<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 1996
                           Commission File No. 0-20943

                               INTELLIGROUP, INC.
                 (Name of Small Business Issuer in Its Charter)

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

517 Route One South, Iselin, New Jersey                                 08830
(Address of Principal Executive Offices)                              (Zip Code)

                                 (908) 750-1600
                           (Issuer's Telephone Number,
                              Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

                                                         Name of Each Exchange
  Title of Each Class                                     on which Registered
-----------------------                                ------------------------
-----------------------                                ------------------------


         Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $.01 par value
<PAGE>   2
         Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

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

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

         State Issuer's revenues for fiscal year ended December 31, 1996:
$47,189,000.

         State the aggregate market value of the voting stock held by
non-affiliates of the Issuer: $36,289,688 at February 28, 1997 based on the last
sales price on that date.


         State the number of shares outstanding of each of the Issuer's classes
of common stock, as of February 28, 1997:

           Class                                               Number of Shares
           -----                                               ----------------
Common Stock, $.01 par value                                      10,735,600


         Transitional Small Business Disclosure Format

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

         The following documents are incorporated by reference into the Annual
Report on Form 10-KSB: Portions of the Issuer's definitive Proxy Statement for
its 1997 Annual Meeting of Shareholders are incorporated by reference into Part
III of this Report.
<PAGE>   3
                                TABLE OF CONTENTS

         Item                                                               Page

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

          2.  Properties .................................................     9

          3.  Legal Proceedings ..........................................     9

          4.  Submission of Matters to a Vote of Security Holders ........    11

PART II   5.  Market for the Company's Common Equity and Related
              Stockholder Matters ........................................    12

          6.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations ........................    13

          7.  Financial Statements .......................................    19

          8.  Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure ........................    19

PART III  9.  Directors, Executive Officers, Promoters and Control
              Persons; Compliance with Section 16 (a) of the
              Exchange Act ...............................................    20

          10. Executive Compensation .....................................    20

          11. Security Ownership of Certain Beneficial Owners
              and Management .............................................    20

          12. Certain Relationships and Related Transactions .............    20

PART IV   13. Exhibits, List and Reports on Form 8-K .....................    21

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

EXHIBIT INDEX ............................................................    24

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


                                       -i-
<PAGE>   4
                                     PART I


ITEM 1.  BUSINESS.


GENERAL

         Intelligroup, Inc. ("Intelligroup" or the "Company") provides a wide
range of information technology services, including enterprise-wide business
process solutions, systems integration and custom software development based on
leading technologies. The Company has grown rapidly since 1994 when it made a
strategic decision to diversify its customer base by expanding the scope of its
integration and development services, and to utilize SAP America, Inc. ("SAP")
software as a primary tool to implement enterprise-wide business process
solutions. In 1995, the Company became a SAP National Implementation Partner and
also began to utilize Oracle products to diversify its service offerings. The
Company's current agreement with SAP, which is awarded on an annual basis,
expires on December 31, 1997. In February 1997, the Company achieved a National
Logo Partner relationship with SAP, SAP's highest consulting alliance
partnership status, and will begin operating under the terms of such
partnership agreement pending partnership agreement negotiations. The Company's
custom software development services are enhanced by its exclusive access to
qualified and experienced programmers at its affiliated Advanced Development
Center ("ADC") located in Hyderabad, India and connected to the Company's
headquarters in the United States and to certain customer sites by dedicated,
high speed satellite links. The Company provides its services directly to
end-user organizations or as a member of consulting teams assembled by other
information technology consulting firms. The number of customers billed by the
Company has grown substantially from three customers in 1993 to 117 customers
in 1996. The Company's customers are Fortune 1000 and other large and mid-sized
companies, as well as other information technology consulting firms, and
include AT&T, American Cyanamid, Bristol-Myers Squibb, Citibank, Ernst & Young
LLP, IBM, ICS Deloitte and Touche LLP and Price Waterhouse LLP.

         The Company was incorporated in New Jersey in October 1987 under the
name Intellicorp, Inc. to provide systems integration and custom software
development. The Company's name was changed to Intelligroup, Inc. in July 1992.
In March 1994, the Company acquired Oxford Systems Inc. ("Oxford") in a
pooling-of-interests transaction. On December 31, 1996, Oxford was merged into
the Company and ceased to exist as an independent entity. The Company's
executive offices are located at 517 Route One South, Iselin, New Jersey 08830
and its telephone number is (908) 750-1600.

         "Intelligroup," "4SIGHT," "4SIGHTplus" and the Company's logo are
service marks of the Company and "4SIGHT," "4SIGHTplus," "OPMS" and "OIM" are
trademarks 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.

         This Form 10-KSB contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, statements regarding the Company's intention to
shift to higher margin turnkey management assignments and more complex projects
and to utilize its proprietary implementation methodology in an increasing
number of projects. Such forward-looking statements include risks and
uncertainties, including, but not limited to: (i) 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, 
         

                                       -1-
<PAGE>   5
including (a) seasonal patterns of hardware and software capital spending by
customers, (b) information technology outsourcing trends, (c) the timing, size
and stage of projects, (d) new service introductions by the Company or its
competitors, (e) levels of market acceptance for the Company's services or (f)
the hiring of additional staff; (ii) changes in the Company's billing and
employee utilization rates; (iii) the Company's ability to manage its growth
effectively which will require the Company (a) to continue developing and
improving its operational, financial and other internal systems, as well as its
business development capabilities, (b) to attract, train, retain, motivate and
manage its employees, (c) to continue to maintain high rates of employee
utilization at profitable billing rates and, (d) to maintain project quality,
particularly if the size and scope of the Company's projects increase; (iv) the
Company's ability to maintain an effective internal control structure; (v) the
Company's limited operating history within its current line of business; (vi)
the Company's reliance on a continued relationship with SAP America and the
Company's present status as a SAP National Implementation Partner and its
status as a SAP National Logo Partner, pending partnership agreement
negotiations; (vii) the Company's substantial reliance on key customers and
large projects; (viii) the highly competitive nature of the markets for the
Company's services; (ix) the Company's ability to successfully address the
continuing changes in information technology, evolving industry standards and
changing customer objectives and preferences; (x) the Company's reliance on the
continued services of its key executive officers and leading technical
personnel; (xi) the Company's ability to attract and retain a sufficient number
of highly skilled employees in the future; (xii) uncertainties resulting from
pending litigation matters and from certain pending and potential
administrative and regulatory immigration and tax law matters; and (xiii) the
Company's ability to protect its intellectual property rights. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements.


INDUSTRY BACKGROUND

         Many large and mid-sized businesses face a rapidly changing business
environment, intense global competition and accelerating technological change.
To remain competitive, such businesses continually seek to improve the quality
of products and services, lower costs, reduce cycle times and increase value to
customers. Businesses are implementing and utilizing advanced information
technology solutions that enable them to redesign their business processes in
such areas as product development, service delivery, manufacturing, sales and
human resources. The ability of an organization to integrate and deploy
redesigned business processes and related information technologies timely and
cost effectively is critical in the changing business environment.

         Concurrently, businesses are migrating from legacy systems running
proprietary software to open systems and client/server architectures based on
personal computers, LANs/WANs, shared databases and packaged software
applications. Such client/server systems, when developed and implemented
appropriately, enable the creation and utilization of more functional and
flexible applications which are critical to the competitive needs of businesses.
Organizations often acquire packaged enterprise-wide business software
applications for client/server systems, including those offered by leading
vendors, such as SAP, Oracle, PeopleSoft or Baan, and 


                                       -2-
<PAGE>   6
implement or customize these applications to match their needs. Organizations
also may develop customized software applications designed for their specific
business needs.

         Despite the advantages of client/server systems, the complex task of
developing and implementing enterprise-wide, mission-critical, client/server
solutions presents significant challenges for most organizations and often is a
time consuming and costly undertaking. Implementing client/server solutions
typically requires significant allocation of organizational resources.
Information technology managers must integrate and manage open systems and
distributed computing environments consisting of multiple computing platforms,
operating systems, databases and networking protocols, and implement packaged
enterprise software applications to support business objectives. Companies also
must continually keep pace with new technological developments which can render
internal information technology skills outmoded. 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 workforces in the information
technology management area. Accordingly, organizations often lack sufficient
technical resources necessary to design, develop and implement emerging
information technology solutions on a timely basis.

         To support their information technology needs, many businesses
increasingly engage experienced outside specialists to develop and implement
solutions, in shorter timeframes and at lower costs, while reducing
implementation risks. As a result, demand for information technology services
has grown significantly.


THE INTELLIGROUP SOLUTION

         Intelligroup provides information technology services to develop and
implement cost-effective client/server business solutions on a timely basis by
combining its expertise in a wide range of technologies and business processes
with its proprietary implementation methodology and development tools. The
Company believes it offers the following advantages:

         Expertise in a Wide Range of Technologies: The Company's consultants
have expertise with SAP, Oracle and Baan products and with a wide variety of
leading computing technologies, including client/server architectures,
object-oriented technologies, CASE, distributed database management systems,
micro-to-mainframe connectivity, LAN/WAN and telecommunications technologies.
Since many of the Company's customers have invested in a variety of
technologies, including legacy systems, the Company also develops solutions for
these environments.

         Accelerated Implementation Methodology and Toolset: The Company has
developed a proprietary implementation methodology, 4SIGHT, as well as a
software-based implementation toolset, 4SIGHTplus, which are designed to
minimize the time required to develop and implement SAP, Oracle and Baan
solutions for its customers. 4SIGHT and 4SIGHTplus are designed to be technology
independent and modular so that they may be utilized by the Company's
consultants and project managers in other packaged applications development or
software customization projects. The Company only recently began marketing its
new implementation capability, which currently is being utilized in three
projects, each of which 


                                       -3-
<PAGE>   7
involves implementation of a SAP solution for a Fortune 500 company in which the
Company has been retained directly by the end-user organization.

