the
Company finalized an agreement to sublet the space used for its prior
headquarters for the remainder of the term of its sublease, which expires
November 15, 1999.


ITEM 3. LEGAL PROCEEDINGS.

On February 16, 1996, the Company, as plaintiff, filed a complaint in the
Superior Court of New Jersey, Chancery Division, Middlesex County, against a
former consultant to the Company, seven former employees of the Company and
Pegasus Systems, Inc. ("Pegasus"), a corporation which currently employs certain
of such individuals (collectively, the "Defendants"). The complaint, which seeks
damages and injunctive relief against the Defendants, alleges, among other
things, misappropriation of proprietary information, unfair competition,
tortious interference, breach of employment agreements, breach of a consulting
agreement between the Company and Pegasus, and breach of duty of loyalty, good
faith and fair dealing. Upon the filing of its complaint, the Company obtained a
temporary restraining order and in May 1996 obtained a preliminary injunction
prohibiting the Defendants from using or disclosing the Company's

- 18 -


proprietary information, prohibiting the Defendants from contacting or
soliciting certain of the Company's customers and prohibiting the Defendants
from recruiting or attempting to recruit the Company's employees, agents or
contractors. The preliminary injunction remains in effect. The Defendants have
filed an answer and counterclaim. Pegasus has asserted a breach of contract
counterclaim against the Company alleging that the Company owes it $129,000 for
consulting services. Pegasus and two of the individual Defendants also asserted
claims against the Company and two of its officers for tortious interference and
defamation. In addition, one of the individual Defendants has asserted that the
Company owes him $70,000 in commissions. In addition to monetary damages the
Defendants seek injunctive relief. The Defendants unsuccessfully sought a
temporary restraining order against the Company. On October 13, 1998, the
parties negotiated a settlement to dispose of all claims asserted in this
lawsuit as well as those asserted in the claim against Sophien Bennaceur
(discussed below). The Company drafted and circulated a settlement agreement
which, if executed, would dispose of both lawsuits. On March 11, 1999, the
Company filed a Motion to Enforce the settlement agreement in light of Sophien
Bennaceur's failure to execute such settlement agreement. The Company does not
believe that the outcome of these claims and counterclaims will have a material
effect upon the Company's business, financial condition or results of
operations.

On February 13, 1998, Russell Schultz, a former employee of the Company,
filed a complaint in the Superior Court of New Jersey, Law Division, Monmouth
County, naming the Company as a defendant. The complaint, which seeks damages,
alleges, among other things, that the Company misrepresented plaintiff's job
description in order to induce plaintiff to leave his prior employer, failed to
provide stock options to the plaintiff and violated plaintiff's written
employment contract. The Company was served with the complaint on March 16,
1998. Subsequently, on July 10, 1998, upon the Company's Motion to Compel
Arbitration, the court dismissed the plaintiff's complaint without prejudice.
Subsequently, the plaintiff's motion to reconsider the dismissal was denied. The
plaintiff filed his demand for Arbitration with the American Arbitration
Association on February 17, 1999 and the Company filed its answer on February
26, 1999. It is too early in the dispute process to determine the impact, if
any, that such dispute will have upon the Company's business, financial
condition or results of operations.

On May 28, 1998, the Company and Rajkumar Koneru, as plaintiffs, filed a
complaint in the United States District Court for the District of New Jersey,
against Sophien Bennaceur, a former employee and officer of the Company. The
complaint, which seeks damages and injunctive relief against the defendant,
alleges among other things, misappropriation of proprietary information, breach
of employment agreement, breach of fiduciary duty and duty of loyalty, unfair
competition and tortious interference. The defendant was served with the
complaint and filed an answer on July 9, 1998. On October 13, 1998, the parties
negotiated a settlement to dispose of all claims asserted in this lawsuit as
well as those asserted in the Pegasus litigation (discussed above). The Company
drafted and circulated a settlement agreement which, if executed, would dispose
of both lawsuits. On March 11, 1999, the Company filed a Motion to Enforce the
settlement agreement in light of Sophien Bennaceur's failure to execute such
settlement agreement.


- 19 -


There is no other material litigation pending to which the Company is a
party or to which any of its property is subject.


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

Not applicable.




- 20 -


PART II


ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

The Common Stock has been quoted on the Nasdaq National Market (the "NNM")
under the symbol "ITIG" since September 27, 1996 when the Company consummated
its initial public offering. The following table sets forth, for each of the
periods indicated, the high and low sale prices per share of Common Stock as
quoted on the NNM. The prices shown represent quotations among securities
dealers, do not include retail markups, markdowns or commissions and may not
represent actual transactions.

Quarter Ended High Low
---------------------------- ---------- ---------
March 31, 1997 $12 3/4 $9 7/8
June 30, 1997 $11 7/8 $8 1/4
September 30, 1997 $23 1/2 $9 1/2
December 31, 1997 $25 7/8 $13 3/4
March 31, 1998 $21 1/2 $14 1/2
June 30, 1998 $23 5/8 $15
September 30, 1998 $24 1/4 $16
December 31, 1998 $19 3/4 $10 5/8

As of March 22, 1999, the approximate number of holders of record of the
Common Stock was 47 and the approximate number of beneficial holders of the
Common Stock was 1,750.

The Company has never declared or paid any dividends on its capital stock.
The Company intends to retain any earnings to fund future growth and the
operation of its business, and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.

All information relating to the Common Stock of the Company in this Annual
Report on Form 10-K reflects a 81,351.1111-for-1 stock split of the Common Stock
effected July 12, 1996, prior to the Company's initial public offering of its
Common Stock in September 1996.

The following information relates to all securities of the Company sold by
the Company which were not registered under the Securities Act of 1933, as
amended (the "Securities Act"), at the time of grant, issuance and/or sale, and
have not previously been disclosed in a Quarterly Report on Form 10-Q:

On November 25, 1998, Intelligroup, Inc. (the "Company"),
consummated the acquisition (the "Acquisition") of all of the shares
of outstanding capital stock of each of Azimuth Consulting Limited,
Azimuth Holdings Limited, Braithwaite Richmond Limited and Azimuth
Corporation Limited, each a company formed pursuant to the laws of New
Zealand (the "Azimuth Companies"). As a result of the Acquisition,
each of the Azimuth Companies became a wholly-owned subsidiary of the
Company. The parties have accounted for such transaction as a pooling
of interests. The principal activity of each of the Azimuth Companies
is providing business and management consultancy services.

- 21 -


The purchase price consisted of the issuance by the Company of an
aggregate of 902,928 restricted shares of its Common Stock, $0.01 par
value per share, to David Anthony Stott and Alexander Graham Wilson,
the sole shareholders of each of the Azimuth Companies. The Company
agreed to use its best efforts to file a registration statement
registering the shares of the Company's Common Stock issued to Messrs.
Stott and Wilson on Form S-3 no later than February 28, 1999 and use
its best efforts to have such registration become effective as soon as
practicable thereafter. The Company filed such Registration Statement
on February 26, 1999 and anticipates that the Form S-3 will be
declared effective by the Securities and Exchange Commission in the
near term after the filing of this Form 10-K.

No underwriter was employed by the Company in connection with the
issuance by the Company of the securities described above. The Company
claims that the issuance of all of the foregoing securities was exempt
from registration under Section 4(2) of the Securities Act as
transactions not involving any public offering. Appropriate legends
were affixed to the stock certificates issued in such transaction.
Both recipients had adequate access to information about the Company.


ITEM 6. SELECTED FINANCIAL DATA.

The selected statement of operations data for the years ended December 31,
1996, 1997 and 1998 and the selected balance sheet data as of December 31, 1997
and 1998 are derived from and are qualified by reference to, and should be read
in conjunction with, the more detailed audited consolidated financial statements
and the related notes thereto included elsewhere herein. The selected statement
of operations data for the year ended December 31, 1994 and 1995 and the
selected balance sheet data as of December 31, 1994, 1995 and 1996 have been
derived from audited financial statements of the Company which are not included
elsewhere herein. Prior period financial information has been revised to reflect
the Company's acquisitions of CPI Resources and the Azimuth Companies during
1998, which were accounted for in accordance with the pooling of interests rules
under generally accepted accounting principles.



- 22 -


The following should be read in conjunction with the consolidated financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus:



1994 1995 1996 1997 1998
--------- --------- -------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)


STATEMENT OF OPERATIONS DATA:
Revenue.................................... $19,438 $39,283 $61,699 $94,326 $144,861
Cost of sales.............................. 13,528 29,263 43,142 65,535 94,203
------- ------- ------- ------- --------
Gross profit............................. 5,910 10,020 18,557 28,791 50,658
------- ------- ------- ------- --------
Selling, general and administrative
expenses................................. 4,670 8,401 14,544 22,060 36,570
Acquisition expenses....................... -- -- -- -- 2,118
------- ------- ------- ------- ---------
Total selling, general and administrative
expenses................................ 4,670 8,401 14,544 22,060 38,688
------- ------- ------- ------- --------
Operating income......................... 1,240 1,619 4,013 6,731 11,970
Factor charges/Interest expense (income),
net...................................... 463 1,327 1,335 (257) (120)
------- ------- ------- ------- --------
Income before provision for
income taxes and extraordinary
charge................................. 777 292 2,678 6,988 12,090
Provision for income taxes................. 409 587 748 2,327 4,416
------- ------- ------- ------- --------
Income (loss) before extraordinary charge.. 368 (295) 1,930 4,661 7,674
Extraordinary charge, net of income tax
benefit of $296.......................... -- -- 1,148 -- --
------- ------- ------- ------- --------
Net income (loss)........................ $ 368 $ (295) $ 782 $ 4,661 $ 7,674
======= ======= ======= ======= ========
Earnings (loss) per share(1):
Basic earnings per share:
Income (loss) before extraordinary charge $ 0.02 $ (0.02) $ 0.18 $ 0.37 $ 0.57
Extraordinary charge, net of income tax
benefit.............................. -- -- 0.11 -- --
------- ------- ------- ------- --------
Net income (loss)...................... $ 0.02 $ (0.02) $ 0.07 $ 0.37 $ 0.57
======= ======= ======= ======= ========
Weighted average number of common shares -
Basic...................................... 15,011 15,011 11,003 12,636 13,386
======= ======= ======= ======= ========
Diluted earnings per share:
Income (loss) before extraordinary charge.. $ 0.02 $ (0.02) $ 0.16 $ 0.36 $ 0.55
Extraordinary charge, net of income tax
benefit.................................. -- -- 0.10 -- --
------- ------- ------- ------- --------
Net income (loss)........ $ 0.02 $ (0.02) $ 0.06 $ 0.36 $ 0.55
======= ======= ======= ======= ========
Weighted average number of common shares -
Diluted.................................... 15,011 15,011 12,263 13,116 13,968
======= ======= ======= ======= ========


AS OF DECEMBER 31,
-------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- -------- --------- ----------
(IN THOUSANDS)
Balance Sheet Data:
Cash and cash equivalents................. $ 1,399 $ 1,412 $ 8,301 $ 8,821 $ 4,245
Working capital surplus (deficit)......... (492) (991) 16,246 29,672 29,611
Total assets.............................. 7,599 12,571 24,945 42,006 65,728
Short-term debt, including subordinated
debentures.............................. 1,304 3,608 226 386 11
Long-term debt and obligations under
capital leases, less current portion... 141 206 108 355 59
Shareholders' equity...................... 557 128 18,280 33,208 44,920

- -----------------
(1)Basic and diluted earnings per share have replaced primary and
fully diluted earnings per share in accordance with SFAS No. 128.



