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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2005
                         Commission file number 0-20943

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

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

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

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

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

                                                 Name of each exchange on
          Title of each class                        which registered
          -------------------                    ------------------------
                  None

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

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

         Indicate by check mark whether the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.

                  Yes: [ ]                        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 Act.

                  Yes: [ ]                        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: [ ]

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

         Indicate by check mark whether the registrant is a large accelerated
filer, accelerated filer, or a non-accelerated filer (as defined in Exchange Act
Rule 12b-2) (Check one).

               Large Accelerated   Accelerated filer:   Non-accelerated filer:
               filer:   [ ]              [ ]                     [X]

         Indicate by check mark whether the registrant is a shell company (as
defined in Exchange Act Rule 12b-2).

                  Yes: [ ]                        No: [X]

         The aggregate market value of the voting stock held by non-affiliates
of the registrant at June 30, 2005 (the last business day of the most recent
second quarter) was $22,595,121 (based on the closing price as quoted on the
Nasdaq Stock Market on that date). For the purposes of this calculation, shares
owned by officers, directors and 10% shareholders known to the registrant have
been deemed to be owned by affiliates. This determination of affiliate status is
not a determination for other purposes.

         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 31, 2006:

Class                                                      Number of Shares
----------------------------                               ----------------
Common Stock, $.01 par value                                  41,769,107

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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
         Item                                                                              Page
         ----                                                                              ----
<S>                                                                                         <C>
PART I   1    Business                                                                       4
         1A   Risk Factors                                                                  17
         1B   Unresolved Staff Comments                                                     21
         2    Properties                                                                    22
         3    Legal Proceedings                                                             24
         4    Submission of Matters to a Vote of Security Holders                           25
PART II  5    Market for the Registrant's Common Equity and Related Shareholder Matters     26
         6    Selected Financial Data                                                       27
         7    Management's Discussion and Analysis of Financial Condition and Results of    29
              Operations
         7A   Quantitative and Qualitative Disclosure About Market Risk                     50
         8    Financial Statements and Supplementary Data                                   50
         9    Changes in and Disagreements with Accountants on Accounting and Financial     50
              Disclosure
         9A   Controls and Procedures                                                       51
PART III 10   Directors and Executive Officers of the Registrant                            52
         11   Executive Compensation                                                        52
         12   Security Ownership of Certain Beneficial Owners and Management and Related    52
              Shareholder Matters
         13   Certain Relationships and Related Transactions                                52
         14   Principal Accounting Fees and Services                                        52
PART IV  15   Exhibits, Financial Statement Schedules                                       53
EXHIBIT INDEX                                                                               54
SIGNATURES                                                                                  61
FINANCIAL STATEMENTS                                                                        62
</TABLE>

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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. The Company's 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.

                                        3
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PART I

ITEM 1.       BUSINESS.

GENERAL

         Overview

         Intelligroup is a global Information Technology ("IT") services
organization and a leading provider of strategic enterprise technology services
and solutions. Intelligroup's services and solutions include applications
development, implementation, and application management support of Enterprise
Resource Planning (ERP) solutions from SAP, Oracle, and PeopleSoft as well as
e-business solutions using Java and the Microsoft .NET platforms and
infrastructure management services. Intelligroup's customer base includes global
Fortune 500 customers, middle market businesses and public sector organizations.
The Company's global delivery model, along with its International Organization
for Standardization ("ISO") and Capability Maturity Model ("CMM") processes,
enable its customers to achieve rapid Return on Investment (ROI) and reduced
Total Cost of Ownership (TCO). With extensive expertise in industry-specific
enterprise solutions Intelligroup has earned a reputation for consistently
exceeding client expectations.

         Intelligroup improves clients' business performance through the
intelligent application of information technology, positioning them `ahead of
the curve' for the challenges of a rapidly changing business environment.
Through its strategic alliances with SAP, Oracle and PeopleSoft and Microsoft,
Intelligroup offers its 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, application management services, Intelligroup enables its clients to
achieve significant business advantage, with excellent quality, reduced
time-to-market, optimized costs and long-term customer relationships.

         The implementation of these solutions positions the Company's clients
`ahead of the curve' for the challenges of a rapidly changing business
environment. The Company's ISO 9001:2000-certified and SEI/SW-CMM 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. The 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 its customers in an optimal manner, Intelligroup's
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. The company has 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. The Company has created industry vertical practices in
Consumer Products, Life Sciences, Banking Finance Securities and Insurance,
Discrete Manufacturing, State and Local Government, and K-12 and Higher
Education.

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         Company History

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

         In 1994, the Company began to diversify its customer base by expanding
the scope of its 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, the Company grew significantly by
capitalizing on the business opportunity to provide implementation and
customization services work to the expanding ERP market. The Company first began
to provide these technical services to customers implementing SAP software
before expanding its service offerings to include ERP products developed by
Oracle in 1995 and PeopleSoft in 1997.

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

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

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

         Beginning in 2000, the Company began to focus on the management and
support of customers' enterprise, e-commerce and m-commerce applications.
Additionally, the Company introduced certain SAP-based proprietary tools that
are designed to reduce the time and cost of upgrading and maintaining SAP
systems ("Power Up Services(SM)"). In 2001, the Company developed pre-configured
SAP solutions for the pharmaceutical industry ("Pharma Express(SM)") and the
engineering and construction industry ("Contractor Express(SM)"). Pharma
Express, a solution designed for small-to-medium sized life

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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, the Company consummated the sale, effective as of
March 1, 2003, of its 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, the Company received a 5% minority
shareholding in Soltius and a $650,000 note to be paid by Soltius to the Company
over a period of 12 months. The Company received the required payments by
January 2005.

         In 2004, the Company 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 the Company's
outstanding Common Stock, and Venture Tech Assets Pvt. Ltd. ("Venture Tech")
acquired approximately 16.8% of the Company's outstanding Common Stock ("Private
Placement Transaction"). In connection with the Private Placement Transaction,
SAIF and Venture Tech designated five of nine directors to the Company's Board
of Directors.

         On March 31, 2006, the Company completed a $10 million private
placement transaction whereby SAIF acquired an additional 3,333,333 shares of
the Company's common stock and Venture Tech acquired an additional 3,333,334
shares of the Company's 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 the Board of Directors and generated
$9.7 million of proceeds to the Company, net of transaction expenses. Following
approximately the 2006 Private Placement, SAIF and Venture Tech own 36% and 26%
of the Company's common stock, respectively.

         The following is a description of the Company's business, including,
among other things, its 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

         Historically, the Company's services have ranged from providing
customers with staff augmentation services to multi-personnel full-scale
projects. The Company provides these services to its 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, the Company began
to focus on providing application management services ("AMS") for their
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. The Company's focus on management and support services is
also intended to encourage ongoing and recurring service relationships, rather
than one-time implementation engagements.

         Intelligroup's services address the implementation, upgrade, and
application management needs of its customers. The Company's proven
methodologies and innovative tools allow customers to reduce

                                        6
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costs by accelerating implementations and upgrades, and by lowering ongoing
support and maintenance costs for ERP and extended ERP applications.

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

    o    Significantly reduce clients' development time and costs;

    o    Deliver superior-quality enhancements on schedule;

    o    Ensure reliable service levels;

    o    Accommodate requirement changes and manage risks;

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

    o    Meet the peaks and valleys of resource requirements.

         Customers' partner with Intelligroup in order to 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 relationships with SAP, Oracle, PeopleSoft, and
Microsoft. The Company believes that such relationships will continue to result
in enhanced industry recognition.

         In 1995, the Company achieved the status of a "SAP National
Implementation Partner." In 1997, the Company enhanced its partnership status
with SAP, by first achieving "National Logo Partner" status and then
"Accelerated SAP Partner" status. In July 1997, the Company was awarded
"PeopleSoft Implementation Partnership" status. In June 1998, the Company
expanded its Oracle applications implementation services practice and added
upgrade services to meet market demand of mid to large size companies that were
implementing or upgrading Oracle applications. In 2000, the Company achieved
"SAP Services Partner" status and "SAP Hosting Partner" for the pharmaceuticals
industry vertical status. In 2001, the Company's pharmaceutical template for the
small and medium-size businesses market (covering current Good Manufacturing
Processes ("cGMP") and validation standards) was certified by SAP America. In
2002, the Company was awarded the SAP Services Partner Award of Excellence. In
2004 the Company's Japan Subsidiary was awarded the SAP Award of Excellence -
Upgrade Business Award.

         As a result of the Company's experience in implementing ERP software,
the Company has developed a proprietary methodology and associated toolset for
implementing enterprise business software applications. The toolset also
contains a project management and tracking tool, which the Company utilizes to
monitor implementation projects undertaken for customers. The Company believes
that its methodology and toolset may enable its customers to realize significant
savings in time and resources. Furthermore, the Company believes that use of the
methodology and toolset also shortens the

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turn-around time for program development, as it streamlines the information flow
between the Company's offices and customer sites.

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

         In 2001, the Company developed Pharma Express and Contractor Express.
Pharma Express is a ready-to-run, fully integrated pharmaceutical solution that
enables pharmaceutical companies of all sizes to improve the efficiency of their
manufacturing process to effectively control the cost-of-production and
distribution while keeping the production environment cGMP-compliant. Pharma
Express incorporates SAP Best Practices for the highly regulated pharmaceutical
industry and seamlessly integrates order management, process manufacturing,
quality management, inventory and distribution and financials. Contractor
Express 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.

         The Company's offshore centers, located in India, allow the Company to
provide cost-effective, timely and high quality professional services to
customers throughout the world.

         The offshore centers are structured along the following lines -

         Centers of Excellence (CoE) - 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- PeopleSoft, e-Business,
         especially focused on the new dimension technologies.

         Infrastructure Management - which provides infrastructure management
         services.

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

         The Company leverages its offshore centers, in coordination with
consultants located at customer sites, to deliver rapid, around the clock
services to provide customers with savings in application deployment costs and
expedited project completion. Intelligroup is able to deliver high value
services at

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competitive prices due to: (i) the high level of expertise and experience of
consultants; (ii) the rigorous application of the Company's proprietary project
methodologies, tools and project management disciplines; and (iii) the cost
structures associated with the Company's offshore centers.

         The Company's customers are primarily 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, Puerto Rico Telephone Company - Verizon.

          The Company has also participated in project teams led by IT
consulting firms such as Accenture and BearingPoint.

         Application Management Services

         Intelligroup's Application Management Services provide the resources,
processes and tools needed for quality-driven user, technical and operations
support. The Company uses a well-defined set of assessment, transition and
long-term processes to deliver customized, affordable and highly responsive
support.

         The Application Management Services provides service offerings for
Application Management, Application Development and Application Integration

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

    o    Significant reduction in support costs;

    o    Predictable costs for easier budgeting;

    o    24x7, on-demand access to skilled functional and technical
         professionals through its offshore centers located in India;

    o    Assured service levels and flexible, individualized support programs;

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

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

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

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         Key to the Company's ability to deliver Application Management Services
is its offshore centers located in India, which help to provide responsive
global support to customers through delivery teams that work around-the-clock.
The offshore centers maintain customers' critical applications, systems and
infrastructure stable, and keep them current and optimized through efficient and
cost-effective user, technical and operations support. Intelligroup is able to
deliver high value services at attractive prices due to: (i) the high level of
expertise and experience of support professionals; and (ii) the cost structures
associated with the offshore centers.

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

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 "ASP(Plus)" are service marks of the Company.

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

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

SALES AND MARKETING

         The Company historically has generated new sales leads from (i)
referrals from existing customers, (ii) introductions to potential customers by
the Company's alliance partners, which often need to recommend qualified systems
integrators to implement or enhance their software products, and (iii) internal
sales efforts. In addition, the Company has been introduced to customers by
certain of its competitors, such as the consulting practices of the former "Big
Five" accounting firms, which at times use the Company's expertise and ability
to deliver qualified personnel for complex projects.

         The Company has a focused approach towards sales and marketing efforts.
The Company's sales efforts are driven by Client Service Executives ("CSE") who
serve as leaders in multiple engagements and have both sales and delivery
responsibilities. CSE's are responsible for all aspects of the customer
relationship, including business development, service delivery and customer
satisfaction. CSE's will typically focus on a region of the country or in a
particular industry area. In addition to their responsibilities for generating
new revenue opportunities and expanding revenue within existing clients,
typically CSE's are also billable headcount. The CSE's work closely with
business development managers ("BDMs") in the region to identify target accounts
and opportunities, to develop plans for pursuing those opportunities, and to
develop proposals and presentations in each case. 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. CSE's work closely with
the Company's business development

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leadership, project managers and partner representatives (usually sales), to
grow the opportunities within their region.

         BDMs are responsible for developing and increasing the sales pipeline,
and for closing sales with new and existing customers. The Company continually
evaluates the size of direct sales force in comparison to market conditions and
shall expand its direct sales force where market conditions warrant.

         The Company has established a Business Development Center ("BDC") in
its facilities in Hyderabad, India. The primary objectives of the BDC are to:
(i) generate qualified leads for local BDMs to pursue with existing and
prospective clients; and, (ii) support the proposal efforts of local BDMs by
providing strategic research and proposal writing capabilities. The Company
intends to continue to expand the BDC in proportion to its local BDMs sales
presence.

         The primary objective of the Company's Marketing function is branding
and lead generation. The Company will continue to market to potential customers
with demonstrated needs for the Company's expertise in ERP and e-business
solutions. The Company also intends to leverage public relations to raise
visibility for its brand and increase outbound email marketing campaigns to
remain at top of mind and expand its footprint in its customer base.

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

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

         The Company's services require a substantial financial commitment by
customers and, therefore, typically involve a long sales cycle. Once a lead is
generated, the Company endeavors to quickly understand the potential customer's
business needs and objectives in order to develop the appropriate solution and
bid accordingly. The Company's 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 the
Company initially meets 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.

                                       12
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         As part of their client/server strategies, organizations often acquire,
or consider acquisition of, the pre-packaged enterprise-wide business software
applications offered by leading ERP vendors, such as SAP, Oracle and PeopleSoft.
These applications are then implemented and maintained to meet their particular
business needs. Alternatively, the organizations may develop, or commission the
development of, customized software applications to meet the needs of these
organizations. In both cases, customers have a set of core operations
applications, which they use to support their central business processes. These
customers must balance demands from their user departments for new, innovative
business applications against the absolute requirement to maintain, manage and
optimize the core operations applications. These competing demands reflect areas
of potential business opportunity for the Company.

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

         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.

                                       13
<PAGE>

         Another area of opportunity for the Company is strategic offshore
outsourcing. With its history as a pioneer in providing offshore management and
support of mission critical applications, the Company can offer clients a
flexible, low cost option for managing ERP applications. In recent economic
times, this has been an area of growth within the IT sector.


CUSTOMERS

         The Company provides its 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.

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

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

COMPETITION

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

    o    Consulting and software integration firms: including, IBM Global
         Services, Electronic Data Systems, Computer Sciences Corporation, Cap
         Gemini Ernst & Young, Accenture, BearingPoint Deloitte Consulting, IDS
         Scheer, SAP Professional Services, Oracle Consulting, Hitachi, Atos
         Origin and Rapidigm;

                                       14
<PAGE>

    o    Software applications vendors: including, SAP, Oracle and PeopleSoft;
         and

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

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

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

EMPLOYEES

         As of December 31, 2005, the Company employed 1,938 full-time
employees, of whom 1,653 were engaged as consultants or as software developers,
89 were engaged in sales and marketing, and 196 were engaged in delivery
management, finance and administration. Of the total number of employees, 529
were based in the United States, 37 were based in Japan, 43 were based in Europe
and 1,329 were based in India. In addition, the Company engaged 102 independent
contractors to perform information technology services as of December 31, 2005.

         None of the Company's employees are covered by a collective bargaining
agreement. Substantially all of the Company's employees have executed employment
agreements containing non-competition, non-disclosure and non-solicitation
clauses. In addition, the Company requires that all new employees execute such
agreements as a condition of employment by the Company. The Company believes
that it has been successful in attracting and retaining skilled and experienced
personnel. There is increasing competition for experienced sales and marketing
personnel and technical professionals. The Company's future success will depend
in part on its ability to continue to attract, retain, train and motivate highly
qualified personnel. The Company considers relations with its employees to be
good.

