UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549

FORM 10-K

(Mark One)

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

For the fiscal year ended
December 31, 2007





Commission File Number 0-20943

Intelligroup, Inc.(Exact name of registrant as specified in its
      charter)


|New
      Jersey                                                     | 11-2880025                                                
|-------------------------------------------------------------------- | ----------------------------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)                      
|                                                                    
|499 Thornall Street, 11th Floor Edison, NJ 08837                     | (732)
      590-1600                                      
|                                                                    
|(Address of
      principal executive offices including zip code)    | (Registrant's telephone number, including area
      code)

Securities registered pursuant to
Section 12(b) of the Act: NoneSecurities
registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par
value

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes o No x

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Exchange Act. Yes o No x

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes x No o

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

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See definition of "large accelerated
filer, accelerated filer " and "smaller reporting company" in Rule 12b-2 of
the Exchange Act. (Check one):

|Large accelerated
      filer o | Accelerated
      filer o | Non-accelerated
      filer o                       | Smaller Reporting
      Company x
|------------------------------- | ------------------------- | --------------------------------------------------- | ---------------------------------
|                                |                           | (Do not check
      if a smaller reporting company)

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Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

The aggregate market value of the
voting stock held by non-affiliates of the registrant as of June 29, 2007 (the
last business day of the most recent second quarter) was $28,120,869 (based on
the closing price as quoted on the Stock Market on that date). For purposes of
this calculation, shares owned by officers, directors and 10% shareholders known
to the registrant have been deemed to be owned by affiliates. This determination
of affiliate status is not a determination for other purposes.

Indicate the number of shares
outstanding of each of the registrant's classes of common stock, as of March 24,
2008:

|Class                         |            | Number of Shares | 
|----------------------------- | ---------- | ---------------- | 
|Common Stock, $0.01 par value | 42,159,857

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TABLE OF CONTENTS

|                     | Item |                                                                       | Page
|-------------------- | ---- | --------------------------------------------------------------------- | ----
|PART I               | 1    | Business                                                              | 5   
|                     | 1A   | Risk
      Factors                                                    | 17  
|                     | 1B   | Unresolved Staff Comments                                             | 24  
|                     | 2    | Properties                                                            | 25  
|                     | 3    | Legal Proceedings                                                     | 26  
|                     | 4    | Submission of Matters to a Vote of Security
      Holders             | 28  
|PART
      II        | 5    | Market for the Registrants Common Equity and
      Related           |     
|                     |      | Shareholder
      Matters                                             | 29  
|                     | 6    | Selected Financial Data                                               | 30  
|                     | 7    | Management's
      Discussion and Analysis of Financial Condition and |     
|                     |      | Results of
      Operations                                           | 33  
|                     | 7A   | Quantitative and Qualitative Disclosure About Market
      Risk       | 51  
|                     | 8    | Financial Statements and Supplementary
      Data                     | 51  
|                     | 9    | Changes in and Disagreements with Accountants
      on                |     
|                     |      | Accounting and Financial
      Disclosure                             | 51  
|                     | 9A   | Controls and Procedures                                               | 52  
|PART III             | 10   | Directors and Executive Officers and Corporate
      Governance       | 55  
|                     | 11   | Executive Compensation                                                | 55  
|                     | 12   | Security Ownership
      of Certain Beneficial Owners and Management  |     
|                     |      | and Related Shareholder
      Matters                                 | 55  
|                     | 13   | Certain Relationships and Related
      Transactions                  | 55  
|                     | 14   | Principal Accounting Fees and
      Services                          | 55  
|PART IV              | 15   | Exhibits, Financial Statement
      Schedules                         | 56  
|EXHIBIT INDEX        | 57  
|SIGNATURES           | 65  
|FINANCIAL STATEMENTS | 66  

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This
annual report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements include, among other
things, business strategy and expectations concerning industry conditions,
market position, future operations, margins, profitability, liquidity and
capital resources. Forward-looking statements generally can be identified by the
use of terminology such as may, will, expect, intend, estimate,
anticipate, or believe or similar expressions or the negatives thereof.
These expectations are based on managements assumptions and current beliefs
based on currently available information. Although we believe that the
expectations reflected in such statements are reasonable, we can give no
assurance that such expectations will be correct. You are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this annual report on Form 10-K. Our operations are subject to a number
of uncertainties, risks and other influences, many of which are outside its
control, and any one of which, or a combination of which, could cause actual
results of operations to differ materially from the forward-looking statements.
Important factors that could cause actual results to differ materially from
expectations are disclosed in Item 1A, Risk Factors and Item 7, Managements
Discussion and Analysis and elsewhere in this annual report on Form 10-K.

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**PART I**

**Item 1. Business.**

**General**

*Overview*

Intelligroup, Inc. is a vertically led global information technology
(IT) services organization and a leading provider of consulting, business
optimization, and outsourcing solutions. We provide end to end services
including advisory, implementation, testing and application management and
support services (AMS) of Enterprise Resource Planning (ERP) solutions from
SAP AG, and Oracle Corporation including PeopleSoft. We also provide e-business
solutions using Java and the Microsoft .NET platforms and infrastructure
management services. Our customer base includes global Fortune 500 customers,
middle market businesses and public sector organizations. Our global delivery
model, along with its International Organization for Standardization (ISO) and
Capability Maturity Model (CMM) processes, enables customers to achieve rapid
Return on Investment (ROI) and reduced Total Cost of Ownership (TCO). With
extensive expertise in industry-specific enterprise solutions we believe we have
earned a reputation for consistently exceeding client expectations.

We
improve clients business performance by aligning business with IT. Through our
strategic alliances with SAP, Oracle, Microsoft Corporation, and Compuware Corp,
we offer our clients comprehensive process solutions combined with timely and
cost effective implementation of new business systems. Focusing on vertical
solutions and full lifecycle implementation in ERP, e-business solutions and
application management services, we enable clients to achieve significant
business advantage, with excellent quality, reduced time-to-market, optimized
costs and long-term customer relationships.

We
believe that the implementation of these solutions makes our clients more
competitive. Our ISO 9001:2000-certified and SEI/SW-CMMi Level 5 assessed
offshore development center delivers high quality, cost-effective, around the
clock rapid development services, for enterprise, e-commerce and mobile commerce
applications. Our offshore global support center manages customers' critical
applications, systems and infrastructure, keeping the critical applications
stable, current and optimized through efficient and cost-effective user,
technical and operations support.

In order
to service our customers in an optimal manner, our go-to-market strategy is
guided by a regional solution competency and industry vertical focus. The
regional spread covers territories within North America, India, Europe and
Japan. These regional practices are responsible for managing and building
overall client relationships. We have established practices for SAP, Oracle,
PeopleSoft and e-business solutions using Java and the Microsoft .Net platforms.
These practices develop key service offerings, support business development
efforts, and provide critical support to implementation and support projects. We
have created industry vertical practices in Consumer Products, Life Sciences,
High tech, Banking Finance Securities and Insurance,Discrete Manufacturing, State and Local
Government, and K-12 and Higher Education.

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Unless
otherwise indicated or the context otherwise requires, the terms Company,
Intelligroup, we, us, and our refer to Intelligroup , Inc, and its
subsidiaries.

*Company
History*

We were
incorporated in New Jersey in October 1987 under the name Intellicorp, Inc. to
provide systems integration and custom software development services. Our name
was changed to Intelligroup, Inc. in July 1992. In March 1994, we acquired
Oxford Systems Inc. ("Oxford"). On December 31, 1996, Oxford was merged into
Intelligroup and ceased to exist as an independent entity. In October 1996, we
consummated our initial public offering of our common stock (Common Stock).
Our executive offices are located at Edison, New Jersey 08837.

In 1994,
we began to diversify our customer base by expanding the scope of our systems
integration and custom development services to include ERP software. For many
customers, ERP solutions are viewed as an alternative to the custom design and
development of their own applications. Although ERP products are pre-packaged
solutions, there is a significant amount of technical work involved in
implementing such solutions and tailoring their use for a particular customer's
needs.

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

In late
1999, we made the strategic decision to spin-off our Internet services business
to our shareholders. Accordingly, on January 1, 2000, we transferred our
Internet applications services and management consulting businesses to SeraNova,
a wholly-owned subsidiary of our Company on such date.

On July
5, 2000, we distributed all of the outstanding shares of the common stock of
SeraNova then held by us to holders of record of our Common Stock as of the
close of business on May 12, 2000 (or to their subsequent transferees) in
accordance with the terms of a Distribution Agreement dated as of January 1,
2000 between us and SeraNova.

In 2000,
we began to focus on the management and support of customers' enterprise,
e-commerce and m-commerce applications. Additionally, we introduced certain
SAP-based proprietary tools that are designed to reduce the time and cost of
upgrading and maintaining SAP systems ("Power Up Services(SM)"). In
2001, we developed pre-configured SAP solutions for the pharmaceutical industry
("Pharma Express(SM)") and the engineering and construction industry
("Contractor Express(SM)"). Pharma Express, a solution designed for
small-to-medium sized life sciences companies, improves manufacturing
efficiencies and helps control the total cost of production. Contractor Express,
which has implementation accelerators developed for mid-sized
construction/contractor companies, assists in improving operational efficiency
and controlling project schedules.

On April
2, 2003, we consummated the sale, effective as of March 1, 2003, of our
Asia-Pacific group of subsidiary companies (the Sale), operating in Australia,
New Zealand, Singapore and Hong Kong (together, the Former Subsidiaries), to
Soltius Global Solutions PTE Ltd, a Singapore corporation (Soltius). As
consideration, we received a 5% minority shareholding in Soltius and a $650,000
note to be paid by Soltius to us over a period of 12 months. We received the
required payments by January 2005.

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In 2004,
we completed a $15 million private placement transaction whereby SOFTBANK Asia
Infrastructure Fund, L.P. (SAIF), an affiliate of SOFTBANK Corporation,
acquired approximately 33.5% of our outstanding Common Stock, and Venture Tech
Assets Pvt. Ltd. (Venture Tech) acquired approximately 16.8% of our
outstanding Common Stock (Private Placement Transaction). In connection with
the Private Placement Transaction, SAIF and Venture Tech designated five of nine
directors to our Board of Directors.

On March
31, 2006, we completed a $10 million private placement transaction whereby SAIF
acquired an additional 3,333,333 shares of our common stock and Venture Tech
acquired an additional 3,333,334 shares of our common stock, at a share price of
$1.50 (the 2006 Private Placement). The 2006 Private Placement was approved by
a special committee of the disinterested members of our Board of Directors and
generated $9.8 million of proceeds to us, net of transaction expenses. Following
the 2006 Private Placement, SAIF and Venture Tech own about 36% and 26% of our
common stock, respectively.

On
October 1, 2007, our subsidiaries Intelligroup Europe Ltd (IGE) and
Intelligroup Asia Pvt Ltd. (IGA) acquired certain assets including without
limitation customer contracts, fixed assets and employees from Novasoft
Information Technology Ltd., (Novasoft Europe) and ISG Novasoft Technologies
Limited (Novasoft India)for an aggregate purchase price of three million one hundred
thousand dollars ($3,100,000) ("Novasoft Acquisition").The revenues from the acquired contracts along with the corresponding
costs are accounted in the Companys books starting October 1, 2007.

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

Intelligroup Services

Our
services address the implementation, upgrade, and application management needs
of our customers. Our proven methodologies and innovative tools allow customers
to reduce costs by accelerating implementations and upgrades, and by lowering
ongoing support and maintenance costs for ERP and extended ERP
applications.

Historically, our services have ranged from providing customers with
staff augmentation services to projects where we assume full project management
responsibilities. We provide these services to our customers primarily on a time
and materials or a fixed bid basis and pursuant to agreements that are
terminable upon mutually agreed notice periods. During 2000, we began to focus
on providing AMS services for our customers' ERP applications. The contractual
arrangements in these situations are typically fixed term, fixed price and
multi-year, as is common in the outsourcing market. Our focus on management and
support services is also intended to encourage ongoing and recurring service
relationships, rather than one-time implementation engagements.

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We
created the industrys first offshore lab dedicated to SAP development in 1995.
Since then, our India-based offshore servicescoupled with the operations in the
United States, Europe and Japan, have helped our clients develop, implement,
maintain, support and integrate ERP and e-commerce solutions. Our
onsite/offshore model has been refined into a series of repeatable,
quality-embedded processes that continually enable it to:

- Significantly
  reduce clients development time and costs;
- Deliver
  superior-quality enhancements on schedule;
- Ensure
  reliable service levels;
- Accommodate
  requirement changes and manage risks;
- Provide 24x7 seamless access to
  scalable, dedicated and skilled professionals; and
- Meet the
  peaks and valleys of resource requirements.

Customers
partner with Intelligroup in order to implement extend and support existing
applications; or establish dedicated offshore Centers of Excellence (CoE) that
provide seamless services to the client and cope with the resource requirement
fluctuations. Such CoE's are setup to provide clients a dedicated pool of
resources that are available to provide a wide range of services to the
client.

Intelligroup has partnerships with
SAP, Oracle (including PeopleSoft), Microsoft, and Compuware. We believe that
such partnerships will continue to result in enhanced industry recognition and
market opportunities.

In 1995,
we achieved the status of a "SAP National Implementation Partner." In 1997, we
enhanced our partnership status with SAP, by first achieving "National Logo
Partner" status and then "Accelerated SAP Partner" status. In July 1997, we were
awarded "PeopleSoft Implementation Partnership" status. In June 1998, we
expanded our Oracle applications implementation services practice and added
upgrade services to meet market demand of mid to large size companies that were
implementing or upgrading Oracle applications. In 2000, we achieved "SAP
Services Partner" status and "SAP Hosting Partner" for the pharmaceuticals
industry vertical status. In 2001, Intelligroups pharmaceutical template for
the small and medium-size businesses market (covering current Good Manufacturing
Processes (cGMP) and validation standards) was certified by SAP America. In
2002, we were awarded the SAP Services Partner Award of Excellence. In 2004 our
Japan Subsidiary was awarded the SAP Award of Excellence  Upgrade Business
Award. In 2005, we became SAP Powered by Net weaver Partner and in 2006, we
became a member of the SAP Enterprise Services Community. In 2006, we also
became Reseller and Implementation partners of HP-Mercury and Compuware Testing
products.

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

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Additionally, we have introduced certain SAP-based proprietary tools and
services, that are designed to reduce the time and cost of upgrading and
maintaining SAP systems. Through these services, we help to cost-effectively
size and analyze SAP upgrade projects, as well as to efficiently evaluate and
test SAP support packages. We combine the assessment capabilities of our
proprietary Uptimizer(SM)Tool Kit with the skills and expertise of
its SAP-certified global implementation team to deliver high-quality,
cost-effective upgrades to customized SAP environments. HotPac
Analyzer(SM) enables our customers to analyze and test the impact of
a support package on their own SAP production environment before the support
package is actually applied. In addition, HotPac Analyzer enables our customers
to validate the overall impact that a support package can have and isolate and
identify the business transactions that require thorough testing.

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

Our
offshore centers, located in India, allow us to provide cost-effective, timely
and high quality professional services to customers throughout the
world.

The offshore centers are structured
along the following lines 

Delivery
Centers  which are development and support centers, dedicated to certain
strategic customers, that provide multi-platform, multi-service, integrated and
complete solutions to such strategic customers.

Competencies
groups  which are responsible for building process oriented consulting
excellence in SAP, Oracle suit of products, Microsoft, e-Business and Testing
around ERP environments to customers. The competencies are focused on building
capabilities around various skills including Implementations, Rollouts,
Upgrades, AMS and development.

Infrastructure Management  which provides monitoring services for our
customers internal systems, networks, and wide area networks. Technologies
within this offering include Cisco, Sun, Nortel, IBM, Linux, Citrix, and
Microsoft.

Research and
Development group  which is a center for the development of proprietary tools
designed to enhance the information technology solutions offered to our
customers.

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We
leverage our offshore centers, in coordination with consultants located at
customer sites, to deliver rapid, around the clock services which provide
customers with savings in application deployment costs and expedited project
completion. We are able to deliver high value services at competitive prices due
to: (i) the high level of expertise and experience of consultants; (ii) the
rigorous application of our proprietary project methodologies, tools and project
management disciplines; and (iii) the cost structures associated with our
offshore centers.

Our
customers are primarily global Fortune 500 and other large and mid-sized
companies in the United States and other diverse geographical locations. They
include Armstrong World Industries, Cox Newspapers, Inc. Joy Mining, San Diego
Unified School District, Eastman Chemical, AM General, Allergan, Kimball
International, Infineon Technologies, Hitachi America, 2Wire, Telik, New Age
Electronics, Hacienda, and Puerto Rico Telephone Company  Verizon.

We have
also participated in project teams led by IT consulting firms such as Accenture
and BearingPoint.

*Application Management Services*

Our AMS
services provide the resources, processes and tools needed for quality-driven
user, technical and operations support. We use a well-defined set of assessment,
transition and long-term processes to deliver customized, affordable and highly
responsive support.

Our AMS
services include service offerings for Application Management, Application
Development and Application Integration

Companies
around the world entrust us to manage their complex ERP and eCommerce
environment and infrastructure and to keep them stable and optimized, and
aligned with new business processes. We deliver:

- Significant reduction in support costs;
- Predictable costs for easier budgeting;
- 24x7, on-demand access to skilled
  functional and technical professionals through its offshore centers located in
  India;
- Assured
  service levels and flexible, individualized support programs;
- Dedicated teams that are on-site, offshore or a combination of on-site
  and offshore, depending on client requirements; and
- Improved
  reliability, availability and performance of the infrastructure, database,
  operations, applications and interfaces.

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We
believe our key to our ability to deliver AMS services is our offshore centers
located in India, which help to provide responsive global support to customers
through delivery teams that work around-the-clock. Intelligroup is able to
deliver high value services at attractive prices due to: (i) the high level of
expertise and experience of support professionals; and (ii) the cost structures
associated with the offshore centers.

We
provide Application Management Services directly to end-user organizations. Our
customers are primarily Fortune 500 and other large and mid-sized companies in
the United States and other global locations. They include General Electric,
Hitachi, Owens Corning, Armstrong World Industries, Bristol-Myers Squibb, Power
One, 2Wire, Joy Mining Machinery and Pearsons Technology Center.

*Testing Services*

We focus
on providing ERP Test Automation services. We provide test strategy and provide
functional, regression, and performance testing. We are building scripts that
automate SAP and Oracle applications testing.

**Trademarks and Service Marks**

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

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

"Empower Solutions" is a service
mark of Empower Solutions, a subsidiary of Intelligroup.

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

***Sales and Marketing***

We
historically generate new sales leads from (i) referrals from existing customers
and former Intelligroup employees, (ii) introductions to potential customers by
our alliance partners, which often need to recommend qualified systems
integrators to implement or enhance their software products, (iii) marketing
campaigns and (iv) internal sales efforts. In addition, we have been introduced
to customers by large consulting firms who need point services such as offshore
capability or our expertise and ability to deliver complex projects.

We have a
focused approach towards sales and marketing efforts. Our sales efforts are
primarily regional and driven by onsite Business Development Managers (BDMs)
who are supported by Client Service Executives (CSE) who serve as leaders in
multiple engagements and have both sales and delivery responsibilities. BDMs are
responsible for building the sales funnel and closing sales with new and
existing customers. We continually evaluate the size of direct sales force in
comparison to market conditions and shall expand our direct sales force where
market conditions warrant.

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CSEs are
responsible for all aspects of the customer relationship, with a focus on
service delivery and customer satisfaction. CSEs focus on a set of customers
and ensure that we are delivering as per the commitment. In addition to their
responsibilities for generating new revenue opportunities and expanding revenue
within existing clients, typically we bill our clients for CSEs services. The
CSEs also serve in a quality assurance function and oversee all services
delivered to the client to ensure projects are delivered on-time and within
budget.

We have
established a Business Development Center (BDC) in our facilities in
Hyderabad, India. The primary objective of the BDC is to: (i) generate qualified
leads for our local BDMs to pursue with existing and prospective clients; and,
(ii) support the proposal efforts of our local BDMs by providing strategic
research and proposal writing capabilities. We intend to continue to expand the
BDC in proportion to our local BDMs sales presence.

The
primary objective of our Marketing and Alliances function is branding and lead
generation. We intend to continue to market to potential customers with
demonstrated needs for our expertise in ERP, Testing, and e-business solutions.
We have exhibited at trade events associated with our primary ERP offerings.
These include events such as SAPPHIRE, the annual SAP conference for SAP service
providers and end-users, the Americas SAP User Group, the Oracle Americas User
Group and the PeopleSoft Users Group and industry analyst shows such as Gartner
IT Expo. We intend to continue participation in such industry-recognized
programs and trade shows.

In regard
to Alliances, we have strengthened our Alliance with SAP by becoming an
Enterprise Services Partner, a Duet Partner, and an SAP xApps Certified Partner.
We have become a CertifiedAdvantage Partner of Oracle, and are doing joint campaigns
with them. Our Microsoft Partnership has grown, and we are now part of their
Offshore Advisory Partner Council. We have also built relationships with
HP-Mercury and Compuware for their testing suite of products. We have become a
Gold Certified Partner of HP in the US and a Silver partner of HP in the UK.

Most
importantly, however, we believe that satisfying customer expectations within
budgets and time schedules is critical to gaining repeat business and obtaining
new business from referrals. We believe that we have consistently met customer
expectations with respect to budgets and time schedules.

Our
services require a substantial financial commitment by customers and, therefore,
typically involve a long sales cycle. Once a lead is generated, we endeavor to
quickly understand the potential customer's business needs and objectives in
order to develop the appropriate solution and bid accordingly. Our CSEs and
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 we initially meet with a prospective
customer until the customer decides whether to authorize commencement of an
engagement.

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**Industry Background**

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

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

As part
of their client/server strategies, organizations often acquire, or consider
acquisition of, the pre-packaged enterprise-wide business software applications
offered by leading ERP vendors, such as SAP, Oracle and PeopleSoft. These
applications are then implemented and maintained to meet their particular
business needs. Alternatively, the organizations may develop, or commission the
development of, customized software applications to meet the needs of these
organizations. In both cases, customers have a set of core operations
applications, which they use to support their central business processes. These
customers must balance demands from their user departments for new, innovative
business applications against the absolute requirement to maintain, manage and
optimize the core operations applications. These competing demands reflect areas
of potential business opportunity for us.

The
majority of customers who implement ERP solutions are Fortune 500 companies. We
believe that opportunities for new ERP implementations will continue
predominantly in subsidiaries and operating units of large-market clients and
toward mid-market clients. Many mid-size companies have the need for core
financial and other operations systems that can be addressed by ERP products. We
believe that opportunity exists to sell both professional consulting services
and application management services to mid-market clients. The mid-market
segment is very cost conscious and requires a highly efficient services delivery
model, which we believe we can provide through a combination of innovative tools
and templates, which expedite delivery and use of our offshore services, thereby
reducing costs.

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

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

13

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

Another
area of opportunity for us is strategic offshore outsourcing. With our history
as a pioneer in providing offshore management and support of mission critical
applications, we can offer clients a flexible, low cost option for managing ERP
applications.

We
believe we also have an opportunity in Service Oriented Architecture (SOA)
solutions. SOA based solutions enable integration and building of composite
applications that enable flexible business processes.

**Customers**

We
provide our services directly to many Fortune 500 companies, as well as small to
medium sized enterprises, and, to a lesser extent, as a member of consulting
teams assembled by other information technology consultants, such as the
consulting practices of the former "Big Five" accounting firms.During the years ended
December 31, 2006 and 2005, we had one customer, the various business groups of
General Electric, which accounted for at least 10% of our revenue.

Although
Intelligroup has contracts with many of its customers to provide its services,
in general such contracts are terminable upon relatively short notice, typically
not more than 30 days. When providing application management and support
services for customers, we expect to compete for multi-year fixed term, fixed
price contracts. There can be no assurance that our customers will continue to
enter into contracts with us or that existing contracts will not be
terminated.

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

14

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**Competition**

The
markets for our services are highly competitive. We believe that our principal
competitors include the internal information systems groups of our prospective
customers, as well as the following classes of companies (some of which are also
customers or referral sources of Intelligroup):

- Consulting and software integration firms: including, IBM Global Services, Electronic Data Systems, Computer
  Sciences Corporation, Cap Gemini, Accenture, BearingPoint Deloitte Consulting,
  IDS Scheer, SAP Professional Services, Oracle Consulting, Hitachi, Atos Origin
  and Rapidigm;
- Software applications vendors:
  including, SAP, and Oracle including PeopleSoft; and
- Application management services firms: including, Covansys, Wipro Technologies, Infosys Technologies
  Limited, Satyam Computer Services Ltd, HCL Technologies Ltd., Cognizant
  Technology Solutions, Patni Computer Systems and Tata Consultancy Services.

Many of
our competitors have longer operating histories, possess greater industry and
name recognition and/or have significantly greater financial, technical and
marketing resources than we have. In addition, there are relatively low barriers
to entry into our markets and we have faced, and expect to continue to face,
additional competition from new entrants into our markets.

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

We
believe that we compete based on our expertise across the full life cycle of our
clients' ERP solutions. This expertise includes strategic IT consulting skills,
plus design and implementation skills in ERP products (primarily SAP, PeopleSoft
and Oracle), application integration and application management and support
related to those solutions. There can be no assurance that we will be able to
continue to compete successfully with existing and new competitors.

**Employees**

As of
December 31, 2007, we employed 2,293 full-time employees, of whom 1,923 were
engaged as consultants or as software developers, 119 were engaged in sales and
marketing, and 200 were engaged in delivery management, finance and
administration and 51 were employed as trainees. Of the total number of
employees, 462 were based in the United States, 33 were based in Japan, 62 were
based in Europe and 1,736 were based in India. In addition, we engaged 136
independent contractors to perform information technology services as of
December 31, 2007.

None of
our employees are covered by a collective bargaining agreement. Substantially
all of our employees have executed employment agreements containing
non-competition, non-disclosure and non-solicitation clauses.

15

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In addition, we require that all new
employees execute such agreements as a condition of employment by Intelligroup.
We believe that we have been successful in attracting and retaining skilled and
experienced personnel. There is increasing competition for experienced sales and
marketing personnel and technical professionals. Our future success will depend
in part on our ability to continue to attract, retain, train and motivate highly
qualified personnel. We consider relations with our employees to be good.

**Intellectual Property Rights**

Our
success is dependent, in part, upon our proprietary implementation methodology,
development tools and other intellectual property rights. We rely upon a
combination of trade secret, non-disclosure and other contractual arrangements,
and copyright and trademark laws, to protect our proprietary rights. We
generally enter into confidentiality agreements with our employees, consultants
and customers, and limit access to and distribution of our proprietary
information. We also require that substantially all of our employees and
consultants assign to us their rights in intellectual property developed while
employed or engaged by us. In addition we require that all new employees execute
agreements that assign to us their rights in any intellectual property developed
during the term of employment as a condition of employment by us. There can be
no assurance that the steps taken by us in this regard will be adequate to deter
misappropriation of our proprietary information or that we will be able to
detect unauthorized use of and take appropriate steps to enforce our
intellectual property rights.