- 23 -

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

The Company provides a wide range of information technology services,
including management consulting, enterprise-wide business process solutions,
Internet applications services, applications outsourcing and maintenance, web
site design and customization, IT training solutions, systems integration and
custom software development based on leading technologies. The Company has grown
rapidly since 1994 when it made a strategic decision to diversify its customer
base by expanding the scope of its integration and development services and to
utilize software developed by SAP as a primary tool to implement enterprise-wide
business process solutions. In 1995, the Company achieved the status of a SAP
National Implementation Partner. In the same year, the Company also began to
utilize Oracle's ERP application products to diversify its service offerings. In
1997, the Company enhanced its partner status with SAP, by first achieving
National Logo Partner status and then AcceleratedSAP Partner Status. Also, in
1997, the Company further diversified its ERP-based service offerings, by
beginning to provide PeopleSoft and Baan implementation services. In July 1997,
the Company was awarded PeopleSoft implementation partnership status. In
September 1997, the Company was awarded Baan international consulting
partnership status. In June 1998, the Company also expanded its Oracle
applications implementation services practice and added upgrade services to meet
market demand of mid-size to large companies that are implementing or upgrading
Oracle applications.

During 1998, the Company expanded its operations through acquisitions. On
May 7, 1998, the Company acquired thirty percent of the outstanding share
capital of CPI Consulting Limited. The acquisition of CPI Consulting Limited was
accounted for utilizing purchase accounting. The consideration paid by the
Company included the issuance of 165,696 shares of the Company's Common Stock
with a fair market value of $3.1 million, and a future liability to the sellers
predicated upon operating results for the balance of 1998. The value of the
liability has been determined as of December 31, 1998 to be $2.5 million, which
is payable by the issuance of an additional 155,208 shares of the Company's
Common Stock. Such shares were issued by the Company on March 22, 1999. The
excess of the purchase price over the fair value of the net assets acquired was
attributed to intangible assets, amounting in the aggregate to $5.8 million.

On May 21, 1998, the Company acquired all of the outstanding share capital
of CPI Resources Limited. The acquisition of CPI Resources Limited was accounted
for as a pooling of interests. Prior results for all periods have been restated
in accordance with pooling of interests accounting. As consideration for this
acquisition, the Company issued 371,000 shares of the Company's Common Stock. At
the time of the acquisition, CPI Resources Limited owned seventy percent of the
outstanding share capital of CPI Consulting Limited.

The CPI Companies provide consulting and implementation services related to
PeopleSoft applications.

- 24 -

On November 25, 1998, the Company consummated the acquisition of all of the
outstanding capital stock of each of Azimuth Consulting Limited, Azimuth
Holdings Limited, Braithwaite Richmond Limited and Azimuth Corporation Limited
(collectively the "Azimuth Companies"). The acquisition of the Azimuth Companies
was accounted for as a pooling of interests. Prior results for all periods have
been restated in accordance with pooling of interests accounting. As
consideration for this acquisition, the Company issued 902,928 shares of the
Company's Common Stock.

The Azimuth Companies provide business and management consulting services.
Founded in 1984, Azimuth has built a strong IT management consulting
organization with operations in New Zealand, Australia, the Philippines and
Southeast Asian countries.

In January 1999, in order to augment the Internet/Advanced Technology
Practice, the Company acquired the outstanding capital stock of NPI located in
Provo, Utah. The purchase price included an initial cash payment in the
aggregate of $1,800,000 together with a cash payment of $200,000 to be held in
escrow. In addition, the purchase price included an earn-out payment of up to
$2,212,650 in restricted shares of the Company's Common Stock payable on or
before April 15, 2000 and a potential lump sum cash payment of $354,024 payable
no later than March 31, 2000. This acquisition has been accounted for in 1999
under the purchase method of accounting. NPI provides web site design and
front-end application solutions services. NPI has built a strong track record in
designing web-sites that enable clients to achieve the desired sales and
marketing impact.

In addition, by way of merger transactions, the Company augmented its
PeopleSoft practice in North America by acquiring the Empower Companies located
in Plymouth, Michigan on February 16, 1999. The purchase price consisted of the
issuance of an aggregate of 1,831,091 restricted shares of the Company's Common
Stock. The Company may be required to issue additional shares of its restricted
Common Stock which may be issued in connection with a net worth adjustment
determined as of the closing date. The amount of such adjustment is in the
process of being finalized by the parties. The acquisition has been accounted
for as pooling of interest and thus prior financial statements will be revised
to reflect the activities of such companies for all periods in accordance with
generally accepted accounting principles. The Empower Companies provide business
process reengineering, system design and development, project management and
training services.

The Company generates revenue from professional services rendered to
customers. Revenue is recognized as services are performed. The Company's
services range from providing customers with a single consultant to
multi-personnel full-scale projects. The Company provides these services to its
customers primarily on a time and materials basis and pursuant to written
contracts which can be terminated with limited advance notice, typically not
more than 30 days, and without significant penalty, generally limited to fees
earned and expenses incurred by the Company through the date of termination. The
Company provides its services directly to end-user organizations or as a member
of a consulting team assembled by another information technology consulting firm
to Fortune 1000 and other large and mid-sized companies. The Company generally
bills its customers semi-monthly for the services provided by its consultants at


- 25 -


contracted rates. Where contractual provisions permit, customers also are billed
for reimbursement of expenses incurred by the Company on the customers' behalf.

The Company has provided services on certain projects in which it, at the
request of the clients, offered a fixed price for its services. For the year
ended December 31, 1998, revenues derived from projects under fixed price
contracts represented approximately 5% of the Company's total revenue. No single
fixed price project was material to the Company's business during 1998. However,
one fixed price project, which began late in 1998, is expected be material to
the Company during 1999. The Company believes that, as it pursues its strategy
of making turnkey project management a larger portion of its business, it will
continue to offer fixed price projects. The Company has had limited prior
experience in pricing and performing under fixed price arrangements and believes
that there are certain risks related thereto and thus prices such arrangements
to reflect the associated risk. There can be no assurance that the Company will
be able to complete such projects within the fixed price timeframes. The failure
to perform within such fixed price contracts, if entered into, could have a
material adverse effect on the Company's business.

The Company has derived and believes that it will continue to derive a
significant portion of its revenue from a limited number of customers and
projects. For the years ended December 31, 1996, 1997 and 1998, the Company's
ten largest customers accounted for in the aggregate, approximately 50%, 46% and
34% of its revenue, respectively. In 1996 and 1997, PricewaterhouseCoopers LLP
and Bristol-Myers Squibb each accounted for more than 10% of revenue. During
1998, no customer accounted for more than 10% of revenue. For the years ended
December 31, 1996, 1997 and 1998, 34%, 32% and 25%, respectively, of the
Company's revenue was generated by serving as a member of consulting teams
assembled by other information technology consulting firms. There can be no
assurance that such information technology consulting firms will continue to
engage the Company in the future at current levels of retention, if at all.
During the years ended December 31, 1996, 1997 and 1998, 57%, 58% and 59%,
respectively, of the Company's total revenue was derived from projects in which
the Company implemented software developed by SAP. For each of the years ended
December 31, 1997 and 1998, approximately 12% of the Company's total revenue was
derived from projects in which the Company implemented software developed by
Oracle. For each of the years ended December 31, 1998, 1997 and 1996,
approximately 9%, 8% and 9%, respectively, of the Company's total revenue was
derived from projects in which the Company implemented software developed by
PeopleSoft. During the year ended December 31, 1998, approximately 53% of the
Company's revenue was derived from engagements at which the Company had project
management responsibilities, compared to 28% and 12% during the years ended
December 31, 1997 and 1996, respectively.

The Company's most significant cost is project personnel expenses, which
consist of consultant salaries, benefits and payroll-related expenses. Thus, the
Company's financial performance is based primarily upon billing margin (billable
hourly rate less the cost to the Company of a consultant on an hourly basis) and
personnel utilization rates (billable hours divided by paid hours). The Company
believes that turnkey project management assignments typically carry higher
margins. The Company has been shifting to such higher-margin turnkey management

- 26 -


assignments and more complex projects by leveraging its reputation, existing
capabilities, proprietary implementation methodology, development tools and
offshore development capabilities with expanded sales and marketing efforts and
new service offerings to develop turnkey project sales opportunities with both
new and existing customers. The Company's inability to continue its shift to
higher-margin turnkey management assignments and more complex projects may
adversely impact the Company's future growth.

Since late 1994, the Company has made substantial investments in its
infrastructure in order to support its rapid growth. For example, in 1994, the
Company established and funded an operations facility in India, the Advance
Development Center (the "ADC"), and in 1995 established a sales office in
California. In addition, from 1994 to date, the Company has incurred expenses to
develop proprietary development tools and its proprietary accelerated
implementation methodology and toolset. Since 1995, the Company has also been
increasing its sales force and its marketing, finance, accounting and
administrative staff, in order to manage its growth. The Company currently
maintains its headquarters in Edison, New Jersey, and branch offices in Chicago,
Detroit, Foster City (California), Reston (Virginia), Edison (New Jersey),
Dallas, Atlanta, Phoenix and Washington, D.C. The Company also currently
maintains offices in Europe (the United Kingdom, Denmark, and Belgium), and Asia
Pacific (Australia, India, New Zealand, the Philippines, and Singapore). The
Company leases its headquarters in Edison, New Jersey, totaling approximately
48,475 square feet. Such lease has an initial term of ten (10) years, which
commenced in September 1998. In October 1998, the Company finalized an agreement
to sublet the space used for its prior headquarters for the remainder of the
term of its sublease, which expires November 15, 1999.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain financial
data expressed as a percentage of total revenue:



PERCENTAGE OF REVENUE
------------------------------------------
YEAR ENDED
DECEMBER 31,
1998 1997 1996
---- ---- ----

Revenue.......................................... 100.0% 100.0% 100.0%
Cost of sales.................................... 65.0 69.5 69.9
-------- ------- -------
Gross profit................................... 35.0 30.5 30.1
Selling, general and administrative expenses..... 25.2 23.4 23.6
Acquisition expenses............................. 1.5 -- --
-------- ------- -------
Operating income............................... 8.3 7.1 6.5
Interest and other expense (income), net......... -- (0.3) 2.2
-------- ------- -------
Income before provision for income taxes and
extraordinary charge........................... 8.3 7.4 4.3
Provision for income taxes....................... 3.0 2.5 1.2
-------- ------- -------
Income before extraordinary charge............... 5.3 4.9 3.1
Extraordinary charge, net of income tax benefit.. -- -- 1.8
-------- ------- -------
Net income .................................... 5.3 4.9 1.3
======== ======= =======



- 27 -

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Revenue. Revenue increased by 53.6% or $50.6 million, from $94.3 million in
1997 to $144.9 million in 1998. This increase was attributable primarily to
increased demand for the Company's ERP implementation consulting services and,
to a lesser extent, to increased demand for the Company's systems integration
and Internet development services.

