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SECURITIES
AND EXCHANGE COMMISSIONWashington,
DC 20549

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FORM
      10-K

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

For
    the fiscal year ended December 31, 2004

Commission
    file number 0-20943

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

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|New
            Jersey                                                       | 11-2880025                                           
|---------------------------------------------------------------------------- | -----------------------------------------------------
|(State
        or Other Jurisdiction of
      Incorporation or Organization) | (I.R.S.
        Employer 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:         
|                                                                             |                                                      
|Title
            of each class                                              | Name
            of each exchange on which registered
|None                                                                         |                                                      
|                                                                             |                                                      
|Securities
        registered pursuant to Section 12(g) of the Act:         
|                                                                             |                                                      
|Common
            Stock, $.01 par value                                    
|(Title
        of Class)                                                    
|                                                                             |                                                      

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


| | Yes: | No: | 
| | ---- | --- | 

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


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


| | Yes: | No: | 
| | ---- | --- | 

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


| | Yes: | No: | 
| | ---- | --- | 

The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2004 (the last business day of the most recent second quarter) was $80,521,986 (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 September 30, 2005:


|Class                                  |  | Number
          of Shares | 
|-------------------------------------- |  | -------------------------- | 
|                                       |  |                            | 
|Common
          Stock, $.01 par value |  | 35,102,440                 | 

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TABLE OF CONTENTS

|                         | Item |                                                                                                           | Page | 
|------------------------ | ---- | --------------------------------------------------------------------------------------------------------- | ---- | 
|                         |      |                                                                                                           |      | 
|PART I                   | 1.   | Business                                                                                                  | 4    | 
|                         |      |                                                                                                           |      | 
|                         | 2.   | Properties                                                                                                | 25   | 
|                         |      |                                                                                                           |      | 
|                         | 3.   | Legal Proceedings                                                                                         | 27   | 
|                         |      |                                                                                                           |      | 
|                         | 4.   | Submission of Matters to a Vote of Security Holders                                                       | 28   | 
|                         |      |                                                                                                           |      | 
|PART II                  | 5.   | Market
    for the Company's Common Equity and Related Shareholder Matters                                | 30   | 
|                         |      |                                                                                                           |      | 
|                         | 6.   | Selected Financial Data                                                                                   | 31   | 
|                         |      |                                                                                                           |      | 
|                         | 7.   | Management's
    Discussion and Analysis of Financial Condition and Results of Operations                 | 33   | 
|                         |      |                                                                                                           |      | 
|                         | 7A.  | Quantitative and Qualitative Disclosure About Market Risk                                                 | 65   | 
|                         |      |                                                                                                           |      | 
|                         | 8.   | Financial Statements and Supplementary Data                                                               | 65   | 
|                         |      |                                                                                                           |      | 
|                         | 9.   | Changes
    in and Disagreements with Accountants on Accounting and Financial Disclosure                  | 65   | 
|                         |      |                                                                                                           |      | 
|                         | 9A.  | Controls and Procedures                                                                                   | 66   | 
|                         |      |                                                                                                           |      | 
|PART III                 | 10.  | Directors and Executive Officers of the Registrant                                                        | 73   | 
|                         |      |                                                                                                           |      | 
|                         | 11.  | Executive Compensation                                                                                    | 79   | 
|                         |      |                                                                                                           |      | 
|                         | 12.  | Security
       Ownership of Certain Beneficial Owners and Management and Related Shareholder
    Matters | 87   | 
|                         |      |                                                                                                           |      | 
|                         | 13.  | Certain Relationships and Related Transactions                                                            | 92   | 
|                         |      |                                                                                                           |      | 
|                         | 14.  | Principal Accountant Fees and Services                                                                    | 93   | 
|                         |      |                                                                                                           |      | 
|PART IV                  | 15.  | Exhibits and Financial Statement Schedules                                                                | 94   | 
|                         |      |                                                                                                           |      | 
|EXHIBIT INDEX            | 95   |                                                                                                          
|                         |      |                                                                                                           |      | 
|SIGNATURES               | 102  |                                                                                                          
|                         |      |                                                                                                           |      | 
|FINANCIAL
    STATEMENTS | 103  |                                                                                                          

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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 1, Business and Item 7, Managements Discussion and Analysis and elsewhere in this annual report on Form 10-K.


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PART I

Item 1.  Business.

Restatement of Prior Period Consolidated Financial Statements

The
      historical financial information in this document has been restated. In
      September 2004, Intelligroup, Inc. (Intelligroup or the Company)
      discovered unreconciled differences in intercompany accounts and certain
      other accounting errors in prior periods which resulted in adjustments
      to revenues, the cumulative currency translation adjustment account and
      accumulated deficit. As a result, the Company's Audit Committee concluded
      that the Company's previously issued consolidated financial statements
      for the years ended December 31, 2003, 2002 and 2001, as well as all quarterly
      periods beginning January 1, 2001 through the quarter ended March 31, 2004,
      should no longer be relied upon.


Due
      to the volume of transactions underlying the proposed adjustments and the
      Companys engagement of a new independent registered public accounting
  firm as of November 1, 2004, the Company decided, in consultation with its new independent registered
  public accounting firm, to re-audit its consolidated financial statements for
  the years ended December 31, 2003 and 2002 and to re-review the quarterly periods
  included therein and the quarterly period ended March 31, 2004.


As
      a result of the adjustments identified during the restatement and re-audit
      process, the Companys accumulated deficit as of March 31, 2004 increased $6.9 million from $25.3 million to $32.2 million.  The adjusting entries identified during the restatement and re-audit process were extensive and affected virtually every line item of the Companys financial statements as of each date and for each period presented. The following table presents a summary of the effects of the adjustments identified during the restatement and re-audit process on the applicable line items and the impact on the Companys
      net income or loss for the periods subject to the restatement and re-audit
      process:


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|                                                                        | Increase (Decrease)
    from Previously Reported Amounts |                                             
|----------------------------------------------------------------------- | -------------------------------------------------------- | --------------------------------------------
|for
    the                                                            
|                                                                       
|                                                                        |                                                          |                                             
|Quarter                                                                
|CUMULATIVE                                                              | Ended                                                    | Years
    Ended                             
|TOTAL                                                                   | March
    31,                                            | Year
    Ended December 31,                 
|                                                                        |                                                          |                                             
|Through
         Quarter                                                |                                                          |                                             
|ended
         March 31,                                               
|2004                                                                    | 2004                                                     | 2003                                        
|                                                                        |                                                          |                                             
|                                                                        |                                                          | (In
    thousands, except per share amounts)
|                                                                        |                                                          |                                             
|Statement of Operations Data:                                           |                                                          | (unaudited)                                 
|                                                                        |                                                          |                                             
|Revenue                                                                 | $                                                        | (3,430                                      
|Cost of revenue                                                         |                                                          | 1,803                                       
|Selling,
    general &administrative                                    |                                                          | 850                                         
|SeraNova charges                                                        |                                                          | (362                                        
|                                                                        |                                                          |                                             
|Operating income (loss)                                                 |                                                          | (5,721                                      
|                                                                        |                                                          |                                             
|Income
       (loss) before income taxes
    and discontinuedoperations |                                                          | (6,428                                      
|                                                                        |                                                          |                                             
|Income tax provision (benefit)                                          |                                                          | 761                                         
|                                                                        |                                                          |                                             
|Income
    (loss) from discontinued operations                          |                                                          | 252                                         
|Net income (loss)                                                       | $                                                        | (6,938                                      
|                                                                        |                                                          |                                             
|                                                                        |                                                          |                                             
|Income
    (loss) per common share  basic and diluted                  |                                                          |                                             
|                                                                        |                                                          |                                             
|Balance Sheet Data:                                                     |                                                          |                                             
|Total assets                                                            |                                                          |                                             
|Total liabilities                                                       |                                                          |                                             
|Accumulated deficit                                                     |                                                          |                                             
|                                                                        |                                                          |                                             

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The following is a description of the significant adjustments to previously reported financial statements resulting from the restatement and re-audit process. While this description does not purport to explain each correcting entry, the Company believes that it fairly describes the significant factors underlying the adjustments and the overall impact of the restatement and re-audit in all material respects.


Adjustments to Revenue

Significant errors affecting revenue are as follows.

|• | Adjustments
            in percentage-of-completion for fixed-price contracts -Through
            the restatement and re-audit process, the Company reviewed the accounting
            estimates used in its percentage of completion calculations, which
            determine the basis for revenue accruals for fixed price contracts.
            These estimates pertain to the number of man-hours required to perform
            services under the contract. During the course of the restatement,
            these estimates were replaced with the actual number of manhours
            required to complete the services resulting in significant adjustments
    to the revenue accruals throughout the periods subject to the restatement.                                                                                                                                                                                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|• | Errors in
            revenue recognition under multiple-element contracts -Contracts
            with multiple elements (i.e., sales of services, sales of
            software and sale of hardware) require different methods of revenue
            recognition for each element. Throughout each of the periods subject
            to restatement, the Company applied inconsistent methods for determining
            revenue recognition for the individual elements of its multiple element
            contracts and in some cases failed to properly identify certain of
            its contracts as multiple element contracts and therefore did not
            apply the appropriate method for determining revenue recognition
            for such contracts. As part of the restatement, the Company applied
            the appropriate revenue recognition methods to each element of all
            multiple-element contracts, resulting in adjustments to revenue in
    each period covered by the restatement.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|• | Errors related
          to unrecorded time entries -Revenue accruals for time and materials
          contracts are based on the time entries by the Companys consultants.
          In situations where the employee time-sheets were not received prior
          to quarter end, the Company followed a practice of accruing revenue
          based upon the expected number of hours worked, which led to timing
          differences in situations where the timesheets were received in the
          subsequent quarters, and over accruals in situations where the timesheets
          were never received. As part of the restatement, the Company recorded
          revenue in each period based on timesheets in the Companys records
    with respect to each period.                                                                                                                                                                                                                                                 

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|•                                                                                                            | Inter-company
          transaction errors -Throughout each of the periods subject to
          restatement, the Company failed to reconcile discrepancies in its inter-company
          accounts caused by timing differences between companies in recording
          transactions as well as failures by one party to a transaction to record
          the transaction at all. This led to errors in various income statement
          items, including revenue, as well as imbalances in the inter-company
          account as of each balance sheet date, which the Company erroneously
          reconciled using an entry in its currency translation adjustment account,
          which is grouped under accumulated other comprehensive loss in the
          balance sheet. Through the restatement and re-audit process the Company
          analyzed the transactions by and between the Company and its subsidiaries
          and reconciled the balances in its inter-company accounts for each
          period being restated. This reconciliation resulted in adjustments
          to various line items in the consolidated income statements through
          March 31, 2004, including revenue.
|------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Adjustments to
    Cost of Revenue                                                                          
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Significant errors
    affecting cost of revenue are as follows.                                            
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|•                                                                                                            | Vacation
          accrual-
        The primary reason for the adjustments to cost of revenue in the restated
        financial statements related to errors in calculating vacation accruals.
        Throughout each of the periods subject to restatement, the Company used
        an estimated number of days when calculating its liability for accrued
        vacation. As a result, the Company under-charged its vacation accruals.
        As part of the restatement and re-audit process, the Company recalculated
        its liability for accrued vacation in accordance with Financial Accounting
        Standard No. 43: "Accounting for Compensated Absences" ("FAS 43"), which
        requires the use of actual accrued vacation days as of each balance sheet
        date. As a result, the Companys net loss increased for each of
        the periods subject to restatement and there was a cumulative increase
    in the accumulated deficit as of March 31, 2004.                                                                                                                                                                                                                           
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|•                                                                                                            | Inter-company
          transaction errors- The reconciliation of inter-company account
          balances discussed above under Adjustments to Revenue-Inter-company
    transaction errors resulted in adjustments to the cost of revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Adjustments
      to Selling, General and Administrative Expense                                            
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Significant
          errors affecting selling, general and administrative expense are as
          follows.
|                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|•                                                                                                            | Depreciation
          errors resulting from inter-company asset transfer- Prior to 1999
          the Company transferred certain fixed assets, mainly computer systems,
          to its India subsidiary on a no cost basis; however, the
          Company did not record the appropriate amortization charges at the
          time of transfer. Although this error did not affect selling, general
          and administrative expense for periods subsequent to 1999, the correction
    of this error resulted in a cumulative increase in the accumulated deficit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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|•                                                                                 | Inter-company
          transaction errors- The reconciliation of inter-company account
          balances discussed above under Adjustments to Revenue-Inter-company
          transaction errors resulted in adjustments to selling, general
    and administrative expense through March 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Adjustments to
    SeraNova Charges                                              
|                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Significant adjustments
    and errors affecting SeraNova charges are as follows.
|                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|•                                                                                 | Write-off
          of receivables-
        In connection with the restatement and re-audit process, the Company
        re-evaluated the charges taken in relation to SeraNova Inc. (SeraNova) in
        previously reported financial statements in light of changes in circumstances
        since
        the original reporting dates. In connection with the Companys July
        2000 spin-off of SeraNova,  the Company retained
        a $15.1 million unsecured promissory note dated May 31, 2000 between
        the Company and SeraNova (the Note). Beginning in 2001, SeraNova
        failed to repay the amounts owed under the Note and also 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. In 2002 and 2003, the Company recorded charges of
        $8.4 million and $5.5 million, respectively, related to the impairment
        of the note receivable, the receivables related to the lease and costs
        incurred in connection with the Companys guarantee of a bank loan
        on which SeraNova defaulted, as well as the legal fees and other costs
        incurred in the attempts to recover payment from SeraNova for the balance
        of the note receivable and its past and future lease obligations. In
        connection with the restatement and re-audit process, the Company reversed
        $8.0 million and $5.1 million of the charges recorded in 2002 and 2003,
        respectively, and moved such charges to 2000, the period in which SeraNova
        was spun off. The Company left the portion of such charges related to
        the legal fees and other costs incurred in trying to recover payment
    from SeraNova in the respective periods in which such costs were incurred.
|                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|•                                                                                 | Inter-company
          transaction errors- The reconciliation of inter-company account
          balances discussed above under Adjustments to Revenue-Inter-company
          transaction errors resulted in an additional write-off on account
          of cash paid to SeraNova but erroneously charged to one of the Companys
    subsidiaries in the year 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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Tax Adjustments

Throughout each of the periods subject to restatement, the Company has restated
            its tax assets and liabilities for the periods January 1, 2001 through
            March 31, 2004, which has resulted in recording an additional net provision
            for income taxes. During the course of the restatement and re-audit process,
            the Company reassessed and corrected the valuation allowance for its U.S.
            deferred tax assets, tax provisions pertaining to its India subsidiary
            for the years 2002 and prior and accrual for taxes in its Japan subsidiary
            for the years 2001 and prior and thereby increasing the provision for income
            taxes. These increases were partially offset by tax benefits which were
            not recorded in the periods subject to restatement. The changes in the
            net operating income (loss) on account of the adjustments set forth in
            the above paragraphs also impacted the provision for income taxes throughout
            each of the periods subject to restatement.


The Company has not amended
    and does not intend to amend its previously filed annual reports on Form
    10-K for the years ended December 31, 2003, 2002 and 2001 or quarterly reports
    on Form 10-Q for the quarterly periods beginning January 1, 2001 and ending
    March 31, 2004. For this reason, the consolidated financial statements and
    related financial information for the periods affected by the  restatement
    and re-audit, contained in the aforementioned reports, should no longer be
    relied upon. Furthermore, the Company has not filed and does not intend to
    file its periodic reports on Form 10-Q for the periods ended June 30, 2004
    and September 30, 2004. However, restated financial information for the fiscal
    years 2003 and 2002 and the first quarter of 2004 is set forth in Note 17
    to the audited consolidated financial statements included in Item 15 of this
    report. In addition, unaudited condensed consolidated quarterly financial
    information for the eight quarterly periods in fiscal years 2004 and 2003,
    including disclosure regarding the impact of the restatement in each of the
    quarters in fiscal year 2003 and the first quarter in fiscal year 2004, is
    set forth in Item 7, Managements Discussion and Analysis of Financial
    Condition and Results of Operations  Restatement
  of Prior Period Consolidated Financial Statements.


Please
      refer to Item 7, Managements Discussion and Analysis of Financial
      Condition and Results of Operation  Restatement of Prior Period Consolidated
      Financial Statements and Notes 1 and 17 to the consolidated financial
      statements for additional details regarding the effects of the prior period
      adjustments
      and re-audit adjustments on the Companys
      previously reported consolidated financial statements.


Credit Facility Compliance

Under
      the terms of the Fifth Amendment to the Loan Document and Waiver Agreement
      dated September 29, 2004 by and between the Company and PNC Bank N.A. (the Bank),
      the Company obtained waivers of any prospective defaults that may arise
      from the issuance of corrected financial statements for the years ended
      December 31, 2003, 2002 and 2001, for the interim quarterly periods included
      therein and for the quarter ended March 31, 2004.


The
      Company was also in default under the terms of its credit facility as a
      result of the Companys failure to timely deliver certain monthly reporting schedules, monthly financial statements, quarterly financial statements and annual financial
statements during 2004 and 2005 and the Companys removal of Arjun Valluri from his position as Chief Executive Officer and President on April 4, 2005. The Company has secured waivers of such defaults under the terms of the Sixth Amendment
and Waiver Agreement.  Please refer to Item 7 Managements Discussion and Analysis  Liquidity
and Capital Resources for additional information.


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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 ISO and 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, 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, Middle East, 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, 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 leverage its traditional
      application integration and consulting experience and re-position Intelligroup
      for future growth by focusing on the emerging Application Service Provider
      ("ASP") market.  At the same time, the Company made the strategic decision
      to spin-off its Internet services business to its shareholders. Accordingly,
      on January 1, 2000, the Company transferred its Internet applications services
      and management consulting businesses to SeraNova, 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 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 it focus and efforts on pursuing shorter-term success opportunities of implementing and enhancing application solutions based on SAP, Oracle and PeopleSoft products.


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At
      the same time, the Company redirected some of its ASP infrastructure and
      personnel towards the management and support of customers' enterprise,
      e-commerce and m-commerce applications. Additionally, the Company introduced
      certain SAP-based proprietary tools that are designed to reduce the time
      and cost of upgrading and maintaining SAP systems ("Power Up Services(SM)"). In 2001, the Company developed pre-configured SAP solutions for the pharmaceutical industry ("Pharma
      Express(SM)") and the engineering and construction industry ("Contractor
      Express(SM)"). Pharma Express, a solution designed for small-to-medium
      sized life sciences companies, improves manufacturing efficiencies and
      helps control the total cost of production. Contractor Express 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 has received a total of $350,000 from Soltius
      toward the note balance as of December 31, 2003. In March 2004, the Company
      agreed to renegotiate the payment terms with Soltius. The revised terms
      call for Soltius to make monthly payments through September 2004 of between
      $25,000 and $50,000, plus a final $9,000 payment in October 2004. The Company
      received all of 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.