Available
Information

Our website is
www.intelligroup.com. We make available on this website free of charge, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of
the Exchange Act as soon as reasonably practicable after we electronically file
such material with or furnish such information to, the Securities and Exchange
Commission.

16

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**Item 1A. Risk Factors**

This Form 10-K contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, including, without limitation, statements regarding our
intention to shift more of our focus towards the management and support of
customers' enterprise, e-commerce and m-commerce applications. Our business,
operations and financial conditions are subject to various risks. Our material
risks that are currently known to management are described. This section may not
describe all risks associated with us, our industry or business. The factors
discussed below could cause actual results and developments to be materially
different from those expressed in or implied by such statements.

If we
are unable to generate new sales and maintain our profitability, our business
and financial condition and results of operations may be adversely
impacted.     Our ability to maintain profitability in future periods will depend in
large part on our ability to generate new sales, particularly annuity-based
engagements, to maintain our rate of employee utilization, and to manage
selling, general and administrative expenses in proportion to our top line. We
cannot assure you that we will be able continue to generate profits or that a
failure to do so would not have a material adverse effect on our financial
condition and results of operations.

The
departure of one or more key employees may have a material adverse effect on our
ability to operate our
business.     Our future performance depends to a significant degree upon the continued
service of the key members of our management team, as well as marketing and
sales personnel, and our ability to attract retain new management and other
personnel. In addition, our future performance depends on the ability to
effectively transition key management, sales and operational roles, including
adequate knowledge transfer, in the event any turnover in our key personnel. The
loss of any one or more of our key personnel or the failure to attract and
retain key personnel or the ability to effectively manage changes in key
personnel could have a material adverse effect on our business, results of
operations and financial condition.

**If we are unable to attract and retain a sufficient number of highly
skilled employeesour profitabilitymay adversely affected****.**     Our business is labor intensive and, therefore, our success
depends in large part on our ability to recruit, retain, train and motivate
highly skilled employees, particularly project managers and other senior level
technical personnel. Our ability to attract and retain a sufficient number of
highly skilled employees is impacted by a number of factors including, but not
limited to, concerns regarding our financial condition and competition for
employees in India which may cause increasing compensation for existing and
prospective employees, and the continued ability to use stock options to
compensate such highly skilled employees in light of recent changes in
accounting rules related to stock options. We cannot assure you that we will be
able to attract and retain a sufficient number of highly skilled employees or
that a failure to do so would not have a material adverse effect on our
financial condition and results of operations.

17

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**We may not be able to
compete effectively for technical personnel in
India.**     The market for technical personnel in India, which represents our primary
recruiting market for our technical personnel, is extremely competitive
resulting in increased compensation costs. We cannot assure you that we will be
able to effectively compete for technical personnel in India or that a failure
to compete would not have a material adverse effect on our financial condition
and results of operations.

A substantial portion of our
operations are located in India and we are subject to regulatory, economic and
political uncertainties in
India.     We intend to continue to
develop and expand our offshore facilities in India where, as of December 31,
2007, a majority of our technical professionals were located. While wage costs
are lower in India than in the United States and other developed countries for
comparably skilled professionals, wages in India are increasing at a faster rate
than in the United States, which could result in our incurring increased costs
for technical professionals and reduced operating margins. In addition, there is
intense competition in India for skilled technical professionals and we expect
that competition to
increase.     Operating in India involves
certain regional geopolitical risks that are different than operating in
the US, including history of civil unrest, terrorism and substantial economic
regulation by the Indian Government. Such geopolitical risks may cause
disruptions to our operations or may cause our customers to decline to contract
with us for offshore services.

Our
performance could be materially adversely affected by a general economic
downturn or lessening demand in the information technology services
industry.     Our business and financial condition depends on the health of the general
economy, as well as the demand for information technology services. Our revenue
and profits are driven by demand for our services. A lessening demand in either
the overall economy or the software sector could lead to a material decrease in
our future revenues and earnings. Other factors, that are beyond our control,
that can also impact our performance include: (i) patterns of software and
hardware capital spending by customers, (ii) information technology outsourcing
trends, (iii) the timing, size and stage of projects, (iv) new service
introductions by us or our competitors and the timing of new product
introductions by our ERP partners, (v) levels of market acceptance for our
services, (vi) general economic conditions, and (vii) the hiring of additional
staff. We cannot assure you that there will not be a general economic downturn
or that such a downturn would not have a material adverse effect on our business
and financial condition.

If we
are unable to maintain access to external funding, we may be unable to continue
our ongoing business or fund future
growth.     In
addition to cash generated by on-going operations, we rely on access to external
sources of funding and our ability to timely collect cash from our customers to
manage our business. Our existing credit facility, which represents our sole
source of external funding, expires in May 2008. Our ability to continue its
ongoing business operations and fund future growth depends on our ability to
secure a new credit facility and to maintain compliance with the financial and
other covenants in such credit facility or to secure alternate sources of
financing.However, such credit
facility or alternate financing may not be available or if available may not be
on terms favorable to us.

The
information technology services industry is highly competitive and we may not be
able to compete effectively.     The markets for our services are highly competitive. Many of
our competitors have greater financial, technical and marketing resources than
we do. The increased competition in the industry, among other negative effects,
may cause a decrease in our billing and employee utilization rates. We cannot
assure you that we will be able to compete effectively or that our inability to
compete effectively would not have a material adverse effect on our financial
condition and results of operations.

18

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Business and financial risks to important business partners may
negatively impact our financial
condition.     We rely on continued relationships and business associated with SAP
America and Oracle. The continued uncertainty relating to Oracles integration
of PeopleSoft into its product offerings and the affect that this may have on
general market acceptance of PeopleSofts products, could adversely impact our
ability to sell professional consulting services related to such enterprise
resource applications.

If we
lose any large customer, our financial condition could be materially, negatively
impacted.     We
derive a significant portion of our revenue from a limited number of customers
and projects. Our ability to grow our business depends in large part on
maintaining such customer relationships and the continuing purchasing power of
such customers. The loss of any large customer could have a material adverse
effect on our business, financial condition and results of operations. There can
be no assurance that we will not lose a large customer or that losing a large
customer would not have a material adverse effect on our financial condition and
results of operations.

**Ability to Maintain
Effective Internal Controls.******     We have previously
experienced material weaknesses in our internal control over financial
reporting. If we are unable to continue to maintain an effective control
environment and to prevent material weaknesses, or to remediate any weaknesses
that may arise, such failure will adversely impact our ability: (i) to
effectively manage our business; (ii) to timely record, process, summarize and
report financial statements that fairly present, in all material aspects, our
financial condition, statements of operations and cash flows; and (iii) to
comply with applicable law, including Section 404 of the Sarbanes-Oxley Act of
2002 ("Section 404"). In addition beginning with our 2008 annual report, our
independent public registered accounting firm will be required to provide an
attestation of our assessment of our internal control over financial reporting
pursuant to Section 404.

If we are unable to maintain
effective internal control over financial reporting, such inability may
adversely affect our financial condition and results of operations as well as
our ability to comply with Section 404.

The
fact that our common stock is not listed on a national exchange may negatively
impact our ability to attract investors and to use our common stock to fund
future growth.     Our common stock trades on the Pink Sheets. In order to maintain
liquidity in our common stock, we depend upon the continuing availability of a
market on which our securities may be traded. The fact that our common stock is
not listed on a national exchange may impact our ability to attract investors
and to use our common stock to fund future growth.

Currency fluctuations may negatively impact our financial results, and
this may in turn discourage
investment.     Uncertainty relating to worldwide currency exchange rates, particularly
in regard to the Indian rupee, the Euro, British Pound, Danish Kroner and
Japanese Yen, and the fluctuations in such exchange rates may impact our
quarterly and/or annual financial results. We cannot assure you that such a
fluctuation in currency would not have a material adverse effect on our
financial condition and results of operations.

19

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We can
not predict shifts in policy or political changes in governments which can
regulate or impact our business operations, specifically in the United States
and India.     There is the potential for future legislation by the U.S. government
regulating or taxing outsourcing which may adversely affect our business model.
In addition, there is continued uncertainty relating to the current geopolitical
climate, particularly relative to internal India politics and their relation to
Indias continuing efforts to liberalize its economy and be receptive to
economic conditions and policies favorable to our business model. Changes in
Indias economic policies or additional legislation regarding information
technology services businesses may adversely affect our business
model.

Liability claims for damages
caused by disclosure of confidential information or system failures could have a
material adverse effect on our business.

Many of our engagements
involve projects that are critical to the operations of our customers
businesses and provide benefits that are difficult to quantify. Any failure in a
customers ERP system could result in a claim for substantial damages against
us, regardless of our responsibility for the failure. Although we attempt to
limit by contract our liability for damages arising from negligent acts, errors,
mistakes or omissions in rendering our services, we cannot assure you that any
contractual limitations on liability will be enforceable in all instances or
will otherwise protect us from liability for damages.

In addition, we often have
access to confidential client and customer data. If any person, including any of
our employees, penetrates our network security or misappropriates sensitive
data, we could be subject to significant liability from our clients for
breaching contractual confidentiality provisions or privacy laws. Unauthorized
disclosure of sensitive or confidential client and customer data, whether
through breach of our computer systems, systems failure or otherwise, could
damage our reputation and cause us to lose clients.

Although we have general
liability insurance coverage, including coverage for errors or omissions, there
can be no assurance that coverage will continue to be available on reasonable
terms or will be sufficient in amount to cover one or more large claims, or that
the insurer will not disclaim coverage as to any future claim. The successful
assertion of one or more large claims against us that exceed available insurance
coverage or changes in our insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, could have a
material adverse effect on our business, results of operations and financial
condition.

System failure or
disruptions in telecommunications could disrupt our business and result in lost
customers and curtailed operations which would reduce our revenue and
profitability.     To deliver our services to
our customers, we must maintain a high speed network of satellite, fiber optic
and land lines and active voice and data communications 24 hours a day between
our main offices in India and globally and the offices of our customers
worldwide. Although we maintain back-up facilities, any systems failure could
disrupt the services we provide to our customers and could result in lost
customers and curtailed operations which would reduce our revenue and
profitability.

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**Our growth may be
hindered by immigration
restrictions.**     The vast majority of our IT
professionals in the United States are Indian nationals. The ability of Indian
nationals to work in the United States depends on their ability and our ability
to obtain the necessary visas.

The H-1B visa classification
enables U.S. employers to hire qualified foreign workers in positions that
require an education at least equal to a Baccalaureate Degree in the United
States in specialty occupations such as IT systems engineering and systems
analysis. There is a limit on the number of new H-1B petitions that United
States Citizenship and Immigration Services, or CIS, one of the successor
agencies to the Immigration and Naturalization Service, may approve in any
federal fiscal year, and in years in which this limit is reached, we may be
unable to obtain H-1B visas necessary to bring foreign employees to the United
States. Each year the H-1B cap is reached at an earlier point prior to the
beginning of the fiscal year for which the H-1Bs will be available.

Compliance with existing
U.S. immigration and labor laws, or changes in those laws making it more
difficult to hire foreign nationals or limiting our ability to successfully
obtain permanent residence for our foreign employees in the United States, could
require us to incur additional unexpected labor costs and expenses or could
restrain our ability to retain the skilled professionals we need for our
operations in the United States. Any of these restrictions or limitations on our
hiring practices could have a material adverse effect on our business, results
of operations and financial condition.

Immigration laws and
regulations are subject to legislative and administrative changes as well as
changes in the application of standards and enforcement. Immigration laws and
regulation can be significantly affected by political forces and levels of
economic activity. Our business, results of operations and financial condition
may be materially adversely affected if changes in immigration and work permit
laws and regulations or the administration or enforcement of such laws or
regulations impair our ability to staff projects with IT professionals who are
not citizens of the country where the work is to be performed.

If our
measures to protect our intellectual property rights are inadequate, our
financial condition could be negatively
impacted.     We
rely upon a combination of trade secrets, nondisclosure and other contractual
arrangements, and copyright and trademark laws to protect our proprietary
rights. Our future success is dependent, in part, upon our proprietary
methodologies and toolsets, development tools and other intellectual property
rights. We enter into confidentiality agreements with our employees, generally
require that our consultants and customers enter into such agreements, and limit
access to and distribution of our proprietary information. We also require that
substantially all of our employees and consultants assign to us their rights in
intellectual property developed while employed or engaged by us. There can be no
assurance that the steps taken by us in this regard will be adequate to deter
misappropriation of our proprietary information or that we will be able to
detect unauthorized use of and take appropriate steps to enforce our
intellectual property rights.

We may
be subject to increased tax liabilities, including if the spin-off of our former
subsidiary, SeraNova, is determined to be taxable. We could be liable in the
range of $55 million to $65 million and related penalties (if assessed) and
interest could increase the amount by $40 million to $50 million as at December
31, 2007.

In July 2000, we completed the
tax-free spin-off of SeraNova, our former subsidiary. In March 2001, SeraNova
and Silverline Technologies Limited (Silverline) consummated the acquisition
of SeraNova by Silverline. Had the acquisition of SeraNova by Silverline been
contemplated at the time of the spin-off, the spin-off would have been a taxable
transaction. Based upon the information available to the us, we believe that
such acquisition was not contemplated at the time of the spin-off of SeraNova by
Intelligroup, and accordingly should not impact the tax-free nature of the
spin-off. However, if it were determined that the spin-off was taxable,
Intelligroup may have to bear the liability to pay such tax liability, which
would be material. Please refer to Note 10 to the financial statements for the
year ended December 31, 2007.

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Third
parties may claim that our services or deliverables infringe upon their
intellectual property rights, which could result in material
costs.     Third parties may assert infringement claims against us in the future,
especially in light of recent developments in patent law expanding the scope of
patents on software and business methods. These assertions, regardless of their
validity, could result in costly and time-consuming litigation, including damage
awards and indemnification payments to customers, or could require costly
redesign of products or present the need to enter into royalty arrangements
which could decrease margins and could adversely affect our results of
operations. Any such litigation or redesign of products could also negatively
impact customer confidence in our services or deliverables and could result in
damage to our reputation and reduced licensing revenue.

If
accounting interpretations relating to revenue recognition change, our reported
revenues could decline or we could be forced to make changes in our business
practices.

There are
several accounting standards and interpretations covering revenue recognition
for the software industry. These pronouncements include Statement of Position
(SOP) 81-1 Accounting for Performance of Construction-Type and Certain
Production-Type Contracts, Emerging Issues Task Force of the Financial
Accounting Standards Board (FASB) Issue No. 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables and the Securities and Exchange
Commission Staff Accounting Bulletin No. 101 and 104, Revenue Recognition in
Financial Statements. These standards address revenue recognition matters
primarily from a conceptual level and do not include specific implementation
guidance. We believe that our revenue has been recognized in compliance with
pronouncements.

The
accounting profession and regulatory agencies continue to discuss various
provisions of these pronouncements with the objective of providing additional
guidance on their application. These discussions and the issuance of new
interpretations, if any, could lead to unanticipated reductions in recognized
revenue. They could also drive significant adjustments to our business practices
which could result in increased administrative costs, lengthened sales cycles
and other changes which could adversely affect our reported revenues and results
of operations.

Some
of our clients may experience unique economic conditions that are specific to
their particular industrywhich could adversely affect the results of our
operations.

22

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We
provide services to clients in a wide variety of industries. Many of the
industries are subject to factors and economic conditions that are unique to the
particular industry and may not be reflected in the overall health of the
economy in general. Our revenue growth and the realizability of our accounts
receivable could be adversely affected if our clients in these particular
industries encounter economic difficulties. Such difficulties could include: (1)
inability of participants in the industry to access the capital or credit
markets; (2) business slowdowns due to excess inventory; and (3) shortfalls in
demand for the product or service produced by a particular industry.

We
frequently need to negotiate customer contract renewals on comparable terms to
maintain our profitability.     Contracts continually expire and must be renegotiated or
rebid. Due to the competitive nature of our industry and variable economic
status of our clients, we may experience difficulty in negotiating terms
comparable to current or recently expired contracts. There can be no assurance
that difficulty in renegotiating or renewing contracts would not have a material
adverse effect on our financial condition and results of operations.

There
may be circumstances in which the interests of our major shareholders could be
in conflict with your interests as a shareholder.

Our major
shareholders collectively own approximately 62% of our common stock on a
consolidated basis as of the date of this report and control our board of
directors. So long as our majority shareholders continue to own a majority to
controlling interest of our common stock and control our board of directors,
circumstances may occur in which the major shareholders (or other major
investors) may have an interest in pursuing acquisitions, divestitures or other
transactions, including among other things, taking advantage of certain
corporate opportunities that, in their judgment, could enhance their investment
in us or another company in which they invest. These transactions might invoke
risks to our other holders of common stock or adversely affect us or other
investors.

As a
result of these factors and others, our actual results may differ materially
from the results disclosed in the forward-looking statements contained in this
report.

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**Item 1B. Unresolved Staff Comments.**

Not
applicable.

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**Item 2. Properties.**

As of
December 31, 2007, we own no real property and currently lease or sublease all
of our office space. Within the United States, as of December 31, 2007, we lease
office space in Edison, NJ for certain technical and support personnel, sales
and marketing, administrative, finance and management personnel, and in Atlanta,
GA, Naperville, IL, and Milpitas, CA, for certain other sales and operations
personnel. We also lease office space in Denmark, India, Japan and the United
Kingdom. We believe that such facilities are adequate for our present needs. The
following table summarizes our leased office space as of December 31, 2007:

Area
    
    Lease**Location**
    **in
      Sq. Ft.**
    Use
    **Expiration**Edison, NJ (A)
    48,476
    Corporate Headquarters
    9/9/2008Consulting Services - focus on SAP, Peoplesoftcommercial, Oracle and E-Business markets inthe US. Selling, general and administrativefunctions in the USAtlanta, GA
    2,533
    Consulting Services - focus on SAP and
      Peoplesoft
    3/1/2011public sector market in the US; Limited selling,general and administrative functions in the USNaperville, IL
    2502
    Limited selling and marketing functions in the
      US
    2/28/2013Milpitas, CA
    2197
    Limited selling and marketing functions in the
      US
    5/31/2009Odense, Denmark
    5,005
    Consulting Services - focus on SAP market in
    7/31/2009Denmark; Selling, general and administrativefunctions in DenmarkHyderabad, India
    18,359
    IT development and support services
    12/31/2010Hyderabad, India
    15,401
    IT development and support services
    10/31/2009Hyderabad, India
    10,727
    IT development and support services
    4/30/2010Hyderabad, India
    56,600
    IT development and support services and
    7/31/2010administrative and general functionsBangalore, India
    23,645
    IT development and support services
    4/14/2012Tokyo, Japan
    2,826
    Consulting Services - focus on SAP market in
    8/31/2009Japan; Selling, general and administrative
      functionsin JapanMilton Keynes, UK
    2,800
    Consulting Services - focus on Peoplesoft and
    2/2/2011SAP market in the UK; Selling, general andadministrative functions in the UK


(A) Approximately 22,768 square feet of
this space has been subleased to an unrelated third party through
8/26/2008.

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**Item 3. Legal Proceedings**

*India Tax
Assessments*

Our India
subsidiary has received tax assessments from the India taxing authority denying
tax exemptions claimed for certain revenue earned and disallowing certain
expenses claimed during the India subsidiarys fiscal years ended March 31, 1998
through March 31, 2003. As of December 31, 2007 the combined revised additional
tax demands were for 32.2 million Indian rupees (or approximately $0.8 million)
for those years. They include tax penalties and interest for the fiscal years
ended March 31, 2001 and 2002 of 1.4 million Indian rupees (or approximately
$34,000) and 0.7 million Indian rupees (or approximately $16,000), respectively.
Against the total additional tax demand of $0.8 million, we have made payments
of approximately $0.8 million under protest to the India tax
authority.

During
the twelve month period ending on December 31, 2007 the Company received
judgment from the Appellate Tribunal in India with regard to the Indian Tax
assessments, for the fiscal year ended March 31, 1998 through March 31, 2000
that allowed the tax exemptions in the Companys favor to the extent of 0.5
million. The terms of the judgment required the Indian tax authorities to refund
the taxes paid under protest for such fiscal years along with the interest.
Based on the above judgment, the Company recognized the tax benefit of 0.5
million in relation to the tax exemptions. Further to this the Company has also
recognized $0.2 million for interest receivable on the taxes paid under protest.
The India tax authorities have the right to appeal in the court of law against
such judgment issued by the Appellate Tribunal. To the Companys knowledge no
appeal has been filed.

We are
currently appealing at the Appellant Tribunal stage for the fiscal years ended
March 31, 2001 through March 31, 2003. In the event our appeal is not
successful, there will not be any additional future cash outlay. However, in the
event we are successful, an amount up to approximately $0.2 million could be
refunded to us.

There is no other pending
litigation to which we are a party or to which any of its property is subject
which would have a material impact on our consolidated financial condition,
results of operations or cash flows in the event we were unsuccessful in such
litigation. However we cannot predict with certainty the outcome of any
litigation or the potential for future litigation and any matters adversely
affect our financial condition and business.

*Shareholder Class Actions*

On or
about October 12, 2004, the first of six class action lawsuits was filed,
purportedly on behalf of plaintiffs who purchased our securities, against the
Company and former officers Arjun Valluri, Nicholas Visco, Edward Carr and David
Distel (Defendants) in the United States District Court, District of New
Jersey (District of New Jersey). In August 2005, the District of New Jersey
consolidated the six class actions (the Shareholder Class Action) and
appointed a lead plaintiff. Plaintiffs subsequently dropped Mr. Distel and Mr.
Carr from the Shareholder Class Action, failing to name either of them as a
defendant in the amended consolidated complaint filed on or about October 10,
2005. The Shareholder Class Action generally alleged violations of federal
securities laws, including allegations that the Defendants made materially false
and misleading statements regarding our financial condition and that the
Defendants materially overstated financial results by engaging in improper
accounting practices. The Class Period alleged is May 1, 2001 through September
24, 2004. The Shareholder Class Action generally sought relief in the form of
unspecified compensatory damages and reasonable costs, expenses and legal fees.

26

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The Defendants filed a Motion to
Dismiss on or about November 30, 2005. Thereafter in about February 2006, the
lead plaintiff filed its second consolidated amended complaint. On or about
March 27, 2006, the Defendants filed a motion to dismiss the second amended
complaint. On or about December 20, 2006, the District of New Jersey granted
Defendants motion and dismissed the second amended complaint without prejudice.
On or about January 25, 2007, plaintiffs filed the third consolidated amended
complaint. On or about March 5, 2007, Defendants filed a motion to dismiss the
third consolidated amended complaint. On or about November 13, 2007, the
District of New Jersey dismissed with prejudice plaintiffs third amended
consolidated complaint against the Company and certain former officers in the
Shareholder Class Action. Plaintiffs did not appeal the District of New Jersey's
decision thereby ending the Shareholder Class Action.

27

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

Not applicable.

28

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**PART II**

**Item 5. Market for the
Registrants Common Equity and Related Shareholder Matters.**

Our
Common Stock is currently being quoted under the symbol ITIG.pk on the Pink
Sheet Electronic Quotation Service (Pink Sheets) maintained by Pink Sheets
LLC.

The
following table sets forth, for each of the periods indicated, the high and low
sale prices per share of Common Stock as quoted on the Pink Sheets. The prices
shown represent quotations among securities dealers, do not include retail
markups, markdowns or commissions and may not represent actual
transactions.

Quarter Ended
    
    High
    
    LowMarch 31, 2006
    
    
    $
    1.66
    
    
    
    $
    1.37June 30,
      2006
    
    
    $
    2.08
    
    
    
    $
    1.46September 30, 2006
    
    
    $
    1.79
    
    
    
    $
    1.17December 31,
      2006
    
    
    $
    1.47
    
    
    
    $
    1.21March 30, 2007
    
    
    $
    1.35
    
    
    
    $
    1.35June 29,
      2007
    
    
    $
    1.90
    
    
    
    $
    1.70September 28, 2007
    
    
    $
    2.20
    
    
    
    $
    2.19December 31,
      2007
    
    
    $
    2.40
    
    
    
    $
    2.15


As of
February 28, 2008, the approximate number of holders of record of the Common
Stock was 69 and the approximate number of beneficial holders of the Common
Stock was 2,701.

We have
never declared or paid any dividends on its capital stock. We intend to retain
any earnings to fund future growth and the operation of our business, and,
therefore, do not anticipate paying any cash dividends in the foreseeable
future, and we are prohibited from paying dividends under the terms of our
revolving credit loan agreement.

The
following table summarizes securities authorized for issuance under our equity
compensation plans as of December 31, 2007.

Number of securitiesNumber of
      securities to
    
    Weighted-average
    remaining available forbe issued upon
      exercise
    
    exercise price
      of
    future issuance underof outstanding options
    
    outstanding options
    equity compensation plans2004
      Equity Incentive Award  Plan
    
    
    2,819,800
    
    
    
    $1.68
    
    
    1,404,4591996 Stock Option
      Plan
    
    
    410,901
    
    
    
    $4.65
    
    
    --1996 Non-Employee
      DirectorStock Option Plan
    
    
    -
    
    
    
    -
    
    
    110,000Equity compensation
      plans notapproved by security
      holders
    
    
    40,000
    
    
    
    $2.06
    
    
    65,000Total
    
    
    3,270,701
    
    
    
    $2.05
    
    
    1,579,459


29

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**Item 6. Selected Financial
Data.**

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

The
consolidated statement of operations data for the years ended December 31, 2007,
2006, and 2005 and the consolidated balance sheet data as of December 31, 2007
and 2006 have been derived from our audited consolidated financial statements,
which are included in Item 15, and should be read in conjunction with those
consolidated financial statements (including notes thereto). The selected
financial data as of December 31, 2004 and 2003, and for the years ended
December 31, 2004 and 2003, have been derived from audited consolidated
financial statements not included herein, but which were previously filed with
the Securities and Exchange Commission, or SEC. Our historical results are not
necessarily indicative of the operating results to be realized in the
future.

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

On
October 1, 2007 Intelligroup Europe Limited a wholly owned subsidiary of
Intelligroup Inc., acquired customer contracts, fixed assets and employees from
Novasoft Information Technology Corporation for a cash consideration of $3.1
million. The revenues from the acquired contracts along with the corresponding
costs are accounted in the Companys books beginning October 1, 2007.