Gross profit. The Company's cost of sales includes primarily the cost of
salaries to consultants and related employee benefits and payroll taxes. The
Company's cost of sales increased by 43.7%, or $28.7 million, from $65.5 million
in 1997 to $94.2 million in 1998. The increase was due to increased personnel
costs resulting from the hiring of additional consultants to support the
increase in demand for the Company's services. The Company's gross profit
increased by 76%, or $21.9 million, from $28.8 million in 1997 to $50.7 million
in 1998. Gross profit margin increased from 30.5% of revenue in 1997 to 35.0% of
revenue in 1998. The increase in such gross profit margin was primarily
attributable to both the expanded utilization of the Company's offshore
development facility in India, and the increase in implementation service
projects where the Company has project management responsibilities, which
typically carry higher gross margins, than those in which the Company provides
supplemental staffing for client managed projects.

Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of administrative salaries, and
related benefits costs, occupancy costs, sales person compensation, travel and
entertainment, costs associated with the ADC and related development costs and
professional fees. Selling, general and administrative expenses increased by
65.7%, or $14.5 million, from $22.1 million in 1997 to $36.6 million in 1998,
and increased as a percentage of revenue from 23.4% to 25.2%, respectively. The
increases in such expenses in absolute dollars and as a percentage of revenue
were due primarily to the increase in salaries and related benefits reflecting
headcount increases in the Company's sales force and its marketing, finance,
accounting and administrative staff, in order to manage its growth. The
Company's occupancy costs increased as a result of the relocation of our
corporate headquarters into approximately 48,000 square feet of office space,
from our former location which consisted of approximately 17,000 square feet. In
addition, the Company experienced increases in sales and management recruiting
costs, occupancy costs as additional offices were opened in the United States,
support services and the provision for doubtful accounts.

Acquisition expense. During the year ended 1998, the Company incurred costs
of $2,118,000 in connection with the acquisitions of the CPI Companies and the
Azimuth Companies, each of which were accounted for as pooling of interests.
These costs primarily consisted of professional fees associated with such
acquisitions.

Provision for income taxes. The Company's effective income tax rate was 37%
and 33% for the years ended December 31, 1998 and 1997. During 1997, the Company
reduced its valuation allowance by $207,000 as management determined that it was
more likely than not, that the applicable portion of the net deferred tax asset
would be or had been realized. The 1997 valuation allowance reduction favorably
impacted the effective income tax rate by 3%. In 1996,

- 28 -


the Company elected a five year tax holiday in India in accordance with a local
tax incentive program whereby no income tax will be due during such period. For
the year ended December 31, 1998 and 1997, the tax holiday favorably impacted
the effective tax rate by approximately 10% and 8%, respectively. Based on
current and anticipated profitability, management believes all net deferred tax
assets are more likely than not to be realized.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Revenue. Revenue increased by 52.9%, or $32.6 million, from $61.7 million
in 1996 to $94.3 million in 1997. This increase was attributable primarily to
increased demand for the Company's SAP related implementation consulting
services and, to a lesser extent, to increased demand for the Company's systems
integration and custom software development services.

Gross profit. The Company's cost of sales increased by 51.9%, or $22.4
million, from $43.1 million in 1996 to $65.5 million in 1997. The increase was
due to increased personnel costs resulting from the hiring of additional
consultants to support the increase in demand for the Company's services. The
Company's gross profit increased by 55.1%, or $10.2 million, from $18.6 million
in 1996 to $28.8 million in 1997. Gross profit margin increased from 30.1% of
revenue in 1996 to 30.5% of revenue in 1997. The increase in such gross profit
margin was attributable to the increase in implementation services projects and
a combination of improved billing margins, greater consultant utilization and
achieving certain customer performance incentives.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 51.7%, or $7.6 million, from $14.5 million
in 1996 to $22.1 million in 1997, and decreased slightly as a percentage of
revenue from 23.6% to 23.4%, respectively. The increases in such expenses in
absolute dollars and as a percentage of revenue were due primarily to the
expansion of the Company's sales and marketing activities in 1997 and increased
travel and entertainment expenses due to the growth of the business and the
employee base. Such expenses were increased to support the continued revenue
growth of the Company in the United States and abroad. In addition, such
expenses increased due to increased sales and management recruiting costs,
support services, and an increase in the provision for doubtful accounts.

Factor fees/Interest (income) expense, net. Factor fees in the 1996 period
were the charges incurred by the Company to finance its accounts receivable. On
October 10, 1996, the Company repaid the factor with a portion of the proceeds
from the Company's initial public offering, approximately $4.4 million,
consisting of all amounts outstanding under the agreement with its factor and
terminated its factor agreement. Subsequent to the Company's initial public
offering, interest income has been earned on interest bearing cash accounts and
short term investments.

Provision for Income Taxes. The Company's effective income tax rate was 33%
and 28% for the years ended December 31, 1997 and 1996. During 1997 and 1996,
the Company reduced their valuation allowance by $207,000 and $461,000,
respectively as management determined that it was more likely than not, that the
applicable portion of the net deferred tax asset would be or


- 29 -


had been realized. The 1997 and 1996 valuation allowance reduction favorably
impacted the effective income tax rate by 3% and 14%, respectively. In 1996, the
Company elected a five year tax holiday in India in accordance with a local tax
incentive program whereby no income tax will be due during such period. For the
year ended December 31, 1997, the tax holiday favorably impacted the effective
tax rate by approximately 8%. There was no significant impact for 1996. Based on
current and anticipated profitability, management believes all net deferred tax
assets are more likely than not to be realized.

BACKLOG

The Company normally enters into written contracts with its customers at
the time it commences work on a project. These written contracts contain varying
terms and conditions and the Company does not generally believe it is
appropriate to characterize such written contracts as creating backlog. In
addition, because these written contracts often provide that the arrangement can
be terminated with limited advance notice and without significant penalty, the
Company does not believe that projects in process at any one time are a reliable
indicator or measure of expected future revenue. In the event that a customer
terminates a project, the customer remains obligated to pay the Company for
services performed by it through the date of termination.

LIQUIDITY AND CAPITAL RESOURCES

The Company funds its operations primarily from cash flow generated from
operations, and prior to 1998 from cash balances generated from the Company's
initial and follow-on public offerings consummated in October 1996 and July
1997, respectively.

The Company had cash and cash equivalents of $4.2 million at December 31,
1998 and $8.8 million at December 31, 1997. The Company had working capital of
$29.6 million at December 31, 1998 and $29.7 million at December 31, 1997.

Cash provided by operating activities was $2.6 million during the year
ended December 31, 1998, resulting primarily from net income of $7.7 million
during the year ended December 31, 1998, an increase of $7.6 million in accounts
payable, accrued payroll and accrued expenses, offset by an increase of $14.6
million in accounts receivable and unbilled services. Cash used in operating
activities for the years ended December 31, 1997 and 1996 was $7.5 million and
$4.6 million, respectively.

In accordance with investment guidelines approved by the Company's Board of
Directors, cash balances in excess of those required to fund operations have
been invested in short-term U.S. Treasury securities and commercial paper with a
credit rating no lower than A1/P1.

The Company invested $7.1 million, $2.4 million and $1.0 million in
computer equipment and office furniture and fixtures in 1998, 1997 and 1996,
respectively. The increase reflects purchases of computer and telecommunications
equipment for consultants and administrative staff and office furniture and
fixtures related to the Company's new headquarters in Edison, New Jersey, and
other offices opened during 1998.

- 30 -


During 1996 the Company's factoring agreement required that the Company
offer all of its trade accounts receivable to the factor for financing; however,
the factor was under no obligation to accept any or all of such receivables. For
a variety of reasons, including the rapid growth of the Company, the lack of
available tangible security to utilize as collateral and the absence of
historical operating profits prior to 1996, the Company was unable to obtain
more traditional financing. On October 10, 1996, the Company repaid
approximately $4.4 million consisting of all amounts outstanding under the
agreement with the factor and terminated the factoring agreement.

In March 1996, in anticipation of the debenture financing described below,
the Company obtained a $750,000 line of credit, payable on demand, from a bank.
The line of credit carried interest at the federal funds rate plus 1%.
Borrowings under the line totaled $200,000 at March 31, 1996 and $300,000 in
April 1996, when the Company repaid all amounts outstanding under such line in
connection with the debenture financing described below. The line of credit has
been terminated in accordance with the terms of such debenture financing.

In April 1996, the Company issued and sold five-year 9% subordinated
debentures in the aggregate principal amount of $6.0 million to Summit Ventures
IV, L.P. and Summit Investors III, L.P. The subordinated debentures were issued
to raise funds for working capital and general corporate purposes, to repurchase
from the then-current shareholders, Messrs. Pandey, Koneru and Valluripalli, an
aggregate of 4,881,066 shares of Common Stock for an aggregate of $1.5 million,
to repay approximately $300,000 outstanding under a $750,000 credit facility and
to satisfy approximately $358,000 of cash overdrafts. Upon receipt of the net
proceeds from the Company's initial public offering in October 1996, the Company
prepaid approximately $6.3 million, representing all amounts outstanding under
such debentures, including interest.