         Value-Oriented Implementation: The Company provides experienced project
managers and consultants to its customers. The Company believes that its
personnel are effective because of their industry experience. In addition, the
Company has the ability to develop and implement business solutions through its
affiliated offshore ADC in India which gives the Company access to qualified and
experienced programmers at a reduced labor cost.

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


INTELLIGROUP SERVICES

         Intelligroup provides a wide range of information technology services,
including (i) enterprise-wide business process solutions utilizing SAP R/3, as
well as Oracle and Baan products, which are leading software applications; and
(ii) systems integration and custom software development solutions in a wide
variety of computing environments utilizing leading technologies, including
client/server architectures, object-oriented technologies, CASE, distributed
database management systems, LAN/WAN and telecommunications technologies. The
Company's services range from providing customers with a single consultant to
multi-personnel full-scale projects. The Company provides these services to its
customers primarily on a time and materials basis and pursuant to agreements
which are terminable upon relatively short notice. The Company's custom software
development services are enhanced by its exclusive access to qualified and
experienced programmers at the ADC and connected to the Company's headquarters
in the United States and to certain customer sites by dedicated, high speed
satellite links.

         ENTERPRISE-WIDE BUSINESS PROCESS SOLUTIONS

         The Company designs, develops, integrates and implements sophisticated
business process solutions utilizing SAP R/3, as well as Oracle and Baan
products, and incorporating best business practices and methods. The Company
builds business solutions for its customers by focusing on each customer's
business objectives and by providing business process re-engineering,
information systems strategic planning, technology implementation, comprehensive
training and organizational change management services. 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.


                                       -4-
<PAGE>   8
         On-line Project Management System ("OPMS"): The Company utilizes its
OPMS to monitor enterprise-wide business process solutions development projects.
The Company designed OPMS as a SAP subsystem developed in R/3 and installable on
customers' SAP systems. OPMS provides real-time information relating to: the
current stage of development of each program; the number of man-hours spent at
each stage of development; total man-hours spent on development during any
interval of time; programs developed by each programmer; analysis of time spent
on the development project; and technical information, including source code,
documentation and tables used in the system. The Company believes that OPMS also
shortens the turn-around time for program development as it streamlines the
information flow between the Company's offices and customer sites.


         Accelerated Implementation Methodology and Software-Based
Implementation Toolset: As a result of its experience in implementing SAP
software, the Company has developed a proprietary methodology, 4SIGHT, for
implementing enterprise business software applications, and 4SIGHTplus, a
software-based implementation toolset. 4SIGHT and 4SIGHTplus, used by the
Company to date solely in projects implementing SAP R/3 are designed to be
portable to other packaged software applications, including those offered by
Oracle, PeopleSoft and Baan, and to be adaptable to the scope of a particular
project. 4SIGHT and 4SIGHTplus have been adapted for Oracle and Baan
implementations. The Company believes that the use of 4SIGHT and 4SIGHTplus
throughout an implementation project may enable its customers to realize
significant savings in time and resources.

         SYSTEMS INTEGRATION AND CUSTOM SOFTWARE DEVELOPMENT

         The Company provides a broad range of systems integration and
customized application solutions to customers in a wide variety of industries.
The Company is engaged by customers to undertake feasibility studies, systems
engineering, custom software development and tailoring, migration strategies,
systems design, development, testing, integration, implementation, training and
support in a wide variety of computing environments. The Company, in providing
such services, utilizes leading technologies, including client/server
architectures, object-oriented technologies, CASE, distributed database
management systems, LAN/WAN and telecommunications technologies.

         ADVANCED DEVELOPMENT CENTER

         The Company provides cost-effective, timely custom software development
and tailoring in the United States, at customer sites and through the ADC. The
ADC is connected to the Company's headquarters in the United States and to
certain customer sites by dedicated, high speed satellite links. The ADC is
staffed by 65 consultants as of December 31, 1996. The ADC is owned by
Intelligroup Asia Private Limited ("Intelligroup Asia"), a corporation
organized pursuant to the laws of India and wholly owned by Messrs. Pandey,
Koneru and Valluripalli, three of the principal shareholders of the Company.
The Company and such shareholders have entered into an agreement pursuant to
which the Company will, subject to necessary Indian government approvals,
acquire all of the issued and outstanding shares of Intelligroup Asia for
nominal consideration when such shares may be transferred in accordance with
the laws of India. The ADC is operated for the sole and exclusive use and 


                                       -5-
<PAGE>   9
benefit of the Company and all contracts and commercial arrangements of
Intelligroup Asia are subject to prior approval by the Company. The Company has
agreed to provide all of the necessary support and assistance to Intelligroup
Asia, including technical and financial support, subject to certain financial
restrictions set forth in the Company's credit agreement with PNC Bank,
National Association. The ADC is staffed with qualified and experienced
programmers, including those with SAP configuration expertise and SAP's ABAP/4
programming capability. The Company utilizes the programmers at the ADC, in
conjunction with its consultants in the United States who are on site at
customer locations, to provide its customers with savings in development and
implementation costs and time to project completion. All development projects
undertaken by the ADC are monitored by the Company's OPMS. OPMS also minimizes
the turn-around time for program development as it streamlines the information
flow between customer sites and the ADC. The Company intends to utilize the ADC
to provide similar development services to customers that utilize software
applications other than SAP software.


SALES AND MARKETING

         The Company historically has generated new sales leads from referrals
from existing customers, and from introductions to potential customers by SAP or
Oracle, which often need to recommend qualified systems integrators to implement
their software products. In addition, the Company has been introduced to
customers by certain of its competitors, such as "Big Six" accounting firms,
which at times require the Company's expertise and ability to deliver qualified
personnel for complex projects. To date, the Company has been able to grow its
customer base without allocating significant resources to its sales and
marketing effort. The Company believes, however, that in order to continue its
growth, it must dedicate an increased level of resources to more focused sales
and marketing efforts. The Company will continue to market to potential
customers with demonstrated needs for the Company's expertise in core
information technologies and solutions such as SAP. To implement this plan, the
Company intends to expand its dedicated sales and marketing force by hiring
several individuals with experience in the industry sectors in which the Company
has prior experience. Toward this end, the Company hired Anthony Knight, its
Vice President, Sales and Marketing, in December 1996.

         Among its sales and marketing efforts, the Company's sales force has
presented the Company's expertise at SAPPHIRE, the annual SAP conference for SAP
service providers and end-users, and uses direct marketing techniques. The
Company intends to increase its participation in industry-recognized programs
and trade shows. Most importantly, however, the Company believes that satisfying
customer expectations within budgets and time schedules is critical to gaining
repeat business and obtaining new business from referrals. The Company believes
that it has consistently met customer expectations with respect to budgets and
time schedules.

         As of December 31, 1996, the Company's sales and marketing group
consisted of 13 employees in the United States and three in the United Kingdom.
The Company markets and delivers its services to customers on an international
basis through its network of offices. The Company's headquarters in New Jersey
and its branch office in San Jose, California serve the United States market.
Intelligroup Asia serves as the Company's sales agent in Asia and in the Middle
East. In addition, the Company also has established operations in New Zealand
and 


                                       -6-
<PAGE>   10
currently has information technology consultants on-site at a customer location.
The Company intends to add sales and marketing capabilities in New Zealand. The
Company also established operations in the United Kingdom in June 1996. In
November 1996, the Company commenced operations in Singapore with the
incorporation of Intelligroup Singapore Private, Ltd. Each of the Company and
Rajkumar Koneru, an Executive Vice President and Director of the Company, own
50% of such company.

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


CUSTOMERS

         The Company provides its services directly to Fortune 1000 and other
large and mid-sized companies, many of which have information-intensive,
multinational operations, or as a member of a consulting team assembled by other
information technology consultants, such as "Big Six" accounting firms. The
number of customers billed by the Company has grown substantially from three
customers in 1993 to 117 customers in the year ended December 31, 1996.

         The Company's ten largest customers accounted for, in the aggregate,
approximately 61%, 56% and 66% of its revenue in 1994, 1995 and 1996,
respectively. During 1994, AT&T accounted for more than 10% of revenue, while in
1995, Ernst & Young LLP and Price Waterhouse LLP each accounted for more than
10% of revenue. During 1996, Price Waterhouse LLP and Bristol-Myers Squibb each
accounted for more than 10% of revenue. Currently, the Company is engaged in ten
projects for Price Waterhouse LLP. In 1994, 1995 and 1996, 64%, 50% and 44%,
respectively, of the Company's revenue was generated by serving as a member of
consulting teams assembled by leading information technology consulting firms
retained by organizations to manage projects to provide enterprise-wide business
process solutions.

         Although the Company has contracts with many of its large customers to
provide its services, in general, such contracts are terminable upon relatively
short notice, typically not more than 30 days. 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.


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 consulting and software
integration firms, including the "Big Six" 


                                       -7-
<PAGE>   11
accounting firms, IBM Global Services, Cambridge Technology Partners, SHL
Systemhouse (a subsidiary of MCI), and Computer Sciences Corporation, and with
software applications vendors, some of which are also customers of the Company.
Many of the Company's competitors have longer operating histories, possess
greater industry and name recognition and have significantly greater financial,
technical and marketing resources than the Company. In addition, there are
relatively low barriers to entry into the Company's markets and the Company has
faced, and expects to continue to face, additional competition from new
entrants into its markets.

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

         The Company believes that it competes based on its expertise in SAP,
Oracle and Baan products and a wide variety of other technologies.


EMPLOYEES

         As of December 31, 1996, the Company employed 369 full-time employees,
of whom 321 were engaged as consultants, 16 were engaged in sales and marketing,
and 32 were engaged in finance, administration, and management. Of the total
number of employees, 348 were based in the United States, 11 were based in New
Zealand, 6 were based in the United Kingdom and 4 were based in South Africa,
which office was closed by the Company in January 1997. In addition, the Company
engaged 27 independent contractors to perform information technology services
and has exclusive access to all of the employees of Intelligroup Asia, which
consisted of 65 software developers and 4 administrative personnel at December
31, 1996.