                                       15
<PAGE>

INTELLECTUAL PROPERTY RIGHTS

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

                                       16
<PAGE>

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 the Company's intention to shift more
of its focus towards the management and support of customers' enterprise,
e-commerce and m-commerce applications. The factors discussed below could cause
actual results and developments to be materially different from those expressed
in or implied by such statements.

    o    Lack of Profitability. The Company's lack of profitability over recent
periods may impact its ability to attract customers, employees, investors and
creditors. The Company's ability to achieve profitability in future periods will
depend in large part on its ability to generate new sales, particularly
annuity-based engagements, to improve its rate of employee utilization, and to
manage selling, general and administrative expenses in proportion to its top
line.
    o    Ability to Retain Key Executive and Sales Leadership Personnel. The
Company experienced significant executive and board level turnover in 2004 and
through mid 2005. The Company also experienced significant turnover in its sales
managers and personnel in 2004 through 2005. Such turnover has resulted in a
lack of historical knowledge and experience and has impacted the Company's
ability to maintain consistent relationships with its existing and prospective
customers, to build and convert pipeline opportunities and to generate new
business. There can be no assurance that the departure of one or more of such
key personnel would not have a material adverse effect on the Company's
financial condition and results of operations.
    o    Ability to Secure and Maintain Access to External Sources of Funding.
In addition to cash generated by on-going operations, the Company relies on
access to external sources of funding and its ability to timely collect cash
from its customers to manage its business. The Company's existing credit
facility, which represents its sole source of external funding, expires on May
31, 2006. The Company's ability to continue its ongoing business operations and
fund future growth depends on its 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 the Company.
    o    Ability to Attract and Retain Technical Key Personnel. The Company's
business is labor intensive and, therefore, the Company's success depends in
large part on its ability to recruit, retain, train and motivate highly skilled
employees, particularly project managers and other senior level technical
personnel. The Company's 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 the Company's financial condition, competition
from departing executives 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.
    o    Highly Competitive Market for Technical Personnel in India. The market
for technical personnel in India, which represents the primary recruiting market
for the Company's technical personnel, is extremely competitive resulting in
increased compensation costs. Such increasing compensation costs are
contributing to the deterioration of the Company's gross margins.

                                       17
<PAGE>

    o    Substantial Variability of Quarterly Operating Results. The Company has
experienced, and expects to continue to experience, inconsistent quarterly
operating results. The substantial variability of the Company's quarterly
operating results are caused by a variety of factors, many of which are not
within the Company's control, including (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
the Company or its competitors and the timing of new product introductions by
the Company's ERP partners, (v) levels of market acceptance for the Company's
services, (vi) general economic conditions, and (vii) the hiring of additional
staff.
    o    Highly Competitive Information Technology Services Industry. The
markets for the Company's services are highly competitive. Many of the Company's
competitors have greater financial, technical and marketing resources than the
Company. The increased competition in the industry, among other negative
effects, may cause a decrease in the Company's billing and employee utilization
rates
    o    Reliance on Key Partners. The Company relies 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 the Company's ability to sell professional
consulting services related to such enterprise resource applications.
    o    Concentration Risks. The Company derives a significant portion of its
revenue from a limited number of customers and projects. The Company's ability
to grow its business depends in large part on maintaining such customer
relationships and continuing purchasing power of such customers. The loss of any
large customer could have a material adverse effect on the Company's business,
financial condition and results of operations.
    o    Ability to Maintain Effective Internal Controls. The Company has
previously experienced material weaknesses in its internal control over
financial reporting. If the Company is unable to continue to improve its control
environment and to prevent material weaknesses, or to remediate any weaknesses
that may arise, such failure will adversely impact its ability: (i) to
effectively manage the business; (ii) to timely record, process, summarize and
report financial statements that fairly present, in all material aspects, the
Company's financial condition, statements of operations and cash flows; and
(iii) to comply with applicable law, including the Sarbanes-Oxley Act of 2002.
In addition the Company will be required to comply with the internal control
reporting requirements of Section 404 of the Sarbanes Oxley Act of 2002
beginning in 2007 (if the Company is not an "accelerated filer" as defined in
Exchange Act Rule 12b-2 for 2006), or beginning in 2006 (if the Company is an
"accelerated filer" for 2006). If the Company is unable to maintain effective
internal control over financial reporting, such inability will adversely affect
the Company's ability to comply with Section 404. The Company will be an
"accelerated filer" if the aggregate market value of the Company's common stock
held by non-affiliates is $75 million or more as of June 30, 2006. As of March
28, 2006, there were 15,370,821 shares of common stock held by non-affiliates
with an aggregate market value of approximately $23,210,000.
    o    Continued Availability of a Market for the Company's Common Stock. The
Company's common stock trades on the Pink Sheets. In order to maintain liquidity
in its common stock, the Company depends upon the continuing availability of a
market on which its securities may be traded. The Company's ability to cause its
stock to be listed on a national exchange and to maintain compliance with
on-going listing requirements may impact the Company's ability to attract
investors and to use its common stock to fund future growth.
    o    Litigation and Compliance Risks. The Company and certain former
officers are defendants in a shareholder class action suit, as described under
"Item 3 - Legal Proceedings - Shareholder Class

                                       18
<PAGE>

Actions." If the Company is unable to defend itself and resolve the ongoing
shareholder litigation related to the Company's restatement of prior periods'
consolidated financial statements within the limits of the Company's director
and officer liability insurance policy such failure will adversely affect its
financial condition. In addition, there is the potential for significant claims
against the Company relating to its professional services from customers or
otherwise and the ability of the Company to adequately mitigate the risk of such
potential claims may impact its future financial condition. The Company's
ability to comply with existing and future immigration regulations may impact
its ability to engage and deploy consultants on billable engagements.
Uncertainties resulting from pending litigation matters and from potential
administrative and regulatory issues including, but not limited to, accounting,
corporate governance, immigration and taxation matters.
    o    Currency Fluctuation Risks. Uncertainty relating to worldwide currency
exchange rates, particularly in regard to the Indian rupee, U.S. Dollar, the
Euro, British Pound, Danish Krone and Japanese Yen, and the fluctuations in such
exchange rates may impact the Company's quarterly and/or annual financial
results.
    o    Geopolitical Risks. There is the potential for future legislation by
the United States government regulating or taxing outsourcing which may
adversely affect the Company's 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 the Company's business model. Changes in India's economic policies
or additional legislation regarding information technology services businesses
may adversely affect the Company's business model.
    o    Reliance on Intellectual Property Rights. The Company relies upon a
combination of trade secrets, nondisclosure and other contractual arrangements,
and copyright and trademark laws to protect its proprietary rights. The
Company's future success is dependent, in part, upon its proprietary
methodologies and toolsets, development tools and other intellectual property
rights. The Company enters into confidentiality agreements with its employees,
generally requires that its consultants and customers enter into such
agreements, and limits access to and distribution of its proprietary
information. The Company also requires that substantially all of its employees
and consultants assign to the Company their rights in intellectual property
developed while employed or engaged by the Company. There can be no assurance
that the steps taken by the Company in this regard will be adequate to deter
misappropriation of its proprietary information or that the Company will be able
to detect unauthorized use of and take appropriate steps to enforce its
intellectual property rights.
    o    Risks Associated with Potential Tax Liabilities. The Company was
previously entitled to a tax holiday for certain revenue earned and expenses
incurred by its existing Software Technology Parks of India unit ("STPI Unit")
of its Hyderabad operations. Such tax holiday expires effective April 1, 2006
and therefore the Company's effective tax rate will increase. In addition, in
July 2000, the Company completed the tax-free spin-off of SeraNova, its 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. SeraNova's
management has represented that such acquisition was not contemplated at the
time of the spin-off of SeraNova by the Company, and accordingly should not
impact the tax-free nature of the spin-off. Although the Company and SeraNova
are parties to a tax sharing agreement pursuant to which SeraNova agreed to
indemnify the Company with respect to any possible tax liability related to the
spin-off, SeraNova has filed for bankruptcy protection under Chapter 7 of the
United States Bankruptcy Code and would be unable to pay the resultant tax
liability pursuant to SeraNova's indemnification obligations under its tax
sharing agreement with the Company. If it were

                                       19
<PAGE>

determined that the spin-off was taxable, the Company would bear the liability
to pay such the tax liability, which would be material. Please refer to Note 9
to the audited consolidated financial statements of the Company included
elsewhere in this report for further information.

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

                                       20
<PAGE>

ITEM 1B.      UNRESOLVED STAFF COMMENTS.

Not applicable.

                                       21
<PAGE>

ITEM 2.       PROPERTIES.

         As of December 31, 2005, the Company owns no real property and
currently leases or subleases all of its office space. Within the United States,
as of December 31, 2005, the Company leases office space in Edison, NJ for
certain technical and support personnel, sales and marketing, administrative,
finance and management personnel, and in Atlanta, GA, Warrenville, IL,
Pleasanton, CA, San Jose, CA and Los Angeles, CA for certain other sales and
operations personnel. The Company also leases office space in Denmark, India,
Japan and the United Kingdom. The following table summarizes the Company's
leased office space as of December 31, 2005:

<TABLE>
<CAPTION>
                       AREA                                                             LEASE
    LOCATION        IN SQ. FT.                            USE                         EXPIRATION
-----------------   ----------  ----------------------------------------------------  ----------
<S>                     <C>     <C>                                                   <C>
Edison, NJ  (A)         48,476  Corporate Headquarters                                  9/9/2008
                                Consulting Services - focus on SAP, Peoplesoft
                                commercial, Oracle and E-Business markets in
                                the US. Selling, general and administrative
                                functions in the US

Atlanta, GA              4,051  Consulting Services - focus on SAP and Peoplesoft      8/31/2006
                                public sector market in the US; Limited selling,
                                general and administrative functions in the US

Warrenville, IL            913  Limited selling and marketing functions in the US     11/30/2006

Pleasanton, CA             450  Limited selling and marketing functions in the US      2/28/2006

San Jose, CA               135  Limited selling and marketing functions in the US      2/28/2006

Los Angeles, CA            290  Limited selling and marketing functions in the US      2/28/2006

Odense, Denmark          9,900  Consulting Services - focus on SAP market in           7/31/2006
                                Denmark; Selling, general and administrative
                                functions in Denmark

Odense, Denmark           2118  Education & Training                                   2/28/2006

Hyderabad, India        18,359  IT development and support services                   12/31/2010

Hyderabad, India        15,401  IT development and support services                    5/31/2006

Hyderabad, India        10,727  IT development and support services                    7/31/2006
                                (Global Support Center)

Hyderabad, India        56,600  IT development and support services and                7/31/2010
                                administrative and general functions

Bangalore, India         5,163  IT development and support services                   10/30/2010

Tokyo, Japan             1,519  Consulting Services - focus on SAP market in            3/1/2006
                                Japan; Selling, general and administrative functions
                                in Japan

Tokyo, Japan             2,826  Consulting Services - focus on SAP market in           8/31/2007
                                Japan; Selling, general and administrative functions
                                in Japan

Milton Keynes, UK        2,700  Consulting Services - focus on Peoplesoft and          7/27/2006
                                SAP market in the UK; Selling, general and
                                administrative functions in the UK
</TABLE>

                                       22
<PAGE>

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

         In July 2000, the Company completed the tax-free spin-off of SeraNova,
its former subsidiary. In connection with the spin-off, the Company entered into
a space sharing agreement with SeraNova dated January 1, 2000, pursuant to which
SeraNova agreed to pay certain lease obligations to the Company's landlords.
Beginning in late 2001, SeraNova failed to pay certain outstanding lease
obligations incurred under the terms of a Space Sharing Agreement. Accordingly
on March 4, 2002, the Company filed an arbitration demand with the American
Arbitration Association against the SeraNova Group. As of December 31, 2005, the
Company has $0.4 million remaining in its accrual for future lease obligations.

                                       23
<PAGE>

ITEM 3.       LEGAL PROCEEDINGS

India Tax Assessments

         The Company's India subsidiary has received tax assessments dated
February 12, 2002, July 23, 2002, August 22, 2003, September 10, 2004 and March
29, 2005 from the India taxing authority denying tax exemptions claimed for
certain revenue earned and disallowing certain expenses claimed during the
Indian subsidiary's fiscal years ended March 31, 1998 through March 31, 2002.
The revised tax assessments were for 14.6 million, 9.5 million, 2.8 million, 5.6
million and 15.0 million Indian rupees, respectively, or approximately $1.0
million in total. An additional assessment for tax penalties and interest for
the fiscal year ended March 31, 2001 of 1.7 million Indian rupees, or
approximately $38,000, was also received. The Company has made payments of
approximately $1.1 million (consisting of $0.8 million for taxes paid under
protest, $38,000 for tax penalties and interest and $0.2 million for other tax
adjustments not in dispute) to the India tax authority. The Company's resulting
overpayment has been refunded.

         The Company is currently appealing the tax assessments received by the
Company's India Subsidiary denying tax exemptions claimed during each of the
fiscal years ended March 31, 1999 through March 31, 2002. In the event the
Company's appeal is not successful, a future cash outlay of approximately
$57,000 would be required. The Company has reserved $57,000, the full amount
claimed, against this potential liability. In the event the Company is
successful, an amount up to approximately $0.8 million could be refunded to the
Company.

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 the Company's
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 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.

         There is no other litigation pending to which the Company is a party or
to which any of its property is subject which would have a material impact on
the Company's consolidated financial condition, results of operations or cash
flows in the event the Company was unsuccessful in such litigation.

                                       24
<PAGE>

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

         The Company held its annual meeting on December 27, 2005 ("2005 Annual
Meeting") at which the matters described herein were submitted to a vote of the
security holders.

At the 2005 Annual Meeting, the Company submitted a proposal to elect Vikram
Gulati, Ravi Adusumalli, Ajit Isaac, Srini Raju, Sandeep Reddy, Alick Wilson,
and Andrew Yan to serve as directors until the next annual meeting of
shareholders and until their respective successors have been duly elected and
qualified. The votes cast for or withheld for each nominee were as follows:

Nominee:                    Votes For:                  Votes Withheld:
---------------             -----------------           ---------------
Vikram Gulati               29,984,638 Shares           41,452 Shares
Ravi Adusumalli             29,957,231 Shares           68,859 Shares
Ajit Isaac                  29,995,885 Shares           30,205 Shares
Srini Raju                  29,995,745 Shares           30,345 Shares
Sandeep Reddy               29,957,371 Shares           68,719 Shares
Alick Wilson                29,984,663 Shares           41,427 Shares
Andrew Yan                  29,984,663 Shares           41,427 Shares

         At the 2005 Annual Meeting, the Company submitted a proposal to ratify
the appointment of J.H. Cohn LLP as the Company's independent auditors for the
year ended December 31, 2005. The votes cast for, against or abstaining from,
and the broker non-votes were as follows:

                                                         No. of
No. of Shares      No. of Shares       No. of            Broker
Voted For:         Voted Against:      Abstentions:      Non-vote:
-------------      --------------      ------------      ---------
30,000,800         19,890              5,400             0

         At the 2005 Annual Meeting, the Company submitted a proposal to approve
the amendment of the Certificate of Incorporation to increase the number of
authorized shares of common stock to fifty million (50,000,000). The votes cast
for, against or abstaining from, and the broker non-votes were as follows:

                                                         No. of
No. of Shares      No. of Shares       No. of            Broker
Voted For:         Voted Against:      Abstentions:      Non-vote:
-------------      --------------      ------------      ---------
29,904,193         118,060             3,837             0

         At the 2005 Annual Meeting, the Company submitted a proposal to adopt
the Second Amendment to the 2004 Equity Incentive Award Plan. The votes cast
for, against or abstaining from, and the broker non-votes were as follows:

                                                         No. of
No. of Shares      No. of Shares       No. of            Broker
Voted For:         Voted Against:      Abstentions:      Non-vote:
-------------      --------------      ------------      ---------
19,531,961         120,949             7,237             10,365,943

                                       25
<PAGE>

PART II


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

         The Company's Common Stock is currently being quoted under the symbol
"ITIG" on the Pink Sheet Electronic Quotation Service ("Pink Sheets") maintained
by Pink Sheets LLC. Prior to October 21, 2004, the Common Stock was quoted on
the Nasdaq Stock Market (the "NASDAQ") under the symbol "ITIG."

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

            QUARTER ENDED          HIGH           LOW
         -------------------    -----------    ----------
         March 31, 2004         $     10.56    $     5.25
         June 30, 2004          $      9.00    $     3.13
         September 30, 2004     $      5.35    $     1.05
         December 31, 2004      $      1.88    $     0.85

         March 31, 2005         $      1.30    $     1.13
         June 30, 2005          $      1.49    $     1.10
         September 30, 2005     $      2.62    $     1.47
         December 31, 2005      $      2.13    $     1.30

         As of March 24, 2006, the approximate number of holders of record of
the Common Stock was 73 and the approximate number of beneficial holders of the
Common Stock was 2,870.

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

         The following table summarizes securities authorized for issuance under
the Company's equity compensation plans as of December 31, 2005.

<TABLE>
<CAPTION>
                                                                                       Number of securities
                                   Number of securities to    Weighted-average       remaining available for
                                   be issued upon exercise    exercise price of       future issuance under
                                    of outstanding options   outstanding options    equity compensation plans
                                   -----------------------   -------------------    -------------------------
<S>                                              <C>         <C>                                      <C>
2004 Equity Incentive Award Plan                 3,247,000   $              1.70                      584,941

1996 Stock Option Plan                             693,969   $              5.24                           --

1996 Non-Employee Director Stock
Option Plan                                         20,000   $              1.62                       90,000

Equity compensation plans not                       40,000   $              2.06                       65,000
approved by security holders
                                   -----------------------   -------------------    -------------------------
Total                                            4,000,969   $              2.32                      739,941
                                   =======================   ===================    =========================
</TABLE>

                                       26
<PAGE>

ITEM 6.       SELECTED FINANCIAL DATA.