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.


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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 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:


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

Customers partner
      with Intelligroup in order to implement, extend and support existing applications;
      or to 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.


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


Additionally, the Company has introduced certain SAP-based proprietary tools 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.                                                                                                                                                               

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|• | Research
        and Development group  which is a center for the development of
        proprietary tools designed to enhance the IT 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 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 Center.


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 provide 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:


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

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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 global delivery model, which allows the Company to aggressively
      compete for long term fixed price/fixed time contracts.


Key to the Company's ability to deliver 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 "ASPPlus" are
        service marks of the Company.


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


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


Safe Harbor Statements

This Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding the Company's intention to shift more of its focus towards the management and support of customers' enterprise, e-commerce and m-commerce applications. Such forward-looking statements are subject to risks and uncertainties, including, but not limited to:


|• | the
          Companys ability to remediate its material weaknesses in its
          internal control over financial reporting and to continue to improve
          its control environment in order to effectively manage the business
          and 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;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|• | compliance
          with the Sarbanes-Oxley Act of 2002, including without limitation Section
          404, and other regulations may be costly, time consuming and may divert
    management attention from managing ongoing business operations;                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|• | the
          Companys ability to manage and grow the business in light of
          the executive and Board level turnover and the associated loss of historical
    knowledge and experience;                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|• | the
          Company's ability to attract and retain a sufficient number of highly
          skilled employees 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 pending changes in accounting rules related to stock options;                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|• | the
          Companys ability to manage the transition to a new Chief Executive
    Officer without a significant disruption in business;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|• | the
          Companys ability to continue to generate new business given the
    turnover in the Companys sales managers and personnel;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|• | the
          Companys ability to maintain compliance with the financial and
          other covenants in its credit facility and thereby continue its access
          to its line of credit or in the event of default the Companys
          ability to negotiate a waiver with the Bank which may be unavailable
    or if available may only be on terms disadvantageous to the Company;                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|• | the
          Companys reliance on continued borrowing availability under the
          credit facility with the Bank as its sole source of external financing
          and the cash generated by its operating activities to fund its ongoing
          operations and growth. However, in the event such borrowing is not
          available or the Company is unable to timely collect cash from its
          customers, the Company may be forced to secure alternate financing
          to operate the business and such financing may be unavailable and,
          if available, may be available only on disadvantageous terms to the
    Company;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|• | the
          uncertainty surrounding the technology consulting outsourcing market
    and revenues derived from such market;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|• | the continued
        availability of a market in which the Companys securities may be
    traded;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|• | the
          Company's ability to cause its Common Stock to be listed on a national
    stock exchange and the ability to comply with ongoing listing requirements;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|• | the
          Company's reliance on continued relationships and business associated
          with SAP America and Oracle, including, but not limited to, 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 and, accordingly, its
          ability to continue to sell professional consulting services relating
    to PeopleSoft applications;                                                                                                                                      

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|• | the Company's
    limited operating history within the outsourcing line of business;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|• | the
          substantial variability of the Company's quarterly operating results
          caused by a variety of factors, many of which are not within the Company's
          control, including (i) patterns of software and hardware capital spending
          by customers, (ii) IT outsourcing trends, (iii) the timing, size and
          stage of projects, (iv) timing and impact of acquisitions, (v) new
          service introductions by the Company or its competitors and the timing
          of new product introductions by the Company's ERP partners, (vi) levels
          of market acceptance for the Company's services, (vii) general economic
    conditions and (viii) the hiring of additional staff;                                                                                                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|• | increased
          competition in the industry may, among other negative effects, cause
    a decrease in the Company's billing and employee utilization rates;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|• | uncertainty
          relating to worldwide currency exchange rates particularly in regard
          to the Indian rupee, U.S. Dollar, the Euro, British Pound and Japanese
          Yen, and the effect that fluctuations in such exchange rates may have
    on the Companys quarterly and/or annual financial results;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|• | the
          Company's ability to manage its business effectively, which will require
          the Company: (i) to continue developing and improving its operational,
          financial and other internal systems and controls, as well as its business
          development capabilities, (ii) to attract, train, retain, motivate
          and manage its employees, (iii) to continue to maintain high rates
          of employee utilization at profitable billing rates, (iv) to successfully
          transition certain operations and executive functions; (v) to successfully
          integrate the personnel and businesses acquired by the Company, (vi)
          to maintain project quality, particularly if the size and scope of
          the Company's projects increase, (vii) to properly plan, price and
          deliver fixed bid projects and service level based agreements within
          the requisite timeframes and quality levels and (viii) to reorganize
          its internal structure and personnel and to improve its processes without
    suffering a loss in business momentum;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|• | the potential
    for future legislation regulating or taxing outsourcing;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|• | the Companys
    substantial reliance on key customers and large projects;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|• | the Companys
    ability to manage fixed price projects effectively and efficiently;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|• | the
          potential for significant claims against the Company relating to its
          professional services from customers or otherwise and the inability
    of the Company to adequately mitigate the risk of such potential claims;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|• | the
          potential risks and penalties associated with the ongoing investigation
          by the United States Securities and Exchange Commission (SEC)
          related to the Companys restatement of prior periods consolidated
    financial statements;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|• | the
          Companys ability 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;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|• | the
          Company's ability to successfully address the continuing changes in
          IT, evolving industry standards and changing customer objectives and
    preferences;                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                
|• | the Company's
    reliance on the continued services of its key technical personnel;                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                
|• | the
          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;
|  |                                                                                                                                                                                                                                                                                                                                                
|• | the Company's
    ability to protect its intellectual property rights; and                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                
|• | 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.                                                                                                     

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 spinoff,
    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 determined that the spinoff was taxable,
    the Company would bear the liability to pay such the tax liability, which
    would be material. Please refer to Note 10 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.


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.


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


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


The majority of customers who implement ERP solutions are Fortune 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.


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


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


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 the 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 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.


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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 Business Development Managers
      to pursue with existing and prospective clients and (ii) support the proposal
      efforts of local Business Development Managers by providing strategic research
      and proposal writing capabilities. The Company intends to continue to expand
      the BDC in proportion to its local Business Development Manager sales presence.


The
      Company has established a Vice President of Global Marketing, Alliances,
      and Strategic IT Consulting position within its U.S. operations. The objective
      of this position is to drive incremental revenue through the Companys alliance partners, including SAP, Oracle, and other software vendors. The goal is to realize incremental revenue by supporting the software vendors sales
      efforts and by participating in the resulting implementation projects.


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.


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 IT consultants, such as
      the consulting practices of the former "Big Five" accounting firms.


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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):


| | • | Consulting
        and software integration firms - competitors include, 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.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                              
| | • | Software
    applications vendors - competitors include, SAP, Oracle and PeopleSoft.                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                              
| | • | Application
        management services firms - competitors include, 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.


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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, 2004, the Company employed 1,806 full-time employees, of whom 1,589 were engaged as consultants or as software developers, 50 were engaged in sales and marketing, and 167 were engaged in delivery management, finance and administration. Of the total number of employees, 589 were based in the United States, 20 were based in Japan, 50 were based in Europe and 1,147 were based in India. In addition, the Company engaged 88 independent contractors to perform IT services as of December 31, 2004.


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.


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.


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Item 2. Properties.

As of December 31, 2004, the Company owns no real property and currently leases or subleases all of its office space. Within the United States, the Company leases office space in Edison, NJ for certain technical and support personnel, sales and marketing, administrative, finance and management personnel, and in Atlanta, GA, Warrenville, IL, Pleasanton, CA and Costa Mesa, CA for certain other sales and operations personnel. The Company also leases office space in Denmark, India, Japan and the United Kingdom. The following table summarizes the Companys leased office space as of December 31, 2004:


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|Location              | Area
    in Sq. Ft. |  | Use                                                                                                                                                                                                            | Lease
    Expiration | 
|--------------------- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | 
|                      |                     |  |                                                                                                                                                                                                                |                      | 
|                      |                     |  |                                                                                                                                                                                                                |                      | 
|Edison,
       NJ (A) | 48,476              |  | Corporate
       Headquarters Consulting
       Services - focus on SAP, Peoplesoft commercial, Oracle and E-Business
       markets in the US. Selling, general and administrative functions in the
       US | 9/9/2008             | 
|Atlanta, GA           | 4,051               |  | Consulting
       Services - focus on Peoplesoft public sector market in the US; Limited
       selling, general and administrative functions in the US                                                        | 8/31/2005            | 
|Warrenville, IL       | 750                 |  | Limited selling and marketing functions in the US                                                                                                                                                              | 5/31/2005            | 
|Pleasanton, CA        | 300                 |  | Limited selling and marketing functions in the US                                                                                                                                                              | 3/31/2005            | 
|Costa Mesa, CA        | 300                 |  | Limited selling and marketing functions in the US                                                                                                                                                              | 10/31/2004           | 
|Odense, Denmark       | 9,900               |  | Consulting
       Services - focus on SAP market in Denmark; Selling, general and administrative
       functions in Denmark                                                                                   | 1/31/2006            | 
|Hyderabad, India      | 18,359              |  | Offshore
       development consulting services - Oracle, Peoplesoft and E-business                                                                                                                            | 12/31/2010           | 
|Hyderabad, India      | 46,561              |  | Offshore
       application management and support consulting services (Advance Development
       Center)                                                                                                     | 6/17/2007            | 
|Hyderabad, India      | 15,858              |  | Selling,
       general and administrative functions in India Global sales and marketing
       support services (Business Development Center)                                                                 | 1/31/2008            | 
|Hyderabad, India      | 15,401              |  | Offshore
       application management and support consulting services (Global Support
       Center)                                                                                                          | 5/31/2006            | 
|Hyderabad, India      | 10,727              |  | Offshore
       application management and support consulting services (Global Support
       Center)                                                                                                          | 7/31/2006            | 
|Tokyo, Japan          | 1,519               |  | Consulting
       Services - focus on SAP market in Japan; Selling, general and administrative
       functions in Japan                                                                                       | 3/1/2006             | 
|Milton Keynes, UK     | 1,500               |  | Consulting
       Services - focus on Peoplesoft and SAP market in the UK; Selling, general
       and administrative functions in the UK                                                                      | 7/26/2005            | 

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

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Beginning in
  late 2001, SeraNova failed to pay certain outstanding lease obligations incurred
  under the terms of a Space Sharing Agreement dated January 1, 2000 between
  the Company and SeraNova to the Companys landlords. Accordingly on March
  4, 2002, the Company filed an arbitration demand with the American Arbitration
  Association against the SeraNova Group. As part of the restatement and re-audit
  process, the Company has moved costs previously accrued during 2002 associated
  with future lease obligations, net of future sublease income, related to SeraNova
  back to the date of the spin-off, July 6, 2000. As of December 31, 2004, the
  Company has $537,000 remaining in its accrual for future lease obligations.

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, and December 31, 2003 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, 2001. The revised tax assessments were for 14.6 million, 9.5 million, 2.8 million, and 5.6 million Indian rupees, respectively, or approximately $742,000 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 $39,000, was also received. The Company has made payments of approximately $815,000 (consisting of $682,000 for taxes paid under protest, $39,000 for tax penalties and interest and $94,000 for other tax adjustments not in dispute) to the India tax authority. The Companys
      resulting overpayment of $34,000 has been refunded.


On
      March 29, 2005, the Companys India subsidiary received an additional
      revised assessment for 15.0 million Indian rupees, or approximately $345,000,
      for the fiscal year ended March 31, 2002. The assessment disallowed some
      of the export revenue claimed by the Company and also disallowed certain
      expenses claimed by the Company. The Company has paid approximately 6.0
      million Indian rupees, or approximately $137,000, under protest and has
      also paid an additional 5.1 million Indian rupees, or approximately $118,000,
      for agreed-to adjustments through August 2005. The Company is currently
      challenging the remaining unpaid assessment with the Commissioner of Tax
      Appeals but pending resolution of such appeal, the Company plans to pay
      the remaining $89,000 tax assessment in installments over the next 12 to
      18 months as permitted by the India tax authority.


The Company is currently at the Appellant Tribunal stage for the fiscal years ended March 31, 1998 through March 31, 2001 and at the Commissioner of Income Tax Appeals stage for fiscal year ended March 31, 2002. All applicable amounts noted above have been paid or accrued.


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Shareholder Class Actions

Six
      class action lawsuits have been initiated, purportedly on behalf of plaintiffs
      who purchased the Companys securities, against the Company and certain former officers, including Arjun Valluri, Nicholas Visco, Edward Carr and David Distel (Defendants) (collectively, Shareholder Class Actions) in the United States District Court, District of New Jersey (District of New Jersey). The Shareholder Class Actions generally allege 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
      Actions generally seek relief in the form of unspecified compensatory damages
      and reasonable costs, expenses and legal fees. In August 2005, the District
      of New Jersey consolidated the six class actions and appointed a lead plaintiff.
      By agreement of the parties, lead plaintiff filed the consolidated amended
      complaint on or about the second week of October 2005.


SEC Investigation

On
      January 28, 2005, the Company received subpoenas in connection with a formal
      investigation by the SEC regarding whether federal securities laws were
      violated in connection with the issuance of the Companys financial
      statements for prior periods. (For more additional information regarding
      the Restatement, please refer to Item 1 of this Report on the Form 10-K
      and Notes 1 and 17 to the Consolidated Financial Statements.) The
      Company is cooperating with the SEC to produce documents in response to
      the subpoenas.


Broadview Claim

On or about March 23,
2005, Jefferies & Company, Inc. initiated an arbitration proceeding to recover fees in the amount of $750,000 plus interest and reasonable attorneys fees and costs allegedly owed to Broadview International, a division of Jefferies & Company (Broadview) as a result of the private placement transaction that the Company closed on September 30, 2004 with SB Asia Infrastructure Fund, L.P. and Venture Tech Assets Pvt. Ltd.  The arbitration proceeding is in the discovery phase. In the event the Company does not prevail at the arbitration proceeding the Company will be liable for $750,000 plus interest and reimbursement of attorneys fees
and costs.


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.


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

The
      Company held its annual meeting on June 8, 2004 (2004 Annual Meeting)
      at which the matters described herein were submitted to a vote of the security
      holders.


At the 2004 Annual Meeting, the Company submitted a proposal to elect Nagarjun Valluripalli, Klaus Besier, Nic DiIorio, Dennis McIntosh, Ashok Pandy and Alexander Graham Wilson 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:


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|Nominee:                |  | Votes
    For:        |  | Votes Withheld: 
|----------------------- |  | --------------------- |  | ----------------
|                        |  |                       |  |                 
|Nagarjun Valluripalli   |  | 14,504,297
    Shares |  | 2,005,962 Shares
|Klaus P. Besier         |  | 16,007,684
    Shares |  | 502,576 Shares  
|Nic Di Iorio            |  | 15,291,280
    Shares |  | 1,218,980 Shares
|Dennis McIntosh         |  | 16,013,034
    Shares |  | 497,226 Shares  
|Ashok Pandey            |  | 13,612,261
    Shares |  | 2,897,998 Shares
|Alexander Graham Wilson |  | 14,484,627
    Shares |  | 2,025,632 Shares

At
      the 2004 Annual Meeting, the Company submitted a proposal to ratify the
      appointment of Deloitte & Touché LLP as the Companys independent
      registered public accounting firm for the year ended December 31, 2004.
      The votes cast for, against or abstaining from, and the broker non-votes
      were as follows:


|No.
       of Shares Voted For: |  | No.
    of Shares Voted Against: |  | No. of
    Abstentions: |  | No.
    of Broker Non-vote: | 
|------------------------------- |  | -------------------------------- |  | ----------------------- |  | --------------------------- | 
|                                |  |                                  |  |                         |  |                             | 
|16,243,304                      |  | 255,197                          |  | 11,759                  |  | 0                           | 

At the 2004 Annual Meeting, the Company submitted a proposal to approve the amendment of its Certificate of Incorporation  to increase the number of authorized shares of Common Stock to forty million (40,000,000). The votes cast for, against or abstaining from, and the broker non-votes were as follows:


|No. of
    Shares Voted For: |  | No. of
    Shares Voted Against: |  | No. of Abstentions: |  | No. of Broker Non-vote: | 
|---------------------------- |  | -------------------------------- |  | ------------------- |  | ----------------------- | 
|                             |  |                                  |  |                     |  |                         | 
|15,711,879                   |  | 775,447                          |  | 22,934              |  | 0                       | 

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


|No. of
    Shares Voted For: |  | No. of
    Shares Voted Against: |  | No. of Abstentions: |  | No. of Broker Non-vote: | 
|---------------------------- |  | -------------------------------- |  | ------------------- |  | ----------------------- | 
|                             |  |                                  |  |                     |  |                         | 
|5,473,683                    |  | 3,567,166                        |  | 31,959              |  | 7,437,452               | 

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PART II

Item 5. Market
  for the Company'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, 2003     |  | $ | 1.45  |  | $ | 0.89 | 
|June 30, 2003      |  | $ | 1.79  |  | $ | 1.09 | 
|September 30, 2003 |  | $ | 2.14  |  | $ | 1.01 | 
|December 31, 2003  |  | $ | 6.55  |  | $ | 1.76 | 
|                   |  |   |       |  |   |      | 
|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 | 

As of September 26, 2005, the approximate number of holders of record of the Common Stock was 75 and the approximate number of beneficial holders of the Common Stock was 3,285 as of September 28, 2005.


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, 2004.


|                                                               |                     |                           |   |      | 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
|                                                               |                     |                           |   |      |                      |          
|2004 Equity
    Incentive Award Plan                           | 265,500             |                           | $ | 2.43 |                      | 1,918,054
|                                                               |                     |                           |   |      |                      |          
|1996 Stock Option Plan                                         | 2,342,356           |                           | $ | 3.01 |                      | —        
|                                                               |                     |                           |   |      |                      |          
|1996 Non-Employee
    Director Stock Option Plan               | 60,000              |                           | $ | 5.64 |                      | 50,000   
|                                                               |                     |                           |   |      |                      |          
|Equity compensation
    plans not approved by security holders | 40,000              |                           | $ | 2.06 |                      | 65,000   
|                                                               |                     |                           |   |      |                      |          
|Total                                                          | 2,707,856           |                           | $ | 3.00 |                      | 2,033,054
|                                                               |                     |                           |   |      |                      |          

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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, 2004, 2003 and 2002 and the consolidated balance sheet data as of December
      31, 2004, 2003 and 2002 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 consolidated statement of operations data for the years ended December 31, 2001 and 2000 and the balance sheet data as of December 31, 2001 and 2000 are unaudited. The Companys
      historical results are not necessarily indicative of the operating results
      to be realized in the future.