         None of the Company's employees is covered by a collective bargaining
agreement. Substantially all of the Company's employees have executed a
non-competition, non-disclosure and non-solicitation assignment. In addition,
the Company requires that all new employees execute such agreement 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.


INTELLECTUAL PROPERTY RIGHTS

         The Company's success is dependent, in part, upon its proprietary
accelerated implementation methodology, development tools and other intellectual
property rights. The Company relies upon a combination of trade secret,
nondisclosure and other contractual 


                                       -8-
<PAGE>   12
arrangements, and copyright and trademark laws, to protect its proprietary
rights. The Company generally enters into confidentiality agreements with its
employees, consultants and customers, and limits access to and distribution of
its proprietary information. The Company also requires that substantially all of
its employees and consultants assign to the Company their rights in intellectual
property developed while employed or engaged by the Company. There can be no
assurance that the steps taken by the Company in this regard will be adequate to
deter misappropriation of its proprietary information or that the Company will
be able to detect unauthorized use of and take appropriate steps to enforce its
intellectual property rights.

         "Intelligroup," "4SIGHT," "4SIGHTplus" and the Company's logo are
service marks of the Company and "4SIGHT," "4SIGHTplus," "OPMS" and "OIM" are
trademarks 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.


ITEM 2.  PROPERTIES.

         The Company owns no real property and currently leases or subleases
all of its office space. The Company subleases its headquarters in Iselin, New
Jersey, totaling approximately 13,200 square feet. The sublease expires in
November 1999. The Company believes that such headquarters has sufficient space
for its current and anticipated near-term needs. The Company uses such facility
for certain technical and support personnel, sales and marketing,
administrative, finance and management personnel. The Company also leases or
subleases offices for its operations in San Jose, California, and operations in
New Zealand, Singapore and the United Kingdom. In addition, the Company
provides funds to Intelligroup Asia which Intelligroup Asia uses to satisfy its
lease obligations for its offices in India.
         

ITEM 3.  LEGAL PROCEEDINGS.

         The Company currently is being investigated by the Immigration and
Naturalization Service (the "INS") concerning possible violations of the
Immigration Reform and Control Act of 1990. Specifically, the INS is
investigating whether the Company improperly employed certain foreign national
individuals prior to their obtaining appropriate work authorization and failed
to complete properly employment eligibility verification forms for all
employees. The Company has and will continue to cooperate fully with the INS. A
notice of intent to fine has not been served upon the Company, and, therefore,
the potential for fines is not known at this time. Upon review of the fines
generally assessed in similar matters, the Company believes, however, that
fines, if any, will not exceed $150,000. The Company anticipates that the INS
investigation may continue for six months or more. There can be no assurance,
however, as to the ultimate amount of fines which may be assessed or the length
of time it may take to conclude the INS investigation. The Company employs many
foreign national individuals and has implemented procedures and controls which
it believes will ensure full compliance with the Immigration Reform and Control
Act of 1990 and related regulations. Toward this end, the Company now employs
in-house counsel to oversee this function.

         On February 16, 1996, the Company, as plaintiff, filed a complaint in
the Superior Court of New Jersey, Chancery Division, Middlesex County, against a
former consultant to the 


                                       -9-
<PAGE>   13
Company, seven former employees of the Company and Pegasus Systems, Inc.
("Pegasus"), a corporation which currently employs such individuals
(collectively, the "Defendants"). The complaint, which seeks damages and
injunctive relief against the Defendants, alleges, among other things,
misappropriation of proprietary information, unfair competition, tortious
interference, breach of employment agreements, breach of a consulting agreement
between the Company and Pegasus, and breach of duty of loyalty, good faith and
fair dealing. Upon the filing of its complaint, the Company obtained a temporary
restraining order and in May 1996 obtained a preliminary injunction prohibiting
the Defendants from using or disclosing the Company's proprietary information,
prohibiting the Defendants from contacting or soliciting certain of the
Company's customers and prohibiting the Defendants from recruiting or attempting
to recruit the Company's employees, agents or contractors. The preliminary
injunction remains in effect and the Company intends to pursue vigorously
enforcement of the injunction against the Defendants. The Defendants have filed
an answer and counterclaim. Pegasus has asserted a breach of contract
counterclaim against the Company alleging that the Company owes it $129,000 for
consulting services. Pegasus and two of the individual Defendants also asserted
claims against the Company and two of its officers for tortious interference and
defamation. In addition, one of the individual Defendants has asserted that the
Company owes him $70,000 in commissions. In addition to monetary damages the
Defendants seek injunctive relief. The Defendants unsuccessfully sought a
temporary restraining order against the Company. The Company denies the
allegations made and intends to defend vigorously the counterclaims. The Company
does not believe that the outcome of these claims and counterclaims will have a
material effect upon the Company's business, financial condition or results of
operations.

         In a related matter, on August 21, 1996, the Company was named as
defendant in a complaint filed in the Delaware Chancery Court, New Castle
County, by plaintiff, Systems America, Inc. ("Systems America"), a computer and
technology consulting firm. Systems America alleged that it subcontracted
Pegasus consultants to perform SAP consulting services for two companies which
are also customers of the Company, and alleged that the Company has interfered
with Systems America's customer relationships, and as a result thereof, Systems
America sustained damages. The complaint sought unspecified monetary damages,
treble damages, attorney fees and injunctive relief against the Company and
alleged deceptive trade practices, defamation and tortious interference with
prospective business or contractual relations by the Company. In September 1996,
the case was removed to Federal District Court in Delaware. The Company denied
the allegations made and filed a motion to dismiss the Systems America
complaint. On November 16, 1996, Systems America and the Company reached an
agreement in principle to settle Systems America's claims against the Company
for an immaterial cash payment by the Company to Systems America. A settlement
in accordance with such agreement in principle was subsequently executed by each
of the Company and Systems America. Systems America's complaint was subsequently
dismissed with prejudice and mutual releases were executed by the parties.

         Oxford Systems Inc., a New Jersey corporation and a wholly-owned
subsidiary of the Company until December 31, 1996 ("Oxford"), on which date
Oxford was merged into the Company and ceased to exist as an independent entity,
is named as a defendant in a civil complaint that was filed on June 8, 1995 by
Design Strategy Corp. ("Design Strategy"), in New 


                                      -10-
<PAGE>   14
York State Supreme Court in the County of New York. Design Strategy alleges that
another named defendant, Citibank, N.A. ("Citibank"), contracted with Design
Strategy for database administration services. Design Strategy, which is
currently seeking monetary relief, claims that Citibank and Oxford conspired to
deprive it of commissions, tortiously interfered with contract, engaged in
unfair competition, damaged its reputation and misappropriated services. Design
Strategy settled its claims against Citibank. The Company denies the allegations
made and intends to continue to defend vigorously such action. The Company does
not believe that the outcome of the action will have a material effect upon the
Company's business, financial condition or results 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.

         Not applicable.


                                      -11-
<PAGE>   15
                                     PART II


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

         The Common Stock has been quoted on the Nasdaq National Market (the
"NNM") under the symbol "ITIG" since September 27, 1996 when the Company
conducted its initial public offering. The following table sets forth, for each
of the quarters ended September 30, 1996 and December 31, 1996, respectively,
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.

<TABLE>
<CAPTION>
                 QUARTER ENDED                HIGH                LOW
                 -------------                ----                ---
<S>                                          <C>                <C>    
               September 30, 1996            $13 7/8            $12 5/8
               December 31, 1996             $19 3/4            $11
</TABLE>

         As of February 28, 1997, the approximate number of holders of record of
the Common Stock was 90 and the approximate number of beneficial holders of the
Common Stock was 700.

         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.

         Furthermore, the Company's credit arrangement with PNC Bank, National
Association, which expires on January 22, 1999, contains, among other
provisions, a covenant which prohibits the Company from paying cash dividends or
making other distributions of assets to shareholders.

         All information relating to the Common Stock of the Company in this
Annual Report on Form 10-KSB reflects a 81,351.1111-for-1 stock split of the
Common Stock effected July 12, 1996, prior to the Company's initial public
offering of its Common Stock in September 1996. Within the past three years,
the Company issued and sold certain unregistered securities as follows: (i) on
March 31, 1994, the Company issued an aggregate of 8,135,111 shares of Common
Stock to Messrs. Koneru and Valluripalli in exchange for all of the issued and
outstanding shares of Oxford; and (ii) on April 19, 1996, the Company issued
and sold five-year 9.0% subordinated debentures in the aggregate principal
amount of $6.0 million to Summit Ventures IV, L.P. and Summit Investors III,
L.P. with warrants to purchase up to 20.8% of the Common Stock of the Company.
Such warrants were exercised for an aggregate of 1,364,000 shares of Common
Stock upon effectiveness of the Company's registration statement relating to
its initial public offering on September 26, 1996. No underwriter was employed
by the Company in connection with the issuance and sale of the restricted
securities described in clauses (i) and (ii) above. The Company claims that the
issuance and sale of all of such securities were exempt from registration under
Section 4(2) of the Securities Act as transactions not involving a public
offering. Appropriate legends were affixed to the certificates evidencing such
securities. All recipients had adequate access to information relating to the
Company. There were no other unregistered securities sold by the Company within
the past three years.
         

                                      -12-
<PAGE>   16
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.