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

         The consolidated statement of operations data for the years ended
December 31, 2005, 2004, and 2003 and the consolidated balance sheet data as of
December 31, 2005, 2004, and 2003 have been derived from the Company's 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, 2002 and for the
year ended December 31, 2002 have been derived from audited consolidated
financial statements not included herein, but which were previously filed with
the Securities and Exchange Commission, or SEC. The consolidated statement of
operations data for the year ended December 31, 2001 and the consolidated
balance sheet data as of December 31, 2001 have been derived from the Company's
unaudited consolidated financial statements not included herein, but which were
previously filed with the SEC. The Company's historical results are not
necessarily indicative of the operating results to be realized in the future.

         On April 2, 2003, the Company consummated the Sale, 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.

                                       27
<PAGE>

<TABLE>
<CAPTION>
                                                                                AS OF DECEMBER 31,
                                                     ------------------------------------------------------------------------
                                                         2005           2004           2003           2002           2001
                                                     ------------   ------------   ------------   ------------   ------------
                                                                                                                  (unaudited)
                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                  <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA:

Cash and cash equivalents                            $      5,305   $      6,239   $      1,872   $      1,163   $      1,620
Working capital                                            11,302         19,991          4,146          2,793          2,126
Total assets                                               43,786         48,171         41,438         38,708         34,965
Line of credit and current portion of obligations
 under capital leases                                       3,684          2,778          8,817          6,681          4,775
Long-term debt and obligations under capital
 leases, net of current portion                               350             45            256              -            315

Shareholders' equity                                       17,890         24,647          9,053          8,794         10,360
</TABLE>

<TABLE>
<CAPTION>
                                                                         FOR THE YEARS ENDED DECEMBER 31,
                                                     ------------------------------------------------------------------------
                                                         2005           2004           2003           2002           2001
                                                     ------------   ------------   ------------   ------------   ------------
                                                                                                                  (unaudited)
                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                  <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:

Revenue                                              $    125,326   $    128,903   $    117,142   $    101,105   $    100,541
Cost of revenue                                            92,304         91,818         83,387         71,119         70,315
                                                     ------------   ------------   ------------   ------------   ------------
     Gross profit                                          33,022         37,085         33,755         29,986         30,226
                                                     ------------   ------------   ------------   ------------   ------------

Selling, general and administrative expenses               37,705         34,741         29,036         25,935         41,108
Depreciation and amortization                               2,260          2,475          2,661          2,736          3,661
Proxy contest charges                                           -              -            711          1,823              -
                                                     ------------   ------------   ------------   ------------   ------------
     Total operating expenses                              39,965         37,216         32,408         30,494         44,769
                                                     ------------   ------------   ------------   ------------   ------------

     Operating income (loss)                               (6,943)          (131)         1,347           (508)       (14,543)

Interest income                                               147             36             83             31            527
Interest expense                                             (318)          (472)          (453)          (392)          (686)
Other income (expense)                                        283             59           (907)           368           (375)
                                                     ------------   ------------   ------------   ------------   ------------

Income (loss) from continuing operations before
provision for (benefit of) income taxes                    (6,831)          (508)            70           (501)       (15,077)
Provision for (benefit of) income taxes                      (240)           358            186           (106)           845
                                                     ------------   ------------   ------------   ------------   ------------
Loss from continuing operations                            (6,591)          (866)          (116)          (395)       (15,922)

Loss from discontinued operations                               -              -           (925)          (991)          (244)
                                                     ------------   ------------   ------------   ------------   ------------
Net loss                                             $     (6,591)  $       (866)  $     (1,041)  $     (1,386)  $    (16,166)
                                                     ============   ============   ============   ============   ============

Loss per share:
     Basic and diluted loss per share
      Loss from continuing operations                $      (0.19)  $      (0.04)  $          -   $      (0.02)  $      (0.96)
      Loss from discontinued operations                         -              -          (0.06)         (0.06)         (0.01)
                                                     ------------   ------------   ------------   ------------   ------------

     Net loss per share                              $      (0.19)  $      (0.04)  $      (0.06)  $      (0.08)  $      (0.97)
                                                     ============   ============   ============   ============   ============

     Weighted average number of common shares
      outstanding - basic and diluted                      35,103         22,790         16,697         16,630         16,630
                                                     ============   ============   ============   ============   ============
</TABLE>

                                       28
<PAGE>

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

OVERVIEW

         In this Section, the Company will discuss the following: (1) key
factors in evaluating the Company's financial performance; (2) management's
discussion of its internal control over financial reporting; (3) application of
critical accounting policies, which explains the accounting policies necessary
to understand how the Company records its financial information; (4) results of
operations - consolidated, in which the Company's consolidated results are
compared year to year to recognize trends; (5) results of operations by business
segment, which allows the Company to compare the results of its different
business units; (6) liquidity and capital resources; (7) costs related to
SeraNova, (8) contractual obligations and other commercial commitments; and (9)
recently issued accounting standards.

KEY FACTORS IN EVALUATING THE COMPANY'S FINANCIAL PERFORMANCE

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

         REVENUE

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

         FIXED PRICE PROJECTS

         The Company has provided services on certain projects in which it, at
the request of the clients, offers a fixed price for its services. For the years
ended December 31, 2005, 2004 and 2003, revenue derived from projects under
fixed price contracts represented approximately 43%, 43% and 35%, respectively,
of the Company's total revenue. No single fixed price project was material to
the Company's business during 2005, 2004 or 2003. The Company believes that, as
it pursues its strategy of providing application management services to
customers, it will continue to offer fixed price projects. The Company believes
that there are certain risks related to fixed price arrangements and thus prices
such arrangements to reflect the associated risk. There can be no assurance that
the Company will be able to complete such projects within the fixed price
timeframes. The failure to perform within such fixed price contracts, if entered
into, could have a material adverse effect on the Company's business, financial
condition and results of operations.

                                       29
<PAGE>

         CUSTOMER CONCENTRATION

         The Company has derived and believes that it will continue to derive a
significant portion of its revenue from a limited number of customers and
projects. For the years ended December 31, 2005, 2004 and 2003, the Company's
ten largest customers accounted for in the aggregate approximately 49%, 45% and
46% of its revenue, respectively. During 2005, one customer, various businesses
of the General Electric Company, accounted for more than 10% of revenue. During
2004 and 2003, no single customer accounted for 10% or more of revenue. For the
years ended December 31, 2005, 2004 and 2003, 12%, 22% and 25%, 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 IT
consulting firm. There can be no assurance that such IT consulting firms will
continue to engage the Company in the future at current levels of retention, if
at all.

         SOFTWARE PARTNERS

         For the years ended December 31, 2005, 2004 and 2003, the Company
derived the following percentages of total revenue from projects in which the
Company implemented, extended, maintained, managed or supported software
developed by SAP, PeopleSoft, Oracle and other e-Business application providers:

                                   PERCENTAGE OF REVENUE
                       --------------------------------------------
                        YEAR ENDED      YEAR ENDED      YEAR ENDED
                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                           2005            2004            2003
                       ------------    ------------    ------------
SAP ................        70%             68%             68%
PeopleSoft .........        21%             25%             25%
Oracle .............         3%              2%              4%
e-Business .........         5%              3%              1%

         MARKETS

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

         EXPENSES

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

                                       30
<PAGE>

         SPECIAL CHARGES AND NON-RECURRING ITEMS

         Proxy Contest. Between the second quarter 2002 and third quarter of
2003, the Company incurred charges related to the proxy contest launched by
Ashok Pandey to take control of the Company's board of directors ("Proxy
Contest"). On August 7, 2003, the Company and Mr. Pandey executed a Settlement
Agreement ("Settlement Agreement") resolving, among other things, certain
litigation matters relating to the Proxy Contest. As part of the Settlement
Agreement the Company agreed to pay to Mr. Pandey an aggregate amount of
$750,000 in three equal installments over two years, commencing October 2003.
The Company also incurred material costs related to defending the Company in the
Proxy Contest. In connection with the Private Placement Transaction completed on
September 30, 2004, the payment obligations under the Settlement Agreement were
accelerated. The Company made payments of $250,000 each to Mr. Pandey on January
17, 2005 and February 21, 2005. Since the Proxy Contest has been successfully
resolved, the Company does not anticipate incurring material costs related to
the Proxy Contest going forward.

         Discontinued Operations. On April 2, 2003, the Company consummated the
Sale, effective as of March 1, 2003, of its Former Subsidiaries, to Soltius. As
consideration, the Company received a 5% minority shareholding in Soltius and a
$0.7 million note to be paid by Soltius to the Company over a period of 12
months. As of January 2005, all payments have been made. The Consolidated
Financial Statements for 2003 and 2002 of the Company have been reclassified to
reflect the Sale of the Former Subsidiaries to Soltius as discontinued
operations. Accordingly, the assets, liabilities, results of operations and cash
flows of the Former Subsidiaries prior to the Sale have been segregated in the
consolidated balance sheets, consolidated statements of operations and
consolidated statements of cash flows and have been reported as discontinued
operations.

MANAGEMENT'S DISCUSSION OF ITS INTERNAL CONTROL OVER FINANCIAL REPORTING

         As of June 30, 2004, the aggregate market value of the Company's common
stock held by non-affiliates exceeded $75 million, and as a result the Company
became an "accelerated filer" (as defined in Exchange Act Rule 12b-2) as of
December 31, 2004. As such, the Company was required by Section 404 of the
Sarbanes-Oxley Act of 2002 to report on its assessment of its internal control
over financial reporting in Item 9A of its annual report on Form 10-K for the
year ended December 31, 2004. In that report, management disclosed a number of
material weaknesses that existed as of December 31, 2004. The Public Company
Accounting Oversight Board's ("PCAOB") Auditing Standard No. 2 defines a
material weakness as a significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. In its report on 10-K for the year ended December 31, 2004 the
Company also reported on the remediation efforts undertaken by management with
respect to the identified material weaknesses and the status of the remediation.
As of June 30, 2005, the aggregate market value of the Company's Common Stock
held by non-affiliates was under $50 million, and as a result the Company was
not considered an accelerated filer as of December 31, 2005. Accordingly, the
Company is not required to include an assessment of its internal control over
financial reporting as of December 31, 2005 pursuant to Section 404 in Item 9A
of this Report. However, the following is an updated discussion of the
remediation efforts that management has undertaken to remediate the material
weakness identified as of December 31, 2004:

    o    Weaknesses Related to Accounting and Finance Personnel - The Company
         disclosed weaknesses as of December 31, 2004 related to lack of
         resources and lack of adequately trained resources with the appropriate
         level of accounting knowledge, experience and training in the

                                       31
<PAGE>

         application of accounting principles generally accepted in the United
         States of America to perform the accounting and financial reporting
         functions and inadequate oversight of such resources. To remediate
         these weaknesses, the Company established global centers of excellence
         for each of the process areas of Finance and hired necessary personnel
         with historical knowledge related to the Company's business process,
         which have appropriate level of accounting knowledge, experience and
         training in the application of accounting principles generally accepted
         in the United States of America. The Company also established review
         procedures for each of the tasks handled by these personnel. The
         Company documented its processes and cross-trained its finance
         resources to improve its ability to retain and transfer knowledge in
         the event of personnel turnover within the finance function.

    o    Weaknesses Related to Accounting Policies and Procedures - The Company
         disclosed weaknesses as of December 31, 2004 related to inadequate
         documentation regarding the appropriate application of accounting
         principles generally accepted in the United States of America, as well
         as inadequate documentation regarding the Company's accounting policies
         and procedures and the application of those policies and procedures. To
         remediate these weaknesses, the Company established complete
         documentation regarding the appropriate application of accounting
         principles generally accepted in the United States of America, as well
         as documentation regarding the Company's accounting policies and
         procedures and the application of those policies and procedures.

    o    Weaknesses Related to Implementation of ERP System - The Company
         disclosed weaknesses as of December 31, 2004 related to its failure to
         adapt its accounting and business processes to conform to the
         requirements of the Company's new ERP system and its failure to provide
         sufficient training of its finance and accounting personnel on the
         functionalities of the ERP system prior to the Company's April 1, 2004
         "go-live" date. To remediate these weaknesses, the Company stabilized
         its accounting operations on the ERP system and developed significant
         additional reports that could add value to the management
         decision-making and also implemented additional modules of the ERP
         system as part of Phase II implementation.

    o    Weaknesses related to Closing and Consolidation Procedures - The
         Company disclosed weaknesses as of December 31, 2004 related to the
         analysis and reconciliation of certain general ledger accounts. To
         remediate these deficiencies, management established required control
         procedures in the process of closing and consolidation. Processes were
         established to ensure preparation of reconciliations on a monthly basis
         related to General Ledger accounts including inter-company accounts,
         foreign currency translation adjustment account, unbilled revenues,
         deferred revenues, payroll accounting, vacation accrual and fixed
         assets. These reconciliations were reviewed on a monthly basis prior to
         monthly closure of financial statements. Finally, adequate controls
         were established over the consolidation process for the Company's
         international subsidiaries.

    o    Weaknesses related to Income Tax Accounting - The Company disclosed
         weaknesses as of December 31, 2004 in its controls over the
         determination and reporting of the provision for income taxes and
         related prepaid income taxes, income taxes payable and deferred income
         tax asset and liability balances. To remediate these weaknesses, the
         Company retained a nationally reputed firm to provide taxation-related
         services on a retainer basis. The Company also established a process
         and procedure to enable effective internal controls and review of all
         the tax related accounts.

                                       32
<PAGE>

    o    Weaknesses relating to Internal Audit System - The Company disclosed
         weaknesses in its control environment as of December 31, 2004 related
         to its inadequately staffed, inadequately trained and inexperienced
         internal audit department. To remediate this weakness, the Company
         strengthened its internal audit team by creating a global internal
         assurance function and hired trained and experienced resources in its
         internal audit department. The Internal Audit team reports directly to
         the Audit Committee and is supports the management team in its tasks
         related to internal controls.

         Considering the material internal control weaknesses identified as of
December 31, 2004, the Company engaged substantial resources to redesign,
document, test and remediate its internal control over financial reporting
during 2005. In January 2005 the Company re-engaged a nationally-recognized
accounting and consulting firm to assist the Company in its efforts to document,
test and remediate its internal control over financial reporting in accordance
with the framework published by the Committee of Sponsoring Organizations
("COSO") of the Treadway Commission ("COSO framework") in preparation for 2005
year-end testing ("404 Initiative"). The Company also strengthened its internal
audit team by creating a global internal assurance team and hired appropriate
resources to manage the activities related to assurance and work closely with
the firm referred to above. The internal assurance team, the
nationally-recognized accounting and consulting firm, and the finance team
worked during the year under the guidance of the Chief Financial Officer towards
design and institutionalizing the processes and procedures for establishment of
effective internal controls and remediation of the internal control weaknesses
identified during 2004.

         Because the Company was no longer an accelerated filer as of December
31, 2005 and because of changes in the implementation rules related to Section
404, the Company was not required by Section 404 to prepare an assessment of its
internal control over financial reporting as of December 31, 2005. As a result,
the Company did not complete any such assessment in connection with the 404
Initiative and therefore it is possible that additional material weaknesses
might have been identified had the Company completed such assessment.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

         The preparation of the Company's 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. The
Company's estimates, judgments and assumptions are continually evaluated based
on available information and experience. Because of the use of estimates
inherent in the financial reporting process, actual results could differ from
those estimates.

         Certain of the Company's 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 the Company's significant
accounting policies.

                                       33
<PAGE>

Revenue Recognition and Allowance for Doubtful Accounts.

         The Company generates revenue from professional services rendered to
customers. The majority of the Company's revenue is generated under
time-and-material contracts whereby costs are generally incurred in proportion
with contracted billing schedules and revenue is recognized as services are
performed, with the corresponding cost of providing those services reflected as
cost of 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.

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

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

         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, 2005 and 2004 represent services
provided through December 31, 2005 and 2004, respectively, which are billed
subsequent to year-end. All such amounts are anticipated to be realized in the
following year.

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

                                       34
<PAGE>

Recoverability of Long-Term Assets

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

Accounting for Income Taxes

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

         Significant management judgment is required in determining the
provision for income taxes, deferred tax assets and liabilities and any
valuation allowance recorded against net deferred tax assets. The Company
evaluates the weight of all available evidence to determine whether it is more
likely than not that some portion or all of the deferred income tax assets will
not be realized 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, the Company recorded approximately $18.6 million of valuation
allowance against gross deferred tax assets of $19.9 million through December
31, 2005. The decision to record the valuation allowance required significant
judgment including estimating the various factors impacting future taxable
income. Had the Company not recorded this allowance, the Company would have
reported materially different results. If the realization of all deferred tax
assets in the future is considered more likely than not, 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 $18.6 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 the Company's financial condition and results of operations.
The Company's effective tax rate may vary from period to period based on changes
in estimated taxable income or loss, changes to the valuation allowance, changes
to federal, state or foreign tax laws, future expansion into areas with varying
country, state, and local income tax rates and deductibility of certain costs
and expenses by jurisdiction.

