INTELLIGROUP INC - 10-K Annual Report

Back to GetFilings.com

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, 2003
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
Incorporation or Organization) Identification No.)

499 Thornall Street, Edison, New Jersey 08837
(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 on which
Title of each class 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. [ ]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).

Yes: No: X
--- ---
The aggregate market value of the voting stock held by non-affiliates
of the registrant at June 30, 2003 (the last business day of the most recent
second quarter) was $13,077,672 (based on the closing price as quoted on the
Nasdaq National Market on that date). For the purposes of this calculation,
shares owned by officers, directors and 10% shareholders known to the registrant
have been deemed to be owned by affiliates. This determination of affiliate
status is not a determination for other purposes.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 25, 2004:

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

Common Stock, $.01 par value 17,373,357

-2-

TABLE OF CONTENTS

Item Page
---- ----

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

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

3. Legal Proceedings............................................ 20

4. Submission of Matters to a Vote of Security Holders.......... 23

PART II 5. Market for the Company's Common Equity and Related
Shareholder Matters.......................................... 24

6. Selected Financial Data...................................... 25

7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 27

7A. Quantitative and Qualitative Disclosure About Market Risk.... 50

8. Financial Statements and Supplementary Data.................. 50

9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 50

9A. Controls and Procedures...................................... 50

PART III 10. Directors and Executive Officers of the Registrant........... 52

11. Executive Compensation....................................... 52

12. Security Ownership of Certain Beneficial Owners and
Management and Related Shareholder Matters................... 52

13. Certain Relationships and Related Transactions............... 52

14. Principal Accounting Fees and Services....................... 52

PART IV 15. Exhibits, List and Reports on Form 8-K....................... 53

SIGNATURES ................................................................... 54

EXHIBIT INDEX ................................................................... 56

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

-3-

PART I

Item 1. Business.

General

Overview

Intelligroup, Inc. ("Intelligroup" or the "Company") is a leading
global provider of strategic IT outsourcing services. Intelligroup develops,
implements and supports information technology solutions for global corporations
and public sector organizations. The Company's onsite/offshore delivery model
has enabled hundreds of customers to accelerate results and significantly reduce
costs. With extensive expertise in industry-specific enterprise solutions,
Intelligroup has earned a reputation for consistently exceeding client
expectations.

Additional information concerning the Company can be found on the
Company's website at WWW.INTELLIGROUP.COM. The Company makes its electronic
filings with the United States Securities and Exchange Commission (the
"Commission"), including its annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to these reports,
available through its website, free of charge, as soon as practicable after it
files or furnishes them with the Commission. Information on the website is not
part of this Form 10-K.

Company History

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

In 1994, the Company began to diversify its customer base by expanding
the scope of its systems integration and custom development services to include
Enterprise Resource Planning ("ERP") software. ERP software products are
pre-packaged solutions for a wide-range of 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 solutions, there is a
significant amount of technical work involved in implementing them and tailoring
their use for a particular customer's needs.

Throughout the mid-to-late 1990s, the Company grew significantly by
capitalizing on the business opportunity to provide implementation and
customization services work to the expanding ERP market. The Company first began
to provide these technical services to customers implementing SAP software
before expanding its service offerings to include ERP products developed by
Oracle in 1995 and PeopleSoft in 1997.

-4-

In late 1999, the Company made the strategic decision to leverage its
traditional application integration and consulting experience and re-position
Intelligroup for future growth by focusing on the emerging Application Service
Provider ("ASP") market. At the same time, the Company made the strategic
decision to spin-off its Internet services business to its shareholders.
Accordingly, on January 1, 2000, the Company transferred its Internet
applications services and management consulting businesses to SeraNova, Inc.
("SeraNova"), a wholly-owned subsidiary of the Company on such date.

On July 5, 2000, the Company distributed all of the outstanding shares
of the common stock of SeraNova then held by the Company to holders of record of
the Company's common stock as of the close of business on May 12, 2000 (or to
their subsequent transferees) in accordance with the terms of a Distribution
Agreement dated as of January 1, 2000 between the Company and SeraNova.
Accordingly, the assets, liabilities and results of operations of SeraNova have
been reported as discontinued operations for all periods presented.

During the second half of 2000, finding that the market for ASP
services had not developed and grown as projected by market analysts, the
Company significantly reduced its investment in the ASP business model.
Expenditures for marketing and direct selling initiatives were significantly
decreased, as were the infrastructure and personnel that supported the Company's
ASP services. The Company renewed it focus and efforts on pursuing shorter-term
success opportunities of implementing and enhancing application solutions based
on SAP, Oracle and PeopleSoft products.

At the same time, the Company redirected some of its ASP infrastructure
and personnel towards the management and support of customers' enterprise,
e-commerce and m-commerce applications ("Application Management Services").
Additionally, the Company introduced certain SAP-based proprietary tools that
are designed to reduce the time and cost of upgrading and maintaining SAP
systems ("Power Up Services(SM)"). In 2001, the Company developed pre-configured
SAP solutions for the pharmaceutical industry ("Pharma Express(SM)") and the
engineering and construction industry ("Contractor Express(SM)"). Pharma
Express, a solution designed for small-to-medium sized life sciences companies,
improves manufacturing efficiencies and helps control the total cost of
production. Contractor Express assists companies in improving operational
efficiency and controlling manufacturing project schedules.

On April 2, 2003, the Company consummated the sale (the "Sale"),
effective as of March 1, 2003, of its Asia-Pacific group of subsidiary
companies, operating in Australia, New Zealand, Singapore, Hong Kong and
Indonesia (together, the "Former Subsidiaries"), to Soltius Global Solutions PTE
Ltd, a Singapore corporation ("Soltius"). As consideration, the Company received
a 5% minority shareholding in Soltius and a $650,000 note to be paid by Soltius
to the Company over a period of 12 months. The Company has received a total of
$350,000 from Soltius toward the note balance as of December 31, 2003. In March
2004, the Company agreed to renegotiate the payment terms with Soltius. The
revised terms call for Soltius to make monthly payments through September 2004
of between $25,000 and $50,000, plus a final $9,000 payment in October 2004.

The following is a description of, including, among other things, our
services, markets and competitors. Financial information regarding our
geographic areas and results of operations appears in the footnote entitled
Segment Data and Geographic Information in the Notes to the Consolidated
Financial Statements included in Item 8. Financial Statements and Supplementary
Data.

-5-

Intelligroup Services

Intelligroup's strategic outsourcing services address the
implementation, upgrade, application management and development needs of
information technology executives. Its proven methodologies and innovative tools
allow customers to reduce costs by accelerating implementations, upgrades and
development.

Companies around the world turn to Intelligroup for high-quality
software development and support delivered at lower costs. Intelligroup created
the industry's first offshore lab dedicated to SAP development in 1995. Since
then, Intelligroup's India-based offshore services--coupled with its U.S. and
U.K. centers--have helped hundreds of clients develop, implement, maintain,
support and integrate ERP, e-commerce and m-commerce applications. Its
onsite/offshore model has been refined into a series of repeatable,
quality-embedded processes that continually enable it to:

o Significantly reduce clients' development time and costs;

o Deliver superior-quality developments and enhancements on
schedule;

o Ensure reliable service levels;

o Accommodate requirement changes and manage risks;

o Provide 24x7 seamless access to scalable, dedicated and
skilled professionals; and

o Meet the peaks and valleys of resource requirements.

Customers partner with Intelligroup in order to co-develop a product;
implement, extend and support existing applications; or create a dedicated
offshore center for their own development efforts.

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 that are terminable upon relatively
short notice. During 2000, the Company began to focus on providing management
and support services for their customers' applications. The contractual
arrangements in these situations are typically fixed term, fixed price and
multi-year, as is common in the outsourcing market. The Company's focus on
management and support services is also intended to encourage ongoing and
recurring service relationships, rather than one-time implementation
engagements.

Professional Consulting Services

The Company's professional consulting services ("PCS") utilize
technical and functional consultants to leverage the Company's expertise in ERP
architecture and systems integration, and to efficiently assimilate and
customize these applications with new e-commerce and m-commerce applications and
extensions. 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.

-6-

Intelligroup has cultivated strong relationships with SAP, Oracle and
PeopleSoft. These companies have a vested interest in encouraging third party
professional consulting service companies, such as Intelligroup, to provide
implementation and customization services to customers. These software 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 respective
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 enhanced industry recognition.

In 1995, the Company achieved the status of a "SAP National
Implementation Partner." In 1997, the Company enhanced its partnership status
with SAP, by first achieving "National Logo Partner" status and then
"AcceleratedSAP Partner" status. In July 1997, the Company was awarded
"PeopleSoft Implementation Partnership" status. In June 1998, the Company
expanded its Oracle applications implementation services practice and added
upgrade services to meet market demand of mid to large size companies that were
implementing or upgrading Oracle applications. In 2000, the Company achieved
"SAP Services Partner" status and "SAP Hosting Partner" for the pharmaceuticals
industry vertical status. In 2001, the Company's pharmaceutical template for the
small and medium-size businesses market (covering current Good Manufacturing
Processes ("cGMP") and validation standards) was certified by SAP America. In
2002, the Company was awarded the SAP Services Partner Award of Excellence.

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

Additionally, the Company has introduced certain SAP-based proprietary
tools, known as Power Up Services, that are designed to reduce the time and cost
of upgrading and maintaining SAP systems. Through its Power Up Services, the
Company helps to cost-effectively size and analyze SAP upgrade projects, as well
as to efficiently evaluate and test SAP Support Packages. The Company combines
the assessment capabilities of its proprietary Uptimizer(SM) Tool Kit with the
skills and expertise of its SAP-certified global implementation team to deliver
high-quality, cost-effective upgrades to customized SAP environments. HotPac
Analyzer(SM) enables customers to analyze and test the impact of a Support
Package on its own SAP production environment before the Support Package is
actually applied. In addition, HotPac Analyzer enables customers to validate the
overall impact that a Support Package can have and isolate and identify the
business transactions that require thorough testing.

-7-

In 2001, the Company developed Pharma Express and Contractor Express.
Pharma Express is a ready-to-run, fully integrated pharmaceutical solution that
enables pharmaceutical companies of all sizes to improve the efficiency of their
manufacturing process to effectively control the cost-of-production and
distribution while keeping the production environment cGMP-compliant. Pharma
Express incorporates SAP Best Practices for the highly regulated pharmaceutical
industry and seamlessly integrates order management, process manufacturing,
quality management, inventory and distribution and financials. Contractor
Express is a ready-to-run, fully integrated industry solution that enables
engineering and construction companies of all sizes to improve their operational
efficiency and to effectively control project schedules and manage the costs and
resources associated with construction projects. Contractor Express incorporates
SAP Best Practices for the engineering and construction industry and seamlessly
integrates order management, procurement, project systems, plant maintenance,
asset management, human resources, financials and project costing.

The Company's Advanced Development Center ("ADC"), located in
Hyderabad, India, allows the Company to provide cost-effective, timely and high
quality PCS services to customers throughout the world. The ADC delivers rapid,
24 by 7 development services, by utilizing its functional and technical
consultants, in conjunction with on-site consultants at customer locations, to
provide customers with savings in development and implementation costs and
expedited project completion. Intelligroup is able to deliver high value
services at attractive prices due to: (i) the high level of expertise and
experience of ADC consultant programmers; (ii) the rigorous application of the
Company's proprietary software project methodologies, tools and project
management disciplines; and (iii) the cost structures associated with the ADC's
offshore location.

The Company provides PCS services directly to end-user organizations,
or as a member of consulting teams assembled by other information
technology-consulting firms. The cumulative number of PCS customers billed by
the Company has grown substantially from 600 customers in 1999 to over 1000
customers in 2003. The Company's customers are primarily Fortune 1000 and other
large and mid-sized companies in the United States and abroad. They have
included Apple Vacations, Bristol-Myers Squibb, Coca Cola Enterprises,
Colgate-Palmolive, Detroit Public Schools, Eastman Chemical Company, ExxonMobil
Corporation, Putnam Investments, Siemens Medical Systems and Steelcase Inc. The
Company has also participated in project teams led by information technology
consulting firms such as Cap Gemini Ernst & Young and BearingPoint.

Application Management Services

Intelligroup's application management services ("AMS") provide the
resources, processes and tools needed for quality-driven user, technical and
operations support. Its experienced professionals use a well-defined set of
assessment, transition and long-term processes to deliver customized, affordable
and highly responsive support.

-8-

Companies around the world entrust Intelligroup to keep their complex
ERP and eCommerce environments and infrastructures stable and optimized, and
aligned with new business processes. Intelligroup delivers:

o Significant reduction in support costs;

o Predictable costs for easier budgeting;

o 24x7, on-demand access to skilled functional and technical
professionals through its Global Support Center and Advanced
Development Center in Hyderabad, India;

o Assured service levels and flexible, individualized support
programs;

o Dedicated teams that are on-site, offshore or a combination of
on-site and offshore, depending on client requirements; and

o Improved reliability, availability and performance of the
infrastructure, databases, operations, applications and
interfaces.

The Company's AMS services provide clients with management, support and
maintenance of their enterprise, e-commerce and m-commerce applications. These
services are provided using the Company's low cost, high quality onsite/offshore
delivery model, which allows the Company to aggressively compete for long term
fixed price/fixed time contracts.

Key to the Company's ability to deliver AMS services is its offshore
Global Support Center ("GSC"), located in Hyderabad, India, which helps to
provide responsive global support to customers through delivery teams that work
around-the-clock. The GSC keeps customers' critical applications, systems and
infrastructure stable, current and optimized through efficient and
cost-effective user, technical and operations support. Intelligroup is able to
deliver high value services at attractive prices due to: (i) the high level of
expertise and experience of GSC support professionals; and (ii) the cost
structures associated with the GSC's offshore location.

The Company provides its AMS services directly to end-user
organizations. The cumulative number of AMS customers billed by the Company has
grown substantially from three customers in 1999 to over 35 customers in 2003.
The Company's customers are primarily Fortune 1000 and other large and mid-sized
companies in the United States and abroad. They have included Dade Behring, GE
Fanuc Automation North America, Joy Mining Machinery and Pearsons Technology
Centre.

The Intelligroup Solution

The Company improves its clients' business performance through the
intelligent application of information technology. The Company delivers to its
clients timely, cost-effective and innovative professional consulting services
and application management and support solutions by combining its:

(1) Offshore Development and Maintenance Model: The Company has the
ability to develop, implement and maintain high-quality, low cost business
solutions through its offshore ADC and GSC. In May 2000, the ADC was awarded
Level 2 of the People Capability Maturity Model(R) by the Carnegie Mellon
Software Engineering Institute ("CMM-SEI"). The achievement recognizes the
Company for its ability to attract, develop, motivate, organize and retain the
talent needed to continuously improve its software development capability. The
Company was among the first in the IT industry to integrate CMM-SEI workforce
improvement with software process improvement, for which the Company has
achieved the Software CMM-SEI Level 5 certification for continuous improvement
of its software engineering. In addition, the Company is ISO 9001-certified for
software development, support and optimization.

-9-

The ADC and GSC (collectively "the Centers") are connected to the
Company's operations centers in the United States, Japan and Europe via
high-speed satellite links. The ADC and GSC operate on a 24x7 basis, allowing
next business day turn-around of work units to customers. The Centers' quality
processes, skilled development and support teams, and low cost of operation
allow the Company to aggressively compete for implementation and maintenance
contracts. As the Company expands, the ADC and GSC are prepared to undertake
projects in any of the three enterprise and e-commerce practices (SAP,
PeopleSoft and Oracle), as well as certain other advanced technologies,
including m-commerce.

(2) Expertise in a Wide Range of Technologies, Industries and
Disciplines: The Company's consultants have expertise with SAP, Oracle and
PeopleSoft 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 consultants
are effective due to their technical excellence, their industry experience and
their strong grounding in the disciplines of project implementation and
management.

(3) Customer-Driven Approach: The Company's project managers and
consultants maintain ongoing communication and close interaction with customers
to ensure that customers 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.

(4) Proprietary Methodologies: The Company has developed a proprietary
implementation methodology, as well as a software-based implementation toolset,
which are designed to minimize the time required to develop and implement SAP,
Oracle and PeopleSoft solutions for its customers.

(5) Proprietary Toolsets: The Company has developed proprietary SAP
toolsets that reduce the cost and time of keeping an SAP environment stable and
current. The Company's Power Up Services are designed to size and analyze an
upgrade project and evaluate and test SAP Support Packages.

Trademarks and Service Marks

"Intelligroup," the Intelligroup logo and "Creating the Intelligent
Enterprise" are all trademarks of the Company.

-10-

"Power Up Services", "Uptimizer", "HotPac Analyzer", "Pharma Express",
"Contractor Express", "4Sight", "4Sight Plus", "EZ Path", "Implementation
Assistant", "myADVISOR" and "ASPPlus" are service marks of the Company.

"Empower Solutions" is a service mark of Empower Solutions, a
subsidiary of the Company.

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 more
of its focus towards the management and support of customers' enterprise,
e-commerce and m-commerce applications. Such forward-looking statements include
risks and uncertainties, including, but not limited to:

the continued uncertainty associated with the slowdown in economies
worldwide, including its impact on IT spending habits by customers;

the continued uncertainty of the outsourcing market and revenues
derived from anticipated application management and support business;

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

the Company's ability to attract and retain a qualified Chief Financial
Officer;

the Company's ability to manage the Company's business in the absence
of a permanent Chief Financial Officer and successfully transition the
accounting and finance functions to a new Chief Financial Officer;

the Company's limited operating history within the outsourcing line of
business;

the uncertainty in attracting and retaining customers given the
Company's historical financial condition;

the competition for employees in India causing increasing compensation
for the Company's employees and prospective employees;

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, and (h)
the hiring of additional staff;

-11-

increased competition in the industry may cause a decrease in the
Company's billing and employee utilization rates for the Company;

the Company's ability to manage its business 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;

the potential for future legislation regulating or taxing outsourcing;

the Company's reliance on continued relationships with SAP America,
Oracle and PeopleSoft, and the Company's present partnership status;

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

the Company's ability to manage fixed price projects effectively
and efficiently;

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

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

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

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

the Company's ability to maintain certain criteria as required for
continued listing by the Nasdaq National Market; and

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

In addition, in March 2001, Silverline Technologies Limited
("Silverline") acquired SeraNova, which the Company had spun-off to its
shareholders in July 2000. SeraNova's management has represented that such
acquisition was not contemplated at the time of the spin-off of SeraNova by the
Company, and accordingly should not impact the tax-free nature of the spin-off.
Should the spin-off be ultimately construed to be taxable, there is a risk that
if SeraNova and/or Silverline are unable or unwilling to pay the resultant tax
liability pursuant to SeraNova's indemnification obligations under its Tax
Sharing Agreement with the Company, the Company would bear the liability to pay
such resultant tax liability. For more information please refer to Note 8 to the
consolidated financial statements of the Company included in Item 8 of this
Report.

-12-

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

Organizations face a rapidly changing business environment, including
intense global competition, accelerating technological change, and the need to
embrace emerging technology strategies. Such businesses continually seek to
improve the quality of products and services, lower costs, reduce cycle times,
optimize their supply chain and increase the value to their customers. As a
result, many businesses implement and utilize advanced information solutions,
which enable them to optimize their business processes in such areas as product
development, manufacturing, sales, distribution and financials.

Historically, many businesses have adopted information systems
strategies using pre-packaged software applications. Client/server systems
widely replaced mainframe and legacy systems with the promise of more
functional, flexible and cost effective applications, which are critical to the
competitive needs of businesses.

As part of their client/server strategies, organizations often acquire,
or consider acquisition of, the pre-packaged enterprise-wide business software
applications offered by leading ERP vendors, such as SAP, Oracle and PeopleSoft.
These applications are then implemented and maintained to meet their particular
business needs. Alternatively, the organizations may develop, or commission the
development of, customized software applications to meet the needs of these
organizations. In both cases, customers have a set of core operations
applications, which they use to support their central business processes. These
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.

The majority of customers who implement ERP solutions are Fortune 2000
companies. The Company believes that opportunities for new ERP implementations
will continue predominantly in subsidiaries and operating units of large-market
clients and toward mid-market clients. Many mid-size companies have the need for
core financial and other operations systems that can be addressed by ERP
products. The Company believes that opportunity exists to sell both professional
consulting services and application management services to mid-market clients.
The mid-market segment is very cost conscious and requires a highly efficient
services delivery model, which the Company believes it can provide through a
combination of innovative tools and templates, which expedite delivery and use
of its offshore services, which reduce costs.

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, as well as
multiple packaged and custom developed applications.

-13-

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.

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. Thus, the Company believes that there is significant potential business
opportunity for implementing ERP version-to-version upgrades as well as
application management and support services.

Another area of opportunity for the Company is strategic offshore
outsourcing. With its history as a pioneer in providing offshore management and
support of mission critical applications, the Company can offer clients a
flexible, low cost option for managing ERP applications. In recent economic
times, this has been an area of growth within the IT sector. According to the
January 14, 2003 Gartner report entitled, "Applications Services Become Hottest
Growth Areas in IT Outsourcing," "Growth expectations are greatest among
outsourcers for offshore applications services, followed by near shore and
application management in general."

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 or enhance their software products, and (iii) internal
sales efforts. In addition, the Company has been introduced to customers by
certain of its competitors, such as the consulting practices of the former "Big
Five" accounting firms, which at times use 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 solutions. The
Company intends to establish a brand presence to further differentiate itself in
the marketplace. The Company also intends to leverage public relations to raise
visibility for its brand and increase outbound email marketing campaigns to
remain at top of mind and expand its footprint in its customer base. The Company
will continue to implement focused sales management programs, to leverage its
relationships with existing customers, as well as those customers with ERP and
other product vendors.

-14-

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 and the PeopleSoft Users Group and industry analyst shows
like Gartner IT Expo. 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.

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 quickly understand 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.