The
      Companys audited consolidated financial statements as of and for
      the years ended December 31, 2003 and 2002 and the unaudited selected financial
      data as of and for the years ended December 31, 2001 and 2000 have been
      restated. See Notes 1 and 17 to the consolidated financial statements included
      in Item 15 of this report for additional information on the restated audited
      consolidated financial statements.


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.


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|                                                                               |                                           |         | RESTATED    |            
|------------------------------------------------------------------------------ | ----------------------------------------- | ------- | ----------- | -----------
|                                                                              
|As
    of December 31,                                                        
|                                                                              
|2004                                                                           |                                           | 2003    |             | 2002       
|                                                                               |                                           |         | (unaudited) | (unaudited)
|                                                                               |                                           |         |             |            
|                                                                               | (in
    thousands, except per share data) |        
|Balance Sheet Data:                                                            |                                           |         |             |            
|                                                                               |                                           |         |             |            
|Cash and cash equivalents                                                      | $                                         | 6,239   |             | $          
|Working capital                                                                |                                           | 19,991  |             |            
|Total assets                                                                   |                                           | 48,171  |             |            
|Line of
    credit and current portion of obligationsunder capital leases      |                                           | 2,778   |             |            
|Long-term
    debt and obligations under capitalleases, net of current portion |                                           | 45      |             |            
|                                                                               |                                           |         |             |            
|Shareholders' equity                                                           |                                           | 24,647  |             |            
|                                                                               |                                           |         |             |            
|                                                                               |                                           |         |             | RESTATED   
|                                                                               |                                           |         |            
|For the Years Ended December 31,                                              
|2004                                                                           |                                           | 2003    |             | 2002       
|                                                                               |                                           |         | (unaudited) | (unaudited)
|                                                                               |                                           |         |             |            
|                                                                               | (in thousands, except per share data)     |        
|Statement
    of Operations Data:                                              |                                           |         |             |            
|                                                                               |                                           |         |             |            
|Revenue                                                                        | $                                         | 128,903 |             | $          
|Cost of revenue                                                                |                                           | 91,818  |             |            
|                                                                               |                                           |         |             |            
|Gross profit                                                                   |                                           | 37,085  |             |            
|                                                                               |                                           |         |             |            
|                                                                               |                                           |         |             |            
|Selling, general and administrative expenses                                   |                                           | 34,741  |             |            
|Depreciation and amortization                                                  |                                           | 2,475   |             |            
|Proxy contest charges                                                          |                                           | —       |             |            
|                                                                               |                                           |         |             |            
|Total operating expenses                                                       |                                           | 37,216  |             |            
|                                                                               |                                           |         |             |            
|                                                                               |                                           |         |             |            
|Operating income (loss)                                                        |                                           | (131    | )           |            
|                                                                               |                                           |         |             |            
|Interest income                                                                |                                           | 36      |             |            
|Interest expense                                                               |                                           | (472    | )           |            
|Other income (expense)                                                         |                                           | 59      |             |            
|                                                                               |                                           |         |             |            
|                                                                               |                                           |         |             |            
|Income (loss)
    from continuing operations before                            |                                           |         |             |            
|provision for (benefit of) income taxes                                        |                                           | (508    | )           |            
|Provision for (benefit of) income taxes                                        |                                           | 358     |             |            
|                                                                               |                                           |         |             |            
|Loss from continuing operations                                                |                                           | (866    | )           |            
|                                                                               |                                           |         |             |            
|Loss from discontinued operations                                              |                                           | —       |             |            
|                                                                               |                                           |         |             |            
|Net loss                                                                       | $                                         | (866    | )           | $          
|                                                                               |                                           |         |             |            
|                                                                               |                                           |         |             |            
|Loss per share:                                                                |                                           |         |             |            
|Basic and diluted loss per share                                               |                                           |         |             |            
|Loss from continuing operations                                                | $                                         | (0.04   | )           | $          
|Loss from discontinued operations                                              |                                           | —       |             |            
|                                                                               |                                           |         |             |            
|                                                                               |                                           |         |             |            
|Net loss per share                                                             | $                                         | (0.04   | )           | $          
|                                                                               |                                           |         |             |            
|                                                                               |                                           |         |             |            
|Weighted average number of common shares                                       |                                           |         |             |            
|outstanding - basic and diluted                                                |                                           | 22,790  |             |            
|                                                                               |                                           |         |             |            



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

In
      this Section, the Company will discuss the following: (i) the restatement
      of the Companys prior period financial statements; (ii) key factors in evaluating the Companys financial performance; (iii) managements summary of 2004; (iv) application of critical accounting policies, which explains the accounting policies necessary to understand how the Company records its financial information; (v) results of operations - consolidated, in which the Companys
      consolidated results are compared year to year to recognize trends; (vi)
      results of operations by business segment, which allows the Company to
      compare the results of its different business units; (vii) liquidity and
      capital resources; (viii) contractual and commercial obligations; and (ix)
      recently issued accounting standards.


Restatement of Prior Period Consolidated Financial Statements

The historical financial information in this document has been restated. In September 2004, the Company discovered unreconciled differences in intercompany accounts and certain other accounting errors in prior periods which resulted in adjustments to revenues, the cumulative currency translation adjustment account and accumulated deficit.  As a result, the Company's Audit Committee concluded that the Company's previously issued consolidated financial statements for the years ended December 31, 2003, 2002 and 2001, as well as all quarterly periods beginning January 1, 2001 through the quarter ended March 31, 2004, should no longer be relied upon.


Due
      to the volume of transactions underlying the proposed adjustments and the
      Companys engagement of a new independent registered public accounting
      firm as of November 1, 2004,
  the Company decided, in consultation with its new independent registered public
  accounting firm, to re-audit its consolidated financial statements for the
  years ended December 31, 2003 and 2002 and to re-review the quarterly periods
  included therein and the quarterly period ended March 31, 2004.


As
      a result of the adjustments identified during the restatement and re-audit
      process, the Companys accumulated deficit as of March 31, 2004 increased $6.9 million from $25.3 million to $32.2 million.  The adjusting entries identified during the restatement and re-audit process were extensive and affected virtually every line item of the Companys financial statements as of each date and for each period presented. The following table presents a summary of the effects of the adjustments identified during the restatement and re-audit process on the applicable line items and the impact on the Companys
      net income or loss for the periods subject to the restatement and re-audit
      process:


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|                                                                             | Increase(Decrease)
           from Previously Reported Amounts for
    the |       
|---------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------
|                                                                             |                                                                            |       
|                                                                             |                                                                            |       
|                                                                             | CUMULATIVE                                                                 |       
|                                                                             | TOTAL                                                                      |       
|                                                                             |                                                                            |       
|                                                                             | Through Quarter                                                            |       
|                                                                             | ended March 31,                                                            |       
|                                                                             | 2004                                                                       |       
|                                                                             |                                                                            |       
|                                                                             |                                                                            |       
|Statement of Operations Data:                                                | (unaudited)                                                                |       
|                                                                             |                                                                            |       
|Revenue                                                                      | $                                                                          | (3,430
|Cost of revenue                                                              |                                                                            | 1,803 
|Selling,
    general & administrative                                        |                                                                            | 850   
|SeraNova charges                                                             |                                                                            | (362  
|Operating income (loss)                                                      |                                                                            | (5,721
|Income
    (loss) before income taxes and discontinued 
          operations |                                                                            | (6,428
|Income tax provision (benefit)                                               |                                                                            | 761   
|Income
    (loss) from discontinued
    operations                           |                                                                            | 252   
|Net income (loss)                                                            | $                                                                          | (6,938
|Income
           (loss) per common share  basic
    and diluted            |                                                                            |       
|                                                                             |                                                                            |       
|Balance Sheet Data:                                                          |                                                                            |       
|Total assets                                                                 |                                                                            |       
|Total liabilities                                                            |                                                                            |       
|Accumulated deficit                                                          |                                                                            |       
|                                                                             |                                                                            |       

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The following is a description of the significant adjustments to previously reported financial statements resulting from the restatement and re-audit process. While this description does not purport to explain each correcting entry, the Company believes that it fairly describes the significant factors underlying the adjustments and the overall impact of the restatement and re-audit in all material respects.


|Adjustments
    to Revenue                              
|--------------------------------------------------------
|                                                        
|Significant
    errors affecting revenue are as follows.
|                                                        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                        

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|                                                                                             | • | Inter-company
          transaction errors -Throughout
          each of the periods subject to restatement, the Company failed to reconcile
          discrepancies in its inter-company accounts caused by timing differences
          between companies in recording transactions as well as failures by
          one party to a transaction to record the transaction at all. This led
          to errors in various income statement items, including revenue, as
          well as imbalances in the inter-company account as of each balance
          sheet date, which the Company erroneously reconciled using an entry
          in its currency translation adjustment account, which is grouped under
          accumulated other comprehensive loss in the balance sheet. Through
          the restatement and re-audit process the Company analyzed the transactions
          by and between the Company and its subsidiaries and reconciled the
          balances in its inter-company accounts for each period being restated.
          This reconciliation resulted in adjustments to various line items in
          the consolidated income statements through March 31, 2004, including
    revenue.
|-------------------------------------------------------------------------------------------- | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Adjustments
    to Cost of Revenue                                                          
|                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Significant errors
    affecting cost of revenue are as follows.                            
|                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                             | • | Vacation
          Accrual-
          The primary reason for the adjustments to cost of revenue in the restated
          financial statements related to errors in calculating vacation accruals.
          Throughout each of the periods subject to restatement, the Company
          used an estimated number of days when calculating its liability for
          accrued vacation. As a result, the Company under-charged its vacation
          accruals. As part of the restatement and re-audit process, the Company
          recalculated its liability for accrued vacation in accordance with
          Financial Accounting Standard No. 43: "Accounting for Compensated Absences" ("FAS
          43"), which requires the use of actual accrued vacation days as of
          each balance sheet date. As a result, the Companys net loss increased
          for each of the periods subject to restatement and there was a cumulative
    increase in the accumulated deficit as of March 31, 2004.                                                                                                                                                                                                         
|                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                             | • | Inter-company
          transaction errors-
          The reconciliation of inter-company account balances discussed above
          under Adjustments to Revenue-Inter-company transaction errors resulted
    in adjustments to the cost of revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Adjustments
    to Selling, General and Administrative Expense                              
|                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Significant
    errors affecting selling, general and administrative expense are as follows.
|                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                             | • | Depreciation
          errors resulting from inter-company asset transfer-
          Prior to 1999 the Company transferred certain fixed assets, mainly
          computer systems, to its India subsidiary on a no cost basis;
          however, the Company did not record the appropriate amortization charges
          at the time of transfer. Although this error did not affect selling,
          general and administrative expense for periods subsequent to 1999,
          the correction of this error resulted in a cumulative increase in the
          accumulated deficit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                             | • | Inter-company
            transaction errors-
            The reconciliation of inter-company account balances discussed above
            under Adjustments to Revenue-Inter-company transaction errors resulted
            in adjustments to selling, general and administrative expense through
    March 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|Adjustments
    to SeraNova Charges                                              
|---------------------------------------------------------------------------------
|                                                                                 
|Significant
    adjustments and errors affecting SeraNova charges are as follows.
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 

Tax Adjustments

Throughout each of the periods subject to restatement, the Company has restated its tax assets and liabilities for the periods January 1, 2001 through March 31, 2004, which has resulted in recording an additional net provision for income taxes. During the course of the restatement and re-audit process, the Company reassessed and corrected the valuation allowance for its U.S. deferred tax assets, tax provisions pertaining to its India subsidiary for the years 2002 and prior and accrual for taxes in its Japan subsidiary for the years 2001 and prior and thereby increasing the provision for income taxes. These increases were partially offset by tax benefits which were not recorded in the periods subject to restatement.  The changes in the net operating income (loss) on account of the adjustments set forth in the above paragraphs also impacted the provision for income taxes throughout each of the periods subject to restatement.


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The Company
    has not amended and does not intend to amend its previously filed annual
    reports on Form 10-K for the years ended December 31, 2003, 2002 and 2001
    or quarterly reports on Form 10-Q for the quarterly periods beginning January
    1, 2001 and ending March 31, 2004. For this reason, the consolidated financial
    statements and related financial information for the periods affected by
    the restatement and re-audit, contained in the aforementioned reports, should
    no longer be relied upon. Furthermore, the Company has not filed and does
    not intend to file its periodic reports on Form 10-Q for the periods ended
    June 30, 2004 and September 30, 2004. However, restated financial information
    for the fiscal years 2003 and 2002 and the first quarter of 2004 is set forth
    in Note 17 to the audited consolidated financial statements included in Item
    15 of this report. In addition, unaudited condensed consolidated quarterly
    financial information for the eight quarterly periods in fiscal years 2004
    and 2003, including disclosure regarding the impact of the restatement in
    each of the quarters in fiscal year 2003 and the first quarter of fiscal
    year 2004, is set forth below.


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Quarterly
Financial Information

|                                                                 | For the quarters ended |                  
|---------------------------------------------------------------- | ---------------------- | -----------------
|                                                                 |                        |                  
|                                                                 | March 31, 2004         | June
    30, 2004
|                                                                 |                        |                  
|                                                                 | As Previously          |                  
|Statements
         of Operations                                | reported               |                  
|                                                                 |                        |                  
|Revenue                                                          | $                      | 30,848,000       
|Cost of revenue                                                  |                        | 21,158,000       
|Total operating expenses, less SeraNova charges                  |                        | 8,650,000        
|SeraNova
       charges                                          |                        | —                
|Operating income (loss)                                          |                        | 1,040,000        
|Income
    (loss) before provision for (benefit of) income taxes |                        | 546,000          
|Provision for (benefit of) income taxes                          |                        | 267,000          
|Income (loss) from continued operations                          |                        | 279,000          
|Net income (loss)                                                |                        | 279,000          
|Net income (loss) per common share                               | $                      | 0.02             
|Balance Sheet Data:                                              |                        |                  
|Total Assets                                                     |                        | 42,885,000       
|Total Liabilities                                                |                        | 26,285,000       
|Accumulated deficit                                              |                        | (25,274,000      

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|                                                                                   | For
    the quarters ended |            
|---------------------------------------------------------------------------------- | -------------------------- | -----------
|                                                                                   |                           
|                                                                                   | March
    31, 2003         |            
|                                                                                   |                            |            
|Statements
          of Operations                                                 | As Previously
reported     |            
|                                                                                   |                            |            
|Revenue                                                                            | $                          | 27,235,000 
|Cost of
          revenue                                                          |                            | 19,309,000 
|Total operating expenses,
    less SeraNova charges                                |                            | 7,864,000  
|SeraNova
          charges                                                         |                            | 5,060,000  
|Operating
          income (loss)                                                  |                            | (4,998,000 
|Income (loss)
          before 
   provision for 
   (benefit of) 
   income taxes |                            | (5,142,000 
|Provision
          for (benefit of)  
  income taxes                              |                            | 75,000     
|Income (loss)
          from continued
   operations                               |                            | (5,217,000 
|Income (loss)
          from discontinued    operations                            |                            | (2,134,000 
|Net income
          (loss)                                                        |                            | (7,351,000 
|Net income
          (loss) per common share                                       | $                          | (0.44      
|                                                                                   |                            |            
|Balance
          Sheet Data:                                                      |                            |            
|                                                                                   |                            |            
|Total Assets                                                                       |                            | 36,808,000 
|Total Liabilities                                                                  |                            | 23,967,000 
|Accumulated
          deficit                                                      |                            | (26,519,000

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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, 2004, 2003 and 2002, revenue derived from projects under fixed price contracts represented approximately 43%, 35% and 20%, respectively, of the Company's total revenue. No single fixed price project was material to the Company's business during 2004, 2003 or 2002. 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.


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, 2004, 2003 and 2002, the Company's ten largest customers accounted for in the aggregate approximately 45%, 46% and 43% of its revenue, respectively. During 2002, one customer accounted for 10% of revenue. During 2004 and 2003, no single customer accounted for 10% or more of revenue.  For the years ended December 31, 2004, 2003 and 2002, 22%, 25% and 27%, 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.


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Software Partners

For the years ended December 31, 2004, 2003 and 2002, the Company derived the following percentages of total revenue from projects in which the Company implemented, extended, maintained, managed or supported software developed by SAP, PeopleSoft and Oracle.




|           | Percentage
    of Revenue                | 
|---------- | ---------------------------------------- | 
|           |                                          | 
|           | Year
    Ended
    December 31,
    2004 | 
|           |                                          | 
|           |                                          | 
|SAP        | 68%                                      | 
|PeopleSoft | 25%                                      | 
|Oracle     | 2%                                       | 

Markets

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


Expenses

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


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.


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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 $650,000 note to be paid by Soltius to the Company over a period of 12 months. The Company has received a total of $350,000 from Soltius toward the note balance as of December 31, 2003. In March 2004, the Company agreed to renegotiate the payment terms with Soltius. The revised terms call for Soltius to make monthly payments through September 2004 of between $25,000 and $50,000, plus a final $9,000 payment in October 2004. 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.


Tax Assessment of India Subsidiary.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 $89,000
        would be required. The Company has reserved $89,000, the full amount
claimed, against this potential liability.


Managements
Summary of 2004

The
      period covered by this discussion featured a number of events that have
      had or may continue to have a significant effect on the Companys
      financial condition and performance. Management believes the investors
      should be aware of the following events when evaluating the financial information
      contained in this Management's Discussion and Analysis of Financial Condition
and Results of Operations.


On April 1, 2004, the
Company went live on a new financial accounting system. On April 5, 2004, the
Company appointed David Distel as the Companys new Chief Financial Officer.
Meanwhile, the acting Chief Financial Officer and the Controller (effectively
the two senior managers of the finance and accounting teams) resigned to take
other employment positions effective April 9, 2004. Furthermore, during the second
and third quarters of 2004 the Company hired several new finance personnel, including
a Controller, Assistant Controller and Director of Financial Planning and Analysis,
and also experienced significant turnover in finance personnel, including resignations
and temporary medical leaves of absence. The Company lacked adequate knowledge
transfer, transition and document retention processes and therefore a significant
amount of historical knowledge was lost in connection with the aforementioned
turnover in finance personnel.