30

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|                                                   |  | As of December 31,
|-------------------------------------------------- |  | ------------------
|                                                   |  | 2007              
|                                                   |  | (in thousands)    
|Balance Sheet Data:                                |  |                   
|Cash and cash
      equivalents                    |  | $                 
|Working capital                                    |  |                   
|Total
      assets                                 |  |                   
|Line of credit borrowings and current portion of   |  |                   
|obligations under capital leases                   |  |                   
|Long-term debt
      and obligations under capital |  |                   
|leases, net of current portion                     |  |                   
|                                                  
|Shareholders' equity                               |  |                   

31

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|                                              |  | For the Years Ended December
      31,
|--------------------------------------------- |  | --------------------------------------
|                                              |  | 2007                                  
|                                              |  | (in thousands, except per share data) 
|**Statement of Operations Data:**             |  |                                       
|Revenue                                       |  | $                                     
|Cost of revenue                               |  |                                       
|Gross profit                                  |  |                                       
|                                             
|Selling, general and administrative expenses  |  |                                       
|Depreciation and
      amortization           |  |                                       
|Total operating expenses                      |  |                                       
|                                             
|Operating income (loss)                       |  |                                       
|                                             
|Interest income                               |  |                                       
|Interest
      expense                        |  |                                       
|Other income (expense), net                   |  |                                       
|                                             
|Income (loss) before provision for            |  |                                       
|(benefit of) income taxes                     |  |                                       
|Provision for
      (benefit of) income taxes |  |                                       
|Net Income / (Loss)                           |  |                                       
|                                             
|Basic Net Income / (loss) per share           |  | $                                     
|Diluted Net Income / (loss) per share         |  | $                                     
|                                             
|Weighted average number of common shares      |  |                                       
|Outstanding
      - basic                     |  |                                       
|Outstanding
      - diluted                   |  |                                       

32

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

**Overview**

In this
Section, we will discuss the following: (1) key factors in evaluating our
financial performance; (2) application of critical accounting policies, which
explains the accounting policies necessary to understand how we record our
financial information; (3) results of operations - consolidated, in which our
consolidated results are compared year to year to recognize trends; (4) results
of operations by business segment, which allows us to compare the results of our
different business units; (5) liquidity and capital resources; (6) contractual
obligations and other commercial commitments; and (7) recently issued accounting
standards.

**Key Factors in Evaluating
the Companys Financial Performance**

***Revenue*********

The
majority of our revenue is derived from professional services rendered to
customers. Revenue is typically recognized as services are performed. Our
services range from providing customers with a single consultant to
multi-personnel full-scale projects. Although we have contracts with many of our
customers to provide our services, in general, such contracts are terminable
upon relatively short notice, typically not more than 30 days. There can be no
assurance that our customers will continue to enter into contracts with us or
that existing contracts will not be terminated. We provide our services either
directly to end-user organizations, or as a member of a consulting team
assembled by another IT consulting firm. Where contractual provisions permit,
customers also are billed for reimbursement of expenses incurred by us on the
customers' behalf.

***Fixed
Price Projects*********

We have
provided services on certain projects in which we, at the request of the
clients, offer a fixed price for our services. For the years ended December 31,
2007, 2006 and 2005, revenue derived from projects under fixed price contracts
represented approximately 39%, 39% and 43%, respectively, of the Companys total
revenue. No single fixed price project was material to our business during 2007,
2006 or 2005. We believe that, as we pursue our strategy of providing
application management services to customers, we will continue to offer fixed
price projects. We believe that there are certain risks related to fixed price
arrangements and thus we price such arrangements to reflect the associated risk.
There can be no assurance that we will be able to complete such projects within
the fixed price timeframes. The failure to perform within such fixed price
contracts, if entered into, could have a material adverse effect on our
business, financial condition and results of operations.

***Customer
Concentration*********

We have derived and believe that we
will continue to derive a significant portion of our revenue from a limited
number of customers and projects. For the years ended December 31, 2007, 2006
and 2005, our ten largest customers accounted for in the aggregate approximately
41%, 49% and 49% of our revenue, respectively. During 2007, no single customer
accounted for 10% or more of revenues. During 2006 and 2005, one customer,
various businesses of the General Electric Company, accounted for more than 10%
of revenue. As of December 31, 2007 and 2006, one customer accounted for 15% and
16%, respectively, of accounts receivable. For the years ended December 31,
2007, 2006 and 2005, 18%, 21% and 12%, respectively, of our revenue was
generated by providing supplemental resources directly to the end-customer or as
part of a consulting team assembled by another IT consulting firm. There can be
no assurance that such IT consulting firms will continue to engage us in the
future at current or lower levels of retention.

33

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***Software
Partners*********

For the
years ended December 31, 2007, 2006 and 2005, we derived the following
percentages of total revenue from projects in which we implemented, extended,
maintained, managed or supported software developed by SAP, PeopleSoft, Oracle
and other e-Business application providers:

**Percentage of Revenue**Year Ended December
      31,2007
    
    2006
    
    2005SAP
    
    76
    %
    
    72
    %
    
    70
    %PeopleSoft
    
    8
    %
    
    13
    %
    
    21
    %Oracle
    
    7
    %
    
    7
    %
    
    3
    %e-Business
    
    6
    %
    
    5
    %
    
    5
    %Others
    
    3
    %
    
    3
    %
    
    1
    %Total
    
    100
    %
    
    100
    %
    
    100
    %


***Markets*********

We
currently serve the United States market with our headquarters in Edison (New
Jersey), and branch offices in Atlanta (Georgia), Naperville (Illinois), and
Milpitas (California). We also maintain local offices in other geographic areas
to serve the markets in India, the United Kingdom, Denmark and Japan.

***Expenses*********

Our most
significant cost is project personnel expenses, which consist of consultant
salaries, benefits and payroll-related expenses. Thus, our financial performance
is based primarily upon billing margin (billable hourly rate less the cost to us
of a consultant on an hourly basis) and personnel utilization rates (billable
hours divided by paid hours).

**Application of Critical
Accounting Policies**

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

34

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

*Revenue Recognition and
Allowance for Doubtful Accounts*.

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

We also
derive a portion of our revenue from fixed-price, fixed-time contracts. Revenue
generated from most fixed-price contracts, including most application management
and support contracts, is recognized ratably over the contract term.Certain fixed price contracts are for
implementation services for which specifications are provided by the customer.
The scope of the work is usually defined in terms of overall deliverables and
the revenue for such work is ultimately earned by achieving the deliverables. We
consider the performance of service towards the planned deliverable as partial
execution of the deliverable and hence the revenue generated from such
fixed-price contracts is recognized using the percentage of completion (POC)
method as the percentage of completion method recognizes the legal and economic
results of contract performance on a timely basis. This method of accounting
relies on estimates of total expected contract revenues and costs.Our project delivery and business unit finance personnel
continually review labor hours incurred and estimated total labor hours, which
may result in revisions to the amount of recognized revenue for the contract.
Changes in estimates are accounted for in the period of change. If we do not
accurately estimate the resources required or the scope of work to be performed
for a contract or if we do not manage the project properly within the planned
time period, then a loss may have to be recognized on the contract. Losses are
recorded in the period when they become known, and estimated through the
completion of the contract.

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

35

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

Unbilled
services at December 31, 2007 and 2006 represent services provided through
December 31, 2007 and 2006, respectively, which are billed subsequent to
year-end. All such amounts are anticipated to be collected in the following
year.

We
recognize revenue for services where collection from the client is reasonably
assured. We establish billing terms at the time project deliverables are agreed,
and we continually monitor timely payments from customers and assess collection
issues. We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our clients to make required payments. We base
our estimates on historical collection and write-off experience, current trends,
credit policy, detailed analysis of specific client situations and percentage of
accounts receivable by aging category.

*Recoverability of Long-lived
Assets*

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

*Accounting for Income Taxes*

We record
income taxes using the asset and liability method. Deferred income tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective income tax carrying amount, and operating
loss and tax credit carry forwards. Our consolidated financial statements
contain certain deferred tax assets which have arisen primarily as a result of
operating losses incurred since 1999, as well as other temporary differences
between book and tax accounting. FASB Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, requires the
establishment of a valuation allowance to reflect the likelihood of realization
of deferred tax assets.

Significant management judgment is required in determining the provision
for income taxes, deferred tax assets and liabilities and any valuation
allowance recorded against net deferred tax assets. We evaluate the weight of
all available evidence to determine whether it is more likely than not that some
portion or all of the deferred income tax assets will not be realized in the
future. Management considered the recent historical operating losses and the
inherent uncertainty in the extent and timing of future profitability in
determining the appropriate valuation allowance. Based upon this assessment, we
recorded approximately $23.2 million of valuation allowance against gross
deferred tax assets of $24.2 million through December 31, 2007. The decision to
record the valuation allowance required significant judgment including
estimating the various factors impacting future taxable income. Had we not
recorded this allowance, we would have reported materially different results. If
the realization of all deferred tax assets in the future is considered more
likely than not, a decrease in the valuation allowance would be made resulting
in an increase to the net carrying value of deferred tax assets and increase net
income in the period of such determination by approximately $23.2 million. The
amount of the deferred tax asset considered realizable is based on significant
estimates, and it is at least reasonably possible that changes in these
estimates in the near term could materially affect our financial condition and
results of operations. Our effective tax rate may vary from period to period
based on changes in estimated taxable income or loss, changes to the valuation
allowance, changes to federal, state or foreign tax laws, future expansion into
areas with varying country, state, and local income tax rates and deductibility
of certain costs and expenses by jurisdiction.

36

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In July
2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 (FIN 48), which provides criteria for
the recognition, measurement, presentation and disclosure of uncertain tax
positions. A tax benefit from an uncertain position may be recognized only if it
is more likely than not that the position is sustainable based on its
technical merits. The provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006. Effective January, 1 2007, the Company
adopted provisions of FIN 48 Accounting for Uncertainty in Income Taxes- an
Interpretation of FASB Statement No- 109. FIN 48 contains a two-step approach
to recognizing and measuring uncertain tax positions accounted for in accordance
with the statement of Financial Accounting Standard No-109. Accounting for
Income Taxes (SFAS 109). The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it
is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation process, if any. The second step is
to measure the tax benefit as the largest amount that is more than 50% likely of
being realized upon ultimate settlement.

The
adoption of FIN 48 had no significant impact on the Companys results of
operations or and the Companys financials position as of and for the twelve
month period ended December 31, 2007 and no adjustment has been recorded to the
opening balance of accumulated deficit. The total amount of gross unrecognized
tax benefit as of the date of the adoption was $0.8 million and the total amount
of gross unrecognized tax benefits was $0.2 million as of December 31, 2007. Any
recognition of these tax benefits in future would impact the Companys effective
tax rate.

Under
U.S. tax law, the utilization of the deferred tax asset related to Net Operating
Losses (NOL) carried forward is subject to an annual limitation if there is a
more than 50 percentage point change in shareholder ownership.We incurred such a change in
ownership as defined under Internal Revenue Code (IRC) Section 382 for U.S.
federal income tax purposes in September 2004. As a result, we are subject to
limitations on future usage of our previously incurred tax attributes and wrote
down our NOL carry-forward in 2004. This limitation and related write-down of
the NOL did not have an income statement impact in 2004 as we had previously
established a full valuation allowance against the net deferred tax balances,
which was subsequently removed in conjunction with the write-down.

*Derivative Instruments*

During
2007, we entered into a foreign currency forward contract and European Option
Contracts to manage a portion of our foreign currency risk related to Indian
Rupee denominated asset balances at our Indian subsidiary. The foreign currency
forward contract and European options are marked-to-market and recorded at fair
value with unrealized gains and losses reported along with foreign currency
gains or losses in the caption other income (expense), net on our consolidated
statements of operations and comprehensive income (loss).

37

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*Share-Based Compensation Plans*

We have
share-based compensation plans that reserve common shares for issuance to key
employees and directors. Prior to January 1, 2006, we accounted for such
share-based employee compensation plans under the measurement and recognition
provisions of APB No. 25, Accounting for Stock Issued to Employees, as
permitted by SFAS No. 123, Accounting for Stock-Based Compensation.
Accordingly, we used the intrinsic value method of accounting for stock option
awards and did not recognize compensation expense for stock options that were
granted at an exercise price equal to or greater than the market price of common
stock on the date of grant. In accordance, with SFAS No. 123 and SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure, we
provided pro forma net income or loss and net earnings or loss per common share
disclosures for each period prior to January 1, 2006, as if we had applied the
fair value-based method in measuring compensation expense for share-based
compensation plans.

Effective
January 1, 2006, we adopted the fair value provisions of SFAS No. 123R,
Share-Based Payment, using the modified prospective transition method. Under
this method, we recognize share-based compensation expense for (i) all
share-based payments granted prior to, but not yet vested as of, January 1,
2006, based on the grant date fair value originally estimated in accordance with
the provisions of SFAS No. 123, and (ii) all future share-based payment awards
based on the grant date fair value estimated in accordance with the provisions
of SFAS No. 123R. Because we elected to use the modified prospective transition
method, results for prior periods have not been restated.

The
compensation cost that has been charged against income for share-based
compensation plans was $1.1 million for the year ended December 31, 2007. Due to
our net operating losses carried forward we did not recognize income tax benefit
in the consolidated statement of operations and comprehensive income for the
year ended December 31, 2007. We received approximately $292,000 and $245,000
from option exercises under share-based compensation plans for the years ended
December 31, 2007 and 2006, respectively.

As of
December 31, 2007, there was $1.7 million of total unrecognized compensation
cost related to stock options. Those costs are expected to be recognized during
the next four years.

The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model. We recognize the fair value of each option
as compensation expense ratably using the straight-line attribution method over
the service period (generally the vesting period). The Black-Scholes model
incorporates the following assumptions:

- Expected volatility  we estimate the volatility
  of common stock at the date of grant using a combination of unadjusted
  historical volatility, historical volatility adjusted for periods of unusual
  stock price activity.
- Expected term  we estimate the expected term of
  options granted based on a combination of vesting schedules, life of the
  option, historical experience and in cases where we do not have significant
  historical experience, the simplified method of determining expected term
  outlined in Staff Accounting Bulletin 107 is used for grants issued in 2006
  and 2007.
- Risk-free interest rate  we estimate the
  risk-free interest rate using the U.S. Treasury yield curve for periods equal
  to the expected life of the options in effect at the time of
grant.

38

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- Dividends  we use an expected dividend yield of
  zero since we have never declared or paid any dividends on its capital stock.
  We intend to retain any earnings to fund future growth and for the operation
  of our business and, therefore, do not anticipate paying any cash dividends in
  the foreseeable future.

Additionally, we estimate forfeitures at the time of grant and revise those
estimates in subsequent periods if actual forfeitures differ from those
estimates. We use a combination of historical data, demographic characteristics
and other factors to estimate pre-vesting option forfeitures and record
share-based compensation expense only for those awards that are expected to
vest. However, because a majority of the outstanding options are quarterly
vesting, forfeiture assumptions are not material. For purposes of calculating
pro forma information under SFAS No. 123 for periods prior to January 1, 2006,
we accounted for forfeitures as they occurred.

If
factors change and we employ different assumptions in the application of SFAS
No. 123R to options grants made in future periods, the compensation expense that
we record under SFAS No. 123R for those future awards may differ significantly
from what it has recorded in the current period. There is a high degree of
subjectivity involved in selecting the option pricing model assumptions used to
estimate share-based compensation expense under SFAS No. 123R.

Option
pricing models were developed for use in estimating the value of traded options
that have no vesting or hedging restrictions, are fully transferable and do not
cause dilution. Because share-based payments have characteristics significantly
different from those of freely traded options, and because changes in the
subjective input assumptions can materially affect estimates of fair values,
existing valuation models may not provide reliable measures of the fair values
of share-based compensation. Consequently, there is a risk that our estimates of
the fair values of share-based compensation awards on the grant dates may bear
little resemblance to the actual values realized upon the exercise, expiration
or forfeiture of those share-based payments in the future. Stock options may
expire worthless or otherwise result in zero intrinsic value as compared to the
fair values originally estimated on the grant date and reported in our financial
statements. Alternatively, value may be realized from these instruments
significantly in excess of the fair values originally estimated on the grant
date and reported in our financial statements.

There are
significant differences among valuation models. This may result in a lack of
comparability with other companies that use different models, methods and
assumptions. There is also a possibility that we will adopt different valuation
models in the future. This may result in a lack of consistency in future periods
and although varying option models are expected to yield similar results, may
materially affect the fair value estimate of share-based payments.

*Contingent Liabilities*

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

39

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Principles of Consolidation and
Use of Estimates

The consolidated financial
statements included in Item 15 include our accounts and our majority owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated.

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

**Results of Operations -
Consolidated**

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

Percentage of RevenueYear Ended December
    31,2007
    
    2006
    
    2005Revenue
    
    100.0
    
    %
    100.0
    
    %
    100.0
    
    %Cost of
      revenue
    
    72.6
    
    
    72.7
    
    
    73.6Gross profit
    
    27.4
    
    
    27.3
    
    
    26.4Selling, general
      and administrative expenses
    
    23.4
    
    
    28.0
    
    
    30.1Depreciation and amortization expense
    
    1.7
    
    
    2.0
    
    
    1.8Total operating expenses
    
    25.1
    
    
    30.0
    
    
    31.9Operating Income / (loss)
    
    2.3
    
    
    (2.7
    )
    
    (5.5
    )Interest
      income
    
    0.1
    
    
    -
    
    
    0.1Interest expense
    
    (0.7
    )
    
    (0.4
    )
    
    (0.2
    )Other income
      (expense), net
    
    0.8
    
    
    1.0
    
    
    0.2Income / (Loss) before income taxes
    
    2.5
    
    
    (2.1
    )
    
    (5.4
    )Income tax
      provision (benefit)
    
    0.5
    
    
    0.9
    
    
    (0.2
    )Net Income / (loss)
    
    2.0
    
    %
    (3.0
    )
    %
    (5.2
    )
    %


Year Ended December 31, 2007 Compared
to Year Ended December 31, 2006

The
following discussion compares the consolidated results of operations for the
year ended December 31, 2007 to the year ended December 31, 2006.

Revenue. Total revenue has increased
to $145.1 million in 2007 from $125.3 million in 2006, which was attributable to
an increase in revenue generated in the United States (an increase of $6.7
million), India (an increase of $9.1 million), Europe (an increase of $4
million), and Japan (a decrease of $0.1 million). In 2007, the net change
includes an increase in SAP revenues of around $21 million, e-biz business
revenues of around $1.7 million and an increase in infrastructure management
services of $2 million, offset by a decrease in revenue in our PeopleSoft
business of $4.9 million. This decrease in PeopleSoft revenue from $16.2 million
for 2006 to $11.3 million for 2007 is attributable to the completion of several
major projects during 2006 coupled with the absence of new projects to replace
this revenue.

40

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Cost
of revenue and gross profit. Our cost of
revenue consists primarily of the salaries paid to the consultants and related
employee benefits and payroll taxes for such consultants, as well as travel
costs. Our cost of revenue has increased by 16%, or $14.3 million, from $91.1
million in 2006, to $105.4 million in 2007. Our gross profit increased by 16.1%
or $5.5 million, from $34.2 million in 2006, to $39.7 million in 2007. As a
percentage of revenue, the gross margin increased marginally from 27.3% in 2006
to 27.4% in 2007.

Selling, general and administrative expenses. Selling, general and administrative expenses primarily consist of
salaries, and related benefit costs for sales and general administrative
personnel, occupancy costs, compensation costs, travel and entertainment,
professional fees and other general expenses. Selling, general and
administrative expenses decreased by 2.9% or $1.0 million, to $34.1 million in
2007, from $35.0 million in 2006, and decreased as a percentage of revenue to
23.4% from 28.0%, respectively. The decrease in selling, general and
administrative expenses was related primarily to various cost control measures
undertaken by the management on general and administrative expenses like
reduction in onsite head count, travel related expenses, etc., and reversal of
legal fees associated with the shareholder class action law suits. The general
and administrative expenses were higher in 2006 also due to a significant bad
debt reserve made against an outstanding receivable related to one
customer.

Other
Income (expense). Other income (expense),
results from transaction gains or losses associated with changes in foreign
currency exchange rates, sublease income, dividend income from investments, and
other items. For the year ended December 31, 2007, we recorded transaction gains
of approximately $0.5 million, primarily the result of the hedging gains,
compared with transaction losses of $0.4 million for the year ended December 31,
2006, primarily the result of the write-down of cumulative translation
adjustments related to discontinued operations in Sweden. Additionally, we had
sublease income, dividend income and other adjustments items of approximately
$0.6 million for the year ended December 31, 2007, compared with $1 million for
the year ended December 31, 2006, and other out of court settlements for
approximately $0.6 million for the year ended December 31, 2006

Income
tax provision. We had pretax income of $3.7
million in 2007 and losses of $2.6 million in 2006, on which we recorded a
provision for income taxes of $0.7 million in 2007 compared to $1.1 million in
2006. Please refer to note 15 to consolidated financial statements for details
of income by jurisdiction and the resultant impact on tax expense recorded. The
provision for income taxes in 2007 is reduced due to the tax benefit of $0.7
million recorded on account of favorable decisions by the Income tax Appellate
Tribunal in India. Our net deferred tax assets as of December 31, 2007 related
to our Indian operations. Based on various positive evidence, including
historical profitability, management believes it is more likely than not that
the Indian operations deferred tax assets of $1.0 million will be realized in
the future and therefore, no valuation allowance has been established against
these net deferred tax assets for the year ended December 31, 2007.

In 1996,
we elected a five year tax holiday in India, in accordance with a local tax
incentive program whereby no income tax would be due in such period. Such tax
holiday was extended an additional five years in 1999. Effective April 1, 2000
pursuant to changes introduced by the Indian Finance Act, 2000, the tax holiday
previously granted was no longer available and has been replaced in the form of
a tax deduction incentive on export revenue. Effective April 1, 2002, the tax
deduction incentive for income from the export of software and related services
is restricted to 90% of such income. Further, domestic revenue from software and
related services is taxable in India. Effective April 1, 2003, the 90% tax
deduction incentive restriction was repealed and the tax incentive is again
available for the entire amount of income from the export of software and
related services. For 2005 and 2004, the tax holiday favorably impacted our
effective tax rate. Effective March 31, 2006, tax holiday expired for major part
of our Indian subsidiarys operations and therefore our tax liability increased
in the years 2006 and 2007.

41

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Our India
subsidiary has received tax assessments from the India taxing authority denying
tax exemptions claimed for certain revenue earned and disallowing certain
expenses claimed during the India subsidiarys fiscal years ended March 31, 1998
through March 31, 2003. As of December 31, 2007 the combined revised additional
tax demands were for 32.2 million Indian rupees (or approximately $0.8 million)
for those years. They include tax penalties and interest for the fiscal years
ended March 31, 2001 and 2002 of 1.4 million Indian rupees (or approximately
$34,000) and $0.8 million Indian rupees (or approximately $16,000),
respectively. Against the total additional tax demand of $0.8 million, we have
made payments of approximately $0.8 million under protest to the India tax
authority.

During
the twelve month period ending on December 31, 2007 the our subsidiary in India
has received judgment from the Appellate Tribunal in India with regard to the
Indian Tax Assessments, for the fiscal year ended March 31, 1998 through March
31, 2000 that allowed the tax exemptions in the Companys favor to the extent of
approximately $0.5 million. The terms of the judgment required India tax
authorities to refund the taxes paid under protest for such fiscal years along
with the interest. Based on the above judgment, we recognized the benefit of
$0.5 million in related to the tax exemptions. Furthermore we recognized $0.2
million for interest receivable on the taxes paid under protest. The India tax
authorities have a right to appeal in the court of law against the judgment
issued by the Appellate Tribunal. To our knowledge no appeal has been filed.

We are
currently appealing at the Appellant Tribunal stage for the fiscal years ended
March 31, 2001 through March 31, 2003. In the event our appeal is not
successful, there will not be any additional future cash outlay. However, in the
event we are successful, an amount up to approximately $0.2 million could be
refunded to us.

Year Ended December 31, 2006 Compared
to Year Ended December 31, 2005

The
following discussion compares the consolidated results of operations for the
year ended December 31, 2006 to the year ended December 31, 2005.

Revenue. Total revenue remained
relatively constant at $125.3 million in 2006 and 2005, which was attributable
to a decrease in revenue generated in the United States (a decrease of $5.7
million), offset by India (an increase of $3.1 million), Europe (an increase of
$2.1 million), and Japan (an increase of $0.5 million). In 2006, the net change
includes an increase in SAP and Oracle revenues of $6.6 million, and an increase
in infrastructure management services of $2.8 million, offset by a decrease in
revenue in the Companys PeopleSoft business of $9.5 million. This decrease in
PeopleSoft revenue from $25.7 million for 2005 to $16.2 million for 2006 is
attributable to the completion of several major implementation projects during
2005 coupled with the absence of new projects to replace this
revenue.

Cost
of revenue and gross profit. Our cost of
revenue consists primarily of the salaries paid to the consultants and related
employee benefits and payroll taxes for such consultants, as well as travel
costs. Our cost of revenue has decreased by 1.3%, or $1.2 million, from $92.3
million in 2005, to $91.1 million in 2006. Our gross profit increased by 3.6%,
or $1.2 million, from $33.0 million in 2005, to $34.2 million in 2006. As a
percentage of revenue, the gross margin increased from 26.4% in 2005 to 27.3% in
2006, primarily due to improved resource management and increased utilization,
which was offset partially by increased compensation costs for our technical
professionals.

42

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Selling, general and administrative expenses. Selling, general and administrative expenses primarily consist of
salaries, and related benefit costs for sales and general administrative
personnel, occupancy costs, compensation costs, travel and entertainment,
professional fees and other general expenses. Selling, general and
administrative expenses decreased by 7.1%, or $2.7 million, to $35.0 million in
2006, from $37.7 million in 2005, and decreased as a percentage of revenue to
27.9% from 30.1%, respectively. The decrease in selling, general and
administrative expenses was related primarily to a reduction in accounting fees
incurred in connection with restating prior periods consolidated financial
statements, professional fees associated with Sarbanes-Oxley compliance, and
legal fees incurred in 2005. This was partially offset by increased selling and
marketing expenses and a $1.3 million reserve against an outstanding receivable
related to one customer.

Other
Income (expense). Other income (expense),
results from transaction gains or losses associated with changes in foreign
currency exchange rates, sublease income, dividend income from investments, and
other items. For the year ended December 31, 2006, we recorded transaction
losses of approximately $0.4 million, primarily the result of the write-down of
cumulative translation adjustments related to Sweden, compared with transaction
losses of $0.4 million for the year ended December 31, 2005, primarily as a
result of currency fluctuations in Asia and Europe. Additionally, we had
sublease income, dividend income and other adjustments items of approximately
$1.0 million for the year ended December 31, 2006, compared with $0.6 million
for the year ended December 31, 2005, and other out of court settlements for
approximately $0.6 million for the year ended December 31, 2006, compared with
$0.1 million for the year ended December 31, 2005.