As of December 31, 2003, the Company's sales and marketing group
consisted of 41 employees in the United States, 3 employees in Japan, 6
employees in Europe, and 11 employees in India. The Company markets and delivers
its services to customers on an international basis through its network of
offices. The Company currently serves the United States market with its
headquarters in Edison (New Jersey), and branch offices in Atlanta (Georgia),
Warrenville (Illinois) and Pleasanton (California). The Company also maintains
local offices to serve the markets in India, the United Kingdom, Denmark and
Japan.

Customers

The Company provides its services directly to many Fortune 2000
companies, as well as small to medium sized enterprises, and, to a lesser
extent, as a member of consulting teams assembled by other information
technology consultants, such as the consulting practices of the former "Big
Five" accounting firms. The cumulative number of customers billed by the Company
has grown substantially from 600 customers in 1999 to over 1000 customers in
2003.

In 2001, 2002 and 2003, 31%, 23% and 10%, respectively, of the
Company's revenue was generated by providing supplemental resources directly to
the end-customer or as part of a consulting team assembled by another
information technology consulting firm. The Company's ten largest customers
accounted for, in the aggregate, approximately 34%, 42% and 47% of its revenue
in 2001, 2002 and 2003, respectively. During 2002, one customer accounted for
10% or more of total revenue. During 2003 and 2001, no single customer accounted
for more than 10% of total revenue.

-15-

During 2001, no single customer in the United States accounted for more
than 10% of revenue recognized in the United States. During 2002 and 2003, one
customer in the United States accounted for more than 10% of revenue recognized
in the United States.

During 2001, one customer in Europe accounted for more than 10% of
total revenue generated in the European region. During 2002 and 2003, two
customers in Europe accounted for more than 10% of total revenue generated in
the European region.

During 2001, 2002 and 2003, no single unaffiliated customer in India
accounted for more than 10% of total revenue recognized in India. A majority of
the total revenue recognized in India is derived from providing offshore
development and support services to customers sourced through the Company's
affiliated entities.

During 2001, four customers in Japan accounted for more than 10% of
revenue recognized in Japan. During 2002, one customer in Japan accounted for
more than 10% of revenue recognized in Japan. During 2003, three customers in
Japan accounted for more than 10% of revenue recognized in Japan.

Although the Company has contracts with many of its customers to
provide its services, in general such contracts are terminable upon relatively
short notice, typically not more than 30 days. When providing application
management and support services for customers, 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 against the
Company for damages 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.

-16-

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 or referral sources of the Company):

Consulting and software integration firms: including, IBM Global
Services, Electronic Data Systems, Computer Sciences Corporation, Cap Gemini
Ernst & Young, Accenture and BearingPoint.

Software applications vendors: including, SAP, Oracle and PeopleSoft.

Application management consulting firms: including, Covansys, Wipro
Technologies, Infosys Technologies Limited and Satyam Computer Services Ltd.

Many of the Company's competitors have longer operating histories,
possess greater industry and name recognition and/or 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 its clients' ERP solutions. This expertise includes
management consulting skills, plus design and implementation skills in ERP
products (primarily SAP, PeopleSoft and Oracle), application integration and
application management and support 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, 2003, the Company employed 1,353 full-time
employees, of whom 1,119 were engaged as consultants or as software developers,
61 were engaged in sales and marketing, and 173 were engaged in delivery
management, finance and administration. Of the total number of employees, 517
were based in the United States, 13 were based Japan, 51 were based in Europe
and 772 were based in India. In addition, the Company engaged 99 independent
contractors to perform information technology services as of December 31, 2003.

None of the Company's employees are 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 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.

-17-

Intellectual Property Rights

The Company's success is dependent, in part, upon its proprietary
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. In addition the Company requires that all new employees execute
agreements that assign to the Company their rights in any intellectual property
developed during the term of employment as a condition of employment 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, 2003, the Company owns no real property and
currently leases or subleases all of its office space. Within the United States,
the Company leases office space in Edison, NJ for certain technical and support
personnel, sales and marketing, administrative, finance and management
personnel, and in Atlanta, GA, Warrenville, IL, Pleasanton, CA and Costa Mesa,
CA for certain other sales and operations personnel. The Company also leases
office space in Denmark, India, Japan and the United Kingdom. The following
table summarizes the Company's leased office space as of December 31, 2003:

-18-

Area Lease
Location (in Sq.Feet) Use Expiration
-------- ------------ --- ----------

o Corporate Headquarters
o Consulting Services - focus on SAP, PeopleSoft
Edison, 48,476 (A) commercial, Oracle and E-Business markets in the US
New Jersey o Selling, general and administrative functions in 9/9/2008
the US

o Consulting services - focus on PeopleSoft public
sector market in the US
Atlanta, Georgia 4,051 o Limited selling, general and administrative
functions in the US 7/31/2005

Warrenville, 750 o Limited selling and marketing functions in the US. 5/31/2004
Illinois

Pleasanton, 300 o Limited selling and marketing functions in the US 3/31/2005
California

Costa Mesa, 300 o Limited selling and marketing functions in the US 10/31/2004
California

o Consulting Services - focus on SAP market in
Denmark
Odense, Denmark 9,900 o Selling, general and administrative functions in
Denmark 1/31/2006

Hyderabad, India 18,359 o Offshore development consulting services 12/31/2007
(Advanced Development Center)

o Selling, general and administrative functions in
India
Hyderabad, India 15,858 o Global sales and marketing support services 1/31/2005
(Business Development Center)

Hyderabad, India 15,968 o Consulting Services - focus on SAP, PeopleSoft 5/31/2006
and Oracle markets in India

Hyderabad, India 10,727 o Offshore application management and support 7/31/2006
consulting services (Global Support Center)
o Consulting services - focus on SAP market in Japan
Tokyo, Japan 2,803 o Selling, general and administrative functions
in Japan 1/31/2005

o Consulting services - focus on PeopleSoft and SAP
Milton Keynes, market in the UK
United Kingdom 1,500 o Selling, general and administrative functions in 7/26/2004
the UK

(A) Approximately 21,840 square feet of this space has been subleased to an
unrelated third party through 9/9/2008.

-19-

Beginning in late 2001, SeraNova failed to pay certain outstanding
lease obligations incurred under the terms of a Space Sharing Agreement dated
January 1, 2000 between the Company and SeraNova to the Company's landlords.
Accordingly, on March 4, 2002, the Company filed an arbitration demand with the
American Arbitration Association against the SeraNova Group. The demand for
arbitration, which sought damages, alleged among other things that the SeraNova
Group failed to pay outstanding lease obligations to the Company's landlords and
to reimburse the Company for all rent payments made by the Company on their
behalf. An arbitration hearing was held on June 25, 2002 and June 28, 2002
seeking $525,000 in outstanding lease obligations. On August 9, 2002, an award
was issued in the amount of $616,905 (including attorney's fees) plus
reimbursement of administrative fees, in favor of the Company and against the
SeraNova Group jointly and severally. In an action filed in the Superior Court
of New Jersey, the Court confirmed the $624,000 award, jointly and severally as
to the SeraNova Group, and issued a writ of execution against the SeraNova
Group's assets. The Sheriff of Middlesex County levied this writ of execution on
October 8, 2002 against a bank account held by Silverline Technologies, Inc. On
October 16, 2002, pursuant to this writ, the bank turned over $626,247 to the
Sheriff. On November 6, 2002 the Sheriff sent the funds to the Company's
attorneys and the funds were deposited into an attorney trust account on
November 8, 2002. On December 13, 2002, the Company commenced an action in the
Superior Court of New Jersey, Chancery Division, to recover additional amounts
due and owing from the SeraNova Group under the Arbitration Award and to
determine whether HSBC Bank USA ("HSBC"), a creditor of the SeraNova Group, had
priority to the funds levied upon by the Sheriff. On January 31, 2003, the Court
entered judgment in the Company's favor in the amount of $218,805, representing
the SeraNova Group's additional unpaid rent arrearages under the arbitration
award. On February 28, 2003, the Court entered judgment in the Company's favor
in the amount of $220,415, representing the Company's attorney's fees in
connection with the Company's efforts to enforce the SeraNova Group's
obligations under the arbitration award. On March 10, 2003, the Court ordered
HSBC to produce discovery proving its priority to the $626,247 being held in
trust. Thereafter, the Company and HSBC entered into a settlement agreement only
as to the $626,247 being held in trust whereby the Company remitted $570,228 to
HSBC, and the remaining funds were released to the Company. The Company does not
believe that future events related to this claim will have a materially adverse
effect on the Company's business, financial condition or results of operations.

Item 3. Legal Proceedings

On August 16, 2001, the Company filed a complaint in the Superior Court
of New Jersey, Middlesex County, against SeraNova, Inc., and Silverline
Technologies Limited and Silverline Technologies, Inc. (collectively,
"Silverline"), which acquired SeraNova in March 2001. The complaint, which seeks
damages, alleges among other things that SeraNova failed to pay amounts owing
under (i) an unsecured promissory note totaling $10,079,717, and (ii) a system
implementation project totaling $511,573. On September 25, 2001, SeraNova and
Silverline filed a joint Answer to the Company's complaint. In addition,
SeraNova filed a counterclaim against the Company for compensatory damages in
excess of $5,500,000 and punitive damages in the amount of $10,000,000. After
completion of the discovery process, the Company moved for summary judgment. On
April 17, 2003, the Court granted partial summary judgment. On July 11, 2003,
the Court dismissed the defendant's counterclaims seeking compensatory and
punitive damages. On August 8, 2003, SeraNova and Silverline Technologies, Inc.
filed for Chapter 7 Bankruptcy, thereby staying this action as to these
defendants. There has been no notice that Silverline Technologies Limited is
insolvent. Shortly thereafter, counsel for defendants asked the Court and was
granted permission to be relieved as counsel. On September 22, 2003, the Company
moved for entry of default against Silverline Technologies Limited. In February
2004, the Company moved for entry of default judgment against Silverline
Technologies Ltd.

-20-

On June 14, 2002, the Company filed a complaint in the Superior Court
of New Jersey, Mercer County, against Ashok Pandey, a shareholder and former
officer and director of the Company. The complaint, sought damages in excess of
$400,000, based on allegations that Mr. Pandey breached certain terms and
conditions of a separation agreement he entered into with the Company. Mr.
Pandey filed an Answer to the Company's complaint denying the Company's claims.
On June 6, 2003, the Court granted summary judgment in favor of the Company on
all counts of the complaint and the Company's motion for attorney's fees was
unopposed. On August 7, 2003, the Company and Mr. Pandey executed a settlement
agreement resolving, among other things, the litigation matters between them.

On June 26, 2002, Ashok Pandey filed a Complaint in the United States
District Court for the District of New Jersey, alleging that certain
shareholders of the Company constituted a group that held more than 5% of the
outstanding shares of the Company's common stock and had not filed a Schedule
13D disclosure statement with the Securities and Exchange Commission. On June
28, 2002, plaintiff obtained an ex parte injunctive order from the Court barring
Srini Raju, an alleged member of the "group" and a shareholder holding 4.61% of
the Company's common stock, from voting in the annual election. On July 12,
2002, after reviewing actual evidence of record, and hearing argument from
Pandey's counsel, the Court held that there was no basis to enjoin Mr. Raju from
voting his shares at the Annual Meeting. After the election, Pandey sought to
file an amended complaint dropping certain defendants, and adding others,
including the Company. On September 27, 2002, the Court granted plaintiff's
motion, and allowed certain limited discovery to proceed. On October 11, 2002,
the Company filed a motion for Judgment on the Pleadings in its favor, arguing
that the relief sought by plaintiff, the retroactive sterilization of Mr. Raju's
shares and the invalidation of his votes at the Annual Meeting, is not
sanctioned by law, and is unavailable as a remedy. In response, Pandey filed a
motion seeking leave to file a Second Amended Complaint, seeking to drop the
Section 13D claims against the Company and substitute them with claims brought
under Section 14A of the Securities and Exchange Act. On January 31, 2003, the
Court denied each of the parties' motions. On August 7, 2003, the Company and
Mr. Pandey executed a settlement agreement resolving, among other things, the
litigation matters between them.

On July 2, 2002, Ashok Pandey filed a complaint in the Superior Court
of New Jersey, Middlesex County, in connection with the Company's 2002 Proxy
contest with respect to the Annual Meeting. In his Complaint, plaintiff claimed
that Intelligroup's Board of Directors violated their fiduciary duties by
adjourning the Annual Meeting from July 2, 2002 to July 16, 2002. On July 3,
2002, the Court denied Plaintiff's application for emergent relief, and ruled
that Intelligroup could adjourn its Annual Meeting, finding that plaintiff's
conduct in obtaining ex parte injunctive relief in federal court enjoining the
voting of 4.61% of the Company's outstanding common stock without notice to the
Company, "estopped [Pandey] from complaining about the adjournment." Despite the
court's denial of his emergent application, plaintiff continued the litigation
in an effort to have the court sanction his unilateral attempt to hold an annual
meeting and election on July 2, 2002, despite the Company's adjournment of the
meeting and the absence of its Board of Directors and a quorum of its
shareholders on July 2, 2002. The Company filed its Answer and Affirmative
Defenses on August 30, 2002. On November 6, 2002, the Company filed a Motion for
Summary Judgment and on January 7, 2003, the Court granted Partial Summary
Judgment. On August 7, 2003, the Company and Mr. Pandey executed a settlement
agreement resolving, among other things, the litigation matters between them.

-21-

On July 3, 2002, the Company filed a complaint in the United States
District Court for the District of New Jersey, naming Ashok Pandey, TAIB
Securities, Inc., Beechrock Holdings Limited and Braydon Holdings Limited as
defendants. The complaint alleged, among other things, that the defendants
violated federal securities laws in connection with the Company's 2002 proxy
contest. The defendants filed an Answer to the Company's complaint denying the
Company's claims. On August 7, 2003, the Company and Mr. Pandey executed a
settlement agreement resolving, among other things, the litigation matters
between them. Additionally, the Court ordered that the matter be dismissed as a
result of the settlement, subject to the defendants or the Company reopening the
case before September 30, 2003. Since the case was not reopened by any of the
parties, the matter has been settled by and between all defendants and the
Company.

On October 4, 2002, the Company filed a complaint in the Superior Court
of New Jersey, Middlesex County against the SeraNova Group and HSBC seeking
compensatory, consequential and punitive damages resulting from SeraNova's
failure to pay its obligations to the Company under its promissory note. The
complaint alleges that this failure was due to SeraNova's fraudulent conveyance
of assets, including but not limited to lucrative customer accounts, to
Silverline, and HSBC's allegedly knowing acceptance of a fraudulent guarantee of
Silverline's debt to HSBC from SeraNova. All defendants have answered the
complaint and discovery has commenced. On August 8, 2003, SeraNova and
Silverline Technologies, Inc. filed for Chapter 7 Bankruptcy, thereby staying
this action as to these defendants. There has been no notice that Silverline
Technologies Limited is insolvent. The matter is currently in the discovery
phase.

By letter dated May 12, 2003, Zions First National Bank ("Zions")
informed the Company that Network Publishing, Inc., a former wholly-owned
subsidiary of the Company, which became a wholly-owned subsidiary of SeraNova
upon the spin-off of SeraNova by the Company in 2000, was delinquent on a loan
made by Zions and guaranteed by the Company. Zions was demanding payment of
$535,608 from the Company, plus interest accrued from April 1, 2002. In the
third quarter 2003, the Company negotiated a settlement with Zions for a total
sum of $430,000, which was paid out in installments through January 2004. The
Company has made all required payments under the settlement. The Company has
recorded this sum and related legal costs of $44,000, in the provision for
guarantee of SeraNova debt line item.

The Company's Indian subsidiary has received an assessment from the
Indian taxing authority denying tax exemptions claimed for certain revenue
earned during each of the fiscal years ended March 31, 1999 through March 31,
2001. The assessment is for 26 million rupees, or approximately $564,000.
Management, after consultation with its advisors, believes the Company is
entitled to the tax exemption claimed and thus has not recorded a provision for
taxes relating to these items as of December 31, 2003. If the Company were not
successful with its appeals, which were filed in 2001 and 2002, a future charge
of approximately $564,000 would be recorded and reflected in the Company's
consolidated statement of operations.

-22-

Additionally, in January 2004, the Company's Indian subsidiary received
an assessment for 16 million rupees, or approximately $340,000 for the fiscal
year ended March 31, 2002. If the Company were not successful with its appeal,
which will be filed in 2004, a future charge of approximately $340,000 would be
recorded and reflected in the Company's consolidated statement of operations.

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.

No matters were submitted to a vote of security holders during the
quarter ended December 31, 2003.

-23-

PART II

Item 5. Market for the Company's Common Equity and Related Shareholder Matters.

The Common Stock is quoted on the Nasdaq National Market (the "NNM")
under the symbol "ITIG." 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, 2002 $1 3/16 $ 27/32
June 30, 2002 $1 3/4 $ 15/16
September 30, 2002 $1 19/32 $ 27/32
December 31, 2002 $1 1/16 $ 9/16
March 31, 2003 $1 7/16 $ 7/8
June 30, 2003 $1 21/32 $1 3/16
September 30, 2003 $2 3/32 $1 1/16
December 31, 2003 $6 5/16 $1 27/32

As of March 25, 2004, the approximate number of holders of record of
the Common Stock was 76 and the approximate number of beneficial holders of the
Common Stock was 2,884.

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.

The following table summarizes securities authorized for issuance under
the Company's equity compensation plans:

Number of securities
Number of securities to Weighted-average remaining available for
be issued upon exercise exercise price of future issuance under
of outstanding options outstanding options equity compensation plans
---------------------- ------------------- -------------------------

1996 Stock Option Plan 2,822,883 $2.59 1,000,708
1996 Non-Employee Director Stock
Option Plan 100,000 $3.92 10,000
Equity compensation plans not
approved by security holders 100,000 $2.03 --
--------- ----- ---------
Total 3,022,883 $2.62 1,010,708
========= ===== =========

-24-

Item 6. Selected Financial Data.

You should read the selected financial data presented below, in
conjunction with the Company's consolidated financial statements, the notes to
those consolidated financial statements and the management's discussion and
analysis of financial condition and results of operations section appearing
elsewhere in this report on Form 10-K.

The consolidated statement of operations data for the years ended
December 31, 2003, 2002, and 2001 and the balance sheet data as of December 31,
2003 and 2002 have been derived from our audited consolidated financial
statements included elsewhere herein, and should be read in conjunction with
those financial statements (including notes thereto). The selected financial
data as of December 31, 2001, 2000 and 1999 and for the years ended December 31,
2000 and 1999 have been derived from audited consolidated financial statements
not included herein, but which were previously filed with the Securities and
Exchange Commission, or SEC. The Company's historical results are not
necessarily indicative of the operating results to be realized in the future.

On April 2, 2003, the Company consummated the sale (the "Sale"),
effective as of March 1, 2003, of its Asia-Pacific group of subsidiary
companies, operating in Australia, New Zealand, Singapore, Hong Kong and
Indonesia (together, the "Former Subsidiaries"), to Soltius Global Solutions PTE
Ltd, a Singapore corporation. Accordingly, the consolidated statement of
operations data and the balance sheet data have been reclassified to reflect the
Sale of the Former Subsidiaries as discontinued operations for all periods
presented.

-25-

For the Years Ended December 31,
--------------------------------------------------------------
1999 2000 2001 2002 2003
--------- --------- --------- --------- ----------
(in thousands, except per share data)

Statement of Operations Data:
Revenue ........................................ $ 143,180 $ 107,746(1) $ 101,987 $ 101,303 $ 118,568
Cost of sales .................................. 96,127 72,006 69,682 70,333 83,641
--------- --------- --------- --------- ----------
Gross profit ................................ 47,053 35,740 32,305 30,970 34,927
--------- --------- --------- --------- ----------
Selling, general and administrative expenses ... 37,676 39,757 28,055 25,242 28,542
Depreciation and amortization .................. 2,782 3,063 3,535 2,753 2,715
Acquisition expenses ........................... 2,115 -- -- -- --
SeraNova receivable impairment and other charges -- -- -- 8,362 5,534
Proxy contest charges .......................... -- -- -- 1,073 1,461
Restructuring and other special charges ........ 7,245 -- 13,261 -- --
--------- --------- --------- --------- ----------
Total operating expenses .................... 49,818 42,820 44,851 37,430 38,252
--------- --------- --------- --------- ----------
Operating income (loss) ..................... (2,765) (7,080) (12,546) (6,460) (3,325)
Interest income ................................ 94 1,171 527 31 83
Interest expense ............................... (744) (598) (686) (394) (441)
Other income (expense) ......................... 140 (5) 123 (123) (285)
--------- --------- --------- --------- ----------
Income (loss) from continuing operations before
income taxes ................................. (3,275) (6,512) (12,582) (6,946) (3,968)
Provision (benefit) for income taxes ........... 1,274 (621) 341 491 283
--------- --------- --------- --------- ----------
Income (loss) from continuing operations ....... (4,549) (5,891) (12,923) (7,437) (4,251)
Income (loss) from discontinued operations, net
of income tax (benefit) expense of $(68), $48,
$252, $70 and $15, respectively (including a
loss on disposal of $1,706 in 2003) .......... (2,041) (5,654) 330 (1,046) (2,134)
--------- --------- --------- --------- ----------
Net loss .................................. $ (6,590) $ (11,545) $ (12,593) $ (8,483) $ (6,385)
========= ========= ========= ========= ==========
Earnings (loss) per share
Basic earnings (loss) per share:
Continuing operations ..................... $ (0.29) $ (0.36) $ (0.78) $ (0.45) $ (0.25)
Discontinued operations ................... (0.13) (0.34) 0.02 (0.06) (0.13)
--------- --------- --------- --------- ----------
Net loss ................................ $ (0.42) $ (0.70) $ (0.76) $ (0.51) $ (0.38)
========= ========= ========= ========= ==========
Common shares - Basic .......................... 15,766 16,485 16,630 16,630 16,697
========= ========= ========= ========= ==========
Diluted earnings (loss) per share:
Continuing operations ....................... $ (0.29) $ (0.36) $ (0.78) $ (0.45) $ (0.25)
Discontinued operations ..................... (0.13) (0.34) 0.02 (0.06) (0.13)
--------- --------- --------- --------- ----------
Net loss .................................. $ (0.42) $ (0.70) $ (0.76) $ (0.51) $ (0.38)
========= ========= ========= ========= ==========
Common shares - Diluted ........................ 15,766 16,485 16,630 16,630 16,697
========= ========= ========= ========= ==========

As of December 31,
1999 2000 2001 2002 2003
--------- --------- --------- --------- ----------
(in thousands)

Balance Sheet Data:
Cash and cash equivalents .................. $ 5,213 $ 895 $ 1,620 $ 1,163 $ 1,873
Working capital ............................ 29,133 23,902 18,321 13,063 9,736
Total assets ............................... 80,200 67,368 47,035 43,953 44,488
Short-term debt and current portion of
obligations under capital leases ......... 10,585 5,623 4,712 6,374 8,497
Long-term debt and obligations under capital
leases, less current portion and other
long-term liabilities .................... -- 1,552 531 1,091 1,149
Shareholders' equity ....................... 48,654 41,201 26,782 18,726 14,416

(1) The decrease over the prior year was primarily attributable to the
decline in sales of traditional implementation services offerings and
slower than expected growth in outsourcing revenues. The decline in
traditional implementation services and slower than expected growth in
the application service provider market primarily resulted from the
general economic slowdown in which customers have decreased technology
budgets.