Subsequent to December 31, 1995, the Company determined that it had
unrecorded and unpaid federal and state payroll-related taxes for certain
employees. As a result of the Company's voluntary disclosure to the Internal
Revenue Service of certain unpaid tax liabilities, on June 5, 1996, the Company
received an audit assessment from the Internal Revenue Service for unpaid 1994
and 1995 federal income tax withholding, FICA and FUTA taxes in the aggregate
amount of approximately $800,000 which was paid in full in August 1996. No
interest or penalties were assessed. Reserves, aggregating $1.0 million,
including the amount of the Internal Revenue Service audit assessment, were
recorded at December 31, 1995. No assurance may be given, however, that
interest, penalties or additional state or federal taxes will not be assessed in
the future. The Company's principal shareholders, Messrs. Pandey, Koneru and
Valluripalli, have agreed to indemnify the Company for any and all losses which
the Company may sustain, in excess of the $1.0 million reserve, net of any tax
benefits realized by the Company, arising from or relating to federal or state
tax, interest or penalty payment obligations resulting from the above subject
matter. The Company believes that its failure to record and pay 1994 and 1995
federal and state payroll-related taxes for certain employees resulted from a
combination of factors, including lack of internal controls and lack of
financial expertise and oversight.

From January 1997 until January 1999, the Company had a credit facility
with a bank, which included a revolving line of credit and a component for
equipment term loans. As of

- 31 -


December 31, 1998, there were no amounts outstanding under the revolving line of
credit and no equipment term loans outstanding.

On January 29, 1999, the Company entered into an unsecured three-year $30
million Revolving Credit Loan Agreement (the "Loan Agreement") with PNC Bank
(the "Bank"). Subject to certain post-closing conditions, the proceeds of the
credit facility may be used by the Company for financing acquisitions and
general corporate purposes. At the Company's option, for each loan, interest
shall be computed either at the Bank's prime rate per annum or the Adjusted Libo
Rate plus the Applicable Margin, as such terms are defined in the Loan
Agreement. The Company's obligations under the credit agreement are payable at
the expiration of such facility on January 29, 2002.

The Company believes that its available funds, together with current credit
arrangements and the cash flow expected to be generated from operations, will be
adequate to satisfy its current and planned operations for at least the next 12
months.

RECENTLY ISSUED ACCOUNTING STANDARDS

SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997.
This statement is effective for the Company's fiscal year ending December 31,
1998. This statement addresses the reporting and displaying of comprehensive
income and its components. Adoption of SFAS No. 130 relates to disclosure within
the financial statements and is not expected to have a material effect on the
Company's consolidated financial statements. The Company adopted the provisions
of SFAS No. 130 on January 1, 1998.

SFAS No. 131, "Disclosures about Segments of and Enterprise and Related
Information" was issued in June 1997. This statement is effective for the
Company's fiscal year ending December 31, 1998. This statement changes the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports. The Company adopted the provisions in
1998.

In April, 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." The SOP requires all costs incurred as start-up costs or
organization costs be expenses as incurred. Adoption of the SOP is required for
fiscal years beginning after December 15, 1998. The Company does not believe
that the new standard will have a material impact on the Company's consolidated
financial statements.

In March, 1998, the Accounting Standards Executive Committee issued SOP
98-1. Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP required that computer software costs that are incurred
in the preliminary project stage be expensed as incurred and that criteria be
met before capitalization of costs to develop or obtain internal use computer
software. Adoption of the SOP is required for fiscal years beginning after
December 15, 1998. The Company does not believe that the new standard will have
a material impact on the Company's consolidated financial statements.


- 32 -

YEAR 2000 COMPLIANCE

Historically, certain computer programs have been written using two digits
rather than four to define the applicable year, which could result in the
computer recognizing a date using "00" as the year 1900 rather than 2000. This
in turn, could result in major system failures or miscalculations, and is
generally referred to as the "Year 2000 Problem". The Company believes that it
has sufficiently assessed its state of readiness with respect to its Year 2000
compliance. Based on its assessment, the Company does not believe that Year 2000
compliance will result in material investments by the Company, nor does the
Company anticipate that the Year 2000 Problem will have any adverse effects on
the business operations or financial performance of the Company. The Company
does not believe that it has any material exposure to the Year 2000 Problem with
respect to its own information systems. Based upon its assessment, the Company
has established no reserve nor instituted any contingency plans.

However, the purchasing patterns of customers and potential customers may
be affected by issues associated with the Year 2000 Problem. As companies expend
significant resources to correct their current data storage solutions, these
expenditures may result in reduced funds to purchase products or undertake
projects such as those offered by the Company. There can be no assurance that
the Year 2000 Problem, as it relates to customers, potential customers and other
third-parties, will not adversely affect the Company's business, operating
results and financial condition. Conversely, the Year 2000 Problem may cause
other companies to accelerate purchases, thereby causing an increase in
short-term demand and a consequent decrease in long-term demand for the
Company's products.

EUROPEAN MONETARY UNION (EMU)

The euro was introduced on January 1, 1999, at which time the eleven
participating EMU member countries established fixed conversion rates between
their existing currencies (legacy currencies) and the euro. The legacy
currencies will continue to be used as legal tender through January 1, 2002;
thereafter, the legacy currencies will be canceled and euro bills and coins will
be used for cash transactions in the participating countries. The Company's
European sales and operations offices affected by the euro conversion have
established plans to address the systems issues raised by the euro currency
conversion and are cognizant of the potential business implications of
converting to a common currency. The Company is unable to determine the ultimate
financial impact of the conversion on its operations, if any, given that the
impact will be dependent upon the competitive situations which exist in the
various regional markets in which the Company participates and the potential
actions which may or may not be taken by the Company's competitors and
suppliers.


- 33 -


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.


ITEM 8. FINANCIAL STATEMENTS.

The financial statements required to be filed pursuant to this Item 7 are
included in this Annual Report on Form 10-K. A list of the financial statements
filed herewith is found at "Item 13. Exhibits, List, and Reports on Form 8-K."


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.



- 34 -

PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The information relating to the Company's directors, nominees for election
as directors and executive officers under the headings "Election of Directors"
and "Executive Officers" in the Company's definitive proxy statement for the
1999 Annual Meeting of Shareholders is incorporated herein by reference to such
proxy statement.


ITEM 11. EXECUTIVE COMPENSATION.

The discussion under the heading "Executive Compensation" in the Company's
definitive proxy statement for the 1999 Annual Meeting of Shareholders is
incorporated herein by reference to such proxy statement.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The discussion under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive proxy statement
for the 1999 Annual Meeting of Shareholders is incorporated herein by reference
to such proxy statement.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The discussion under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 1999 Annual
Meeting of Shareholders is incorporated herein by reference to such proxy
statement.


- 35 -

PART IV


ITEM 14. EXHIBITS, LIST, AND REPORTS ON FORM 8-K.

(a) (1) Financial Statements.

Reference is made to the Index to Financial Statements on Page F-1.

(a) (2) Financial Statement Schedules.

None.

(a) (3) Exhibits.

Reference is made to the Index to Exhibits on Page 39.

(b) Reports on Form 8-K.

On November 9, 1998, the Company filed a report on Form 8-K to
disclose the adoption by the Company of a Shareholder Protection
Rights Plan.

On December 8, 1998, the Company filed a report on Form 8-K to
disclose the acquisitions of each of Azimuth Consulting Limited,
Azimuth Holdings Limited, Braithwaite Richmond Limited and Azimuth
Corporation Limited.

Subsequent to the year ended December 31, 1998, the Company filed, on
January 20, 1999, a report on Form 8-K relating to the Company's
acquisition of Network Publishing, Inc.

Subsequent to the year ended December 31, 1998, the Company filed, on
February 24, 1999, a report on Form 8-K relating to the Company's
acquisition of Empower Solutions, LLC and its affiliate Empower, Inc.


- 36 -



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 this 1st day of April,
1999.


INTELLIGROUP, INC.



By:/s/ Stephen A. Carns
---------------------------------
Stephen A. Carns, President and
Chief Executive Officer



- 37 -


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ Stephen A. Carns President and Chief Executive April 1, 1999
- --------------------------
Stephen A. Carns Officer (principal executive
officer)

/s/ Rajkumar Koneru Co-Chairman of the Board and April 1, 1999
- --------------------------
Rajkumar Koneru Director


/s/ Ashok Pandey Co-Chairman of the Board and April 1, 1999
- --------------------------
Ashok Pandey Director


/s/ Nagarjun Valluripalli Co-Chairman of the Board and April 1, 1999
- --------------------------
Nagarjun Valluripalli Director


/s/ Gerard E. Dorsey Senior Vice President-Finance April 1, 1999
- --------------------------
Gerard E. Dorsey and Chief Financial Officer
(principal financial and
accounting officer)


/s/ Klaus Besier Director April 1, 1999
- --------------------------
Klaus Besier


/s/ David Finley Director April 1, 1999
- --------------------------
David Finley


/s/ Kevin P. Mohan Director April 1, 1999
- --------------------------
Kevin P. Mohan


/s/ John E. Steuri Director April 1, 1999
- --------------------------
John E. Steuri


- 38 -

EXHIBIT INDEX


Exhibit No. Description of Exhibit
----------- ----------------------

2 Agreement and Plan of Merger of the Company and its wholly
owned subsidiary Oxford Systems Inc. (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996).

3.1 Amended and Restated Certificate of Incorporation.
(Incorporated by reference to the Company's Registration
Statement on Form SB-2 (Registration Statement No. 333-5981)
declared effective on September 26, 1996).

3.2 Amended and Restated Bylaws. (Incorporated by reference to
the Company's Registration Statement on Form SB-2
(Registration Statement No. 333-5981) declared effective on
September 26, 1996).

4.1 Shareholder Protection Rights Agreement dated as of November
6, 1998, between the Company and American Stock Transfer &
Trust Company which includes (i) the Form of Rights
Certificate and (ii) the Certificate of Amendment to the
Amended and Restated Certificate of Incorporation of
Intelligroup, Inc. (Incorporated by reference to Exhibit No.
4.1 of the Company's Report on Form 8-K dated November 9,
1998, filed with the Securities and Exchange Commission on
November 9, 1998).

10.1* 1996 Stock Plan of the Company. (Incorporated by reference
to the Company's Registration Statement on Form SB-2
(Registration Statement No. 333-5981) declared effective on
September 26, 1996).

10.2* 1996 Non-Employee Director Stock Option Plan. (Incorporated
by reference to the Company's Registration Statement on Form
SB-2 (Registration Statement No. 333-5981) declared
effective on September 26, 1996).

10.3 Form of Indemnification Agreement entered into by the
Company and each of its Directors and officers.
(Incorporated by reference to the Company's Registration
Statement on Form SB-2 (Registration Statement No. 333-5981)
declared effective on September 26, 1996).

10.4 Sublease Agreement between Micrognosis, Inc., as sublessor,
the Company, as sublessee, with master lease. (Incorporated
by reference to the Company's Registration Statement on Form
SB-2 (Registration Statement No. 333-5981) declared
effective on September 26, 1996).

10.5 Employee's Invention Assignment and Confidentiality
Agreement. (Incorporated by reference to the Company's
Registration Statement on Form SB-2 (Registration Statement
No. 333-5981) declared effective on September 26, 1996).