                                       35
<PAGE>

         In July 2005, the FASB issued an Exposure Draft of a proposed
Interpretation ("Interpretation") "Accounting for Uncertain Tax Positions - an
interpretation of FASB Statement No. 109." On January 11, 2006, the FASB and its
staff met to resume re-deliberations of the pending Interpretation. Under the
proposed Interpretation taking into account the re-deliberations, a company
would recognize in its financial statements its best estimate of the benefit of
a tax position, only if the tax position is considered more likely than not of
being sustained on audit based solely on the technical merits of the tax
position. The proposed Interpretation would be effective as of the end of the
first fiscal year ending after December 15, 2006, with a cumulative effect of a
change in accounting principle to be recorded upon the initial adoption. The
proposed Interpretation would apply to all tax positions and only benefits from
tax positions that meet the more likely than not recognition threshold at or
after the effective date would be recognized. The future issuance of the
proposed Interpretation could have a material effect on the Company's accounting
for income taxes, but, in light of the proposed nature of the pending
Interpretation, the Company cannot provide a meaningful estimate of the impact
of this proposed guidance at this time. Nevertheless, there is risk that the
final Interpretation could result in a cumulative effect charge to earnings upon
adoption, increases in future effective tax rates, and/or increases in future
inter-period effective tax rate volatility.

         Under U.S. tax law, the utilization of the deferred tax asset related
to the NOL carry forward is subject to an annual limitation if there is a more
than 50 percentage point change in shareholder ownership. The Company 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,
the Company is subject to limitations on future usage of its previously incurred
tax attributes and has written down its NOL carryforward in 2004. This
limitation and related write-down of the NOL did not have an income statement
impact in 2004 as the Company had previously established a full valuation
allowance against the net deferred tax balances, which was subsequently removed
in conjunction with the write-down. Management is currently reviewing the impact
of the limitation triggered during 2004 on other current and deferred tax assets
and liabilities and the finalization of this assessment could result in
adjustments to these accounts.

Contingent Liabilities

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

Principles of Consolidation and Use of Estimates

         The consolidated financial statements included in Item 15 include the
accounts of Intelligroup, Inc. and its majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.

                                       36
<PAGE>

         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:

<TABLE>
<CAPTION>
                                                                   PERCENTAGE OF REVENUE
                                                                  YEAR ENDED DECEMBER 31,
                                                         ----------------------------------------
                                                            2005           2004           2003
                                                         ----------     ----------     ----------
         <S>                                                  <C>            <C>            <C>
         Revenue                                              100.0%         100.0%         100.0%
         Cost of revenue                                       73.6           71.2           71.2
                                                         ----------     ----------     ----------
              Gross profit                                     26.4           28.8           28.8
                                                         ----------     ----------     ----------
         Selling, general and administrative expenses          30.1           27.0           24.7
         Depreciation and amortization expense                  1.8            1.9            2.3
         Proxy contest charges                                    -              -            0.7
                                                         ----------     ----------     ----------
              Total operating expenses                         31.9           28.9           27.7
                                                         ----------     ----------     ----------
              Operating income (loss)                          (5.5)          (0.1)           1.1
         Interest income                                        0.1              -            0.1
         Interest expense                                      (0.2)          (0.4)          (0.4)
         Other income (expense)                                 0.2            0.1           (0.7)
                                                         ----------     ----------     ----------
         Income (loss) from continuing operations
           before income tax provision (benefit)               (5.4)          (0.4)           0.1
         Income tax provision (benefit)                        (0.2)           0.3            0.2
                                                         ----------     ----------     ----------
         Loss from continuing operations                       (5.2)          (0.7)          (0.1)
         Loss from discontinued operations                        -              -           (0.8)
                                                         ----------     ----------     ----------
         Net loss                                              (5.2)%         (0.7)%         (0.9)%
                                                         ==========     ==========     ==========
</TABLE>

         Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

         The following discussion compares the consolidated results of
continuing operations for the year ended December 31, 2005 to the year ended
December 31, 2004.

         Revenue. Total revenue decreased by 2.8%, or $3.6 million, from $128.9
million in 2004 to $125.3 million in 2005. The decrease was attributable
primarily to a decrease in revenue generated in the United States (a decrease of
$8.7 million), and Japan (a decrease of $1.2 million) offset primarily by India
(an increase of $6.2 million), while Europe remained relatively constant. In
2005, the decrease in US revenue was attributable to the completion of two large
contracts during 2004, and the decrease in Japan revenue was attributable to the
completion of one large contract during early 2005. India revenue

                                       37
<PAGE>

generated by the US-based customers have increased by 34% from $15.0 million in
2004 to $20.2 million in 2005.

         Cost of revenue and gross profit. The Company's cost of revenue
consists primarily of the salaries paid to the consultants and related employee
benefits and payroll taxes for such consultants. The Company's cost of revenue
increased by 0.5%, or $0.5 million, from $91.8 million in 2004, to $92.3 million
in 2005. The Company's gross profit decreased by 10.9%, or $4.1 million, from
$37.1 million in 2004, to $33.0 million in 2005. As a percentage, gross margin
decreased from 28.8% in 2004 to 26.4% in 2005, primarily due to increased
compensation costs for its technical professionals. The Company expects further
pressure on its gross margin from the pricing pressures associated with
increased competition for new projects and the increasing compensation costs for
its consultants.

         Selling, general and administrative expenses. Selling, general and
administrative expenses primarily consist of salaries, and related benefits
costs for sales and general administrative personnel, occupancy costs,
compensation costs, travel and entertainment and professional fees. Selling,
general and administrative expenses increased by 8.5%, or $3.0 million, to $37.7
million in 2005, from $34.7 million in 2004, and increased as a percentage of
revenue to 30.1% from 27.0%, respectively. The increase in selling, general and
administrative expenses was related primarily to the professional fees incurred
in connection with restating prior periods' consolidated financial statements,
professional fees associated with Sarbanes-Oxley compliance, and legal fees
incurred in 2005. The Company expects professional fees associated with
Sarbanes-Oxley compliance to decrease in 2006.

         Income tax provision. Based on pretax losses of $6.8 million in 2005
and pretax losses of $508,000 in 2004, a benefit for income taxes of ($240,000)
and a provision for income taxes of $358,000 were required in 2005 and 2004,
respectively. The benefit for income taxes in 2005 was due mainly to the
Company's recognition of deferred tax assets not offset by valuation allowances
in its India and Japan operations, while the provision for income taxes in 2004
was due to taxable income in certain jurisdictions combined with a valuation
allowance offsetting other loss benefits in other jurisdictions. The Company's
net deferred tax assets as of December 31, 2005 related primarily to its Indian
and Japanese operations. Based on various positive evidence, including
historical profitability, management believes it is more likely than not that
the Indian and Japanese operations' deferred tax assets of $427,000 and
$284,000, respectively, 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, 2005.

         In 1996, the Company 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 is 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 the Company's effective tax rate.

         The tax holiday in India expires in March 2006. As a result, the
Company's effective tax rate will increase in 2006.

                                       38
<PAGE>

         The Company's India subsidiary has received tax assessments dated
February 12, 2002, July 23, 2002, August 22, 2003, September 10, 2004 and March
29, 2005 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, 2002. The
revised tax assessments were for 14.6 million, 9.5 million, 2.8 million, 5.6
million and 15.0 million Indian rupees, respectively, or approximately $1.0
million in total. An additional assessment for tax penalties and interest for
the fiscal year ended March 31, 2001 of 1.7 million Indian rupees, or
approximately $38,000, was also received. The Company has made payments of
approximately $1.1 million (consisting of $0.8 million for taxes paid under
protest, $38,000 for tax penalties and interest and $0.2 million for other tax
adjustments not in dispute) to the India tax authority. The Company's resulting
overpayment has been refunded.

         The Company is currently appealing the tax assessments received by the
Company's India Subsidiary denying tax exemptions claimed during each of the
fiscal years ended March 31, 1999 through March 31, 2002. In the event the
Company's appeal is not successful, a future cash outlay of approximately
$57,000 would be required. The Company has reserved $57,000, the full amount
claimed, against this potential liability. In the event the Company is
successful, an amount up to approximately $0.8 million could be refunded to the
Company.

         Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

         The following discussion compares the consolidated results of
continuing operations for the year ended December 31, 2004 to the year ended
December 31, 2003.

         Revenue. Total revenue increased by 10.1%, or $11.8 million, from
$117.1 million in 2003 to $128.9 million in 2004. The increase was attributable
primarily to growth in revenue generated in the United States (an increase of
$4.7 million), India (an increase of $5.8 million), Japan (an increase of $1.1
million) and Europe (an increase of $0.2 million). In 2004, the increase in
revenue was attributable to higher demand for the Company's services in the
United States and in India, and the awarding of several new recurring contracts
in Japan.

         Cost of revenue and gross profit. The Company's cost of revenue
increased by 10%, or $8.4 million, from $83.4 million in 2003, to $91.8 million
in 2004 resulting primarily due to higher compensation costs resulting from the
increase in the number of its technical professionals. The increased number of
technical professionals is a direct result of stronger demand for services. The
Company expects the trend in billable headcount to continue. The Company's gross
profit increased by 9.9%, or $3.3 million, from $33.8 million in 2003, to $37.1
million in 2004. As a percentage, gross margin remained constant at 28.8% for
both 2004 and 2003.

                                       39
<PAGE>

         Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 19.7% or $5.7 million to $34.7 million in
2004, from $29.0 million in 2003, and increased as a percentage of revenue to
27.0% from 24.7%, respectively. The increase in selling, general and
administrative expenses was related primarily to the costs associated with
executive turnover and terminating the related executive employment agreements,
and the professional fees incurred in connection with restating prior periods'
consolidated financial statements.

         Proxy Contest Charges. The Company did not record any Proxy Contest
related charges in 2004 as compared with $0.7 million in Proxy Contest related
charges in 2003. Since the second quarter 2002 and through the third quarter of
2003, the Company incurred charges related to the Proxy Contest launched by
Ashok Pandey to take control of the Company's Board of Directors. On August 7,
2003, the Company and Mr. Pandey executed a Settlement Agreement relating to,
among other things, certain litigation matters relating the Proxy Contest. As
part of the Settlement Agreement the Company agreed to pay to Mr. Pandey an
aggregate amount of $750,000 in three equal installments over two years,
commencing October 2003. Accordingly, the Company originally recorded a $750,000
provision for such liability in the consolidated statement of operations for
2003. As a result of the restatement and re-audit process, the Company has moved
the $750,000 charge to when the proxy litigation commenced in 2002. Prior to the
Settlement Agreement, the Company incurred related additional litigation
expenses of $711,000 during 2003. During 2002, the Company originally recorded
approximately $1.1 million in legal fees and other charges related to the Proxy
Contest. Since the Proxy Contest has been successfully resolved, the Company
does not anticipate incurring material costs related to the Proxy Contest going
forward.

         Other income (expense). Other income (expense) results primarily from
transaction gains or losses associated with changes in foreign currency exchange
rates. The Company reported other income of $59,000 in 2004, compared with other
expense of $907,000 in 2003. The change primarily results from foreign currency
fluctuations.

         Income tax provision. Despite pretax losses of $508,000 in 2004 versus
pretax income of $70,000 in 2003, a provision for income taxes of $358,000 and
$186,000 was required in 2004 and 2003, respectively, due to taxable income in
certain jurisdictions combined with a valuation allowance offsetting other loss
benefits in other jurisdictions. The Company's net deferred tax asset as of
December 31, 2004 related primarily to its Indian operations. Based on its
historical profitability, management believes it is more likely than not that
the Indian operations deferred tax asset of $684,000 will be realized. In 1996,
the Company elected a five year tax holiday in India, in accordance with a local
tax incentive program whereby no income tax will be due in such period. Such tax
holiday was extended an additional five years in 1999. Effective April 1, 2000
pursuant to changes introduced by the Indian Finance Act, 2000, the tax holiday
previously granted is no longer available and has been replaced in the form of a
tax deduction incentive. 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 2004 and
2003, the tax holiday and tax deduction favorably impacted the Company's
effective tax rate.

                                       40
<PAGE>

         Loss from discontinued operations. In 2003, losses from discontinued
operations, net of taxes (including a loss on disposal of $2.3 million in 2003)
were $0.9 million. The losses from discontinued operations in 2003 resulted
primarily from operations within Australia, New Zealand and Singapore. The loss
on disposal in 2003 resulted primarily from the sale of assets of the
discontinued operations as well as legal costs incurred in executing the
transaction.

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

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

         On April 2, 2003, the Company consummated the sale, effective as of
March 1, 2003, of its Asia-Pacific group of subsidiary companies, operating in
Australia, New Zealand, Singapore, Hong Kong and Indonesia. The operating
results and financial position of the Asia-Pacific group of subsidiary companies
are reported as discontinued operations for the year ended December 31, 2003 and
prior years. The Company now has four reportable geographic operating segments
from continuing operations, which are organized and managed on a geographical
basis, as follows:

             o    United States ("US") - the largest segment of the Company,
                  with operations in the United States & Puerto Rico. 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.

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

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

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

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

                                       41
<PAGE>

         Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

         The following discussion compares the segment results of continuing
operations for the year ended December 31, 2005 to the year ended December 31,
2004.

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

<TABLE>
<CAPTION>
                                          YEAR ENDED DECEMBER 31
                      --------------------------------------------------------------
                                   2005                             2004
                      -----------------------------    -----------------------------
                                      PERCENTAGE OF                    PERCENTAGE OF
                         DOLLARS          TOTAL           DOLLARS          TOTAL
                      -------------   -------------    -------------   -------------
     <S>              <C>                     <C>      <C>                     <C>
     United States    $      86,617            69.1%   $      95,270            73.9%
     India                   28,206            22.5           22,029            17.1
     Europe                   7,030             5.6            6,890             5.3
     Japan                    3,473             2.8            4,714             3.7
                      -------------   -------------    -------------   -------------
     Total            $     125,326           100.0%   $     128,903           100.0%
                      =============   =============    =============   =============
</TABLE>

         US revenue decreased by 9.1%, or $8.7 million, from $95.3 million in
2004 to $86.6 million in 2005. The decrease in US revenue was attributable to
the completion of two large contracts during 2004.

         India revenue increased by 28.0%, or $6.2 million, from $22.0 million
in 2004, to $28.2 million in 2005. The increase was attributable primarily to
increased demand for services in the United States, as a majority of the total
revenue generated in India is derived from providing offshore development and
support services to customers sourced through the Company's affiliated entities
in other parts of the world, but most predominantly with the United States.
India revenues generated by US-based customers have increased by 34% from $15.0
million in 2004 to $20.2 million in 2005.

         Europe revenue increased slightly from $6.9 million in 2005 to $7.0
million in 2004.

         Japan revenue decreased by 26.3% or $1.2 million, from $4.7 million for
2004, to $3.5 million in 2005. The decrease was primarily attributable to the
completion of one large contract during early 2005.

                                       42
<PAGE>

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

                                            YEAR ENDED DECEMBER 31
                                         ----------------------------
                                             2005            2004
                                         ------------    ------------
                  United States          $     (9,637)   $     (4,129)
                  India                         3,526           3,324
                  Europe                         (289)           (183)
                  Japan                          (543)            857
                                         ------------    ------------
                  Total                  $     (6,943)   $       (131)
                                         ============    ============

         US operating loss increased by $5.5 million, from $4.1 million in 2004,
to $9.6 million in 2005. The increase in operating loss is attributable to
decreased revenues and increased professional and legal fees incurred in 2005.

         India operating income increased by $0.2 million, from $3.3 million in
2004, to $3.5 million in 2005. The increase was attributable primarily to an
increase in demand for offshore services, offset by increased compensation costs
and infrastructure costs for new facilities.

         Europe operating performance decreased by $0.1 million, from operating
loss of $183,000 in 2004, to operating losses of $289,000 in 2005.

         Japan operating performance decreased by $1.4 million, from operating
income of $857,000 in 2004, to operating loss of $543,000 in 2005. The decrease
was attributable primarily to lower revenues resulting from the completion of
one large contract during early 2005.

         Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

         The following discussion compares the segment results of continuing
operations for the year ended December 31, 2004 to the year ended December 31,
2003.