-26-

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

Overview

In this Section, the Company will discuss the following: (1)
Application of Critical Accounting Principles, which explains the accounting
principles necessary to understand how the Company records its financial
information; (2) Results of Operations - Consolidated, in which the Company's
consolidated results are compared year to year to recognize trends; (3) Results
of Operations by Business Segment, which allows the Company to compare the
results of its different business units; (4) Liquidity and Capital Resources;
(5) Contractual and Commercial Obligations; (6) Recently Issued Accounting
Standards; and (7) European Monetary Unit, which discusses the financial impact
on the Company of Europe's conversion to the Euro.

Management believes the following factors should be considered when
evaluating the Company's reported financial information contained in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations:

Revenues

The majority of the Company's revenues are derived from professional
services rendered to customers. Revenue is typically recognized as services are
performed. The Company's services range from providing customers with a single
consultant to multi-personnel full-scale projects. Although the Company has
contracts with many of its customers to provide its services, in general, such
contracts are terminable upon relatively short notice, typically not more than
30 days. 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. The Company provides its services either directly to end-user
organizations, or as a member of a consulting team assembled by another
information technology consulting firm. Where contractual provisions permit,
customers also are billed for reimbursement of expenses incurred by the Company
on the customers' behalf.

Fixed Price Projects

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
years ended December 31, 2001, 2002 and 2003, revenues derived from projects
under fixed price contracts represented approximately 22%, 27% and 38%,
respectively, of the Company's total revenue. No single fixed price project was
material to the Company's business during 2001, 2002 or 2003. The Company
believes that, as it pursues its strategy of providing application management
services to customers, it will continue to offer fixed price projects. The
Company believes that there are certain risks related to fixed price
arrangements 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, financial condition and results of operations.

-27-

Customer Concentration

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, 2001, 2002 and 2003, the Company's
ten largest customers accounted for in the aggregate, approximately 34%, 42% and
47% of its revenue, respectively. During 2002, one customer accounted for more
than 10% of revenue. During 2001 and 2003, no single customer accounted for more
than 10% of revenue. For the years ended December 31, 2001, 2002 and 2003, 31%,
23% and 10%, respectively, of the Company's revenue was generated by providing
supplemental resources directly to the end-customer or as part of a consulting
team assembled by another information technology consulting firm. 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.

Software Partners

For the years ended December 31, 2001, 2002 and 2003, the Company
derived the following percentages of total revenue from projects in which the
Company implemented, extended, maintained, managed or supported software
developed by SAP, PeopleSoft and Oracle:

Percentage of Revenue
----------------------------------------------------------------------
Year Ended December Year Ended December Year Ended December
31, 2003 31, 2002 31, 2001
------------------- ---------------------- --------------------

SAP................................ 66% 60% 66%
PeopleSoft......................... 26% 24% 18%
Oracle............................. 5% 9% 10%

Markets

The Company currently serves the United States market with its
headquarters in Edison (New Jersey), and branch offices in Atlanta (Georgia),
Warrenville (Illinois) and Pleasanton (California). The Company also maintains
local offices to serve the markets in India, the United Kingdom, Denmark and
Japan. The Company leases its headquarters in Edison, New Jersey. Such lease has
an initial term of ten (10) years, which commenced in September 1998.

Expenses

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).

-28-

Proxy Contest

Since the second quarter 2002, the Company has incurred charges related
to a proxy contest launched by Ashok Pandey to take control of the Company's
Board of Directors (the "Proxy Contest"). On August 7, 2003, the Company and Mr.
Pandey executed a settlement agreement resolving, among other things, certain
litigation matters relating the Proxy Contest. As part of the settlement
agreement the Company agreed to pay to Mr. Pandey an aggregate amount of
$750,000 in three equal installments over two years, commencing October 2003.
The Company also incurred material costs related to defending the Company in the
Proxy Contest. Since the Proxy Contest has been successfully resolved, the
Company does not anticipate incurring material costs related to the Proxy
Contest going forward.

SeraNova Receivable

Under the terms of an unsecured promissory note, project contract and a
Space Sharing Agreement, SeraNova owes the Company approximately $13.9 million,
including related legal costs. The Company has aggressively pursued its legal
options to obtain payment. For further detail, please refer to the discussions
of the legal proceedings in Item 3. However, based on SeraNova's liquidity
issues and subsequent filing of Chapter 7 Bankruptcy in August 2003, the Company
has recorded $13.9 million in special charges related to this matter.

Discontinued Operations

On April 2, 2003, the Company consummated the sale (the "Sale"),
effective as of March 1, 2003, of its Asia-Pacific group of subsidiary
companies, operating in Australia, New Zealand, Singapore, Hong Kong and
Indonesia (together, the "Former Subsidiaries"), to Soltius Global Solutions PTE
Ltd, a Singapore corporation ("Soltius"). As consideration, the Company received
a 5% minority shareholding in Soltius and a $650,000 note to be paid by Soltius
to the Company over a period of 12 months. The Company has received a total of
$350,000 from Soltius toward the note balance as of December 31, 2003. In March
2004, the Company agreed to renegotiate the payment terms with Soltius. The
revised terms call for Soltius to make monthly payments through September 2004
of between $25,000 and $50,000, plus a final $9,000 payment in October 2004.

The Consolidated Financial Statements of the Company have been
reclassified to reflect the Sale of the Former Subsidiaries to Soltius as
discontinued operations. Accordingly, the assets, liabilities, results of
operations, and cash flows of the Former Subsidiaries prior to the Sale have
been segregated in the consolidated balance sheets, consolidated statements of
operations and consolidated statements of cash flows and have been reported as
discontinued operations.

Tax Assessment of Indian Subsidiary

The Company is currently appealing the tax assessments received by the
Company's Indian Subsidiary denying tax exemptions claimed during each of the
fiscal years ended March 31, 1999 through March 31, 2002. In the event the
Company's appeal is not successful, future charges of approximately $564,000 and
$340,000 would be recorded and reflected in the Company's consolidated statement
of operations.

-29-

Application of Critical Accounting Policies

The preparation of our consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Our estimates, judgments and
assumptions are continually evaluated based on available information and
experience. Because of the use of estimates inherent in the financial reporting
process, actual results could differ from those estimates.

Certain of our accounting policies require higher degrees of judgment
than others in their application. These include revenue recognition and
allowance for doubtful accounts, impairments and estimation of useful lives of
long-term assets, income tax recognition of current and deferred tax items and
accruals for contingencies. In addition, the footnotes to the Consolidated
Financial Statements include further discussion of our significant accounting
policies.

Revenue Recognition and Allowance for Doubtful Accounts. The Company
generates revenue from professional services rendered to customers. The majority
of the Company's revenue is generated under time-and-material contracts whereby
costs are generally incurred in proportion with contracted billing schedules and
revenue is recognized as services are performed, with the corresponding cost of
providing those services reflected as cost of sales. The majority of customers
are billed on an hourly or daily basis whereby actual time is charged directly
to the customer. Such method is expected to result in reasonably consistent
profit margins over the contract term.

The Company also derives a portion of its revenue from fixed-price,
fixed-time contracts. Revenue generated from most fixed-price contracts,
including most application management and support contracts, is recognized
ratably over the contract term, on a monthly basis in accordance with the terms
of the contract. Revenue generated from certain other fixed-price contracts is
recognized based on the ratio of labor hours incurred to estimated total labor
hours. This method is used because reasonably dependable estimates of the
revenues and costs applicable to various stages of a contract can be made, based
on historical experience and milestones set in the contract. The Company's
project delivery and business unit finance personnel continually review labor
hours incurred and estimated total labor hours, which may result in revisions to
the amount of recognized revenue for the contract. If the Company does not
accurately estimate the resources required or the scope of work to be performed
for a contract or if the Company does not manage the project properly within the
planned time period, then a loss may be recognized on the contract. Losses are
recorded in the period when they become known.

The Company occasionally derives revenue from projects involving
multiple revenue-generating activities. Accordingly, the revenue from such
projects is accounted for in accordance with the Emerging Issues Task Force of
the Financial Accounting Standards Board ("FASB") Issue No. 00-21, "Accounting
for Revenue Arrangements with Multiple Deliverables." If a contract involves the
provision of multiple service elements, total estimated contract revenue is
allocated to each element based on the relative fair value of each element. The
amount of revenue allocated to each element is limited to the amount that is not
contingent upon the delivery of another element in the future. Revenue for each
element is then recognized as described above depending upon whether the
contract is a time-and-materials contract or a fixed-price, fixed-time contract.

-30-

Any estimation process, including that used in preparing contract
accounting models, involves inherent risk. We reduce the inherent risk relating
to revenue and cost estimates in percentage-of-completion models through
approval and monitoring processes. Risks relating to service delivery, usage,
productivity and other factors are considered in the estimation process.

Unbilled services at December 31, 2003 and 2002 represent services
provided through December 31, 2003 and 2002, respectively, which are billed
subsequent to year-end. All such amounts are anticipated to be realized in the
following year.

The Company recognizes revenue for services where collection from the
client is probable. The Company establishes billing terms at the time project
deliverables are agreed. The Company continually monitors timely payments from
customers and assesses collection issues. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
clients to make required payments. The Company bases its estimates on historical
collection and write-off experience, current trends, credit policy, detailed
analysis of specific client situations and percentage of accounts receivable by
aging category.

Recoverability of Long-Term Assets. The Company reviews the carrying
value of long-lived assets on a regular basis for the existence of facts or
circumstances, both internally and externally, that may suggest impairment. If
such circumstances exist, the Company evaluates the carrying value of long-lived
assets to determine if impairment exists based upon estimated undiscounted
future cash flows over the remaining useful life of the assets and comparing
that value to the carrying value of the assets. If the carrying value of the
asset is greater than the estimated future cash flows, the asset is written down
to its estimated fair value.

Accounting for Income Taxes. The Company records income taxes using the
asset and liability method. Deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective income tax bases, and operating loss credit carryforwards. The
Company's consolidated financial statements contain certain deferred tax assets
which have arisen primarily as a result of operating losses incurred since 1999,
as well as other temporary differences between book and tax accounting. FASB
Statement of Financial Accounting Standards ("SFAS") SFAS No. 109, "Accounting
for Income Taxes," requires the establishment of a valuation allowance to
reflect the likelihood of realization of deferred tax assets. Significant
management judgment is required in determining the provision for income taxes,
deferred tax assets and liabilities and any valuation allowance recorded against
net deferred tax assets. The Company evaluates the weight of all available
evidence to determine whether it is more likely than not that some portion or
all of the deferred income tax assets will not be realized. Management
considered the recent historical operating losses and the inherent uncertainty
in the extent and timing of future profitability in determining the appropriate
valuation allowance. Based upon this assessment, the Company recorded
approximately $11.2 million of valuation allowance against gross deferred tax
assets of $13.3 million. The decision to record the valuation allowance required
significant judgment including estimating the various factors impacting future
taxable income. Had the Company not recorded this allowance, the Company would
have reported materially different results. If the realization of all deferred
tax assets in the future is considered more likely than not, an adjustment to
the deferred tax assets would increase net income in the period such
determination was made by approximately $11.2 million. The amount of the
deferred tax asset considered realizable is based on significant estimates, and
it is at least reasonably possible that changes in these estimates in the near
term could materially affect our financial condition and results of operations.
The Company's effective tax rate may vary from period to period based on changes
in estimated taxable income or loss, changes to the valuation allowance, changes
to federal, state or foreign tax laws, future expansion into areas with varying
country, state, and local income tax rates and deductibility of certain costs
and expenses by jurisdiction.

Contingent Liabilities. The Company has certain contingent liabilities
that arise in the ordinary course of business. The Company accrues contingent
liabilities when it is probable that future expenditures will be made and such
expenditures can be reasonably estimated. The Company is subject to various
pending or threatened legal matters which have arisen in the ordinary course of
business. The ultimate outcome of these items is uncertain and the potential
loss, if any, may be significantly higher or lower than amounts previously
accrued by the Company.

-31-

Results of Operations - Consolidated

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

Percentage of Revenue
Year Ended December 31
--------------------------------------
2003 2002 2001
------ ------ ------

Revenue .............................................. 100.0% 100.0% 100.0%
Cost of sales ........................................ 70.5 69.4 68.3
------ ------ ------
Gross profit .................................... 29.5 30.6 31.7
Selling, general and administrative expenses ......... 24.1 25.0 27.5
Depreciation and amortization expense ................ 2.3 2.7 3.5
SeraNova receivable impairment and other charges ..... 4.7 8.2 --
Proxy contest charges ................................ 1.2 1.0 --
Restructuring and other special charges .............. -- -- 13.0
------ ------ ------
Total operating expenses ........................ 32.3 36.9 44.0
------ ------ ------
Operating loss .................................. (2.8) (6.4) (12.3)
Interest income ...................................... 0.1 0.0 0.5
Interest expense ..................................... (0.4) (0.4) (0.6)
Other (expense) income ............................... (0.2) (0.1) 0.1
------ ------ ------
Loss from continuing operations before income taxes .. (3.3) (6.9) (12.3)
Income tax provision ................................. 0.3 0.4 0.3
------ ------ ------
Loss from continuing operations ...................... (3.6) (7.3) (12.6)
(Loss) income from discontinued operations, net of tax
expense (including loss on disposal in 2003) .... (1.8) (1.1) 0.3
------ ------ ------
Net loss ............................................. (5.4)% (8.4)% (12.3)%
====== ====== ======

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

The following discussion compares the consolidated results of
continuing operations for the year ended December 31, 2003 and the year ended
December 31, 2002.

Revenue. Total revenue increased by 17.0%, or $17.3 million, from
$101.3 million in 2002 to $118.6 million in 2003. The increase was attributable
primarily to growth in revenue generated in the United States (an increase of
$13.9 million), India (an increase of $2.3 million), Japan (an increase of
$391,000) and Europe (an increase of $764,000). In 2002, the demand for the
Company's services was negatively impacted by the challenging and uncertain
economic conditions, which precluded many companies from spending resources on
Information Technology ("IT") projects. Subsequently, beginning in mid-to-late
2002, the Company began to experience an increase in demand for services.
Accordingly, the revenue growth results directly from increased demand for the
majority of the Company's services, including traditional consulting service
offerings, application management and support services and offshore development
services.

Cost of Sales and Gross profit. The Company's cost of sales consists
primarily of the salaries paid to the consultants and related employee benefits
and payroll taxes for such consultants ("Cost of Sales"). The Company's cost of
sales increased by 18.9%, or $13.3 million, from $70.3 million in 2002, to $83.6
million in 2003 due primarily to the increase in revenue. The Company's gross
profit increased by 12.8%, or $3.9 million, from $31.0 million in 2002, to $34.9
million in 2003. The increase in cost of sales and gross profit results from the
increase in revenue. Gross margin decreased to 29.5% in 2003, from 30.6% in
2002. The decline in gross margin results primarily from pricing pressures, due
to the increased competition for new projects.

-32-

Selling, general and administrative expenses. Selling, general and
administrative expenses primarily consist of salaries, and related benefits
costs for sales and general administrative personnel, occupancy costs, sales
person compensation, travel and entertainment and professional fees. Selling,
general and administrative expenses increased by 13.1% or $3.3 million to $28.5
million in 2003, from $25.2 million in 2002, but decreased as a percentage of
revenue to 24.1% from 25.0%, respectively. The increase in selling, general and
administrative expenses, in absolute dollars, was related primarily to the
creation of the new strategy and solutions group in 2003 as well as an increase
in discretionary sales and marketing expenditures. In early 2003, the Company
created a new strategy and solutions group to focus on the design and
development of solutions as well as the support of the sales organization by
preparing and providing technical presentations to customers. In 2003, the
Company also invested in certain targeted sales and marketing initiatives, such
as participation in a number of conferences and trade shows as well as a new
branding roll-out. The decrease in selling, general and administrative expenses,
as a percentage of revenue, reflects concerted efforts by management to control
expenditures in conjunction with growth in revenue.

Depreciation and amortization. Depreciation and amortization expenses
decreased to $2.7 million in 2003, compared to $2.8 million in 2002. The
decrease was primarily due to certain fixed assets becoming fully depreciated in
2003.

SeraNova receivable impairment and other charges. During 2002, the
Company recorded approximately $8.4 million in special charges associated with
the note receivable from SeraNova (the "Note"), and certain other related
issues. Although the Company had aggressively pursued its various legal options
to obtain payment from the SeraNova Group on the Note and outstanding lease
obligations, the Company believed that the current liquidity issues plaguing the
SeraNova Group required a reassessment of the realizability of these outstanding
amounts. During this time, the Company had also actively engaged in discussions
with management of the SeraNova Group, with the objective of seeking an out of
court resolution to all outstanding matters involving the Note, and certain
other receivables and lease obligations. Although no final resolution had been
reached, the Company believed that the substance of these discussions provided a
basis for determining the approximate realizable value of the Note and other
receivables, as well as an estimate of the costs required to exit certain lease
obligations. Accordingly, the Company recognized an impairment charge in the
amount of $5.1 million related to the Note during 2002. Additionally, the
Company recorded a write-off of $1.3 million related to interest on the Note and
other receivables due from the SeraNova Group. Finally, the Company recorded
$1.5 million in costs required to exit certain lease obligations related to the
SeraNova Group.

During 2003, the Company recorded $5.1 million of additional charges
associated with the Note and certain other related issues. The Company
recognized an additional impairment charge of $4.0 million related to the Note,
$321,000 related to other assets, $474,000 in costs required to exit certain
lease obligations and $265,000 in legal fees. The Company had determined that
due to the apparent financial condition of the SeraNova Group that recovery of
the SeraNova Note was not probable. On August 8, 2003, SeraNova and Silverline
Technologies, Inc. filed for Chapter 7 Bankruptcy.

-33-

Also during 2003, Zions First National Bank ("Zions") informed the
Company that Network Publishing, Inc., a former wholly-owned subsidiary of the
Company, which became a wholly-owned subsidiary of SeraNova upon the spin-off of
SeraNova by the Company in 2000, was delinquent on a loan made by Zions and
guaranteed by the Company. Zions was demanding payment of $535,608 from the
Company, plus interest accrued from April 1, 2002. In the third quarter 2003,
the Company negotiated a settlement with Zions. Accordingly, the Company
recorded a $474,000 charge in the SeraNova receivable impairment and other
charges line item in 2003 to cover the settlement amount of $430,000 plus
related legal costs of $44,000. The settlement amount was paid out in
installments through January 2004.

Proxy contest charges. Since the second quarter 2002, the Company has
incurred charges related to a proxy contest launched by Ashok Pandey to take
control of the Company's Board of Directors (the "Proxy Contest"). On August 7,
2003, the Company and Mr. Pandey executed a settlement agreement relating to,
among other things, certain litigation matters relating the Proxy Contest. As
part of the settlement agreement the Company agreed to pay to Mr. Pandey an
aggregate amount of $750,000 in three equal installments over two years,
commencing October 2003. Accordingly, the Company has recorded a $750,000
provision for such liability in the consolidated statement of operations for
2003. Prior to the settlement, the Company incurred related additional
litigation expenses of $711,000 during 2003. During 2002, the Company incurred
approximately $1.1 million in legal fees and other charges related to the Proxy
Contest.

Interest income. The Company earned $83,000 in interest income during
2003, compared with $31,000 during 2002. The interest income is related
primarily to certain interest-bearing bank accounts in India and Japan. The
change results from a higher average balance of invested cash during 2003.

Interest expense. The Company incurred $441,000 and $394,000 in
interest expense in 2003 and 2002, respectively, related primarily to borrowings
under its line of credit. Borrowings under the line of credit were used
primarily to fund operating activities and the charges associated with the proxy
contest. The increase in interest expense results from slightly higher average
outstanding borrowings under the line of credit during 2003.

Other income (expense). Other income (expense) results primarily from
gains or (losses) associated with changes in foreign currency exchange rates.
The Company reported other expense of $285,000 in 2003, compared with $123,000
in 2002. The change results from foreign currency fluctuations.

Income tax provision. Despite operating losses, a provision for income
taxes of $283,000 and $491,000 was required in 2003 and 2002, respectively, due
to taxable income in certain jurisdictions combined with a valuation allowance
offsetting other loss benefits in other jurisdictions. The Company's net
deferred tax asset as of December 31, 2003 relates primarily to the US
operations. Based on anticipated profitability in the near future, management
believes it is more likely than not that the net deferred tax asset of $1.6
million will be realized.

-34-

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
in such period. Such tax holiday was extended an additional five years in 1999.
Effective April 1, 2000 pursuant to changes introduced by the Indian Finance
Act, 2000, the tax holiday previously granted is no longer available and has
been replaced in the form of a tax deduction incentive. The impact of this
change is not expected to be material to the consolidated financial statements
of the Company. Effective April 1, 2002, the tax deduction incentive for income
from the export of software and related services is restricted to 90% of such
income. Further, domestic revenue from software and related services is taxable
in India. Effective April 1, 2003, the 90% tax deduction incentive restriction
was repealed and the tax incentive is again available for the entire amount of
income from the export of software and related services. For 2003 and 2002, the
tax holiday and tax deduction favorably impacted the Company's effective tax
rate.