Income
tax provision. We had pretax losses of $2.6
million in 2006 and $6.8 million in 2005, on which we recorded a provision for
income taxes of $1.1 million in 2006 and a benefit for income taxes of $0.2
million in 2005. The provision for income taxes in 2006 was due mainly to the
expiration of the tax holiday on March 31, 2006 for major part of our India
operations, whereas the benefit for income taxes in 2005 was due mainly to our
recognition of deferred tax assets not offset by valuation allowances in our
India and Japan operations. Our net deferred tax assets as of December 31, 2006
related to our Indian operations. Based on various positive evidence, including
historical profitability, management believes it is more likely than not that
the Indian operations deferred tax assets of $752,000, will be realized in the
future and therefore, no valuation allowance has been established against these
net deferred tax assets for the year ended December 31, 2006.

Results of Operations by Business
Segment

We operate in one industry operating
segment, information technology solutions and services.

We have
four reportable geographic operating segments from continuing operations, which
are organized and managed on a geographical basis, as follows:

- United States ("US")  our largest segment, with
  operations in the United States & Puerto Rico. Includes the operations of
  the Company's US subsidiary, Empower, Inc., and all corporate functions and
  activities. The US and corporate headquarters is located in Edison, New
  Jersey.

43

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- India  includes our operations in India,
  including services provided on behalf of other group subsidiaries, primarily
  to US. The Indian operations are located in Hyderabad and Bangalore, India. A
  majority of the total revenue generated in India is derived from providing
  offshore development and support services to customers through our affiliated
  entities in other parts of the world, but most predominantly with the United
  States.
- Europe  includes our operations in Denmark,
  and the United Kingdom. The European headquarters are located in Milton
  Keynes, United Kingdom and Odense, Denmark.
- Japan  includes our operations in Japan. The
  Japanese headquarters is located in Tokyo, Japan.

The CEO
has been identified as the Chief Operating Decision Maker (CODM) because he
has the final authority over resource allocation decisions and performance
assessment. The CODM regularly receives certain discrete financial information
about the geographical operating segments, primarily revenue and operating
income, to evaluate segment performance.

During
2006 our India subsidiary engaged a PCAOB registered firm to evaluate and
recommend changes, if any to its existing transfer pricing methodology. As a
result of such transfer pricing study, we changed its transfer pricing
methodology and adopted cost plus fixed margin methodology, which applies a
fixed margin to the total cost of services performed as opposed to net margin
method in which revenues are allocated on a fixed percentage without regard to
cost of services. While the application of new transfer pricing methodology did
not change our revenue or operating performance on a consolidated basis, it
impacted the allocation of revenue between us and our international
subsidiaries. Hence the revenues and operating performance reported for the
geographic segments, particularly India, United States and Europe, for the year
ended December 31, 2007 and 2006 reflect the impact of the new transfer pricing
methodology as well as year over year trends in revenue.

Accordingly our consolidated operating results for the twelve months
period ended December 31, 2007 and 2006 are presented in the following
geographic segments.

*Year Ended December 31, 2007
Compared to Year Ended December 31, 2006*

The
following discussion compares the segment results of operations for the year
ended December 31, 2007 to the year ended December 31, 2006.

44

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

Year Ended December 312007
    
    
    2006Percentage
      of
    
    
    
    
    Percentage
      ofDollars
    
    Total
    
    
    Dollars
    
    TotalUnited States
    
    $
    87,618
    
    60.4
    %
    
    $
    80,875
    
    64.5
    %India
    
    
    40,428
    
    27.9
    
    
    
    31,335
    
    25.0Europe
    
    
    13,124
    
    9.0
    
    
    
    9,130
    
    7.3Japan
    
    
    3,896
    
    2.7
    
    
    
    3,969
    
    3.2Total
    
    $
    145,066
    
    100.0
    %
    
    $
    125,309
    
    100.0
    %


Revenue
in the United States increased by 8.3% or $7 million, from $80.9 million in 2006
to $87.6 million in 2007. The increase in the revenue was due to the increased
demand for our services in the SAP market.

India
revenue increased by 29%, or $9.1 million, from $31.3 million in 2006, to $40.4
million in 2007. The increase was attributable primarily to increased demand for
our services from the customers in India, Gulf Coast and Middle East
regions, as well as increased demand for offshore services from our customers in
the United States. There was also a possible impact on account of the foreign
exchange fluctuations between India and US.

Europe
revenue increased by 43.7%, or $4.0 million, from $9.1 million in 2006 to $13.1
million in 2007. The increase was attributable to the increased demand for our
services in the local markets and due to revenue from the Novasoft Acquisition.

Japan
revenue decreased marginally by 1.8% or $0.1 million, from $4.0 million for
2006, to $3.9 million in 2007.

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

Year Ended December 31,2007
    
    2006United States
    $
    (3,038
    )
    
    $
    (6,969
    )India
    
    4,125
    
    
    
    3,595Europe
    
    1,558
    
    
    
    853Japan
    
    543
    
    
    
    (779
    )Total
    $
    3,188
    
    
    $
    (3,300
    )


US
operating loss decreased by $3.9 million, from $6.9 million in 2006, to $3.0
million in 2007. The improvement in operating performance is primarily
attributable to the increased revenues in the US and to significant reduction in
accounting, professional and legal fees.

45

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India
operating income increased by $0.5 million, from $3.6 million in 2006, to $4.1
million in 2007. The increase was attributable primarily to an increase in
demand for offshore services.

Europe
operating performance improved by $0.7 million, from operating income of $0.9
million in 2006, to $1.5 million in 2007. The improvement was attributable
primarily to increased revenues and improved resource management and utilization
and partly due to the increased revenues from the Novasoft Acquisition.

Japan
operating performance improved by $1.3 million, from operating loss of $0.8
million in 2006, to operating gain of $0.5 million in 2007. The increase was
attributable primarily to improved resource management and
utilization.

*Year Ended December 31, 2006
Compared to Year Ended December 31, 2005*

The
following discussion compares the segment results of operations for the year
ended December 31, 2006 to the year ended December 31, 2005.

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

Year Ended December 312006
    
    
    2005Percentage
      of
    
    
    
    
    Percentage
      ofDollars
    
    Total
    
    
    Dollars
    
    TotalUnited States
    
    $
    80,875
    
    64.5
    %
    
    $
    86,617
    
    69.1
    %India
    
    
    31,335
    
    25.0
    
    
    
    28,206
    
    22.5Europe
    
    
    9,130
    
    7.3
    
    
    
    7,030
    
    5.6Japan
    
    
    3,969
    
    3.2
    
    
    
    3,473
    
    2.8Total
    
    $
    125,309
    
    100.0
    %
    
    $
    125,326
    
    100.0
    %


Revenue
in the United States decreased by 6.6%, or $5.7 million, from $86.6 million in
2005 to $80.9 million in 2006. The decrease in this revenue is attributable to
the decline in our PeopleSoft business due to the completion of several major
implementation projects during 2005 and the lack of new projects to replace this
revenue. This was partially offset by growth in Oracle and SAP revenues and
additional revenues from services performed for US customers by our India
subsidiary being allocated to the US geographic segment as a result of the
change in transfer pricing methodology.

India
revenue increased by 11.4%, or $3.2 million, from $28.2 million in 2005, to
$31.3 million in 2006. The increase was attributable primarily to increased
demand for services provided in India, Gulf Coast and Middle East regions, as
well as increased demand for offshore services from customers in the United
States and consequent increased demand from our affiliated companies in US and
other geographies. This was partially offset by a decrease in revenue due to the
change in transfer pricing methodology.

46

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Europe
revenue increased by 29.6%, or $2.1 million, from $7.0 million in 2005 to $9.1
million in 2006. The increase was attributable primarily to one large contract
entered into during the three months ended June 30, 2006.

Japan
revenue increased by 14.3% or $0.5 million, from $3.5 million for 2005, to $4.0
million in 2006. The increase was due primarily to increased demand for the
Companys consulting services within the local SAP market.

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

Year Ended December 31,2006
    
    2005United States
    $
    (6,969
    )
    
    $
    (9,637
    )India
    
    3,595
    
    
    
    3,526Europe
    
    853
    
    
    
    (289
    )Japan
    
    (779
    )
    
    
    (543
    )Total
    $
    (3,300
    )
    
    $
    (6,943
    )


US
operating loss decreased by $2.7 million, from $9.6 million in 2005, to $6.9
million in 2006. The improvement in operating performance is primarily
attributable to the change in transfer pricing methodology, which resulted in
increased revenues in the US, and also due to significant reduction in
accounting, professional and legal fees. These improvements were partially
offset by increased sales and marketing expenses and a $1.3 million reserve
against an outstanding receivable and unbilled revenue related to one customer
contract in 2006.

India
operating income increased by $0.1 million, from $3.5 million in 2005, to $3.6
million in 2006. The increase was attributable primarily to an increase in
demand for offshore services, offset partially by the change in transfer pricing
methodology in 2006.

Europe
operating performance improved by $1.1 million, from operating loss of $289,000
in 2005, to operating income of $853,000 in 2006. The improvement was
attributable primarily to increased revenues and improved resource management
and utilization.

Japan
operating performance decreased by $0.2 million, from operating loss of $543,000
in 2005, to operating loss of $779,000 in 2006. The decrease was attributable
primarily to lower margins resulting from increased consultant cost, and
increases selling and marketing expenses.

Liquidity and Capital Resources

*2007 Cash Position
and Cash Flows*

We had
cash and cash equivalents of $8.4 million at December 31, 2007 and $12.3 million
at December 31, 2006. We had working capital of $18.2 million at December 31,
2007 and $20.5 million at December 31, 2006. The decrease in working capital
resulted primarily caused by placement of margin money amounting to $3.2 million
against the loan of $3.1 million received to fund the purchase price of the
Novasoft Acquisition.

47

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Cash used
in operating activities was $0.4 million for the year ended December 31, 2007,
primarily due to the $3.3 million margin money placed against the loan of $3.1
million received to fund the purchase price of Novasoft Acquisition. This was
compensated by the net gain of $2.9 million, increased by $5.5 million of
non-cash adjustments to operating activities including depreciation and
amortization ($2.8 million), provision for doubtful accounts ($0.5 million),
stock option expense ($1.1 million), and other non cash expenses ($1.1 million).
Accounts receivable and unbilled services decreased in total by $5.7 million due
to increase in revenues, while accounts payable increased by $0.2 million and
increase in deferred revenue by $0.8 million, due primarily to amounts billed in
December.

We
invested $2.8 million and $2.1 million in computer equipment, office furniture
and fixtures and leasehold improvements during the years ended December 31, 2007
and 2006, respectively. We invested $3.1 million in the Novasoft Acquisition
during the year ended December 31, 2007. There were no such investments during
2006. We invested $6.4 million and $2.1 million in investments during the years
ended December 31, 2007 and 2006 respectively. Cash provided from sale of such
investments amounted to $7.2 million during the year ended December 31, 2007.
There was no sale of investments during the year 2006.

*Credit Facility*

On May
23, 2006, Intelligroup and its wholly-owned subsidiary Empower, Inc., entered
into a second amended and restated revolving credit loan and security agreement
and second amended and restated revolving secured note (collectively Credit
Agreement) with the Steel City Capital Funding, a division of PNC Bank,
National Association (the Bank.) The Credit Agreement is comprised of a two
year revolving line of credit pursuant to which the Company can borrow up to
$15.0 million at the Banks Base Rate (as defined in the Credit Agreement) plus
two (2%) percent. The credit facility is collateralized by substantially all of
the assets of the United States based operations and all subsidiary stock (not
to exceed 65% of the Equity Interests of any Foreign Subsidiary). The maximum
borrowing availability under the Credit Agreement is based upon a percentage of
eligible billed and unbilled accounts receivable. We were in compliance with the
loan agreement related to the credit facility as of December 31, 2007. We
estimate undrawn availability under the credit facility to be $11.43 million as
of December 31, 2007.

On
September 5, 2007, Intelligroup Europe Ltd., a wholly-owned subsidiary of
Intelligroup Inc., entered into a loan agreement for £ 1.5 million with Lloyds
Bank PLC, UK, in order to finance for the purchase price for the Novasoft
Acquisition. This loan is secured by a stand by letter of credit from Citibank
N.A. India, for which Intelligroup Asia Private Limited, a wholly-owned
subsidiary of Intelligroup Inc. has placed a hundred and ten percent margin
money deposit with Citibank. The loan is payable in three annual installments of
£0.5 million starting October 2008, with interest at the rate of
6.75%.

Please
see Note 6 to the Consolidated Financial Statements for additional information
regarding our credit facility and the loan.

*Cash to Fund Operating
Activities*

We rely
on the cash generated by operating activities, cash on hand and the financing
available under our credit facility to fund ongoing operations. Our credit
facility with the Bank represents our sole source of external financing for our
business operations. Our operating plan depends on continued borrowing
availability under this credit facility or securing alternate sources of
financing.

48

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We must comply with certain covenants
or secure from the Bank waivers of its default on such covenants to maintain its
line of credit with the Bank. Given our variable operating performance in the
past few years, there can be no assurances that we will be able to maintain
compliance with our bank covenants or obtain waivers of any defaults.However, our credit facility expires in May 2008. We arein the process of negotiating a new or alternate credit
facility. We cannot provide assurance that suchnew
or alternate credit facility will be available or if available will be on terms
favorable to us.

Our 2008
operating plan contains assumptions regarding revenue and expenses. The
achievement of the operating plan depends heavily on the timing of work
performed by us on existing projects and the ability to gain and perform work on
new projects. Project cancellations, delays in the timing of work performed by
us on existing projects or the inability to gain and perform work on new
projects, or inability to timely collect cash from our customers could have an
adverse impact on our ability to execute our operating plan and maintain
adequate cash flow. In the event actual results do not meet the operating plan,
management believes it could execute contingency plans to mitigate such effects.
Such plans include reductions in capital expenditures and operating costs,
and/or seeking additional financing. In addition, we may seek additional
financing from time to time to fund our cash requirements for operating expenses
and capital expenses; however, the availability of financing may be limited
because, among other things, we are not currently listed on a national stock
exchange. Assuming that we achieve the revenue and expense targets included in
our operating plan, management believes that our cash on hand and cash generated
by operations and borrowings under our credit facility will be sufficient to
fund our current and planned operations through at least December 31,
2008.

Contractual Obligations and Other
Commercial Commitments

The
following tables summarize our contractual obligations and other commercial
commitments as of December 31, 2007:

Payments Due by Period (in
      000's)Less than
    
    1-3
    
    3-5Description
      of Contractual Obligation
    Total
    
    1 year
    
    years
    
    yearsRevolving Credit Facility
    $
    6,566
    
    $
    4,566
    
    $
    2,000
    
    $
    -Capital Lease
      Obligations
    
    961
    
    
    531
    
    
    374
    
    
    56Operating Lease Obligations
    
    7,135
    
    
    2,869
    
    
    3,178
    
    
    1,088Total
      Contractual Obligations
    $
    14,662
    
    $
    7,966
    
    $
    5,552
    
    $
    1,144


We use
our $15.0 million revolving credit facility with the Bank to fund the working
capital needs of the business; therefore, the outstanding borrowings under the
credit facility fluctuate accordingly. The credit facility is collateralized by
substantially all of the assets of the United States based operations. The
maximum borrowing availability under the line of credit is based upon a
percentage of eligible billed and unbilled accounts receivable, as defined. As
of December 31, 2007, we had outstanding borrowings of $3.6 million under the
credit facility with Steel City Capital Funding, US and $3 million under a loan
with Lloyds Bank TSB. As of December 31, 2006, we had outstanding borrowings of
$5.0 million under the credit facility with Steel City Capital Funding and no
loan was outstanding with Lloyds Bank TSB. We estimate undrawn availability
under the credit facility with Steel City Capital Funding to be $11.43 million
as of December 31, 2007.

49

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

Recently Issued Accounting
Standards

In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value Measurements (SFAS 157), which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 does not require any new fair value measurements,
but provides guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information. SFAS 157 is effective
for fiscal years beginning after November 15, 2007. However, on February 12,
2008, FASB Staff Position (FSP) FAS 157-2 which delayed the effective date of
SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). This proposed FSP partially defers the
effective date of Statement 157 to fiscal years beginning after November 15,
2008, and interim periods within those fiscal years for items within the scope
of this FSP. We are currently evaluating the potential impact of the adoption of
SFAS 157 on our consolidated financial position, results of operations or cash
flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities- including an Amendment of
FASB Statement No. 115 (SFAS 159), which allows an entity to choose to measure
certain financial instruments and liabilities at fair value. Subsequent
measurements for the financial instruments and liabilities an entity elects to
fair value will be recognized in earnings. SFAS 159 also establishes additional
disclosure requirements. SFAS 159 is effective for us beginning January 1, 2008.
We are currently evaluating the potential impact of the adoption of SFAS 159 on
our consolidated financial position, results of operations or cash
flows.

In December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business Combinations (SFAS 141R). SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R
also establishes disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination. This statement is effective
for us beginning January 1, 2009. We are currently evaluating the potential
impact of the adoption of SFAS 141R on our consolidated financial position,
results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statementsan amendment of Accounting
Research Bulletin No. 51 (SFAS 160). SFAS 160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parents ownership
interest, and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements
that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners. This statement is effective for us
beginning January 1, 2009. We are currently evaluating the potential impact of
the adoption of SFAS 160 on our consolidated financial position, results of
operations or cash flows.

50

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**Item
7A. Quantitative and Qualitative Disclosures about Market
Risk**

Although
we cannot accurately determine the precise effect thereof on operations, we do
not believe inflation or interest rate changes have historically had a material
effect on our revenues or results of operations. Significant effects of
inflation, currency fluctuations and changes in interest rates on the economies
of the United States, Asia and Europe could favorably or adversely impact our
revenues and results of operations in the future. If there is a material change
in the relationship between European currencies and/or Asian currencies and the
United States Dollar, such change could materially affect the result of our
European and/or Asian operations as reflected in our consolidated financial
statements.

We are
exposed to foreign currency exchange rate risk in the ordinary course of doing
business as the Company transacts or holds a portion of funds in foreign
currencies, particularly the Indian Rupee. Accordingly, management periodically
evaluates the need for hedging strategies to mitigate the effect of foreign
currency fluctuations. During the year 2007, the Company entered into a foreign
currency option and forward contracts for $65.0 million and $4.5 million,
respectively, to sell the U.S. Dollars for Indian Rupees. As of December 31,
2007, $40.0 million of the foreign currency option contract remained, which will
be settled by May 2010. Management may continue to enter into such instruments
in the future to reduce foreign currency exposure to appreciation or
depreciation in the value of certain foreign currencies. Other than the
aforementioned forward contract, we have not engaged in hedging activities nor
entered into off-balance sheet transactions, arrangements or other relationships
with unconsolidated entities or other persons that are likely to affect
liquidity or the availability of or requirements for capital resources.

**Item
8. Financial Statements and Supplementary Data**

The financial statements and
supplementary data required to be filed pursuant to this Item 8 are included
under Item 15 of this Annual Report on Form 10-K.

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

None.

51

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Item 9A.
Controls and Procedures.

Evaluation of Disclosure Controls and Procedures and Changes in Internal
Control over Financial Reporting.

We are responsible for maintaining disclosure controls and
procedures designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the Securities Exchange Commissions rules and
regulations, and that such information is accumulated and communicated to its
management, including our chief executive officer and chief financial officer,
as appropriate, to allow for timely decisions regarding required disclosure. Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of the end of the period covered by this report. In designing and evaluating
our disclosure controls and procedures, management recognized that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management necessarily is
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures and implementing controls and procedures based
upon the application of managements judgment.

Based on managements evaluation, our chief executive officer
and chief financial officer concluded that, as of December 31, 2007, our
disclosure and procedures are effective to provide reasonable assurance that
information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms, and
that such information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required disclosure.

Managements Responsibility for Financial Statements

Our management is responsible for the integrity and
objectivity of all information presented in this annual report. The consolidated
financial statements were prepared in conformity with accounting principles
generally accepted in the United States of America and include amounts based on
managements best estimates and judgments. Management believes the consolidated
financial statements fairly reflect the form and substance of transactions and
that the financial statements fairly represent the Companys financial position
and results of operations.

Our Audit Committee of the Board of Directors, which is
composed solely of non-employee directors, meets regularly with our independent
registered public accounting firm and representatives of management to review
accounting, financial reporting, internal control and audit matters, as well as
the nature and extent of the audit effort.Our
Audit Committee alsoregularly meets with our independent
registered public accounting firm in executive sessionwithout the presence of management.The Audit Committee is responsible for the engagement of the independent
registered public accounting firm. The independent registered public accounting
firm has free access to the Audit Committee.

52

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Managements Report on Internal Control Over Financial
Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under
the Exchange Act and is a process designed by, or under the supervision of, our
principal executive and principal financial officers and effected by our board
of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:

Pertain to
the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;

Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of our management and
directors; and

Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

Under the supervision and
with the participation of our management, including our principal executive
officer and principal financial officer, our management conducted an evaluation
ofthe effectiveness of the companys internal
control over financial reporting as of December 31, 2007. In making this
assessment, we used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.

Based on our managements evaluation, our management concluded
that our internal control over financial reporting was effective as of December
31, 2007.

This
annual report does not include an attestation report of our registered publicaccounting firm regarding internal control over financial
reporting. Management's report was notsubject to attestation by our registered public accounting firm pursuant
to temporary rules of theSecurities and Exchange Commission
that permit us to provide only management's report in thisannual report. Our registered public accounting firm will be required to
attest to ourmanagements assessment of internal control over
financial reporting beginning with our annualreport for
the year ended December 31, 2008.

Management
reported the following material weaknesses on its internal control over
financial reporting in the Companys annual report on Form 10-K for the period
ended December 31, 2006.

53

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We did
not have sufficient review of the selection and application of US GAAP to
significant non-routine and complex matters such as expected term and vesting
period calculations in accordance with FAS123R. Also there was inadequate review
and application of FAS 52 to the realization of the cumulative translation
adjustments resulting from the liquidation of the Swedish subsidiary and
inadequate review of the calculation of the fair value of equipment acquired in
connection with an outsourcing agreement.

We did not
have personnel with sufficient accounting and financial reporting expertise
resulting in insufficient oversight review of account analyses, transactions and
preparation of the financial statements in accordance with US GAAP and SEC
rules, specifically with regard to the classification of account balances such
as short-term investments, allowance for doubtful accounts, foreign income
taxes, and fixed assets.

We took the following steps during 2007
to remediate the above material weakness:

We
engaged an internationally reputed accounting firm as US GAAP advisors on a
retainer basis and such external firm provided US GAAP advisory services as
needed during the year. We worked with the external firm to evaluate and analyze
complex transactions from a US GAAP and SEC reporting perspective. We believe
that we have established appropriate controls in this process of consulting
with such external firm and as a result believe that this engagement constitutes
a material change in our internal control over financial reporting.

We have
determined that hiring an external internationally reputed accounting firm is
preferable to hiring an additional in-house US GAAP expert and
discontinued our efforts to hire internally. We also believe that we have
provided the existing members of the finance and accounting team sufficient
training on new accounting pronouncements and rules and provided additional
training on accounting treatment for non-routine or complex transactions to the
current members of finance and accounting team through external seminars and
training programs and workshops.

Except as
noted above, we believe that there were no changes in our internal control
over financial reporting during the quarter ended December 31, 2007, that
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

54

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PART III

**Item 10. Directors and
Executive Officers of the Registrant.**

The
discussion under the heading Directors and Executive Officers of the
Registrant in our definitive proxy statement for the 2008 Annual Meeting of
Shareholders is incorporated herein by reference to such proxy statement. We
adopted a Code of Business Conduct and Ethics (Code) in 2004. Such Code
applies to our officers, directors, and employees. A copy of the Code is
available on our website at www.intelligroup.com.If
the proxy statement is notfiled within 120 days after the end of our most recent fiscal
year, we will provide suchinformation by means of an amendment to this Annual Report on
Form 10-K.

**Item 11. Executive
Compensation.**

The
discussion under the heading Executive Compensation in our definitive proxy
statement for the 2008 Annual Meeting of Shareholders is incorporated herein by
reference to such proxy statement.If
the proxy statement is not filed within 120 days after the end of
ourmost recent
fiscal year, we will provide such information by means of an amendment to
thisAnnual Report
on Form 10-K.

**Item 12. Security Ownership
of Certain Beneficial Owners and Management.**

The
discussion under the heading Security Ownership of Certain Beneficial Owners
and Management in our definitive proxy statement for the 2008 Annual Meeting of
Shareholders is incorporated herein by reference to such proxy statement.If the proxy statement is not filedwithin 120 days after the end of our most
recent fiscal year, we will provide such information bymeans of an amendment to this Annual
Report on Form 10-K.

**Item 13. Certain
Relationships and Related Transactions.**

The
discussion under the heading Certain Relationships and Related Transactions in
our definitive proxy statement for the 2008 Annual Meeting of Shareholders is
incorporated herein by reference to such proxy statement.If
the proxy statement is not filed within 120 days after theend of our most recent fiscal
year, we will provide such information by means of an amendmentto this Annual Report on Form
10-K.

**Item 14. Principal
Accounting Fees and Services.**

The
discussion under the heading Principal Accounting Fees and Services in our
definitive proxy statement for the 2008 Annual Meeting of Shareholders is
incorporated herein by reference to such proxy statement.If
the proxy statement is not filed within 120 days after theend of our most recent fiscal
year, we will provide such information by means of an amendmentto this Annual Report on Form
10-K.