                                       43
<PAGE>

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

<TABLE>
<CAPTION>
                                          YEAR ENDED DECEMBER 31
                      --------------------------------------------------------------
                                   2004                             2003
                      -----------------------------    -----------------------------
                                      PERCENTAGE OF                    PERCENTAGE OF
                         DOLLARS          TOTAL           DOLLARS          TOTAL
                      -------------   -------------    -------------   -------------
     <S>              <C>                     <C>      <C>                     <C>
     United States    $      95,270            73.9%   $      90,639            77.4%
     India                   22,029            17.1           16,248            13.9
     Europe                   6,890             5.3            6,683             5.7
     Japan                    4,714             3.7            3,572             3.0
                      -------------           -----    -------------           -----
     Total            $     128,903           100.0%   $     117,142           100.0%
                      =============           =====    =============           =====
</TABLE>

         US revenue increased by 5.1%, or $4.6 million, from $90.6 million in
2003 to $95.3 million in 2004. The revenue growth resulted directly from
increased demand for the majority of US services, including traditional
consulting service offerings, application management and support services.

         India revenue increased by 35.6%, or $5.8 million, from $16.2 million
in 2003, to $22.0 million in 2004. The increase was attributable primarily to
increased demand for services in the United States, as a majority of the total
revenue generated in India is derived from providing offshore development and
support services to customers sourced through the Company's affiliated entities
in other parts of the world, but most predominantly with the United States.

         Europe revenue increased by 3.1%, or $0.2, from $6.7 million in 2003,
to $6.9 million in 2004. The increase was due primarily to stronger demand for
the Company's consulting services within the local SAP market.

         Japan revenue increased by 32% or $1.1 million, from $3.6 million for
2003, to $4.7 million in 2004. The increase was due primarily to stronger demand
for the Company's consulting services within the local SAP market.

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

                                            YEAR ENDED DECEMBER 31
                                         ----------------------------
                                             2004            2003
                                         ------------    ------------
                  United States          $     (4,129)   $     (1,815)
                  India                         3,324           2,536
                  Europe                         (183)            189
                  Japan                           857             437
                                         ------------    ------------
                  Total                  $       (131)   $      1,347
                                         ============    ============

         US operating loss increased by $2.3 million, from $1.8 million in 2003,
to $4.1 million in 2004. The increase in operating loss is attributable to the
cost of exiting certain executive employment agreements and to professional and
legal fees incurred in 2004.

                                       44
<PAGE>

         India operating income increased by $0.8 million, from $2.5 million in
2003, to $3.3 million in 2004. The increase was attributable primarily to an
increase in demand for offshore services.

         Europe operating performance decreased by $0.4 million, from operating
income of $189,000 in 2003, to operating losses of $183,000 in 2004. The
decrease was attributable primarily to increased compensation costs.

         Japan operating income increased by $0.4 million, from $437,000 in
2003, to $857,000 in 2004. The increase was attributable primarily to increased
demand for SAP consulting services.

LIQUIDITY AND CAPITAL RESOURCES

         2005 Cash Position and Cash Flows

         The Company had cash and cash equivalents of $5.3 million at December
31, 2005 and $6.2 million at December 31, 2004. The Company had working capital
of $11.3 million at December 31, 2005 and $20.0 million at December 31, 2004.
The decrease in working capital resulted primarily from the net loss of $6.6
million as well as computer software and leasehold improvements acquired in
connection with leasing additional facilities in India.

         Cash provided by operating activities of continuing operations was $1.1
million for the year ended December 31, 2005, resulting primarily from the net
loss of $6.6 million and an increase in other assets of $0.9 million, and a
decrease in accrued expenses of $0.9 million, offset by a decrease in accounts
receivable of $4.3 million, and a decrease in unbilled services of $0.9 million,
an increase in accounts payable of $1.7 million, and an increase in income taxes
payable of $0.8 million. The decrease in accounts receivable and unbilled
services is attributable to a combination of factors including adoption of new
and improved process of billing. Accounts payable increased primarily due to
increased professional fees in the US not paid prior to December 31, 2005.

         The Company invested $2.4 million in computer equipment, internal-use
computer software and office furniture and fixtures and leasehold improvements
during the year ended December 31, 2005 and 2004. The increase results primarily
from computer software and leasehold improvements incurred in connection with
additional facilities in India.

         Credit Facility

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

         The Company was in compliance with the loan agreement related to the
credit facility as of December 31, 2005.

                                       45
<PAGE>

         2006 Private Placement

         On March 31, 2006, the Company completed a $10 million private
placement transaction whereby SAIF acquired an additional 3,333,333 shares of
the Company's common stock and Venture Tech acquired an additional 3,333,334
shares of the Company's common stock, at a share price of $1.50 (the "2006
Private Placement"). The 2006 Private Placement was approved by a special
committee of disinterested members of the Board of Directors and generated
approximately $9.7 million of proceeds to the Company, net of transaction
expenses. Following the 2006 Private Placement, SAIF and Venture Tech own 36%
and 26% of the Company's common stock, respectively.

         Cash to Fund Operating Activities

         The Company relies on the cash generated by operating activities and
the financing available under its credit facility to fund ongoing operations.
The Company's credit facility with the Bank represents its sole source of
external financing for ongoing business operations. The Company's operating plan
depends on continued borrowing availability under this credit facility or
securing alternate sources of financing. The Company 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 the Company's variable
operating performance in the past few years, there can be no assurances that the
Company will be able to maintain compliance with its bank covenants or obtain
waivers of any defaults.

         The Company's credit facility will expire on May 31, 2006. The Company
is currently exploring its options of securing an alternate credit facility as
well as evaluating alternate sources of financing. The Company believes it will
be able to negotiate and enter into an alternate credit facility prior to the
expiration of its existing credit facility. However, there can be no assurances
that the Company will be able to secure such alternate credit facility. In
addition, there can be no assurances that the Company will be able to secure
alternate sources of financing to fund its operations or that such financing
will be available on terms that are advantageous to the Company.

                                       46
<PAGE>

         The Company's 2006 operating plan contains assumptions regarding
revenue and expenses. The Company's significant cash requirements for 2006
include operating expenses and capital investments in infrastructure for its
India operations amounting to approximately $3.0 million. The achievement of the
operating plan depends heavily on the timing of work performed by the Company on
existing projects and the ability of the Company to gain and perform work on new
projects. Project cancellations, delays in the timing of work performed by the
Company on existing projects or the inability of the Company to gain and perform
work on new projects, or ability to timely collect cash from its customers could
have an adverse impact on the Company's ability to execute its operating plan
and maintain adequate cash flow. In the event actual results do not meet the
operating plan, management believes it could execute contingency plans to
mitigate such effects. Such plans include reductions in capital expenditures and
operating costs, and/or seeking additional financing. In addition, the Company
may seek additional financing from time to time for general corporate purposes,
provided however that the availability of financing may be limited because the
Company is not currently listed on a national stock exchange. Assuming that the
Company succeeds in obtaining an alternate credit facility and achieving the
revenue and expense targets included in the Company's operating plan, management
believes that the Company's cash on hand, including the net proceeds from the
2006 Private Placement transaction, and cash generated by operations and
borrowings under such a credit facility will be sufficient to fund the Company's
current and planned operations through at least December 31, 2006. In the event
the Company is unable to secure an alternate credit facility, management
believes that the Company's cash on hand, including the net proceeds from the
2006 Private Placement transaction, will be sufficient to fund the Company's
current and planned operations through at least December 31, 2006, provided that
the Company reduces planned capital expenditures and achieves the revenue and
expense targets included in the operating plan.

COSTS RELATED TO SERANOVA

         In connection with the Company's July 2000 spin-off of SeraNova, Inc.
("SeraNova") the Company entered into a space sharing agreement with SeraNova,
whereby SeraNova would pay the Company's landlord directly for their portion of
the rent. Beginning in 2001, SeraNova failed to make required lease payments to
the Company's landlord, which the Company was required to make on SeraNova's
behalf. SeraNova's financial condition deteriorated culminating in the August 8,
2003 filing for bankruptcy under Chapter 7 of the United States Bankruptcy Code
by SeraNova and its parent company. The Company recorded charges related to the
lease payments in 2000.

         As of December 31, 2005 and 2004, $0.4 million and $0.5 million of the
liability remained outstanding, of which $0.3 million and $0.4 million was
included in other long-term liabilities. The Company expects to repay this
liability through 2008. The remaining liability is included in accrued expenses
and other current liabilities.

CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

         The following tables summarize the Company's contractual obligations
and other commercial commitments as of December 31, 2005:

                                       47
<PAGE>

<TABLE>
<CAPTION>
                                                                    PAYMENTS DUE BY PERIOD
                                           ------------------------------------------------------------------------
                                                            LESS THAN         1-3            3-5         MORE THAN
DESCRIPTION OF CONTRACTUAL OBLIGATION          TOTAL         1 YEAR          YEARS          YEARS         5 YEARS
                                           ------------   ------------   ------------   ------------   ------------
<S>                                        <C>            <C>            <C>            <C>            <C>
Revolving Credit Facility                  $  3,427,000   $  3,427,000   $         --   $          -   $          -
Capital Lease Obligations                       711,000        257,000        398,000         56,000              -
Operating Lease Obligations                   6,346,000      2,439,000      3,248,000        659,000              -
                                           ------------   ------------   ------------   ------------   ------------
Total Contractual Obligations              $ 10,484,000   $  6,123,000   $  3,646,000   $    715,000   $          -
                                           ============   ============   ============   ============   ============
</TABLE>

         The Company uses its $15.0 million revolving credit facility with PNC
Bank to fund the working capital needs of the business; therefore, the
outstanding borrowings under the credit facility fluctuate accordingly. The
credit facility is collateralized by substantially all of the assets of the
United States based operations. The maximum borrowing availability under the
line of credit is based upon a percentage of eligible billed and unbilled
accounts receivable, as defined. As of December 31, 2005, the Company had
outstanding borrowings under the credit facility of $3.4 million. As of December
31, 2004, the Company had outstanding borrowings under the credit facility of
$2.4 million. The Company estimates undrawn availability under the credit
facility to be $8.7 million as of December 31, 2005.

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

RECENTLY ISSUED ACCOUNTING STANDARDS

         On December 16, 2004, the FASB published Statement of Financial
Accounting Standards No. 123 (Revised 2004), "Share-Based Payment" ("SFAS
123R"). SFAS 123R requires that compensation cost related to share-based payment
transactions be recognized in the financial statements. Share-based payment
transactions within the scope of SFAS 123R include stock options, restricted
stock plans, performance-based awards, stock appreciation rights, and employee
share purchase plans. The provisions of SFAS 123R, as amended, are effective
beginning as of the next fiscal year after June 15, 2005. Accordingly, the
Company will implement the revised standard in the first quarter of fiscal year
2006. Currently, the Company accounts for its share-based payment transactions
under the provisions of APB 25, which does not necessarily require the
recognition of compensation cost in the financial statements. Management is
assessing the implications of SFAS 123R, which may materially impact the
Company's consolidated results of operations in the first quarter of fiscal year
2006 and thereafter. The Company plans to adopt the prospective method, and
estimates the unvested portion effect on future periods to be $3.7 million.

         On December 16, 2004, the FASB issued SFAS No. 153, "Exchanges of
Non-monetary Assets, an amendment of APB Opinion 29, Accounting for Non-monetary
Transaction" ("SFAS 153"). This statement amends APB Opinion 29 to eliminate the
exception for non-monetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of non-monetary assets that do not
have commercial substance. Under SFAS 153, if a non-monetary exchange of similar
productive assets meets a commercial-substance criterion and fair value is
determinable, the transaction must be accounted for at fair value resulting in
recognition of any gain or loss. SFAS 153 is effective for non-monetary
transactions in fiscal periods that begin after June 15, 2005. The Company does
not anticipate that the implementation of SFAS 153 will have a material impact
on its consolidated financial position, results of operations or cash flows.

                                       48
<PAGE>

         In May 2005, the FASB issued FASB Statement No. 154, "Accounting
Changes and Error Corrections ("SFAS 154"). SFAS 154 replaces Accounting
Principles Board Opinion No. 20, "Accounting Changes" and FASB Statement No. 3,
"Reporting Accounting Changes in Interim Financial Statements," and requires the
direct effects of accounting principle changes to be retrospectively applied.
The existing guidance with respect to accounting estimate changes and
corrections of errors is carried forward in SFAS 154. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company does not expect the adoption of SFAS 154 to
have a material effect on its consolidated financial statements.

                                       49
<PAGE>

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

         Although the Company cannot accurately determine the precise effect
thereof on its operations, it does not believe inflation, currency fluctuations
or interest rate changes have historically had a material effect on its revenues
or results of operations. Any significant effects of inflation, currency
fluctuations and changes in interest rates on the economies of the United
States, Asia and Europe could adversely impact the Company's revenues and
results of operations in the future. If there is a material adverse change in
the relationship between European currencies and/or Asian currencies and the
United States Dollar, such change would adversely affect the result of the
Company's European and/or Asian operations as reflected in the Company's
consolidated financial statements. The Company has not hedged its exposure with
respect to this currency risk as on December 31, 2005, but intends to review its
exposure on a quarterly basis using a cost-benefit analysis determine whether it
should enter into arrangements that mitigate the risk.

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.

         Not Applicable.

                                       50
<PAGE>

ITEM 9A.      CONTROLS AND PROCEDURES.

DISCLOSURE CONTROLS AND PROCEDURES

         The Company is responsible for maintaining disclosure controls and
procedures designed to ensure that information required to be disclosed in its
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 its chief executive officer and chief financial officer,
as appropriate, to allow for timely decisions regarding required disclosure. The
Company's management, with the participation of the Company's Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the
Company's 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 the Company's 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 its most recent evaluation, the Company's
management has concluded at the reasonable assurance level that our disclosure
controls and procedures were effective to ensure that the information required
to be disclosed by us in this annual report on Form 10-K was recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and instructions for Form 10-K.

CHANGES IN INTERNAL CONTROLS

         Except for the steps taken in the ongoing remediation efforts discussed
in "Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations - Management's Discussion of its Internal Control Over
Financial Reporting," there was no change in the Company's internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting
during the quarter ended December 31, 2005.

                                       51
<PAGE>

PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information relating to the Company's directors, nominees for
election as directors and executive officers under the headings "Election of
Directors" and "Executive Officers" in the Company's definitive proxy statement
for the 2006 Annual Meeting of Shareholders is incorporated herein by reference
to such proxy statement.

         The Company has adopted a Code of Business Conduct and Ethics. A copy
of the Code of Business Conduct and Ethics is posted on the Company's website.

ITEM 11.      EXECUTIVE COMPENSATION.

         The discussion under the heading "Executive Compensation" in the
Company's definitive proxy statement for the 2006 Annual Meeting of Shareholders
is incorporated herein by reference to such proxy statement.

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

         The discussion under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's definitive proxy statement
for the 2006 Annual Meeting of Shareholders is incorporated herein by reference
to such proxy statement.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The discussion under the heading "Certain Relationships and Related
Transactions" in the Company's definitive proxy statement for the 2006 Annual
Meeting of Shareholders is incorporated herein by reference to such proxy
statement.

ITEM 14.      PRINCIPAL ACCOUNTING FEES AND SERVICES.

         The discussion under the heading "Principal Accounting Fees and
Services" in the Company's definitive proxy statement for the 2006 Annual
Meeting of Shareholders is incorporated herein by reference to such proxy
statement.

                                       52
<PAGE>

PART IV

ITEM 15.      EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

   (a)   (1)  Financial Statements.

              Reference is made to the Index to Financial Statements on Page 62.

         (2)  Financial Statement Schedules.

              None.

         (3)  Exhibits.

              Reference is made to the Exhibit Index on Page 54.

                                       53
<PAGE>

                                  EXHIBIT INDEX

      Exhibit No.                      Description of Exhibit
      -----------   ------------------------------------------------------------
          2         Agreement and Plan of Merger of the Company and its wholly
                    owned subsidiary Oxford Systems Inc. (Incorporated by
                    reference to the Company's Annual Report on Form 10-KSB for
                    the year ended December 31, 1996.)

          3.1+      Amended and Restated Certificate of Incorporation.

          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.)

         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.

                                       54
<PAGE>

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

         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.)

                                       55
<PAGE>

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

         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.)

                                       56
<PAGE>

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

         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.)

                                       57
<PAGE>

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

         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.)

                                       58
<PAGE>

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

         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.)

         21+        Subsidiaries of the Registrant.

         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.)

         23+        Consent of J.H. Cohn LLP.

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

                                       59
<PAGE>

      Exhibit No.                      Description of Exhibit
      -----------   ------------------------------------------------------------
         31.2+      Certifications of Chief Financial Officer Pursuant to Rule
                    13a-14(a), as Adopted Pursuant to Section 301 of the
                    Sarbanes-Oxley Act of 2002

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

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

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

+        Filed herewith. All other exhibits previously filed.

                                       60
<PAGE>

                                   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
2006.

                                        INTELLIGROUP, INC.