In any standard system
implementation, continuity of users and consultants (implementation team) is
a pre-requisite for a successful implementation. Continuity of the project team
ensures that all business requirements are captured accurately, configuration
of the system is based on the requirements captured, migration is done in a planned
manner and stability is ensured once the migration process is completed. Unfortunately,
the Company experienced significant changes in its user community at or about
the time the Company went live on the new accounting system. In particular, the
turnover in senior level finance personnel resulted in a lack of senior level
oversight and management during the system conversion. Furthermore, the significant
changes in the Companys finance team resulted in training and knowledge
transfer issues.


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The
      combination of the new financial system, new finance team, and insufficient
      training, transition and knowledge transfer led to a rapid deterioration
      in the Companys control environment and the reliability of the financial systems.  Furthermore due to the new finance managements lack of familiarity with the new financial system and loss of historical knowledge, the inaccuracies and difficulties in processing transactions through the new accounting system were not detected promptly. During June 2004, numerous customers began disputing the accuracy of invoices received during the preceding weeks.  It became increasingly obvious that many of the invoices submitted to customers during the months of April, May and June were inaccurate. The Companys
      days sales outstanding and unbilled revenue began to increase as a result
      of the incorrect and/or untimely billing commencing when the Company went
live on the new system.


The billing problems
and associated delays in collections severely strained the Companys cash position.  During June, July and August, the Companys
loan balance under its revolving credit agreement approached its limit, as invoicing
failures led to a deterioration in collections and a sharp rise in days sales
outstanding to over 100 days.


At
      the same time, the Company was unable to close its books for the second
      quarter and timely file its report on Form 10-Q for the quarter ended June
      30, 2004, resulting in receipt of a delisting notice dated August 17, 2004
      from the NASDAQ. The Companys former independent registered public accounting firm, Deloitte & Touche, announced its intention to resign effective upon completion of its second quarter review of the Companys
      financial statements. As the cash situation intensified during the third
      quarter, the Company began to pursue capital raising opportunities to,
      among other things, improve its balance sheet and avoid a liquidity crisis.
      However, given the foregoing events and associated publicity, it was difficult
      to attract interested investors. To this end, discussions began with SAIF,
      as well as with other interested parties in or about late July 2004 and
continued through September 2004.


Near
      the end of September 2004, the Company determined that it was likely that
      it would have inadequate cash resources to finance the first payroll in
      October along with other liabilities that were coming due. At the same
      time, during the second quarter closing and review process, the Companys finance team discovered certain errors in previously issued consolidated financial statements and identified a number of accounting adjustments to prior periods consolidated
      financial statements. Management discussed these errors and adjustments
      with its former independent registered accounting firm and its Audit Committee.
      On September 24, 2004, the Company announced that it expected to restate
      its previously issued consolidated financial statements filed on Form 10-K
      for the years ended December 31, 2003, 2002 and 2001 and its quarterly
      reports filed on Form 10-Q for the quarterly periods beginning January
      1, 2001 and ending March 31, 2004. Please refer to Notes 1 and 17 to the
consolidated financial statements, included in Item 15.


On
      September 30, 2004, the Company completed a private placement transaction
      in which SAIF and Venture Tech Assets Ltd. (Venture Tech) purchased an aggregate of 17,647,058 shares of the Company's Common Stock at a purchase price of $0.85 per share for an aggregate purchase price of $15 million (Private Placement Transaction).  SAIF acquired approximately 33.5% of the Companys outstanding Common Stock and Venture Tech acquired approximately 16.8% of the Companys outstanding Common Stock in the Private Placement Transaction. In addition, in connection with the Private Placement Transaction, the Company increased its Board of Directors to nine members, two members of the Board resigned and SAIF and Venture Tech collectively appointed five directors to the Companys
Board.


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The Private Placement Transaction violated certain rules of the NASDAQ regarding shareholder approval and listing application requirements.  Pursuant to the rules of the NASDAQ, certain transactions involving the issuance of more than 20% of a listed company's common stock, such as the Private Placement Transaction, require shareholder approval.    Due to its immediate cash needs, the Company concluded that delaying the transaction in order to seek shareholder approval would jeopardize its financial viability.


Effective October 21,
2004, the Companys Common Stock was delisted from the NASDAQ and the Companys
Common Stock began trading on the Pink Sheets (for additional detail,
please see Item 5). The NASDAQ determined to delist the Companys securities
as a result of the Company's failure to timely file its periodic reports in compliance
with the filing requirements set forth in MarketPlace Rule 4310(c)(14) and the
violation of the shareholder approval requirements in MarketPlace Rules 4350(i)(1)(B)
and 4350(i)(1)(D) and the listing of additional shares requirements in MarketPlace
Rule 4310(17) associated with the Private Placement Transaction. Since October
21, 2004, the Companys Common Stock has been quoted on the Pink Sheets
and there continues to be a market for Companys
Common Stock.


On October 15, 2004, the Company appointed a new Chief Financial Officer and
began the process of building an integrated global finance team with responsibility
for the finance and accounting function for the Company and each of its subsidiaries
worldwide.
Under the guidance of the Companys new Chief Financial Officer, the finance
team focused on multiple initiatives, including: correcting the billing errors
which occurred from April through October 2004: (i) issuing accurate invoices
to the customers; (ii) conducting a manual review of the data entered into the
Companys new financial system and the transactions related to financial
operations processed since the Company went live on its new financial system;
(iii) completing the closing process for the second and third quarters; remediating
weaknesses in the Companys internal control over financial reporting discovered
by Management; (iv) redesigning the Companys internal control over financial
reporting; (v) assessing the scope of the restatement and (vi) retaining a new
independent registered public accounting firm.


On October 26, 2004,
Deloitte & Touche informed the Company that Deloittes previously announced
intention to resign upon completion of its review of the Companys second
quarter results was effective immediately. On November 1, 2004, the Companys
Audit Committee appointed J.H. Cohn LLP as the Company's independent registered
public accounting firm beginning with the review of the Company's interim financial
information for the quarter ended June 30, 2004.


In connection with the
Companys previously announced intention to restate its consolidated financial
statements for the years ended December 31, 2003, 2002 and 2001 and for the quarterly
periods beginning January 1, 2001 through the quarter ended March 31, 2004, the
Companys finance team and its new independent registered public accounting
firm, J.H. Cohn LLP, began a re-audit of its financial information for the years
ended December 31, 2003 and 2002 and a re-review of the quarterly periods included
therein and
the quarterly period ended March 31, 2004


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Beginning in the third and fourth quarters of 2004, the Company also reorganized its operations. The Company built a Client Services Organization with integrated sales and delivery functions focused on specific vertical industries and whose primary goals are developing and expanding business opportunities and providing excellent customer service through each phase of the customer engagement. The Company also built a competency organization for building excellence in consulting services and developing service offerings focused on emerging technologies.  The Company also created CoEs, which are offshore development and support centers, dedicated to delivering continuous excellence in service and comprehensive technology solutions at a reduced total cost to certain strategic customers, that provide multi-platform, multi-service, integrated and complete solutions to such strategic
 customers.


On
      April 4, 2005, the Company removed Arjun Valluri from his position as Chairman
      of the Board, Chief Executive Officer and President and appointed Vikram
      Gulati as the Companys Chief Executive Officer and President. After a careful search, the Company chose Mr. Gulati to build upon the existing foundation, to harness the Companys potential and to lead the growth in the Companys
      business.


Management
      was required to spend significant time and attention addressing the foregoing
      issues and as a result was less able to focus on the Companys ongoing business operations. Furthermore, the publicity associated with these issues raised concerns among the Companys customers and employees thereby requiring management to spend considerable time reassuring and stabilizing its existing customer and employee base. The foregoing issues and lack of publicly available financial information adversely impacted the Companys
      ability to achieve revenue growth by attracting and engaging with new customers.


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.


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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, 2004 and 2003 represent services provided through December 31, 2004 and 2003, 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.


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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. 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 $14.6 million of valuation allowance against gross deferred tax assets of $15.4 million. The decision to record the valuation allowance required significant judgment including estimating the various factors impacting future taxable income. Had the Company not recorded this allowance, the Company would have reported materially different results. If the realization of all deferred tax assets in the future is considered more likely than not, 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 $14.6 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. Additionally, the FASB is currently deliberating an Exposure Draft of a proposed Interpretation of SFAS 109. As currently drafted, and in addition to other proposed changes, the more likely than not standard for tax attribute recognition presently employed could change to a higher probable standard. 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.


Moreover,
      the Company incurred a change in ownership 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 as set forth under Internal Revenue Code (IRC)
      Section 382.


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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.


Use of estimates in the re-audited December 31, 2003 and 2002 consolidated
financial statements

The re-audit of the December 31, 2003 and 2002 consolidated financial statements allowed the Company to replace estimates with actual results or significantly refine the estimates utilized in the originally filed consolidated financial statements. Certain estimates such as the allowance for doubtful accounts, tax accruals, revenue accruals, and collectibility of the SeraNova note receivable changed significantly from those amounts originally reported.


Results of Operations - Consolidated

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


|                                                                                            | Percentage of Revenue |           
|------------------------------------------------------------------------------------------- | --------------------- | ----------
|                                                                                           
|Year Ended December 31                                                                     
|                                                                                           
|2004                                                                                        |                       | 2003      
|                                                                                            |                       |           
|                                                                                            | (restated)            | (restated)
|                                                                                            |                       |           
|Revenue                                                                                     | 100.0                 | %         
|Cost of revenue                                                                             | 71.2                  |           
|                                                                                            |                       |           
|Gross profit                                                                                | 28.8                  |           
|                                                                                            |                       |           
|Selling, general and administrative expenses                                                | 27.0                  |           
|Depreciation and amortization expense                                                       | 1.9                   |           
|Proxy contest charges                                                                       | —                     |           
|                                                                                            |                       |           
|Total operating expenses                                                                    | 28.9                  |           
|                                                                                            |                       |           
|Operating income (loss)                                                                     | (0.1                  | )         
|Interest income                                                                             | 0.0                   |           
|Interest expense                                                                            | (0.4                  | )         
|Other income (expense)                                                                      | 0.1                   |           
|                                                                                            |                       |           
|Income
         (loss) from continuing operations before income
    tax provision (benefit) | (0.4                  | )         
|Income tax provision (benefit)                                                              | 0.3                   |           
|                                                                                            |                       |           
|Loss from continuing operations                                                             | (0.7                  | )         
|Loss from discontinued operations                                                           | —                     |           
|                                                                                            |                       |           
|Net loss                                                                                    | (0.7                  | )%        
|                                                                                            |                       |           

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003(restated)

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


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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. The Company does not expect revenue to increase 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 (Cost of revenue). 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. 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 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. The Company anticipates selling, general and administrative fees to increase as a result of the professional fees associated with the re-audit process and the efforts to document, test and remediate its internal control over financial reporting in preparation for managements report on internal control over financial reporting and the independent registered public accounting firms
        assessment of such report.


Depreciation and amortization.  Depreciation and amortization expenses decreased to $2.5 million in 2004, compared to $2.7 million in 2003. The decrease was primarily due to certain fixed assets becoming fully depreciated in 2003.


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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.


Interest income. The Company earned $36,000 in interest income during 2004, compared with $83,000 during 2003. The interest income is related primarily to certain interest-bearing bank accounts in India and Japan. The change results from a higher average balance of invested cash during 2004.


Interest expense.The Company incurred $472,000 and $453,000 in interest expense in 2004 and 2003, respectively, related primarily to borrowings under its line of credit. Borrowings under the line of credit were used primarily to fund operating activities and the charges associated with the Proxy Contest. The increase in interest expense results from slightly higher average outstanding borrowings and variable interest rates under the line of credit during 2004.


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.  The impact of this change is not expected to be material to the consolidated financial statements of the Company.  Effective April 1, 2002, the tax deduction incentive for income from the export of software and related services is restricted to 90% of such income. Further, domestic revenue from software and related services is taxable in India. Effective April 1, 2003, the 90% tax deduction incentive restriction was repealed and the tax incentive is again available for the entire amount of income from the export of software and related services. For 2004 and 2003, the tax holiday and tax deduction favorably impacted the Company's effective tax rate.


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The
      Company's India subsidiary has received revised tax assessments dated February
      12, 2002, July 23, 2002, August 22, 2003 and December 31, 2003 from the
      India taxing authority denying tax exemptions claimed for certain revenue
      earned and disallowed certain expenses claimed during 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, and 5.6 million Indian rupees,
      respectively or approximately $742,000. An additional assessment for tax
      penalties and interest for the fiscal year ended March 31, 2001 of 1.7
      million Indian rupees or approximately $39,000 was also received. The Company
      has made payments of 14.6 million, 9.5 million, 2.8 million and 5.7 million
      Indian rupees, respectively, or approximately $815,000 consisting of $682,000
      for taxes paid under protest, $39,000 for tax penalties and interest and
      $94,000 for other tax adjustments not in dispute to the India tax authority.
      The Companys resulting overpayment of $34,000 has been refunded.


Subsequently,
      on March 29, 2005, the Companys India subsidiary received an additional
      revised assessment for 15.0 million Indian rupees, or approximately $345,000
      for the fiscal year ended March 31, 2002. The assessment disallowed some
      of the export revenue claimed by the Company and also disallowed certain
      expenses claimed by the Company. The Company has paid approximately 6.0
      million Indian rupees or approximately $137,000 under protest and has also
      paid 5.1 million Indian rupees or approximately $118,000 for agreed to
      adjustments through August 2005. The Company is currently challenging the
      remaining unpaid assessment with the Commissioner of Tax Appeals and is
      paying the remaining $89,000 tax assessment in installments over the next
      12 to 18 months as permitted by the India tax authority.


Under SFAS 109 and SFAS 5, management has recorded in its tax provision a charge of approximately $1.1 million in December 31, 2001 for the overall India tax exposure including the assessments discussed above. The Company is currently at the Appellant Tribunal stage for the tax years ended March 31, 1998 through March 31, 2001 tax years related to this matter and at the Commissioner of Income Tax Appeals for the fiscal year ended March 31, 2002.


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.


Year Ended December 31, 2003(restated) Compared to Year Ended December 31, 2002(restated)

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


Revenue.
        Total revenue increased by 15.8%, or $16.0 million, from $101.1 million
        in 2002 to $117.1 million in 2003. The increase was attributable primarily
        to growth in revenue generated in the United States (an increase of $12.0
        million), India (an increase of $2.6 million), Japan (an increase of
        $0.4 million) and Europe (an increase of $1.0 million). In 2002, the
        demand for the Companys services was negatively impacted by the
        challenging and uncertain economic conditions, which precluded many companies
        from spending resources on IT projects.


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Subsequently,
      beginning in mid-to-late 2002, the Company began to experience an increase
      in demand for services. Accordingly, the revenue growth results directly
      from increased demand for the majority of the Companys services,
      including traditional consulting service offerings, application management
      and support services and offshore development services.


Cost of 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 17.3%, or $12.3 million, from $71.1 million in 2002, to $83.4 million in 2003 due primarily to the increase in revenue. The Company's gross profit increased by 12.7%, or $3.8 million, from $30.0 million in 2002, to $33.8 million in 2003. The increase in cost of revenue and gross profit results from the increase in revenue. Gross margin decreased to 28.8% in 2003, from 29.7% in 2002. The decline in gross margin results primarily from pricing pressures, due to the increased competition for new projects.


Selling, general and administrative expenses.  Selling, general and administrative expenses primarily consist of salaries, and related benefits costs for sales and general administrative personnel, occupancy costs, sales person compensation, travel and entertainment and professional fees. Selling, general and administrative expenses increased by 12.0% or $3.1 million to $29.0 million in 2003, from $25.9 million in 2002, but decreased as a percentage of revenue to 24.7% from 25.7%, respectively. The increase in selling, general and administrative expenses, was related primarily to the creation of the new strategy and solutions group in 2003 as well as an increase in discretionary sales and marketing expenditures. In early 2003, the Company created a new strategy and solutions group to
 focus on the design and development of solutions as well as the support of the sales organization by preparing and providing technical presentations to customers. In 2003, the Company also invested in certain targeted sales and marketing initiatives, such as participation in a number of conferences and trade shows as well as a new branding roll-out.


Depreciation and amortization.  Depreciation and amortization expenses remained relatively constant at $2.7 million for both 2003 and 2002.


Proxy contest charges.The
        Company recorded $0.7 million in Proxy Contest related charges in 2003
        as compared with $1.8 million in Proxy Contest related charges in 2002.
        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.


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


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Interest expense.The Company incurred $453,000 and $392,000 in interest expense in 2003 and 2002, respectively, related primarily to borrowings under its line of credit. Borrowings under the line of credit were used primarily to fund operating activities and the charges associated with the proxy contest. The increase in interest expense results from slightly higher average outstanding borrowings under the line of credit during 2003.


Other income (expense).Other income (expense) results primarily from transaction gains or (losses) associated with changes in foreign currency exchange rates.  The Company reported other expense of $907,000 in 2003, compared with other income of $368,000 in 2002. The change results from foreign currency fluctuations.


Income tax provision.
        Despite pretax income of $70,000 in 2003 and pretax losses of $501,000
        in 2002, a provision for income taxes of $186,000 and a tax benefit of
        $106,000 in 2003 and 2002, respectively, due to taxable income in certain
        jurisdictions combined with a valuation allowance offsetting other loss
        benefits in other jurisdictions. The Companys net deferred tax asset as of December 31, 2003 related primarily to its India operations.  Based on those operations historical profitability, management believes it is more likely than not that the India operations deferred
        tax asset of $457,000 will be realized.


The
      Company's India subsidiary has received revised tax assessments dated February
      12, 2002, July 23, 2002, August 22, 2003, and December 31, 2003 from the
      India taxing authority denying tax exemptions claimed for certain revenue
      earned and disallowed certain expenses claimed during fiscal years ended
      March 31, 1998 through March 31, 2001. The revised tax assessments were
      for 14.6 million, 9.5 million, 2.8 million, and 5.6 million Indian rupees,
      respectively or approximately $742,000. An additional assessment for tax
      penalties and interest for the fiscal year ended March 31, 2001 of 1.7
      million Indian rupees or approximately $39,000 was also received. The Company
      has made payments of 14.6 million, 9.5 million, 2.8 million and 5.7 million
      Indian rupees, respectively, or approximately $815,000 consisting of $682,000
      for taxes paid under protest, $39,000 for tax penalties and interest and
      $94,000 for other tax adjustments not in dispute to the India tax authority.
      The Companys resulting overpayment of $34,000 has been refunded.