55

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Part IV

Item 15. Exhibits and Financial
Statement Schedules.

| | (a) |  | (1) |  | Financial
Statements.                                                                                                                                                                                                      
| | --- |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |  |     |  |                                                                                                                                                                                                                            
| |     |  |     |  | Reference is made to the Index to
      Financial Statements on Page 66.                                                                                                                                                   
| |     |  |     |  |                                                                                                                                                                                                                            
| |     |  | (2) |  | Financial Statement
      Schedules.                                                                                                                                                                                       
| |     |  |    
| |     |  |     |  | All financial
      statement schedules have been omitted as not required or inapplicable or
      because the required information is provided in the consolidated financial
      statements including the notes thereto.
| |     |  |    
| |     |  | (3) |  | Exhibits.                                                                                                                                                                                                                  
| |     |  |    
| |     |  |     |  | Reference is made to
      the Exhibit Index on Page 57.                                                                                                                                                                   

56

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EXHIBIT INDEX

|Exhibit No. |   | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|----------- | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|2           |   | Agreement and Plan of Merger of the Company
      and its wholly owned subsidiary Oxford Systems Inc. dated December 2, 1996
      (Incorporated by reference to the Company's Annual Report on Form 10-KSB
      for the year ended December 31, 1996.)                                                                                                                                                                                                                                                                                
|           
|3.1         |  | Amended and Restated Certificate of
      Incorporation dated December 27, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|           
|3.2         |   | Amended and Restated Bylaws. (Incorporated
      by reference to the Company's Registration Statement on Form SB-2
      (Registration Statement No. 333-5981) declared effective on September 26,
      1996.)                                                                                                                                                                                                                                                                                                                         
|           
|4.1         |   | Shareholder Protection Rights Agreement
      dated as of November 6, 1998, between the Company and American Stock
      Transfer & Trust Company which includes (I) the Form of Rights
      Certificate and (ii) the Certificate of Amendment to the Amended and
      Restated Certificate of Incorporation of Intelligroup, Inc. (Incorporated
      by reference to Exhibit No. 4.1 of the Company's Report on Form 8-K dated
      November 9, 1998, filed with the Securities and Exchange Commission on
      November 9, 1998.)
|           
|4.2         |   | Amendment dated September 29, 2004 to the
      Shareholder Protection Rights Agreement dated November 6, 2004.
      (Incorporated by reference to Exhibit No. 4.1 of the Companys Report on
      Form 8-K dated September 29, 2004, filed with the Securities and Exchange
      Commission on October 5, 2004.)                                                                                                                                                                                                                    
|           
|10.1        | * | 1996 Stock Plan, as amended, of the
      Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|           
|10.2        | * | 1996 Non-Employee Director Stock Option
      Plan. (Incorporated by reference to the Company's Registration Statement
      on Form SB-2 (Registration Statement No. 333-5981) declared effective on
      September 26, 1996.)                                                                                                                                                                                                                                                                                                        
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.3        | * | Form of Indemnification Agreement entered
      into by the Company and each of its Directors and officers. (Incorporated
      by reference to the Company's Registration Statement on Form SB-2
      (Registration Statement No. 333-5981) declared effective on September 26,
      1996.)                                                                                                                                                                                                                                          
|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.4        | * | Employment Agreement dated October 1, 1999
      between the Company and Nicholas Visco. (Incorporated by reference to the
      Companys Annual Report on Form 10-K for the year ended December 31,
      1999.) See Exhibit 10.23.                                                                                                                                                                                                                                                                                                   
|           
|10.5        | * | Employee's Invention Assignment and
      Confidentiality Agreement. (Incorporated by reference to the Company's
      Registration Statement on Form SB-2 (Registration Statement No. 333-5981)
      declared effective on September 26,
1996.)                                                                                                                                                                                                                                                                                       

57

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|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                         | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|10.6        |  | Services Provider Agreement by and between
      Oracle Corporation and the Company dated July 26, 1994. (Incorporated by
      reference to the Company's Registration Statement on Form SB-2
      (Registration Statement No. 333-5981) declared effective on September 26,
      1996.) See Exhibit 10.8.                                                                 
|           
|10.7        |  | Agreement by and between the Company and
      Intelligroup Asia Private Limited ("Intelligroup Asia") relating to
      operational control of Intelligroup Asia, with related agreements.
      (Incorporated by reference to the Company's Registration Statement on Form
      SB-2 (Registration Statement No. 333-5981) declared effective on September
      26, 1996.)
|           
|10.8        |  | Amendment No. 1 to Services Provider
      Agreement by and between Oracle Corporation and the Company dated December
      30, 1996. (Incorporated by reference to the Company's Annual Report on
      Form 10-KSB for the year ended December 31, 1996.) See Exhibit
      10.6.                                                                                           
|           
|10.9        |  | R/3 National Logo Partner Agreement by and
      between SAP America, Inc. and the Company dated as of April 29, 1997.
      (Incorporated by reference to the Company's Registration Statement on Form
      SB-2 (Registration Statement No. 333-29119) declared effective on June 26,
      1997.) See Exhibits 10.10, 10.14 and 10.24.                                    
|           
|10.10       |  | ASAP Partner Addendum to R/3 National Logo
      Partner Agreement between SAP America, Inc. and the Company effective July
      1, 1997 (amends existing R/3 National Logo Partner Agreement).
      (Incorporated by reference to the Company's Quarterly Report on Form
      10-QSB for the quarter ended September 30, 1997.) See Exhibits 10.9, 10.14
      and 10.24. 
|           
|10.11       |  | Implementation Partner Agreement between
      PeopleSoft, Inc. and the Company effective July 15, 1997. (Incorporated by
      reference to the Company's Quarterly Report on Form 10-QSB for the quarter
      ended September 30, 1997.) See Exhibit 10.13.                                                                                                                
|           
|10.12       |  | Lease Agreement between Alfieri-Parkway
      Associates, as Landlord, and Intelligroup, Inc., as Tenant, dated March
      17, 1998. (Incorporated by reference to the Company's Quarterly Report on
      Form 10-Q for the quarter ended March 31, 1998.)                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                               
|10.13       |  | Fifth Amendment to the Implementation
      Partner Agreement dated July 15, 1998, between the Company and PeopleSoft,
      Inc. See Exhibit 10.11.                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                               
|10.14       |  | Amendment to the National Implementation
      Partner Agreement dated as of January 1, 1999, between SAP America and the
      Company. See Exhibits 10.9, 10.10 and
10.24.                                                                                                                                                                                                  

58

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|Exhibit No. |   | Description of Exhibit                                                                                                                                                                                                                                                                                                  | 
|----------- | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|10.15       |   | Contribution Agreement by and between
      Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000.
      (Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1999.)                                                                               
|           
|10.16       |   | Distribution Agreement by and between
      Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000.
      (Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1999.)                                                                               
|           
|10.17       |   | Services Agreement by and between
      Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000.
      (Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1999.)                                                                                   
|           
|10.18       |   | Space Sharing Agreement by and among
      Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000.
      (Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1999.)                                                                                
|           
|10.19       |   | Tax Sharing Agreement by and between
      Intelligroup, Inc. and SeraNova, Inc. dated as of January 1, 2000.
      (Incorporated by reference to the Company's Annual Report on Form 10-K for
      the year ended December 31, 1999.)                                                                                
|           
|10.20       |   | Amended and Restated Revolving Credit Loan
      and Security Agreement among the Company, Empower, Inc. and PNC Bank,
      National Association. (Incorporated by reference to the Company's
      Quarterly Report on Form 10-Q for the quarter ended June 30,
      2000.)                                         
|           
|10.21       |   | Amended and Restated Promissory Note by and
      between the Company and SeraNova, Inc. dated as of May 31, 2000.
      (Incorporated by reference to the Company's Report on Form 8-K/A filed
      September 14, 2000.) See Exhibit 10.22.                                                                          
|            |   |                                                                                                                                                                                                                                                                                                                        
|10.22       |   | Agreement and Waiver with respect to Amended
      and Restated Promissory Note by and between the Company and SeraNova, Inc.
      dated as of September 29, 2000. (Incorporated by reference to the
      Company's Quarterly Report on Form 10-Q for the quarter ended September
      30, 2000.) See Exhibit 10.21.
|            |   |                                                                                                                                                                                                                                                                                                                        
|10.23       | * | First Amendment to Employment Agreement
      between the Company and Nicholas Visco dated November 1, 2000.
      (Incorporated by reference to the Companys Annual Report on Form 10-K for
      the year ended December 31, 2000.) See Exhibit 10.4.                                                               
|            |   |                                                                                                                                                                                                                                                                                                                        
|10.24       |   | mySap.com Partner-Services Addendum
      effective June 7, 2000 to R/3 National Logo Partner Agreement between SAP
      America, Inc. and the Company. (Incorporated by reference to the Companys
      Annual Report on Form 10-K for the year ended December 31, 2000.) See
      Exhibits 10.9, 10.10 and
10.14. 

59

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|Exhibit
      No. |   | Description of Exhibit                                                                                                                                                                                                                                                                                                                            | 
|----------------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|10.25             |   | Service Alliance Master
      Agreement and Addendums dated May 5, 2000 between PeopleSoft, Inc. and the
      Company. (Incorporated by reference to the Companys Annual Report on Form
      10-K for the year ended December 31, 2000.)                                                                                                      
|                 
|10.26             |   | First Amendment to Loan
      Documents and Waiver Agreement dated March 27, 2002 between the Company,
      Empower, Inc. and PNC Bank, National Association. (Incorporated by
      reference to the Company's Annual Report on Form 10-K for the year ended
      December 31, 2001.)                                                         
|                 
|10.27             | * | Amended and Restated
      Employment Agreement dated September 20, 2002 between the Company and
      Nagarjun Valluripalli. (Incorporated by reference to the Companys
      Quarterly Report on Form 10-Q for the quarter ended September 30,
      2002.)                                                                                   
|                 
|10.28             |   | Second Amendment to Loan
      Documents and Waiver Agreement dated January 6, 2003 between the Company,
      Empower, Inc. and PNC Bank, National Association. (Incorporated by
      reference to the Company's Annual Report on Form 10-K for the year ended
      December 31, 2002.)                                                       
|                 
|10.29             |   | Third Amendment to Loan
      Documents and Waiver Agreement dated July 31, 2003 between the Company,
      Empower, Inc. and PNC Bank, National Association. (Incorporated by
      reference to the Companys Current Report on Form 8-K dated July 31, 2003,
      filed with the Securities and Exchange Commission on August 5,
      2003.)
|                 
|10.30             |   | Agreement dated August 7,
      2003, by and between Intelligroup, Inc. and Ashok Pandey. (Incorporated by
      reference to the Companys Current Report on Form 8-K dated August 7,
      2003, filed with the Securities and Exchange Commission on August 12,
      2003.)                                                                  
|                 
|10.31             | * | Employment Agreement dated March 25, 2004
      between the Company and Christian Misvaer. (Incorporated by reference to
      the Companys Annual Report filed on Form 10-K for the year ended December
      31, 2003.                                                                                                                        
|                  |   |                                                                                                                                                                                                                                                                                                                                                  
|10.32             |   | Fourth Amendment to Loan
      Documents and Waiver Agreement dated October 22, 2003 between the Company,
      Empower, Inc. and PNC Bank, National Association. (Incorporated by
      reference to the Companys Quarterly Report on Form 10-Q for the quarter
      ended September 30, 2003.)                                               
|                  |   |                                                                                                                                                                                                                                                                                                                                                  
|10.33             | * | Separation Agreement
      between Nicholas Visco and Intelligroup, Inc. dated November 24, 2003.
      (Incorporated by reference to the Companys Current Report on Form 8-K
      dated November 24, 2003, filed with the Securities and Exchange Commission
      on November 24, 2003.)                                                     

60

---

|Exhibit No. |    | Description of Exhibit                                                                                                                                                                                                                                                                                                                                       | 
|----------- | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|10.34       |    | Waiver Agreement dated March 22, 2004
      between the Company, Empower, Inc. and PNC Bank, National Association.
      (Incorporated by reference to the Companys Annual Report on Form 10-K for
      the year ended December 31, 2003.)                                                                                                                
|           
|10.35       | *  | Employment Agreement effective as of April
      5, 2004 between the Company and David J. Distel. (Incorporated by
      reference to the Companys Current Report on Form
      8-K dated March 31, 2004, filed with the Securities and Exchange
      Commission on April 5, 2004.)                                                                       
|           
|10.36       | *  | Separation Agreement between the Company and
      Ed Carr. (Incorporated by reference to the Companys Current Report on
      Form 8-K dated March 31, 2004, filed with the Securities and Exchange
      Commission on April 5, 2004.)                                                                                                                   
|           
|10.37       | * | 2004 Equity Incentive Award
    Plan.                                                                                                                                                                                                                                                                                                                       
|           
|10.38       | *  | Employment Agreement dated July 26, 2004
      between the Company and Douglas Berto. (Incorporated by reference to the
      Companys Current Report on Form 8-K dated August 23, 2004, filed with the
      Securities and Exchange Commission on August 23, 2004.)                                                                                      
|           
|10.39       | *  | First Amendment to the 2004 Equity Incentive
      Award Plan. (Incorporated by reference to the Companys Current Report on
      Form 8-K dated September 29, 2004, filed with the Securities and Exchange
      Commission on October 5, 2004.)                                                                                                          
|           
|10.40       |    | Common Stock Purchase Agreement dated
      September 29, 2004 by and between the Company, SB Asia Infrastructure Fund
      LP and Venture Tech Assets Ltd. (Incorporated by reference to the
      Companys Current Report on Form 8-K dated September 29, 2004, filed with
      the Securities and Exchange Commission on October 5,
  2004.)          
|            |    |                                                                                                                                                                                                                                                                                                                                                             
|10.41       |    | Fifth Amendment to Loan Documents and Waiver
      Agreement dated September 29, 2004 between the Company, Empower, Inc. and
      PNC Bank, National Association. (Incorporated by reference to the
      Companys Current Report on Form 8-K dated September 29, 2004, filed with
      the Securities and Exchange Commission on October
      5, 2004.)
|            |    |                                                                                                                                                                                                                                                                                                                                                             
|10.42       | *  | Separation Agreement between the Company and
      David J. Distel dated October 15, 2004. (Incorporated by reference to the
      Companys Current Report on Form 8-K dated October
      15, 2004, filed with the Securities and Exchange Commission on October 15,
      2004.)                                                                         
|            |    |                                                                                                                                                                                                                                                                                                                                                             
|10.43       | *  | Separation Agreement between the Company and
      Douglas Berto dated December 6, 2004. (Incorporated by reference to the
      Companys Current Report on Form 8-K dated December 6, 2004, filed with
      the Securities and Exchange Commission on December 10,
  2004.)                                                                              

61

---



|Exhibit No. |   | Description of Exhibit                                                                                                                                                                                                                                                                                                                                       | 
|----------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|10.44       |   | Amendment No. 1 to the Common Stock Purchase
      Agreement dated September 29, 2004. (Incorporated by reference to the
      Companys Current Report on Form 8-K dated March
      25, 2005, filed with the Securities and Exchange Commission on March 25,
      2005.)                                                                                 
|           
|10.45       | * | Employment Agreement effective June 1, 2005
      between the Company and Madhu Poomalil. (Incorporated by reference to the
      Companys Current Report on Form 8-K dated June 2,
      2005, filed with the Securities and Exchange Commission on June 7,
      2005.)                                                                                  
|           
|10.46       | * | Second Amended and Restated Employment
      Agreement effective June 21, 2005 between the Company and Shirley Spoors.
      (Incorporated by reference to the Companys Current Report on Form 8-K
      dated June 21, 2005, filed with the Securities and Exchange Commission on
      June 27, 2005.)                                                   
|           
|10.47       | * | Employment Agreement effective July 1, 2005
      between the Company and Ranjit Prithviraj. (Incorporated by reference to
      the Companys Current Report on Form 8-K dated
      June 29, 2005, filed with the Securities and Exchange Commission on July
      5, 2005.)                                                                              
|           
|10.48       | * | Separation Agreement dated June 29, 2005
      between the Company and Christian Misvaer. (Incorporated by reference to
      the Companys Current Report on Form 8-K dated June 29, 2005, filed with
      the Securities and Exchange Commission on July 5,
      2005.)                                                                                 
|           
|10.49       | * | Independent Contractor Agreement dated July
      1, 2005 between the Company and Pontus, Inc. (Incorporated by reference to
      the Companys Current Report on Form 8-K dated
      June 29, 2005, filed with the Securities and Exchange Commission on July
      5, 2005.)                                                                            
|           
|10.50       | * | Employment Agreement effective June 30, 2005
      between the Company and Vikram Gulati. (Incorporated by reference to the
      Companys Current Report on Form 8-K dated June
      30, 2005, filed with the Securities and Exchange Commission on July 7,
      2005.)                                                                                 
|            |   |                                                                                                                                                                                                                                                                                                                                                             
|10.51       | * | Sixth Amendment to Loan Documents and Waiver
      Agreement dated September 30, 2005 between the Company, Empower, Inc. and
      PNC Bank, National Association. (Incorporated by reference to the
      Companys Current Report on Form 8-K dated September 30, 2005, filed with
      the Securities and Exchange Commission on October
      6, 2005.)
|            |   |                                                                                                                                                                                                                                                                                                                                                             
|10.52       | * | Second Amendment to the 2004 Equity
      Incentive Award Plan.                                                                                                                                                                                                                                                                                             

62

---



|Exhibit
      No. |   | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                               | 
|----------------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|10.53             |   | Common Stock Purchase
      Agreement dated March 30, 2006 by and between Intelligroup Inc., SB Asia
      Infrastructure Fund LP and Venture Tech Assets, Ltd. (Incorporated by reference to the Companys current report on Form
      8-K dated March 30, 2006 filed with the Securities and Exchange Commission
      on April 5, 2006.)                                                                        
|                 
|10.54             | * | First Amendment to the
      Employment Agreement dated June 30, 2005 between Intelligroup Inc. and
      Vikram Gulati. (Incorporated by reference to the Companys current report
      on Form 8-K dated April 6, 2006, filed with the Securities and Exchange
      Commission on April 13, 2006.)                                                                                                              
|                 
|10.55             |   | Second Amended and Restated
      Revolving Credit Loan and Security Agreement dated May 23, 2006 by and
      between Intelligroup, Inc., Empower Inc. and Steel City Capital Funding, a
      division of PNC Bank, National Association.(Incorporated by reference to the Companys current report on Form 8-K
      dated May 23, 2006 filed with the Securities and Exchange Commission on
      May 30, 2006.)
|                 
|10.56             |   | Second Amended and Restated
      Revolving Secured Note dated May 23, 2006. (Incorporated by reference to
      the Companys current report on Form 8-K dated May 23, 2006 filed with the
      Securities and Exchange Commission on May 30, 2006.)                                                                                                                                                              
|                 
|10.57             | * | Second Amendment to
      Employment Agreement dated June 30, 2005, between Intelligroup, Inc. and
      Vikram Gulati. (Incorporated by reference to the Companys current report
      on Form 8-K dated June 8, 2006 filed with the Securities and Exchange
      Commission on June 12, 2006.)                                                                                                                  
|                 
|10.58             | * | Third Amendment to the 2004
      Equity Incentive Award Plan.                                                                                                                                                                                                                                                                                                                                                      
|                 
|10.59             | * | Separation Agreement dated July 21, 2006
      by and between Intelligroup, Inc. and Madhu Poomalil. (Incorporated by
      reference to the Companys Current Report on Form
      8-K dated July 21, 2006, filed with the Securities and Exchange Commission
      on July 21, 2006.)                                                                                                                             
|                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.60             | * | Employment Agreement dated
      September 7, 2006 by and between Intelligroup, Inc. and Alok Bajpai.
      (Incorporated by reference to the Companys Current Report on Form 8-K dated September 7, 2006, filed with the
      Securities and Exchange Commission on September 7, 2006.)                                                                                                                          
|                  |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.61             | * | Amendment No.3 dated June
      8, 2007 to Employment agreement dated June 30, 2005 between Intelligroup,
      Inc. and Vikram Gulati. (Incorporated by reference to the Companys
      Current Report on Form 8-K dated June 8, 2007, filed with the Securities
      and Exchange Commission on June 13,
2007.)                                                                                                 

63

---



|Exhibit No. |    | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                            | 
|----------- | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|10.62       |    | Master Assignment Agreement between Novasoft
      Information Technology (Europe) Limited and Intelligroup Europe Limited
      dated June 8, 2007. (Incorporated by reference to
      the Companys Current Report on Form 8-K dated June 8, 2007, filed with
      the Securities and Exchange Commission on June 14,
    2007.)                                             
|           
|10.63       |    | Master Assignment Agreement between ISG
      Novasoft Technologies Limited and Intelligroup Asia Private Limited dated
      June 8, 2007. (Incorporated by reference to the Companys Current Report
      on Form 8-K dated June 8, 2007, filed with the Securities and Exchange
      Commission on June 14, 2007.)                                                          
|           
|10.64       |    | Non Compete Agreement between Novasoft
      Information Technology Corporation and Intelligroup Europe Ltd. Dated June
      8, 2007. (Incorporated by reference to the Companys Current Report on
      Form 8-K dated June 8, 2007, filed with the Securities and Exchange
      Commission on June 14, 2007.)                                                               
|           
|10.66       | * | Employment Agreement between Intelligroup
      Asia Pvt. Ltd. and Kalyan Sundaram Mahalingam.                                                                                                                                                                                                                                                                                   
|           
|10.67       |    | Amendment No.1 dated August 22, 2007 to
      Master Assignment Agreement between Novasoft Information Technology
      (Europe) Limited and Intelligroup Europe Limited dated June 8, 2007.
      (Incorporated by reference to the Companys Current Report on Form 8-K dated August 22, 2007, filed with the
      Securities and Exchange Commission on August 28,
    2007.)
|           
|10.68       |    | Amendment No.1 dated August 22, 2007 to
      Master Assignment Agreement between ISG Novasoft Technologies Limited and
      Intelligroup Asia Private Limited dated June 8, 2007. (Incorporated by
      reference to the Companys Current Report on Form
      8-K dated August 22, 2007, filed with the Securities and Exchange
      Commission on August 28, 2007.)       
|           
|10.69       |    | Amendment No.1 dated August 22, 2007 to Non Compete
      Agreement between Novasoft Information Technology Corporation and
      Intelligroup Europe Ltd. Dated June 8, 2007.                                                                                                                                                                                                   
|            |    |                                                                                                                                                                                                                                                                                                                                                                                  
|10.70       | *  | Amendment No.1 dated February 4, 2008 to
      Employment Agreement dated September 7, 2006 between Intelligroup, Inc.
      and Alok Bajpai. (Incorporated by reference to the Companys Current
      Report on Form 8-K dated February 4, 2008, filed with the Securities and
      Exchange Commission on February 4, 2008.)                                                 
|            |    |                                                                                                                                                                                                                                                                                                                                                                                  
|14          |    | Code of Business Conduct and Ethics.
      (Incorporated by reference to the Companys Annual Report on Form 10-K for
      the year ended December 31, 2003.)                                                                                                                                                                                                                   
|            |    |                                                                                                                                                                                                                                                                                                                                                                                  
|16.1        |    | Letter dated August 11, 2004 to the
      Securities and Exchange Commission from Deloitte & Touche LLP.
      (Incorporated by reference to the Companys Current Report on Form 8-K
      dated August 5, 2004, filed with the Securities and Exchange Commission on
      August 11, 2004.)                                                                                   
|           
|16.2        |    | Letter dated November 1, 2004 to the
      Securities and Exchange Commission from Deloitte & Touche LLP.
      (Incorporated by reference to the Companys Current Report on Form 8-K
      dated October 26, 2004, filed with the Securities and Exchange Commission
      on November 1, 2004.)                                                                               
|           
|16.3        |    | Letter dated April 13, 2007 to the
      Securities and Exchange Commission from JH Cohn LLP. (Incorporated by
      reference to the Companys Current Report on Form 8-K dated April 12, 2007, filed with the Securities and Exchange
      Commission on April 17, 2007.)                                                                                                     
|           
|21          |   | Subsidiaries of the
  Registrant.                                                                                                                                                                                                                                                                                                                                                
|           
|23          |   | Consent of Ernst & Young
    LLP                                                                                                                                                                                                                                                                                                                                                 
|           
|23.1        |   | Consent of J.H. Cohn LLP                                                                                                                                                                                                                                                                                                                                                         
|           
|31.1        |   | Certifications of Chief Executive Officer Pursuant to Rule
      13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002                                                                                                                                                                                                                           
|            |    |                                                                                                                                                                                                                                                                                                                                                                                  
|31.2        |   | Certifications of Chief Financial Officer
      Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                           
|            |    |                                                                                                                                                                                                                                                                                                                                                                                  
|32.1        |   | Certifications of Chief Executive Officer
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                   
|            |    |                                                                                                                                                                                                                                                                                                                                                                                  
|32.2        |   | Certifications of Chief Financial Officer
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002                                                                                                                                                                                                                   

|* |  | A management contract or
      compensatory plan or arrangement required to be filed as an exhibit
      pursuant to Item 15(c) of Form 10-K.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Filed herewith. All other
      exhibits previously filed.                                                                                   

64

---

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 31st day of March 2008.

INTELLIGROUP, INC.By:
    /s/ Vikram GulatiVikram
      GulatiChief Executive
      Officer


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 date indicated.

|Signature               |  |                               | Title |          |  | Date | 
|----------------------- |  | ----------------------------- | ----- | -------- |  | ---- | 
|                       
|/s/ Vikram Gulati       |  | Chief
      Executive Officer |       | 03/28/07 | 
|Vikram
      Gulati     |  | and
      Director            |       |         
|                       
|/s/ Alok
    Bajpai     |  | Chief
      Financial Officer |       | 03/28/07 | 
|Alok
      Bajpai       |  |                               |       |         
|                       
|                       
|/s/ Ravi
    Adusumalli |  | Director                      |       | 03/28/07 | 
|Ravi
      Adusumalli   |  |                               |       |         
|                       
|                       
|/s/ Ajit
    Isaac      |  | Director                      |       | 03/28/07 | 
|Ajit
      Isaac        |  |                               |       |         
|                       
|                       
|                        |  | Director                      |       | -        | 
|Srinivasa
      Raju    |  |                               |       |         
|                       
|                       
|                        |  | Director                      |       | -        | 
|Sandeep
      Reddy     |  |                               |       |         
|                       
|                       
|/s/ Babar
    Khan      |  | Director                      |       | 03/28/07 | 
|Babar
      Khan        |  |                               |       |         

65

---

INTELLIGROUP,
INC.INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                     | Page 
|-------------------------------------------------------------------- | -----
|Consolidated Financial Statements:                                   |      
|Reports of
      Independent Registered Public Accounting Firms      | 67-68
|Consolidated Balance Sheets as of December 31, 2007 and
      2006   | 69   
|Consolidated
      Statements of Operations and Comprehensive Income |      
|(Loss) for the years ended December 31, 2007, 2006 and
      2005    | 70   
|Consolidated Statements of Changes in Shareholders Equity
      for |      
|the years ended December 31, 2007, 2006 and
      2005               | 71   
|Consolidated
      Statements of Cash Flows for the years ended      |      
|December 31, 2007, 2006 and 2005                                     | 72   
|Notes to Consolidated Financial Statements                           | 73   

66

---

**Report of Independent Registered
Public Accounting Firm**

To the Board of Directors and
Shareholders of Intelligroup, Inc.

We have audited the accompanying
consolidated balance sheet of Intelligroup, Inc. (Intelligroup) as of December
31, 2007, and the related consolidated statements of operations and
comprehensive income (loss), changes in shareholders equity and cash flows for
the year ended December 31, 2007. These financial statements are the
responsibility of Intelligroups management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Companys internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of Intelligroup, Inc. at December 31, 2007, and
the consolidated results of its operations and its cash flows for the year ended
December 31, 2007, in conformity with U.S. generally accepted accounting
principles.

As discussed in Note 2 to the financial
statements, Intelligroup, Inc. changed its method of accounting for uncertainty
in income taxes effective January 1, 2007.

/s/ Ernst & Young LLP

Metropark, New Jersey

March 10, 2008

67

---

Report of Independent
Registered Public Accounting Firm

To the Board of Directors
and ShareholdersIntelligroup, Inc.

We have audited the
accompanying consolidated balance sheet of Intelligroup, Inc. and Subsidiaries
(the Company) as of December 31, 2006 and the related consolidated statements
of operations and comprehensive income (loss), changes in shareholders equity
and cash flows for years ended December 31, 2006 and 2005. 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 the standards of the Public Company Accounting Oversight Board
(United States). 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 consolidated financial position of the Company as of December 31, 2006 and
their consolidated results of operations and cash flows for the years ended
December 31, 2006 and 2005 in conformity with accounting principles generally
accepted in United States of America.