- 39 -

Exhibit No. Description of Exhibit
----------- ----------------------

10.6 Services Provider Agreement by and between Oracle
Corporation and the Company dated July 26, 1994.
(Incorporated by reference to the Company's Registration
Statement on Form SB-2 (Registration Statement No. 333-5981)
declared effective on September 26, 1996). See Exhibit 10.9.

10.7 Amended and Restated Agreement by Messrs. Pandey, Koneru and
Valluripalli dated July 16, 1996 to indemnify the Company
for certain losses. (Incorporated by reference to the
Company's Registration Statement on Form SB-2 (Registration
Statement No. 333-5981) declared effective on September 26,
1996).

10.8 Agreement by and between the Company and Intelligroup Asia
Private Limited ("Intelligroup Asia") relating to
operational control of Intelligroup Asia, with related
agreements. (Incorporated by reference to the Company's
Registration Statement on Form SB-2 (Registration Statement
No. 333-5981) declared effective on September 26, 1996).

10.9 Amendment No. 1 to Services Provider Agreement by and
between Oracle Corporation and the Company dated December
30, 1996. (Incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996).
See Exhibit 10.6.

10.10 R/3 National Logo Partner Agreement by and between SAP
America, Inc. and the Company dated as of April 29, 1997.
(Incorporated by reference to the Company's Registration
Statement on Form SB-2 (Registration Statement No.
333-29119) declared effective on June 26, 1997). See
Exhibits 10.12 and 10.28.

10.11* Employment Agreement dated December 6, 1996 between the
Company and Anthony Knight, as amended on February 18, 1997
(Incorporated by reference to the Company's Quarterly Report
on Form 10-QSB for the quarter ended March 31, 1997).

10.12 ASAP Partner Addendum to R/3 National Logo Partner Agreement
between SAP America, Inc. and the Company effective July 1,
1997 (amends existing R/3 National Logo Partner Agreement).
(Incorporated by reference to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1997).
See Exhibits 10.10 and 10.28.

10.13 Implementation Partner Agreement between PeopleSoft, Inc.
and the Company effective July 15, 1997. (Incorporated by
reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1997). See Exhibit
10.27.


- 40 -

Exhibit No. Description of Exhibit
----------- ----------------------

10.14 Consulting Alliance Agreement with Baan International B.V.
and the Company effective September 29, 1997. (Incorporated
by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997).

10.15 Lease Agreement between Alfieri-Parkway Associates, as
Landlord, and Intelligroup, Inc., as Tenant, dated March 17,
1998. (Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998).

10.16* Employment Agreement dated April 22, 1998 between the
Company and Gerard E. Dorsey. (Incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998).

10.17* Employment Agreement dated April 27, 1998 between the
Company and Stephen A. Carns. (Incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998).

10.18** Change in Control Severance Pay Agreement dated November 4,
1998 between the Company and Gerard Dorsey.

10.19** Change in Control Severance Pay Agreement dated November 4,
1998 between the Company and Alan Ziegler.

10.20** Revolving Credit Loan Agreement between PNC Bank, National
Association and the Company dated January 29, 1999.

10.21 Agreement of Purchase and Sale dated as of May 7, 1998 among
the Company, Intelligroup Europe Limited and the
Shareholders of CPI Consulting Limited. (Incorporated by
reference to the Company's Report on Form 8-K filed May 27,
1998).

10.22 Agreement of Purchase and Sale dated as of May 21, 1998
among the Company, Intelligroup Europe Limited and the
Shareholders of CPI Resources Limited. (Incorporated by
reference to the Company's Report on Form 8-K filed May 27,
1998).

10.23 Agreement of Purchase and Sale dated as of November 25, 1998
among the Company and the Shareholders of each of Azimuth
Consulting Limited, Azimuth Holdings Limited, Braithwaite
Richmond Limited and Azimuth Corporation Limited.
(Incorporated by reference to the Company's Report on Form
8-K filed December 8, 1998).


- 41 -


10.24 Stock Purchase Agreement dated as of December 21, 1998 among
the Company and the Shareholders of Network Publishing, Inc.
(Incorporated by reference to the Company's Report on Form
8-K filed January 8, 1999).

10.25 Agreement and Plan of Merger dated as of February 16, 1999
by and among the Company, ES Merger Corp., Empower
Solutions, LLC and the members of Empower Solutions, LLC.
(Incorporated by reference to the Company's Report on Form
8-K filed February 24, 1999.)

10.26 Agreement and Plan of Merger dated as of February 16, 1999
by and among the Company, ES Merger Corp., Empower
Solutions, Inc. and the stockholders of Empower, Inc.
(Incorporated by reference to the Company's Report on Form
8-K filed February 24, 1999.)

10.27** Fifth Amendment to the Implementation Partner Agreement
dated July 15, 1998, between the Company and PeopleSoft,
Inc. See Exhibit 10.13.

10.28** Amendment to the National Implementation Partner Agreement
dated as of January 1, 1999, between SAP America and the
Company. See Exhibits 10.10 and 10.12.

21** Subsidiaries of the Registrant.

23** Consent of Arthur Andersen LLP.

27.1** Financial Data Schedule for the year ended December 31,
1998.

27.2** Financial Data Schedule for the year ended December 31,
1997.

27.3** Financial Data Schedule for the year ended December 31,
1996.

- ----------

* A management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.

** Filed herewith. All other exhibits previously filed.



- 42 -

INTELLIGROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Page
----

Report of Independent Public Accountants................................ F-2

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 1998 and 1997............ F-3

Consolidated Statements of Income for the
years ended December 31, 1998, 1997 and 1996....................... F-4

Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998, 1997 and 1996....................... F-5

Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996................................... F-6

Notes to Consolidated Financial Statements.............................. F-7

Financial Statement Schedules
Financial Statement Schedules required by the Securities and
Exchange Commission have been omitted as the required information
is included in the Notes to the Consolidated Financial Statements
or are not applicable.


F - 1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholders of Intelligroup, Inc.:

We have audited the accompanying consolidated balance sheets of
Intelligroup, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Intelligroup, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.






ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 4, 1999 (except with respect to the
third paragraph of Note 11
as to which the date is
February 16, 1999)





F - 2

INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997



1998 1997
---- ----
ASSETS

Current Assets:
Cash and cash equivalents................................. $ 4,245,000 $ 8,821,000
Accounts receivable, less allowance for doubtful
accounts of $1,053,000 and $799,000 at
December 31, 1998 and 1997, respectively................ 30,419,000 20,052,000
Unbilled services......................................... 10,842,000 7,840,000
Deferred tax asset........................................ 808,000 404,000
Other current assets...................................... 3,563,000 749,000
------------- -------------
Total current assets.................................. 49,877,000 37,866,000

Property and equipment, net................................. 9,506,000 3,781,000
Other assets................................................ 6,345,000 359,000
------------- -------------
$ 65,728,000 $ 42,006,000
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 5,337,000 $ 1,960,000
Accrued payroll and related taxes......................... 5,602,000 3,387,000
Accrued expenses and other liabilities.................... 2,854,000 1,382,000
Accrued acquisition costs................................. 3,302,000 --
Income taxes payable...................................... 3,160,000 1,079,000
Current portion of long term debt and obligations under
capital leases............................................ 11,000 386,000
------------- -------------
Total current liabilities............................. 20,266,000 8,194,000
------------- -------------
Long term debt and obligations under capital leases, less
current portion........................................... 59,000 355,000
------------- -------------

Deferred income taxes....................................... 483,000 171,000
------------- -------------
Minority interest........................................... -- 78,000
------------- -------------
Commitments and contingencies

Shareholders' Equity
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued or outstanding.................. -- --
Common stock, $.01 par value, 25,000,000 shares
authorized, 13,572,000 and 13,262,000 shares issued
and outstanding at December 31, 1998 and 1997,
respectively............................................ 136,000 133,000
Additional paid-in capital................................ 35,263,000 30,814,000
Retained earnings......................................... 10,066,000 2,360,000
Currency translation adjustments.......................... (545,000) (99,000)
------------- -------------
Total shareholders' equity ........................... 44,920,000 33,208,000
------------- -------------
$ 65,728,000 $ 42,006,000
============= =============


The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.

F - 3

INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996



1998 1997 1996
------------- ------------- -------------

Revenue................................................. $ 144,861,000 $ 94,326,000 $ 61,699,000
Cost of sales........................................... 94,203,000 65,535,000 43,142,000
------------- ------------- -------------

Gross profit........................................ 50,658,000 28,791,000 18,557,000
------------- ------------- -------------

Selling, general and administrative expenses............ 36,570,000 22,060,000 14,544,000

Acquisition expenses.................................... 2,118,000 -- --
------------- ------------- -------------

Total selling, general and administrative expenses.. 38,688,000 22,060,000 14,544,000
------------- ------------- -------------

Operating income.................................... 11,970,000 6,731,000 4,013,000
------------- ------------- -------------

Other expenses:
Interest (income) expense, net........................ (120,000) (257,000) 336,000
Factor charges........................................ -- -- 999,000
------------- ------------- -------------
(120,000) (257,000) 1,335,000
-------------- -------------- -------------

Income before provision for income taxes and
extraordinary charge.................................. 12,090,000 6,988,000 2,678,000

Provision for income taxes.............................. 4,416,000 2,327,000 748,000
------------- ------------- -------------

Income before extraordinary charge...................... 7,674,000 4,661,000 1,930,000

Extraordinary charge-Loss on early extinguishment of
debt, net of income tax benefit of $296,000........... -- -- 1,148,000
------------- ------------- -------------
Net income.............................................. $ 7,674,000 $ 4,661,000 $ 782,000
============= ============= =============

Earnings per share:

Basic earnings per share:
Income before extraordinary charge................ $ 0.57 $ 0.37 $ 0.18

Extraordinary charge, net of income tax benefit... -- -- (0.11)
------------- ------------- -------------

Net income per share............................ $ 0.57 $ 0.37 $ 0.07
============= ============= =============

Weighted average number of common shares - Basic.. 13,386,000 12,636,000 11,003,000
============= ============= =============

Diluted earnings per share:
Income before extraordinary charge................ $ 0.55 $ 0.36 $ 0.16

Extraordinary charge, net of income tax benefit... -- -- (0.10)
------------- ------------- -------------

Net income per share............................ $ 0.55 $ 0.36 $ 0.06
============= ============= =============

Weighted average number of common shares -
Diluted......................................... 13,968,000 13,116,000 12,263,000
============= ============= =============


The accompanying notes to consolidated financial statements are an integral part
of these statements.