Subsequently,
      on March 29, 2005, the Companys India subsidiary received an additional
      revised assessment for 15.0 million Indian rupees, or approximately $345,000
      for the fiscal year ended March 31, 2002. The assessment disallowed some
      of the export revenue claimed by the Company and also disallowed certain
      expenses claimed by the Company. The Company has paid approximately 6.0
      million Indian rupees or approximately $137,000 under protest and has also
      paid 5.1 million Indian rupees or approximately $118,000 for agreed to
      adjustments through August 2005. The Company is currently challenging the
      remaining unpaid assessment with the Commissioner of Tax Appeals and is
      paying the remaining $89,000 tax assessment in installments over the next
      12 to 18 months as permitted by the India tax authority.


Under SFAS 109 and SFAS 5, management has recorded in its tax provision a charge of approximately $1.1 million in December 31, 2001 for the overall Indian tax exposure including the assessments discussed above. The Company is currently at the Appellant Tribunal stage for the tax years ended March 31, 1998 through March 31, 2001 tax years related to this matter and at the Commissioner of Income Tax Appeals for fiscal year ended March 31, 2002.


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Loss from discontinued operations. In 2003 and 2002, losses from discontinued operations, net of taxes (including a loss on disposal of $2.3 million in 2003) were $0.9 million and $1.0 million, respectively.  The losses from discontinued operations in 2003 and 2002 resulted primarily from operations within Australia, New Zealand and Singapore.  The loss on disposal in 2003 resulted primarily from the sale of assets of the discontinued operations as well as legal costs incurred in executing the transaction.


Results of Operations by Business Segment

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

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


| | • | United
        States ("US")  the largest segment of the Company, with operations
        in the United States & Puerto Rico. Includes the operations of the
        Company's US subsidiary, Empower, Inc., and all corporate functions and
        activities. The US and corporate headquarters are located in Edison,
    New Jersey.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                           
| | • | India  includes
        the operations of the Company in India, including services provided on
        behalf of other Company subsidiaries. The Indian headquarters are located
    in Hyderabad, India.                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                           
| | • | Europe  includes
        the operations of the Company in Denmark, Sweden and the United Kingdom.
        However, the Company transitioned its operations in Sweden to Denmark
        as of January 1, 2003. The European headquarters are located in Milton
    Keynes, United Kingdom.                                               
| |   |                                                                                                                                                                                                                                                                                                                                           
| | • | Japan  includes
        the operations of the Company in Japan. The Japanese headquarters are
    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.


Year Ended December 31, 2004 Compared to Year Ended December 31, 2003(restated)

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


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

|              | Year Ended December 31 |        
|------------- | ---------------------- | -------
|              |                        |        
|              | 2004                   |        
|              |                        |        
|              |                        |        
|              | Amount                 |        
|              |                        |        
|United States | $                      | 95,270 
|India         |                        | 22,029 
|Europe        |                        | 6,890  
|Japan         |                        | 4,714  
|              |                        |        
|Total         | $                      | 128,903
|              |                        |        

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 results 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                   |       
|              |                        |       
|United States | $                      | (4,129
|India         |                        | 3,324 
|Europe        |                        | (183  
|Japan         |                        | 857   
|              |                        |       
|Total         | $                      | (131  
|              |                        |       

US operating loss increased by $2.3 million, from an operating loss of $1.8 million in 2003, to an operating loss of $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.


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.


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


Year Ended December 31, 2003(restated) Compared to Year Ended December 31, 2002 (restated)

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


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


|              | Year Ended December 31 |                
|------------- | ---------------------- | ---------------
|              |                        |                
|              |                        | 2003 (restated)
|              |                        |                
|              |                        |                
|              | Amount                 |                
|              |                        |                
|United States | $                      | 90,639         
|India         |                        | 16,248         
|Europe        |                        | 6,683          
|Japan         |                        | 3,572          
|              |                        |                
|Total         | $                      | 117,142        
|              |                        |                

US revenue increased by 15.3%, or $12.0 million, from $78.6 million in 2002 to $90.6 million in 2003. In 2002, the demand for the US services was negatively impacted by the challenging and uncertain economic conditions, which precluded many companies from spending resources on IT projects.  Subsequently, beginning in mid-to-late 2002, the US began to experience an increase in demand for services. Accordingly, the revenue growth results directly from increased demand for the majority of US services, including traditional consulting service offerings, application management and support services and offshore development services.


India revenue increased by 19.1%, or $2.6 million, from $13.6 million in 2002, to $16.2 million in 2003. The increase was attributable primarily to increased demand for services in the United States, as a majority of the total revenue generated in India is derived from providing offshore development and support services to customers sourced through the Companys affiliated entities in other parts of the world, but most predominantly with the United States.


Europe revenue increased by 17.1%, or $1.0 million, from $5.7 million in 2002, to $6.7 million in 2003. The Companys operations in Denmark increased by $1.8 million, while the revenue in the United Kingdom and Sweden decreased by $556,000 and $263,000, respectively. The improvement in Denmark was attributable primarily to a general increase in demand for local SAP services, including a $2.0 million implementation contract with a large agricultural-based company. The decrease in the United Kingdom results primarily from efforts to maintain the current PeopleSoft application management business while only targeting new engagements that can be delivered using India resources. The decrease in Sweden resulted primarily from challenging local economic conditions. Accordingly, the Company transitioned its operations in Sweden to Denmark as of January 1, 2003.


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Japan revenue increased by 12.7% or $400,000, from $3.2 million for 2002, to $3.6 million in 2003. The increase was due primarily to stronger demand for the Companys consulting services within the local SAP market.


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


|              | Year Ended December 31 |       
|------------- | ---------------------- | ------
|              |                        |       
|              | 2003 (restated)        |       
|              |                        |       
|United States | $                      | (1,815
|India         |                        | 2,536 
|Europe        |                        | 189   
|Japan         |                        | 437   
|              |                        |       
|Total         | $                      | 1,347 
|              |                        |       

US operating loss increased by $1.2 million, from an operating loss of $0.6 million in 2002, to an operating loss of $1.8 million in 2003.  This increase was primarily attributable to increased sales, marketing and related expenditures during 2003.


India operating income increased by $0.2 million, from $2.3 million in 2002, to $2.5 million in 2003 due to increases in billable headcount.


Europe operating performance improved by $1.8 million, from an operating loss of $1.6 million in 2002, to operating income of $189,000 in 2003. The improvement was attributable primarily to an increase in the SAP consulting services in Denmark.


Japan operating performance improved by $1.0 million, from an operating loss of $599,000 in 2002, to operating income of $437,000 in 2003.  The improvement was attributable primarily to management efforts to re-organize and restructure the local operations during late 2002. In December 2002, management initiated efforts to decrease total operating expenses by reducing employee headcount and eliminating discretionary expenditures such as sales and marketing programs, training, etc.


Liquidity and Capital Resources

2004 Cash Flows from Operations

The Company had cash and cash equivalents of $6.2 million at December 31, 2004 and $1.9 million at December 31, 2003. The Company had working capital of $20.0 million at December 31, 2004 and $4.1 million at December 31, 2003. The increase in working capital resulted primarily from the net proceeds received from the Private Placement Transaction (as defined above) completed in September 2004.


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Cash used in operating activities of continuing operations was $3.5 million for the year ended December 31, 2004, resulting primarily from the net loss of $0.9 million and an increase in unbilled services of $4.8 million, a decrease in accounts payable of $1.8 million, a decrease in deferred revenue of $2.0 million, and an increase in accrued expenses and other liabilities of $1.5 million. The increase in unbilled services is attributable to a combination of factors including implementation of a new accounting system which required adoption of new and improved process of billing where invoices could be generated only after obtaining requisite internal approvals.  Accrued expenses increased primarily due to increased professional fees in the US and accrual for certain project related costs in India. Deferred revenues decreased as customer projects that had been billed in advance were
 completed or neared completion.


The Company invested $2.0 million and $1.4 million in computer equipment, internal-use computer software and office furniture and fixtures during the years ended December 31, 2004 and 2003, respectively. The increase results primarily from the replacement of computer equipment and the development of certain internal-use software.


Summary of Credit Agreement

On
      May 31, 2000, the Company and 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 either at the Bank's prime rate per annum or the Euro Rate plus 1.75% to 2.5% based upon the Company's ratio of debt to earnings before interest, taxes, depreciation and amortization ("EBITDA").
      The credit facility is collateralized by substantially all of the assets
      of the Company's United States based operations. The maximum borrowing
      availability under the line of credit is based upon a percentage of eligible
      billed and unbilled accounts receivable, as defined.


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


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As
      a result of the charges which were originally recorded in 2003 and 2002
      in connection with the SeraNova receivable impairment and other related
      charges and the Proxy Contest charges incurred during the quarter ended
      March 31, 2003, the Company was not in compliance with the consolidated
      net worth, unconsolidated net worth and EBITDA covenants as of March 31,
      2003. In July 2003, the Company executed with the Bank an amendment to
      the credit agreement. The terms of the amendment included, among other
      things, (i) a 3-year extension of the credit facility to May 31, 2006,
      (ii) a reduction of the maximum revolving advance amount under the credit
      facility to $15.0 million, (iii) a waiver of the covenant defaults existing
      as of March 31, 2003, (iv) a modification to the definitions of total shareholders equity and unconsolidated shareholders equity
      (for purposes of computing related covenant compliance) and a modification
      to the computation of minimum EBITDA to exclude Proxy Contest charges of
      $297,000 for the quarter ended March 31, 2003 only, (v) an increase in
      the minimum EBITDA covenants to $1.3 million, $1.8 million and $1.9 million
      for the second, third and fourth quarters 2003, respectively, and (vi)
      a modification to the consolidated net worth and unconsolidated net worth
      covenants to exclude any changes to consolidated net worth and unconsolidated
      net worth resulting from the write-down or write-off of up to $13.6 million
      of the note due from SeraNova.


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


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The
      Company was in default under its credit facility as a result of the Companys failure to timely file its periodic report on Form 10-Q for the second quarter of 2004 and under certain financial covenants based upon its second quarter results. On September 29, 2004, the Company and the Bank executed the Fifth Amendment to the Loan Documents and Waiver Agreement (the Fifth Amendment). Under the terms of the Fifth Amendment the Company agreed, among other things, to maintain an average undrawn availability balance of not less than five million dollars ($5,000,000) or otherwise be subject to financial covenants, submit third quarter financial results to the Bank within sixty (60) days of the quarter end, apply a sufficient portion of the fifteen million dollar ($15,000,000) purchase price (the Purchase Price) paid in the private placement equity transaction completed on September 30, 2004 (Private Placement) to the Companys
      Revolving Loan Obligations (as defined in the Fifth Amendment) so as to
      cause the undrawn availability to be not less than five million dollars
      ($5,000,000) and to deposit the balance of the Purchase Price in an investment
      account with the Bank.


The
      Fifth Amendment also provided that if the Company fails to maintain a minimum
      average undrawn availability balance of five million dollars ($5,000,000),
      the Company will have to satisfy certain financial covenants, including
      a one-to-one fixed charge coverage ratio covenant, as set forth in the
      Fifth Amendment. Pursuant to the terms of the Fifth Amendment, the Bank
      agreed to waive certain existing and prospective defaults, including, but
      not limited to, the Companys failure to comply with the following Loan Agreement covenants: Total Stockholders Equity, Unconsolidated Stockholders Equity and Minimum EBITDA, any event of default arising from the issuance of corrected financial statements for the years ended December 31, 2003, 2002 and 2001 and each quarterly period beginning on January 1, 2004, any event of default which would occur as a result of the Private Placement, and any event of default arising from the delisting of the Companys
      Common Stock from the NASDAQ National Market.


The
      Company was in default under its credit facility as a result of the Companys removal of Arjun Valluri as Chief Executive Officer and President and the Companys failure to timely deliver to the Bank certain monthly reporting schedules, monthly financial statements, quarterly financial statements, and annual financial statements during 2004 and 2005. The Company secured waivers of such defaults under the terms of the Sixth Amendment to the Loan Document and Waiver Agreement (Sixth Amendment). The terms of the Sixth Amendment, amend the Loan Documents as follows: (i) to prevent the Company from electing to borrow, convert to or continue a Eurodollar Rate Loan and to provide that all Advances bear an interest rate per annum equal to the Base Rate (as such term is defined in the Credit Agreement); (ii) to define Change in Management as any change in the Companys Chief Executive Officer or Chief Financial Officer, which is not acceptable to
 the Bank; (iii) to define
Revolving Interest Rate as interest rate per annum equal to the Base Rate; (iv) to define Undrawn Availability to include the redemption value of a specified bank account in the calculation of Undrawn Availability; and (v) to add an early termination fee in an amount equal to one-half of one percent (.50%) of the maximum revolving advance amount. Under the terms of the Sixth Amendment, among other things, the Company was required to deliver draft, unauduted financial statements to the Bank on or before September 30, 2005 and to deliver audited annual financial statements to the Bank on or before October 15, 2005. The Company has satisfied each of these requirements. The Company also agreed to resume timely filing of the periodic reports due to the listing exchange upon which the Companys shares are traded and to any governmental agency beginning with the filing of the Companys annual report on Form 10-K for the year ending December 31, 2005. The
 Bank agreed to waive any events of default arising from the Companys failure to timely deliver to the Bank the monthly reporting schedules, monthly financial statements, quarterly financial statements and annual financial statements and the Companys
      removal of Arjun Valluri from his position as Chief Executive Officer and
      President.


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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 the 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 assurance
      that the Company will be able to maintain compliance with bank covenants
      or obtain waivers of any defaults. 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.


The
      Company's 2005 operating plan contains assumptions regarding revenue and
      expenses. The Companys significant cash requirements for 2005 include
      operating expenses, capital investments in infrastructure for its India
      operations amounting to approximately $2 million, and legal and professional
      fees including but not limited to, the costs incurred as part of the restatement
      and re-audit process, costs incurred in complying with Section 404 of the
      Sarbanes Oxley Act of 2002 and legal fees incurred in connection with the
      Shareholder Class Actions and SEC investigation. 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
      additional cost reductions 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 and is not current in its reporting obligations under applicable
      SEC rules. Considering the cash on hand, the remaining availability under
      the credit facility and assuming the achievement of the operating plan
      and management's actions taken to date, management believes that it has
      the ability to continue to generate sufficient cash to satisfy its operating
      requirements in the normal course of business and that its available credit
      arrangements and the cash flow expected to be generated from operations
      will be adequate to satisfy its current and planned operations through
      at least December 31, 2005.


Costs related to SeraNova

In
connection with the Companys
          July 2000 spin-off of SeraNova, the Company
          retained a $15.1 million unsecured promissory note dated May 31, 2000
          between the Company and SeraNova (the Note). Beginning
          in 2001, SeraNova failed to repay the amounts owed under the Note and
          also 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. In 2002 and 2003, the Company
          recorded charges of $8.4 million and $5.5 million, respectively, related
          to the impairment of the note receivable, the receivables related to
          the lease and costs incurred in connection with the Companys
          guarantee of a bank loan on which SeraNova defaulted, as well as the
          legal fees and other costs incurred in the attempts to recover payment
          from SeraNova for the balance of the note receivable and its past and
          future lease obligations. In connection with the restatement and re-audit
          process, the Company reversed $8.0 million and $5.1 million of the
          charges recorded in 2002 and 2003, respectively, and moved such charges
          to 2000, the period in which SeraNova was spun off. The Company left
          the portion of such charges related to the legal fees and other costs
          incurred in trying to recover payment from SeraNova in the respective
    periods in which such costs were incurred.


The costs and charges
related to SeraNova impacted the Companys liquidity position for fiscal
years 2002, 2001 and 2000. The following table illustrates the charges related
to SeraNova during 2000 (unaudited), 2001 (unaudited), 2002, 2003 and 2004, as
well as cash payments, non-cash charges and remaining liability as of December
31, 2004, 2003 and 2002:


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|                                               | Write-Down
     of
         Note
         Receivable
    SeraNova |            | Write-Off
     of
         Other
         Receivables
    SeraNova |   | Lease
     Obligations
     and
    Settlements |   | Bank
    Guarantee |           | Legal
     and
    Other
    Charges |   | Total    |  
|---------------------------------------------- | ----------------------------------------------------------------- | ---------- | ------------------------------------------------------------------ | - | ----------------------------------------------- | - | ------------------ | --------- | ------------------------------------ | - | -------- | -
|                                               |                                                                   |            |                                                                    |   |                                                 |   |                    |           |                                      |   |          |  
|Charges to operations during 2000              | $                                                                 | 9,139,000  |                                                                    | $ | 902,000                                         |   | $                  | 1,875,000 |                                      | $ | 474,000  |  
|Costs paid during 2000 and 2001                |                                                                   | —          |                                                                    |   | —                                               |   |                    | —         |                                      |   | —        |  
|Non-cash items                                 |                                                                   | (9,139,000 | )                                                                  |   | (902,000                                        | ) |                    | —         |                                      |   | —        |  
|                                               |                                                                   |            |                                                                    |   |                                                 |   |                    |           |                                      |   |          |  
|Accrued costs as of December 31, 2000 and 2001 |                                                                   | —          |                                                                    |   | —                                               |   |                    | 1,875,000 |                                      |   | 474,000  |  
|Charges to operations during 2002              |                                                                   | —          |                                                                    |   | 258,000                                         |   |                    | —         |                                      |   | —        |  
|Costs paid during 2002                         |                                                                   | —          |                                                                    |   | (258,000                                        | ) |                    | (390,000  | )                                    |   | —        |  
|                                               |                                                                   |            |                                                                    |   |                                                 |   |                    |           |                                      |   |          |  
|Accrued costs as of December 31, 2002          |                                                                   | —          |                                                                    |   | —                                               |   |                    | 1,485,000 |                                      |   | 474,000  |  
|Charges to operations during 2003              |                                                                   | —          |                                                                    |   | —                                               |   |                    | —         |                                      |   | —        |  
|Costs paid during 2003                         |                                                                   | —          |                                                                    |   | —                                               |   |                    | (658,000  | )                                    |   | (334,000 | )
|                                               |                                                                   |            |                                                                    |   |                                                 |   |                    |           |                                      |   |          |  
|Accrued costs as of December 31, 2003          |                                                                   | —          |                                                                    |   | —                                               |   |                    | 827,000   |                                      |   | 140,000  |  
|Charges to operations during 2004              |                                                                   | —          |                                                                    |   | —                                               |   |                    | —         |                                      |   | —        |  
|Costs paid during 2004                         |                                                                   | —          |                                                                    |   | —                                               |   |                    | (290,000  | )                                    |   | (140,000 | )
|                                               |                                                                   |            |                                                                    |   |                                                 |   |                    |           |                                      |   |          |  
|Accrued costs as of December 31, 2004          | $                                                                 | —          |                                                                    | $ | —                                               |   | $                  | 537,000   |                                      | $ | —        |  
|                                               |                                                                   |            |                                                                    |   |                                                 |   |                    |           |                                      |   |          |  

As of December 31, 2004, $0.5 million of the liability remained outstanding, of which approximately $0.4 million was included in other long-term liabilities. The Company expects to pay this liability through 2008.