As discussed in Note 2 to
the financial statements filed in the Form 10-K dated March 29 2007 , the
Company changed the manner in which it accounts for share-based compensation in
the year ended December 31, 2006.

As discussed in Note 8 to
the financial statements filed in the Form 10-K dated March 29 2007, the Company
may be exposed to a significant potential tax liability.

/s/ J.H. Cohn
LLP

Roseland, New
JerseyFebruary 16, 2007

68

---

INTELLIGROUP, INC.CONSOLIDATED
BALANCE SHEETSDECEMBER 31, 2007 AND
2006(in thousands except par
value)

|                                                                                | December 31, |         | December 31,
|------------------------------------------------------------------------------- | ------------ | ------- | ------------
|                                                                                | 2007         |         | 2006        
|ASSETS                                                                          |              |         |             
|CURRENT
      ASSETS                                                            |              |         |             
|Cash and cash equivalents                                                       | $            | 8,419   |             
|Short-term investments                                                          |              | -       |             
|Accounts receivable,
      less allowance for doubtful accounts of              |              |         |             
|$1,240 and $991 at December 31, 2007 and
      2006,                            |              |         |             
|respectively                                                                    |              | 24,493  |             
|Unbilled services, less allowance
      for doubtful accounts of $911 and $891  |              |         |             
|at
      December 31, 2007 and 2006                                             |              | 11,393  |             
|Deferred tax asset,
      current portion                                       |              | 589     |             
|Prepaid expenses and Prepaid
      Taxes                                        |              | 1,567   |             
|Other current
      assets                                                      |              | 1,965   |             
|Total current assets                                                            |              | 48,426  |             
|                                                                               
|Property and equipment, net                                                     |              | 6,470   |             
|Goodwill and
      Intangibles                                                  |              | 3,034   |             
|Restricted Cash                                                                 |              | 4,848   |             
|Deferred taxes
      and other assets                                           |              | 2,684   |             
|                                                                               
|Total assets                                                                    | $            | 65,462  |             
|                                                                               
|LIABILITIES AND SHAREHOLDERS' EQUITY                                            |              |         |             
|CURRENT
      LIABILITIES                                                       |              |         |             
|Line of credit
      borrowings                                                 | $            | 6,566   |             
|Accounts payable                                                                |              | 3,542   |             
|Accrued payroll and
      related taxes                                         |              | 11,645  |             
|Accrued expenses and other current
      liabilities                            |              | 4,878   |             
|Current portion of
      deferred revenue                                       |              | 3,345   |             
|Current portion of obligations
      under capital leases                       |              | 457     |             
|Total current liabilities                                                       |              | 30,433  |             
|                                                                               
|Obligations undercapital leases, net of current
      portion                   |              | 375     |             
|Deferred
      revenue, net of current portion                                  |              | 691     |             
|Other long-term liabilities                                                     |              | 579     |             
|Total liabilities                                                               | $            | 32,078  |             
|                                                                               
|Commitments and contingencies                                                   |              |         |             
|                                                                               
|Shareholders' Equity                                                            |              |         |             
|Preferred stock, $.01 par value,
      5,000 shares authorized, none            |              |         |             
|issued or outstanding                                                           | $            | -       |             
|Common stock, $.01 par
      value, 50,000 shares authorized                    |              |         |             
|at December 31, 2007 and 2006, respectively, and
      42,160 and 41,933        |              |         |             
|shares issued and outstanding at December 31, 2007
      and 2006, respectively |              | 421     |             
|Additional paid-in
      capital                                                |              | 71,119  |             
|Accumulated
      deficit                                                       |              | (40,789 | )           
|Accumulated other comprehensive
      income                                    |              | 2,633   |             
|Total shareholders' equity                                                      |              | 33,384  |             
|                                                                               
|Total liabilities and shareholders'
      equity                                | $            | 65,462  |             

69

---

INTELLIGROUP,
INC.CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)FOR THE YEARS ENDED DECEMBER 31,
2007, 2006 AND 2005(in thousands
except per share data)

|                                              | 2007 |         | 2006 |  | 2005
|--------------------------------------------- | ---- | ------- | ---- |  | ----
|Revenue                                       | $    | 145,066 |      |  | $   
|Cost of
      revenue                         |      | 105,351 |      |  |     
|Gross profit                                  |      | 39,715  |      |  |     
|                                             
|Selling, general and administrative expenses  |      | 34,055  |      |  |     
|Depreciation and
      amortization           |      | 2,472   |      |  |     
|Total operating expenses                      |      | 36,527  |      |  |     
|                                             
|Operating Income / (Loss)                     |      | 3,188   |      |  |     
|                                             
|Interest
      income                         |      | 133     |      |  |     
|Interest expense                              |      | (792    | )    |  |     
|Other
      income                            |      | 1,155   |      |  |     
|                                             
|Income / (Loss) before income taxes           |      | 3,684   |      |  |     
|Provision for
      (benefit of) income taxes |      | 720     |      |  |     
|Net Income / (Loss)                           | $    | 2,964   |      |  | $   
|                                             
|Net Income / (Loss) per share:                |      |         |      |  |     
|Basic Income / ( loss) per share              |      | 0.07    |      |  |     
|Diluted Income / ( loss) per share            | $    | 0.07    |      |  | $   
|                                             
|Weighted average number of common shares      |      |         |      |  |     
|Outstanding - Basic                           |      | 42,026  |      |  |     
|Outstanding - Diluted                         |      | 42,115  |      |  |     
|                                             
|Comprehensive income (loss)                   |      |         |      |  |     
|Net Income / (loss)                           | $    | 2,964   |      |  | $   
|Other comprehensive income (loss)             |      |         |      |  |     
|Currency translation adjustments              |      | 2,607   |      |  |     
|                                             
|Comprehensive Income / ( loss)                | $    | 5,571   |      |  | $   

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

70

---

INTELLIGROUP,
INC.CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITYFOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND
2005(USD in thousands)

|                                      |              |  |         |  |             |  |               |   |               | Accumulated |        |       |       
|------------------------------------- | ------------ |  | ------- |  | ----------- |  | ------------- | - | ------------- | ----------- | ------ | ----- | ------
|                                      |              |  |         |  | Additional  |  |               |   |               | Other       |        | Total
|                                      | Common Stock |  | Paid-in |  | Accumulated |  | Comprehensive |   | Shareholders'
|                                      | Shares       |  | Amount  |  | Capital     |  | Deficit       |   | Income (Loss) |             | Equity
|Balance, December 31, 2004            | 35,103       |  | 351     |  | 58,012      |  | (33,455       | ) |               | (261        | )      |       | 24,647
|Stock
      compensation expense      |              |  |         |  | 125         |  |               |   |               |             |        |       | 125   
|Currency translation adjustment       | -            |  | -       |  | -           |  | -             |   |               | (291        | )      |       | (291  
|Net
      loss                        | -            |  | -       |  | -           |  | (6,591        | ) |               | -           |        |       | (6,591
|Balance, December 31, 2005            | 35,103       |  | 351     |  | 58,137      |  | (40,046       | ) |               | (552        | )      |       | 17,890
|Stock
      compensation expense      |              |  |         |  | 1,611       |  | -             |   |               | -           |        |       | 1,611 
|Currency translation adjustment       | -            |  | -       |  | -           |  | -             |   |               | 578         |        |       | 578   
|Exercise of
      stock options       | 163          |  | 1       |  | 244         |  | -             |   |               | -           |        |       | 245   
|Issuance of common stock in a private |              |  |         |  |             |  |               |   |               |             |        |       |       
|placement                             | 6,667        |  | 67      |  | 9,710       |  | -             |   |               | -           |        |       | 9,777 
|Net
      loss                        | -            |  | -       |  | -           |  | (3,707        | ) |               | -           |        |       | (3,707
|Balance, December 31, 2006            | 41,933       |  | 419     |  | 69,702      |  | (43,753       | ) |               | 26          |        |       | 26,394
|Stock
      compensation expense      | -            |  | -       |  | 1,127       |  | -             |   |               | -           |        |       | 1,127 
|Currency translation adjustment       | -            |  | -       |  | -           |  | -             |   |               | 2,607       |        |       | 2,607 
|Exercise of
      stock options       | 227          |  | 2       |  | 290         |  | -             |   |               | -           |        |       | 292   
|Net Income                            | -            |  | -       |  | -           |  | 2,964         |   |               | -           |        |       | 2,964 
|Balance,
      December 31, 2007      | 42,160       |  | 421     |  | 71,119      |  | (40,789       | ) |               | 2,633       |        |       | 33,384

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

71

---

INTELLIGROUP,
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWSFOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005(in
thousands)

|                                                                             |  | December 31, |        | December 31, |  | December 31,
|---------------------------------------------------------------------------- |  | ------------ | ------ | ------------ |  | ------------
|                                                                             |  | 2007         |        | 2006         |  | 2005        
|Cash flows from operating activities:                                        |  |              |        |              |  |             
|Net Income / (Loss)                                                          |  | $            | 2,964  |              |  | $           
|Adjustments to reconcile net loss to net                                     |  |              |        |              |  |             
|cash provided by (used in) operating
      activities:                       |  |              |        |              |  |             
|Depreciation and amortization                                                |  |              | 2,849  |              |  |             
|Provision for doubtful accounts and
      advances                           |  |              | 475    |              |  |             
|Stock compensation expense                                                   |  |              | 1,127  |              |  |             
|Exchange (gain) loss                                                         |  |              | 1,169  |              |  |             
|Deferred taxes                                                               |  |              | (158   | )            |  |             
|Changes in
      operating assets and liabilities:                           |  |              |        |              |  |             
|Accounts receivable                                                          |  |              | (3,975 | )            |  |             
|Unbilled services                                                            |  |              | (1,767 | )            |  |             
|Prepaid expenses and
      other current assets                              |  |              | (568   | )            |  |             
|Other assets                                                                 |  |              | 156    |              |  |             
|Restricted
      Cash                                                        |  |              | (3,957 | )            |  |             
|Accounts payable                                                             |  |              | 240    |              |  |             
|Accrued payroll and related taxes                                            |  |              | (44    | )            |  |             
|Accrued expenses and other current
      liabilities                         |  |              | 40     |              |  |             
|Deferred revenue and advanced
      payments                                 |  |              | 788    |              |  |             
|Income taxes payable                                                         |  |              | (244   | )            |  |             
|Other long-term liabilities                                                  |  |              | 469    |              |  |             
|                                                                            
|Net cash provided by (used in) operating activities                          |  |              | (436   | )            |  |             
|                                                                             |  |              |        |              |  |             
|Cash flows from investing activities:                                        |  |              |        |              |  |             
|Purchase of property and equipment                                           |  |              | (2,840 | )            |  |             
|Proceeds from sale of equipment                                              |  |              | 107    |              |  |             
|Purchases of
      investments                                               |  |              | (6,428 | )            |  |             
|Proceeds from sale of Investments                                            |  |              | 7,250  |              |  |             
|Acquisition of businesses                                                    |  |              | (3,058 | )            |  |             
|                                                                             |  |              |        |              |  |             
|Net cash used in investing activities                                        |  |              | (4,969 | )            |  |             
|                                                                             |  |              |        |              |  |             
|Cash flows from financing activities:                                        |  |              |        |              |  |             
|Principal payments under capital leases                                      |  |              | (742   | )            |  |             
|Net proceeds from
      private placement                                    |  |              | -      |              |  |             
|Proceeds from exercise of stock options                                      |  |              | 292    |              |  |             
|Net change in line of credit
      borrowings                                |  |              | 1,630  |              |  |             
|Net cash
      provided by (used in )financing activities                    |  |              | 1,180  |              |  |             
|Effect of foreign currency exchange rate changes on
      cash               |  |              | 367    |              |  |             
|                                                                            
|Net increase (decrease) in cash and cash equivalents                         |  |              | (3,858 | )            |  |             
|Cash and cash
      equivalents - beginning of year                          |  |              | 12,277 |              |  |             
|Cash and cash equivalents - end of year                                      |  | $            | 8,419  |              |  | $           
|                                                                             |  |              |        |              |  |             
|Supplemental disclosures of cash flow information:                           |  |              |        |              |  |             
|Cash paid for income taxes                                                   |  | $            | 1,012  |              |  | $           
|Cash paid for interest                                                       |  | $            | 775    |              |  | $           
|                                                                            
|Supplemental disclosures of noncash investing and financing
      activities |  |              |        |              |  |             
|Fair value of property and equipment received for future
      services      |  | $            | -      |              |  | $           
|Property and equipment acquired by capital
      lease                       |  | $            | 328    |              |  | $           

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

72

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

NOTE 1-ORGANIZATION AND BASIS OF PRESENTATION

Intelligroup, Inc., together with its subsidiaries (Intelligroup or the
Company) is a global provider of strategic IT outsourcing services.
Intelligroup develops implements and supports information technology solutions
for global corporations and public sector organizations.

The
Company was incorporated in New Jersey in October 1987 under the name
Intellicorp, Inc. to provide systems integration and custom software development
services. The Companys name was changed to Intelligroup, Inc. in July 1992. In
March 1994, the Company acquired Oxford Systems Inc. (Oxford). On December 31,
1996, Oxford was merged into the Company and ceased to exist as an independent
entity. In October 1996, the Company consummated its initial public offering of
its common stock (Common Stock).

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Principles of
Consolidation

The
accompanying consolidated financial statements include the accounts of
Intelligroup, Inc. and its wholly owned subsidiaries. All significant
inter-company balances and transactions have been eliminated in consolidation.

Use of
Estimates

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

Cash and Cash
Equivalents

The
Company considers all highly liquid debt instruments and other short-term
investments with a maturity of three months or less, when purchased, to be cash
equivalents.

The
Company maintains cash and cash equivalent balances at several financial
institutions that are insured by the Federal Deposit Insurance Corporation up to
$100,000. The Company maintains cash balances in excess of insured
amounts.

An amount
of $5.2 million can become restricted if a default or event of default on the
outstanding line of credit occurs and is continuing as per the terms of the
Second Amended and Restated Revolving Credit Loan and Security Agreement,
entered into on May 23, 2006.

Allowance for Doubtful
Accounts

The
Company provides an allowance for doubtful accounts, which is based upon a
review of outstanding receivables as well as historical collection information.
Credit is granted to substantially all customers on an unsecured basis. In
determining the amount of the allowance, management is required to make certain
estimates and assumptions. Activity in the allowance for doubtful accounts is as
follows (in thousands):

73

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)



|             |  | Balance at   |        | Charged to |          |            |           |  
|------------ |  | ------------ | ------ | ---------- | -------- | ---------- | --------- | -
|Year Ended   |  | beginning of |        | costs and  |          | Write-offs |           |  
|December 31, |  |              | year   |            | expenses |            | and other |  
|2005         |  | $            | (1,627 | )          |          | $          | (40       | )
|2006         |  |              | (1,329 | )          |          |            | (1,291    | )
|2007         |  |              | (1,882 | )          |          |            | (373      | )

(1) Includes a
reserve for unbilled services of $911 and $891 as of December 31, 2007 and 2006
respectively.

Property and
Equipment

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

Goodwill and Other
Intangibles

The Company does not amortize
goodwill but instead tests goodwill at the reporting unit level for impairment
at least annually or as circumstances warrant. If impairment is indicated, a
write down to fair value (normally measured discounting estimated cash flows) is
recorded. Other intangibles represent primarily customer relationships which are
amortized on a straight line basis over their estimated useful lives.

Recoverability of Long-Lived
Assets

The
Company reviews the recoverability of its long-lived assets on a periodic basis
whenever events and changes in circumstances have occurred which may indicate a
possible impairment. The assessment for potential impairment is based primarily
on the Companys ability to recover the carrying value of its long-lived assets
from expected future cash flows from its operations on an undiscounted basis. If
such assets are determined to be impaired, the impairment recognized is the
amount by which the carrying value of the assets exceeds the fair value of the
assets. Property and equipment to be disposed of by sale is carried at the lower
of the then current carrying value or fair value less estimated costs to sell.

74

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

Revenue
Recognition

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

The
Company also generates revenue from fixed-price and fixed-time contracts.
Revenue generated from most fixed-price contracts, including most application
management and support contracts, is recognized ratably over the contract term.
Certain fixed price contracts are for implementation services for which
specifications are provided by the customer. The scope of the work is usually
defined in terms of overall deliverables and the revenue for such work is
ultimately earned by achieving the deliverables. The Company considers the
performance of service towards the planned deliverable as partial execution of
the deliverable and hence the revenue generated from such fixed-price contracts
is recognized using the percentage of completion (POC) method as the percentage
of completion method recognizes the legal and economic results of contract
performance on a timely basis. This method of accounting relies on estimates of
total expected contract revenues and costs.

This
method is used because reasonably dependable estimates of the revenue and costs
applicable to various stages of a contract can be made, based on historical
experience and milestones set in the contract. The Companys project delivery
and business unit finance personnel continually review labor hours incurred and
estimated total labor hours, which may result in revisions to the estimated
amount of recognized revenue for the contract. Changes in estimates are
accounted for in the period of change. If the Company does not accurately
estimate the resources required or the scope of work to be performed for a
contract or if the Company does not manage the project properly within the
planned time period, then a loss may be recognized on the contract. Losses are
recorded in the period when they become known, and estimated through the
completion of the contract.

The
Company occasionally derives revenue from projects involving multiple
revenue-generating activities. If a contract involves the provision of multiple
service elements, total estimated contract revenue is allocated to each element
based on the fair value of each element. The amount of revenue allocated to each
element is limited to the amount that is not contingent upon the delivery of
another element in the future. Revenue for each element is then recognized
depending upon whether the contract is a time-and-materials contract or a
fixed-price, fixed-time contract.

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

Unbilled
services represent services provided which are billed subsequent to the period
end in accordance with the contract terms. All unbilled amounts are expected to
be billed and collected within the following 12 months

Deferred
revenue represents amounts billed to customers but not yet earned or included as
revenue. Such amounts are anticipated to be recorded as revenue as services are
performed in subsequent periods.

75

---

INTELLIGROUP,
INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

Derivative
Instruments

During
2007 the Company entered into foreign currency derivative contracts to manage a
portion of foreign currency risk related to U.S. Dollar denominated asset
balances of its Indian subsidiary. The foreign currency derivative contract is
marked- to- market and recorded at fair value with unrealized gains and losses
in the caption Other Income (expense) in the Company consolidated statement of
operations and comprehensive income (loss). During the year ended December 31,
2007 the Company entered into foreign currency European Options amounting to
$63.5 million and foreign currency forward contract totaling $4.5 million to
sell U.S Dollars for Indian Rupees. As of December 31, 2007, $40.0 million of
its European Options contract remain which are expected to be settled by May,
2010. These contracts are expected to be settled monthly over the period until
the maturity date. The European Option contracts include an option for the
Company to settle the option if the contracts rates are better than the
prevalent spot rates.

At December 31, 2007 summary
information about the foreign exchange options is as follows:

Option
      ContractsNotional
      Amount
    $40
      MillionRates
    INR 40.15 -
      43.45Effective
      Date
    5/18/07 and
      11/28/07Maturity
      Dates
    1/28/08 to
      05/26/10Fair
      Value
    $1.3
      Million


The fair value of the derivatives is
included under Other Current Assets on the Balance Sheet as at December 31,
2007.

Share-Based Compensation
Plans

The
Companys share-based compensation plans are described in Note 7. The Company
adopted the provisions of Statement of Financial Accounting Standards (SFAS)
No. 123 (Revised 2004), Share-Based Payment, (SFAS No. 123R) on January 1,
2006, using the modified prospective transition method. Under this method,
share-based compensation expense recognized in the consolidated statement of
operations and comprehensive loss for the years ended December 31, 2006 and 2007
includes compensation expense for all share-based payments granted prior to, but
not yet vested, as of January 1, 2006, based on the grant date fair value
originally estimated in accordance with the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123).

The
Company recognizes compensation expense for all share-based payment awards based
on the grant date fair value estimated in accordance with the provisions of SFAS
No. 123R. Because the Company elected to use the modified prospective transition
method, results for prior periods have not been restated.

Prior to
the adoption of SFAS No. 123R, share-based employee compensation expense related
to stock options was not recognized in the consolidated statement of operations
and comprehensive loss if the exercise price of the option was at least equal to
the market price of common stock on the grant date, in accordance with the
measurement and recognition provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, as permitted by SFAS No.
123. As a result, the recognition of share-based compensation expense was
generally limited to the expense attributed to modifications of granted options.
In accordance, with SFAS No. 123 and Statement of Financial

76

---

INTELLIGROUP,
INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

Accounting Standards No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure, (SFAS
No. 148) the Company provided pro forma net income or loss and net earnings or
loss per common share disclosures for each period prior to the adoption of SFAS
No 123R as if it had applied the fair value-based method in measuring
compensation expense for all share-based compensation plans, including stock
options. During 2006, the Company has made certain adjustments to the fair value
of options granted prior to January 1, 2006 for the years ended December 31,
2005. These adjustments resulted in an improvement to previously reported pro
forma net loss of $0.5 million for the year ended December 31, 2005. Had
compensation costs for stock-based compensation plans been accounted for using
the fair value method of accounting described by SFAS No. 123, net loss and
basic and diluted loss per common share, as restated, for year ended December
31, 2005 would have been as follows (in thousands, except per share data):

2005
    
    2005
    
    2005Asoriginally
    
    
    
    
    Asreported
    
    Adjustments
    
    AdjustedNet loss - as reported
    $
    (6,591
    )
    
    $
    
    
    $
    (6,591
    )Add: Total stock-basedemployee compensationexpense using intrinsic valuemethod included in net lossabove, net of related tax effects
    
    125
    
    
    
    
    
    
    125Deduct: Total stock-basedemployee compensationexpense determined under fairvalue based method forawards, net of related taxeffects
    
    (1,994
    )
    
    
    509
    
    
    (1,485
    )Net income
      (loss) - pro forma
    $
    (8,460
    )
    
    $
    509
    
    $
    (7,951
    )Loss per common share - basicand diluted:As reported
    $
    (0.19
    )
    
    $
    -
    
    $
    (0.19
    )Pro
      forma
    $
    (0.24
    )
    
    $
    0.01
    
    $
    (0.23
    )


Currency
Translation

For
subsidiaries outside the United States that prepare financial statements in
currencies other than the U.S. dollar, the Company translates income and expense
amounts at average exchange rates for the year, translates assets and
liabilities at year-end exchange rates and equity at historical rates. The
Company records these translation adjustments as accumulated other comprehensive
income (loss). Gains and losses from foreign currency transactions are included
in other income (expense) in the results of operations. For the year ended
December 31, 2007 the Company recorded approximately $0.5 million as transaction
gains, and for the years ended December 31 2006 and December 31 2005, the
Company recorded approximately $0.4 million each in transaction losses, as a
result of currency translation.

77

---

INTELLIGROUP,
INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

Concentrations

For the
years ended December 31, 2007, 2006 and 2005, approximately 76%, 72% and 70% of
revenue, respectively, was derived from projects in which the Companys
personnel implemented, extended, maintained, managed or supported software
developed by SAP.

The Company 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, 2007,
2006 and 2005, the Company's ten largest customers accounted for in the
aggregate approximately 41%, 49% and 49% of the Companys revenue, respectively.
During 2006 and 2005, one customer, various businesses of the General Electric
Company, accounted for more than 10% of revenue, but during the year 2007 no
single customer accounted for more than 10% of total revenues. As of December
31, 2007 and 2006, one customer accounted for 15% and 16%, respectively, of
accounts receivable.

A portion
of the Companys revenue was generated by providing supplemental resources for
consulting teams assembled by other information technology consulting firms or
directly to the end-customer. For the years ended December 31, 2007, 2006 and
2005, 18%, 21% and 12%, respectively, of the Company's revenue was generated by
providing supplemental resources directly to the end-customer or as part of a
consulting team assembled by another information technology consulting firm.
There can be no assurance that such information technology consulting firms will
continue to engage the Company in the future at current levels of retention, if
at all.

For the
years ended December 31, 2007, 2006 and 2005, approximately 8%, 13% and 21% of
revenue, respectively, was derived from projects in which the Companys
personnel implemented, extended, maintained, managed or supported software
developed by PeopleSoft.

For the
years ended December 31, 2007, 2006 and 2005, approximately 7%, 7% and 3% of
revenue, respectively, was derived from projects in which the Companys
personnel implemented, extended, maintained, managed or supported software
developed by Oracle.

For the
years ended December 31, 2007, 2006 and 2005, approximately 6%, 5% and 5% of
revenue, respectively, was derived from projects in which the Companys
personnel implemented, extended, maintained, managed or supported e-Business
related software.

Fair Value of Financial
Instruments

The
carrying amount reported in the consolidated balance sheet for cash and cash
equivalents, accounts receivable, unbilled services, accounts payable, accrued
expenses, line of credit and obligations under capital leases approximate fair
value because of the immediate or short-term maturity of these financial
instruments.

78

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

Income
Taxes

The
income tax provision (benefit) is computed based on the enacted tax laws.
Deferred income taxes are recognized in accordance with the provisions of FASB
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, (SFAS 109) and are determined based upon the tax consequences in
future years of differences between the tax basis of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates. Provisions have not been made for income taxes or foreign
withholding taxes on cumulative earnings of foreign subsidiaries because such
earnings will either not be subject to any such taxes or are intended to be
indefinitely reinvested in those operations. It is not practicable to determine
the tax liability, if any that would be payable if such earnings were not
reinvested indefinitely. A valuation allowance has been established for a
portion of the Companys net deferred tax assets, as the benefit associated with
these assets is not more likely than not realizable.

Effective
January, 1 2007, the Company adopted provisions of FIN 48 Accounting for
Uncertainty in Income Taxes- an Interpretation of FASB Statement No- 109. FIN
48 contains a two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with the statement of Financial Accounting
Standard No-109. Accounting for Income Taxes (SFAS 109). The first step is to
evaluate the tax position for recognition by determining if the weight of
available evidence indicates that it is more likely than not that the position
will be sustained on audit, including resolution of related appeals or
litigation process, if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized upon ultimate
settlement. The cumulative effect on adoption of FIN 48 is to be recorded as an
adjustment to the opening balance of accumulated earnings / deficit.

The
adoption of FIN 48 had no significant impact on the results of operations and
the financials position for the twelve month period ended December 31, 2007 and
no adjustment has been recorded to the opening balance of accumulated deficit.
The total amount of gross unrecognized tax benefit as of the date of the
adoption was $0.5 million and the total amount of gross unrecognized tax
benefits was $0.2 million as of December 31, 2007. Any recognition of these tax
benefits in future would impact the Companys effective tax rate. The Company
includes interest and penalties related to its uncertain tax positions as a
component of income tax expense.

Earnings /(Loss) Per
Share

Basic Earnings / (Loss) per share
(EPS) is computed by dividing the net income / (loss) by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
include additional dilution from potential common stock, such as stock issuable
pursuant to the exercise of stock options and warrants. Potential common stock
is not included in the computation of diluted earnings per share when the
exercise price of the options exceeds the current market value or when the
Company reports a loss because to do so would be anti-dilutive for the periods
presented.