OVERVIEW

         The Company provides a wide range of information technology services,
including enterprise-wide business process solutions, systems integration and
custom software development based on leading technologies. The Company has grown
rapidly since 1994 when it made a strategic decision to diversify its customer
base by expanding the scope of its integration and development services and to
utilize SAP software as a primary tool to implement enterprise-wide business
process solutions. In 1995, the Company became a SAP National Implementation
Partner and also began to utilize Oracle products to diversify its service
offerings. To achieve SAP National Implementation Partner status, the Company
was required to demonstrate: (1) customer satisfaction with the Company's
SAP-related services; (2) its capabilities and expertise with SAP software; and
(3) that its employee base included an appropriate number of SAP-experienced
consultants. SAP National Implementation Partner status is awarded by SAP on an
annual basis pursuant to contract. The Company's current contract expires on
December 31, 1997. Contract renewal is within SAP's discretion and is expected
to be based on, among other things, the following subjective criteria set forth
in the Company's contract: (1) customer satisfaction with the Company's
performance and ability to deliver services in a timely and cost-effective
manner; (2) the quality of the Company's personnel performing SAP-related
services; (3) the number and scope, without assigning any dollar amounts in the
contract, of SAP R/3 projects; (4) the thoroughness of the Company's training
programs for its employees; (5) achievement of mutually agreed upon goals; and
(6) the level of effective communication between the Company and SAP. The
contract may be terminated at any time, upon a determination by SAP that the
Company is offering potential customers of SAP R/3 products other products that
are in competition with such SAP R/3 products. Such termination provision,
however, does not preclude the Company from implementing competing or
potentially competing products that have been purchased by the Company's
customers from other suppliers. The contract contains no minimum revenue
requirements or cost sharing arrangements and does not provide for commissions
or royalties to either party. In February 1997, the Company achieved a National
Logo Partner relationship with SAP, SAP's highest consulting alliance
partnership status, and will begin operating under the terms of such
partnership agreement pending partnership agreement negotiations.

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


                                      -13-
<PAGE>   17
at contracted rates. Where contractual provisions permit, customers also are
billed for reimbursement of expenses incurred by the Company on the customers'
behalf.

         The Company has 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, 1995 and 1996, the Company's ten
largest customers accounted for approximately 56% and 66% of its revenue,
respectively. In 1995, Ernst & Young LLP and Price Waterhouse LLP each accounted
for more than 10% of revenue. During 1996, Price Waterhouse LLP and
Bristol-Myers Squibb each accounted for more than 10% of revenue. For the years
ended December 31, 1995 and 1996, 50% and 44%, respectively, of the Company's
revenue was generated by serving as a member of consulting teams assembled by
other information technology consulting firms. There can be no assurance that
such information technology consulting firms will continue to engage the Company
in the future at current levels of retention, if at all. During the years ended
December 31, 1995 and 1996, 69% and 74%, respectively, of the Company's total
revenue was derived from projects in which the Company implemented software
developed by SAP.

         The Company's most significant cost is project personnel expenses,
which consist of consultant salaries, benefits and payroll-related expenses.
Thus, the Company's financial performance is based primarily upon billing margin
(billable hourly rate less the cost to the Company of a consultant on an hourly
basis) and personnel utilization rates (billable hours divided by paid hours).
The Company believes that turnkey project management assignments typically carry
higher margins. The Company intends to accelerate a shift to such higher-margin
turnkey management assignments and more complex projects by leveraging its
reputation, existing capabilities, proprietary implementation methodology,
development tools and offshore development capabilities with expanded sales and
marketing efforts and new service offerings to develop turnkey project sales
opportunities with existing customers and to expand its market to new customers.
The Company's inability to accelerate a shift to higher-margin turnkey
management assignments and more complex projects may adversely impact the
Company's future growth. Although the Company expects that it will utilize its
proprietary implementation methodology in an increasing number of projects,
there can be no assurance that the Company will be engaged to do so.

Since late 1994, the Company has made substantial investments in its
infrastructure in order to support its rapid growth. For example, in 1994, the
Company established and funded an affiliated operation in India, the ADC, and
in 1995, established a sales office in California. In addition, from 1994 to
date, the Company has incurred significant expenses to develop proprietary
development tools and 4SIGHT, its proprietary accelerated implementation
methodology. Commencing in 1995, the Company has been increasing its sales
force and its marketing, finance, accounting and administrative staff. The
Company employed 48 such personnel as of December 31, 1996 as compared to eight
such personnel as of January 1, 1995.


                                      -14-
<PAGE>   18
RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                                       PERCENTAGE OF REVENUE
                                                                                     --------------------------
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                     --------------------------
                                                                                      1996               1995
<S>                                                                                    <C>                <C>   
Revenue......................................................................          100.0%             100.0%

Cost of sales................................................................           71.2               81.4
                                                                                     -------            -------
    Gross profit.............................................................           28.8               18.6

Selling, general and administrative expenses.................................           21.0               18.1
                                                                                     -------            -------
    Operating income.........................................................            7.8                0.5

Factor fees / Interest expense...............................................            2.6                4.8
                                                                                     -------            -------
Income (loss) before provision for income taxes and extraordinary charge.....            5.2               (4.3)

Provision for income taxes...................................................            1.1                 --
                                                                                     -------            -------
Income (loss) before extraordinary charge....................................            4.1               (4.3)

Extraordinary charge, net of income tax benefit..............................            2.4                 --
                                                                                     -------            -------
Net income (loss)............................................................            1.7%              (4.3)%
                                                                                     =======            =======
</TABLE>

         Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

         Revenue. Revenue increased by 91.9%, or $22.6 million, from $24.6
million in 1995 to $47.2 million in 1996. This increase was attributable
primarily to increased demand for the Company's SAP-related consulting services
and, to a lesser extent, to increased demand for the Company's systems
integration and custom software development services.

         Gross profit. The Company's cost of sales includes primarily the cost
of salaries to consultants and related employee benefits and payroll taxes. The
Company's cost of sales increased by 67.8%, or $13.6 million, from $20.0 million
in 1995 to $33.6 million in 1996. The increase was due to increased personnel
costs resulting from the hiring of additional consultants to support the
Company's significant increase in demand for the Company's services. The
Company's gross profit increased by 197.4%, or $9.0 million, from $4.6 million
in 1995 to $13.6 million in 1996. Gross profit margin increased from 18.6% of
revenue in 1995 to 28.8% of revenue in 1996. The increase in such gross profit
margin was attributable primarily to the fact that revenue increased at a faster
rate than cost of sales which resulted from a combination of improved billing
margins and greater consultant utilization.

         Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of administrative salaries, sales
person compensation, travel and entertainment, the costs associated with the ADC
and related development costs and professional fees. Selling, general and
administrative expenses increased by 122.6%, or $5.4 million, from $4.5 million
in 1995 to $9.9 million in 1996, and increased as a percentage of revenue from
18.1% to 21.0% of revenue in 1995 and 1996, respectively. The increases in such
expenses in absolute dollars and as a percentage of revenue were due primarily
to the expansion of the Company's sales and marketing activities in 1995 and
1996, the additional accounting and financial personnel added in 1996 and
increased travel and entertainment expenses due to the 


                                      -15-
<PAGE>   19
growth of the business and the employee base. These expenses were incurred to
support the continued revenue growth of the Company. In 1996, selling, general
and administrative expenses also included the Company's operations in the United
Kingdom which were established during the year.

         Factor fees/Interest expense. Factor fees were the charges incurred by
the Company to finance its accounts receivable. The rapid increase in the
Company's business and revenue resulted in working capital requirements and the
Company utilized its increasing accounts receivable base as a source of
liquidity to obtain financing because the Company was unable to obtain more
traditional financing. See "--Liquidity and Capital Resources." The Company also
incurred interest expense in connection with subordinated debentures beginning
in April 1996. Factor fees and interest expense increased by 5.1%, or $60,000,
from 1995 to 1996 but decreased as a percentage of revenue from 4.8% to 2.6% in
1995 and 1996, respectively. Although the volume of accounts receivable financed
increased as a result of the revenue increase, the Company was able to fund much
of its working capital requirements during 1996 with the proceeds from the
subordinated debentures, which debentures carried an interest rate lower than
that charged by the factor. In addition, the Company established a collections
department in the first quarter of 1996. Slow accounts receivable turnover in
1995 contributed to increased factor fees in that year. On October 10, 1996, the
Company repaid the factor with a portion of the proceeds from the initial public
offering, approximately $4.4 million, consisting of all amounts outstanding
under the agreement with its factor and terminated its factor agreement.


BACKLOG

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


LIQUIDITY AND CAPITAL RESOURCES

         On October 2, 1996, the Company consummated an initial public offering
(the "Offering") of 2,846,250 shares of its Common Stock (which includes 371,250
additional shares to cover over-allotments) at a price of $10.00 per share, of
which 2,050,000 shares were issued and sold by the Company and 796,250 shares,
including the additional shares to cover over-allotments, were sold by certain
selling shareholders (the "Selling Shareholders"). The net proceeds to the
Company from such Offering, after underwriting discounts and commissions and
other expenses of the Offering, were approximately $17.8 million. The Company
did not receive any proceeds from the sale of shares sold by the Selling
Shareholders.

         Prior to the Offering, the Company had funded its operations primarily
from factoring of accounts receivable. Cash used in operating activities was
$2.3 million and $4.3 million in 1995 


                                      -16-
<PAGE>   20
and 1996, respectively, and resulted primarily from the growth in accounts
receivable and unbilled services.

         The Company had working capital of $15.7 million at December 31, 1996.

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

         The Company invested $142,000 and $1.1 million in computer equipment
and furniture in 1995 and 1996, respectively. Although there are no material
commitments for capital expenditures currently outstanding, the Company expects
to have capital expenditures in 1997 in an amount approximating the 1996 level.

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

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

         In April 1996, the Company issued and sold five-year 9% subordinated
debentures in the aggregate principal amount of $6.0 million to Summit Ventures
IV, L.P. and Summit Investors III, L.P. The subordinated debentures were issued
to raise money for working capital and general corporate purposes, to repurchase
from the then-current shareholders, Messrs. Pandey, Koneru and Valluripalli, an
aggregate of 4,881,066 shares of Common Stock for an aggregate of $1.5 million,
to repay approximately $300,000 outstanding under the $750,000 credit facility
described above and to satisfy approximately $358,000 of cash overdrafts. Upon
receipt of the net proceeds from the Offering in October 1996, the Company
prepaid approximately $6.3 million, representing all amounts outstanding under
such debentures, including interest. As a result of such prepayment, the
Company incurred an extraordinary charge of $1,148,000, net of an income tax
benefit of $296,000.