                                        By: /s/
                                               -----------------------
                                               Vikram Gulati
                                               Chief 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
  --------------------------     and Director               March 31, 2006
    Vikram Gulati

/s/ Madhu Poomalil               Chief Financial Officer
  --------------------------                                March 31, 2006
    Madhu Poomalil

/s/ Ravi Adusumalli              Director
  --------------------------                                March 31, 2006
    Ravi Adusumalli

/s/ Ajit Isaac                   Director
  --------------------------                                March 31, 2006
    Ajit Isaac

/s/ Srinivasa Raju               Director
  --------------------------                                March 31, 2006
    Srinivasa Raju

/s/ Sandeep Reddy                Director
  --------------------------                                March 31, 2006
    Sandeep Reddy

                                 Director
  --------------------------                                March 31, 2006
    Alexander Graham Wilson

/s/ Andrew Yan                   Director
  --------------------------                                March 31, 2006
    Andrew Yan

                                       61
<PAGE>

                               INTELLIGROUP, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                           PAGE
                                                                           ----
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm                      63
Consolidated Balance Sheets as of December 31, 2005 and 2004                 64
Consolidated Statements of Operations and Comprehensive Income
 (Loss) for the years ended December 31, 2005, 2004 and 2003                 65
Consolidated Statements of Changes in Shareholders' Equity for
 the years ended December 31, 2005, 2004 and 2003                            66
Consolidated Statements of Cash Flows for the years ended
 December 31, 2005, 2004 and 2003                                            67
Notes to Consolidated Financial Statements                                   68

                                       62
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Intelligroup, Inc.

We have audited the accompanying consolidated balance sheets of Intelligroup,
Inc. and Subsidiaries (the "Company") as of December 31, 2005 and 2004 and the
related consolidated statements of operations and comprehensive income (loss),
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 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, 2005 and 2004, and their consolidated results of operations and
cash flows for each of the three years in the period ended December 31, 2005, in
conformity with accounting principles generally accepted in United States of
America.

As discussed in Note 9, the Company may be exposed to a significant potential
tax liability.


/s/ J.H. Cohn LLP

Roseland, New Jersey
February 24, 2006, except for Note 15,
as to which the date is March 31, 2006

                                       63
<PAGE>

                               INTELLIGROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2005 AND 2004

                         (IN THOUSANDS EXCEPT PAR VALUE)

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,    DECEMBER 31,
                                                                                       2005            2004
                                                                                   ------------    ------------
<S>                                                                                <C>             <C>
                                     ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                                        $      5,305    $      6,239
  Accounts receivable, less allowance for doubtful accounts of
      $1,329 and $1,627 at December 31, 2005 and 2004,
      respectively                                                                       18,533          23,136
  Unbilled services                                                                       9,475          10,482
  Prepaid expenses and other current assets                                               3,285           3,218
                                                                                   ------------    ------------
               Total current assets                                                      36,598          43,075

Property and equipment, net                                                               4,098           3,485
Deferred tax and other assets                                                             3,090           1,611
                                                                                   ------------    ------------

               Total assets                                                        $     43,786    $     48,171
                                                                                   ============    ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Line of credit                                                                   $      3,427    $      2,356
  Accounts payable                                                                        5,044           3,424
  Accrued payroll and related taxes                                                      10,690          10,635
  Accrued expenses and other current liabilities                                          4,076           5,074
  Deferred revenue                                                                          847             977
  Income taxes payable                                                                      955             196
  Current portion of
   obligations under capital lease                                                          257             422
                                                                                   ------------    ------------
               Total current liabilities                                                 25,296          23,084

Obligations under
  capital lease, net of current portion                                                     350              45
Other long-term liabilities                                                                 250             395
                                                                                   ------------    ------------
               Total liabilities                                                         25,896          23,524
                                                                                   ------------    ------------

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 and 40,000 shares
       authorized at December 31, 2005 and 2004, respectively, and
       35,103 shares issued and outstanding at both December 31, 2005 and 2004              351             351
  Additional paid-in capital                                                             58,137          58,012
  Accumulated deficit                                                                   (40,046)        (33,455)
  Accumulated other comprehensive loss                                                     (552)           (261)
                                                                                   ------------    ------------
               Total shareholders' equity                                                17,890          24,647
                                                                                   ------------    ------------

               Total liabilities and shareholders' equity                          $     43,786    $     48,171
                                                                                   ============    ============
</TABLE>

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

                                       64
<PAGE>

                               INTELLIGROUP, INC.

      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                       2005            2004           2003
                                                                                   ------------    ------------   ------------
<S>                                                                                <C>             <C>            <C>
Revenue                                                                            $    125,326    $    128,903   $    117,142
Cost of revenue                                                                          92,304          91,818         83,387
                                                                                   ------------    ------------   ------------
     Gross profit                                                                        33,022          37,085         33,755
                                                                                   ------------    ------------   ------------
Selling, general and administrative expenses                                             37,705          34,741         29,036
Depreciation and amortization                                                             2,260           2,475          2,661
Proxy contest charges                                                                         -               -            711
                                                                                   ------------    ------------   ------------
     Total operating expenses                                                            39,965          37,216         32,408
                                                                                   ------------    ------------   ------------
     Operating income (loss)                                                             (6,943)           (131)         1,347
Interest income                                                                             147              36             83
Interest expense                                                                           (318)           (472)          (453)
Other income (expense)                                                                      283              59           (907)
                                                                                   ------------    ------------   ------------
Income (loss) from continuing operations before income taxes                             (6,831)           (508)            70
Provision for (benefit of) income taxes                                                    (240)            358            186
                                                                                   ------------    ------------   ------------
Loss from continuing operations                                                          (6,591)           (866)          (116)
Loss from discontinued operations                                                             -               -           (925)
                                                                                   ------------    ------------   ------------
Net loss                                                                           $     (6,591)   $       (866)  $     (1,041)
                                                                                   ============    ============   ============
Loss per share:
     Basic and diluted loss per share
       Loss from continuing operations                                             $      (0.19)   $      (0.04)  $          -
       Loss from discontinued operations                                                      -               -          (0.06)
                                                                                   ------------    ------------   ------------
     Net loss per share                                                            $      (0.19)   $      (0.04)  $      (0.06)
                                                                                   ============    ============   ============
     Weighted average number of common shares
       outstanding - basic and diluted                                                   35,103          22,790         16,697
                                                                                   ============    ============   ============
Comprehensive income (loss)
     Net loss                                                                      $     (6,591)   $       (866)  $     (1,041)
     Other comprehensive income (loss)
       Currency translation adjustments                                                    (291)            457            471
                                                                                   ------------    ------------   ------------
Comprehensive  loss                                                                $     (6,882)   $       (409)  $       (570)
                                                                                   ============    ============   ============
</TABLE>

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

                                       65
<PAGE>

                               INTELLIGROUP, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                     Accumulated
                                              Common Stock             Additional                       Other           Total
                                       ----------------------------     Paid-in      Accumulated    Comprehensive   Shareholders'
                                          Shares         Amount         Capital        Deficit      Income (Loss)      Equity
                                       -------------  -------------  -------------  -------------   -------------   -------------
<S>                                           <C>     <C>            <C>            <C>             <C>             <C>
Balance, January 1, 2003                      16,630  $         166  $      41,366  $     (31,548)  $      (1,189)  $       8,795
Exercise of stock options                        357              4            824              -               -             828
Currency translation adjustment                    -              -              -              -             471             471
Net loss                                           -              -              -         (1,041)              -          (1,041)
                                       -------------  -------------  -------------  -------------   -------------   -------------
Balance, December 31, 2003                    16,987            170         42,190        (32,589)           (718)          9,053
Exercise of stock options                        469              5          1,323              -               -           1,328
Issuance of common stock in a private
 placement                                    17,647            176         14,499              -               -          14,675
Currency translation adjustment                    -              -              -              -             457             457
Net loss                                           -              -              -           (866)              -            (866)
                                       -------------  -------------  -------------  -------------   -------------   -------------
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
                                       =============  =============  =============  =============   =============   =============
</TABLE>

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

                                       66
<PAGE>

                               INTELLIGROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                                             2005            2004            2003
                                                                         ------------    ------------    ------------
<S>                                                                      <C>             <C>             <C>
Cash flows from operating activities:
   Net loss                                                              $     (6,591)   $       (866)   $     (1,041)
   Less: Loss from discontinued operations                                          -               -            (925)
                                                                         ------------    ------------    ------------

Loss from continuing operations                                                (6,591)           (866)           (116)

Adjustments to reconcile net loss to net
  cash provided by (used in) operating activities

   Depreciation and amortization                                                2,262           2,901           3,449
   Provision for doubtful accounts                                                 44             868              91
   Stock compensation expense                                                     125               -               -
   Exchange (gain) loss                                                          (304)            115             873
   Deferred income taxes                                                         (713)           (196)           (198)

Changes in operating assets and liabilities
   Accounts receivable                                                          4,323             159          (5,951)
   Unbilled services                                                              943          (4,813)          1,195
   Prepaid expenses and other current assets                                      242             840            (727)
   Other assets                                                                  (876)            452            (450)
   Accounts payable                                                             1,679          (1,815)            (63)
   Accrued payroll and related taxes                                              243              61           3,010
   Accrued expenses and other current liabilities                                (879)          1,518          (1,503)
   Accrued restructuring charges                                                    -               -             (96)
   Deferred revenue                                                              (130)         (2,024)            795
   Income taxes payable                                                           818            (155)            (93)
   Other liabilities                                                              (92)           (498)           (635)
                                                                         ------------    ------------    ------------

Net cash provided by (used in) operating activities of
   continuing operations                                                        1,094          (3,453)           (419)
                                                                         ------------    ------------    ------------

Cash flows from investing activities:
   Purchase of property and equipment                                          (2,429)         (2,076)         (1,376)
                                                                         ------------    ------------    ------------

Net cash used in investing activities                                          (2,429)         (2,076)         (1,376)
                                                                         ------------    ------------    ------------

Cash flows from financing activities:
   Principal payments under capital leases                                       (477)           (322)           (300)
   Net proceeds from private placement                                              -          14,675               -
   Proceeds from exercise of stock options                                          -           1,328             827
   Net change in line of credit borrowings                                      1,071          (5,933)          2,229
                                                                         ------------    ------------    ------------

Net cash provided by financing activities                                         594           9,748           2,756
                                                                         ------------    ------------    ------------

Effect of foreign currency exchange rate changes on cash                         (193)            148              96
                                                                         ------------    ------------    ------------

Net cash provided by (used in) continuing operations                             (934)          4,367           1,057
Net cash used in operating activities of discontinued operations                    -               -            (348)
                                                                         ------------    ------------    ------------

Net increase (decrease) in cash and cash equivalents                             (934)          4,367             709
Cash and cash equivalents - beginning of year                                   6,239           1,872           1,163
                                                                         ------------    ------------    ------------

Cash and cash equivalents - end of year                                  $      5,305    $      6,239    $      1,872
                                                                         ============    ============    ============

Supplemental disclosures of cash flow information
   Cash paid for income taxes                                            $        689    $        144    $        356
                                                                         ============    ============    ============
   Cash paid for interest                                                $        290    $        472    $        441
                                                                         ============    ============    ============

Supplemental disclosures of noncash investing and financing activities
   Property and equipment acquired by capital lease                      $       (603)   $          -    $       (461)
                                                                         ============    ============    ============
</TABLE>

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

                                       67
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

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").

         On April 2, 2003, the Company consummated the sale, effective as of
         March 1, 2003, of its Asia-Pacific group of subsidiary companies,
         operating in Australia, New Zealand, Singapore, Hong Kong and Indonesia
         (the "Former subsidiaries"), to Soltius Global Solutions PTE Ltd., a
         Singapore corporation ("Soltius"). As consideration, the Company
         received a 5% minority shareholding in Soltius and a $650,000 note to
         be paid by Soltius to the Company over a period of 12 months. As of
         January 2005, the Company has been paid in full. The consolidated
         financial statements have been reclassified to reflect the sale of the
         former subsidiaries to Soltius as discontinued operations. Accordingly,
         the assets, liabilities, results of operations and cash flows of the
         former subsidiaries prior to the sale have been separately presented in
         the consolidated statements of operations and cash flows.

         In September 2004, the Company completed a $15,000,000 private
         placement transaction whereby Softbank Asia Infrastructure Fund, L.P.
         ("SAIF"), an affiliate of SOFTBANK Corporation, acquired a 33.5%
         interest, and Venture Tech Assets Pvt. Ltd. ("Venture Tech") acquired a
         16.8% interest in the Company ("Private Placement Transaction"). In
         connection with the Private Placement Transaction, SAIF and Venture
         Tech appointed five directors to the Company's Board of Directors.

NOTE 2-       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
         of Intelligroup, Inc. and its wholly and majority 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.

                                       68
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 2-       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         CASH AND CASH EQUIVALENTS (CONTINUED)

         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 $3,300,000 can become restricted if a default or event of
         default occurs and is continuing as per the terms of the Fifth
         Amendment to Loan Documents and Waiver Agreement.

         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):

<TABLE>
<CAPTION>
                           Balance at        Charged to
          Year Ended      beginning of          costs        Write-offs and   Balance at end
         December 31,         year          and expenses          other           of year
         ------------    ---------------   ---------------   ---------------  ---------------
             <S>         <C>               <C>               <C>              <C>
             2003        $        (1,508)  $           (91)  $           666  $          (933)
             2004                   (933)             (868)              174           (1,627)
             2005                 (1,627)              (40)              338           (1,329)
</TABLE>

         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.

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

                                       69
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 2-       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         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.

         REVENUE RECOGNITION

                  The Company generates revenue from professional services
         rendered to customers. The majority of the Company's revenue is
         generated under time-and-material contracts whereby costs are generally
         incurred in proportion with contracted billing schedules and revenue is
         recognized as services are performed, with the corresponding cost of
         providing those services reflected as cost of 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. Revenue generated from
         certain other fixed-price contracts is recognized using the percentage
         of completion method as the ratio of labor hours incurred to estimated
         total labor hours.

                  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.

                                       70
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 2-       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         REVENUE RECOGNITION (CONTINUED)

                  Unbilled services represent services provided which are billed
         subsequent to the period end in accordance with the contract terms. All
         such amounts are anticipated to be realized in the following period.

                  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 the subsequent
         period.

         STOCK-BASED COMPENSATION

         Employee stock awards under the Company's compensation plans are
         accounted for in accordance with Accounting Principles Board Opinion
         No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and
         related interpretations. The Company provides the disclosure
         requirements of Statement of Financial Accounting Standards ("SFAS")
         No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), and
         related interpretations. Stock-based awards to non-employees are
         accounted for under the provisions of SFAS 123 and have adopted the
         enhanced disclosure provisions of SFAS 148 "Accounting for Stock-Based
         Compensation-Transition and Disclosure, an amendment of SFAS No. 123".

         The Company measures compensation expense for its employee stock-based
         compensation using the intrinsic-value method. Under the
         intrinsic-value method of accounting for stock-based compensation, when
         the exercise price of options granted to employees is less than the
         estimated fair value of the underlying stock on the date of grant,
         deferred compensation is recognized and is amortized to compensation
         expense over the applicable vesting period. In each of the periods
         presented, the vesting period varies from immediate to four years. For
         disclosure purposes, pro forma net loss and loss per share impacts are
         provided as if the fair value method under SFAS 123 had been applied
         (in thousands, except per share data):

                                       71
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 2-       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         STOCK-BASED COMPENSATION (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                   YEAR ENDED
                                                                                  --------------------------------------------
                                                                                  DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                                                      2005            2004            2003
                                                                                  ------------    ------------    ------------
         <S>                                                                      <C>             <C>             <C>
         Net loss, as reported                                                    $     (6,591)   $       (866)   $     (1,041)
         Add: Total stock-based employee
           compensation expense using intrinsic value method included
           in net loss above, net of related tax effects                                   125               -               -
         Less: Total stock-based employee compensation expense
           determined under fair value-based method for all awards
           net of related tax effects                                                    1,994           1,394           1,296
                                                                                  ------------    ------------    ------------

         Pro forma net loss                                                       $     (8,460)   $     (2,260)   $     (2,337)
                                                                                  ============    ============    ============

         Basic and diluted loss per share:
                 As reported                                                      $      (0.19)   $      (0.04)   $      (0.06)
                                                                                  ============    ============    ============

                 Pro forma                                                        $      (0.24)   $      (0.10)   $      (0.14)
                                                                                  ============    ============    ============
</TABLE>

         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 years ended December
         31, 2005, 2004 and 2003, the Company recorded approximately $0.4
         million, $0.3 million and $0.9 million in transaction losses as a
         result of currency translation.

         SEGMENT REPORTING

                  The Company follows the provisions of SFAS 131, "Disclosures
         about Segments of an Enterprise and Related Information." This standard
         requires that companies disclose operating segments based on the manner
         in which management disaggregates the Company in making internal
         operating decisions.

         CONCENTRATIONS

                  For the years ended December 31, 2005, 2004 and 2003,
         approximately 70%, 68% and 68% of revenue, respectively, was derived
         from projects in which the Company's personnel implemented, extended,
         maintained, managed or supported software developed by SAP. The
         Company's future success in the SAP-related consulting services depends
         largely on its continued relationship with SAP and on its continued
         status as an SAP National Implementation Partner, which was first
         obtained in 1995. The Company's agreement with SAP (the "Agreement") is
         awarded on an annual basis.