Options
to purchase 1,359,000, 3,912,000 and 4,001,000, shares of Common Stock at
December 31, 2007, 2006 and 2005, respectively, were not included in the
computation of diluted EPS because inclusion would have been anti-dilutive. A
reconciliation of the weighted average number of shares used to compute basic earnings (loss) per share to the number used to
compute fully diluted earnings (loss) per share follows:

79

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

in
      thousands2007Weighted Average number of basic shares
    42,026Add: Dilutions
      from Stock Options
    89Weighted Average number of Diluted shares
    42,115


Recent Issued Accounting
Standards

In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 157, Fair Value Measurements (SFAS 157), which defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements, but provides guidance
on how to measure fair value by providing a fair value hierarchy used to
classify the source of the information. SFAS 157 is effective for fiscal years
beginning after November 15, 2007. However, on February 12, 2008, the FASB
issued FSP FAS 157-2 which delayed the effective date of SFAS 157 for all non
financial assets and non financial liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a recurring basis (at
least annually). This FSP partially defers the effective date of Statement 157
to fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years for items within the scope of this FSP. The Company is
currently evaluating the potential impact of the adoption of SFAS 157 on our
consolidated financial position, results of operations or cash flows.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities- including an Amendment of FASB Statement No.
115 (SFAS 159), which allows an entity to choose to measure certain financial
instruments and liabilities at fair value. Subsequent measurements for the
financial instruments and liabilities an entity elects to fair value will be
recognized in earnings. SFAS 159 also establishes additional disclosure
requirements. SFAS 159 is effective for the Company beginning January 1, 2008.
The Company is currently evaluating the potential impact of the adoption of SFAS
159 on our consolidated financial position, results of operations or cash
flows.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS 141R). SFAS 141R establishes principles and requirements
for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non controlling
interest in the acquiree and the goodwill acquired. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination. This statement is effective for us
beginning January 1, 2009. The Company is currently evaluating the potential
impact of the adoption of SFAS 141R on our consolidated financial position,
results of operations or cash flows.

80

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

In
December 2007, the FASB issued SFAS No. 160, Non controlling Interests in
Consolidated Financial Statementsan amendment of Accounting Research Bulletin
No. 51 (SFAS 160). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the non
controlling interest, changes in a parents ownership interest, and the
valuation of retained non controlling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the non controlling owners. This statement is effective for the Company
beginning January 1, 2009. The Company is currently evaluating the potential
impact of the adoption of SFAS 160 on our consolidated financial position,
results of operations or cash flows.

Reclassifications

On the Balance Sheet as at December 31,
2006 prepaid expenses were included in other current assets and current deferred
tax assets were included in long term deferred tax assets. These have been
reclassified to align with the presentation as at December 31, 2007.

NOTE 3-
ACQUISITIONS

On
October 1, 2007, the Companys wholly owned subsidiaries Intelligroup Europe Ltd
and Intelligroup Asia Pvt Ltd acquired certain assets including without
limitation customer contracts, fixed assets and employees fromISG Novasoft Technologies
Limited (Novasoft India) andNovasoft
Information Technology(Europe) Ltd. (Novasoft Europe) for an aggregate purchase price of
three million one hundred thousand dollars ($3,100,000) ("Novasoft
Acquisition").The Company followed purchase
method of accounting for the acquisition. The Company preliminarily allocated
the purchase price to intangible and tangible assets and liabilities acquired
based on their fair values, including approximately $0.5 million to Goodwill and
$2.7 million to amortizable intangibles principally customer relationships. The
final allocations is pending the completion of final calculations. The
intangibles are being amortized over a period of 3 to 36 months. The revenues
from the acquired contracts along with the corresponding costs are reflected in
the Companys operating results beginning October 1, 2007.

The post-closing balance sheet at
October 1, 2007 is as follows (USD in thousands)

Particulars
    
    
    **Assets**
    
    **Liabilites**Cash
    
    75Fixed
      Assets
    
    4Intangibles
    
    2,668Goodwill
    
    486Accrued Payroll
    
    
    
    91Acquisition Expenses Payable
    
    
    
    42Payable to lender
    
    
    
    3,100Total
    
    $3,233
    
    $3,233


The goodwill is tax deductible and
is allocable to Intelligroup Europe Limited.

81

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

The following unaudited proforma
statements of operations reflect the results of operations as though the
acquisition had been completed at the beginning of the year 2006.

in thousands except for pershare data**2007**
    
    **2006**Revenues
    
    148,566
    
    128,509Net Income/ (Loss) after tax
    
    3,503
    
    (3,214)Income / (Loss) per ShareBasic -
      outstanding Shares
    
    $0.08
    
    ($0.08
    )Dilted- outstanding Shares
    
    $0.08
    
    ($0.08
    )Weighted Average Shares outstanding- Basic
    
    42,026
    
    40,179Weighted Average
      Shares outstanding- Diluted
    
    42,115
    
    40,179


NOTE 4-PROPERTY AND EQUIPMENT AND INTANGIBLES

Property
and equipment consist of the following as of December 31, 2007 and 2006 (in
thousands, except useful lives data):

**Estimated Useful****Lives (Years****)**
    
    2007
    
    2006Vehicles
    
    5
    
    $
    749
    
    
    $
    576Furniture
    
    5
    
    
    3,294
    
    
    
    3,115Equipment
    
    3-5
    
    
    12,427
    
    
    
    9,118Computer
      software
    
    3
    
    
    8,159
    
    
    
    8,630Leasehold improvements
    
    5-10
    
    
    2,385
    
    
    
    2,18127,014
    
    
    
    23,620Less: Accumulated depreciation
    
    
    
    
    (20,544
    )
    
    
    (18,148
    )Total, net
    
    
    
    $
    6,470
    
    
    $
    5,472


Included
in property and equipment is $2.2 million and $1.8 million of assets held under
capital lease at December 31, 2007 and 2006, respectively. Accumulated
amortization of the assets held under capital lease is $1.1 million and $0.6
million at December 31, 2007 and 2006, respectively.

Components of Intangibles assets as
of December 31, 2007(in thousands, except useful lives data):

82

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

**Estimated Useful****Lives
      (Months)**
    
    2007Customer Contracts
    
    3-15
    
    $
    132Customer
      Relationship
    
    36
    
    
    2,536Total
    
    
    
    
    2,668Less:
      Accumulated amortization
    
    
    
    
    (120
    )Total, net
    
    
    
    $
    2,548


The Company had no intangible assets
as at December 31, 2006.

The
estimated aggregate amortization expense for each of the five succeeding fiscal
years (USD in thousands)

Year
    
    Expected Amortization
    
    **Total****Customer**
    
    **Customer****Contracts**
    
    **Relationship**2008
    
    $92
    
    $818
    
    $9102009
    
    -
    
    819
    
    8192010
    
    -
    
    819
    
    8192011
    
    -
    
    -
    
    -2012
    
    -
    
    -
    
    -$92
    
    $2,456
    
    $2,548


NOTE 5- RESTRICTED
CASH:

During
October 2007, Intelligroup Asia Private Limited (IGA), a wholly owned
subsidiary of Intelligroup Inc placed a hundred and ten percent margin money
deposit with Citibank N.A. (Citibank) against a stand by letter of credit issued
by Citibank to Llyods Bank TSB, London in connection with the ISGN transaction.
This margin money deposit has been classified under Restricted Cash on the
Balance Sheet as on December 31, 2007. In addition IGA has few investments
primarily in mutual funds which it has placed with Citi Bank N.A. as a lien
against the derivative contracts it has in place with the Bank. The various
components of restricted cash consist of the following as on December 31 2007.
The Company did not have any restricted cash as on December 31 2006.

83

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

Kind of cash
    
    Restricted against
    
    **in
      '000s**Fixed Deposit
    
    Letter of credit to Lloyds Bank TSB
    
    $3,490Investments
    
    Lien against
      derivative contracts
    
    828Fixed Deposit
    
    Lien against derivative contracts
    
    241Fixed
      Deposit
    
    Against various
      statutory and customer related
    
    290compliancesTotal
    
    
    
    **$4,848**


The investments forming part of the
Restricted Cash consist of mutual funds, which are considered to be available
for sale. The carrying value of these investments as of December 31,2007 approximated fair value. Unrealized and
realized gains or losses on these investments were insignificant for the year
ended December 31, 2007. Gross proceeds from sale of short tem investments
amounted to approximately $7.2 millions during the year 2007. No significant
gains were recorded on the sale of such short term investments.

NOTE 6 - LINE OF
CREDIT

On May
23, 2006, the Company and its wholly-owned subsidiary Empower, Inc. entered into
a second amended and restated revolving credit loan and security agreement and
second amended and restated revolving secured note (collectively Credit
Agreement) with the Steel City Capital Funding, a division of PNC Bank,
National Association (the Bank). The Credit Agreement is comprised of a two
year revolving line of credit pursuant to which the Company can borrow up to
$15.0 million at the Banks Base Rate (as defined in the Credit Agreement) of
7.25% as of December 31, 2007, plus two (2%) percent. The credit facility is
collateralized by substantially all of the assets of the United States based
operations and all subsidiary stock (not to exceed 65% of the Equity Interests
of any Foreign Subsidiary). The maximum borrowing availability under the Credit
Agreement is based upon a percentage of eligible billed and unbilled accounts
receivable. The Credit Agreement provides for certain financial covenants that
shall only be tested as of the end of any fiscal quarter in which the average
undrawn availability has been less than five million dollars ($5.0 million) for
a period of thirty (30) consecutive days during such fiscal year.

The
Company was in compliance with the loan agreement related to the Credit Facility
as of December 31, 2007.As of December 31, 2007, the Company had $3.57 million
outstanding borrowings under the Credit Facility. The Company estimates undrawn
availability under the Credit Facility to be $11.43 million as of December 31,
2007. The weighted average interest rates on outstanding borrowings under the
credit facility were 11.27% and 12.49% for the years ended December 31, 2007 and
2006 respectively.

In order
to finance a significant portion of the purchase price for the Novasoft
Acquisition, IGE received a loan of £ 1,500,000 from Lloyds Bank PLC Lloyds
Bank TBS during the twelve month period ended December 31, 2007. This loan is
secured by a stand by letter of credit from Citibank N.A. (Citibank), for
which Intelligroup Asia Private Limited (IGA) has placed a hundred and ten
percent margin money deposit with Citibank. The loan is payable in three annual
installments of£500,000 starting October 2008, with interest payable monthly at the rate
of 6.75%. The Company has the option to repay this loan earlier and has
reflected the entire outstanding balance under Current Liabilities on the
Balance Sheet as at December 31, 2007.

84

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

NOTE 7 -OBLIGATIONS UNDER CAPITAL LEASES

The
Company is the lessee of equipment, vehicles and furniture under capital leases
expiring in 2012.

Minimum
lease payments under capital leases at December 31, 2007 are as follows (in
thousands):

2008
    
    $
    5312009
    
    
    2752010
    
    
    992011
    
    
    432012
    
    
    12960Less: amounts representing interest
    
    
    (128
    )Less: current
      portion
    
    
    (457
    )Long-term portion
    
    $
    375


NOTE 8 -SHAREHOLDERS EQUITY

Preferred Stock

At December 31, 2007 and 2006, there
are 5,000,000 shares of Preferred Stock, par value $0.01 authorized and no
shares issued or outstanding.

Common Stock

At the Companys 2005 Annual
Shareholders Meeting on December 27, 2005, the shareholders approved an
increase to the authorized shares of Common Stock to 50,000,000 from 40,000,000.

Private Placements

In March, 2006, the Company issued
6,666,667 shares of Common Stock at $1.50 per share in a private placement
transaction for gross proceeds of $10 million and net proceeds of $9.8
million.

Stock Options

The Companys stock option plans
permit the granting of options to employees, non-employee directors and
consultants. The Compensation Committee of the Board of Directors generally has
the authority to select individuals who are to receive options and to specify
the terms and conditions of each option so granted, including the number of
shares covered by the option, the type of option (incentive stock option or
non-qualified stock option), the exercise price, vesting provisions, and the
overall option term. A total of 7,105,000 shares of Common Stock have been
reserved for issuance under the plans. All of the options issued pursuant to
these plans expire ten years from the date of grant (number of shares data in
thousands).

In 2005, the Compensation Committee of the Board of Directors
extended the life of an option award for the exercise of 160,000 stock options
granted to a director. As a result, the Company recognized stock compensation
expense of $0.1 million associated with the incremental intrinsic value at the
date of modification.

85

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

Share-Based Compensation Plans

The Company has four share-based
compensation plans that reserve common shares for issuance to key employees,
consultants and directors, as described below. The compensation cost that has
been charged against income for those plans was $1.1 million,1.6 million and
$125,000 for the years ended December 31, 2007 2006 and 2005 respectively. The
Company received approximately $ 292,000 and $245,000 from option exercises
under share-based compensation plans for the year ended December 31, 2007 and
December 31, 2006. There were no option exercises in 2005. Although there were
options exercised during the year ended December 31, 2007 and 2006, no tax
benefits were recorded as there were no benefits for tax deductions expected to
be utilized, based on the history of net operating losses in the US.

The 2004 Equity Incentive Award Plan
(2004 Plan) was approved by the Companys Board of Directors on April 5, 2004
and adopted by the Companys shareholders on June 8, 2004. The maximum number of
shares of Common Stock reserved for issuance under the 2004 Plan shall be equal
to 1,600,000, plus the number of shares of Common Stock which are or become
available for issuance under the Companys 1996 Stock Plan (the Prior Plan),
and which are not issued under such plan, which includes an increase of 500,000
options as adopted by the Board of Directors on May 4, 2006 and approved by the
stockholders of the Company on June 8, 2006. Those eligible to receive stock
option grants or stock purchase rights under the 2004 Plan include employees and
non employee Directors. The Compensation Committee of the Board of Directors of
the Company administers the 2004 Plan. Subject to the provisions of the 2004
Plan, the administrator of the 2004 Plan has the discretion to determine the
optionees and/or grantees, the type of equity awards to be granted (incentive
stock options and nonqualified stock options, restricted stock, stock
appreciation rights, performance shares, performance stock units, stock
payments, deferred stock, restricted stock units, other stock-based awards, and
performance-based awards), the vesting provisions, the terms of the grants and
such other related provisions as are consistent with the 2004 Plan.

The exercise price of a stock option
may not be less than the fair market value per share of the Common Stock on the
date of grant or, in the case of an optionee receiving incentive stock option
award who beneficially owns 10% or more of the outstanding capital stock of the
Company, not less than 110% of the fair market value per share on the date of
grant. Notwithstanding the foregoing, the Compensation Committee of the Board
may in its discretion issue non-qualified stock options to purchase up to
500,000 shares of Common Stock with an option exercise price of less than 100%
of the fair market value of the Common Stock on the date of grant. The options
terminate not more than ten years from the date of grant, subject to earlier
termination on the optionees death, disability or termination of employment
with the Company, provided however that the term of any incentive stock options
granted to a holder of more than 10% of the outstanding shares of capital stock
may be no longer than five years. Options are not assignable or otherwise
transferable except by will or the laws of descent and distribution.

86

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

The Compensation Committee may
provide that if a Change of Control (as defined in the 2004 Plan) of the Company
occurs and any awards made pursuant to the 2004 Plan are not converted, assumed
or replaced by a successor, then all outstanding awards that are not converted,
assumed or replaced may become fully vested and exercisable. The Compensation
Committee, subject to approval of the Board, may terminate, amend, or modify the
2004 Plan at any time; provided, however, that stockholder approval must be
obtained for any amendment to the extent necessary or desirable to comply with
any applicable law, regulation or stock exchange rule, to increase the number of
shares available under the 2004 Plan, to permit the Compensation Committee to
grant options with an exercise price below fair market value on the date of
grant, or to extend the exercise period for an option beyond ten years from the
date of grant. The 2004 Plan terminates on June 8, 2014 unless terminated
earlier by the Companys Board of Directors.

The 1996 Stock Plan (1996 Plan)
was adopted by the Board of Directors and approved by the shareholders of the
Company on June 3, 1996, and became effective on July 12, 1996. Those eligible
to receive stock option grants or stock purchase rights under the 1996 Plan
include employees, non employee Directors and consultants. The Compensation
Committee of the Board of Directors of the Company administers the 1996 Plan.
Subject to the provisions of the 1996 Plan, the administrator of the 1996 Plan
has the discretion to determine the optionees and/or grantees, the type of
options to be granted (incentive stock options or nonqualified stock options),
the vesting provisions, the terms of the grants and such other related
provisions as are consistent with the 1996 Plan. The exercise price of an
incentive stock option may not be less than the fair market value per share of
the Common Stock on the date of grant or, in the case of an optionee who
beneficially owns 10% or more of the outstanding capital stock of the Company,
not less than 110% of the fair market value per share on the date of grant. The
exercise price of a nonqualified stock options granted under the 1996 Plan may
not be less than 85% of the fair market value per share of the Common Stock on
the date of grant or, in the case of an optionee who beneficially owns 10% or
more of the outstanding capital stock of the Company, not less than 110% of the
fair market value per share on the date of grant. The purchase price of shares
issued pursuant to stock purchase rights may not be less than 50% of the fair
market value of such shares as of the offer date of such rights. The options
terminate not more than ten years from the date of grant, subject to earlier
termination on the optionees death, disability or termination of employment
with the Company, provided however that the term of any options granted to a
holder of more than 10% of the outstanding shares of capital stock may be no
longer than five years. Options are not assignable or otherwise transferable
except by will or the laws of descent and distribution. In the event of a merger
or consolidation of the Company with or into another corporation or the sale of
all or substantially all of the Companys assets in which the successor
corporation does not assume outstanding options or issue equivalent options, the
Board of Directors of the Company is required to provide accelerated vesting of
outstanding options. As of June 8, 2004, the Company ceased granting options
under the 1996 Plan.

The 1996 Non-Employee Director Plan
was approved by the Board of Directors on June 3, 1996. The shareholders adopted
the Companys 1996 Non-Employee Director Stock Option Plan (the Director Plan)
and it became effective on July 12, 1996. The Director Plan provides for the
grant of options to purchase a maximum of 140,000 shares of Common Stock of the
Company to non-employee Directors of the Company. The Board of Directors
administers the Director Plan.

In October and November 2000, the
Companys Board of Directors approved grants of options for equity compensation
plans not approved by security holders (the Out of Plan options). Each of the
Out of Plan options vest in four equal semiannual installments beginning on the
first six-month anniversary of the date of grant and
expire on the tenth anniversary of the date of grant. The price of the options
granted pursuant to the Out of Plan options is equal to the fair market value of
the shares on the date of grant.

87

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

A summary of stock option activity
as of December 31, 2007, and changes during the year then ended is presented
below:

**Weighted-****Weighted-**
    
    **Average**
    
    Aggregate**Shares**
    
    Average
    
    **Remaining**
    
    Intrinsic**(in**
    
    Exercise
    
    **Contractual**
    
    Value (in**thousands)**
    
    Price
    
    **Term
      (Years)**
    
    thousands)Outstanding as of December 31, 2006
    
    
    3,903
    
    
    $
    2.16
    
    8.1
    
    $
    571Granted
    
    
    280
    
    
    
    1.38Exercised
    
    
    (227
    )
    
    
    1.29Canceled,
      forfeited or expired
    
    
    (685
    )
    
    
    2.63Outstanding as of December 31, 2007
    
    
    3,271
    
    
    
    2.05
    
    7.2
    
    
    4,769Exercisable as
      of December 31, 2007
    
    
    1,554
    
    
    $
    1.69
    
    6.7
    
    $
    2,623


The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model. The Company recognizes the fair value of
each option as compensation expense ratably using the straight-line attribution
method over the service period (generally the vesting period). The Black-Scholes
model incorporates the following assumptions:

- Expected volatility  the Company
  estimates the volatility of common stock at the date of grant using historical
  volatility.
- Expected term  the Company estimates
  the expected term of options granted based on a combination of vesting
  schedules, term of the option, historical experience and, since the Company
  did not have significant historical experience, the simplified method of
  determining expected term outlined in Staff Accounting Bulletin 107 is used
  for grants issued in 2006.
- Risk-free interest rate  the Company
  estimates the risk-free interest rate using the U.S. Treasury yield curve for
  periods equal to the expected term of the options in effect at the time of
  grant.
- Dividends  the Company uses an
  expected dividend yield of zero since it 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.

Additionally, the Company estimates forfeitures at the time of grant and
revises those estimates in subsequent periods if actual forfeitures differ from
those estimates. It uses a combination of historical data, demographic
characteristics and other factors to estimate pre-vesting option forfeitures and
record share-based compensation expense only for those awards that are expected
to vest. For purposes of calculating pro forma information under SFAS No. 123
for periods prior to January 1, 2006, the Company accounted for forfeitures as
they occurred.

88

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

The fair value of option grants is
estimated on the date of grant using the Black-Scholes option-pricing model
using the following weighted average assumptions:

**2007**
    
    **2006**
    
    **2005**Expected Volatility
    
    86 - 89%
    
    59 - 100%
    
    97 - 103%Expected
      Lives
    
    1 - 6.1 years
    
    1 - 6.1 years
    
    1.0 -
      4.8 yearsRisk free Interest Rate
    
    4.3 - 5.0%
    
    4.5 - 5.1%
    
    3.3 - 4.4%Expected
      Dividends
    
    0%
    
    0%
    
    0%


The weighted average grant date fair
value of options granted during the years ended December 31, 2007, 2006 and 2005
was $1.04, $1.11 and $1.15 respectively. The aggregate intrinsic value of
options outstanding is calculated as the difference between the exercise price
of the underlying options and the market price of common shares for the shares
that were in the money at that date. The intrinsic value of exercised options
during the years ended December 31, 2007 and 2006 was $100,000 and $1,100
respectively. There were no exercises in 2005.

As of December 31, 2007 and 2006,
there was $1.7 and $3.1 million of total unrecognized compensation cost related
to stock options. That cost is expected to be recognized over the next four
years.

In November 2005, the FASB issued
FASB Staff Position No. FAS 123(R)-3 (FSP 123(R)-3), Transition Election
Related to Accounting for the Tax Effects of Share-Based Payment Awards.
Intelligroup has adopted this alternative transition method provided in FSP
123(R)-3 for calculating the tax effects of stock-based compensation pursuant to
SFAS 123(R) in 2006. The alternative transition method includes simplified
methods to establish the beginning balance of the additional paid-in capital
pool (APIC pool) related to the tax effects of employee stock-based
compensation, and to determine the subsequent impact on the APIC pool and
consolidated statements of cash flows of the tax effects of employee stock-based
compensation awards that are outstanding upon adoption of SFAS 123(R). The
adoption did not have a material impact on our results of operations and
financial condition.

Impact of the Adoption of SFAS
No. 123R:

The Company adopted the provisions
of SFAS No. 123R on January 1, 2006. See Note 2 for information regarding the
adoption of SFAS No. 123R. The following table summarizes the share-based
compensation expense for stock options that were recorded in accordance with
SFAS No. 123R for the year ended December 31, 2007 and December 31, 2006 (in
thousands except per share information):

89

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

2007
    
    2006Cost of Revenue
    
    $
    470
    
    $
    645Selling, general
      and administrative expenses
    
    
    657
    
    
    966Decrease to net income / Increase to net loss
    
    $
    1,127
    
    $
    1,611Change in income / loss per share:Basic
    
    $
    0.03
    
    $
    0.04Diluted
    
    $
    0.03
    
    $
    0.04Basic Shares
    
    
    42,026
    
    
    40,179Diluted
      Shares
    
    
    42,115
    
    
    40,179


NOTE 9 -RELATED PARTY TRANSACTIONS

Effective August 1, 2005,
Intelligroup Asia Pvt. Ltd. (IGA) entered into an agreement to lease certain
premises for certain of the Companys India operations from ILABS Hyderabad
Technology Center Pvt. Ltd. (iLabs), a party with which two members of the
Companys Board of Directors, Srini Raju and Sandeep Reddy, are affiliated. The
terms of the lease agreement provide for, among other things: (1) a minimum
lease period of five years with an option for two three-year renewal periods;
(2) payment of a security deposit equivalent to nine (9) months rent in the
amount of 15.3 million Indian rupees (approximately $387,000); (3) payment of
monthly lease fees in the amount of 1.7 million Indian rupees (approximately
$42,000), subject to yearly five percent (5%) escalation; and (4) monthly
operations and maintenance fees of 0.4 million Indian rupees (approximately
$10,000). Rent expense for the year ended December 31, 2007 towards the said
lease was 27.89 million rupees (approximately $675,000). There are no advance
lease rentals as of December 31, 2007.

IGA has entered into agreements for
executive search services with Adecco Peopleone India Limited (Adecco India) and
Cornell International, parties with which Ajit Issac a member of the Companys
Board of Directors is affiliated. Professional fees paid to Adecco for the
twelve months ended December 31, 2007 were approximately $ 47,000.

NOTE 10 -COMMITMENTS AND CONTINGENCIES

***Tax-Free Spin-off of
SeraNova***

On July
5, 2000, the Company distributed SeraNova common stock to its shareholders in a
transaction that was structured to be and reported as a tax-free spin-off
pursuant to Section 355 of the Internal Revenue Code (IRC Section 355). For
distributions of stock qualifying under IRC Section 355, neither the Company nor
the Companys shareholders recognize any gain or income in connection with the
transaction for US federal income tax purposes. The Company and SeraNova
executed a Tax Sharing Agreement, dated January 1, 2000 (Tax Sharing
Agreement), whereby SeraNova would indemnify the
Company for any tax liabilities in the event a future transaction of SeraNova
results in the spin-off is being deemed a taxable event. On October 27, 2000,
SeraNova and Silverline Technologies, Inc. announced that they had entered into
an agreement and plan of merger, under which Silverline Technologies, Inc. would
acquire control of SeraNova in exchange for American depository shares of
Silverline. Subsequently, SeraNova and Silverline Technologies, Inc. filed for
Chapter 7 Bankruptcy on August 8, 2003. As a condition to the distribution,
SeraNova management represented that there was no present plan, nor intent to
enter into a subsequent transaction that would disturb the intended taxfree
nature of the distribution.

90

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

IRC
Section 355(e) provides that the Company may be required to recognize a gain
equal to the excess of the fair market value of the SeraNova shares distributed
over their tax basis if the distribution is part of a plan pursuant to which one
or more persons acquire 50% or more of SeraNova common stock within two years of
the distribution date. Should the spin-off ultimately be construed as taxablethe resultant tax liability could be in the range
of $55 million to $65 million and related penalties (if assessed) and interest
could increase the amount by $40 million to $50 million as at December 31,
2007,depending on the facts that ultimately are
established. No future benefits would inure to the Company as a result of
imposition of a tax on the SeraNova distribution, and no reserve has been
recorded for this potential tax. However, should such a tax liability be
imposed, the Company may be able to utilize some of its existing net operating
losses to mitigate this tax liability.