         Subsequent to December 31, 1995, the Company determined that it had
unrecorded and unpaid federal and state payroll-related taxes for certain
employees. As a result of the Company's voluntary disclosure to the Internal
Revenue Service of certain unpaid tax liabilities, on June 5, 1996, the Company
received an audit assessment from the Internal Revenue Service 


                                      -17-
<PAGE>   21
for unpaid 1994 and 1995 federal income tax withholding, FICA and FUTA taxes in
the aggregate amount of $814,000, of which approximately $800,000 was paid in
August 1996. No interest or penalties were assessed. Reserves, aggregating $1.0
million, including the amount of the Internal Revenue Service audit assessment,
were recorded at December 31, 1995. No assurance may be given, however, that
interest, penalties or additional state or federal taxes will not be assessed in
the future. The Company's principal shareholders, Messrs. Pandey, Koneru and
Valluripalli, have agreed to indemnify the Company for any and all losses which
the Company may sustain, in excess of the $1.0 million reserve, net of any tax
benefits realized by the Company, arising from or relating to federal or state
tax, interest or penalty payment obligations resulting from the subject matter.
The Company believes that its failure to record and pay 1994 and 1995 federal
and state payroll-related taxes for certain employees resulted from a
combination of factors, including lack of internal controls, lack of financial
expertise and oversight, and the Company's reliance on outside professional
advice. The Company hired a Chief Financial Officer in January 1996 who has
implemented accounting and financial controls to ensure the Company's compliance
with payroll tax regulations.

         In January 1997, the Company entered into a two-year credit agreement
with PNC Bank, National Association (the "Bank"). The credit facility with the
Bank has two components comprised of (i) a revolving line of credit pursuant to
which the Company may borrow up to $7.5 million (at the Bank's prime rate plus
1/4 of 1% per annum) to finance the working capital needs of the Company and
(ii) equipment term loans pursuant to which the Company may borrow up to an
aggregate of $350,000 (at the Bank's prime rate plus 3/4 of 1% per annum) to
purchase equipment. The credit limit of the revolving line of credit is the
lesser of $7.5 million or the Company's borrowing base. Such borrowing base is
70% of the net face amount of the Company's eligible accounts receivable at the
time of any loan under the revolving line of credit. The credit agreement
contains covenants which require the Company to (i) maintain its working capital
during the year at no less than 90% of the working capital at the end of the
immediately preceding fiscal year and at the end of each fiscal year at no less
than 105% of its working capital at the end of the immediately preceding fiscal
year; and (ii) maintain its tangible net worth during the year at no less than
95% of its tangible net worth at the end of the immediately preceding fiscal
year and at the end of each fiscal year at no less than 108% of tangible net
worth at the end of the immediately preceding fiscal year. The Company's
obligations under the credit agreement are collateralized by substantially all
of the Company's assets, including its accounts receivable and intellectual
property. The Company's obligations under the credit facility are payable at the
expiration of such facility on January 22, 1999. As of February 28, 1997, there
were no amounts outstanding under the revolving line of credit and no equipment
term loans outstanding. The foregoing information relating to the Company's
credit facility with the Bank is qualified in its entirety by reference to the
complete text of the related documents which are filed as exhibits hereto.

         The Company believes that its available funds, together with current
credit arrangements and the cash flow expected to be generated from operations,
will be adequate to satisfy its current and planned operations for at least the
next 24 months.


                                      -18-
<PAGE>   22
ITEM 7.  FINANCIAL STATEMENTS.

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


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         On December 15, 1995, the Company retained Arthur Andersen LLP to act
as its independent public accountants and informed the prior auditors, Amper,
Politziner & Mattia, the Company's independent accountants since January 1995,
of its decision. The former auditor's report on the Company's financial
statements for the year ended December 31, 1994 does not cover the financial
statements of the Company included in this Annual Report on Form 10-KSB. In
connection with its audit of the consolidated financial statements for the year
ended December 31, 1994, there were no disagreements with the prior auditors on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures. The prior auditors' report on the
Company's consolidated financial statements for the year ended December 31, 1994
contained no adverse opinion or disclaimer of opinion and was not modified or
qualified as to uncertainty, audit scope, or accounting principles. The decision
to change accountants was approved by the Board of Directors of the Company. The
prior auditors furnished the Company with a letter addressed to the Securities
and Exchange Commission (the "SEC") stating their agreement with the above
statements. Such letter appeared as Exhibit 16 to the Company's Registration
Statement on Form SB-2 (Registration No. 333-5981), declared effective by the
SEC on September 26, 1996. Prior to retaining Arthur Andersen LLP, the Company
had not consulted with Arthur Andersen LLP regarding accounting principles.


                                      -19-
<PAGE>   23
                                    PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT.

         The information relating to the Company's directors, nominees for
election as directors and executive officers under the headings "Election of
Directors" and "Executive Officers" in the Company's definitive proxy statement
for the 1997 Annual Meeting of Shareholders is incorporated herein by reference
to such proxy statement.


ITEM 10. EXECUTIVE COMPENSATION.

         The discussion under the heading "Executive Compensation" in the
Company's definitive proxy statement for the 1997 Annual Meeting of Shareholders
is incorporated herein by reference to such proxy statement.


ITEM 11. 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 1997 Annual Meeting of Shareholders is incorporated herein by reference
to such proxy statement.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The discussion under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 1997 Annual
Meeting of Shareholders is incorporated herein by reference to such proxy
statement.


                                      -20-
<PAGE>   24
                                     PART IV


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

     (a)   (1) Financial Statements.

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

     (a)   (2)      Financial Statement Schedules.

           None.

     (a)   (3)      Exhibits.

           Reference is made to the Index to Exhibits on Page 24.

     (b)   Reports on Form 8-K.

           No reports on Form 8-K were filed during the Company's fourth fiscal
           quarter.


                                      -21-
<PAGE>   25
                                   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 28th day of
March, 1997.


                                    INTELLIGROUP, INC.



                                    By:/s/ Ashok Pandey
                                       ------------------------
                                    Ashok Pandey, President
                                    and Chief Executive Officer


                                      -22-
<PAGE>   26
         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.

<TABLE>
<CAPTION>
           SIGNATURE                                      TITLE                               DATE
           ---------                                      -----                               ----
<S>                                       <C>                                           <C> 
/s/ Ashok Pandey                          President and Chief Executive Officer and     March 28, 1997
-------------------------------           Director (principal executive officer)
Ashok Pandey                              


/s/ Rajkumar Koneru                       Executive Vice President and Director         March 28, 1997
-------------------------------
Rajkumar Koneru


/s/ Nagarjun Valluripalli                 Executive Vice President and Director         March 28, 1997
-------------------------------
Nagarjun Valluripalli


/s/ Robert M. Olanoff                     Chief Financial Officer, Secretary and        March 28, 1997
-------------------------------           Treasurer (principal financial and
Robert M. Olanoff                         accounting officer)


/s/ Klaus Besier                          Director                                      March 28, 1997
-------------------------------
Klaus Besier


/s/ David Finley                          Director                                      March 28, 1997
-------------------------------
David Finley


/s/ Kevin P. Mohan                        Director                                      March 28, 1997
-------------------------------
Kevin P. Mohan


/s/ Thomas S. Roberts                     Director                                      March 28, 1997
-------------------------------
Thomas S. Roberts

</TABLE>


                                      -23-
<PAGE>   27
                                  EXHIBIT INDEX


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

   2        Agreement and Plan of Merger of the Company and its wholly owned 
            subsidiary Oxford Systems Inc.

   3.1*     Amended and Restated Certificate of Incorporation.

   3.2*     Amended and Restated Bylaws.

   4.1*     Debenture and Warrant Purchase Agreement dated April 10, 1996 by 
            and between the Company, Messrs. Pandey, Koneru and Valluripalli 
            and Summit Ventures IV, L.P. and Summit Investors III, L.P.

   4.2*     Warrant Agreement dated April 10, 1996 by and between the Company 
            and Summit Ventures IV, L.P. and Summit Investors III, L.P.

   4.3*     Registration Rights Agreement dated April 10, 1996 by and between 
            the Company and Summit Ventures IV, L.P. and Summit Investors III, 
            L.P.

   4.4*     Redemption Agreement dated April 10, 1996 by and between the 
            Company and Summit Ventures IV, L.P. and Summit Investors III, L.P.

   4.5*     Shareholders Agreement dated April 10, 1996 by and between the 
            Company, Messrs. Pandey, Koneru and Valluripalli and Summit 
            Ventures IV, L.P. and Summit Investors III, L.P.

  10.1*#    1996 Stock Plan of the Company.

  10.2*#    1996 Non-Employee Director Stock Option Plan.

  10.3*#    Employment Agreement dated June 1, 1996 between the Company and 
            Ashok Pandey.

  10.4*#    Employment Agreement dated June 1, 1996 between the Company and 
            Rajkumar Koneru.

  10.5*#    Employment Agreement dated June 1, 1996 between the Company and 
            Nagarjun Valluripalli.

  10.6*#    Employment Agreement dated June 1, 1996 between the Company and 
            Robert M. Olanoff, together with Change in Control Severance Pay 
            Agreement dated June 1, 1996 between the Company and Robert M. 
            Olanoff.


                                      -24-
<PAGE>   28
Exhibit No.                   Description of Exhibit
-----------                   ----------------------

  10.7*#    Employment Agreement dated June 1, 1996 between the Company and Paul
            Coombs. (See Exhibit 10.21)

  10.8*     Form of Indemnification Agreement entered into by the Company and 
            each of its Directors and officers.