Contractual Obligations and Other Commercial Commitments

The following tables summarize the Companys contractual obligations and other commercial commitments as of December 31, 2004.


|                                               | Payments
    Due by Period |           
|---------------------------------------------- | -------------------------- | ----------
|                                               |                            |           
|Description of Contractual
         Obligation | Total                      |           
|                                               |                            |           
|Revolving Credit Facility                      | $                          | 2,356,000 
|Capital Lease Obligations                      |                            | 467,000   
|Operating Lease Obligations                    |                            | 7,568,000 
|Other Long-Term Liabilities                    |                            | 500,000   
|                                               |                            |           
|Total Contractual Obligations                  | $                          | 10,891,000
|                                               |                            |           

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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, 2004, the Company had outstanding borrowings under the credit facility of $2.4 million. As of December 31, 2003, the Company had outstanding borrowings under the credit facility of $8.3 million.


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


Recently Issued Accounting Standards

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


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 this revised standard, which may materially impact the Companys
      consolidated results of operations in the first quarter of fiscal year
      2006 and thereafter.


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 financial statements.


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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, and does not expect to do so in the future, since
it does not believe that it is practicable to do so at a reasonable cost.

Item 8.   Financial Statements and Supplementary Data.

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

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

On
      November 1, 2004, the Companys Audit Committee appointed J.H. Cohn LLP  as the Companys independent registered public accounting firm following the October 26, 2004 resignation of Deloitte & Touche LLP (Deloitte), the Companys
      former independent registered public accounting firm.


The
      reports of Deloitte on the Companys consolidated financial statements
      for the past two fiscal years did not contain an adverse opinion or a disclaimer
      of opinion and were not qualified or modified as to uncertainty, audit
      scope, or accounting principles.


During
      the Companys two most recent fiscal years and the subsequent interim period through the date of Deloittes
      resignation, there were no disagreements with Deloitte on any matter of
      accounting principles or practices, financial statement disclosure, or
      auditing scope or procedure, which disagreements, if not resolved to the
      satisfaction of Deloitte, would have caused Deloitte to make reference
      to the subject matter of the disagreements in connection with its reports.


During
      the Companys two most recent fiscal years and the subsequent interim period through the date of Deloittes resignation, there were no reportable events as
      such term is described in Item 304(a)(1)(v) of Regulation of S-K.


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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 SEC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.


In
      the course of the monthly and quarterly financial closing processes, the
      Companys daily interactions with its control environment, its on-going efforts to redesign and implement an enhanced control environment, the restatement of the Companys consolidated financial statements for prior reporting periods, and the audit of the Companys consolidated financial statements for the year ended December 31, 2004, management identified material weaknesses regarding various elements of the Companys internal control over financial reporting as of December 31, 2004 that are described in detail below under Managements Report on Internal Control Over Financial Reporting. 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.  As a result of
 the material weaknesses set forth below, the Companys chief executive officer and chief financial officer concluded that, as of the end of the period
covered
by this report, the Companys disclosure controls and procedures were not effective to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SECs
      rules and regulations.


Managements
Report on Internal Control over Financial Reporting

Management
      of the Company is responsible for establishing and maintaining adequate
      internal control over financial reporting, as defined in Rules 13a-15(e)
      and 15d-15(e) under the Exchange Act of 1934. Internal control over financial
      reporting is designed to provide reasonable assurance to the Companys
      management and Board of Directors regarding the preparation of reliable
      financial statements for external purposes in accordance with generally
      accepted accounting principles. Due to its inherent limitations, internal
      control over financial reporting, no matter how well designed, may not
      prevent or detect misstatements. Furthermore, projections of any evaluation
      of effectiveness to future periods are subject to the risk that controls
      may become inadequate due to changing conditions or deterioration in compliance
      with the policies or procedures.


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During
      2004 the Company engaged substantial resources to assess its internal control
      over financial reporting. In April 2004, with the consent of Deloitte who
      served as the Companys independent registered public accounting firm at such time, the Company engaged a nationally-recognized accounting and consulting firm, which is not the independent registered public accounting firm engaged to perform the audits of the Company, 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 year-end testing. However, following the implementation of a new ERP system and significant changes in key finance personnel, including the Chief Financial Officer and the Controller, which occurred in the second quarter, management became aware that the Company had material weaknesses in its control environment which impacted the Companys ability to effectively manage its business and contributed to immediate
 short-term liquidity issues which the Company experienced in the third quarter of 2004.  See Managements Discussion and Analysis of Financial Condition and Results of Operations for additional detail. Based upon managements daily interaction with its control environment, its conduct of the Companys
      monthly and quarterly financial closing process and the issues raised in
      the course of its efforts to document its internal control over financial
      reporting under the COSO framework with the assistance of the external
      accounting firm, management concluded that it had material weaknesses in
      its internal control over financial reporting. On October 1, 2004, the
      Company issued a current report on Form 8-K detailing the internal control
      issues identified at that time consisting of: (i) lack of effective management
      oversight over key accounting decisions; (ii) lack of adequate control
      over the accuracy of the financial information being entered into the financial
      systems; (iii) the need to evaluate and improve the Company's processes,
      policies and procedures related to financial reporting; (iv) inadequate
      training of the Company's new and existing financial department resources
      in the upgraded financial system and lack of adequately trained back-up
      personnel in critical areas; and (v) ineffective segregation of duties
      related to key financial reporting roles and managerial oversight of accounting
      resources. Thereafter the Company refocused its efforts towards evaluating,
      redesigning and remediating its internal control over financial reporting
      as related to the weaknesses identified in the October 1, 2004 report on
      Form 8-K.


Through
      managements continuing conduct of the Companys financial closing processes, its daily interactions with the Companys control environment, its on-going efforts to redesign and implement an enhanced control environment, the restatement of the Companys consolidated financial statements for prior reporting periods, and the audit of the Companys consolidated financial statements for the year ended December 31, 2004, management identified further material weaknesses in its internal control over financial reporting.  These material weaknesses, as well as the material weaknesses identified in the October 1, 2004 report on Form 8-K, are discussed in detail below. As of December 31, 2004, the Company had not identified any additional material weaknesses other than those specified below. Managements efforts to redesign its control environment and remediate the material weaknesses in the Companys
      internal control over financial reporting continued throughout the remainder
      of 2004 and continues in 2005. Because management was unable to complete
      the remediation of these material weaknesses in its internal control over
      financial reporting prior to December 31, 2004, management was unable to
      complete testing and documentation of its internal control over financial
      reporting as contemplated in Paragraph 20 of Auditing Standard No. 2 adopted
      by PCAOB by December 31, 2004. Therefore, management has concluded that
      its internal control over financial reporting was not effective as of December
      31, 2004.


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Material Weaknesses Identified

A material weakness is a significant deficiency (as defined in PCAOB Auditing Standard No. 2), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement in financial statements will not be prevented or detected on a timely basis by employees in the normal course of their work.  Management has identified the following material weaknesses in its internal control over financial reporting as of December 31, 2004:

| | • | Accounting
            and Finance Personnel Weaknesses The
            Company had insufficient resources to perform the accounting and
            financial reporting functions and such resources lacked the appropriate
            level of accounting knowledge, experience and training in the application
            of accounting principles generally accepted in the United States
            of America and were inadequately supervised. The lack of sufficient
            and adequately trained accounting and finance personnel resulted
            in an ineffective segregation of duties relative to key financial
            reporting functions. These in turn caused a lack of senior level
            review and oversight over key accounting decisions and resulted in
            errors in both the entry of financial information and in the preparation
            of consolidated financial statements. Furthermore the Company experienced
            significant turnover in finance and accounting personnel during 2004
            and the Company lacked adequate transition and knowledge transfer
            processes which resulted in the loss of a significant amount of historical
            knowledge related to the Companys business and its prior accounting
    practices, processes and policies.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | • | Accounting
            Policies and Procedures Weaknesses-
            The Company had inadequate documentation regarding the appropriate
            application of accounting principles generally accepted in the United
            States of America, as well inadequate documentation regarding the
            Companys accounting policies and procedures and the application
    of those policies and procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | • | Weaknesses
            Related to Implementation of ERP System The
            Company failed to adapt its accounting and business processes to
            conform to the requirements of the Companys new ERP system
            and provided insufficient 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | • | Weaknesses
            Related to Record Retention-
            Inadequate record retention polices and procedures caused a failure
            to obtain, retain and safeguard key documents and narratives necessary
            to provide supporting documentation for how the Company recorded
    transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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| | • | Closing
            and Consolidation Procedures-
            Management identified deficiencies in the analysis and reconciliation
            of certain general ledger accounts. Specifically, accounting personnel
            did not perform timely reconciliations and did not properly resolve
            reconciling items for the inter-company accounts, foreign currency
            translation adjustment account, unbilled revenues, deferred revenues,
            payroll accounting, vacation accrual and fixed assets. Unreconciled
            differences in the Companys inter-company accounts were improperly
            recorded as changes to the currency translation account, which resulted
            in misstatements of revenue, foreign currency translation adjustments
            and retained earnings. In addition, there were deficiencies in the
            analysis and reconciliation of intercompany accounts in connection
            with the charges reported as a result of the divesture of the Companys
            Asia-Pacific operations, which resulted in misstatements of the charges
            in connection with the loss recorded for the divesture of the Companys
            Asia-Pacific operations. Finally, there were inadequate controls
            over the consolidation process for the Companys international
    subsidiaries.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | • | Inadequate
            Controls Over Income Tax Accounting -The
            Company had ineffective 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. As a result, prepaid income taxes, income taxes payable,
            deferred income tax assets and liabilities and retained earnings
            were not properly recorded in accordance with accounting principles
    generally accepted in the United States of America.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | • | Lack
            of an Effective Internal Audit System-
            The Company had an inadequately staffed, inadequately trained and
            inexperienced internal audit department, which was ineffective in
            preventing and detecting control lapses and errors in the accounting
            of certain key areas like revenue recognition, inter-company reconciliations,
            fixed assets, currency translation adjustments, vacation accrual
            and income taxes, which resulted in misstatements in prior periods consolidated
    financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

The aforementioned material
weaknesses related to the control environment, personnel, policies and procedures,
implementation of the ERP system, and record retention impacted the Companys ability to properly record and report revenue accrual, unbilled revenue, accounts receivable, vacation liability accrual, intercompany account balances, currency translation adjustments and fixed assets. In addition, the material weaknesses related to the closing and consolidation procedures, tax accounting and internal audit significantly impacted the following areas and resulted in misstatements in the Companys prior periods consolidated
financial statements: (i) revenue, (ii) intercompany transactions, (iii) fixed
assets, (iv) vacation accrual and (v) currency translation adjustment accounts.

Remediation Plan regarding the Material Weaknesses

Management is actively
engaged in remediation efforts to address the material weaknesses identified
in the Companys internal control over financial reporting as of December 31, 2004.  These on-going remediation efforts, outlined below, are specifically designed to address the material weaknesses identified by management and to improve and strengthen the Companys
overall control environment.

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| | • | During
        the fourth quarter of 2004, the Company appointed a new Chief Financial
        Officer and began to centralize and reorganize its finance organization
        to create a unified global finance team with responsibility for the accounting
        and financial reporting functions for the Company and each of its subsidiaries
    worldwide.                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | • | During
        the fourth quarter of 2004, the Company began to redesign and more fully
        document its business processes, policies and procedures related to record
        retention, closing and consolidation procedures, income tax accounting,
    internal audit and other key financial reporting functions.                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | • | In connection
        with redesigning its business process, policies and procedures the Company
        strengthened senior level oversight related to key financial reporting
        functions by designating an approval process which required approvals
    from senior finance management personnel.                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | • | The Company
        has reallocated resources and added personnel to the Companys finance
        and accounting staff to strengthen the accounting function and reorganized
    the accounting function to provide for increased segregation of duties.                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | • | The Company
        trained and cross-trained its finance and accounting personnel in multiple
        functions and processes related to financial reporting. The Company is
        implementing a series of training programs to educate its finance and
        accounting personnel regarding the Companys internal control standards,
        with a particular emphasis on the Companys accounting policies
        and procedures, record retention, closing and consolidation procedures
    and income tax accounting.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | • | In 2005,
        the Company strengthened its internal audit function by re-establishing,
        and allocating additional resources to, its Internal Assurance Department
    redefining its scope, and reinforcing its mandate.                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | • | The Company
        confirmed and communicated its revenue recognition polices to its global
    accounting teams.                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | • | The Company
        implemented the Asset Accounting module, and is in the process
        of implementing Materials Management module and SEM
        BCS (Strategic Enterprise Management Business Consolidation) module,
        within its ERP system, to strengthen the control environment surrounding
    financial reporting.                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | • | In addition
        to further strengthen and improve senior level oversight and review over
        key financial reporting decisions, the Company also implemented a process
        whereby each team members work is reviewed by a collective group
    of senior level finance personnel as at the end of each accounting period.                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | • | In 2005,
        the Company re-engaged the nationally-recognized accounting and consulting
        firm to assist the Company in documenting, testing and remediating its
        internal control over financial reporting in preparation for year-end
    testing.                                                                                                                                                                                                                                                             

Mitigating Procedures Adopted to Ensure Accuracy of Financial Information

Due
      to the aforementioned material weaknesses in internal control over financial
      reporting, management performed additional analysis and implemented mitigating
      controls and procedures during its closing and post-closing processes to
      ensure that the Companys consolidated financial statements as of and for the year ended December 31, 2004 comply with accounting principles generally accepted in the United States of America and fairly present, in all material respects, the Companys
      financial condition as of December 31, 2004, and results of operations
      and cash flows for the year ended December 31, 2004.


To
      remediate these material weaknesses impacting revenue recognition and accrual,
      accounts receivable, deferred revenue and unbilled revenue, the Company
      completed the following activities, under the direction of the Companys
      Chief Financial Officer:


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| | • | Manually
        reviewed the documentation, including customer agreements, purchase orders,
        timesheets and vendor agreements, underlying the financial information
        entered in the Companys ERP system and verified the financial information
        against such source documentation;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                          
| | • | Manually
        reviewed and validated the accuracy of the revenue accruals for the time
    and materials and fixed bid contracts;                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                          
| | • | Documented
        and validated with the respective project managers the progress on milestone-based
        contracts and manually reviewed each percentage of completion calculation
    to validate the appropriate revenue recognition and accruals;                                                
| |   |                                                                                                                                                                                                                                                                                                          
| | • | Manually
    reviewed and validated the accuracy of invoices generated by ERP system;                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                          
| | • | Manually
    reviewed, validated and approved all customer credits; and                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                          
| | • | Collected,
        reviewed and validated the timesheets and performed monthly cut-off procedures
        to ensure that hours worked, and the corresponding revenue recognized,
    were recorded in the appropriate period.                                                                            

To
      address the material weaknesses related to deficiencies in analyzing and
      reconciling the general ledger accounts related to payroll, under the direction
      of the Companys Chief Financial Officer, the Company performed a
      manual review, validation and reconciliation of the postings to the payroll
      control account to ensure that the accounts balanced at the end of each
      month.


To
      address the material weaknesses related to deficiencies in analyzing and
      reconciling intercompany account transactions, under the direction of the
      Companys Chief Financial Officer, the Company completed the following
      activities:


| | • | Performed
        a manual review, validation and reconciliation of intercompany transactions
        and accounts for all locations to identify the appropriate correcting
    entries; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                             
| | • | Identified
        and made correcting entries into the books of accounts at each of the
    relevant locations.                                                                            

To
      correct the misstatements in the Companys currency translation adjustments and retained earnings resulting from the improper recording of unreconciled balances in the intercompany accounts as changes to the currency translation account, under the direction of the Companys
      Chief Financial Officer, the Company analyzed the reconciliation of the
      intercompany accounts to identify matching adjustments to the currency
      translation adjustment account and re-calculated the currency translation
      adjustment account balances from December 2001 in accordance with accounting
      principles generally accepted in the United States of America.


To
      address the material weaknesses impacting the fixed assets accounting,
      under the direction of the Companys Chief Financial Officer, the
      Company completed the following activities:


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| | • | Performed
        a physical verification of the assets at the United States and India
    locations; and                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                              
| | • | Created
        a fixed assets register in the United States location based on the results
        of the physical verification and adjusted the books of accounts for any
    discrepancies.

To
      address the material weaknesses impacting vacation accrual, under the direction
      of the Companys Chief Financial Officer, the Company completed the
      following activities:


| | • | Reviewed
        and recalculated the vacation accrual balances as of and for the years
        ended December 31, 2004, 2003, 2002 and 2001 in accordance with the applicable
    FASB guidelines; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                        
| | • | Recomputed
        and reconciled vacation accrual costs to the payments made to employees
    for the years ended December 31, 2004, 2003, 2002 and 2001.                                             

In
      addition, to further strengthen and improve senior level oversight and
      review over key financial reporting decisions, the Company also implemented
      a process whereby each team members work is reviewed by a collective
      group of senior level finance personnel as at the end of each accounting
      period.


The Company continues its efforts to remediate control weaknesses and further improve and strengthen its internal control over financial reporting under the direction of the Chief Financial Officer.


J.H.
      Cohn LLP, the Companys independent registered public accounting firm, has stated in their report which is incorporated herein that they are unable to opine on managements
      assessment of the effectiveness of internal control over financial reporting
      as of December 31, 2004 or the effectiveness of internal control over financial
      reporting as of December 31, 2004.