The Company's Indian subsidiary has received an assessment from the
Indian taxing authority denying tax exemptions claimed for certain revenue
earned during each of the fiscal years ended March 31, 1999 through March 31,
2001. The assessment is for 26 million rupees, or approximately $564,000.
Management, after consultation with its advisors, believes the Company is
entitled to the tax exemption claimed and thus has not recorded a provision for
taxes relating to these items as of December 31, 2003. If the Company were not
successful with its appeals, which were filed in 2001 and 2002, a future charge
of approximately $564,000 would be recorded and reflected in the Company's
consolidated statement of operations.

Additionally, in January 2004, the Company's Indian subsidiary received
an assessment for 16 million rupees, or approximately $340,000 for the fiscal
year ended March 31, 2002. Management, after consultation with its advisors,
believes the Company is entitled to the tax exemption claimed and thus has not
recorded a provision for taxes relating to these items as of December 31, 2003.
If the Company were not successful with its appeal, which will be filed in 2004,
a future charge of approximately $340,000 would be recorded and reflected in the
Company's consolidated statement of operations.

(Loss) income from discontinued operations. In 2003 and 2002, losses
from discontinued operations, net of taxes (including a loss on disposal of $1.7
million in 2003) were $2.1 million and $1.0 million, respectively. The losses
from discontinued operations in 2003 and 2002 resulted primarily from operations
within Australia, New Zealand and Singapore. The loss on disposal in 2003
resulted primarily from the sale of assets of the discontinued operations as
well as legal costs incurred in executing the transaction.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

The following discussion compares the consolidated results of
continuing operations for the year ended December 31, 2002 and the year ended
December 31, 2001.

Revenue. Total revenue decreased by 0.7%, or $684,000, from $102.0
million in 2001 to $101.3 million in 2002. The decrease was attributable
primarily to a decline in revenue generated in Europe and Japan (decreases of
$4.7 million and $1.6 million, respectively), partially offset by growth in
revenue generated in the United States (an increase of $4.7 million) and India
(an increase of $946,000). The decline in Europe and Japan reflects the
uncertain and weakened local economic climate, as customers delayed, decreased
and/or canceled IT projects. The revenue growth in the United States and India
results directly from increased demand for the majority of the Company's
services, including traditional consulting service offerings, application
management and support services, offshore development services and Power Up
services. The majority of the revenue generated in India is derived from
providing offshore development and support services to customers sourced through
the Company's affiliated entities in other parts of the world, but most
predominately within the United States.

-35-

Cost of Sales and Gross profit. The Company's cost of sales increased
by 0.9%, or $651,000, from $69.7 million in 2001 to $70.3 million in 2002. The
Company's gross profit decreased by 4.1%, or $1.3 million, from $32.3 million in
2001 to $31.0 million in 2002. Gross margin decreased slightly to 30.6% in 2002
from 31.7% in 2001. The decrease in gross margin results from competitive
pricing pressures experienced throughout the Company's global operations as well
as an increase in non-billable, non-utilized consultant time and other related
costs, primarily in Europe.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased by 10.0%, or $2.8 million, from $28.0 million
in 2001 to $25.2 million in 2002, and decreased as a percentage of revenue from
27.5% to 25.0%, respectively. The decrease in selling, general and
administrative expenses, in absolute dollars and as a percentage of revenue, was
related primarily to the decrease of discretionary spending throughout the
Company, as well as the downsizing initiative completed in Europe during the
fourth quarter 2001.

Depreciation and amortization. Depreciation and amortization expenses
decreased 22.1% to $2.8 million in 2002, compared to $3.5 million in 2001. The
decrease is due primarily to the amortization and depreciation associated with
the intangible assets and long-lived assets that were written-down as part of
the Company's restructuring and other special charges provision recorded in
2001.

SeraNova receivable impairment and other charges. In 2002, the Company
recorded approximately $8.4 million in special charges associated with the note
receivable from SeraNova and certain other related issues. The Company is
continuing to pursue its various legal options to obtain payment from the
SeraNova Group on the Note and outstanding lease obligations. At the same time,
the Company has also been periodically engaged in discussions with management of
the SeraNova Group, with the objective of seeking an out of court resolution to
all outstanding matters involving the Note, and certain other receivables and
lease obligations. However, the Company believed that the liquidity issues
plaguing the SeraNova Group required a reassessment of the realizability of
these outstanding amounts. Although no final resolution had been reached, the
Company believed that the substance of these discussions provided a basis for
determining the approximate realizable value of the Note and other receivables,
as well as an estimate of the costs required to exit certain lease obligations.
Accordingly, the Company recognized an impairment charge in the amount of $5.1
million related to the Note. In addition, the Company recorded a write-off of
$1.3 million related to interest on the Note and other receivables due from the
SeraNova Group. The Company also recorded $1.5 million in costs required to exit
certain lease obligations related to the SeraNova Group.

-36-

Proxy contest charges. In 2002, the Company incurred approximately $1.1
million in charges associated with the Proxy Contest. The charges included legal
fees of approximately $881,000, proxy solicitation services of approximately
$117,000, and printing, mailing and other costs of approximately $75,000.

Restructuring and other special charges. In 2001, in an effort to
further refine the Company's business strategy around its core competencies and
to refocus on more active markets, the Company recorded a $13.3 million
restructuring and other special charges provision. The charges, which were
mainly non-cash in nature, were related primarily to the ASP business in the
United States, the termination of an agreement to build and operate a technology
development and support center in Puerto Rico, and to the restructuring and
downsizing of the Company's operations in the United Kingdom.

Interest income. The Company earned $31,000 in interest income in 2002,
compared with $527,000 in 2001. The Company discontinued accruing interest on
the balance of the note receivable with SeraNova subsequent to the maturity date
of the Note of July 31, 2001.

Interest expense. The Company incurred $394,000 and $686,000 in
interest expense in 2002 and 2001, respectively, related primarily to borrowings
under its line of credit. Borrowings under the line of credit were used to fund
operating activities and the charges associated with the proxy contest. The
decrease in interest expense results from a combination of lower average
outstanding borrowings under the line of credit and lower interest rates charged
on outstanding borrowings in 2002.

Other income (expense). Other income (expense) results primarily from
realized gains or losses associated with changes in foreign currency exchange
rates. The Company reported other expense of $123,000 in 2002, compared with
other income of $123,000 in 2001. The change results from foreign currency
fluctuations.

Income tax provision. Despite operating losses, a provision for income
taxes of $491,000 and $341,000 was required in 2002 and 2001, respectively, due
to taxable income in certain jurisdictions combined with a valuation allowance
offsetting other loss benefits in other jurisdictions. The Company's net
deferred tax asset as of December 31, 2002 related primarily to the US
operations. Based on anticipated profitability in the near future, management
believes it is more likely than not that the deferred tax asset of $1.2 million
will be realized.

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
in such period. Such tax holiday was extended an additional five years in 1999.
Effective April 1, 2000 pursuant to changes introduced by the Indian Finance
Act, 2000, the tax holiday previously granted is no longer available and has
been replaced in the form of a tax deduction incentive. The impact of this
change is not expected to be material to the consolidated financial statements
of the Company. Effective April 1, 2002, the tax deduction incentive for income
from the export of software and related services is restricted to 90% of such
income. Further, domestic revenue from software and related services is taxable
in India. For years ended December 31, 2002 and 2001, the tax holiday and tax
deduction favorably impacted the Company's effective tax rate.

-37-

The Company's Indian subsidiary has received an assessment from the
Indian taxing authority denying tax exemptions claimed for certain revenue
earned during each of the fiscal years ended March 31, 1997 through March 31,
2001. The assessment is for 28 million rupees, or approximately $564,000.
Management, after consultation with its advisors, believes the Company is
entitled to the tax exemption claimed and thus has not recorded a provision for
taxes relating to these items as of December 31, 2002. If the Company were not
successful with its appeals, which were filed in 2001 and 2002, a future charge
of approximately $564,000 would be recorded and reflected in the Company's
consolidated statement of operations.

Additionally, in January 2004, the Company's Indian subsidiary received
an assessment for 16 million rupees, or approximately $340,000 for the fiscal
year ended March 31, 2002. Management, after consultation with its advisors,
believes the Company is entitled to the tax exemption claimed and this has not
recorded a provision for taxes relating to these items as of December 31, 2003.
If the Company were not successful with its appeal, which will be filed in 2004,
a future charge of approximately $340,000 would be recorded and reflected in the
Company's consolidated statement of operations.

(Loss) income from discontinued operations. The Company reported a loss
from discontinued operations, net of taxes, of $1.0 million in 2002, compared to
income from discontinued operations of $330,000 in 2001. The losses from
discontinued operations in 2002 resulted primarily from operations within
Australia, New Zealand and Singapore. The income from discontinued operations in
2001 resulted primarily from operations within New Zealand.

Results of Operations by Business Segment

The Company operates in one industry, information technology solutions
and services.

On April 2, 2003, the Company consummated the sale, effective as of
March 1, 2003, of its Asia-Pacific group of subsidiary companies, operating in
Australia, New Zealand, Singapore, Hong Kong and Indonesia. The operating
results and financial position of the Asia-Pacific group of subsidiary companies
are reported as discontinued operations for all periods presented. The Company
now has four reportable operating segments from continuing operations, which are
organized and managed on a geographical basis, as follows:

o United States ("US") - the largest segment of the Company,
with operations in the United States, Puerto Rico, South
America and Canada. Includes the operations of the Company's
US subsidiary, Empower, Inc., and all corporate functions and
activities. The US and corporate headquarters are located in
Edison, New Jersey;

o India - includes the operations of the Company in India,
including services provided on behalf of other Company
subsidiaries. The Indian headquarters are located in
Hyderabad, India;

o Europe - includes the operations of the Company in Denmark,
Sweden and the United Kingdom. However, the Company
transitioned its operations in Sweden to Denmark as of January
1, 2003. The European headquarters are located in Milton
Keynes, United Kingdom; and

o Japan - includes the operations of the Company in Japan. The
Japanese headquarters are located in Tokyo, Japan.

Each of the operating segments has a Managing Director, or manager with
an equivalent position, who reports directly to the Chief Executive Officer
(CEO). Currently, the CEO is fulfilling the requirements of this position in the
US. The CEO has been identified as the Chief Operating Decision Maker (CODM)
because he has final authority over resource allocation decisions and
performance assessment. The CODM regularly receives certain discrete financial
information about the geographical operating segments, including primarily
revenue and operating income, to evaluate segment performance.

-38-

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

The following discussion compares the segment results of continuing
operations for the year ended December 31, 2003 and the year ended December 31,
2002.

Revenue. The following table displays revenues by reportable segment
(in thousands).

Year Ended December 31
-----------------------------------------------------
2003 2002
------------------------ ------------------------
Percentage of ercentage of
Dollars Total Dollars Total
-------- ------------ -------- --------

United States............................... $ 92,569 78.1% $ 78,713 77.7%
India ...................................... 15,640 13.2 13,386 13.2
Europe ..................................... 6,788 5.7 6,024 5.9
Japan ...................................... 3,571 3.0 3,180 3.2
-------- -------- -------- --------
Total ...................................... $118,568 100.0% $101,303 100.0%
======== ======== ======== ========

US revenue increased by 17.6%, or $13.9 million, from $78.7 million in
2002 to $92.6 million in 2003. In 2002, the demand for the US services was
negatively impacted by the challenging and uncertain economic conditions, which
precluded many companies from spending resources on IT projects. Subsequently,
beginning in mid-to-late 2002, the US began to experience an increase in demand
for services. Accordingly, the revenue growth results directly from increased
demand for the majority of US services, including traditional consulting service
offerings, application management and support services and offshore development
services.

India revenue increased by 16.8%, or $2.2 million, from $13.4 million
in 2002, to $15.6 million in 2003. The increase was attributable primarily to
increased demand for services in the United States, as a majority of the total
revenue generated in India is derived from providing offshore development and
support services to customers sourced through the Company's affiliated entities
in other parts of the world, but most predominantly with the United States.

Europe revenue increased by 12.7%, or $764,000, from $6.0 million in
2002, to $6.8 million in 2003. The Company's operations in Denmark increased by
$1.6 million, while the revenue in the United Kingdom and Sweden decreased by
$603,000 and $262,000, respectively. The improvement in Denmark was attributable
primarily to a general increase in demand for local SAP services, including a
$2.0 million implementation contract with a large agricultural-based company.
The decrease in the United Kingdom results primarily from efforts to maintain
the current PeopleSoft application management business while only targeting new
engagements that can be delivered using India resources. The decrease in Sweden
resulted primarily from challenging local economic conditions. Accordingly, the
Company transitioned its operations in Sweden to Denmark as of January 1, 2003.

-39-

Japan revenue increased by 12.3% or $391,000, from $3.2 million for
2002, to $3.6 million in 2003. The increase was due primarily to stronger demand
for the Company's consulting services within the local SAP market.

Operating Income (Loss). The following table displays operating income
(loss) by reportable segment (in thousands).

Year Ended December 31
--------------------------
2003 2002
----------- ----------

United States......................... $ (5,558) $ (7,036)
India................................. 1,727 2,284
Europe................................ 134 (1,093)
Japan................................. 372 (615)
----------- ----------
Total................................. $ (3,325) $ (6,460)
=========== ==========

US operating performance improved by $1.4 million, from an operating
loss of $7.0 million in 2002, to an operating loss of $5.6 million in 2003. The
$7.0 million operating loss in 2002 was attributable primarily to the $8.4
million of SeraNova receivable impairment and other charges and approximately
$1.1 million of proxy contest charges recorded during 2002. The $5.6 million
operating loss in 2003 was attributable primarily to the $5.5 million of
SeraNova receivable impairment and other charges and the $1.5 million of proxy
contest charges recorded during 2003.

India operating income decreased by $557,000, from $2.3 million in
2002, to $1.7 million in 2003. The decrease was attributable primarily to an
increase in consultant salaries (as a result of both increased headcount and
local market adjustments to base consultant salaries), non-billable consultant
time and other related costs as well as a decrease in average consultant
utilization rates.

Europe operating performance improved by $1.2 million, from an
operating loss of $1.1 million in 2002, to operating income of $134,000 in 2003.
The improvement was attributable primarily to an improvement in the operating
performance of Denmark (an improvement of $531,000), Sweden (an improvement of
$636,000) and the UK (an improvement of $60,000).

Japan operating performance improved by $987,000, from an operating
loss of $615,000 in 2002, to operating income of $372,000 in 2003. The
improvement was attributable primarily to management efforts to re-organize and
restructure the local operations during late 2002. In December 2002, management
initiated efforts to decrease total operating expenses by reducing employee
headcount and eliminating discretionary expenditures such as sales and marketing
programs, training, etc.

-40-

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

The following discussion compares the segment results of continuing
operations for the year ended December 31, 2002 and the year ended December 31,
2001.

Revenue. The following table displays revenues by reportable segment
(in thousands).

Year Ended December 31
-----------------------------------------------------
2003 2002
------------------------ ------------------------
Percentage of Percentage of
Dollars Total Dollars Total
-------- ------------ -------- --------

United States............................ $.78,713 77.7% $ 74,023 72.6%
India ................................... 13,386 13.2 12,440 12.2
Europe .................................. 6,024 5.9 10,737 10.5
Japan ................................... 3,180 3.2 4,787 4.7
-------- ------------ -------- --------
Total ................................... $101,303 100.0% $101,987 100.0%
======== ============ ======== ========

US revenue increased by 6.3%, or $4.7 million, from $74.0 million in
2001 to $78.7 million in 2002. Since the latter half of 2001, the Company had
experienced challenging economic conditions that precluded many companies from
spending resources on IT projects, which had adversely impacted the demand for
the Company's services. Since mid-2002, the US has begun to experience an
increase in demand for services, including its professional consulting and
application management services.

India revenue increased by 7.6%, or $1.0 million, from $12.4 million in
2001 to $13.4 million in 2002. The increase was attributable primarily to
increased demand for services in the US in the latter half of 2002, as a
majority of the total revenue generated in India is derived from providing
offshore development and support services to customers sourced through the
Company's affiliated entities in other parts of the world, but most
predominantly with the United States.

As a result of the Company's downsizing of its European operations, the
revenues in Europe decreased since 2001. Europe revenue decreased by 43.9%, or
$4.7 million, from $10.7 million in 2001 to $6.0 million in 2002. The decrease
was attributable primarily to the United Kingdom ("UK") operations (a decrease
of $4.2 million), while the Nordic operations (Denmark and Sweden) decreased by
$503,000. As a result of the decline in operating performance, the Company
executed a plan to reorganize and downsize the Company's operations in the UK in
the fourth quarter of 2001. The UK operations now consist of a much smaller core
group of billable consultants, focused primarily on providing application
management and support services in the PeopleSoft market. The decrease in Nordic
operations resulted primarily from challenging economic conditions in Sweden.
Accordingly, the Company has ceased operations in Sweden as of January 1, 2003.

-41-

Japan revenue decreased by 33.6%, or $1.6 million, from $4.8 million in
2001 to $3.2 million in 2002 as a result of challenging economic conditions.

Operating Income (Loss). The following table displays operating income
(loss) by reportable segment (in thousands).

Year Ended December 31
-----------------------------
2002 2001
--------- ----------

United States........................ $ (7,036) $ (6,988)
India................................ 2,284 3,078
Europe............................... (1,093) (8,496)
Japan................................ (615) (140)
--------- ----------
Total................................ $ (6,460) $ (12,546)
========= ==========

The US operating loss increased slightly by 0.7%, or $48,000, from just
under $7.0 million in 2001 to just over $7.0 million in 2002. The US operating
losses were generated primarily as a result of the $9.5 million of special
charges in 2002 associated with the SeraNova receivable impairment and the proxy
contest, and the $8.2 million of special charges in 2001 associated with the ASP
business and the termination of a project to build and operate a technology
development and support center in Puerto Rico (collectively, the "Special
Charges").

India operating income decreased by 25.8%, or $794,000, from $3.1
million in 2001 to $2.3 million in 2002. The decrease was attributable primarily
to an increase in consultant salaries (as a result of both increased headcount
and local market adjustments to base consultant salaries), non-billable
consultant time and other related costs as well as a decrease in average
consultant billing rates

Europe operating loss decreased by 87.1%, or $7.4 million, from $8.5
million in 2001 to $1.1 million in 2002. The improvement was attributable
primarily to an improvement in the operating performance of the UK of $8.0
million, while the Nordic operations declined by $551,000. The improvement in
the UK operating performance in 2002 resulted primarily from the restructuring
program initiated in the UK during late 2001. The decline in the Nordic
operating performance resulted from competitive local conditions, primarily
within the SAP software market.

Japan operating performance declined $475,000, from $140,000 in 2001 to
$615,000 million in 2002. The decrease was attributable primarily to competitive
pricing pressures on consultant bill rates as well as an increase in
non-billable consultant time.

Liquidity and Capital Resources

The Company had cash and cash equivalents of $1.9 million at December
31, 2003 and $1.2 million at December 31, 2002. The Company had working capital
of $9.5 million at December 31, 2003 and $13.1 million at December 31, 2002. The
decrease in working capital resulted primarily from the sale of the Former
Subsidiaries and the write-down of the SeraNova Note during 2003.

-42-

Cash used in operating activities of continuing operations was $707,000
for the year ended December 31, 2003, resulting primarily from the net loss of
$6.4 million (less the net loss from discontinued operations of $2.1 million,
the non-cash charges related to the SeraNova receivable impairment and other
charges of $5.5 million and depreciation and amortization of $3.5 million) and
increases in accounts receivable of $6.4 million and other current assets of
$1.1 million and a decrease in accrued expenses and other liabilities of $1.1
million. These amounts were partially offset by an increase in accrued payroll
and related taxes of $3.2 million. The increase in accounts receivable results
from a combination of an overall increase in revenue, an increase in
milestone-based billing at quarter-end and an expected slow-down in year-end
collections. The changes in operating assets and liabilities result primarily
from timing differences. Cash used by operating activities of continuing
operations for the year ended December 31, 2002 was $23,000.

The Company invested $1.6 million and $1.5 million in computer
equipment, internal-use computer software and office furniture and fixtures
during the year ended December 31, 2003 and 2002, respectively. The increase
results primarily from the replacement of computer equipment and the development
of certain internal-use software.

On May 31, 2000, the Company and PNC Bank, N.A. (the "Bank") entered
into a three-year revolving credit facility. In July 2003, the credit facility
was extended until May 31, 2006. The credit facility is currently comprised of a
revolving line of credit pursuant to which the Company could borrow up to $15.0
million either at the Bank's prime rate per annum or the Euro Rate plus 1.75% to
2.5% based upon the Company's ratio of debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA"). The credit facility is collateralized
by substantially all of the assets of the Company's United States based
operations. The maximum borrowing availability under the line of credit is based
upon a percentage of eligible billed and unbilled accounts receivable, as
defined.

During 2002, the Company incurred charges related to the Proxy Contest.
As a result of the Proxy Contest charges, the Company was not in compliance with
the EBITDA covenant as of June 30, 2002 and September 30, 2002. In January 2003,
the Company finalized with the Bank the terms of a waiver and amendment to the
credit agreement. The terms of the waiver and amendment included, among other
things, (1) a waiver of the EBITDA covenant defaults as of June 30, 2002 and
September 30, 2002, (2) a modification to the definitions of EBITDA, total
shareholders' equity and unconsolidated shareholders' equity (for purposes of
computing related covenant compliance) to exclude Proxy Contest charges of
$464,000 for the quarter ended June 30, 2002 and $413,000 for the quarter ended
September 30, 2002 only, (3), a reduction in the minimum EBITDA covenant for the
fourth quarter and full year 2002 only, and (4) a modification to the
consolidated net worth and unconsolidated net worth covenants to exclude any
changes to consolidated net worth and unconsolidated net worth resulting from
the write-down or write-off of up to $12.6 million of the note due from
SeraNova.