  10.9*     Sublease Agreement between Micrognosis, Inc., as sublessor, the 
            Company, as sublessee, with master lease.

  10.10*    Employee's Invention Assignment and Confidentiality Agreement.

  10.11*    R/3 National Implementation Partner Agreement between SAP America,
            Inc. and the Company dated January 13, 1995.  See Exhibit 10.19.

  10.12*    Services Provider Agreement by and between Oracle Corporation and 
            the Company dated July 26, 1994.  See Exhibit 10.20.

  10.13*    Amended and Restated Agreement by Messrs. Pandey, Koneru and 
            Valluripalli dated July 16, 1996 to indemnify the Company for 
            certain losses.

  10.14*    Factoring Agreement by and between Access Capital, Inc. and the 
            Company dated as of October 20, 1995, with exhibits.  See Exhibit 
            10.17.

  10.15*    Agreement of Waiver and Consent dated as of June 4, 1996 by and 
            among the Company, certain shareholders of the Company, and Summit
            Ventures IV, L.P. and Summit Investors III, L.P., with Amendment 
            No. 1 thereto.

  10.16*    Agreement by and between the Company and Intelligroup Asia Private
            Limited ("Intelligroup Asia") relating to operational control of
            Intelligroup Asia, with related agreements.

  10.17     Letter agreements terminating factoring arrangement by and between
            each of the Company and Oxford Systems Inc., and Access Capital,
            Inc. dated October 10, 1996.

  10.18     Loan and Security Agreement between PNC Bank, National Association
            and the Company dated as of January 22, 1997, and related documents.


                                      -25-
<PAGE>   29
Exhibit No.                   Description of Exhibit
-----------                   ----------------------

  10.19     R/3 National Implementation Partner Agreement by and between SAP 
            America, Inc. and the Company dated March 26, 1996.

  10.20     Amendment No. 1 to Services Provider Agreement by and between 
            Oracle Corporation and the Company dated December 30, 1996.

  10.21#    Amendment No. 1, dated February 18, 1997, to Employment Agreement
            dated June 1, 1996, between the Company and Paul Coombs. (See
            Exhibit 10.7)

  11        Statement re: Computation of per share earnings.

  16*       Letter re: Change of Certifying Accountant.

  21        Subsidiaries of the Registrant.

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

----------

* Incorporated by reference to the Company's Registration Statement on Form SB-2
  (Registration Statement No. 333-5981) declared effective by the Securities and
  Exchange Commission on September 26, 1996.

# A management contract or compensatory plan or arrangement required to be filed
  as an exhibit pursuant to Item 13(a) of Form 10-KSB.

All other exhibits filed herewith.

                                      -26-
<PAGE>   30
                       INTELLIGROUP, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                            Page
                                                                            ----

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

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 1996 and 1995 ............    F-3

Consolidated Statements of Operations for the years ended
   December 31, 1996 and 1995 ...........................................    F-4

Consolidated Statements of Shareholders' Equity (Deficit) for
   the years ended December 31, 1996 and 1995 ...........................    F-5

Consolidated Statements of Cash Flows for the years ended
   December 31, 1996 and 1995 ...........................................    F-6

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


                                       F-1
<PAGE>   31
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Intelligroup, Inc.:

         We have audited the accompanying consolidated balance sheets of
Intelligroup, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Intelligroup, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.




                                    ARTHUR ANDERSEN LLP

Princeton, New Jersey
February 5, 1997


                                       F-2
<PAGE>   32
                       INTELLIGROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995


<TABLE>
<CAPTION>
                                                                                 1996             1995
                                                                             ------------     ------------
                                     ASSETS
<S>                                                                          <C>              <C>
Current Assets:
   Cash and cash equivalents ............................................    $  7,479,000     $     71,000
   Restricted cash held in escrow .......................................              --          100,000
   Accounts receivable, less allowance for doubtful accounts of $546,000
     and $531,000 at December 31, 1996 and 1995, respectively ...........       8,538,000        4,729,000
   Unbilled services ....................................................       2,916,000        1,569,000
   Deferred income taxes ................................................         331,000               --
   Other current assets .................................................         492,000            3,000
                                                                             ------------     ------------
       Total current assets .............................................      19,756,000        6,472,000
Property and equipment, less accumulated depreciation of $243,000 and
   $99,000 at December 31, 1996 and 1995, respectively ..................       1,281,000          282,000
Other assets ............................................................         225,000           30,000
                                                                             ------------     ------------
                                                                             $ 21,262,000     $  6,784,000
                                                                             ============     ============
                 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
   Accounts payable .....................................................    $    406,000     $  1,480,000
   Accrued payroll and related taxes ....................................       1,814,000        2,568,000
   Accrued expenses and other liabilities ...............................       1,268,000          532,000
   Income taxes payable .................................................         535,000               --
   Cash overdraft .......................................................              --           83,000
   Line of credit .......................................................              --           45,000
   Loans from factors ...................................................              --        3,343,000
   Current portion of obligations under capital leases ..................          20,000           18,000
                                                                             ------------     ------------
       Total current liabilities ........................................       4,043,000        8,069,000
                                                                             ------------     ------------
Obligations under capital leases, less current portion ..................          57,000           81,000
                                                                             ------------     ------------
Commitments and contingencies
Shareholders' Equity (Deficit)
   Preferred stock ......................................................              --               --
   Common stock, $.01 par value, 25,000,000 shares authorized, 10,735,600
     and 12,202,666 issued and outstanding at December 31,
     1996 and 1995, respectively ........................................         107,000          122,000
   Additional paid-in capital ...........................................      19,201,000               --
   Accumulated deficit ..................................................      (2,146,000)      (1,488,000)
                                                                             ------------     ------------
       Total shareholders' equity (deficit) .............................      17,162,000       (1,366,000)
                                                                             ------------     ------------
                                                                             $ 21,262,000     $  6,784,000
                                                                             ============     ============
</TABLE>

                 See notes to consolidated financial statements.


                                       F-3
<PAGE>   33
                       INTELLIGROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


<TABLE>
<CAPTION>
                                                                        1996            1995
                                                                     -----------     -----------
<S>                                                                  <C>             <C>        
Revenue .........................................................    $47,189,000     $24,589,000
Cost of sales ...................................................     33,605,000      20,021,000
                                                                     -----------     -----------
       Gross profit .............................................     13,584,000       4,568,000
Selling, general and administrative expenses ....................      9,908,000       4,452,000
                                                                     -----------     -----------
       Operating income .........................................      3,676,000         116,000
                                                                     -----------     -----------
Other expenses:
   Interest expense, net ........................................        236,000           4,000
   Factor charges ...............................................        999,000       1,171,000
                                                                     -----------     -----------
                                                                       1,235,000       1,175,000
                                                                     -----------     -----------
Income (loss) before provision for income taxes and extraordinary
   charge .......................................................      2,441,000      (1,059,000)
Provision for income taxes ......................................        500,000              --
                                                                     -----------     -----------
Income (loss) before extraordinary charge .......................      1,941,000      (1,059,000)

Extraordinary charge-Loss on early extinguishment of debt, net of
   income tax benefit of $296,000 ...............................      1,148,000              --
                                                                     -----------     -----------
Net income (loss) ...............................................    $   793,000     $(1,059,000)
                                                                     ===========     ===========
Earnings (loss) per share:
   Income (loss) before extraordinary charge ....................    $      0.18     $     (0.08)
   Extraordinary charge, net of income tax benefit ..............          (0.11)             --
                                                                     -----------     -----------
       Net income (loss) per share ..............................    $      0.07     $     (0.08)
                                                                     ===========     ===========

   Shares used in per share calculation .........................     10,989,000      13,737,000
                                                                     ===========     ===========
</TABLE>

                 See notes to consolidated financial statements.


                                       F-4
<PAGE>   34
                       INTELLIGROUP, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


<TABLE>
<CAPTION>
                                                                                                             TOTAL
                                                                          ADDITIONAL                      SHAREHOLDERS'
                                                COMMON STOCK               PAID IN       ACCUMULATED         EQUITY
                                          SHARES           AMOUNT          CAPITAL         DEFICIT         (DEFICIT)
                                       ------------     ------------     ------------    ------------     ------------
<S>                                      <C>            <C>              <C>             <C>              <C>          
Balance at December 31, 1994 ......      12,202,666     $    122,000     $         --    $   (429,000)    $   (307,000)
Net loss ..........................              --               --               --      (1,059,000)      (1,059,000)
                                       ------------     ------------     ------------    ------------     ------------
Balance at December 31, 1995 ......      12,202,666          122,000               --      (1,488,000)      (1,366,000)
Net income ........................              --               --               --         793,000          793,000
Repurchase and retirement of common
stock .............................      (4,881,066)         (49,000)              --      (1,451,000)      (1,500,000)
Issuance of common stock, net of
related costs .....................       2,050,000           20,000       17,815,000              --       17,835,000
Exercise of warrants ..............       1,364,000           14,000        1,386,000              --        1,400,000
                                       ------------     ------------     ------------    ------------     ------------
Balance at December 31, 1996 ......      10,735,600     $    107,000     $ 19,201,000    $ (2,146,000)    $ 17,162,000
                                       ============     ============     ============    ============     ============
</TABLE>

                 See notes to consolidated financial statements.