                                       72
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 2-       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         CONCENTRATIONS (CONTINUED)

                  The Company's current contract expires on December 31, 2006
         and is automatically renewable for successive one-year periods, unless
         terminated by either party. This Agreement contains no minimum revenue
         requirements or cost sharing arrangements and does not provide for
         commissions or royalties to either party. In July 1997, the Company
         achieved Accelerated SAP Partner Status with SAP by meeting certain
         criteria established by SAP.

                  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, 2005, 2004 and
         2003, the Company's ten largest customers accounted for in the
         aggregate approximately 49%, 45% and 46% of its revenue, respectively.
         During 2005, one customer accounted for 10% or more of revenue, while
         during 2004 and 2003, no single customer accounted for 10% or more of
         revenue. As of December 31, 2005, one customer accounted for 10% or
         more of accounts receivable, while in 2004, no single customer
         accounted for 10% or more 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, 2005, 2004 and 2003,
         12%, 22% and 25%, 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, 2005, 2004 and 2003,
         approximately 21%, 25% and 25% 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, 2005, 2004 and 2003,
         approximately 3%, 2% and 4% 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, 2005, 2004 and 2003,
         approximately 5%, 3% and 1% of revenue, respectively, was derived from
         projects in which the Company's personnel implemented, extended,
         maintained, managed or supported e-Business related software.

                                       73
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 2-       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         FAIR VALUE OF FINANCIAL INSTRUMENTS

                  The carrying amount reported in the consolidated balance sheet
         for cash and cash equivalents, accounts receivable, accounts payable,
         accrued expenses, notes payable and obligations under capital leases
         approximate fair value because of the immediate or short-term maturity
         of these financial instruments. The Company does not utilize derivative
         instruments.

         INCOME TAXES

         The income tax provision (benefit) is computed on the pretax income
         (loss) based on the current tax law. Deferred income taxes are
         recognized in accordance with the provisions of 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 ability to utilize
         these losses may be limited in the future.

         COMPREHENSIVE INCOME (LOSS)

         The Company adopted SFAS 130, "Reporting Comprehensive Income," ("SFAS
         130"). SFAS 130 requires the reporting of comprehensive income (loss)
         in addition to net income (loss) from operations.

         Comprehensive income (loss) is a more inclusive financial reporting
         methodology that includes disclosure of information that historically
         has not been recognized in the calculation of net income (loss).

         EARNINGS (LOSS) PER SHARE OF COMMON STOCK

         Basic net income (loss) per common share ("EPS") is computed using the
         weighted average number of common shares outstanding for the period.
         Diluted earnings per share includes additional dilution from potential
         common stock, such as stock issuable pursuant to the exercise of stock
         options and warrants. Potential common stock are not included in the
         computation of diluted earnings per share when the Company reports a
         loss because to do so would be anti-dilutive for the periods presented.

                  Options to purchase 4,001,000, 2,708,000, and 2,972,000 shares
         of Common Stock at December 31, 2005, 2004 and 2003, respectively, were
         not included in the computation of diluted EPS because inclusion would
         have been anti-dilutive.

                                       74
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 2-       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         RECENT ISSUED ACCOUNTING STANDARDS

                  On December 16, 2004, FASB published SFAS No. 123 (Revised
         2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R requires that
         compensation cost related to share-based payment transactions be
         recognized in the financial statements. Share-based payment
         transactions within the scope of SFAS 123R include stock options,
         restricted stock plans, performance-based awards, stock appreciation
         rights, and employee share purchase plans. The provisions of SFAS 123R,
         as amended, are effective for issuers beginning as of the next fiscal
         year after June 15, 2005. Accordingly, the Company will implement the
         revised standard in the first quarter of fiscal year 2006. Currently,
         the Company accounts for its share-based payment transactions under the
         provisions Accounting Principles Board ("APB") 25, which does not
         necessarily require the recognition of compensation cost in the
         financial statements. Management is assessing the implications of SFAS
         123R, which may materially impact the Company's consolidated results of
         operations in the first quarter of fiscal year 2006 and thereafter. The
         Company plans to adopt the prospective method, and estimates the
         unvested portion effect on future periods to be $3.7 million.

                  On December 16, 2004, the FASB issued SFAS No. 153, "Exchanges
         of Non-monetary Assets, an amendment of APB Opinion 29, Accounting for
         Non-monetary Transaction" ("SFAS 153"). This statement amends APB
         Opinion 29 to eliminate the exception for non-monetary exchanges of
         similar productive assets and replaces it with a general exception for
         exchanges of non-monetary assets that do not have commercial substance.
         Under SFAS 153, if a non-monetary exchange of similar productive assets
         meets a commercial-substance criterion and fair value is determinable,
         the transaction must be accounted for at fair value resulting in
         recognition of any gain or loss. SFAS 153 is effective for non-monetary
         transactions in fiscal periods that begin after June 15, 2005. The
         Company does not anticipate that the implementation of SFAS 123 will
         have a material impact on its consolidated financial position, results
         of operations or cash flows.

                  In May 2005, the FASB issued FASB Statement No. 154,
         "Accounting Changes and Error Corrections ("SFAS 154"). SFAS 154
         replaces Accounting Principles Board Opinion No. 20, "Accounting
         Changes" and FASB Statement No. 3, "Reporting Accounting Changes in
         Interim Financial Statements," and requires the direct effects of
         accounting principle changes to be retrospectively applied. The
         existing guidance with respect to accounting estimate changes and
         corrections of errors is carried forward in SFAS 154. SFAS 154 is
         effective for accounting changes and corrections of errors made in
         fiscal years beginning after December 15, 2005. The Company does not
         expect the adoption of SFAS 154 to have a material effect on its
         consolidated financial statements.

         RECLASSIFICATIONS

         Certain amounts for the years ended December 31, 2004 and 2003 have
         been reclassified to conform to the presentation of the December 31,
         2005 amounts.

                                       75
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 3-       PROPERTY AND EQUIPMENT

         Property and equipment consist of the following as of December 31, 2005
         and 2004 (in thousands, except useful lives data):

<TABLE>
<CAPTION>
                                                              ESTIMATED USEFUL
                                                                LIVES (YEARS)       2005          2004
                                                              ----------------   ----------    ----------
         <S>                                                       <C>           <C>           <C>
         Vehicles                                                    5           $      443    $      340
         Furniture                                                   5                3,186         2,927
         Equipment                                                  3-5                 885         6,343
         Computer software                                           3               12,440         6,320
         Leasehold improvements                                    5-10               2,086         1,146
                                                                                 ----------    ----------
                                                                                     19,040        17,076
         Less: Accumulated depreciation and amoritization                           (14,942)      (13,591)
                                                                                 ----------    ----------
         Total, net                                                              $    4,098    $    3,485
                                                                                 ==========    ==========
</TABLE>

                  Depreciation expense, which includes amortization of assets
         held under capital lease, was $2.4 million, $2.9 million and $3.4
         million (including $0.1 million, $0.4 million and $0.8 million within
         cost of revenue) for the years ended December 31, 2005, 2004 and 2003,
         respectively. Included in property and equipment is $1.1 million and
         $1.0 million of assets held under capital lease at December 31, 2005
         and 2004, respectively. Accumulated amortization of the assets held
         under capital lease is $0.4 million at both December 31, 2005 and 2004.

NOTE 4-       LEASE OBLIGATIONS AND SETTLEMENTS

                  In connection with the Company's July 2000 spin-off of
         SeraNova, Inc. ("SeraNova") the Company entered into a space sharing
         agreement with SeraNova, whereby SeraNova would pay the Company's
         landlord directly for their portion of the rent. Beginning in 2001,
         SeraNova failed to make required lease payments to the Company's
         landlord, which the Company was required to make on SeraNova's behalf.
         SeraNova's financial condition deteriorated culminating in the August
         8, 2003 filing for bankruptcy under Chapter 7 of the United States
         Bankruptcy Code by SeraNova and its parent company. The Company
         recorded charges related to the lease payments in 2000.

                  As of December 31, 2005 and 2004, $0.4 million and $0.5
         million of the liability remained outstanding, of which $0.3 million
         and $0.4 million was included in other long-term liabilities. The
         Company expects to repay this liability through 2008. The remaining
         liability is included in accrued expenses and other current
         liabilities.

                                       76
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 5-       LINE OF CREDIT

                  On May 31, 2000, the Company and PNC Bank, N.A. (the "Bank")
         entered into a three-year revolving credit facility (the "Credit
         Facility"). In July 2003, the Credit Facility was extended until May
         31, 2006. The Credit Facility is currently comprised of a revolving
         line of credit pursuant to which the Company could borrow up to
         $15,000,000 at the bank's prime rate per annum. The Credit Facility is
         collateralized by substantially all of the assets of the Company's
         United States based operations. The maximum borrowing availability
         under the line of credit is based upon a percentage of eligible billed
         and unbilled accounts receivable, as defined.

                  The Company was in compliance with its covenants in the Credit
         Facility agreement as of December 31, 2005.

                  As of December 31, 2005 and 2004, the Company had outstanding
         borrowings under the credit facility of $3.4 million and $2.4 million,
         respectively. The Company estimates undrawn availability under the
         credit facility to be $8.7 million as of December 31, 2005.

                  The weighted average interest rates on outstanding borrowings
         under the credit facility were 7.16% and 4.82% for the years ended
         December 31, 2005 and 2004 respectively.

                  Interest expense on debt and obligations under capital leases
         approximated $0.3 million, $0.5 million and $0.5 million for the years
         ended December 31, 2005, 2004 and 2003, respectively.

NOTE 6-       OBLIGATIONS UNDER CAPITAL LEASES

         The Company is the lessee of equipment, vehicles and furniture under
         capital leases expiring in 2010.

         Minimum lease payments under capital leases at December 31, 2005 are as
         follows (in thousands):

                     2006                              $   257
                     2007                                  270
                     2008                                  128
                     2009                                   40
                     2010                                   16
                                                       -------
                                                           711
                  Less: amounts representing interest     (104)
                  Less: current portion                   (257)
                                                       -------
                  Long-term portion                    $   350
                                                       =======

                                       77
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 7-       SHAREHOLDERS' EQUITY

         PREFERRED STOCK

         At December 31, 2005 and 2004, there are 5,000,000 shares of Preferred
         Stock, par value $0.01 authorized and no shares issued or outstanding.

         COMMON STOCK

         At December 31, 2005 and 2004, there are 50,000,000 and 40,000,000
         shares of Common Stock, respectively; par value $.01 authorized and
         35,103,000 shares issued and outstanding.

         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.

         In 2005, the Company did not issue any shares of Common Stock.

         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.

         At the Company's 2004 Annual Shareholders' Meeting on June 8, 2004, the
         shareholders approved an increase to the authorized shares of Common
         Stock to 40,000,000 from 25,000,000.

         In 2004, the Company issued 18,116,000 shares of Common Stock, of which
         17,647,000 shares of Common Stock were issued in the Private Placement
         Transaction (as defined in Note 1) for gross proceeds of $15 million
         and net proceeds of $14.7 million and 469,000 shares of Common Stock
         were issued upon the exercise of stock options for proceeds of
         approximately $1.3 million.

         In 2003, the Company issued 357,000 shares of Common Stock upon the
         exercise of stock options and received proceeds of approximately $0.8
         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 6,605,000 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).

                                       78
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 7-       SHAREHOLDERS' EQUITY (CONTINUED)

         STOCK OPTIONS (CONTINUED)

                                            NUMBER            WEIGHTED
                                              OF               AVERAGE
                                            SHARES         EXERCISE PRICE
                                       ---------------    ---------------
         Balance - January 1, 2003               3,191    $          2.36
              Granted                              530    $          4.61
              Exercised                           (366)   $          2.33
              Canceled                            (383)   $          3.52
                                       ---------------    ---------------

         Balance - December 31, 2003             2,972    $          2.62
              Granted                            1,321    $          5.16
              Exercised                           (459)   $          2.84
              Canceled                          (1,126)   $          4.58
                                       ---------------    ---------------

         Balance - December 31, 2004             2,708    $          3.00
              Granted                            3,669    $          1.64
              Exercised                              -    $             -
              Canceled                          (2,376)   $          2.05
                                       ---------------    ---------------
         Balance - December 31, 2005             4,001    $          2.32
                                       ===============    ===============

         The following summarizes information about stock options outstanding
         and exercisable at December 31, 2005 (number of shares data in
         thousands):

<TABLE>
<CAPTION>
                                              OUTSTANDING                                 EXERCISABLE
                          ---------------------------------------------------   ---------------------------------
                                               WEIGHTED
                                                AVERAGE          WEIGHTED                            WEIGHTED
         EXERCISE PRICE      NUMBER OF      REMAINING LIFE        AVERAGE          NUMBER OF          AVERAGE
              RANGE           SHARES          (IN YEARS)      EXERCISE PRICE        SHARES        EXERCISE PRICE
         ---------------  ---------------   ---------------   ---------------   ---------------   ---------------
         <S>                        <C>                 <C>   <C>                         <C>     <C>
         $0.96 to $1.25               802               7.5   $          1.21               272   $          1.19
         $1.26 to $1.75             1,132               9.4   $          1.49               181   $          1.49
         $1.76 to $2.50             1,371               9.6   $          2.11               128   $          2.11
         $2.51 to $3.69               239               4.2   $          2.66               221   $          2.59
         $3.70 to $5.11                88               4.9   $          4.63                74   $          4.60
         $5.12 to $7.25               222               7.7   $          6.38               135   $          6.13
         $7.26 to $8.75               147               7.8   $          8.61                44   $          8.63
                          ---------------   ---------------   ---------------   ---------------   ---------------
         $0.96 to $8.75             4,001               8.5   $          2.32             1,055   $          2.83
                          ===============   ===============   ===============   ===============   ===============
</TABLE>

                                       79
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 7-       SHAREHOLDERS' EQUITY (CONTINUED)

         STOCK OPTIONS (CONTINUED)

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

                                         2005             2004         2003
                                   -----------------   ----------   ----------
         Expected Volatility       105.45% - 107.02%     109.77%      109.77%
         Expected Lives            2.10 - 2.68 years   1.95 years   1.95 years
         Risk free Interest Rate     3.82% - 4.38%        3.08%        1.84%

                  The weighted average fair value of options granted during the
         years ended December 31, 2005, 2004 and 2003 was $1.64, $5.16 and
         $4.61, respectively. For fixed awards with pro-rata vesting, the
         Company recognizes compensation costs on a straight-line basis.

         STOCK RIGHTS

                  In October 1998, the Company's Board of Directors declared a
         dividend distribution of one Preferred Share Purchase Right ("Right")
         for each outstanding share of the Company's Common Stock. These Rights
         were to expire in November 2008 and trade with the Company's Common
         Stock. Such Rights were not exercisable and had no voting power. In
         September 2004, the Company's Board of Directors amended the
         Shareholder Protection Rights Agreement dated as of November 6, 1998
         (the "Rights Agreement") which provided for the distribution of one
         Right for each outstanding common share, par value $0.01 per share, of
         the Company upon the occurrence of certain events as set forth therein.
         The Company amended the Rights Agreement to define the "Expiration
         Time" as September 30, 2004. The Rights Agreement as amended expired on
         September 30, 2004. Therefore the holders of shares of the Company's
         Common Stock no longer have any rights pursuant to the Rights
         Agreement.

                                       80
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 8-       RELATED PARTY TRANSACTIONS

                  Nagarjun Valluripalli, the Company's former Chairman of the
         Board, President, Chief Executive Officer and a former Director of the
         Company is an owner (the "Owner") of real estate located at 5-9-22,
         Secretariat Road in Hyderabad, India. On October 2, 2003, Intelligroup
         Asia Private Ltd. ("IGA") and the Owner executed a memorandum of
         understanding (the "MOA") relating to a proposed lease whereby the
         Owner would lease the 5th and 6th floors of the property ("Premises")
         to the Company for certain of the Company's India operations. As
         contemplated in the MOA, on June 18, 2004, the Owner and IGA executed
         leases for the Premises and the amenities, furnishings and fittings.
         The leases provide for a minimum lease period of three years with a
         renewal option for an additional three years. The leases provide for a
         three-month notice period for either party to terminate the lease.
         Under the terms of the lease for the amenities, IGA paid a deposit of
         5.8 million rupees (approximately $133,000) and advance lease rentals
         of 11.6 million rupees (approximately $266,000) upon the handing over
         of the amenities and shall pay monthly rent of 1.2 million rupees
         (approximately $27,000). Under the terms of the lease for the Premises,
         IGA paid a deposit of 4.7 million rupees (approximately $106,000) and
         advance lease rentals of 9.3 million rupees (approximately $213,000)
         upon the handing over of the Premises and shall pay monthly rent of 0.9
         million rupees (approximately $21,000). Rent expense for the year ended
         December 31, 2005 towards the said lease was 30.6 million rupees
         (approximately $694,000). The value of un-amortized rentals as of
         December 31, 2005 was 2.4 million rupees (approximately $54,000).