As a result of the SeraNova receivable impairment and other related
charges and the Proxy Contest charges incurred during the quarter ended March
31, 2003, the Company was not in compliance with the consolidated net worth,
unconsolidated net worth and EBITDA covenants as of March 31, 2003. In July
2003, the Company executed with the Bank an amendment to the credit agreement.
The terms of the amendment included, among other things, (1) a 3-year extension
of the credit facility to May 31, 2006, (2) a reduction of the maximum revolving
advance amount under the credit facility to $15.0 million, (3) a waiver of the
covenant defaults existing as of March 31, 2003, (4) a modification to the
definitions of total shareholders' equity and unconsolidated shareholders'
equity (for purposes of computing related covenant compliance) and a
modification to the computation of minimum EBITDA to exclude Proxy Contest
charges of $297,000 for the quarter ended March 31, 2003 only, (5) an increase
in the minimum EBITDA covenants to $1.3 million, $1.8 million and $1.9 million
for the second, third and fourth quarters 2003, respectively, and (6) a
modification to the consolidated net worth and unconsolidated net worth
covenants to exclude any changes to consolidated net worth and unconsolidated
net worth resulting from the write-down or write-off of up to $13.6 million of
the note due from SeraNova.

-43-

As a result of the charge incurred during the quarter ended June 30,
2003 related to the guarantee of SeraNova debt, the Company was not in
compliance with the EBITDA covenant as of June 30, 2003. In November 2003, the
Company executed with the Bank an amendment to the credit agreement. The terms
of the amendment included, among other things, (1) a waiver of the covenant
default existing as of June 30, 2003, (2) a modification to the definitions of
total shareholders' equity and unconsolidated shareholders' equity (for purposes
of computing related covenant compliance) and a modification to the computation
of minimum EBITDA to exclude the guarantee of SeraNova debt charge of $581,000
for the quarter ended June 30, 2003 only, and a modification to the definitions
of total shareholders' equity and unconsolidated shareholders' equity (for
purposes of computing related covenant compliance) and a modification to the
computation of minimum EBITDA to exclude Proxy Contest charges of $750,000 for
the quarter ended September 30, 2003 only.

The Company was not in compliance with the unconsolidated net worth
covenant as of December 31, 2003. In March 2004, the Company finalized with the
Bank the terms of a waiver of such default. The Company expects to be able to
comply with all financial covenants in 2004.

On May 31, 2000, SeraNova and the Company formalized a $15.1 million
unsecured promissory note (the "Note") relating to net borrowings by SeraNova
from the Company through such date. The Note bears interest at the prime rate
plus 1/2%.

SeraNova failed to make final payment of all amounts due under the Note
to the Company as of July 31, 2001. On August 16, 2001, the Company filed a
complaint against SeraNova and Silverline. As of such date, SeraNova was
obligated to pay to the Company the remaining principal (approximately $9.1
million) and accrued interest (approximately $1.0 million), or an aggregate of
$10.1 million. On September 25, 2001, SeraNova and Silverline filed a joint
Answer to the Company's complaint. In addition, SeraNova filed a counterclaim
against the Company for compensatory damages in excess of $5.5 million and
punitive damages in the amount of $10.0 million. After completion of the
discovery process, the Company moved for summary judgment. On April 17, 2003,
the Court granted partial summary judgment. On July 11, 2003, the Court
dismissed the defendant's counterclaims seeking compensatory and punitive
damages. On August 8, 2003, SeraNova and Silverline Technologies, Inc. filed for
Chapter 7 Bankruptcy, thereby staying this action as to these defendants. There
has been no notice that Silverline Technologies Limited is insolvent. Shortly
thereafter, counsel for defendants asked the Court and was granted permission to
be relieved as counsel. On September 22, 2003, the Company moved for entry of
default against Silverline. In February 2004, the Company moved for entry of
default judgment against Silverline.

-44-

In addition, SeraNova failed to pay certain outstanding lease
obligations incurred under the terms of the Space Sharing Agreement dated
January 1, 2000 by and between the Company and SeraNova to the Company's
landlords. Accordingly, on March 4, 2002, the Company filed an arbitration
demand with the American Arbitration Association against the SeraNova Group. The
demand for arbitration, which sought damages, alleged among other things that
the SeraNova Group failed to pay outstanding lease obligations to the Company's
landlords and to reimburse the Company for all rent payments made by the Company
on their behalf. An arbitration hearing was held on June 25, 2002 and June 28,
2002 seeking $525,000 in outstanding lease obligations. On August 9, 2002, an
award was issued in the amount of $616,905 (including attorney's fees) plus
reimbursement of administrative fees, in favor of the Company and against the
SeraNova Group jointly and severally. In an action filed in the Superior Court
of New Jersey, the Court confirmed the $624,000 award, jointly and severally as
to the SeraNova Group, and issued a writ of execution against the SeraNova
Group's assets. The Sheriff of Middlesex County levied this writ of execution on
October 8, 2002 against a bank account held by Silverline Technologies, Inc. On
October 16, 2002, pursuant to this writ, the bank turned over $626,247 to the
Sheriff. On November 6, 2002 the Sheriff sent the funds to the Company's
attorneys and the funds were deposited into an attorney trust account on
November 8, 2002. On December 13, 2002, the Company commenced an action in the
Superior Court of New Jersey, Chancery Division, to recover additional amounts
due and owing from the SeraNova Group under the Arbitration Award and to
determine whether HSBC Bank USA ("HSBC"), a creditor of the SeraNova Group, has
priority to the funds levied upon by the Sheriff. On January 31, 2003, the Court
entered judgment in the Company's favor in the amount of $218,805, representing
the SeraNova Group's additional unpaid rent arrearages under the arbitration
award. On February 28, 2003, the Court entered judgment in the Company's favor
in the amount of $220,415, representing the Company's attorney's fees in
connection with the Company's efforts to enforce the SeraNova Group's
obligations under the arbitration award. On March 10, 2003, the Court ordered
HSBC to produce discovery proving its priority to the $626,247 being held in
trust. Thereafter, the Company and HSBC entered into a settlement agreement only
as to the $626,247 being held in trust whereby the Company remitted $570,228 to
HSBC, and the remaining funds were released to the Company. The Company does not
believe that the outcome of this claim will have a materially adverse effect on
the Company's business, financial condition or results of operations.

The Company had also been periodically engaged in discussions with
management of the SeraNova Group, with the objective of seeking an out of court
resolution to all outstanding matters involving the Note, and certain other
receivables and lease obligations. However, the Company believed that the
liquidity issues plaguing the SeraNova Group required a reassessment of the
realizability of these outstanding amounts as of June 30, 2002. Although no
final resolution had been reached, the Company believed that the substance of
these discussions provided a basis for determining the approximate realizable
value of the Note and other receivables, as well as an estimate of the costs
required to exit certain lease obligations.

-45-

Accordingly, the Company recorded $8.4 million of SeraNova receivable
impairment and other charges during the year ended December 31, 2002.
Specifically, the Company recorded a $5.1 million charge to write-down the
carrying value of the Note to $4.0 million. Additionally, the Company recorded a
$1.3 million charge to write-off the carrying value of other SeraNova
receivables (primarily, accrued interest on the Note and a receivable for a
system implementation project). Also, the Company recorded a charge of $1.5
million for certain lease exit costs. Such charge represents primarily an
accrued liability for obligated space and equipment costs for which the Company
currently believes it cannot use or sublease and the differential between
certain Company lease obligations and sublease amounts to be received. As of
December 31, 2002, $1.3 million of the liability remained outstanding, of which
$1.0 million was included in other long-term liabilities.

The Company subsequently believed there had been an apparent
deterioration in the financial condition of the SeraNova Group. Accordingly, the
Company re-assessed the likelihood of recovering amounts owed by the SeraNova
Group as well as the assumptions used in recording the original lease obligation
charge. Additionally, the Company was notified during the first quarter of 2003
of its obligation to pay additional office space and equipment rentals, which
had been previously assigned to SeraNova by the Company, because the SeraNova
Group had failed to make the required payments.

Accordingly, the Company recorded $5.1 million of additional charges
associated with the Note and certain other related issues during the year ended
December 31, 2003. The Company recognized an additional impairment charge of
$4.0 million related to the Note, approximately $321,000 related to other
assets, approximately $474,000 in costs required to exit certain lease
obligations and $265,000 in legal fees. The Company had determined that due to
the apparent financial condition of the SeraNova Group that recovery of the
SeraNova Note was not probable.

The following table illustrates the charges related to SeraNova during 2002 and
2003, as well as cash payments, non-cash charges and remaining liability as of
December 31, 2002 and 2003;

Write-Down of Write-Off Lease
Note of Other Obligations
Receivable Receivables - and Legal and
- SeraNova SeraNova Settlements Other Charges Total
--------------- ---------------- --------------- -------------- --------------

Charges to operations during 2002 ... $ 5,140,000 $ 1,257,000 $ 1,501,000 $ 464,000 $ 8,362,000
Costs paid during 2002 .............. -- -- (361,000) (318,000) (679,000)
Non-cash items ...................... (5,140,000) (1,257,000) -- -- (6,397,000)
----------- ----------- ----------- ----------- -----------
Accrued costs as of December 31, 2002 -- -- 1,140,000 146,000 1,286,000
Charges to operations during 2003 ... 4,000, 000 -- 795,000 265,000 5,060,000
Costs paid during 2003 .............. -- -- (1,060,000) (265,000) (1,325,000)
Non-cash items ...................... (4,000,000) -- -- -- (4,000,000)
----------- ----------- ----------- ----------- -----------
Accrued costs as of December 31, 2003 $ -- $ -- $ 875,000 $ 146,000 $ 1,021,000
=========== =========== =========== =========== ===========

As of December 31, 2003, $1.0 million of the liability remained
outstanding, of which $643,000 was included in other long-term liabilities. The
Company expects to pay out this liability through 2008.

-46-

Also during 2003, Zions First National Bank ("Zions") informed the
Company that Network Publishing, Inc., a former wholly-owned subsidiary of the
Company, which became a wholly-owned subsidiary of SeraNova upon the spin-off of
SeraNova by the Company in 2000, was delinquent on a loan made by Zions and
guaranteed by the Company. Zions was demanding payment of $535,608 from the
Company, plus interest accrued from April 1, 2002. In the third quarter 2003,
the Company negotiated a settlement with Zions. Accordingly, the Company
recorded a $474,000 charge in the SeraNova receivable impairment and other
charges line item in 2003 to cover the settlement amount of $430,000 plus
related legal costs of $44,000. The settlement amount was paid out in
installments through January 2004.

The Company's 2004 operating plan contains assumptions regarding
revenue and expenses. The achievement of the operating plan depends heavily on
the timing of work performed by the Company on existing projects and the ability
of the Company to gain and perform work on new projects. Project cancellations,
delays in the timing of work performed by the Company on existing projects or
the inability of the Company to gain and perform work on new projects could have
an adverse impact on the Company's ability to execute its operating plan and
maintain adequate cash flow. In the event actual results do not meet the
operating plan, management believes it could execute contingency plans to
mitigate such effects. Such plans include additional cost reductions or seeking
additional financing. In addition, the Company may seek additional financing
from time to time for general corporate purposes. Considering the cash on hand,
the remaining availability under the credit facility and based on the
achievement of the operating plan and management's actions taken to date,
management believes that it has the ability to continue to generate sufficient
cash to satisfy its operating requirements in the normal course of business and
that its available 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.

Contractual Obligations and Other Commercial Commitments

The following tables summarize the Company's contractual obligations
and other commercial commitments as of December 31, 2003:

Payments Due by Period
--------------------------------------------------------------------------------
Description of Less than 1 - 3 3 - 5 More than
Contractual Obligation Total 1 year years years 5 years
- ---------------------- ----------- ----------- ----------- ----------- -----------

Revolving Credit Facility ...... $ 8,288,000 $ 8,288,000 $ -- $ -- $ --
Capital Lease Obligations ...... 465,000 209,000 256,000 -- --
Operating Lease Obligations .... 7,152,000 2,213,000 4,190,000 749,000 --
Other Long-Term Liabilities .... 893,000 -- 788,000 105,000 --
----------- ----------- ----------- ----------- -----------
Total Contractual Obligations... $16,798,000 $10,710,000 $ 5,234,000 $ 854,000 $ --
=========== =========== =========== =========== ===========

The Company uses its $15.0 million revolving credit facility with PNC
Bank to fund the working capital needs of the business; therefore, the
outstanding borrowings under the credit facility fluctuate accordingly. The
credit facility is collateralized by substantially all of the assets of the
United States based operations. The maximum borrowing availability under the
line of credit is based upon a percentage of eligible billed and unbilled
accounts receivable, as defined. As of December 31, 2003, the Company had
outstanding borrowings under the credit facility of $8.3 million. The Company
estimates undrawn availability under the credit facility to be $6.7 million as
of December 31, 2003. As of December 31, 2002, the Company had outstanding
borrowings under the credit facility of $6.1 million.

-47-

The Company has also entered into various contractual arrangements to
obtain certain office space, office equipment and vehicles under capital and
operating leases.

Recently Issued Accounting Standards

In November 2002, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 45 ("FIN No. 45"), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN No. 45 elaborates on the disclosures to be made by
a guarantor about its obligations under certain guarantees issued. It also
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provisions of
this Interpretation apply to guarantees issued or modified after December 31,
2002. The Company's initial adoption did not have a material effect on the
Company's consolidated results of operations, consolidated financial position or
consolidated cash flows.

In November 2002, the Emerging Issues Task Force ("EITF") of the FASB
reached a consensus on EITF No. 00-21, "Accounting for Revenue Arrangements with
Multiple Deliverables" ("EITF No. 00-21"). EITF No. 00-21 addresses how to
account for arrangements that may involve multiple revenue-generating
activities. The consensus guidance was applicable to agreements entered into in
quarters beginning after June 15, 2003. The Company adopted EITF No. 00-21
effective July 1, 2003 and is applying it on a prospective basis. The Company's
initial adoption did not have a material effect on the Company's consolidated
results of operations, consolidated financial position or consolidated cash
flows.

In January 2003, the FASB issued Interpretation No. 46 ("FIN No. 46),
"Consolidation of Variable Interest Entities," an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN No. 46
establishes accounting guidance for consolidation of variable interest entities
that function to support the activities of the primary beneficiary. In December
2003, the FASB revised FIN No. 46 and issued FIN No. 46 (revised December 2003)
("FIN No. 46R"). In addition to conforming to previously issued FASB Staff
Positions, FIN No. 46R deferred the implementation date for certain variable
interest entities. This revised interpretation is effective for all entities no
later than the end of the first reporting period that ends after March 15, 2004.
The Company does not have any investments in or contractual relationship or
other business relationship with a variable interest entity and therefore the
adoption of this interpretation will not have any impact on the Company's
consolidated results of operations, consolidated financial position or
consolidated cash flows.

In May 2003, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity" ("SFAS No.150"). SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances). The requirements
of this statement apply to issuers' classification and measurement of
freestanding financial instruments, including those that comprise more than one
option or forward contract. SFAS No. 150 was effective for financial instruments
entered into or modified after May 31, 2003, and otherwise was effective at the
beginning of the first interim period beginning after June 15, 2003. The
Company's initial adoption did not have a material effect on the Company's
consolidated results of operations, consolidated financial position or
consolidated cash flows.

-48-

European Monetary Union (EMU)

The Company currently only operates in certain European countries that
do not participate in the EMU. Therefore, the Company believes that the
conversion to the euro did not have a material financial impact on its
operations in Europe. However, the Company would re-evaluate the financial
impact of the conversion to the euro on its operations should those countries in
which the Company operates decide to join the EMU.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Although the Company cannot accurately determine the precise effect
thereof on its operations, it does not believe inflation, currency fluctuations
or interest rate changes have historically had a material effect on its revenues
or results of operations. Any significant effects of inflation, currency
fluctuations and changes in interest rates on the economies of the United
States, Asia, and Europe could adversely impact the Company's revenues and
results of operations in the future. If there is a material adverse change in
the relationship between European currencies and/or Asian currencies and the
United States Dollar, such change would adversely affect the result of the
Company's European and/or Asian operations as reflected in the Company's
financial statements. The Company has not hedged its exposure with respect to
this currency risk, and does not expect to do so in the future, since it does
not believe that it is practicable for it to do so at a reasonable cost.

Item 8. Financial Statements and Supplementary Data.

The financial statements and supplementary data required to be filed
pursuant to this Item 8 are included in this Annual Report on Form 10-K. A list
of the financial statements and supplementary data filed herewith is found at
"Item 15. Exhibits, List, and Reports on Form 8-K."

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

Not applicable.

Item 9A. Controls and Procedures.

Based on their evaluation as of December 31, 2003, our Chief Executive
Officer and Chief Financial Officer, have concluded that our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) were sufficiently effective to ensure that the
information required to be disclosed by us in this annual report on Form 10-K
was recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and instructions for Form 10-K.

There were no changes in our internal controls over financial reporting
during the quarter ended December 31, 2003 that have materially affected, or are
reasonably likely to materially affect our internal controls over financial
reporting. The Company is currently engaged in a broad review of its internal
control procedures in anticipation of the need for Intelligroup to issue its
assessment as to the effectiveness of our internal controls over financial
reporting and from our independent auditors to issue a report on management's
assessment of the effectiveness of the Company's internal control over financial
reporting.

-49-

PART III

Item 10. Directors and Executive Officers of the Registrant.

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 2004 Annual Meeting of Shareholders is incorporated herein by reference
to such proxy statement.

The Company has adopted a Code of Business Conduct and Ethics.

Item 11. Executive Compensation.

The discussion under the heading "Executive Compensation" in the
Company's definitive proxy statement for the 2004 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 2004 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 2004 Annual
Meeting of Shareholders is incorporated herein by reference to such proxy
statement.

Item 14. Principal Accounting Fees and Services.

The discussion under the heading "Principal Accounting Fees and
Services" in the Company's definitive proxy statement for the 2004 Annual
Meeting of Shareholders is incorporated herein by reference to such proxy
statement.

-50-

PART IV

Item 15. 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.

(2) Financial Statement Schedules.

None.

(3) Exhibits.

Reference is made to the Exhibit Index on Page 56.

(b) Reports on Form 8-K.

On October 28, 2003, the Company furnished a Form 8-K under
Item 12, containing a copy of its earnings release for the
period ending September 30, 2003 (including financial
statements).

On November 24, 2003, the Company filed a Form 8-K under Item
5 to report the resignation of Nicholas Visco from the
position of Senior Vice President-Finance and Administration,
Chief Financial Officer and Treasurer of the Company,
effective November 30, 2003.

On February 12, 2004, the Company furnished a Form 8-K under
Item 12, containing a copy of its earnings release for the
period ending December 31, 2003 (including financial
statements).

-51-

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 30th day of March
2004.

INTELLIGROUP, INC.

By: /s/ Nagarjun Valluripalli
--------------------------------
Nagarjun Valluripalli,
Chief Executive Officer

-52-

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/ Nagarjun Valluripalli Chief Executive Officer and Director March 30, 2004
- --------------------------------- (principal executive officer)
Nagarjun Valluripalli

/s/ Edward Carr Acting Chief Financial Officer (principal March 30, 2004
- --------------------------------- financial and accounting officer)
Edward Carr

/s/ Klaus Besier Director March 30, 2004
- ---------------------------------
Klaus Besier

/s/ Dennis McIntosh Director March 30, 2004
- ---------------------------------
Dennis McIntosh

/s/ Alexander Graham Wilson Director March 30, 2004
- ---------------------------------
Alexander Graham Wilson

/s/ Nic Di Iorio Director March 30, 2004
- ---------------------------------
Nic Di Iorio

/s/ Ashok Pandey Director March 30, 2004
- ---------------------------------
Ashok Pandey

-53-

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, as amended, of the Company.

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* Employment Agreement dated October 1, 1999 between the Company
and Nicholas Visco. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999.) See Exhibit 10.23.

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.)

-54-

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 10.8.

10.7 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.)

10.8 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.

10.9 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 10.10,
10.14 and 10.24.

10.10 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 10.9, 10.14 and 10.24.

10.11 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 10.13.

10.12 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.)

10.13 Fifth Amendment to the Implementation Partner Agreement dated
July 15, 1998, between the Company and PeopleSoft, Inc. See
Exhibit 10.11.

10.14 Amendment to the National Implementation Partner Agreement
dated as of January 1, 1999, between SAP America and the
Company. See Exhibits 10.9, 10.10 and 10.24.

-55-

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

10.15 Contribution Agreement by and between Intelligroup, Inc. and
SeraNova, Inc. dated as of January 1, 2000. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.)

10.16 Distribution Agreement by and between Intelligroup, Inc. and
SeraNova, Inc. dated as of January 1, 2000. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.)

10.17 Services Agreement by and between Intelligroup, Inc. and
SeraNova, Inc. dated as of January 1, 2000. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.)

10.18 Space Sharing Agreement by and among Intelligroup, Inc. and
SeraNova, Inc. dated as of January 1, 2000. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.)

10.19 Tax Sharing Agreement by and between Intelligroup, Inc. and
SeraNova, Inc. dated as of January 1, 2000. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.)

10.20 Amended and Restated Revolving Credit Loan and Security
Agreement among the Company, Empower, Inc. and PNC Bank,
National Association. (Incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000.)

10.21 Amended and Restated Promissory Note by and between the
Company and SeraNova, Inc. dated as of May 31, 2000.
(Incorporated by reference to the Company's Report on Form
8-K/A filed September 14, 2000.) See Exhibit 10.22.

10.22 Agreement and Waiver with respect to Amended and Restated
Promissory Note by and between the Company and SeraNova, Inc.
dated as of September 29, 2000. (Incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000.) See Exhibit 10.21.

10.23* First Amendment to Employment Agreement between the Company
and Nicholas Visco dated November 1, 2000. (Incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.) See Exhibit 10.4.