                                       F-5
<PAGE>   35
                       INTELLIGROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                         1996             1995
                                                                     ------------     ------------
<S>                                                                  <C>              <C>
Cash flows from operating activities:
   Net income (loss) ............................................    $    793,000     $ (1,059,000)
   Adjustments to reconcile net income (loss) to net cash used in
     operating activities:
       Depreciation and amortization ............................         214,000           51,000
       Provision for doubtful accounts ..........................         590,000          411,000
       Extraordinary charge .....................................       1,444,000               --
       Deferred income taxes ....................................        (331,000)              --
   Changes in assets and liabilities:
       Restricted cash deposited in escrow ......................         100,000         (100,000)
       Accounts receivable ......................................      (4,399,000)      (3,339,000)
       Unbilled services ........................................      (1,347,000)      (1,386,000)
       Other current assets .....................................        (489,000)          27,000
       Other assets .............................................        (197,000)         (30,000)
       Cash overdraft ...........................................         (83,000)          83,000
       Accounts payable .........................................      (1,074,000)       1,480,000
       Accrued payroll and related taxes ........................        (754,000)       1,035,000
       Income taxes payable .....................................         535,000               --
       Accrued expenses and other liabilities ...................         736,000          478,000
                                                                     ------------     ------------
           Net cash used in operating activities ................      (4,262,000)      (2,349,000)
                                                                     ------------     ------------
Cash flows from investing activities:
   Purchase of property and equipment ...........................      (1,143,000)        (142,000)
                                                                     ------------     ------------
Cash flows from financing activities:
   Proceeds from subordinated debentures and warrants, net of
     issuance costs .............................................       5,888,000               --
   Repayment of subordinated debentures .........................      (6,000,000)              --
   Repurchase of common stock ...................................      (1,500,000)              --
   Proceeds from issuance of common stock, net of issuance costs       17,835,000               --
   Loans from (repayments to) factors, net ......................      (3,343,000)       2,349,000
   Proceeds from (repayments of) lines of credit, net ...........         (45,000)           6,000
   Principal payments under capital leases ......................         (22,000)          (2,000)
                                                                     ------------     ------------
           Net cash provided by financing activities ............      12,813,000        2,353,000
                                                                     ------------     ------------
           Net increase (decrease) in cash and cash equivalents .       7,408,000         (138,000)
Cash and cash equivalents at beginning of period ................          71,000          209,000
                                                                     ------------     ------------
Cash and cash equivalents at end of period ......................    $  7,479,000     $     71,000
                                                                     ============     ============
Supplemental disclosures of cash flow information:
   Cash paid for interest .......................................    $  1,264,000     $  1,175,000
                                                                     ============     ============
Noncash transactions:
   Capital lease obligations ....................................    $         --     $    102,000
                                                                     ============     ============
</TABLE>

                 See notes to consolidated financial statements.


                                       F-6
<PAGE>   36
                               INTELLIGROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

Principles of Consolidation and Use of Estimates

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

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

Cash and Cash Equivalents

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

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 assets (five years). Costs of maintenance and
repairs are charged to expense as incurred.

Revenue Recognition

         The Company generates revenue from professional services rendered.
Revenue is recognized as services are performed with the corresponding cost of
providing those services reflected as cost of sales. Substantially all customers
are billed on a per diem basis whereby actual time is charged directly to the
customer. Billings to customers for out-of-pocket expenses are recorded as a
reduction of expenses incurred. Unbilled services at December 31, 1996 and


                                       F-7
<PAGE>   37
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

1995 represent services provided which are billed subsequent to year-end. All
such amounts are anticipated to be realized in the following year.

Allowance for Doubtful Accounts

         The Company provides an allowance for doubtful accounts arising from
services, which is based upon a review of outstanding receivables as well as
historical collection information. In determining the amount of the allowance,
management is required to make certain estimates and assumptions. The provision
for doubtful accounts totaled $590,000 and $411,000 in 1996 and 1995,
respectively. Credit is granted to substantially all customers on an unsecured
basis.

Recoverability of Long-Lived Assets

         The Company reviews the recoverability of its long-lived assets on a
periodic basis in order to identify business conditions which may indicate a
possible impairment. The assessment for potential impairment is based primarily
on the Company's ability to recover the unamortized balance of its long-lived
assets from expected future cash flows from its operations on an undiscounted
basis.

Stock-Based Compensation

         In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation," which requires
companies to measure employee stock compensation plans based on the fair value
method using an option pricing model or to continue to apply APB No. 25,
"Accounting for Stock Issued to Employees," and provide pro forma footnote
disclosures under the fair value method. The Company continues to apply APB No.
25 and provides pro forma disclosures. (See Note 7).

Concentrations

         For the years ended December 31, 1996 and 1995, approximately 74% and
69% of revenue, respectively, was derived from projects in which the Company's
personnel implemented software developed by SAP. The Company's future success in
its SAP-related consulting services depends largely on its continued
relationship with SAP and on its continued status as a SAP National
Implementation Partner, which was first obtained in 1995. The Company's
agreement with SAP (the "Agreement") is awarded on an annual basis. The
Company's current contract expires on December 31, 1997. The Agreement contains
no minimum revenue requirement or cost sharing arrangements and does not
provide for commissions or royalties to either party. In February 1997, the
Company achieved a National Logo Partner relationship with SAP, SAP's highest
consulting alliance partnership status, and will begin operating under the
terms of such partnership agreement pending partnership agreement negotiations.


                                       F-8
<PAGE>   38
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

         A substantial portion of the Company's revenue is derived from projects
in which an information technology consulting firm other than the Company has
been retained by the end-user organization to manage the overall project. For
years ended December 31, 1996 and 1995, 44% and 50%, respectively, of the
Company's revenue was generated by serving as a member of consulting teams
assembled by other information technology consulting firms.

         One customer accounted for approximately 13% of revenue in 1996.
Accounts receivable due from this customer was $2,268,000 as of December 31,
1996. Another customer accounted for approximately 20% and 10% of revenue for
1996 and 1995, respectively. Accounts receivable due from this customer was
$988,000 and $611,000 as of December 31, 1996 and 1995, respectively. Another
customer accounted for approximately 12% of revenue for 1995. Accounts
receivable due from this customer was $1,400,000 as of December 31, 1995.

Foreign Operations

         Revenues from foreign operations were not significant in 1996 and 1995.
Translation effects were not material.

Income Taxes

         The Company accounts for income taxes pursuant to the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which utilizes the liability method and results in the determination of
deferred taxes based on the estimated future tax effects of differences between
the financial statement and tax basis of assets and liabilities, using enacted
tax rates currently in effect. The principal differences arise from the
reporting of income and expenses under the accrual method for financial
statement purposes versus the cash basis method for income tax purposes. (See
Note 5).

Net Income (Loss) Per Share

         Net income (loss) per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period after giving retroactive effect to the stock split. (See Note 8).
Pursuant to the requirements of the Securities and Exchange Commission, stock
options and warrants issued by the Company during the twelve months immediately
preceding its initial public offering (see Note 8) have been included in
computing net income (loss) per share as if they were outstanding for all
periods using the treasury stock method.

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.


                                       F-9
<PAGE>   39
NOTE 2 - PROPERTY AND EQUIPMENT

         Property and equipment consists of the following as of December 31,
1996 and 1995:

<TABLE>
<CAPTION>
                                                   1996                1995
                                                -----------         -----------
<S>                                             <C>                 <C>        
Vehicles ...............................        $    26,000         $    26,000
Furniture ..............................             98,000              98,000
Equipment ..............................          1,400,000             257,000
                                                -----------         -----------
                                                  1,524,000             381,000
Less - Accumulated depreciation .........          (243,000)            (99,000)
                                                -----------         -----------
                                                $ 1,281,000         $   282,000
                                                ===========         ===========
</TABLE>

         Included in the above is $102,000 of equipment held under capital
leases. Depreciation expense was $144,000 and $51,000 in 1996 and 1995,
respectively.

NOTE 3 - LINES OF CREDIT AND SUBORDINATED DEBENTURES

         In January 1997, the Company entered into a two-year credit agreement
with a bank. The credit facility with the bank includes (i) a revolving line of
credit pursuant to which the Company may borrow up to $7,500,000 (at the bank's
prime rate plus 1/4 of 1% per annum) to finance the working capital needs of
the Company and (ii) equipment term loans pursuant to which the Company may
borrow up to an aggregate of $350,000 (at the bank's prime rate plus 3/4 of 1%
per annum) to purchase equipment. The credit limit of the revolving line of
credit is the lesser of $7,500,000 or the Company's borrowing base. Such
borrowing base is 70% of the Company's eligible accounts receivable at the time
of any loan under the revolving line of credit. The credit agreement contains
covenants which, among other things, require the maintenance of a minimum
working capital ratio and a minimum net worth, as defined, and prohibit
distribution of cash dividends. The Company's obligations under the credit
agreement are collateralized by substantially all of the Company's assets. The
Company's obligations under the credit facility are payable at the expiration
of such facility on January 22, 1999.

         The Company had available, under an agreement with a bank, a $50,000
line of credit bearing interest at the bank's prime lending rate plus 2%, which
was collateralized by all Company assets and personally guaranteed by one of the
Company's shareholders. The line of credit expired May 26, 1996 and was repaid
in November 1996. The outstanding balance as of December 31, 1995 was $45,000.

         In March 1996, in anticipation of the financing discussed below, the
Company obtained a $750,000 line of credit, payable on demand, from a bank.
Aggregate borrowings in the amount of $300,000 were repaid and the line of
credit was terminated by the Company in accordance with the financing described
below.


                                      F-10
<PAGE>   40
NOTE 3 - LINES OF CREDIT AND SUBORDINATED DEBENTURES - (CONTINUED)

         In April 1996, the Company issued $6,000,000 of five-year, 9%
subordinated debentures. All principal and interest was due at maturity (April
2001). The debentures were issued with detachable warrants to purchase Common
Stock of the Company. (See Note 7). Proceeds from the debentures were allocated
between the debentures and the warrants based on estimated fair value which
resulted in a discount on the debentures (based on a 15% interest rate) and a
value assigned to the warrants of $1,400,000. A portion of the net proceeds of
the Company's initial public offering (see Note 8) was used to repay the
subordinated debentures which resulted in an extraordinary charge of $1,148,000,
net of an income tax benefit of $296,000.