F - 4



INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996




Cumulative
Retained Foreign Comprehensive
Additional Earnings Currency Total Income
Common Stock Paid-in (Accumulated Translation Shareholders' for the
------------
Shares Amount Capital Deficit) Adjustments Equity Period
---------- -------- ------------ ----------- ----------- ------------ -------------

Balance at December 31, 1995. 13,477,000 $135,000 $ 639,000 $ (701,000) $ 17,000 $ 90,000 --

Repurchase and retirement
of common stock............. (4,881,000) (49,000) -- (1,451,000) -- (1,500,000) --

Issuance of common stock,
net of related costs......... 2,050,000 20,000 17,815,000 -- -- 17,835,000 --

Exercise of warrants......... 1,364,000 14,000 1,386,000 -- -- 1,400,000 --

Currency transactions
adjustments.................. -- -- -- -- 68,000 68,000 68,000

Shareholder dividends........ -- -- -- (931,000) -- (931,000) --

Net income................... -- -- -- 782,000 -- 782,000 782,000
---------- -------- ----------- ---------- -------- ---------- ----------

Balance at December 31, 1996. 12,010,000 120,000 19,840,000 (2,301,000) 85,000 17,744,000 $ 850,000
==========

Issuance of common stock,
net of related costs......... 1,150,000 12,000 9,888,000 -- -- 9,900,000 --

Exercise of stock options.... 102,000 1,000 838,000 -- -- 839,000 --

Tax benefit from exercise
of stock options............. -- -- 248,000 -- -- 248,000 --

Currency translation
adjustments.................. -- -- -- -- (184,000) (184,000) (184,000)

Net income................... -- -- -- 4,661,000 -- 4,661,000 4,661,000
---------- -------- ----------- ----------- -------- ---------- ----------

Balance at December 31, 1997. 13,262,000 133,000 30,814,000 2,360,000 (99,000) 33,208,000 $4,477,000
==========

Issuance of common stock in
connection with acquisitions. 166,000 2,000 3,126,000 -- -- 3,128,000 --

Exercise of stock options.... 144,000 1,000 1,021,000 -- -- 1,022,000 --

Tax benefit from exercise
of stock options............. -- -- 302,000 -- -- 302,000 --

Adjustment for difference
in Azimuth fiscal periods.... -- -- -- 32,000 -- 32,000 --

Currency translation
adjustments.................. -- -- -- -- (446,000) (446,000) (446,000)

Net income................... -- -- -- 7,674,000 -- 7,674,000 7,674,000
---------- -------- ----------- ----------- --------- ----------- ----------

Balance at December 31, 1998. 13,572,000 $136,000 $35,263,000 $10,066,000 $(545,000) $44,920,000 $7,228,000
========== ======== =========== =========== ========= =========== ==========




The accompanying notes to consolidated financial statements are an integral part
of these statements.

F - 5

INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996



1998 1997 1996
------------ ------------- -------------

Cash flows from operating activities:
Net income............................................... $ 7,674,000 $ 4,661,000 $ 782,000
Adjustments to reconcile net income to net cash
(provided by) used in operating activities:
Depreciation and amortization........................ 1,538,000 571,000 362,000
Provision for doubtful accounts...................... 1,268,000 765,000 590,000
Extraordinary charge................................. -- -- 1,148,000
Deferred income taxes................................ (92,000) 178,000 (411,000)
Tax benefit from exercise of stock options........... 302,000 248,000 --
Minority interest.................................... -- 78,000 --
Changes in operating assets and liabilities:
Accounts receivable.................................. (11,635,000) (10,182,000) (3,691,000)
Unbilled services.................................... (3,002,000) (4,920,000) (1,208,000)
Other current assets................................. (2,814,000) (213,000) 52,000
Other assets......................................... (357,000) (134,000) (193,000)
Cash overdraft....................................... -- -- (83,000)
Accounts payable..................................... 3,377,000 1,086,000 (1,252,000)
Accrued payroll and related taxes.................... 2,215,000 561,000 (1,137,000)
Accrued expenses and other liabilities............... 2,033,000 (611,000) (313,000)
Income taxes payable................................. 2,081,000 441,000 141,000
----------- ----------- -----------
Net cash provided by (used in) operating
activities........................................ 2,588,000 (7,471,000) (4,587,000)
----------- ----------- -----------

Cash flows from investing activities:
Purchases of equipment................................... (7,116,000) (2,436,000) (984,000)
----------- ----------- -----------

Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance
costs.................................................. -- 9,900,000 17,835,000
Proceeds from exercise of stock options.................. 1,022,000 839,000 --
Proceeds from subordinated debentures and warrants, net
of issuance costs...................................... -- -- 5,888,000
Repayment of subordinated debentures..................... -- -- (6,000,000)
Repurchase of common stock............................... -- -- (1,500,000)
Repayments to factors, net............................... -- -- (3,343,000)
Proceeds from shareholder loans.......................... -- 235,000 13,000
Repayments to shareholders............................... (618,000) (357,000) (434,000)
Repayments of lines of credit, net....................... -- -- (45,000)
Principal payments under capital leases.................. (6,000) (6,,000) (22,000)
----------- ----------- -----------
Net cash provided by financing activities......... 398,000 10,611,000 12,392,000
----------- ----------- -----------
Effect of foreign currency exchange rate changes on cash. (446,000) (184,000) 68,000
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... (4,576,000) 520,000 6,889,000
Cash and cash equivalents at beginning of year............. 8,821,000 8,301,000 1,412,000
----------- ----------- -----------
Cash and cash equivalents at end of year................... $ 4,245,000 $ 8,821,000 $ 8,301,000
=========== =========== ===========

Supplemental disclosures of cash flow information:
Cash paid for interest................................... $ 24,000 $ -- $ 1,264,000
=========== =========== ===========

Cash paid for income taxes............................... $ 2,428,000 $ 1,707,000 $ 1,109,000
=========== =========== ===========


The accompanying notes to consolidated financial statements are an integral part
of these statements.

F - 6

INTELLIGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Intelligroup, Inc., and its subsidiaries (the "Company") provide a wide
range of information technology services, including management consulting,
enterprise-wide business process solutions, Internet application services,
applications outsourcing and maintenance, systems integration and custom
software development based on leading technologies. The Company markets its
services to a wide variety of industries primarily in the United States. The
majority of the Company's business is with large established companies,
including consulting firms serving numerous industries.

Principles of Consolidation and Use of Estimates

The accompanying financial statements include the accounts of Intelligroup,
Inc. and its majority owned subsidiaries. Minority interests were not
significant at December 31, 1998 and 1997. All significant intercompany balances
and transactions have been eliminated.

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

Cash and Cash Equivalents

Cash and cash equivalents consist of investments in highly liquid
short-term instruments, with original maturities of three months or less from
the date of purchase.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets (five years). Leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life (ten
years). Costs of maintenance and repairs are charged to expense as incurred.

Other Assets

Other assets at December 31, 1998 include goodwill and other intangibles
totaling $5,629,000, that were attributable to the acquisition of the minority
interest of CPI Consulting (See Note 9). These intangible assets are being
amortized over the estimated useful lives ranging from 6 to 15 years using the
straight-line method. Amortization expense was $147,000 in 1998.


F - 7

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Revenue Recognition

The Company generates revenue from professional services rendered. Revenue
is recognized as services are performed with the corresponding cost of providing
those services reflected as cost of sales. Substantially all customers are
billed on a per diem basis whereby actual time is charged directly to the
customer. Billings to customers for out-of-pocket expenses are recorded as a
reduction of expenses incurred. Unbilled services at December 31, 1998 and 1997
represent services provided which are billed subsequent to year-end. All such
amounts are anticipated to be realized in the following year.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts arising from
services, which is based upon a review of outstanding receivables as well as
historical collection information. Credit is granted to substantially all
customers on an unsecured basis. In determining the amount of the allowance,
management is required to make certain estimates and assumptions. The provision
for doubtful accounts totaled $1,268,000, $765,000 and $590,000 in 1998, 1997
and 1996, respectively. Accounts written off totaled $1,014,000, $512,000 and
$575,000 in 1998, 1997 and 1996, respectively.

Recoverability of Long-Lived Assets

The Company reviews the recoverability of its long-lived assets on a
periodic basis in order to identify business conditions which may indicate a
possible impairment. The assessment for potential impairment is based primarily
on the Company's ability to recover the carrying value of its long-lived assets
from expected future cash flows from its operations on an undiscounted basis.
The Company does not believe that any such impairment existed at December 31,
1998.

Stock-Based Compensation

Stock-based compensation is recognized using the intrinsic value method
under APB No. 25. For disclosure purposes, pro forma net income and earnings per
share impacts are provided as if the fair market value method had been applied.

Currency Translation

Assets and liabilities relating to foreign operations are translated into
U.S. dollars using exchange rates in effect at the balance sheet date; income
and expenses are translated into U.S. dollars using monthly average exchange
rates during the year. Translation adjustments associated with assets and
liabilities are excluded from income and credited or charged directly to
shareholders' equity.

Concentrations

For the years ended December 31, 1998, 1997 and 1996, approximately 59%,
58% and 57% of revenue, respectively, was derived from projects in which the
Company's personnel


F - 8

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

implemented software developed by SAP. The Company's future success in its
SAP-related consulting services depends largely on its continued relationship
with SAP and on its continued status as a SAP National Implementation Partner,
which was first obtained in 1995. The Company's agreement with SAP (the
"Agreement") is awarded on an annual basis. The Company's current contract
expires on December 31, 1999 and is automatically renewed for successive
one-year periods, unless terminated by either party. This Agreement contains no
minimum revenue requirements or cost sharing arrangements and does not provide
for commissions or royalties to either party. In February 1997, the Company
achieved a National Logo Partner relationship with SAP. Additionally, for each
of the years ended December 31, 1998 and 1997, approximately 12%, and less than
10% during 1996 of revenue was derived from projects in which the Company's
personnel implemented software developed by Oracle.

A substantial portion of the Company's revenue is derived from projects in
which an information technology consulting firm other than the Company has been
retained by the end-user organization to manage the overall project. For years
ended December 31, 1998, 1997 and 1996, 25%, 32% and 34%, respectively, of the
Company's revenue was generated by serving as a member of consulting teams
assembled by other information technology consulting firms.

One customer accounted for approximately 7%, 9% and 10% of revenue in 1998,
1997 and 1996, respectively. Accounts receivable due from this customer was
approximately $2,045,000, $1,628,000 and $2,268,000 as of December 31, 1998,
1997 and 1996, respectively. Another customer accounted for approximately 5%,
10% and 15% of revenue for 1998, 1997 and 1996, respectively. Accounts
receivable due from this customer was approximately $1,395,000, $2,049,000 and
$988,000 as of December 31, 1998, 1997 and 1996, respectively.