-56-

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

10.24 mySap.com Partner-Services Addendum effective June 7, 2000 to
R/3 National Logo Partner Agreement between SAP America, Inc.
and the Company. (Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000.) See Exhibits 10.9, 10.10 and 10.14.

10.25 Service Alliance Master Agreement and Addendums dated May 5,
2000 between PeopleSoft, Inc. and the Company. (Incorporated
by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000.)

10.26 First Amendment to Loan Documents and Waiver Agreement dated
March 27, 2002 between the Company, Empower, Inc. and PNC
Bank, National Association. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2001.)

10.27* Amended and Restated Employment Agreement dated September 20,
2002 between the Company and Nagarjun Valluripalli.
(Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2002.)

10.28 Second Amendment to Loan Documents and Waiver Agreement dated
January 6, 2003 between the Company, Empower, Inc. and PNC
Bank, National Association. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2002.)

10.29 Third Amendment to Loan Documents and Waiver Agreement dated
July 31, 2003 between the Company, Empower, Inc. and PNC Bank,
National Association. (Incorporated by reference to the
Company's Current Report on Form 8-K dated July 31, 2003,
filed with the Securities and Exchange Commission on August 5,
2003.)

10.30 Agreement dated August 7, 2003, by and between Intelligroup,
Inc. and Ashok Pandey. (Incorporated by reference to the
Company's Current Report on Form 8-K dated August 7, 2003,
filed with the Securities and Exchange Commission on August
12, 2003.)

10.31*+ Employment Agreement dated March 25, 2004 between the Company
and Christian Misvaer.

10.32 Fourth Amendment to Loan Documents and Waiver Agreement dated
October 22, 2003 between the Company, Empower, Inc. and PNC
Bank, National Association. (Incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003.)

-57-

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

10.33* Separation Agreement between Nicholas Visco and Intelligroup,
Inc. dated November 24, 2003. (Incorporated by reference to
the Company's Current Report on Form 8-K dated November 24,
2003, filed with the Securities and Exchange Commission on
November 24, 2003.)

10.34+ Waiver Agreement dated March 22, 2004 between the Company,
Empower, Inc. and PNC Bank, National Association.

14+ Code of Business Conduct and Ethics

21+ Subsidiaries of the Registrant.

23+ Consent of Deloitte & Touche LLP.

31.1+ Certifications of Chief Executive Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 301 of the
Sarbanes-Oxley Act of 2002

31.2+ Certifications of Chief Financial Officer Pursuant to Rule
13a-14(a), as Adopted Pursuant to Section 301 of the
Sarbanes-Oxley Act of 2002

32.1+ Certifications of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

32.2+ Certifications of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

- ------------------
* A management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to Item 15(c) of Form 10-K.

+ Filed herewith. All other exhibits previously filed.

-58-

INTELLIGROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Independent Auditors' Report.................................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2003 and 2002.................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2003, 2002 and 2001....................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2003, 2002 and
2001................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001....................................................... 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 Consolidated Financial Statements or is not applicable.

F-1

INDEPENDENT AUDITORS' REPORT

To the Shareholders of Intelligroup, Inc.:

We have audited the accompanying consolidated balance sheets of
Intelligroup, Inc. and subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

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

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey
March 29, 2004

F-2

INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002

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

Assets
Current Assets:
Cash and cash equivalents ................................................ $ 1,873,000 $ 1,163,000
Accounts receivable, less allowance for doubtful accounts of $749,000 and
$1,388,000 at December 31, 2003 and 2002, respectively ............... 23,941,000 17,745,000
Unbilled services ........................................................ 7,298,000 6,818,000
Prepaid income taxes ..................................................... 230,000 458,000
Deferred tax asset ....................................................... 1,041,000 1,088,000
Other current assets ..................................................... 4,005,000 2,858,000
Note receivable - SeraNova................................................ -- 4,000,000
Assets held for sale ..................................................... -- 3,069,000
------------ ------------
Total current assets............................................. 38,388,000 37,199,000
Property and equipment, net .............................................. 3,854,000 5,725,000
Deferred tax asset ....................................................... 521,000 118,000
Other assets ............................................................. 1,725,000 911,000
------------ ------------
$ 44,488,000 $ 43,953,000
============ ============

Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable ......................................................... $ 5,061,000 $ 5,229,000
Accrued payroll and related taxes ........................................ 9,110,000 5,891,000
Accrued expenses and other current liabilities ........................... 3,876,000 3,491,000
Deferred revenue ......................................................... 1,920,000 1,280,000
Income taxes payable...................................................... 459,000 190,000
Current portion of long-term debt and obligations under capital leases ... 8,497,000 6,374,000
Liabilities held for sale ................................................ -- 1,681,000
------------ ------------
Total current liabilities ....................................... 28,923,000 24,136,000
------------ ------------
Obligations under capital leases, less current portion ...................... 256,000 63,000
Other long-term liabilities ................................................. 893,000 1,028,000
------------ ------------
Total long-term liabilities ..................................... 1,149,000 1,091,000
------------ ------------

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, 16,987,000 and
16,630,000 shares issued and outstanding at December 31, 2003 and 2002 170,000 166,000
Additional paid-in capital ............................................... 42,190,000 41,366,000
Accumulated deficit ...................................................... (25,553,000) (19,168,000)
Accumulated other comprehensive loss ..................................... (2,391,000) (3,638,000)
------------ ------------
Total shareholders' equity ......................................... 14,416,000 18,726,000
------------ ------------
$ 44,488,000 $ 43,953,000
============ ============0

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

F-3

INTELLIGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2003, 2002 and 2001

2003 2002 2001
------------- ------------- -------------

Revenue .......................................................... $ 118,568,000 $ 101,303,000 $ 101,987,000
Cost of sales .................................................... 83,641,000 70,333,000 69,682,000
------------- ------------- -------------
Gross profit ................................................ 34,927,000 30,970,000 32,305,000
------------- ------------- -------------
Selling, general and administrative expenses ..................... 28,542,000 25,242,000 28,055,000
Depreciation and amortization .................................... 2,715,000 2,753,000 3,535,000
SeraNova receivable impairment and other charges ................. 5,534,000 8,362,000 --
Proxy contest charges ............................................ 1,461,000 1,073,000 --
Restructuring and other special charges .......................... -- -- 13,261,000
------------- ------------- -------------
Total operating expenses .................................... 38,252,000 37,430,000 44,851,000
------------- ------------- -------------
Operating loss .............................................. (3,325,000) (6,460,000) (12,546,000)
Interest income .................................................. 83,000 31,000 527,000
Interest expense ................................................. (441,000) (394,000) (686,000)
Other (expense) income ........................................... (285,000) (123,000) 123,000
------------- ------------- -------------
Loss from continuing operations before income tax
provision ................................................... (3,968,000) (6,946,000) (12,582,000)
Income tax provision ............................................. 283,000 491,000 341,000
------------- ------------- -------------
Loss from continuing operations .................................. (4,251,000) (7,437,000) (12,923,000)
(Loss) income from discontinued operations, net of
tax expense of $15,000, $70,000 and $252,000,
respectively (including a loss on disposal of
$1,706,000 in 2003) ......................................... (2,134,000) (1,046,000) 330,000
------------- ------------- -------------
Net loss ......................................................... $ (6,385,000) $ (8,483,000) $ (12,593,000)
============= ============ =============
(Loss) earnings per share:
Basic and diluted (loss) earnings per share:
Loss from continuing operations ......................... $ (0.25) $ (0.45) $ (0.78)
Discontinued operations ................................. (0.13) (0.06) 0.02
------------- ------------- -------------
Net loss per share .................................. $ (0.38) $ (0.51) $ (0.76)
============= ============ =============
Weighted average number of common shares -
basic and diluted .................................. 16,697,000 16,630,000 16,630,000
============= ============ =============

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, 2003, 2002 and 2001

Retained Accumulated
Common Stock Additional Earnings Other Total Comprehensive
------------------------- Paid-in (Accumulated Comprehensive Shareholders' Loss for the
Shares Amount Capital Deficit) Income (Loss) Equity Period
----------- ------------ ------------ ------------ ------------ ------------ ------------

Balance at December 31, 2000 .. 16,630,000 $ 166,000 $ 41,366,000 $ 1,908,000 $ (2,239,000) $ 41,201,000

Currency translation
adjustments.................. -- -- -- -- (1,826,000) (1,826,000) $ (1,826,000)

Net loss ...................... -- -- -- (12,593,000) -- (12,593,000) (12,593,000)
----------- ------------ ------------ ------------ ------------ ------------ ------------

Balance at December 31, 2001 .. 16,630,000 166,000 41,366,000 (10,685,000) (4,065,000) 26,782,000 $(14,419,000)
============

Currency translation
adjustments.................. -- -- -- -- 427,000 427,000 $ 427,000

Net loss ...................... -- -- -- (8,483,000) -- (8,483,000) (8,483,000)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2002 .. 16,630,000 166,000 41,366,000 (19,168,000) (3,638,000) 18,726,000 $ (8,056,000)
============

Exercise of stock options ..... 357,000 4,000 824,000 -- -- 828,000

Currency translation
adjustments.................. -- -- -- -- 1,247,000 1,247,000 $ 1,247,000

Net loss ...................... -- -- -- (6,385,000) -- (6,385,000) (6,385,000)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2003 .. 16,987,000 $ 170,000 $ 42,190,000 $(25,553,000) $ (2,391,000) $14,416,000 $(5,138,000)
=========== ============ ============ ============ ============ ============ ============

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, 2003, 2002 and 2001

2003 2002 2001
------------ ------------ ------------

Cash flows from operating activities:
Net loss ............................................................. $ (6,385,000) $ (8,483,000) $(12,593,000)
Less: (Loss) income from discontinued operations, net of tax ......... (2,134,000) (1,046,000) 330,000
------------ ------------ ------------
Loss from continuing operations ......................................... (4,251,000) (7,437,000) (12,923,000)
Adjustments to reconcile loss from continuing operations to net cash
(used in) provided by operating activities of continuing operations:
Depreciation and amortization .................................... 3,503,000 3,601,000 4,315,000
Provision for doubtful accounts .................................. 163,000 365,000 1,770,000
SeraNova receivable impairment and other charges ................. 5,534,000 8,362,000 --
Restructuring and other special charges .......................... -- -- 13,261,000
Deferred income taxes
(356,000) 25,000 (430,000)
Changes in operating assets and liabilities:
Accounts receivable ................................................ (6,359,000) (5,918,000) 6,176,000
Unbilled services .................................................. (480,000) 253,000 (1,178,000)
Prepaid income taxes ............................................... 228,000 (176,000) 102,000
Other current assets ............................................... (1,062,000) (674,000) 868,000
Other assets ....................................................... (438,000) 207,000 307,000
Accounts payable ................................................... (168,000) 1,965,000 (2,996,000)
Accrued payroll and related taxes .................................. 3,219,000 831,000 (1,322,000)
Accrued expenses and other current liabilities ..................... (1,054,000) (969,000) (52,000)
Accrued restructuring charges ...................................... (95,000) (680,000) (574,000)
Deferred revenue ................................................... 640,000 69,000 208,000
Income taxes payable ............................................... 269,000 153,000 (486,000)
------------ ------------ ------------
Net cash (used in) provided by operating activities of continuing
operations ......................................................... (707,000) (23,000) 7,046,000
------------ ------------ ------------
Cash flows from investing activities:
Purchases of equipment ............................................. (1,632,000) (1,451,000) (3,087,000)
Purchases of software licenses ..................................... -- -- (2,678,000)
------------ ------------ ------------
Net cash used in investing activities of continuing operations ....... (1,632,000) (1,451,000) (5,765,000)
------------ ------------ ------------

Cash flows from financing activities:
Principal payments under capital leases ............................ (374,000) (583,000) (594,000)
Proceeds from exercise of stock options ............................ 828,000 -- --
Other repayments ................................................... (135,000) (108,000) (7,000)
Net change in line of credit borrowings ............................ 2,229,000 1,993,000 (947,000)
Repayment of note receivable-SeraNova subsequent to spin-off date .. -- -- 2,060,000
------------ ------------ ------------
Net cash provided by financing activities of continuing operations . 2,548,000 1,302,000 512,000
------------ ------------ ------------
Effect of foreign currency exchange rate changes on cash .............. 1,247,000 427,000 (1,826,000)
------------ ------------ ------------
Net cash provided by (used in) continuing operations .................... 1,456,000 255,000 (33,000)
Net cash (used in) provided by discontinued operations .................. (746,000) (712,000) 758,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents .................... 710,000 (457,000) 725,000
Cash and cash equivalents at beginning of period ........................ 1,163,000 1,620,000 895,000
------------ ------------ ------------
Cash and cash equivalents at end of period .............................. $ 1,873,000 $ 1,163,000 $ 1,620,000
============ ============ ============

Supplemental disclosures of cash flow information:
Cash paid for income taxes ........................................... $ 351,000 $ 853,000 $ 879,000
============ ============ ============
Cash paid for interest ................................................ $ 441,000 $ 395,000 $ 686,000
============ ============ ============

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 - Business and Operations and Summary of Significant Accounting Policies

Business and Operations

Intelligroup, Inc., and its subsidiaries (the "Company") provide a wide
range of high-quality, cost-effective information technology solutions and
services. These services and solutions include the development, integration,
implementation, management and support of enterprise, e-commerce and m-commerce
software applications to companies of all sizes. The Company markets its
services to a wide variety of industries, the majority of which are in the
United States. The majority of the Company's business is with large established
companies, including consulting firms serving numerous industries.

The Company's 2004 operating plan contains assumptions regarding
revenue and expenses. The achievement of the operating plan depends heavily on
the timing of work performed by the Company on existing projects and the ability
of the Company to gain and perform work on new projects. Project cancellations,
delays in the timing of work performed by the Company on existing projects or
the inability of the Company to gain and perform work on new projects could have
an adverse impact on the Company's ability to execute its operating plan and
maintain adequate cash flow. In the event actual results do not meet the
operating plan, management believes it could execute contingency plans to
mitigate such effects. Such plans include additional cost reductions or seeking
additional financing. Considering the cash on hand, the credit facility and
based on the achievement of the operating plan and management's actions taken to
date, management believes it has the ability to continue to generate sufficient
cash to satisfy its operating requirements in the normal course of business.

Principles of Consolidation and Use of Estimates

The accompanying consolidated financial statements include the accounts
of Intelligroup, Inc. and its majority owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the 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.

F-7

Note 1 - Business and Operations and Summary of Significant Accounting Policies
(Continued)

On April 2, 2003, the Company consummated the sale (the "Sale"),
effective as of March 1, 2003, of Intelligroup Singapore Pte Ltd., a Singapore
corporation; Intelligroup Hong Kong Limited, a Hong Kong corporation;
Intelligroup Australia Pty Limited, an Australian corporation; and Intelligroup
New Zealand Limited, a New Zealand corporation, together representing the
Company's Asia-Pacific group of subsidiary companies, operating in Australia,
New Zealand, Singapore, Hong Kong and Indonesia (together, the "Former
Subsidiaries"), to Soltius Global Solutions PTE Ltd, a Singapore corporation
("Soltius"). As consideration, the Company received a 5% minority shareholding
in Soltius and a $650,000 note to be paid by Soltius to the Company over a
period of 12 months. The Company has received a total of $350,000 from Soltius
toward the note balance as of December 31, 2003. In March 2004, the Company
agreed to renegotiate the payment terms with Soltius. The revised terms call for
Soltius to make monthly payments through September 2004 of between $25,000 and
$50,000, plus a final $9,000 payment in October 2004.

The Consolidated Financial Statements of the Company have been
reclassified to reflect the Sale of the Former Subsidiaries to Soltius as
discontinued operations. Accordingly, the assets, liabilities, results of
operations, and cash flows of the Former Subsidiaries prior to the Sale have
been segregated in the consolidated balance sheets, consolidated statements of
operations and consolidated statements of cash flows. The net operating results,
assets, liabilities and net cash flows of the Former Subsidiaries have been
reported as discontinued operations.

Reclassifications

Certain prior year amounts have been reclassified to conform to the
2003 presentation.

Cash and Cash Equivalents

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

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts, 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 $163,000, $365,000 and $1,770,000 in 2003, 2002 and 2001, respectively.
Accounts written off totaled $802,000, $1,014,000 and $1,792,000 in 2003, 2002
and 2001, respectively.

F-8

Note 1 - Business and Operations and Summary of Significant Accounting Policies
(Continued)

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 (primarily three to 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.

The Company capitalizes direct costs incurred in connection with
developing or obtaining software for internal use, including external direct
costs of materials and services and payroll and payroll related costs for
employees who are directly associated with and devote time to an internal-use
software development project. The cost of the internal-use software and the
capitalized implementation-related costs are included within computer software
in property and equipment as of December 31, 2003 and 2002 (See Note 2). Such
capitalized costs are amortized on a straight-line basis over the software's
estimated useful life of three years.

Recoverability of Long-Lived Assets

The Company reviews the recoverability of its long-lived assets on a
periodic basis whenever events and changes in circumstances have occurred 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. If such assets are determined to be impaired, the impairment
recognized is the amount by which the carrying value of the assets exceeds the
fair value of the assets. Property and equipment to be disposed of by sale is
carried at the lower of then current carrying value or fair value less cost to
sell.

Revenue Recognition

The Company generates revenue from professional services rendered to
customers. The majority of the Company's revenue is generated under
time-and-material contracts whereby costs are generally incurred in proportion
with contracted billing schedules and revenue is recognized as services are
performed, with the corresponding cost of providing those services reflected as
cost of sales. The majority of customers are billed on an hourly or daily basis
whereby actual time is charged directly to the customer. Such method is expected
to result in reasonably consistent profit margins over the contract term.

F-9

Note 1 - Business and Operations and Summary of Significant Accounting Policies
(Continued)

The Company also derives a portion of its revenue from fixed-price,
fixed-time contracts. Revenue generated from most fixed-price contracts,
including most application management and support contracts, is recognized
ratably over the contract term, on a monthly basis in accordance with the terms
of the contract. Revenue generated from certain other fixed-price contracts is
recognized based on the ratio of labor hours incurred to estimated total labor
hours. This method is used because reasonably dependable estimates of the
revenues and costs applicable to various stages of a contract can be made, based
on historical experience and milestones set in the contract. The Company's
project delivery and business unit finance personnel continually review labor
hours incurred and estimated total labor hours, which may result in revisions to
the estimated amount of recognized revenue for the contract. If the Company does
not accurately estimate the resources required or the scope of work to be
performed for a contract or if the Company does not manage the project properly
within the planned time period, then a loss may be recognized on the contract.
Losses are recorded in the period when they become known.

The Company occasionally derives revenue from projects involving
multiple revenue-generating activities. Accordingly, the revenue from such
projects is accounted for in accordance with the Emerging Issues Task Force
("EITF") of the Financial Accounting Standards Board ("FASB") Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables." If a contract
involves the provision of multiple service elements, total estimated contract
revenue is allocated to each element based on the relative fair value of each
element. The amount of revenue allocated to each element is limited to the
amount that is not contingent upon the delivery of another element in the
future. Revenue for each element is then recognized as described above depending
upon whether the contract is a time-and-materials contract or a fixed-price,
fixed-time contract.

The Company reports gross reimbursable "out-of-pocket" expenses
incurred as both revenue and cost of sales in the statements of operations.

Unbilled services at December 31, 2003 and 2002 represent services
provided through December 31, 2003 and 2002, respectively, which are billed
subsequent to year-end. All such amounts are anticipated to be realized in the
following year.

Deferred revenue at December 31, 2003 and 2002 represents amounts
billed to customers but not yet earned or included as revenue as of December 31,
2003 and 2002, respectively. Such amounts are anticipated to be recorded as
revenue as services are performed in the subsequent year.

F-10

Note 1 - Business and Operations and Summary of Significant Accounting Policies
(Continued)

Stock-Based Compensation

Stock-based compensation issued to employees and directors is valued
using the intrinsic value method under Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." Under this method,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. Statement of
Financial Accounting Standard ("SFAS") No.123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, the Company has elected to continue to apply
the intrinsic-value-based method of accounting described above, and has adopted
only the disclosure requirements of SFAS No. 123. Stock-based compensation
issued to non-employees is valued using the fair value method.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value-based method of
accounting for stock-based employee compensation ("Transition Provisions"). In
addition, SFAS No. 148 amends the disclosure requirements of APB Opinion No. 28,
"Interim Financial Reporting," to require pro forma disclosure in interim
financial statements by companies that elect to account for stock-based
compensation using the intrinsic value method prescribed in APB Opinion No. 25
("Disclosure Provisions"). The Transition Provisions of SFAS No. 148 were
effective for financial statements for fiscal years ending after December 31,
2002. The Company continues to use the intrinsic value method of accounting for
stock-based compensation. As a result, the Transition Provisions do not have an
effect on the Company's consolidated financial statements. The Company has
adopted the Disclosure Provisions of SFAS No. 148; however, the Company will
continue to apply the intrinsic value method under APB Opinion No. 25.

For disclosure purposes, pro forma net loss and loss per share impacts
are provided as if the fair market value method under SFAS No. 123 had been
applied:

For the Years Ended December 31,
2003 2002 2001
------------ ------------ ------------

Net loss, as reported ........................ $ (6,385,000) $ (8,483,000) $(12,593,000)
Deduct: total stock-based employee
compensation expense determined under
fair-value-based method for all awards, net of
related tax effects .......................... (2,344,000) (7,884,000) (10,301,000)
------------ ------------ ------------
Pro forma net loss ........................... $ (8,729,000) $(16,367,000) $(22,894,000)
============ ============ ============
Basic and diluted loss per share:
As reported ............................. $ (0.38) $ (0.51) $ (0.76)
============ ============ ============
Pro forma ............................... $ (0.52) $ (0.98) $ (1.38)
============ ============ ============

F-11

Note 1 - Business and Operations and Summary of Significant Accounting Policies
(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 109%, 111% and
110%, risk-free interest rate of 2.0%, 1.8% and 3.3% and expected lives of 2.1,
2.4 and 2.7, in 2003, 2002 and 2001, respectively. The weighted average fair
value of options granted during 2003, 2002 and 2001 was $0.80, $0.58 and $0.70,
respectively.