         Subsequent to the issuance of the subordinated debentures, the Company
purchased and retired 4,881,066 shares of its Common Stock for $1,500,000 from
its shareholders.

NOTE 4 - LOANS PAYABLE TO FACTORS

         On October 20, 1995, the Company entered into a factoring agreement
with a financing institution (the "Factor") under which the Company was required
to offer all its trade accounts receivable to the Factor for financing; however,
the Factor was not obligated to accept them. The agreement had a term of one
year with automatic one-year renewals unless the Company or the Factor gave
notice of cancellation. The Factor charged an administration fee of 0.75% on
each invoice plus an additional 0.75% for each 15-day increment the invoice
remained unpaid, to a maximum of 120 days, or 6.5%. If the amount of a factored
receivable was not paid by reason of financial inability of the customer, the
Company was not liable to reimburse the Factor. If, however, the Factor, through
legal action or otherwise, settled, compromised or assigned the claim for any
receivable, the amount of any reduction resulting from such settlement,
compromise or assignment reduced the balance due to the Company. The Company
used approximately $4.4 million of the net proceeds from the Company's initial
public offering to repay loans from the Factor. (See Note 8). The Factor
agreement was terminated in October 1996.

         The Company had factoring agreements with a former financing
institution under which it could sell qualified trade accounts receivable, with
recourse provisions. The agreements, which were terminated in October 1995
required the Company to repurchase or replace any receivable remaining
uncollected for more than 120 days.


                                      F-11
<PAGE>   41
NOTE 5 - INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                         1996
                                                                      ---------
<S>                                                                   <C>
Current:
  Federal ..........................................                  $ 631,000
  State ............................................                    200,000
                                                                      ---------
                                                                        831,000
                                                                      ---------
Deferred:
  Federal ..........................................                   (259,000)
  State ............................................                    (72,000)
                                                                      ---------
                                                                       (331,000)
                                                                      ---------
Total ..............................................                  $ 500,000
                                                                      =========
</TABLE>

         The provision for income taxes differs from the amount computed by
applying the statutory rate of 35% to income (loss) before income taxes. The
principal reasons for this difference are:

<TABLE>
<CAPTION>
                                                               1996       1995
                                                               ----       ----
<S>                                                             <C>        <C>  
Tax at federal statutory rate ............................       35%       (35%)
Nondeductible expenses ...................................        1         --
State income tax, net of federal benefit .................       (3)        --
Utilization of net operating loss carryforwards ..........       (8)        --
Foreign losses for which no benefit is available .........        9         --
Changes in valuation allowance ...........................      (14)        35
                                                               ----       ----
Effective tax rate .......................................       20%        --%
                                                               ====       ====
</TABLE>

         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 under SFAS No.
109 as of December 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                        1996            1995
                                                      ---------       ---------
<S>                                                   <C>             <C>
Deferred tax assets:
  Allowance for doubtful accounts ..............      $ 224,000       $ 234,000
  Certain accrued liabilities ..................        146,000         207,000
  Net operating losses .........................        131,000         227,000
  Other ........................................         37,000              --
                                                      ---------       ---------
Total deferred tax assets ......................        538,000         668,000
Valuation allowance for deferred tax assets ....       (207,000)       (668,000)
                                                      ---------       ---------
Net deferred tax assets ........................      $ 331,000       $      --
                                                      =========       =========
</TABLE>


                                      F-12
<PAGE>   42
NOTE 5 - INCOME TAXES - (CONTINUED)

         Realization of the net deferred tax assets is dependent on the timing
of the reversal of other temporary differences. Although realization is not
assured, management believes it is more likely than not, that the majority of
the 1996 net deferred tax assets will be realized. The Company reduced their
valuation allowance in 1996 as a result of current and anticipated future
profitability. The Company's 1996 valuation allowance relates primarily to the
net operating loss of a foreign subsidiary which is yet to be profitable.

NOTE 6 - COMMITMENTS AND CONTINGENCIES

Employment Agreements

         Commencing June 1, 1996, the Company entered into two year employment
agreements with five employees with aggregate annual compensation of $935,000.

Payroll and Related Taxes

         As of December 31, 1995, the Company had $1,000,000 included in accrued
payroll and related taxes related to unpaid federal and state payroll related
taxes for certain employees. As a result of the Company's voluntary disclosure
to the Internal Revenue Service ("IRS") on June 5, 1996, the IRS issued an audit
assessment to the Company for $814,000 which had been included in the above
accrual. The assessment was paid in 1996. The Company's principal shareholders
have agreed to indemnify the Company for any and all losses which the Company
may sustain in excess of the amounts accrued as of December 31, 1995 arising
from or relating to federal or state tax, interest or penalty payment
obligations, net of any tax benefits realized by the Company, resulting from the
subject matter discussed above.

Leases

         The Company leases office space and office equipment under capital and
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of December 31, 1996. Future minimum aggregate annual
lease payments are as follows:

<TABLE>
<CAPTION>
    FOR THE YEARS ENDING DECEMBER 31,                CAPITAL           OPERATING
    ---------------------------------                -------           ---------
<S>                                                 <C>                 <C>     
1997 ....................................           $ 37,000            $254,000
1998 ....................................             37,000             245,000
1999 ....................................             20,000             221,000
2000 ....................................             20,000              19,000
2001 ....................................                 --              16,000
                                                    --------
                                                     114,000
Less- Interest ..........................            (37,000)
                                                    --------
                                                      77,000
Less- Current portion ...................            (20,000)
                                                    --------
                                                    $ 57,000
                                                    ========
</TABLE>


                                      F-13
<PAGE>   43
NOTE 6 - COMMITMENTS AND CONTINGENCIES - (CONTINUED)

         Rent expense for the years ended December 31, 1996 and 1995 was
$176,000 and $74,000, respectively.

Legal

         The Company is being investigated by the Immigration and Naturalization
Service concerning possible violations of the Immigration Reform and Control Act
of 1990. Although a notice of intent to fine has not been served upon the
Company and therefore the potential for fines is not known, the Company believes
that fines, if any, would not have a material effect on the Company's results of
operations or financial condition.

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

NOTE 7 - STOCK OPTION PLANS AND WARRANTS

         The Company's 1996 Stock Plan (the "Plan") permits the granting of
options to employees, non-employee directors and consultants. The Plan is
administered by the Option Committee of the Board of Directors, which generally
has the authority to select individuals who are to receive options and to
specify the terms and conditions of each option so granted, including the number
of shares covered by the option, the type of option (incentive stock option or
non-qualified stock option), the exercise price, vesting provisions, and the
overall option term. A total of 1,450,000 shares of Common Stock have been
reserved for issuance under the Plan. In June 1996, effective July 1996, the
Company granted options to purchase an aggregate of 500,000 shares of its Common
Stock to certain employees at an exercise price of $8.00 per share. One-third of
these options vest six months from date of grant with remaining options vesting
over the following two years. At December 31, 1996, 492,000 of these options
remain outstanding, none of which are exercisable. Eight thousand options were
forfeited in 1996. Subsequent to December 31, 1996, the Company granted options
to purchase an aggregate of 459,000 shares of its Common Stock to certain
employees at an exercise price of $11.00 per share. All of the options issued
pursuant to this Plan expire ten years from the date of grant.

         The 1996 Non-Employee Director Stock Option Plan provides for the
granting of options to purchase a maximum of 140,000 shares of Common Stock of
the Company to non-employee directors. Each person who was a director of the
Company on the effective date of the Company's initial public offering or
becomes a director of the Company thereafter, and who is not also an employee
or officer of the Company, was or shall be granted, on the effective date of
such intitial public offering or on the date on which he or she becomes a
director, whichever is later, an option to purchase 20,000 shares of Common
Stock, at an exercise price per share equal to the then fair market value of
the shares. All options will vest in five equal installments, commencing one
year after grant and have a ten-year term. Options to purchase 80,000 shares of
the Company's Common Stock were granted in 1996 with exercise prices ranging
from $10 to $12.125 per share with a weighted average exercise price of $10.78.
At December 31, 1996 all of these options remain outstanding, none of which are
exercisable.


                                      F-14
<PAGE>   44
NOTE 7 - STOCK OPTION PLANS AND WARRANTS - (CONTINUED)

         The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions: expected volatility of 41%, risk-free interest rate of 5.6%; and
expected lives of three years. The weighted-average grant-date fair value of
options granted during the year was $2.93 per share.

         As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company has chosen to continue
accounting for stock options at their intrinsic value. Accordingly, no
compensation cost has been recognized for the stock option plans. Had
compensation cost for the Company's two stock option plans been determined based
on the fair value option pricing method of accounting, the Company's net income
and earnings per share would have been reduced to $434,000 and $0.04,
respectively.

         The subordinated debenture holders (see Note 3) received warrants for
the purchase of up to 20.8% of the fully diluted common stock of the Company, as
defined, at a nominal exercise price (less than $0.25 in the aggregate). The
warrants were exercised in September 1996 which resulted in the issuance of
1,364,000 shares of the Company's Common Stock.

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

         The Company's initial public offering for the sale of 2,050,000 shares
of its common stock became effective on September 26, 1996 and the net proceeds
of approximately $19,065,000 (before deducting expenses of the offering paid by
the Company) were received on October 2, 1996. A portion of the net proceeds was
used to prepay subordinated debentures and repay other debt. (See Notes 3 and
4).

         In July 1996, the Company's Board of Directors recommended and
shareholders approved an amendment to the Company's Certificate of Incorporation
to effect an 81,351.1111-for-1 stock split. All common shares and per share
amounts in the accompanying financial statements have been adjusted
retroactively to give effect to the stock split. In addition, the Company's
Board of Directors authorized a change in the Company's authorized
capitalization to 25,000,000 shares of Common Stock, $0.01 par value per share,
and 5,000,000 shares of undesignated preferred stock, $0.01 par value per share.


                                      F-15