Changes in Internal Controls

In addition to the changes
described under Internal Control over Financial Reporting, during the fiscal year ended December 31, 2004, the Company experienced significant changes in its internal control over financial reporting.  At the beginning of the second quarter the Company and its India subsidiary went live on the new ERP system. At the same time, as previously disclosed via a current report on Form 8-K filed on April 5, 2004, the Company hired a new Chief Financial Officer, and the Companys acting Chief Financial Officer and Controller resigned.  Throughout 2004 the Company continued to experience significant turn-over among key finance personnel, including Controller, Assistant Controller and Director of Financial Planning Analyst. At the beginning of the fourth quarter as previously disclosed via a current report on Form 8-K filed on October 15, 2004, the Companys Chief Financial Officer resigned and the Company again appointed a new Chief Financial Officer and centralized and
 reorganized its finance team to create a unified global finance team. Furthermore during the fourth quarter of 2004 and as previously disclosed via a current report on Form 8-K filed on December 1, 2004, the Chairman of the Companys
Audit Committee resigned.

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PART III

Item 10.DirectorsandExecutiveOfficersoftheRegistrant.

DirectorsandExecutiveOfficersoftheRegistrant
.

The
      current members of the Board of Directors are:


|                                |  |     |  | Served
            as a    |  | Positions
            with                   | 
|------------------------------- |  | --- |  | -------------------------- |  | -------------------------------------------- | 
|Name                            |  | Age |  | Director
            Since |  | the
            Company                      | 
|                                |  |     |  |                            |  |                                              | 
|Vikram
        Gulati           |  | 40  |  | 2005                       |  | President,                                   | 
|                                |  |     |  |                            |  | Chief
        Executive Officer and Director | 
|Ravi
        Adusumalli         |  | 29  |  | 2004                       |  | Director                                     | 
|Ajit
        Issac              |  | 38  |  | 2004                       |  | Director                                     | 
|Srini
        Raju              |  | 44  |  | 2004                       |  | Director                                     | 
|Sandeep
        Reddy           |  | 37  |  | 2004                       |  | Director                                     | 
|Alexander
        Graham Wilson |  | 57  |  | 2002                       |  | Director                                     | 
|Andrew
        Yan              |  | 48  |  | 2004                       |  | Director                                     | 

The principal occupations and business experience, for at least the past five years, of each director is as follows:


Vikram Gulati.
        Vikram Gulati was appointed to the Board of Directors and to the positions
        of President and Chief Executive Officer effective April 4, 2005. Prior
        to joining the Company, Mr. Gulati held a number of positions in business
        development and business management with Wipro Limited (Wipro) from 1988 through 2005.  Mr. Gulati most recently served as the head of Wipros
        Global Enterprise Application Solutions Group.


Ravi Adusumalli.Ravi
        Adusumalli was appointed to the Board of Directors of the Company in
        September 2004 in accordance with the terms of the Common Stock Purchase
        Agreement dated September 29, 2004 by and between the Company, SB Asia
        Infrastructure Fund LP, and Venture Tech Assets Ltd., which allowed SB
        Asia Infrastructure Fund LP and Venture Tech Assets Ltd. to collectively
        designate five directors to the Companys Board of Directors. Mr.
        Adusumalli joined Softbank Asia Infrastructure Fund (SAIF) in early 2002
        and is currently a General Partner and Head of SAIFs India Operations.
        Prior to joining SAIF, Mr. Adusumalli was an Associate Partner with Mobius
        Venture Capital, a $1.25 billion early stage venture capital firm in
        Silicon Valley. He previously worked at Credit Suisse First Boston as
        an Associate and with Wasatch Funds, a mutual fund with over $9 billion
        in assets that specialized in small cap and micro cap companies listed
        on US and international exchanges. Mr. Adusumalli graduated from Cornell
        University with a Bachelors of Arts in Economics and Government. Mr.
        Adusumalli serves on the board of directors of SAIFs investments in Sify,
        SEVEN Networks, Investsmart, and Intelligroup.


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Ajit
      Isaac.Ajit
      Isaac appointed to the Board of Directors of the Company in September 2004
      in accordance with the terms of the Common Stock Purchase Agreement dated
      September 29, 2004 by and between the Company, SB Asia Infrastructure Fund
      LP, and Venture Tech Assets Ltd., which allowed SB Asia Infrastructure
      Fund LP and Venture Tech Assets Ltd. to collectively designate five directors
      to the Companys Board of Directors. Mr. Isaac is an industry specialist
      on human capital related issues in India. Mr. Isaac founded and is Managing
      Director of PeopleOne Consulting (I) Pvt. Ltd., which was recently acquired
      by Adecco. Prior to founding PeopleOne Consulting in June 2000, Mr. Isaac
      worked with Essar Group, one of India's largest business conglomerates,
      in various leadership roles. Mr. Isaac is a gold medalist in his post graduate
      program in personnel management from the Madras School of Social Work.
      A British Chevening Scholar, he has also completed a Managers
      for Leadership Program from Leeds University.


Srinivasa Raju.Srinivasa
        Raju was elected to the Board of Directors of the Company in September
        2004 in accordance with the terms of the Common Stock Purchase Agreement
        dated September 29, 2004 by and between the Company, SB Asia Infrastructure
        Fund LP, and Venture Tech Assets Ltd., which allowed SB Asia Infrastructure
        Fund LP and Venture Tech Assets Ltd. to collectively designate five directors
        to the Companys Board of Directors. Mr. Raju is the founder and Chairman of iLabs, technology incubator businesses based on intellectual property in life sciences, telecommunications and internet-based business services. Prior to founding iLabs, from 1992 until 2003, Mr. Raju served as a Director of Satyam Computer Services, Ltd. and also served as Chief Operating Officer of Satyam Computer Services Ltd. from 1992 until 2000. Additionally, Mr. Raju was the founding Chief Executive Officer and Director of Satyam Enterprise Solutions Ltd. From 1994 until 1996, Mr. Raju held the position of Chief Executive Officer of Dun & Bradstreet. Satyam Software Ltd. (now known as Cognizant Technology Solutions). Mr. Raju graduated with Honors from R.E.C., Kurukshetra with a Bachelor of Science in Civil Engineering and from Utah State University with a Masters degree in Civil & Environmental
        Engineering.


Sandeep Reddy.Mr.
        Reddy was elected to the Board of Directors of the Company in September
        2004 in accordance with the terms of the Common Stock Purchase Agreement
        dated September 29, 2004 by and between the Company, SB Asia Infrastructure
        Fund LP, and Venture Tech Assets Ltd., which allowed SB Asia Infrastructure
        Fund LP and Venture Tech Assets Ltd. to collectively designate five directors
        to the Companys Board of Directors. Since July 2000, Mr. Reddy
        has been a Vice Chairman of iLabs, a technology incubator businesses
        based on intellectual property in life sciences, telecommunications and
        internet-based business services. Mr. Reddy also serves on the Board
        of Directors of Sify, Ltd.


Alexander
        Graham Wilson.Alexander
        Graham Wilson was elected to the Board of Directors in June 2002. Mr.
        Wilson currently serves as a Director of Xendra Limited, a Wellington,
        New Zealand company, and has been pursuing private business interests
        including several information technology management and consulting assignments
        since 1998. Since 1999, Mr. Wilson has also been a member of the Technology
        New Zealand Advisory Committee for the Foundation of Research, Science
        and Technology. From 1984 to 1998, Mr. Wilson worked for Azimuth Consulting
        Limited, an independent IT consulting company located in Wellington,
        New Zealand, which he co-founded in 1983 and which was acquired in late
        1998 by Intelligroup. From 1992 to 1997, he was a member of the Executive
        Committee of the Information Technology Association of New Zealand. From
        1994 until
 1995 Mr. Wilson was a Director of Public Record Access New Zealand Limited,
        a  joint venture between Telecom New Zealand, Unisys New Zealand and

 Azimuth. Mr. Wilson received a degree with honors from Auckland University in
New Zealand and did post-graduate work at Monash University in Melbourne, Australia.


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Andrew Y. Yan.Andrew
        Y. Yan was appointed to the Board of Directors of the Company in September
        2004 in accordance with the terms of the Common Stock Purchase Agreement
        dated September 29, 2004 by and between the Company, SB Asia Infrastructure
        Fund LP, and Venture Tech Assets Ltd., which allowed SB Asia Infrastructure
        Fund LP and Venture Tech Assets Ltd. to collectively designate five directors
        to the Companys Board of Directors.  Mr. Yan joined Softbank Asia
        Infrastructure Fund (SAIF) in late 2001 as a Managing Partner. Prior
        to joining SAIF, Mr. Yan worked at Emerging Markets Partnership, the
        Principal Advisor to the US$2.7 billion AIG Asian Infrastructure Funds,
        from 1995 to 2001 as Managing Director and Head of the Hong Kong office.
        Mr. Yan has also worked at Sprint International Corporation as Director
        for Strategic Planning and Business Development for the Asia Pacific
        region, the Hudson Institute, the World Bank and the State Commission
        for Economic Restructuring of the State Council of China. Mr. Yan received
        a Bachelors degree with distinction in engineering from the Nanjing Aeronautics
        Institute, a Masters degree with Top Honorary Prize for his thesis from
        Beijing University and a Masters degree from Princeton University where
        he also worked toward a Ph.D. He also studied international finance at
        the Wharton School Executive MBA Program. Mr. Yan is on the board of
        directors of SAIFs investments in Shanda, Bellwave, Bocom, Intelligroup,
        Mobi, Novel, TGC and UnionPay Merchant. He is also an independent director
        of China Oilfield Services Limited and Stone Electronic Technology Limited
        (both listed on the Hong Kong Stock Exchange), China Eastern Communications
        Co., Ltd. (listed on the Shanghai Stock Exchange) and a governor of the
        Chinese Venture Capital Association. Mr. Yan has published a book entitled
        Trial after Triumph: East Asia after the Cold War (1992).


The
       following table identifies the current executive officers(1)of
       the Company:

|Name                 |  | Age |  | Capacities
               inWhich Served          |  | In
               CurrentPosition Since | 
|-------------------- |  | --- |  | ------------------------------------------------- |  | --------------------------------------- | 
|                     |  |     |  |                                                   |  |                                         | 
|Vikram Gulati        |  | 40  |  | Chief
       Executive Officer and President      |  | 2005                                    | 
|Madhu Poomalil(2)    |  | 39  |  | Chief
       Financial Officer and Treasurer      |  | 2004                                    | 
|Shirley Spoors(3)    |  | 43  |  | Vice President,
       Human Resources            |  | 2003                                    | 
|Ranjit Prithviraj(4) |  | 36  |  | Chief
       Operating Officer, Intelligroup Asia |  | 2005                                    | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Nagarjun
        Valluripalli served as Chief Executive Officer and President for the
        entire fiscal 2004, but was removed from his position as Chief Executive
        Officer and President on April 4, 2005. Bosco Malapatti served as Chief
        Operating Officer, Intelligroup Asia as of December 31, 2004, but resigned
        from his position effective May 5, 2005. Christian Misvaer served as
        the Companys General Counsel and Secretary as of December 31, 2004,
        but resigned from his position effective July 1, 2005. David Distel served
        as Chief Financial Officer for approximately six months in fiscal 2004,
        but resigned from the Company on October 15, 2005. Each of the aforementioned
        individuals are therefore listed as a Named Executive, but
        are not included in the above table since these individuals do not currently
    serve as an Executive Officer.

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|(2) | Madhu
       Poomalil joined the Company in 2000 and was appointed as Chief Financial
       Officer and Treasurer effective October 15, 2004. Mr. Poomalil oversees
       the Company's worldwide financial and accounting functions. Prior to this
       appointment, Mr. Poomalil served as the Chief Financial Officer of Intelligroup's
       India operations with responsibility for managing international finance
       and administration, as well as various operational components of the India
       operation. Prior to Intelligroup, Mr. Poomalil held various management
       positions in member firms of Ernst & Young, LLP, D.E. Shaw and ADP Wilco. Mr. Poomalil is a Chartered Accountant and a Fellow Member of The Institute of Chartered Accountants of India, New Delhi, India. He earned his Bachelors Degree in Science, specializing in Mathematics and Statistics; and passed the Certified Information Systems Auditor exam conducted by the Information Systems Audit & Control
    Association, Illinois, USA.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Shirley Spoors has served as the Vice President of Human Resources (US Operations) since November 2003. Prior to joining Intelligroup, Ms. Spoors worked as a Director of Human Resources for FirePond, Inc. Ms. Spoors holds a degree in Business Administration from Minnesota State University.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(4) | Ranjit
       Prithviraj joined the Company in 1997 and was formally appointed to the
       position of Chief Operating Officer of Intelligroup Asia, effective July
       1, 2005. In this role, Mr. Prithviraj manages the Companys India subsidiary. Prior to assuming this role, Mr. Prithviraj held a variety of roles with the Company. Most recently, he served as the Companys Senior Vice President for the Global Management Services organization. Mr. Prithviraj also serves on the Board of Directors for the Companys
       subsidiaries, Intelligroup Asia and Intelligroup Europe. Mr. Prithviraj
       holds a Bachelor of Engineering degree in Electronics from Bangalore University,
    India.                                                                                                                                                                                                                                                                                                                           

None of the Company's executive officers is related to any other executive officer or to any Director of the Company.  Executive officers of the Company are elected annually by the board of directors and serve until their successors are duly elected and qualified.


Audit Committee Financial Expert

From January 1, 2004
through November 29, 2004, Dennis McIntosh served as Chairman of the Companys Audit Committee. Mr. McIntosh was an independent member of the board of directors as defined in NASDAQ Rule 4200(a)(14) and qualified as an audit committee financial expert as
defined in rules promulgated by the SEC.


Following Mr. McIntoshs resignation on November 29, 2004, the board of directors lacked independent members who could meet the qualifications for an audit committee financial expert. The Company is in the process of trying to identify potential nominees who would meet the independence requirements of a national securities exchange and qualify as an audit committee financial expert. Prior to applying for listing on a national securities exchange, the Company plans to recruit one or more individuals to serve on the Board, including an individual who would meet the qualifications for an audit committee financial expert.


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Section 16(a) Beneficial Ownership Reporting Compliance

Section
      16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's Directors, officers and shareholders who beneficially own more than 10% of any class of equity securities of the Company registered pursuant to Section 12 of the Exchange Act (collectively, the "Reporting Persons")
      to file initial statements of beneficial ownership of securities and statements
      of changes in beneficial ownership of securities with respect to the Company's
      equity securities with the SEC. All Reporting Persons are required by SEC
      regulation to furnish the Company with copies of all reports that such
      Reporting Persons file with the SEC pursuant to Section 16(a). Except as
      set forth below, based solely on the Company's review of the copies of
      such forms received by the Company and upon written representations of
      the Company's Reporting Persons received by the Company, the Company believes
      that for the fiscal 2004 there has been compliance with all Section 16(a)
      filing requirements applicable to such Reporting Persons.


Prakash Easwaran* filed a Form 4 on February 26, 2004 related to an option exercise on February 23, 2004. Such Form 4 should have been filed no later than February 25, 2004.


David Distel* filed a Form 3 on April 14, 2004 related to the initial statement of beneficial ownership. Such Form 3 should have been filed no later than April 12, 2004. In addition such Form 3 disclosed an option grant which should have been reported no later than April 6, 2004 and therefore Mr. Distel should have either filed such Form 3 no later than April 6, 2004 or filed a Form 4 disclosing the option grant no later than April 6, 2004.


Nic DiIorio* filed a Form 4 on June 14, 2004 related to a stock option grant issued on June 8, 2004. Such Form 4 should have been filed no later than June 10, 2004.


Harry Webb* filed a Form 3 on July 19, 2004. Such Form 3 disclosed an option grant which should have been reported no later than July 12, 2004 and therefore Mr. Webb should have either filed such Form 3 no later than July 12, 2004 or filed a Form 4 disclosing the option grant no later than July 12, 2004.


Douglas Berto* filed a Form 3 on August 4, 2004. Such Form 3 disclosed an option grant which should have been reported no later than July 28, 2004 and therefore Mr. Berto should have either filed such Form 3 no later than July 28, 2004 or filed a Form 4 disclosing the option grant no later than July 28, 2004.


Based solely upon review of the filing available via the SEC Edgar database, SB Asia Infrastructure Fund L.P. filed a Form 3 on October 13, 2004 related to the initial statement of beneficial ownership. Such Form 3 should have been filed no later than October 12, 2004.


*Such persons are no longer Reporting Persons.

The
      Company has adopted a Code of Business Conduct and Ethics. The text of
      the Code of Business Conduct and Ethics is posed on the Companys
      internet site atwww.intelligroup.com.


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Item 11. ExecutiveCompensation.

Summary
    of Compensation

The
      following Summary Compensation Table sets forth information concerning
      compensation for services in all capacities awarded to, earned by or paid
      during the years ended December 31, 2004, 2003 and 2002 to each person
      who served as the Company's Chief Executive Officer at any time during
      the year ended December 31, 2004 and the four other most highly compensated
      executive officers employed by the Company as of December 31, 2004 and
      whose aggregate cash compensation exceeded $100,000 in 2004 (collectively,
      the "Named Executives").