Currency Translation

The local currency is the functional currency for all foreign
operations. 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
accumulated other comprehensive loss.

Concentrations

For the years ended December 31, 2003, 2002 and 2001, approximately
66%, 60% and 66% of revenue, respectively, was derived from projects in which
the Company's personnel implemented, extended, maintained, managed or supported
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, 2004 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 July 1997, the Company achieved Accelerated SAP
Partner Status with SAP by meeting certain criteria established by SAP. For the
years ended December 31, 2003, 2002 and 2001, approximately 26%, 24% and 18% of
revenue, respectively, was derived from projects in which the Company's
personnel implemented, extended, maintained, managed or supported software
developed by PeopleSoft. For the years ended December 31, 2003, 2002 and 2001,
approximately 5%, 9% and 10% of revenue, respectively, was derived from projects
in which the Company implemented, extended, maintained, managed or supported
software developed by Oracle.

A portion of the Company's revenue was generated by providing
supplemental resources for consulting teams assembled by other information
technology consulting firms or directly to the end-customer. For years ended
December 31, 2003, 2002 and 2001, 10%, 23% and 31%, respectively, of the
Company's revenue was generated by serving as a member of consulting teams
assembled by other information technology consulting firms.

During 2002, one customer accounted for approximately 10% of revenue.
During 2003 and 2001, no single customer accounted for more than 10% of revenue.

F-12

Note 1 - Business and Operations and Summary of Significant Accounting Policies
(Continued)

Income Taxes

Deferred income taxes are recognized for the tax consequences of
temporary 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.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net loss attributable to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share is computed by dividing net loss
available to common shareholders by the weighted average number of common shares
outstanding, adjusted for the incremental dilution of outstanding stock options,
if applicable. The computation of basic earnings (loss) per share and diluted
earnings (loss) per share were as follows:

For the Years Ended December 31,
2003 2002 2001
------------ ------------ ------------

Loss from continuing operations ................... $ (4,251,000) $ (7,437,000) $(12,923,000)

(Loss) income from discontinued operations
(2,134,000) (1,046,000) 330,000
------------ ------------ ------------
Net loss .......................................... $ (6,385,000) $ (8,483,000) $(12,593,000)
============ ============ ============

Basic and diluted (loss) earnings per share:
Weighted average number of common shares ....... 16,697,000 16,630,000 16,630,000
------------ ------------ ------------
Basic and diluted loss per share from continuing
operations ................................... $ (0.25) $ (0.45) $ (0.78)

Basic and diluted (loss) income per share from
discontinued operations....................... (0.13) (0.06) 0.02
------------ ------------ ------------
Basic and diluted net loss per share ........... $ (0.38) $ (0.51) $ (0.76)
============ ============ ============

Stock options, which would be antidilutive (1,289,000, 3,198,000 and
2,834,000 as of December 31, 2003, 2002 and 2001, respectively) have been
excluded from the calculations of diluted shares outstanding and diluted
earnings (loss) per share.

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. The Company does not utilize
derivative instruments. The carrying amount of the Company's line of credit
approximates fair market value based upon current borrowing rates available to
the Company.

F-13

Note 1 - Business and Operations and Summary of Significant Accounting Policies
(Continued)

Recently Issued Accounting Standards

In November 2002, the FASB issued Financial Interpretation ("FIN") No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates
on the disclosures to be made by a guarantor about its obligations under certain
guarantees issued. It also clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this Interpretation apply to guarantees issued or
modified after December 31, 2002. The Company's initial adoption did not have a
material effect on the Company's consolidated results of operations,
consolidated financial position or consolidated cash flows.

In November 2002, the EITF of the FASB reached a consensus on EITF
Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables." EITF Issue No. 00-21 addresses how to account for arrangements
that may involve multiple revenue-generating activities. The consensus guidance
was applicable to agreements entered into in quarters beginning after June 15,
2003. The Company adopted EITF Issue No. 00-21 effective July 1, 2003 and is
applying it on a prospective basis. The Company's initial adoption did not have
a material effect on the Company's consolidated results of operations,
consolidated financial position or consolidated cash flows.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities," an interpretation of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements." FIN No. 46 establishes accounting guidance
for consolidation of variable interest entities that function to support the
activities of the primary beneficiary. In December 2003, the FASB revised FIN
No. 46 and issued FIN No. 46R (revised December 2003). In addition to conforming
to previously issued FASB Staff Positions, FIN No. 46R deferred the
implementation date for certain variable interest entities. This revised
interpretation is effective for all entities no later than the end of the first
reporting period that ends after March 15, 2004. The Company does not have any
investments in or contractual relationship or other business relationship with a
variable interest entity and therefore the adoption of this interpretation will
not have any impact on the Company's consolidated results of operations,
consolidated financial position or consolidated cash flows.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances). The requirements
of this statement apply to issuers' classification and measurement of
freestanding financial instruments, including those that comprise more than one
option or forward contract. SFAS No. 150 was effective for financial instruments
entered into or modified after May 31, 2003, and otherwise was effective at the
beginning of the first interim period beginning after June 15, 2003. The
Company's initial adoption did not have a material effect on the Company's
consolidated results of operations, consolidated financial position or
consolidated cash flows.

F-14

Note 2 - Property and Equipment

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

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

Vehicles ...................................... $ 254,000 $ 152,000
Furniture ..................................... 3,458,000 3,404,000
Equipment ..................................... 11,508,000 10,632,000
Computer software ............................. 4,788,000 4,225,000
Leasehold improvements ........................ 1,096,000 1,066,000
------------ ------------
21,104,000 19,479,000
Less-Accumulated depreciation.................. (17,250,000) (13,754,000)
------------ ------------
$ 3,854,000 $ 5,725,000
============ ============

Depreciation expense was $3,503,000, $3,601,000 and $3,897,000
(including $788,000, $848,000 and $780,000 of depreciation expense recorded
within cost of sales, respectively) in 2003, 2002 and 2001, respectively.

Note 3 - Lines of Credit

On May 31, 2000, the Company and PNC Bank, N.A. (the "Bank") entered into a
three-year revolving credit facility. In July 2003, the credit facility was
extended until May 31, 2006. The credit facility is currently comprised of a
revolving line of credit pursuant to which the Company could borrow up to
$15,000,000 either at the Bank's prime rate per annum (4.25% as of December 31,
2003) or the Euro Rate plus 1.75% to 2.5% based upon the Company's ratio of debt
to earnings before interest, taxes, depreciation and amortization ("EBITDA").
The credit facility is collateralized by substantially all of the assets of the
Company's United States based operations. The maximum borrowing availability
under the line of credit is based upon a percentage of eligible billed and
unbilled accounts receivable, as defined.

F-15

Note 3 - Lines of Credit (Continued)

During 2002, the Company incurred charges related to the Company's
contested 2002 Annual Meeting of Shareholders ("Proxy Contest"). As a result of
the Proxy Contest charges, the Company was not in compliance with the EBITDA
covenant as of June 30, 2002 and September 30, 2002. In January 2003, the
Company finalized with the Bank the terms of a waiver and amendment to the
credit agreement. The terms of the waiver and amendment included, among other
things, (1) a waiver of the EBITDA covenant defaults as of June 30, 2002 and
September 30, 2002, (2) a modification to the definitions total shareholders'
equity and unconsolidated shareholders' equity (for purposes of computing
related covenant compliance) and a modification to the computation of minimum
EBITDA to exclude Proxy Contest charges of $464,000 for the quarter ended June
30, 2002 and $413,000 for the quarter ended September 30, 2002 only, (3), a
reduction in the minimum EBITDA covenant for the fourth quarter and full year
2002 only, and (4) a modification to the consolidated net worth and
unconsolidated net worth covenants to exclude any changes to consolidated net
worth and unconsolidated net worth resulting from the write-down or write-off of
up to $12,600,000 of the note due from SeraNova.

As a result of the SeraNova receivable impairment and other related
charges and the Proxy Contest charges incurred during the quarter ended March
31, 2003, the Company was not in compliance with the consolidated net worth,
unconsolidated net worth and EBITDA covenants as of March 31, 2003. In July
2003, the Company executed with the Bank an amendment to the credit agreement.
The terms of the amendment included, among other things, (1) a 3-year extension
of the credit facility to May 31, 2006, (2) a reduction of the maximum revolving
advance amount under the credit facility to $15,000,000, (3) a waiver of the
covenant defaults existing as of March 31, 2003, (4) a modification to the
definitions of total shareholders' equity and unconsolidated shareholders'
equity (for purposes of computing related covenant compliance) and a
modification to the computation of minimum EBITDA to exclude Proxy Contest
charges of $297,000 for the quarter ended March 31, 2003 only, (5) an increase
in the minimum EBITDA covenants to $1,300,000, $1,800,000 and $1,900,000 for the
second, third and fourth quarters 2003, respectively, and (6) a modification to
the consolidated net worth and unconsolidated net worth covenants to exclude any
changes to consolidated net worth and unconsolidated net worth resulting from
the write-down or write-off of up to $13,600,000 of the note due from SeraNova.

F-16

Note 3 - Lines of Credit (Continued)

As a result of the charge incurred during the quarter ended June 30,
2003 related to the guarantee of SeraNova debt, the Company was not in
compliance with the EBITDA covenant as of June 30, 2003. In October 2003, the
Company executed with the Bank an amendment to the credit agreement. The terms
of the amendment included, among other things, (1) a waiver of the covenant
default existing as of June 30, 2003, (2) a modification to the definitions of
total shareholders' equity and unconsolidated shareholders' equity (for purposes
of computing related covenant compliance) and a modification to the computation
of minimum EBITDA to exclude the guarantee of SeraNova debt charge of $581,000
for the quarter ended June 30, 2003 only, and a modification to the definitions
of total shareholders' equity and unconsolidated shareholders' equity (for
purposes of computing related covenant compliance) and a modification to the
computation of minimum EBITDA to exclude Proxy Contest charges of $750,000 for
the quarter ended September 30, 2003 only.

The Company was not in compliance with the unconsolidated net worth
covenant as of December 31, 2003. In March 2004, the Company finalized with the
Bank the terms of a waiver of such default.

As of December 31, 2003, the Company had outstanding borrowings under
the credit facility of $8,288,000. The Company estimates undrawn availability
under the credit facility to be $6,712,000 as of December 31, 2003. As of
December 31, 2002, the Company had outstanding borrowings under the credit
facility of $6,059,000.

Interest expense on debt and obligations under capital leases
approximated $441,000, $394,000 and $686,000 for the years ended December 31,
2003, 2002 and 2001, respectively.

F-17

Note 4 - Discontinued Operations

Summarized financial information for the discontinued operations of the
Former Subsidiaries is as follows:

For the Years Ended December 31,
2003 2002 2001
------------ ----------- -----------

Revenue................................................... $ 1,691,000 $ 7,028,000 $ 8,427,000
Pre-tax loss ............................................. (413,000) (976,000) 582,000
Income tax provision ..................................... 15,000 70,000 252,000
(Loss) income from discontinued operations,
excluding loss on sale ............................... (428,000) (1,046,000) 330,000

December 31, 2002
-----------------
Cash .................................................... $ 411,000
Accounts receivable, less allowance for doubtful accounts 1,467,000
Unbilled services ....................................... 323,000
Other current assets .................................... 192,000
Fixed assets ............................................ 300,000
Other assets ............................................ 376,000
----------
Assets held for sale .................................... $3,069,000
==========
Accounts payable ........................................ $ 377,000
Accrued payroll and related taxes ....................... 699,000
Accrued expenses and other current liabilities .......... 410,000
Income taxes payable .................................... 195,000
----------
Liabilities held for sale ............................... $1,681,000
==========

Additionally, the Company reported a loss on the sale of the Former
Subsidiaries of $1,706,000 for the year ended December 31, 2003.

F-18

Note 5 - Note Receivable - SeraNova

On May 31, 2000, SeraNova and the Company formalized a $15,100,000
unsecured promissory note (the "Note") relating to net borrowings by SeraNova
from the Company through such date. The Note bears interest at the prime rate
plus 1/2.

SeraNova failed to make final payment of all amounts due under the Note
to the Company as of July 31, 2001. On August 16, 2001, the Company filed a
complaint against SeraNova and Silverline Technologies Limited ("Silverline"),
which acquired SeraNova in March 2001. As of such date, SeraNova was obligated
to pay to the Company the remaining principal (approximately $9,140,000) and
accrued interest (approximately $940,000), or an aggregate of $10,080,000. On
September 25, 2001, SeraNova and Silverline filed a joint Answer to the
Company's complaint. In addition, SeraNova filed a counterclaim against the
Company for compensatory damages in excess of $5,500,000 and punitive damages in
the amount of $10,000,000. After completion of the discovery process, the
Company moved for summary judgment. On April 17, 2003, the Court granted partial
summary judgment. On July 11, 2003, the Court dismissed the defendant's
counterclaims seeking compensatory and punitive damages. On August 8, 2003,
SeraNova and Silverline Technologies, Inc. filed for Chapter 7 Bankruptcy,
thereby staying this action as to these defendants. There has been no notice
that Silverline Technologies Limited is insolvent. Shortly thereafter, counsel
for defendants asked the Court and was granted permission to be relieved as
counsel. On September 22, 2003, the Company moved for entry of default against
Silverline. In February 2004, the Company moved for entry of default judgment
against Silverline.

In addition, SeraNova failed to pay certain outstanding lease
obligations incurred under the terms of the Space Sharing Agreement dated
January 1, 2000 between the Company and SeraNova to the Company's landlords.
Accordingly, on March 4, 2002, the Company filed an arbitration demand with the
American Arbitration Association against SeraNova, Silverline and Silverline
Technologies, Inc. (collectively, the "SeraNova Group"). The demand for
arbitration, which sought damages, alleged among other things that the SeraNova
Group failed to pay outstanding lease obligations to the Company's landlords and
to reimburse the Company for all rent payments made by the Company on their
behalf. An arbitration hearing was held on June 25, 2002 and June 28, 2002
seeking $525,000 in outstanding lease obligations. On August 9, 2002, an award
was issued in the amount of $616,905 (including attorney's fees) plus
reimbursement of administrative fees, in favor of the Company and against the
SeraNova Group jointly and severally. In an action filed in the Superior Court
of New Jersey, the Court confirmed the $624,000 award, jointly and severally as
to the SeraNova Group, and issued a writ of execution against the SeraNova
Group's assets. The Sheriff of Middlesex County levied this writ of execution on
October 8, 2002 against a bank account held by Silverline Technologies, Inc. On
October 16, 2002, pursuant to this writ, the bank turned over $626,247 to the
Sheriff. On November 6, 2002 the Sheriff sent the funds to the Company's
attorneys and the funds were deposited into an attorney trust account on
November 8, 2002. On December 13, 2002, the Company commenced an action in the
Superior Court of New Jersey, Chancery Division, to recover additional amounts
due and owing from the SeraNova Group under the Arbitration Award and to
determine whether HSBC Bank USA ("HSBC"), a creditor of the SeraNova

F-19

Note 5 - Note Receivable - SeraNova (Continued)

Group, had priority to the funds levied upon by the Sheriff. On January 31,
2003, the Court entered judgment in the Company's favor in the amount of
$218,805, representing the SeraNova Group's additional unpaid rent arrearages
under the arbitration award. On February 28, 2003, the Court entered judgment in
the Company's favor in the amount of $220,415, representing the Company's
attorney's fees in connection with the Company's efforts to enforce the SeraNova
Group's obligations under the arbitration award. On March 10, 2003, the Court
ordered HSBC to produce discovery proving its priority to the $626,247 being
held in trust. Thereafter, the Company and HSBC entered into a settlement
agreement only as to the $626,247 being held in trust whereby the Company
remitted $570,228 to HSBC, and the remaining funds were released to the Company.
The Company does not believe that the future outcome of this claim will have a
materially adverse effect on the Company's business, financial condition or
results of operations.

The Company had also been periodically engaged in discussions with
management of the SeraNova Group, with the objective of seeking an out of court
resolution to all outstanding matters involving the Note, and certain other
receivables and lease obligations. However, the Company believed that the
liquidity issues plaguing the SeraNova Group required a reassessment of the
realizability of these outstanding amounts as of June 30, 2002. Although no
final resolution had been reached, the Company believed that the substance of
these discussions provided a basis for determining the approximate realizable
value of the Note and other receivables, as well as an estimate of the costs
required to exit certain lease obligations.

Accordingly, the Company recorded $8,362,000 of SeraNova receivable
impairment and other charges during the year ended December 31, 2002.
Specifically, the Company recorded a $5,140,000 charge to write-down the
carrying value of the Note to $4,000,000. Additionally, the Company recorded a
$1,257,000 charge to write-off the carrying value of other SeraNova receivables.
Also, the Company recorded a charge of $1,501,000 for certain lease exit costs.
Such charge represents primarily an accrued liability for certain obligated
space and equipment costs for which the Company currently believes it cannot use
or sublease and the differential between certain Company lease obligations and
sublease amounts to be received.

The Company subsequently believed there had been an apparent
deterioration in the financial condition of the SeraNova Group. Accordingly, the
Company re-assessed, as of March 31, 2003, the likelihood of recovering amounts
owed by the SeraNova Group as well as the assumptions used in recording the
original lease obligation charge. Additionally, the Company was notified during
the first quarter of 2003 of its obligation to pay additional office space and
equipment rentals, which had been previously assigned to SeraNova by the
Company, because the SeraNova Group had failed to make the required payments.

F-20

Note 5 - Note Receivable - SeraNova (Continued)

Accordingly, the Company recorded $5,060,000 of additional charges
associated with the Note and certain other related issues during the year ended
December 31, 2003. The Company recognized an additional impairment charge of
$4,000,000 related to the Note, approximately $321,000 related to other assets,
approximately $474,000 in costs required to exit certain lease obligations and
$265,000 in legal fees. The Company has determined that due to the apparent
financial condition of the SeraNova Group that recovery of the SeraNova Note is
not probable.

Write-Down Write-Off Lease
of Note of Other Obligations Legal and
Receivable Receivables and Other
- SeraNova - SeraNova Settlements Charges Total
----------- ----------- ----------- ----------- -----------

Charges to operations during 2002 .... $ 5,140,000 $ 1,257,000 $ 1,501,000 $ 464,000 $ 8,362,000
Costs paid during 2002 ............... -- -- (361,000) (318,000) (679,000)
Non-cash items ....................... (5,140,000) (1,257,000) -- -- (6,397,000)
----------- ----------- ----------- ----------- -----------
Accrued costs as of December 31, 2002
-- -- 1,140,000 146,000 1,286,000

Charges to operations during 2003 .... 4,000,000 -- 795,000 265,000 5,060,000
Costs paid during 2003 ............... -- -- (1,060,000) (265,000) (1,325,000)
Non-cash items ....................... (4,000,000) -- -- -- (4,000,000)
----------- ----------- ----------- ----------- -----------

Accrued costs as of December 31, 2003
$ -- $ -- $ 875,000 $ 146,000 $ 1,021,000
=========== =========== =========== =========== ===========

As of December 31, 2003, $1,021,000 of the liability remained
outstanding, of which $643,000 was included in other long-term liabilities. The
Company expects to pay out this liability through 2008.

Note 6 - Restructuring and Other Special Charges

During the year ended December 31, 2001, in an effort to further refine
the Company's business strategy around its core competencies and to refocus on
more active markets, the Company recorded a $13,261,000 restructuring and other
special charges provision. The charges, which were mainly non-cash in nature,
were related primarily to the ASP business in the United States, the termination
of an agreement to build and operate a technology development and support center
in Puerto Rico and to the restructuring and downsizing of the Company's
operations in the United Kingdom.

F-21

Note 6 - Restructuring and Other Special Charges (Continued)

Activity in accrued costs for restructuring and other special charges
is as follows:

Severance and Asset
Related Costs Impairments Exit Costs Total
------------- ------------ ------------ ------------

Accrued costs as of December 31, 2000 $ 257,000 $ -- $ 84,000 $ 341,000

Charges to operations during 2001 ... 530,000 10,999,000 1,732,000 13,261,000

Costs paid during 2001 .............. (402,000) -- (172,000) (574,000)
Non-cash utilization during 2001 .... -- (10,999,000) (1,177,000) (12,176,000)
------------ ------------ ------------ ------------
Accrued costs as of December 31, 2001 385,000 -- 467,000 852,000

Charges to operations during 2002 ... 30,000 -- -- 30,000
Costs paid during 2002 .............. (326,000) -- (384,000) (710,000)
------------ ------------ ------------ ------------
Accrued costs as of December 31, 2002 89,000 -- 83,000 172,000

Charges to operations during 2003 ... -- -- -- --
Costs paid during 2003 .............. (89,000) -- (6,000) (95,000)
------------ ------------ ------------ ------------
Accrued costs as of December 31, 2003 $ -- $ -- $ 77,000 $ 77,000
============ ============ ============ ============

The Company expects to pay out the remaining costs above within three
months.

Note 7 - Income Taxes

Income taxes provision (benefit) from continuing operations consists of
the following:

For the Years Ended December 31,
2003 2002 2001
--------- --------- ---------

Current:
Federal ................................. $ -- $ -- $ 667,000
State ................................... 87,000 153,000 --
Foreign ................................. 552,000 313,000 104,000
--------- --------- ---------
639,000 466,000 771,000
--------- --------- ---------
Deferred:
Federal ................................. -- 17,000 (460,000)
Foreign ................................. (356,000) 8,000 30,000
--------- --------- ---------
(356,000) 25,000 (430,000)
--------- --------- ---------
Total......................................... $ 283,000 $ 491,000 $ 341,000
========= ========= =========

F-22

Note 7 - Income Taxes (Continued)

The provision for income taxes differs from the amount computed by
applying the statutory rate of 34% to income before income taxes. The principal
reasons for this difference are:

For the Years Ended December 31,
2003 2002 2001
----------- ----------- -----------

Tax at federal statutory rate ................................. (34)% (34)% (34)%
Nondeductible expenses ........................................ 1 1 --
State income tax, net of federal benefit ...................... 1 1 --
Foreign losses for which no benefit is available .............. 1 9 23
Changes in valuation allowance ................................ 24 14 8
Foreign operations taxed at less than U.S. statutory
rate, primarily India .................................... 11 11 9
Other ......................................................... 3 5 (3)
-------- ------- -------
Effective tax rate ............................................ 7% 7% 3%
======== ======= =======

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
in such period. Such tax holiday was extended an additional five years in 1999.
Effective April 1, 2000 pursuant to changes introduced by the Indian Finance
Act, 2000, the tax holiday previously granted is no longer available and has
been replaced in the form of a tax deduction incentive. The impact of this
change is not expected to be material to the consolidated financial statements
of the Company. Effective April 1, 2002, the tax deduction incentive for income
from the export of software and related services is restricted to 90% of such
income. Further, domestic revenue from software and related services is taxable
in India. Effective April 1, 2003, the 90% tax deduction incentive restriction
was repealed and the tax incentive is again available for the entire amount of
income from the export of software and related services. For the years ended
December 31, 2003, 2002 and 2001, the tax deduction favorably impacted the
Company's effective tax rate.