***Employee Agreements***

As of
December 31, 2007, the Company had employment agreements with certain of its
executive officers, which provide for minimum payments in the event of
termination for reasons other than just cause. The aggregate amount of
compensation commitment in the event of termination under such agreements is
approximately $1.0 million. In addition, IGA had entered into Severance Packages
totaling approximately $0.7 million with certain former members of the IGA
management team. Pursuant to the terms of the Agreement for Severance Package,
the Severance Package is activated upon the fulfillment of certain events,
including a change in management of the Company or IGA. In April 2005, following
the termination of the Companys Chief Executive Officer, three members of the
IGA management team, each of whom had a Severance Package, resigned. Except as
set forth below, to date, the Company has not received any claim for payment of
the Severance Package. In September 2005, two former members of the IGA
management team sent IGA notices under Section 433 and 434 of the Indian
Companies Act, 1956 for payment of such Severance Package. Such claims have not
been pursued since such initial notice was served, and the Company does not
believe that such severance amount is owed. In the event the Company is
unsuccessful in defending against such claim for payment, the Company would owe
approximately $0.7 million to such individuals.

***Leases***

The Company leases office space
under operating leases that have initial or remaining non-cancelable lease terms
in excess of one year. Additionally, the Company has sublet certain of its
office space, which generates sublease income. Certain leases are subject to
common area maintenance or operating expense charges and have options to renew.
Future minimum aggregate annual lease payments are as follows (in thousands):

91

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

**For the Years Ended**
    
    **Gross Operating**
    
    Sublease
    
    Net Operating**December 31,**
    
    **Lease
      Payments**
    
    Income
    
    **Lease
      Payments**2008
    
    $
    2,869
    
    $
    311
    
    $
    2,5582009
    
    
    1,812
    
    
    -
    
    
    1,8122010
    
    
    1,366
    
    
    -
    
    
    1,3662011
    
    
    703
    
    
    -
    
    
    7032012
    
    
    385
    
    
    -
    
    
    385$
    7,135
    
    $
    311
    
    $
    6,824


Rent expense for the years ended
December 31, 2007, 2006 and 2005 was $2.5 million, $2.8 million and $3.1
million, net of sublease income of $0.4 million, $0.4 million, and $0.4 million,
respectively.

NOTE 11-OTHER INCOME/EXPENSE

Other
income (expense), results from transaction gains or losses associated with
changes in foreign currency exchange rates, sublease income, dividend income
from investments, and other items, as follows (in thousands):

**2007**
    
    **2006**
    
    **2005**Foreign transaction
    gains/losses
    
    $515
    
    ($351
    )
    
    ($426
    )Out of
      court settlements
    
    -
    
    628
    
    
    88Sublease income, dividend
      income,and other
      adjustments
    
    640
    
    1,023
    
    
    621$1,155
    
    $1,300
    
    
    $283


NOTE 12-LITIGATION

*Shareholder Class Actions*

On or
about October 12, 2004, the first of six class action lawsuits was filed,
purportedly on behalf of plaintiffs who purchased the Companys securities,
against the Company and former officers Arjun Valluri, Nicholas Visco, Edward
Carr and David Distel (Defendants) in the United States District Court,
District of New Jersey (District of New Jersey). In August 2005, the District
of New Jersey consolidated the six class actions (the Shareholder Class
Action) and appointed a lead plaintiff. Plaintiffs subsequently dropped Mr.
Distel and Mr. Carr from the Shareholder Class Action, failing to name either of
them as a defendant in the amended consolidated complaint filed on or about
October 10, 2005. The Shareholder Class Action generally alleges violations of
federal securities laws, including allegations that the Defendants made
materially false and misleading statements regarding our financial condition and
that the Defendants materially overstated financial results by engaging in
improper accounting practices.

92

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

The Class Period alleged is May 1, 2001
through September 24, 2004. The Shareholder Class Action generally seeks relief
in the form of unspecified compensatory damages and reasonable costs, expenses
and legal fees. The Defendants filed a Motion to Dismiss on or about November
30, 2005. Thereafter in about February 2006, the lead plaintiff filed its second
consolidated amended complaint. On or about March 27, 2006, the Defendants filed
a motion to dismiss the second amended complaint. On or about December 20, 2006,
the District of New Jersey granted Defendants motion and dismissed the second
amended complaint without prejudice. On or about January 25, 2007, plaintiffs
filed the third consolidated amended complaint. On or about March 5, 2007,
Defendants filed a motion to dismiss the third consolidated amended complaint.
On or about November 13, 2007, the District of New Jersey dismissed with
prejudice plaintiffs third amended consolidated complaint against the Company
and certain former officers in the Shareholder Class Action. Plaintiffs did not
appeal the District of New Jersey's decision thereby ending the Shareholder
Class Action.

Except
for the litigation regarding India income tax assessment as referred under Note
13 on Income Taxes, there is no pending litigation to which the Company
is a party or to which any of its property is subject that would have
a material impact on its consolidated financial condition, results of
operations or cash flows in the event the Company was unsuccessful in
such litigation. However the Company cannot predict with certainty the
outcome of any litigation or the potential for future litigation and any such
matters could adversely affect its financial condition, results of operations,
cash flows and business.

NOTE 13-INCOME TAXES

Income tax provision (benefit) from
operations consists of the following (in thousands):

2007
    
    2006
    
    2005Current:State
    
    $
    20
    
    
    $
    (92
    )
    
    $
    71Foreign
    
    
    864
    
    
    
    605
    
    
    
    304884
    
    
    
    513
    
    
    
    375Deferred:Foreign
    
    
    (164
    )
    
    
    624
    
    
    
    (615
    )Total
    
    $
    720
    
    
    $
    1,137
    
    
    $
    (240
    )


Income (loss) before taxes from
domestic and foreign sources is as follows (in thousands):

2007
    
    2006
    
    2005United States
    
    $
    (2,921
    )
    
    $
    (7,181
    )
    
    $
    (9,079
    )Foreign
    
    
    6,605
    
    
    
    4,611
    
    
    
    2,248Income (loss) before income taxes
    
    $
    3,684
    
    
    $
    (2,570
    )
    
    $
    (6,831
    )


93

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

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

**2007**
    
    
    **2006**
    
    
    **2005**Tax at federal statutory rate
    
    34.0
    
    %
    
    34.0
    
    %
    
    34.0
    
    %State income
      tax, net of federal benefit
    
    (4.8
    )
    
    
    16.8
    
    
    
    8.0Foreign taxes
    
    (1.2
    )
    
    
    6.5
    
    
    
    1.0Change in
      valuation allowance
    
    37.2
    
    
    
    (147.6
    )
    
    
    (63.0
    )Permanent items
    
    (27.0
    )
    
    
    16.9
    
    
    
    7.1Tax holiday,
      India
    
    -
    
    
    
    16.1
    
    
    
    20.8Fin 48 Benefit
    
    (18.4
    )
    
    
    -
    
    
    
    -Other
    
    (0.3
    )
    
    
    12.8
    
    
    
    (4.4
    )Effective tax rate
    
    19.5
    
    %
    
    (44.5
    )
    %
    
    3.5
    
    %


In 1996,
the Company elected a five year tax holiday in India, in accordance with a local
tax incentive program whereby no income tax will be due in such period. Such tax
holiday was extended an additional five years in 1999. This tax deduction
favorably impacted the Companys effective tax rate for the year ended December
31, 2005. The Companys majority of the tax holiday expired effective March 31,
2006 and therefore the Companys tax liability has increased in 2006 and 2007.

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 are as follows (in thousands):

**2007**
    
    2006Current Deferred tax assets:Allowance for doubtful accounts
    
    $
    949
    
    
    $
    742Vacation accrual
    
    
    1,395
    
    
    
    1,389Other accrued liabilities
    
    
    473
    
    
    
    270Total current deferred tax assets
    
    
    2,817
    
    
    
    2,401Non-current Deferred tax assets:Net operating losses
    
    
    21,403
    
    
    
    20,378Non-current Deferred tax liabilities:Deferred tax
      liability - accelerated depreciation
    
    
    -
    
    
    
    (181
    )Total Net non-current deferred tax assets
    
    
    21,403
    
    
    
    20,197Valuation
      allowance
    
    
    (23,218
    )
    
    
    (21,846
    )Net Deferred tax asset
    
    $
    1,002
    
    
    $
    752


94

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

During
2007, 2006 and 2005, the Company generated net operating losses in certain tax
jurisdictions. The Company has provided a valuation allowance against these net
operating losses in some jurisdictions as the ability to utilize these losses
may be limited in the future. The Company increased the valuation allowance by
$1.1 million and $3.2 million in 2007 and 2006. The Companys valuation
allowance as of December 31, 2007 and 2006 was $23.2 million and $21.8 million
respectively. Cumulative net operating loss carry forwards of $40.8 million
expire in various years through 2026.

On
October 22, 2004, the American Jobs Creation Act of 2004 (the Jobs Creation
Act) was signed into law. The Jobs Creation Act created a temporary incentive
for U.S. corporations to repatriate accumulated income earned abroad by
providing an 85% dividends received deduction for certain dividends from
controlled foreign corporations. Currently, the Company has not taken advantage
of this incentive and has not repatriated any earnings from its controlled
foreign operations.

*Uncertain Tax Positions - India
Tax Assessment*

The
Companys India subsidiary has received tax assessments from the India taxing
authority denying tax exemptions claimed for certain revenue earned and
disallowing certain expenses claimed during the India subsidiarys fiscal years
ended March 31, 1998 through March 31, 2003. As at December 31, 2007 the
combined revised additional tax demands were for 32.2 million Indian rupees (or
approximately $0.8 million) for those years. They include tax penalties and
interest for the fiscal years ended March 31, 2001 of 1.4 million Indian rupees
(or approximately $34,000). Against the total additional tax demand of $0.8
million, the Company has made payments of approximately $0.8 million under
protest to the India tax authority. During 2006 the Company made a full reserve
of additional tax demand against this potential liability.

During the twelve months period ending
on December 31, 2007, the Company received judgment from the Appellate Tribunal
in India with regard to the Indian Tax assessments, for the fiscal year ended
March 31, 1998 through March 31, 2000 that allowed the tax exemptions in the
Companys favor to the extent of approximately $0.5 million. The terms of the
judgment required India tax authorities to refund the taxes paid under protest
for such fiscal years along with interest. Based on the judgment, the Company
recognized the tax benefit of $0.5 million related to the tax exemptions. The
Company also recognized $0.2 million for interest receivable on the taxes paid
under protest. The India tax authorities have the right to appeal in the court
of law against such judgment issued by the Appellate Tribunal. To the Companys
knowledge no appeal has been filed.

The Company is currently appealing
at the Appellant Tribunal stage for the fiscal years ended March 31, 2001
through March 31, 2003. In the event the Companys appeal is not successful,
there will not be any additional future cash outlay. However, in the event the
Company is successful, an amount up to approximately $0.2 million could be
refunded to the Company.

95

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

The following table
summarizes the roll forward activity during the year with regard to the India
Tax Assessment:

In
      MillionsBalance as at January 1, 2007
    
    $0.7Benefit on
      account of favorable judgment
    
    (0.5
    )Disallowed by the IT Appellate Tribunal
    
    (0.1
    )Impact of
      foreign exchange translation
    
    0.1Balance as at December 31, 2007
    
    $0.2


This tax liability is reflected net of
prepaid taxes on the Balance Sheet under Prepaid Taxes as at December 31, 2007.
We do not expect unrecognized tax benefits to change significantly over the next
12 months.

Tax filings in India for the tax years
2004 through 2007 remain subject to audit.

NOTE 14-EMPLOYEE BENEFIT PLANS

The
Company maintains a defined contribution 401(k) plan. All United States
employees, who are employed on a full-time basis, are eligible to participate in
the plan, effective the first day of the next quarterly enrollment period. Costs
incurred by the Company related to this plan amounted to $0.5 million, $0.5
million and $0.4 million for the years ended December 31, 2007, 2006, and 2005,
respectively. The Companys match in the 401(k) plan is 2%, which vests over a
service period of three years. The Company used $0.1 million of forfeitures to
offset contributions for the year ended December 31, 2005. The forfeitures to
offset contributions for the years ended December 2006 and 2007 were not
material.

The
Companys India subsidiary provides its employees with benefits under a defined
benefit pension plan, which is referred to as the Gratuity Plan. Pursuant to
applicable India law, the Gratuity Plan provides a lump sum payment to vested
employees on retirement or on termination of employment in an amount based on
the respective employees salary and years of employment with the Company. The
Company determines liability under the Gratuity Plan by actuarial valuation
using the projected unit credit method. Under this method, the Company
determines liability based upon the discounted value of salary increases until
the date of separation arising from retirement, death, resignation or other
termination of services. Critical assumptions used in measuring the plan expense
and projected liability under the projected unit credit method include the
discount rate, expected return on assets and the expected increase in the
compensation rates. The Company evaluates these critical assumptions at least
annually. The Company periodically evaluates and updates other assumptions used
in the projected unit credit method involving demographic factors, such as
retirement age and turnover rate, to reflect its experience. The mortality rates
used are consistent with those published by the Life Insurance Corporation of
India.

The
discount rate enables the Company to state expected future cash flows at a
present value on the measurement date. The discount rate used is equal to the
yield on high quality fixed income investments in India at the measurement date.
The expected rate of return on plan assets is estimated based on available
market information, Indian law which regulates such investments and historical
returns. Liabilities with regard to the Gratuity Plan are determined by
actuarial valuation. Current service costs for the Gratuity Plan are accrued in
the year to which they relate.

96

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

Net gratuity cost includes the following components
as follows (in thousands):

**Twelve Months**
    
    **Twelve Months****Ended**
    
    **Ended****December 31,**
    
    **December 31,**2007
    
    2006Service Cost
    
    $178
    
    
    $278Interest
      Cost
    
    45
    
    
    59Actuarial (Gain) / Loss
    
    (179
    )
    
    (260
    )Expected Return
      on Assets
    
    (3
    )
    
    (5
    )Net Gratuity Cost
    
    $40
    
    
    $72


The following summarizes the components
of benefit obligation (in thousands)

**As at**
    
    **As at****December 31,**
    
    **December 31,****2007**
    
    **2006**Change in Benefit Obligation during the yearProjected
      Benefit Obligation at beginning of year
    
    $537
    
    
    $555Current Service Cost
    
    178
    
    
    278Interest
      Cost
    
    45
    
    
    59Actuarial (Gain) / Loss due to change in assumptions
    
    (179
    )
    
    (260
    )Benefits
      Paid
    
    (82
    )
    
    (95
    )Impact of Foreign Exchange Translations
    
    64
    
    
    -Projected
      Benefit Obligation at end of year
    
    $563
    
    
    $537


The following summarizes the components
of plan assets (in thousands)

**As at**
    
    **As at****December 31,**
    
    **December 31,****2007**
    
    **2006**Change in Plan Assets During the yearFair Value of
      Plan Assets at beginning of year
    
    $53
    
    
    $56Actual Return on Plan Asset
    
    3
    
    
    5Employer
      Contribution
    
    89
    
    
    87Benefit Payments
    
    (82
    )
    
    (95
    )Asset Gain /
      (Loss)
    
    (2
    )
    
    -Impact of Foreign Exchange Translations
    
    6
    
    
    -Fair Value of
      Plan Assets at end of year
    
    $67
    
    
    $53


The plan assets of the Company are
invested in debt securities with expected returns of approximately 8.7% in the
year 2007 and approximately 8% in 2006

97

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

The unfunded benefit obligation as at
December 31, 2007 and 2006 was $496,000 and $484,000 respectively. The short
term portion of the pension liability net of plan assets is recorded under
Accrued Payroll on the Balance Sheet. The long term portion is recorded in Other
Long Term Liabilities. The Company recognizes full amount of actuarial gain
immediately in the Income Statement.

The following summarizes the expected
future benefit payments from the plan (in thousands)

Expected
      Benefit**Year ending**
    
    Payments2008
    
    $862009
    
    1022010
    
    1242011
    
    1562012
    
    2082012
      to 2016
    
    892$1,568


The accumulated benefit obligation as
at December 31, 2007 and 2006 was approximately $342,000 and $348,000
respectively.

The following are the assumptions used
for the valuation.

Assumptions
    
    2007
    
    2006Discount Rate % per annum at year end
    
    8%
    
    7.50%Expected return
      on plan assets
    
    8.70%
    
    8%Salary escalation
    
    8%
    
    8%


The expected employer contributions for
2008 are approximately $0.1 million.

NOTE 15-SEGMENTDATA AND
GEOGRAPHIC INFORMATION

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

The Company has four reportable
operating segments from continuing operations, which are organized and managed
on a geographical basis, as follows:

- United
  States (US)  the largest segment of the Company, with operations in the
  United States and Puerto Rico. Includes the operations of the Companys US
  subsidiary, Empower, Inc., and all corporate headquarters is located in
  Edison, New Jersey;
- India  includes the operations of the Company in India,
  including services provided on behalf of other group subsidiaries, primarily
  to US. The Indian operations are located in Hyderabad and Bangalore, India. A
  majority of the total revenue generated in India is derived from providing
  offshore development and support services to customers through the Companys
  affiliated entities in other parts of the world, but predominantly with the
  United States.
- Europe 
  includes the operations of the Company in Denmark and the United Kingdom. The
  European headquarters is located in Milton Keynes, United Kingdom and Odense
  in Denmark;
- Japan 
  includes the operations of the Company in Japan. The Japanese headquarters is
  located in Tokyo, Japan.

98

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

The CEO has been identified as the Chief Operating Decision Maker
(CODM) because he has final authority over resource allocation decisions and
performance assessment. The CODM regularly receives certain discrete financial
information about the geographical operating segments, including primarily
revenue and operating income, to evaluate segment performance.

During 2006, the Companys India subsidiary engaged a PCAOB registered
firm to evaluate and recommend changes, if any, to its existing transfer pricing
methodology. As a result of such transfer pricing study, the Company changed its
transfer pricing methodology and adopted a cost plus fixed margin methodology,
which applies a fixed margin to the total cost of services performed as opposed
to a net margin method in which revenues are allocated on a fixed percentage
without regard to cost of services. While the application of the new transfer
pricing methodology did not change the Companys revenue or operating
performance on a consolidated basis, it impacted the allocation of revenue
between the Company and its international subsidiaries. Hence the revenues and
operating performance reported for the geographic segments, particularly India
and United States, for the year ended December 31, 2006 reflect the impact of
the new transfer pricing methodology as well as year over year trends in revenue
and operating performance. Please see Note 1 to the Consolidated Financial
Statements for additional information regarding the impact of the change in
transfer pricing methodology. This change in estimate had an overall effect
which shifts revenue from India to the US and other associated entities and
reduces income tax expense by approximately $0.8 million on a consolidated
basis.

Accordingly, the Companys consolidated
operating results for the years ended December 31, 2007, 2006 and 2005 and
financial position as of December 31, 2007, 2006 and 2005 are presented in the
following geographic segments (in thousands):

99

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

|                                    |  | United |        |       |  |        |        |       |  |       |        |   |  |   |       |   |  |   |        
|----------------------------------- |  | ------ | ------ | ----- |  | ------ | ------ | ----- |  | ----- | ------ | - |  | - | ----- | - |  | - | -------
|                                    |  | States |        | India |  | Europe |        | Japan |  | Total |       
|2007                                |  |        |        |       |  |        |        |       |  |       |        |   |  |   |       |   |  |   |        
|                                   
|Revenue                             |  | $      | 87,618 |       |  | $      | 40,429 |       |  | $     | 13,123 |   |  | $ | 3,896 |   |  | $ | 145,066
|Depreciation and
      amortization |  |        | 725    |       |  |        | 1,534  |       |  |       | 202    |   |  |   | 11    |   |  |   | 2,472  
|Operating income/(loss)             |  |        | (3,038 | )     |  |        | 4,125  |       |  |       | 1,558  |   |  |   | 543   |   |  |   | 3,188  
|Interest
      expense              |  |        | 603    |       |  |        | 118    |       |  |       | 71     |   |  |   | -     |   |  |   | 792    
|Income tax provision (benefit)      |  |        | (656   | )     |  |        | 1,258  |       |  |       | 118    |   |  |   | -     |   |  |   | 720    
|Net income
      (loss)             |  |        | (2,265 | )     |  |        | 3,017  |       |  |       | 1,526  |   |  |   | 686   |   |  |   | 2,964  
|Long-lived assets, net              |  |        | 616    |       |  |        | 3,341  |       |  |       | 2,465  |   |  |   | 48    |   |  |   | 6,470  
|Total
      assets                  |  |        | 33,759 |       |  |        | 19,229 |       |  |       | 10,611 |   |  |   | 1,863 |   |  |   | 65,462 
|                                   
|2006                                |  |        |        |       |  |        |        |       |  |       |        |   |  |   |       |   |  |   |        
|                                   
|Revenue                             |  | $      | 80,875 |       |  | $      | 31,335 |       |  | $     | 9,130  |   |  | $ | 3,969 |   |  | $ | 125,309
|Depreciation and
      amortization |  |        | 1,200  |       |  |        | 1,196  |       |  |       | 69     |   |  |   | 9     |   |  |   | 2,474  
|Operating income (loss)             |  |        | (6,969 | )     |  |        | 3,595  |       |  |       | 853    |   |  |   | (779  | ) |  |   | (3,300 
|Interest
      expense              |  |        | 485    |       |  |        | 98     |       |  |       | 14     |   |  |   | -     |   |  |   | 597    
|Income tax provision (benefit)      |  |        | (92    | )     |  |        | 1,078  |       |  |       | -      |   |  |   | 151   |   |  |   | 1,137  
|Net income
      (loss)             |  |        | (5,852 | )     |  |        | 2,338  |       |  |       | 715    |   |  |   | (908  | ) |  |   | (3,707 
|Long-lived assets, net              |  |        | 918    |       |  |        | 3,469  |       |  |       | 1,029  |   |  |   | 56    |   |  |   | 5,472  
|Total
      assets                  |  |        | 32,329 |       |  |        | 16,532 |       |  |       | 4,550  |   |  |   | 1,132 |   |  |   | 54,543 
|                                   
|2005                                |  |        |        |       |  |        |        |       |  |       |        |   |  |   |       |   |  |   |        
|                                   
|Revenue                             |  | $      | 86,617 |       |  | $      | 28,206 |       |  | $     | 7,030  |   |  | $ | 3,473 |   |  | $ | 125,326
|Depreciation and
      amortization |  |        | 1,244  |       |  |        | 891    |       |  |       | 114    |   |  |   | 11    |   |  |   | 2,260  
|Operating income (loss)             |  |        | (9,637 | )     |  |        | 3,526  |       |  |       | (289   | ) |  |   | (543  | ) |  |   | (6,943 
|Interest
      expense              |  |        | 244    |       |  |        | 51     |       |  |       | 5      |   |  |   | 18    |   |  |   | 318    
|Income tax provision (benefit)      |  |        | 111    |       |  |        | (163   | )     |  |       | -      |   |  |   | (188  | ) |  |   | (240   
|Net income
      (loss)             |  |        | (9,190 | )     |  |        | 3,803  |       |  |       | (699   | ) |  |   | (505  | ) |  |   | (6,591 
|Long-lived assets, net              |  |        | 1,339  |       |  |        | 2,650  |       |  |       | 57     |   |  |   | 52    |   |  |   | 4,098  
|Total
      assets                  |  |        | 28,778 |       |  |        | 11,038 |       |  |       | 2,418  |   |  |   | 1,552 |   |  |   | 43,786 

|(1) |  | Includes $0.3 million,
      $0.1million and $0.1million of depreciation and amortization included in
      costs of revenue for the year ended December 31, 2007, 2006 and 2005
      respectively.                                              
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Of the total capital expenditures
      incurred for the year 2007, $0.4 million was incurred in the US, $1.7
      million was incurred in Europe, and $0.7 million was incurred in
      India.                                                 
|   
|(3) |  | Of the total capital expenditures
      incurred for the year 2006, $0.7 million was incurred in the US, $1.0
      million was incurred in Europe (including $0.9 million of non-cash
      expenditure), and $1.2 million was incurred in India.
|   
|(4) |  | Of the total capital expenditures
      incurred for the year 2005, $0.3 million was incurred in the US and $2.0
      million was incurred in India.                                                                                             

100

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

NOTE 16 - UNAUDITED QUARTERLY
FINANCIAL DATA

2007 and 2006 Quarterly Financial
Data

The
following tables set forth certain unaudited results of operations for each
quarter during 2007 and 2006. The unaudited information has been prepared on the
same basis as the audited consolidated financial statements and includes all
adjustments which management considers necessary for a fair presentation of the
financial data shown. The operating results for any quarter are not necessarily
indicative of the results to be attained for any future period. Basic and
diluted earnings (loss) per share are computed independently for each of the
periods presented. Accordingly, the sum of the quarterly earnings (loss) per
share may not agree to the total for the year (in thousands, except per share
data).

|                                                       |  | For the quarters
      ended
|------------------------------------------------------ |  | ----------------------------
|                                                       |  | March 31,                   
|Statement
      of Operations (See Note 10)            |  | 2007                        
|Revenue                                                |  | $                           
|Cost of
      revenue                                  |  |                             
|                                                       | 
|Total operating expenses                               |  |                             
|Operating income
      (loss)                          |  |                             
|                                                       | 
|Income (loss) before provision for (benefit of) income |  |                             
|taxes                                                  |  |                             
|Provision for (benefit of) income taxes                |  |                             
|Net income (loss)                                      |  |                             
|                                                       | 
|Net income (loss) per common share - basic             |  | $                           
|Net income (loss) per common share - diluted           |  | $                           
|                                                       | 
|Shares Outstanding:                                    |  |                             
|Basic                                                  |  |                             
|Diluted                                                |  |                             

The provision for (benefit of ) income
tax and the net income for Q1 07 differ from that previously reported on the
Form 10 Q filed on May 15th2007 due
to the recording of an income tax benefit of approximately $382,000 pertaining
to Q1 of 2007 in Q4 of 2007.

101

---

INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)

|                                                               |  | For the
      quarters ended
|-------------------------------------------------------------- |  | ----------------------------
|                                                               |  | March 31,                   
|Statement
      of Operations                                  |  | 2006                        
|Revenue                                                        |  | $                           
|Cost of
      revenue                                          |  |                             
|                                                              
|Total operating expenses                                       |  |                             
|Operating income
      / ( loss)                               |  |                             
|                                                              
|Income / (Loss) before provision for (benefit of)
      income |  |                             
|taxes                                                          |  |                             
|Provision for (benefit of) income taxes                        |  |                             
|Net Income (loss)                                              |  |                             
|                                                              
|Net income / (loss) per common share                           |  | $                           
|Net income /
      (loss) per common share - diluted           |  | $                           
|                                                              
|Shares Outstanding:                                            |  |                             
|Basic                                                          |  |                             
|Diluted                                                        |  |                             

102

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