During 1998, the Company derived revenue totaling $1.7 million from
contracts with an entity whose chief executive officer is a director of the
Company.

Income Taxes

The Company accounts for income taxes pursuant to the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," ("SFAS No. 109") which utilizes the liability method and results in the
determination of deferred taxes based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities, using enacted tax rates currently in effect. The Company does not
provide for additional U.S. income taxes on undistributed earnings considered to
be permanently invested in foreign subsidiaries.


F - 9

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Earnings Per Share

Basic earnings per share is computed by dividing income attributable to
common stockholders by the weighted average number of common shares outstanding.
Diluted earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding,
adjusted for the incremental dilution of outstanding stock options. The
computation of basic earnings per share and diluted earnings per share were as
follows:



1998 1997 1996
----------- ----------- ----------


Net Income $ 7,674,000 $ 4,661,000 $ 782,000
---------- ---------- ----------

Denominator:

Weighted average number of common
shares................................... 13,386,000 12,636,000 11,003,000
Basic earnings per share................. $ 0.57 $ 0.37 $ 0.07
========== ========== ==========

Denominator:

Weighted average number of common
shares................................... 13,386,000 12,636,000 11,003,000
Common share equivalents of
outstanding stock options................ 582,000 480,000 1,260,000
---------- ---------- ----------
Total shares................................ 13,968,000 13,116,000 12,263,000
---------- ---------- ----------
Diluted earnings per share.................. $ 0.55 $ 0.36 $ 0.06
========== ========== ==========



Vested stock options which would be antidilutive have been excluded from
the calculations of diluted shares outstanding and diluted earnings per share.

Recently Issued Accounting Standards

In April, 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." The SOP requires all costs incurred as start-up costs or
organization costs be expenses as incurred. Adoption of the SOP is required for
fiscal years beginning after December 15, 1998. The Company does not believe
that the new standard will have a material impact on the Company's consolidated
financial statements.

In March, 1998, the Accounting Standards Executive Committee issued SOP
98-1. Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP required that computer software costs that are incurred
in the preliminary project stage be expensed as incurred and that criteria be
met before capitalization of costs to develop or obtain internal use computer
software. Adoption of the SOP is required for fiscal years beginning after
December 15, 1998. The Company does not believe that the new standard will have
a material impact on the Company's consolidated financial statements.

F - 10


Financial Instruments

Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables and unbilled services. Management of
the Company believes the fair value of accounts receivable and unbilled services
approximates the carrying value.

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of December 31:

1998 1997
--------- ---------
Vehicles........................ $ 109,000 $ 26,000
Furniture....................... 2,459,000 785,000
Equipment....................... 8,438,000 4,337,000
Computer software............... 816,000 25,000
Leasehold improvements.......... 474,000 --
---------- ----------
12,296,000 5,173,000
Less-Accumulated depreciation... (2,790,000) (1,392,000)
----------- ----------
$9,506,000 $3,781,000
========== ==========

Included in the above is $102,000 of equipment held under capital leases at
December 31, 1998, 1997 and 1996. Depreciation expense was $1,391,000, $571,000
and $362,000 in 1998, 1997 and 1996, respectively.

NOTE 3 - LINES OF CREDIT AND SUBORDINATED DEBENTURES

In January 1997, and as later amended on August 18, 1997, the Company
entered into a two-year credit agreement with a bank (the "Bank"). The credit
facility with the Bank has two components comprised of (i) a revolving line of
credit pursuant to which the Company may borrow up to $7.5 million either at the
Bank's prime rate per annum or the EuroRate plus 2% (at the Company's option),
and (ii) equipment term loans pursuant to which the Company may borrow up to an
aggregate of $350,000 (at the Bank's prime rate plus 1/4 of 1% per annum) to
purchase equipment. The credit agreement contains covenants which require the
Company to (i) maintain its working capital during the year at no less than 90%
of the working capital at the end of the immediately preceding fiscal year and
at the end of each fiscal year at no less than 105% of its working capital at
the end of the immediately preceding fiscal year; and (ii) maintain its tangible
net worth during the year at no less than 95% of its tangible net worth at the
end of the immediately preceding fiscal year and at the end of each fiscal year
at no less than 108% of tangible net worth at the end of the immediately
preceding fiscal year. The Company's obligations under the credit agreement are
collateralized by substantially all of the Company's assets, including its
accounts receivable and intellectual property. At December 31, 1998 the Company
was in compliance with all covenants. The facility was due to expire in January
1999, but was extended until a new three-year credit agreement took effect on
January 29, 1999. (See Note 11).


F - 11

NOTE 4 - INCOME TAXES

Income tax attributable to income from continuing operations consists of
the following:


1998 1997 1996
---------- ---------- ----------

Current:
Federal................................. $2,843,000 $1,384,000 $ 631,000
State................................... 783,000 389,000 200,000
Foreign................................. 882,000 456,000 248,000
---------- ---------- ----------
4,508,000 2,229,000 1,079,000
---------- ---------- ----------

Deferred:
Federal................................. (71,000) 76,000 (259,000)
State................................... (21,000) 22,000 (72,000)
---------- ---------- ----------
(92,000) 98,000 (331,000)
---------- ---------- ----------

Total..................................... $4,416,000 $2,327,000 $ 748,000
========== ========== ==========



The provision for income taxes differs from the amount computed by applying
the statutory rate of 34%, 35% and 35% in 1998, 1997 and 1996, respectively, to
income before income taxes. The principal reasons for this difference are:


1998 1997 1996
---------- ---------- ----------

Tax at federal statutory rate............. 34% 34% 34%
Nondeductible expenses.................... 5 1 1
State income tax, net of federal benefit.. 4 4 (3)
Utilization of net operating loss
carryforwards........................... (1) -- (8)
Foreign losses for which no benefit is
available............................... 7 -- 16
Changes in valuation allowance............ -- (3) (14)
Foreign operations taxed at less than
U.S. statutory rate, primarily India.... (11) (7) (1)
Other..................................... (1) 4 3
----- ----- -----
Effective tax rate........................ 37% 33% 28%
===== ===== =====


In 1996, the Company elected a five year tax holiday in India in accordance
with a local tax incentive program whereby no income taxes will be due for such
period.



F - 12

NOTE 4 - INCOME TAXES - (CONTINUED)

Deferred income taxes reflect the tax effect of temporary differences between
the carrying amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The significant components of the
Company's deferred tax assets and liabilities as of December 31, 1998 and 1997
are as follows:

1998 1997
--------- ---------
Deferred tax assets:
Allowance for doubtful accounts............ $ 432,000 $ 327,000
Certain accrued liabilities................ 376,000 77,000
--------- ---------
Total deferred tax assets.................... 808,000 404,000

Deferred tax liability-accelerated
depreciation............................... (483,000) (171,000)
--------- ---------

Net deferred tax asset....................... $ 325,000 $ 233,000
========= =========

Realization of the net deferred tax assets is dependent on the timing of
the reversal of temporary differences. Although realization is not assured,
management believes it is more likely than not, that the 1998 net deferred tax
assets will be realized.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

Employment Agreements

As of December 31, 1998, the Company had employment agreements with certain
of its executives which provide for minimum payments in the event of termination
in other than for just cause. The aggregate amount of compensation commitment in
the event of termination under such agreements is approximately $682,000.

Leases

The Company leases office space and office equipment and vehicles under
capital and operating leases that have initial or remaining non-cancelable lease
terms in excess of one year as of December 31, 1998. Future minimum aggregate
annual lease payments are as follows:

FOR THE YEARS ENDING DECEMBER 31, CAPITAL OPERATING
-------------------------------------- ------------- ------------
1999..................................... $ 11,000 $ 3,113,000
2000..................................... 9,000 2,865,000
2001..................................... -- 2,175,000
2002..................................... -- 1,658,000
2003..................................... -- 1,346,000
--------- ---------
Subtotal 20,000 11,157,000

Thereafter............................... -- 5,702,000
Less-Interest............................ --
---------
20,000
Less-Current portion..................... (11,000)
---------
$ 9,000

Rent expense for the years ended December 31, 1998, 1997 and 1996 was
$2,153,000, $656,000 and $444,000, respectively.


F - 13

NOTE 5 - COMMITMENTS AND CONTINGENCIES - (CONTINUED)

Legal

The Company is engaged in certain legal and administrative proceedings.
Management believes the outcome of these proceedings will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.

NOTE 6 - STOCK OPTION PLANS AND WARRANTS

The Company's stock option plans permit the granting of options to
employees, non-employee directors and consultants. The Option Committee of the
Board of Directors generally has the authority to select individuals who are to
receive options and to specify the terms and conditions of each option so
granted, including the number of shares covered by the option, the type of
option (incentive stock option or non-qualified stock option), the exercise
price, vesting provisions, and the overall option term. A total of 1,590,000
shares of Common Stock have been reserved for issuance under the plans.
Subsequent to December 31, 1998, the Company granted options to purchase an
aggregate of 388,100 shares of its Common Stock to certain employees. All of the
options issued pursuant to these plans expire ten years from the date of grant.



F - 14

NOTE 6 - STOCK OPTION PLANS AND WARRANTS - (CONTINUED)

The fair value of option grants for disclosure purposes is estimated on the
date of grant using the Black-Scholes option-pricing model using the following
weighted-average assumptions: expected volatility of 78%, 62% and 41%, risk-free
interest rate of 5.4%, 7.0% and 5.6% and expected lives of 8.5, 4.5 and 3.1
years, in 1998, 1997 and 1996, respectively. The weighted average fair value of
options granted during 1998, 1997 and 1996 was $13.49, $6.96 and $2.93,
respectively.