F-23

Note 7 - 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 are as follows:

2003 2002
------------ ------------
Deferred tax assets:

Allowance for doubtful accounts ............. $ 371,000 $ 574,000
Vacation accrual ............................ 355,000 213,000
Net operating losses ........................ 12,264,000 9,531,000
Other accrued liabilities ................... 315,000 301,000
------------ ------------
Total deferred tax assets ..................... 13,305,000 10,619,000
Deferred tax liability-accelerated depreciation (284,000) (745,000)
Valuation allowance ........................... (11,459,000) (8,668,000)
------------ ------------
Net deferred tax asset ........................ $ 1,562,000 $ 1,206,000
============ ============

During 2003 and 2002, the Company generated operating losses. The
Company has provided a valuation allowance against certain of these net
operating losses, as the ability to utilize these losses may be limited in the
future. The Company increased the valuation allowance by recording a tax
provision of $2,791,000, $2,823,000 and $2,307,000 in 2003, 2002 and 2001,
respectively. The Company's valuation allowance as of December 31, 2001 and 2000
was $5,845,000 and $3,538,000, respectively. Net operating loss carryforwards
expire in various years through 2022. Although the realization of the deferred
tax assets is not assured, management believes it is more likely than not that
the 2003 net deferred tax asset of $1,562,000 will be realized based upon future
operating budgets.

Note 8 - Commitments and Contingencies

Guarantee of SeraNova Debt

By letter dated May 12, 2003, Zions First National Bank ("Zions")
informed the Company that Network Publishing, Inc., a former wholly-owned
subsidiary of the Company, which became a wholly-owned subsidiary of SeraNova
upon the spin-off of SeraNova by the Company in 2000, was delinquent on a loan
made by Zions and guaranteed by the Company. Zions was demanding payment of
$535,608 from the Company, plus interest accrued from April 1, 2002. In the
third quarter 2003, the Company negotiated a settlement with Zions. Accordingly,
the Company recorded a $474,000 charge in the SeraNova receivable impairment and
other charges line item in 2003 to cover the settlement amount of $430,000 plus
related legal costs of $44,000. The settlement amount was paid out in
installments through January 2004.

F-24

Note 8 - Commitments and Contingencies (Continued)

Tax-Free Spin-off of SeraNova

On July 5, 2000, the Company distributed SeraNova common stock to
shareholders in a transaction that was intended to be a tax-free spin-off
pursuant to Section 355 of the Internal Revenue Code ("Section 355"). If the
distribution qualifies as a tax-free spin-off, neither the Company nor the
Company's shareholders recognize any gain or income in connection with the
transaction. However, Section 355 provides that the Company may be required to
recognize a gain on the transaction if the distribution is part of a plan
pursuant to which one or more persons acquire 50% or more of SeraNova common
stock within two years of the distribution date. The Company and SeraNova
executed a Tax Sharing Agreement, dated January 1, 2000 ("Tax Sharing
Agreement"), whereby SeraNova would indemnify the Company for any tax
liabilities in the event a future transaction of SeraNova results in the
spin-off being deemed a taxable event.

On October 27, 2000, SeraNova and Silverline Technologies Limited
("Silverline") announced that they had entered into an agreement and plan of
merger, under which Silverline would acquire SeraNova in exchange for American
depositary shares of Silverline and the assumption by Silverline of SeraNova
indebtedness. However, SeraNova management has represented that the merger with
Silverline was not contemplated at the time of the spin-off and accordingly, the
spin-off should be tax-free. Should the spin-off ultimately be construed as
taxable, the resultant tax liability could be up to $65,000,000, plus interest
and, depending on the facts that ultimately are established, penalties. SeraNova
and/or Silverline would be obligated to indemnify the Company for these amounts
under the Tax Sharing Agreement. However, SeraNova and Silverline Technologies,
Inc. filed for Chapter 7 Bankruptcy on August 8, 2003.

Employment Agreements

As of December 31, 2003, the Company had employment agreements with
each of its executive officers, which provide for minimum payments in the event
of termination for reasons other than just cause. The aggregate amount of
compensation commitment in the event of termination under such agreements is
approximately $478,000.

Tax Contingency in India

The Company's Indian subsidiary has received assessments from the
Indian taxing authority denying tax exemptions claimed for certain revenue
earned during each of the fiscal years ended March 31, 1999 through March 31,
2001. The assessments are for 26 million rupees, or approximately $564,000. Such
amount has been paid to the Indian tax authority under protest. Management,
after consultation with its advisors, believes the Company is entitled to the
tax exemption claimed and thus has not recorded a provision for taxes relating
to these items as of December 31, 2003. If the Company were not successful with
its appeals, which were filed in 2001 and 2002, a future charge of approximately
$564,000 would be recorded and reflected in the Company's consolidated statement
of operations.

F-25

Note 8 - Commitments and Contingencies (Continued)

Additionally, in January 2004, the Company's Indian subsidiary received
an assessment for 16 million rupees, or approximately $340,000 for the fiscal
year ended March 31, 2002. Management, after consulation with its advisors,
believes the Company is entitled to the tax exemption claimed and thus has not
recorded a provision for taxes relating to these items as of December 31, 2003.
If the Company were not successful with its appeal, which will be filed in 2004,
a future charge of approximately $340,000 would be recorded and reflected in the
Company's consolidated statement of operations.

Leases

The Company leases office space, 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, 2003. Additionally, the Company
has sublet certain of its office space, which generates sublease income. Future
minimum aggregate annual lease payments are as follows:

Net
For the Years Capital Gross Operating Operating Lease
Ending December 31, Lease Payments Lease Payments Sublease Income Payments
------------------- ---------- ---------- ---------- ----------

2004 ................................... $ 217,000 $2,576,000 $ 363,000 $2,213,000
2005 ................................... 226,000 2,087,000 357,000 1,730,000
2006 ................................... 53,000 1,644,000 350,000 1,294,000
2007 ................................... -- 1,516,000 350,000 1,166,000
2008 ................................... -- 1,011,000 262,000 749,000
Thereafter ............................. -- -- -- --
---------- ---------- ---------- ----------
Subtotal ............................... 496,000 8,834,000 1,682,000 7,152,000
Less-Interest .......................... 31,000 -- -- --
---------- ---------- ---------- ----------
465,000 8,834,000 1,682,000 7,152,000
Less-Current Portion ................... 209,000 2,576,000 363,000 2,213,000
---------- ---------- ---------- ----------
$ 256,000 $6,258,000 $1,319,000 $4,939,000
========== ========== ========== ==========

Rent expense for the years ended December 31, 2003, 2002 and 2001 was
$4,717,000, $4,330,000 and $4,398,000 respectively.

Proxy Contest and Related Legal Matters

Since the second quarter 2002, the Company has continued to incur
charges related to the Proxy Contest. The Proxy Contest resulted directly from a
shareholder of the Company ("Mr. Pandey") launching a proxy contest to take
control of the Company's Board of Directors. However, on August 7, 2003, the
Company and Mr. Pandey executed a settlement agreement relating to, among other
things, the litigation matters including the Proxy Contest. As part of the
settlement agreement the Company agreed to pay to Mr. Pandey an aggregate amount
of $750,000 in three equal installments over two years, commencing October 2003.
Accordingly, the Company has recorded a $750,000 provision for such liability in
the consolidated statement of operations in 2003. During the years ended
December 31, 2003 and 2002, the Company incurred Proxy Contest charges of
$1,461,000 (inclusive of the $750,000 payment to Mr. Pandey) and $1,073,000,
respectively.

F-26

Note 8 - Commitments and Contingencies (Continued)

Other Legal Matters

On February 7, 2001, NSA Investments II LLC filed a complaint in the
United States District Court for the District of Massachusetts naming, among
others, SeraNova, the Company and Rajkumar Koneru, a former director of the
Company, as defendants. The plaintiff alleges that it invested $4,000,000 in
SeraNova as part of a private placement of SeraNova common stock in March 2000,
prior to the spin-off of SeraNova by the Company. The complaint, which seeks
compensatory and punitive damages, alleges that the Company, as a "controlling
person" of SeraNova, is jointly and severally liable with and to the same extent
as SeraNova for false and misleading statements constituting securities laws
violations and breach of contract. After being served with the complaint, the
Company made a request for indemnification from SeraNova pursuant to the various
inter-company agreements in connection with the spin-off. By letter dated April
13, 2001, SeraNova's counsel, advised the Company that SeraNova acknowledged
liability for such indemnification claims and has elected to assume the defense
of the plaintiff's claims. In October 2001, the motion to dismiss, filed on
behalf of the Company in May 2001, was denied without prejudice to refile at the
close of the discovery period. Court-ordered mediation between the plaintiff and
SeraNova during January and February 2002 was unsuccessful. In January 2002,
plaintiff filed a motion for partial summary judgment as to certain claims
against SeraNova. No summary judgment motion was filed against the Company. On
September 30, 2002, the Court granted plaintiff's motion in part, finding
SeraNova liable for breach of contract as a matter of law. The parties executed
a settlement agreement, which became effective upon payment of the settlement
amount. The Company paid its portion of the settlement amount equal to an
aggregate amount of $50,000 in April 2003.

The Company is engaged in other 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 consolidated
results of operations.

Note 9 - Defined Contribution Plan

The Company maintains a defined contribution plan. All United States
employees, who are employed on a full-time basis, are eligible to participant in
the Plan, effective the first day of the next quarterly enrollment period. Costs
incurred by the Company related to this plan amounted to $246,000, $478,000 and
$557,000 in 2003, 2002 and 2001, respectively.

F-27

Note 10 - Stock Option Plans

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 5,340,000
shares of common stock have been reserved for issuance under the plans. All of
the options issued pursuant to these plans expire ten years from the date of
grant.

Weighted Average Exercise
Number of Shares Price
--------------------------------------------------------- ---------------------- ---------------------------

Options Outstanding, December 31, 2000
(1,038,275 exercisable with a weighted average
exercise price of $3.05)......................... 3,369,746 $ 3.18
Granted.......................................... 157,810 $ 1.07
Canceled......................................... (693,707) $ 3.41
--------------------------------------------------------- ---------------------- ---------------------------
Options Outstanding, December 31, 2001
(1,658,764 exercisable with a weighted average
exercise price of $2.99)......................... 2,833,849 $ 3.10
Granted.......................................... 1,165,000 $ 0.94
Canceled......................................... (800,648) $ 2.86
--------------------------------------------------------- ---------------------- ---------------------------
Options Outstanding, December 31, 2002
(1,615,300 exercisable with a weighted average
exercise price of $3.12)......................... 3,198,201 $ 2.37
Granted.......................................... 535,500 $ 4.57
Exercised........................................ (356,451) $ 2.33
Canceled......................................... (354,367) $ 3.61
--------------------------------------------------------- ---------------------- ---------------------------
Options Outstanding, December 31, 2003
(1,919,408 exercisable with a weighted average
exercise price of $2.45)......................... 3,022,883 $ 2.62
====================== ===========================

F-28

Note 10 - Stock Option Plans (Continued)

The following table summarizes information about stock options
outstanding and exercisable at December 31, 2003:

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

$0.9000 to 0.9599 1,050,000 8.7 $ 0.9000 610,312 $ 0.9000
$0.9600 to 1.1999 62,250 7.6 $ 1.0764 17,624 $ 1.0597
$1.2000 to 1.7269 110,500 9.0 $ 1.4597 8,000 $ 1.6200
$1.7270 to 1.7999 6,080 6.1 $ 1.7500 4,551 $ 1.7500
$1.8000 to 2.6999 795,992 5.4 $ 2.4105 688,492 $ 2.4347
$2.7000 to 3.8999 330,960 5.8 $ 2.8500 322,110 $ 2.8392
$3.9000 to 5.1999 238,576 5.7 $ 4.6981 199,375 $ 4.7436
$5.2000 to 7.6999 383,975 9.3 $ 5.9329 33,975 $ 5.9543
$7.7000 to 11.9999 24,550 5.6 $ 8.7758 19,969 $ 8.7870
$12.0000 to 14.5000 20,000 6.1 $ 12.7940 15,000 $12.7940
--------- ---------- --------- --------- --------
$0.9000 to 14.5000 3,022,883 7.8 $ 2.6187 1,919,408 $ 2.4461
========= =========

Note 11 - Stock Rights

In October 1998 the Company's Board of Directors declared a dividend
distribution of one Preferred Share Purchase Right ("Rights") 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.

F-29

Note 12 - Related Party Transactions

During 2003, 2002 and 2001, the Company provided services to FirePond,
which produced revenues for the Company totaling approximately $2,000, $329,000
and $156,000, respectively. A member of the Company's Board of Directors served
as the Chief Executive Officer of FirePond until December 2003. The Company
provided implementation services to various end clients, as a sub-contractor to
FirePond. Services were priced at rates comparable to other similar
sub-contracting arrangements in which the Company regularly participates.

During 2003, 2002 and 2001, the Company provided implementation
services to McCann Erickson, which produced revenues for the Company totaling
approximately $93,000, $12,000 and $235,000. A member of the Company's Board of
Directors serves as the Chief Technology Officer of McCann Erickson. Services
were priced at rates comparable to other similar arrangements in which the
Company regularly participates.

Nagarjun Valluripalli, the Chairman of the Board, President, Chief
Executive Officer and a Director of the Company is an owner (the "Owner") of
real estate located at 5-9-22, Secretariat Road in Hyderabad, India. On October
2, 2003, Intelligroup Asia Private, Ltd., a wholly-controlled subsidiary of the
Company and the Owner executed a memorandum of understanding (the "MOA")
relating to a proposed lease whereby the Owner would lease the 5th and 6th
floors of the property to the Company for certain of the Company's India
operations. The MOA provides for, among other things, a minimum lease period of
three years with a renewal option for an additional three years and monthly
payments of approximately $45,500 per month. A deposit in the amount of
approximately $326,087 was paid to the Owner in October 2003, with an additional
deposit of approximately $356,522 to be paid to the Owner in 2004. Prior to the
execution of the MOA, the Company's Board of Directors determined that the terms
and conditions set forth in the MOA were no less favorable to the Company than
could be obtained from unrelated third parties.

F-30

Note 13 - Segment Data and Geographic Information

The Company operates in one industry, information technology solutions
and services.

On April 2, 2003, the Company consummated the sale, effective as of
March 1, 2003, of its Asia-Pacific group of subsidiary companies, operating in
Australia, New Zealand, Singapore, Hong Kong and Indonesia (See Note 4). The
operating results and financial position of the Asia-Pacific group of subsidiary
companies are reported as discontinued operations for all periods presented. The
Company now has four reportable operating segments from continuing operations,
which are organized and managed on a geographical basis, as follows:

o United States ("US") - the largest segment of the Company,
with operations in the United States, Puerto Rico, South
America and Canada. Includes the operations of the Company's
US subsidiary, Empower, Inc., and all corporate functions and
activities. The US and corporate headquarters are located in
Edison, New Jersey;

o India - includes the operations of the Company in India,
including services provided on behalf of other group
subsidiaries. The Indian headquarters are located in
Hyderabad, India;

o Europe - includes the operations of the Company in Denmark,
Sweden and the United Kingdom. However, the Company
transitioned its operations in Sweden to Denmark as of January
1, 2003. The European headquarters are located in Milton
Keynes, United Kingdom; and

o Japan - includes the operations of the Company in Japan. The
Japanese headquarters are located in Tokyo, Japan.

Each of the operating segments has a Managing Director, or equivalent
position, which reports directly to the Chief Executive Officer (CEO).
Currently, the CEO and President is fulfilling the requirements of this position
in the US. The CEO has been identified as the Chief Operating Decision Maker
(CODM) because he has final authority over resource allocation decisions and
performance assessment. The CODM regularly receives certain discrete financial
information about the geographical operating segments, including primarily
revenue and operating income, to evaluate segment performance.

F-31

Note 13 - Segment Data and Geographic Information (Continued)

Accordingly, the Company's operating results and financial position are
presented in the following geographic segments for the years ended December 31,
2003, 2002 and 2001.

United States India Europe Japan Total
------------- ----- ------ ----- -----

2003
- ----
Revenue ................... $ 92,569,000 $ 15,640,000 $ 6,788,000 $ 3,571,000 $ 118,568,000
Depreciation & amortization 1,692,000 784,000 209,000 30,000 2,715,000(1)
Operating income (loss) ... (5,558,000) 1,727,000 134,000 372,000 (3,325,000)(2)
Total assets .............. 33,100,000 7,086,000 3,274,000 1,028,000 44,488,000

2002
- ----
Revenue ................... $ 78,713,000 $ 13,386,000 $ 6,024,000 $ 3,180,000 $ 101,303,000
Depreciation & amortization 1,795,000 657,000 222,000 79,000 2,753,000(3)
Operating income (loss) ... (7,036,000) 2,284,000 (1,093,000) (615,000) (6,460,000)(4)
Total assets .............. 30,615,000 6,300,000 2,208,000 1,761,000 40,884,000(5)

2001
- ----
Revenue ................... $ 74,023,000 $ 12,440,000 $ 10,737,000 $ 4,787,000 $ 101,987,000
Depreciation & amortization 2,166,000 591,000 684,000 94,000 3,535,000
Operating income (loss) ... (6,988,000) 3,078,000 (8,496,000) (140,000) (12,546,000)(7)
Total assets .............. 34,372,000 5,344,000 2,183,000 2,261,000 44,160,000(8)

- ---------

(1) Excludes $788,000 of depreciation and amortization included in cost of
sales for the year ended December 31, 2003.

(2) Includes $5,534,000 of SeraNova receivable impairment and other charges
and $1,461,000 of proxy contest charges for the year ended December 31,
2003.

(3) Excludes $848,000 of depreciation and amortization included in cost of
sales for the year ended December 31, 2002.

(4) Includes $8,362,000 of SeraNova receivable impairment and other charges
and $1,073,000 of proxy contest charges for the year ended December 31,
2002.

(5) Excludes $3,069,000 of assets held for sale as of December 31, 2002.

(6) Excludes $780,000 of depreciation and amortization included in cost of
sales for the year ended December 31, 2001.

(7) Includes $13,261,000 of restructuring and other special charges for the
year ended December 31, 2001.

(8) Excludes $2,875,000 of assets held for sale as of December 31, 2001.

Included above is application maintenance and support revenues of
$39,622,000, $25,460,000 and $22,124,000 for the years ended December 31, 2003,
2002 and 2001, respectively. Other information related to the application
maintenance and support business is not available and the Company determined
that it would be impractical to calculate such data.

F-32

Note 14 - Selected Quarterly Financial Data (Unaudited)

Fiscal Year Quarters
First Second Third Fourth Total
----- ------ ----- ------ -----

Year Ended December 31, 2003
- ----------------------------
Revenue................................. $27,235,000 $28,005,000 $31,035,000 $32,293,000 $118,568,000
Gross profit............................ 7,926,000 8,496,000 8,824,000 9,681,000 34,927,000
(Loss) income from continuing operations (5,217,000) (493,000) 17,000 1,442,000 (4,251,000)
Loss from discontinued operations ...... (2,134,000) -- -- -- (2,134,000)
Net (loss) income....................... (7,351,000) (493,000) 17,000 1,442,000 (6,385,000)
Earnings (loss) per share - basic:
(Loss) income per share from continuing
operations......................... (0.31) (0.03) 0.00 0.09 (0.25)
Loss per share from discontinued
operations......................... (0.13) -- -- -- (0.13)
Net (loss) income per share............. (0.44) (0.03) 0.00 0.09 (0.38)
Earnings (loss) per share - diluted:
(Loss) income per share from continuing
operations......................... (0.31) (0.03) 0.00 0.08 (0.25)
Loss per share from discontinued
operations......................... (0.13) -- -- -- (0.13)
Net (loss) income per share............. (0.44) (0.03) 0.00 0.08 (0.38)

Year Ended December 31, 2002
- ----------------------------
Revenue................................. $23,005,000 $24,806,000 $26,668,000 $26,824,000 $101,303,000
Gross profit............................ 6,980,000 7,884,000 8,034,000 8,072,000 30,970,000
Income (loss) from continuing operations 130,000 (8,321,000) 400,000 354,000 (7,437,000)
Loss from discontinued operations ...... (119,000) (239,000) (387,000) (301,000) (1,046,000)
Net income (loss)....................... 11,000 (8,560,000) 13,000 53,000 (8,483,000)
Earnings (loss) per share - basic:
Income (loss) per share from continuing
operations......................... 0.01 (0.50) 0.02 0.02 (0.45)
Loss per share from discontinued
operations......................... (0.01) (0.01) (0.02) (0.02) (0.06)
Net income (loss) per share............. 0.00 (0.51) 0.00 0.00 (0.51)
Earnings (loss) per share - diluted:
Income (loss) per share from continuing
operations......................... 0.01 (0.50) 0.02 0.02 (0.45)
Loss per share from discontinued
operations......................... (0.01) (0.01) (0.02) (0.02) (0.06)
Net income (loss) per share............. 0.00 (0.51) 0.00 0.00 (0.51)

F-33