                  Effective August 1, 2005, 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"). 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
         $352,000); (3) payment of monthly lease fees in the amount of 1.7
         million Indian rupees (approximately $40,000), subject to yearly five
         percent (5%) escalation; and (4) monthly operations and maintenance
         fees of 0.3 million Indian rupees (approximately $6,500). Rent expense
         for the year ended December 31, 2005 towards the said lease was 13.9
         million rupees (approximately $313,000). The value of un-amortized
         rentals as of December 31, 2005 was 15.3 million rupees (approximately
         $338,000).

NOTE 9-       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. The Company and SeraNova executed a Tax Sharing Agreement,
         dated January 1, 2000 ("Tax Sharing Agreement"), whereby SeraNova would
         indemnify the Company for any tax liabilities in the event a future
         transaction of SeraNova results in the spin-off being deemed a taxable
         event. However, subsequently SeraNova and its parent company,
         Silverline Technologies, Inc. filed for Chapter 7 Bankruptcy.
         Additionally, 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.

                                       81
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 9-       COMMITMENTS AND CONTINGENCIES

         TAX-FREE SPIN-OFF OF SERANOVA (CONTINUED)

                  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.

                  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 taxable, the
         resultant tax liability could be up to $65.0 million, plus interest and
         penalties, 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, an issue that is
         currently being analyzed.

         EMPLOYMENT AGREEMENTS

                  As of December 31, 2005, 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 $1.3 million. In
         addition, Intelligroup Asia Pvt. Ltd. ("IGA") had entered into
         Severance Packages totaling approximately $0.6 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 or about
         September 2005, two former members of the IGA management team sent IGA
         notices under Section 433 and 434 of the Companies Act, 1956 for
         payment of such Severance Package. 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 $0.5 million to such individuals.

                                       82
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 9-       COMMITMENTS AND CONTINGENCIES (CONTINUED)

         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):

         FOR THE YEARS ENDED  GROSS OPERATING     SUBLEASE       NET OPERATING
            DECEMBER 31,      LEASE PAYMENTS       INCOME       LEASE PAYMENTS
         -------------------  ---------------  ---------------  ---------------
                2006          $         2,789  $           350  $         2,439
                2007                    2,189              350            1,839
                2008                    1,671              262            1,409
                2009                      659                -              659
                              ---------------  ---------------  ---------------

                              $         7,308  $           962  $         6,346
                              ===============  ===============  ===============

         Rent expense for the years ended December 31, 2005, 2004 and 2003 was
         $3.1 million, $2.6 million and $1.5 million, net of sublease income of
         $0.4 million, $0.3 million, and $0.3 million, respectively.

         OTHER

                  On September 30, 2004, as a result of the Private Placement
         Transaction, the Company's remaining obligation to pay Ashok Pandey
         $500,000 under the change in control provisions of that certain
         Settlement Agreement, dated August 7, 2003, by and between the Company
         and Mr. Pandey, became immediately due and owing. The Company's total
         obligation under the Settlement Agreement was for $750,000, $250,000 of
         which was previously paid to Mr. Pandey on October 14, 2003, with two
         further equal annual installments due on October 14, 2004 and 2005. The
         Company issued two payments in the amount of $250,000 each to Mr.
         Pandey on January 17, 2005 and February 21, 2005.

                                       83
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 10-      LITIGATION

                  The Company's India subsidiary has received tax assessments
         dated February 12, 2002, July 23, 2002, August 22, 2003, September 10,
         2004 and March 29, 2005 from the India taxing authority denying tax
         exemptions claimed for certain revenue earned and disallowing certain
         expenses claimed during the Indian subsidiary's fiscal years ended
         March 31, 1998 through March 31, 2002. The revised tax assessments were
         for 14.6 million, 9.5 million, 2.8 million, 5.6 million and 15.0
         million Indian rupees, respectively, or approximately $1.0 million in
         total. An additional assessment for tax penalties and interest for the
         fiscal year ended March 31, 2001 of 1.7 million Indian rupees, or
         approximately $38,000, was also received. The Company has made payments
         of approximately $1.1 million (consisting of $0.8 million for taxes
         paid under protest, $38,000 for tax penalties and interest and $0.2
         million for other tax adjustments not in dispute) to the India tax
         authority. The Company's resulting overpayment has been refunded.

                  The Company is currently appealing the tax assessments
         received by the Company's India Subsidiary denying tax exemptions
         claimed during each of the fiscal years ended March 31, 1999 through
         March 31, 2002. In the event the Company's appeal is not successful, a
         future cash outlay of approximately $57,000 would be required. The
         Company has reserved $57,000, the full amount claimed, against this
         potential liability. In the event the Company is successful, an amount
         up to approximately $0.8 million could be refunded to the Company.

                  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
         the Company's 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 seeks relief in the
         form of unspecified compensatory damages and reasonable costs, expenses
         and legal fees. Motions to dismiss have been filed against all
         complaints.

                  There is no other litigation pending to which the Company is a
         party or to which any of its property is subject which would have a
         material impact on the Company's consolidated financial condition,
         results of operations or cash flows in the event the Company was
         unsuccessful in such litigation.

                  Legal fees arising in connection with litigation are expensed
         as incurred.

                                       84
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 11-      INCOME TAXES

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

                         2005          2004          2003
                      ----------    ----------    ----------
         Current:
            Federal   $        -    $        -    $        -
            State             71             5           118
            Foreign          304           580           284
                      ----------    ----------    ----------
                             375           585           402
         Deferred:
           Foreign          (615)         (227)         (216)
                      ----------    ----------    ----------

         Total        $     (240)   $      358    $      186
                      ==========    ==========    ==========

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

<TABLE>
<CAPTION>
                                                       2005           2004           2003
                                                    ----------     ----------     ----------
         <S>                                        <C>            <C>            <C>
         United States                              $   (9,079)    $   (4,230)    $   (2,531)
         Foreign                                         2,248          3,722          2,601
                                                    ----------     ----------     ----------
         Income (loss) from continuing
          operations before income taxes            $   (6,831)    $     (508)    $       70
                                                    ==========     ==========     ==========
</TABLE>

        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:

<TABLE>
<CAPTION>
                                                       2005           2004           2003
                                                    ----------     ----------     ----------
         <S>                                             <C>           <C>          <C>
         Tax at federal statutory rate                    34.0%          34.0%          34.0%
         State income tax, net of federal benefit          8.0           (0.6)         111.0
         Foreign Taxes                                     1.0          (14.6)         324.1
         Change in valuation allowance                   (63.0)         520.4        1,871.0
         Permanent items                                   7.1         (866.5)      (1,048.0)
         Tax holiday, India                               20.8          257.0       (1,025.6)
         Other                                            (4.4)             -              -
                                                    ----------     ----------     ----------
         Effective tax rate                                3.5%           (70)%        266.5%
                                                    ==========     ==========     ==========
</TABLE>

                                       85
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 11-     INCOME TAXES (CONTINUED)

                  In 1996, the Company elected a five year tax holiday in India,
         in accordance with a local tax incentive program whereby no income tax
         will be due in such period. Such tax holiday was extended an additional
         five years in 1999. Effective April 1, 2000 pursuant to changes
         introduced by the Indian Finance Act, 2000, the tax holiday previously
         granted is no longer available and has been replaced in the form of a
         tax deduction incentive. The impact of this change is not expected to
         be material to the consolidated financial statements of the Company.
         Effective April 1, 2002, the tax deduction incentive for income from
         the export of software and related services is restricted to 90% of
         such income. Further, domestic revenue from software and related
         services is taxable in India. Effective April 1, 2003, the 90% tax
         deduction incentive restriction was repealed and the tax incentive is
         again available for the entire amount of income from the export of
         software and related services. This tax deduction favorably impacted
         the Company's effective tax rates for the periods reported.

                  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):

<TABLE>
<CAPTION>
                                                                2005          2004
                                                             ----------    ----------
         <S>                                                 <C>           <C>
         Deferred tax assets:
           Allowance for doubtful accounts                   $      492    $      478
           Vacation accrual                                       1,059         1,045
           Net operating losses                                  18,173        13,632
           Other accrued liabilities                                215           277
                                                             ----------    ----------
         Total deferred tax  assets                              19,939        15,432

         Deferred tax liability - accelerated depreciation           63          (122)
         Valuation allowance                                    (18,641)      (14,626)
                                                             ----------    ----------

         Net deferred tax assets - non-current               $    1,361    $      684
                                                             ==========    ==========
</TABLE>

                  During 2005, 2004 and 2003, 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 recording
         a tax provision of $4.3 million in 2005, decreased the valuation
         allowance by recording a tax benefit of $2.6 million in 2004 and
         increased the valuation allowance by recording a tax provision of $1.3
         million in 2003, respectively. Offsetting the tax benefit in 2004 is
         the Company's estimated charge to the provision representing a
         reduction of the net operating loss carry-forward as a result of
         limitations imposed by IRC Section 382 of $5.1 million. The Company's
         valuation allowance as of December 31, 2005 and 2004 was $18.6 million
         and $14.6 million respectively. Cumulative net operating loss carry
         forwards of $40.0 million expire in various years through 2025.

                  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.

                                       86
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 12-      DEFINED CONTRIBUTION PLAN

                  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 $0.4 million, $0.7 million and $0.2 million
         for the years ended December 31, 2005, 2004, and 2003, 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 and $0.3
         million of forfeitures to offset contributions for the years ended
         December 31, 2005 and 2003, respectively.

NOTE 13-      DISCONTINUED OPERATIONS

                  Summarized financial information for the discontinued
         operations of the former subsidiaries is as follows (in thousands):

                                                          2003
                                                       ----------

         Revenue                                       $    1,691
         Pre-tax income (loss)                              1,375
         Income tax provision                                  33
         Income (loss) from discontinued operations,
           excluding loss on sale                           1,342

                  Additionally, the Company reported a loss on the sale of the
         former subsidiaries of $2.3 million for the year ended December 31,
         2003.

                  On April 2, 2003, the Company consummated the sale (the
         "Sale"), effective as of March 1, 2003, of its Former Subsidiaries, to
         Soltius. As consideration, the Company received a 5% minority
         shareholding in Soltius and a $650,000 note to be paid by Soltius to
         the Company over a period of 12 months, commencing April 2003. In March
         2004, the Company agreed to renegotiate the original payment terms with
         Soltius. The Company as of January 2005 has been paid in full.

                  The consolidated financial statements have been retroactively
         adjusted to reflect the discontinued operations in the consolidated
         statements of operations and comprehensive income (loss) and cash flows
         for the periods reported.

                                       87
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 14-      SEGMENT DATA AND GEOGRAPHIC INFORMATION

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

         On April 2, 2003, the Company consummated the sale, effective as of
         March 1, 2003, of its Asia-Pacific group of subsidiary companies,
         operating in Australia, New Zealand, Singapore, Hong Kong and
         Indonesia. The operating results and financial position of the
         Asia-Pacific group of subsidiary companies are reported as discontinued
         operations for all periods presented (see Note 13). The Company now has
         four reportable operating segments from continuing operations, which
         are organized and managed on a geographical basis, as follows:

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

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

         o        Europe - includes the operations of the Company in Denmark,
         Sweden and the United Kingdom. The European headquarters is located in
         Milton Keynes, United Kingdom;

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

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

                  Accordingly, the Company's consolidated operating results for
         the years ended December 31, 2005, 2004 and 2003 and financial position
         as of December 31, 2005, 2004 and 2003 are presented in the following
         geographic segments (in thousands):

                                       88
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 14-      SEGMENT DATA AND GEOGRAPHIC INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                            UNITED
                                            STATES         INDIA        EUROPE         JAPAN         TOTAL
                                          ----------    ----------    ----------    ----------    ----------
         <S>                              <C>           <C>           <C>           <C>           <C>
         2005

         Revenue                          $   86,617    $   28,206    $    7,030    $    3,473    $  125,326
         Depreciation and amortization         1,374           891           114            11         2,390(1)
         Operating income (loss)              (9,637)        3,526          (289)         (543)       (6,943)
         Total assets                         28,778        11,038         2,418         1,552        43,786

         2004

         Revenue                          $   95,270    $   22,029    $    6,890    $    4,714    $  128,903
         Depreciation and amortization         2,201           572           112            16         2,901(2)
         Operating income (loss)              (4,129)        3,324          (183)          857          (131)
         Total assets                         35,547         8,388         2,455         1,781        48,171

         2003

         Revenue                          $   90,639    $   16,248    $    6,683    $    3,572    $  117,142
         Depreciation and amortization         2,479           784           156            30         3,449(3)
         Operating income (loss)              (1,815)        2,536           189           437         1,347
         Total assets                         30,523         7,101         2,888           926        41,438
</TABLE>

         (1)      Includes $0.1 million of depreciation and amortization
                  included in costs of revenue for the year ended December 31,
                  2005.

         (2)      Includes $0.4 million of depreciation and amortization
                  included in costs of revenue for the year ended December 31,
                  2004.

         (3)      Includes $0.8 million of depreciation and amortization
                  included in costs of revenue for the year ended December 31,
                  2003.

         (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.

         (5)      Of the total capital expenditures incurred for the year 2004,
                  $1.6 million was incurred in the US and $0.4 million was
                  incurred in India.

                                       89
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 15 -     SUBSEQUENT EVENTS

         2006 Private Placement

         On March 31, 2006, the Company completed a $10,000,000 private
placement transaction whereby SAIF acquired 3,333,333 additional shares of the
Company's common stock and Venture Tech acquired 3,333,334 additional shares of
the Company's 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 the Board of Directors and generated approximately
$9.7 million of proceeds to the Company, net of transaction expenses. Following
the 2006 Private Placement, SAIF and Venture Tech own_36% and 26% of the
Company's common stock, respectively.

NOTE 16 -     UNAUDITED QUARTERLY FINANCIAL DATA

         2005 and 2004 Quarterly Financial Data

                  The following tables set forth certain unaudited results of
         operations for each quarter during 2005 and 2004. 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).

<TABLE>
<CAPTION>
                                                          FOR THE QUARTERS ENDED
                                        ------------------------------------------------------------
                                          MARCH 31,       JUNE 30,      SEPTEMBER 30,   DECEMBER 31,
    STATEMENT OF OPERATIONS                 2005            2005            2005            2005
    ---------------------------------   ------------    ------------    -------------   ------------
    <S>                                 <C>             <C>             <C>             <C>
    Revenue                             $     32,436    $     33,690    $      29,738   $     29,462
    Cost of revenue                           24,303          24,388           22,823         20,790

    Total operating expenses                   8,855          10,102           10,626         10,380
    Operating loss                              (722)           (800)          (3,711)        (1,708)

    Loss before provision for
      (benefit of) income taxes                 (998)         (1,264)          (3,443)        (1,125)
    Provision for (benefit of) income
      taxes                                     (307)             23              132            (87)
                                        ------------    ------------    -------------   ------------
    Net loss                                    (691)         (1,287)          (3,575)        (1,038)
                                        ============    ============    =============   ============

    Net loss per common share           $      (0.02)   $      (0.04)   $       (0.10)  $      (0.03)

    Shares Outstanding:
    Basic and Diluted
                                              35,103          35,103           35,103         35,103
                                        ============    ============    =============   ============
</TABLE>

                                       90
<PAGE>

                               INTELLIGROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2005, 2004 AND 2003

NOTE 16-      UNAUDITED QUARTERLY FINANCIAL DATA (CONTINUED)

<TABLE>
<CAPTION>
                                                          FOR THE QUARTERS ENDED
                                        ------------------------------------------------------------
                                          MARCH 31,       JUNE 30,      SEPTEMBER 30,   DECEMBER 31,
    STATEMENT OF OPERATIONS                 2004            2004            2004            2004
    ---------------------------------   ------------    ------------    -------------   ------------
    <S>                                 <C>             <C>             <C>             <C>
    Revenue                             $     30,536    $     32,064    $      35,492   $     30,811
    Cost of revenue                           20,674          22,995           24,590         23,559

    Total operating expenses                   8,951           9,734            8,702          9,829
    Operating income (loss)                      911            (665)           2,200         (2,577)
    Income (loss) before provision for
     (benefit of) income taxes                   187            (117)           2,156         (2,734)
    Provision for (benefit of) income
     taxes                                      (191)            226              297             26
                                        ------------    ------------    -------------   ------------
    Net income (loss)                            378            (343)           1,859         (2,760)
                                        ============    ============    =============   ============

    Net income (loss) per common share:
      Basic                             $       0.02    $      (0.02)   $        0.09   $      (0.08)
      Diluted                           $       0.02    $      (0.02)   $        0.08   $      (0.08)

    Shares Outstanding:
    Basic                                     17,184          17,403           21,858         35,103
                                        ============    ============    =============   ============
    Diluted                                   19,126          17,403           22,775         35,103
                                        ============    ============    =============   ============
</TABLE>

                                       91