Weighted
Number of Average
Shares Exercise Price
---------------------------------------------------------------------------
Options Outstanding,
December 31, 1995 -- $ --
Granted 580,000 $ 8.38
Canceled (8,200) $ 8.00
---------------------------------------------------------------------------
Options Outstanding,
December 31, 1996
(none exercisable) 571,800 $ 8.39
Granted 647,640 $11.52
Exercised (102,381) $ 8.20
Canceled (74,113) $ 9.78
---------------------------------------------------------------------------
Options Outstanding,
December 31, 1997
(93,674 exercisable) 1,042,946 $10.25
Granted 1,257,630 $16.81
Exercised (143,297) $ 9.32
Canceled (258,138) $ 4.91
---------------------------------------------------------------------------
Options Outstanding,
December 31, 1998
(262,156 exercisable) 1,899,141 $14.14
========= =====



F - 15


NOTE 6 - STOCK OPTION PLANS AND WARRANTS - (CONTINUED)

The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:



Outstanding Exercisable
----------- -----------
Weighted Weighted Weighted
Exercise Price Number of Average Average Number of Average
Range shares Remaining Exercise shares Exercise
Life (in Price Price
years)
- ---------------------------------------------------------------------------------------------

$8 to 10 282,706 6.0 $8.14 156,944 $8.10
$10 to 12 448,605 5.8 $10.82 70,282 $10.92
$12 to 15 142,000 9.5 $14.11 8,000 $12.13
$15 to 22 1,020,830 8.2 $17.21 26,930 $16.40
$22 to 24 5,000 9.6 $23.38 -- --
---------- --------
$8 to 24 1,899,141 7.4 $14.14 262,156 $9.83


As permitted by SFAS 123, the Company has chosen to continue accounting for
stock options at their intrinsic value. Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value option
pricing method, the tax-effective impact would be as follows:




1998 1997 1996
- ---------------------------------------------------------------------------------------------

Net income:
as reported $ 7,674,000 $ 4,661,000 $ 782,000
pro forma $ 2,759,000 $ 2,433,000 $ 423,000
- ---------------------------------------------------------------------------------------------
Basic Earnings per Share:
as reported $0.57 $0.37 $0.07
pro forma $0.21 $0.29 $0.04
- ---------------------------------------------------------------------------------------------
Diluted Earnings per Share:
as reported $0.55 $0.36 $0.06
pro forma $0.20 $0.28 $0.03





F - 16

NOTE 7 - STOCK RIGHTS

In October 1998 the Company's Board of Directors declared a dividend
distribution of one Preferred Share Purchase Right for each outstanding share of
the Company's Common Stock. These Rights will expire in November 2008 and trade
with the Company's Common Stock. Such Rights are not presently exercisable and
have no voting power. In the event a person or affiliated group of persons,
acquires 20% or more, or makes a tender or exchange offer for 20% or more of the
Company's Common Stock, the Rights detach from the Common Stock and become
exercisable and entitle a holder to buy one one-hundredth (1/100) of a share of
Preferred Stock at $100.00.

If, after the Rights become exercisable, the Company is acquired or merged,
each Right will entitle its holder to purchase $200.00 market value of the
surviving company's stock for $100.00, based upon the current exercise price of
the Rights. The Company may redeem the Rights, at its option, at $.01 per Right
prior to a public announcement that any person has acquired beneficial ownership
of at least 20% of the Company's Common Stock. These Rights are designed
primarily to encourage anyone interested in acquiring the Company to negotiate
with the Board of Directors.

NOTE 8 - INITIAL PUBLIC OFFERING, STOCK SPLIT AND PREFERRED STOCK AUTHORIZATION

In July 1996, the Company's Board of Directors recommended and shareholders
approved an amendment to the Company's Certificate of Incorporation to effect an
81,351.1111-for-1 stock split. All common shares and per share amounts in the
accompanying financial statements have been adjusted retroactively to give
effect to the stock split.

The Company's initial public offering for the sale of 2,050,000 shares of
its Common Stock became effective on September 26, 1996 and the net proceeds of
approximately $19,065,000 (before deducting expenses of the offering paid by the
Company) were received on October 2, 1996.

On July 2, 1997, the Company consummated a follow-on public offering (the
"Offering") of 1,000,000 shares of its Common Stock at a price to the public of
$9.50 per share. On July 15, 1997 and as part of the Offering, an additional
150,000 shares at $9.50 per share were issued and sold by the Company to cover
over-allotments. The net proceeds to the Company from the Offering, after
underwriting discounts and commissions and other expenses of the Offering, were
approximately $9,900,000.

NOTE 9 - ACQUISITIONS

On May 7, 1998, the Company acquired thirty percent of the outstanding
share capital of CPI Consulting Limited. This acquisition was accounted for
utilizing purchase accounting. The consideration paid by the Company included
the issuance of 165,696 shares of the Company's Common Stock with a fair market
value of $3.1 million, and a future liability to the sellers predicated upon
operating results for the balance of 1998. The value of the liability has been
determined as of December 31, 1998 to be $2.5 million, which is payable by
issuance of additional 155,208 shares of the Company's Common Stock. The excess
of purchase price over the fair value of the net assets acquired was attributed
to intangible assets, amounting in the aggregate to $5.8 million.


F - 17


On May 21, 1998, the Company acquired all of the outstanding share capital
of CPI Resources Limited. The acquisition of CPI Resources Limited was accounted
for as a pooling of interests. Prior results for all periods have been restated
in accordance with pooling of interests accounting. As consideration for this
acquisition, the Company issued 371,000 shares of the Company's Common Stock. At
the time of the acquisition, CPI Resources Limited owned seventy percent of the
outstanding share capital of CPI Consulting Limited.

On November 25, 1998, the Company consummated the acquisition of all of the
outstanding capital stock of each of Azimuth Consulting Limited, Azimuth
Holdings Limited, Braithwaite Richmond Limited and Azimuth Corporation Limited
(collectively the "Azimuth Companies"). The acquisition of the Azimuth Companies
was accounted for as a pooling of interests. Prior results for all periods have
been restated in accordance with pooling of interests accounting. As
consideration for this acquisition, the Company issued 902,928 shares of the
Company's Common Stock.

The pre-merger results of CPI Resources Limited and the Azimuth Companies
were revenues of $14,137,000 and net income of $190,000 for 1997, and revenues
of $14,510,000 and a net loss after taxes of $11,000 for 1996. In connection
with these mergers, $2,118,000 of non-recurring acquisition related charges were
incurred and have been charged to expense during the year ended December 31,
1998. These costs primarily relate to professional fees incurred in connection
with the mergers.

NOTE 10 - SEGMENT DATA AND GEOGRAPHIC INFORMATION

The Company operates in one industry, IT Services. The Company's service
lines share similar customer bases. The Company's identifiable business segments
can be categorized into three groups:

o ERP Implementation Services ("ERP") is the largest business segment of
the Company's operations, and includes the implementation,
integration, and development of solutions for clients utilizing a
class of application products known as Enterprise Resource Planning
software. This class of products include software developed by such
companies as SAP, Oracle, PeopleSoft, and Baan.

o Management Consulting ("MC") includes business consulting services,
such as Business Process Re-engineering, Change Management, IT
Strategy, and Software Selection.

o Advanced Technology Practice ("ATP") includes Internet technology
solutions and custom application and enhancement development for
clients.



F - 18


The following table presents financial information based upon the Company's
identifiable business segments for the year ended December 31, 1998. Information
on revenue, operating income and margins for these segments is not available for
the year ended December 31, 1997, and the Company determined that it would be
impractical to recreate such data. Substantially all of the Company's operations
for the year ended December 31, 1996 were in the ERP segment:



Year Ended December 31, 1998 ERP MC ATP
------------ ----------- -----------


Revenues $120,761,000 $8,873,000 $15,227,000

Operating Income $25,836,000 ($1,232,000) $2,304,000

Operating Margin 21.4% N/A 15.1%



The Company also incurred corporate expenses for selling, general and
administrative activities of $12,820,000 and non-recurring acquisition related
charges of $2,118,000 during the year ended December 31, 1998, resulting in
total operating income of $11,970,000. Other 1998 information is as follows:

Income before taxes $12,090,000

Total assets $65,728,000

Capital expenditures $ 7,410,000

Depreciation and amortization $ 1,538,000

The following table presents financial information based upon the Company's
geographic segments for the years ended December 31, 1998 and 1997. For the year
ended December 31, 1996, substantially all of the Company's revenues, operating
income, and assets were located within the United States.

Net Operating Identifiable
1998 Revenues Income Assets
-------------------------------------------------

United States $101,563,000 $ 7,719,000 $48,983,000
Asia-Pacific 19,466,000 2,299,000 8,475,000
Europe 23,832,000 1,952,000 8,270,000
--------------------------------------------------
Total $144,861,000 $11,970,000 $65,728,000
==================================================

Net Operating Identifiable
1997 Revenues Income Assets
-------------------------------------------------

United States $ 69,278,000 $ 4,075,000 $34,045,000
Asia-Pacific 12,438,000 1,875,000 3,849,000
Europe 12,610,000 781,000 4,112,000
--------------------------------------------------
Total $ 94,326,000 $ 6,731,000 $42,006,000
==================================================


F - 19

NOTE 11 - SUBSEQUENT EVENTS

On January 8, 1999, the Company acquired Network Publishing, Inc., based in
Provo, Utah, for a purchase price of approximately $4.5 million consisting of
cash and Intelligroup common stock. NetPub shareholders will receive a portion
of this consideration as an earnout, payable at a later date subject to
operating performance.

On January 29, 1999, the Company entered into a new three-year credit
agreement (the "Credit Agreement") with the PNC Bank N.A. (the "Bank"). The new
credit facility with the Bank is comprised of a revolving line of credit
pursuant to which the Company may borrow up to $30.0 million either at the
Bank's prime rate per annum or the EuroRate plus 2% (at the Company's option).
The Credit Agreement contains covenants which require the Company to (i)
maintain a consolidated cash flow leverage ratio equal to or less than 2.5 to
1.0 for the period of four fiscal quarters preceding the date of determination
taken together as one accounting period, (ii) maintain a consolidated net worth
of not less than 90% of the consolidated net worth as of September 30, 1998 plus
50% of positive net income commencing October 1, 1998, and thereafter at the end
of each fiscal year, to be not less than consolidated net worth of the prior
fiscal year plus 50% of positive net income for such fiscal year, (iii) not
enter into any agreement to purchase and/or pay for, or become obligated to pay
for capital expenditures, long term leases, capital leases or sale lease-backs,
in an amount at any time outstanding aggregating in excess of $5,000,000 during
any fiscal year, provided, however, in a one year carry-forward basis, the
Company may incur capital expenditures not to exceed $8,000,000 during any
fiscal year, and (iv) shall not cause or permit the minimum fixed charge
coverage ratio, calculated on the basis of a rolling four quarters of (a)
consolidated EBITDA to (b) the sum of cash income tax expense plus interest
expense, plus scheduled principal payments under any indebtedness, plus
dividends or distributions paid or declared, to be less than 1.4 to 1.0 as at
the end of each fiscal quarter. The proceeds of the Credit Agreement may be used
by the Company for financing acquisitions and general corporate purposes. At the
Company's option, for each loan, interest shall be computed either at the Bank's
prime rate per annum or the Adjusted Libo Rate plus the Applicable Margin, as
such terms are defined in the Loan Agreement. The Company's obligations under
the credit facility are payable at the expiration of such facility on January
29, 2002.

On February 16, 1999, the Company completed the acquisition of Empower
Solutions, LLC, in a transaction expected to be accounted for as a pooling of
interests. Intelligroup issued approximately 1.8 million shares of its common
stock in exchange for 100% Empower's outstanding equity.



F - 20