SUMMARY COMPENSATION TABLE

|                                                             |            |               |        |         |        |         |        |        |     | Long-Term |  |         |       
|------------------------------------------------------------ | ---------- | ------------- | ------ | ------- | ------ | ------- | ------ | ------ | --- | --------- |  | ------- | ------
|Annual Compensation                                          | Compen-   
|                                                             |            |               |        |         | sation
|Awards                                                      
|                                                            
|                                                             |            |               |        | Other   |        |         |        |       
|Annual                                                       | Securities | All
    Other
|Compen-                                                      | Underlying | Compen-      
|Name and Principal                                           |            | Year          | Salary | Bonus   | sation | Options | sation
|Position                                                     |            |               | ($)    | ($)     | ($)(1) | (#)     | ($)   
|                                                             |            |               |        |         |        |         |        |       
|Nagarjun Valluripalli                                        |            | 2004          |        | 308,000 |        | —       |        | —      |     | —         |  |         |       
|Chairman of the                                              |            | 2003          |        | 334,249 |        | —       |        | —      |     | —         |  | 118,010 | (2)   
|Board,
         President andChief
         ExecutiveOfficer |            | 2002          |        | 335,413 |        | —       |        | —      |     | 1,050,000 |  | 40,382  | (2)   
|Madhu Poomalil                                               |            | 2004          |        | 88,565  | (3)    | 40,635  | (3     | 42,243 | (4) | 10,000    |  | 5,510   | (2)(3)
|Chief Financial Officer                                      |            | 2003          |        | 77,675  |        | 5,629   |        | 6,794  |     | —         |  | —       |       
|                                                             |            | 2002          |        | 59,529  |        | 6,201   |        | 100    |     | —         |  |         |       
|Christian Misvaer                                            |            | 2004          |        | 157,176 |        | 57,000  |        | —      |     | —         |  | —       |       
|General Counsel                                              |            | 2003          |        | 34,260  | (5)    | —       |        | —      |     | 80,000    |  | —       |       
|Shirley Spoors                                               |            | 2004          |        | 113,749 |        | 52,000  |        | —      |     | 50,000    |  | —       |       
|Vice
    President Human
    Resources                      |            | 2003          |        | 8,333   | (6)    |         |        | —      |     | —         |  | —       |       
|Bosco Malapatti                                              |            | 2004          |        | 124,345 | (7)    | 2,591   | (7)    | —      |     | —         |  | 13,743  | (2)(7)
|Chief
         OperatingOfficer                              |            | 2003          |        | 113,553 |        | 8,224   |        | 158    |     | 15,000    |  |         |       
|                                                             |            | 2002          |        | 85,859  |        | 15,754  |        | 13,136 |     | —         |  |         |       
|David Distel                                                 |            | 2004          |        | 135,417 | (8)    |         |        |        |     |           |  | 187,500 | (9)   
|Chief Financial Officer                                      |            |               |        |         |        |         |        |        |     |           |  |         |       

|    |                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | In accordance
        with the rules of the SEC, other compensation in the form of perquisites
        and other personal benefits have been omitted in those instances where
        such perquisites and other personal benefits constituted less than the
        lesser of $50,000 or 10% of the total annual salary and bonus for the
    Named Executive for the fiscal year.
|(2) | Represents
    encashment of accrued vacation.                                                                                                                                                                                                                                                                                                                                     

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|(3) | Based
       upon an exchange rate of one (1) US Dollar to forty-three and forty-six
    one hundredths (43.46) Indian Rupees. Such payments were made to Mr. Poomalil
    in Indian Rupees.       
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                    
|(4) | Represents
       the sum of $42,243 in relocation and living expenses which the Company
       paid on Mr. Poomalils behalf following his relocation to the United
       States in October 2004.
|    |                                                                                                                                                                                                    
|(5) | Mr.
       Misvaer was employed by the Company beginning September 15, 2003. His
    annual salary was $135,000.                                                                                   
|    |                                                                                                                                                                                                    
|(6) | Ms.
       Spoors was employed by the Company beginning November 1, 2003. Her annual
    salary was $100,000.                                                                                      
|    |                                                                                                                                                                                                    
|(7) | Based
       upon an exchange rate of one (1) US Dollar to forty-three and forty-six
       one hundredths (43.46) Indian Rupees. Such payments were made to Mr. Malapatti
    in Indian Rupees.   
|    |                                                                                                                                                                                                    
|(8) | Represents
       the salary amount paid to Mr. Distel during employment as the Companys
Chief Financial Officer and Treasurer from April 1, 2004 through October 15,
    2004.                   
|    |                                                                                                                                                                                                    
|(9) | Represents
       the severance amount paid to Mr. Distel in accordance with the terms of
    the Separation Agreement dated October 15, 2004 between Mr. Distel and the
    Company.              

Option
        Grants in 2004

The following table sets forth information concerning individual grants of stock options made during 2004 pursuant to the Company's 1996 Stock Option Plan or the 2004 Equity Incentive Award Plan to each of the Named Executives. The Company has never granted any stock appreciation rights.


OPTION
  GRANTS IN LAST FISCAL YEAR

|                           
|---------------------------
|Individual
      Grants    
|                           
|Name                       
|Securities                 
|Underlying                 
|Options                    
|Granted                    
|(#)                        
|                           
|Nagarjun
      Valluripalli
|Madhu
      Poomalil       
|Christian
      Misvaer    
|Shirley
      Spoors       
|Bosco
      Malapatti      
|David
      Distel         
|                           

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|____________
|------------
|(1)         
|            
|(2)         
|            
|(3)         
|            
|(4)         
|            

Aggregated Option Exercises in Fiscal 2004 and Year-End Option Values

There were no option exercises by the Named Executives in fiscal 2004.


Director Compensation

Pursuant
      to Company policy, as amended July 31, 2003, each non-employee director
      was entitled to receive the following cash payments: (i) $26,000 annual
      fee which was paid in arrears after the Companys Annual Meeting (for Directors who serve less than one year such fee is prorated as to the number of Board meetings held during the year for which compensation is paid); (ii) $2,600 per each meeting of the Board attended; (iii) $2,000 per each meeting of the Audit Committee attended; (iv) $1,000 per each meeting of any other committee of the Board attended; (v) $500 per each meeting of the Board, or committee thereof, at which such member participates via telephone; and (vi) an annual stock option grant exercisable for 10,000 shares of the Companys
      Common Stock which was granted in arrears after the Annual Meeting. The
      option grant is subject to the Company's standard vesting program. The
      Company reimburses Directors for reasonable and necessary expenses incurred
      in connection with attendance at meetings of the Board.


On
      April 27, 2004, the Company amended its policy regarding compensation to
      its non-employee directors for board service. Pursuant to such amended
      policy, each non-employee director was entitled to receive the following
      cash payments: (i) $30,000 annual fee for directors and $40,000 annual
      fee for the Lead Director payable at the next Annual Shareholder Meeting
      (for Directors who serve less than one year such fee is prorated as to
      the number of Board meetings held during the year for which compensation
      is paid); (ii) $4,000 per each in person Board attended and $2,000 per
      each telephonic meeting attended; (iii) for Audit Committee and Compensation
      Committee meetings the Chairman will receive $2,500 for each in person
      meeting attended and $1,500 for each telephonic meeting attended and the
      committee members will receive $1,500 for each in person meeting attended
      and $750 for each telephonic meeting attended; (iv) for Corporate Governance/Nominating
      Committee and Qualified Legal Compliance Committee meetings the Chairman
      will receive $2,500 for each in person meeting attended and $1,500 for
      each telephonic meeting attended and the committee members will receive
      $1,000 for each in person meeting attended and $750 for each telephonic
      meeting attended; and (v) annual option grant exercisable for 20,000 shares
      of the Companys Common Stock in accordance with the terms of the Companys
      1996 Stock Option Plan at the time of the Annual Shareholder Meeting.


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On October 8, 2004, the Company terminated the aforementioned compensation policy for all directors.


Effective
      November 2004, the Company adopted the following policy for compensating
      non-employee directors: (i) $5,000 annual fee to be paid in arrears after
      the Companys Annual Shareholders Meeting (such annual fee shall
      be pro-rated for directors who serve less than one year); (ii) $2,000 for
      each in person board meeting (such fee includes associated travel costs);
      and (iii) $1,500 for each in person Audit Committee meeting (such fees
      include all associated travel costs). The Company reimburses Directors
      for reasonable travel expenses incurred when traveling on Company business
      (other than travel costs related to attending Board of Director or Audit
      Committee meetings).


Other than the non-employee directors, who were compensated pursuant to such policies in 2004, Directors do not otherwise receive cash compensation for board service.


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


Prior to October 8, 2004, each person who was a Director of the Company on the effective date of the Company's initial public offering or became or will become a Director of the Company thereafter, and who is not also an employee or officer of the Company, was or shall be granted, on the date of such initial public offering or the date on which he or she became a Director, whichever is later, an option to purchase 20,000 shares of Common Stock, at an exercise price per share equal to the then fair market value of the shares. No subsequent grants are permitted to such individuals under the Director Plan. All options become exercisable in five equal annual installments commencing one year after the date of grant provided that the optionee then remains a Director at the time of vesting of the installments. The right to exercise annual installments of options will be reduced proportionately
 based on the optionee's actual attendance at Directors' meetings if the optionee fails to attend at least 80% of the Board of Directors' meetings held in any calendar year. The term of each option will be for a period of ten years from the date of grant, unless sooner terminated in accordance with the Director Plan. Options may not be transferred except by will or by the laws of descent and distribution or pursuant to a domestic relations order and are exercisable to the extent vested at any time prior to the scheduled expiration date of the option. The Director Plan terminates on the earlier of May 31, 2006 or at such time as all shares of Common Stock currently or hereafter reserved for issuance shall have been issued. To date 130,000 options have been granted pursuant to the Director Plan.


Members of the Board of Directors, including non-employee Directors, also are eligible to receive option grants pursuant to the 2004 Equity Incentive Award Plan.


On
      June 8, 2004, each of Messrs. Besier, Di Iorio, McIntosh, Pandey and Wilson
      received options to purchase 20,000 shares of the Companys Common Stock under the 2004 Equity Incentive Award Plan at an exercise price of $3.98 per share, the fair market value of the Companys
      Common Stock at the date of grant.


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Employment Agreements, Change-In-Control Agreements, Indemnification Agreements, Non-Competition, Non-Disclosure and Non-Solicitation Agreements

Vikram Gulati

The Company entered into a one year employment agreement with Vikram Gulati,
the Company's Chief Executive Officer and President, effective June 30, 2005.
The agreement provides for, among other things: (i) an annual base salary of
$225,000; (ii) a potential annual bonus in the amount of up to one hundred (100%)
percent of such base salary, prorated for the first year of employment, subject
to Mr. Gulati meeting certain objectives to be agreed upon with the Company;
(iii) a grant of 500,000 stock options exercisable at $1.45 per share and, subject
to shareholder approval, a subsequent grant of 400,000 options exercisable at
$1.25 per share; (vi) reimbursement of all reasonable relocation expenses incurred
by Mr. Gulati; and (v) continuation of base salary payments for twelve (12) months
following termination of the Agreement unless the Agreement is terminated for
cause (as defined in the Agreement). In addition the agreement provides that
upon the effectiveness of a Change in Control (as defined in the Agreement):
(a) option vesting shall be accelerated by twelve (12) months for all the remaining
options, to the extent not vested and exercisable, and (b) in the event Venture
Tech should own less than ten (10%) of the Company's outstanding shares or the
Company terminates Mr. Gulati's employment or changes the Mr. Gulati's role (as
defined in the Agreement) all remaining options, to the extent not vested and
exercisable, shall become fully vested and exercisable.


Nagarjun Valluripalli

Mr.
      Valluripalli entered into a two-year employment agreement with the Company
      commencing on September 20, 2002. Pursuant to the terms of such agreement,
      Mr. Valluripalli was entitled to, among other things: (i) an annual base
      salary of $350,000; (ii) a potential annual bonus based upon meeting and
      exceeding the Companys annual budget approved by the Companys Board of Directors for pre-tax income; and (iii) continuation of base salary payments for a fifteen (15) month period and reimbursement for medical benefits pursuant to an election under COBRA in the event of the Company's termination of Mr. Valluripalli's employment with the Company without cause.  In addition to the provisions of such agreement requiring Mr. Valluripalli to maintain the confidentiality of the Company's proprietary information and assign inventions to the Company, Mr. Valluripalli agreed that during the term of his employment and for a period of fifteen (15) months following the termination of his employment with the Company, he would not, among other things, (i) interfere with the Company's customer relationships or (ii) solicit the Company's employees, executives and affiliates. In the event that Mr. Valluripalli's employment were terminated during the period beginning one (1) month
 before, and ending twelve (
12) months after, a Change in Control (as defined in the agreement), then (i) Mr. Valluripalli would receive continuation of base salary payments for a fifteen (15) month period and reimbursement for medical benefits pursuant to an election under COBRA; (ii) the non-competition restrictions, including the restrictions that Mr. Valluripalli not solicit the Company's customers or solicit the Company's employees, executives and affiliates would lapse; and (iii) the unvested portion of any stock options granted by the Company to Mr. Valluripalli shall vest in full and become exercisable. Mr. Valluripallis employment agreement expired on September 20, 2004.  Mr. Valluripalli was removed from his position as the Companys
      Chief Executive Officer and President effective April 4, 2005. The provisions
      requiring Mr. Valluripalli to maintain the confidentiality of the Company's
      proprietary information and assign inventions to the Company and prohibiting
      Mr. Valluripalli from, among other things, engaging in competitive business
      activities, interfering with the Company's customer relationships or soliciting
      the Company's employees, executives and affiliates for a period of fifteen
      months following termination of his employment expressly survive termination
      of the agreement.


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Madhu Poomalil

On June 2, 2005, the Company entered into a two-year employment agreement with Madhu Poomalil, the Company's Chief Financial Officer and Treasurer. The employment agreement provides for, among other things: (i) an annual base salary equivalent of Indian rupees 8,155,000  (which is approximately $187,000 based on the exchange rate as of June 7, 2005); (ii) a potential bonus in the amount of fifty percent of such base salary subject to Mr. Poomalil meeting certain objectives to be agreed upon with the Company; (iii) two grants of 100,000 stock options each, (iv) reimbursement of relocation expenses incurred by Mr. Poomalil; and (v) continuation of base salary payments for twelve (12) months in the event the Company terminates Mr. Poomalil's employment without cause.  In addition, the agreement provides that upon the effectiveness of a Change in Control (as defined in the employment agreement)
 the vesting for all of the remaining options shall be accelerated by twelve (12) months as of the effective date of the Change of Control, and that all of the remaining option shares, to the extent not vested and exercisable, shall become fully vested and exercisable in the event that the Company terminates Mr. Poomalil's employment or attempts to change Mr. Poomalil's role (as defined in the employment agreement), and (vii). Such employment agreement is terminable by either party upon thirty (30) days prior written notice and by the Company at any time for cause.


Ranjit Prithviraj

Effective
      July 1, 2005, the Company entered into a two year employment agreement
      with Ranjit Prithviraj, pursuant to which Mr. Prithviraj was promoted to
      the position of Chief Operating Officer for the Company's subsidiary, Intelligroup
      Asia Pvt. Ltd. The agreement provides for, among other things: (i) an annual
      base salary equivalent of 8,155,000 Indian rupees (which is approximately
      $188,000 based on the exchange rate as of July 1, 2005); (ii) a potential
      annual bonus in the amount of up to fifty percent of such base salary subject
      to Mr. Prithviraj meeting certain objectives to be agreed upon with the
      Company; (iii) confirmation of stock option grants awarded on June 1, 2005
      of 100,000 shares exercisable at $1.50 per share, which was above the then
      current market price of the Companys Common Stock, and of 100,000 shares exercisable at $1.25 per share, which was above the then current market price of the Companys
      Common Stock; (iv) expense reimbursement in an amount not to exceed $15,000
      each year for personal travel between India and the United States; (v)
      continuation of base salary payments for twelve (12) months in the event
      the Company terminates Mr. Prithviraj's employment for any reason other
      than cause (as defined in the Agreement); and (vi) reimbursement of relocation
      expenses incurred by Mr. Prithviraj in an amount not to exceed $15,000.
      In addition, the agreement provides that upon the effectiveness of a Change
      in Control (as defined in the agreement): (a) option vesting shall be accelerated
      by twelve (12) months for all the remaining options, to the extent not
      vested and exercisable, and (b) in the event the Company terminates Mr.
      Prithviraj's employment or changes his role (as defined in the agreement)
      all remaining options, to the extent not vested and exercisable, shall
      become fully vested and exercisable.


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Shirley Spoors

On June 21, 2005, the Company entered into an amended and restated employment agreement with Shirley Spoors, the Company's Vice President of Human Resources. The agreement provides for, among other things: (i) an annual base salary of equivalent of $182,000; (ii) payment of a $26,000 bonus for prior performance on June 30, 2005; and (iii) continuation of base salary payments for three months in the event the Company terminates Ms. Spoors' employment without cause during the term of the Agreement. In addition, the agreement provides that upon the effectiveness of a Change in Control (as defined in the agreement) all the remaining options, to the extent not vested and exercisable, shall become fully vested and exercisable. The term of the agreement is through December 31, 2005. Either party must provide written notice prior to November 30, 2005 in the event the party decides not to renew the
 agreement. In the event either party fails to give timely notice, the agreement shall automatically extend for thirty (30) days beyond the notice date.


David Distel

On
      April 1, 2004, Mr. Distel entered into an employment agreement with the
      Company which provided for, among other things: (i) an annual base salary
      of $250,000; (ii) a potential bonus in the amount of 50 percent of such
      base salary; (iii) a grant of 200,000 stock options exercisable at $7.25
      per share, the then current market price of the Companys Common Stock; and (iv) continuation of base salary payments for nine (9) months and reimbursement for medical benefits pursuant to an election under COBRA in the event the Company terminates Mr. Distels
      employment without cause. In addition, the agreement provided that upon
      the effectiveness of a Change in Control (as defined in the employment
      agreement) all of the remaining options, to the extent not vested and exercisable,
      would become vested and exercisable fifteen (15) days prior to the anticipated
      effective date of the Change of Control, unless provision were made in
      connection with such Change of Control for the assumption of the options,
      or the substitution of such options with new options of the successor entity
      or parent thereof, with appropriate adjustment to the number of option
      shares and, if appropriate, the exercise price. Such employment agreement
      was terminable at will by the Company at any time and by Mr. Distel upon
      sixty (60) days prior written notice. In addition to the provisions of
      such agreement requiring Mr. Distel to maintain the confidentiality of
      the Company's proprietary information and assign inventions to the Company,
      Mr. Distel agreed that during the term of his employment and for a period
      of one year following the termination of his employment with the Company,
      he would not, among other things, (i) interfere with the Company's customer
      relationships, (ii) solicit the Company's employees, executives and affiliates,
      or (iii) engage in any business that competes with the Company. Mr. Distel
      resigned from his position with the Company effective October 15, 2004.
      The Company issued a severance payment in the amount of $187,500 to Mr.
      Distel in 2004.


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Christian Misvaer

Mr.
      Misvaer entered into an employment agreement, as amended March 25, 2004,
      with the Company which provided for, among other things: (i) an annual
      base salary of $155,000; (ii) a potential bonus in the amount of 40 percent
      of such base salary; and (iii) continuation of base salary payments for
      six (6) months in the event the Company terminated Mr. Misvaers employment
      without cause. In addition, the agreement provided that upon the effectiveness
      of a Change in Control (as the term is defined in the employment agreement)
      all of the remaining options, to the extent not vested and exercisable,
      would become vested and exercisable fifteen (15) days prior to the anticipated
      effective date of the Change of Control, unless provision were made in
      connection with such Change of Control for the assumption of the options,
      or the substitution of such options with new options of the successor entity
      or parent thereof, with appropriate adjustment to the number of option
      shares and, if appropriate, the exercise price. Such employment agreement
      was terminable at will by the Company at any time and by Mr. Misvaer upon
      sixty (60) days prior written notice. In addition to the provisions of
      such agreement requiring Mr. Misvaer to maintain the confidentiality of
      the Company's proprietary information and assign inventions to the Company,
      Mr. Misvaer agreed that during the term of his employment and for a period
      of one year following the termination of his employment with the Company,
      he would not, among other things, (i) interfere with the Company's customer
      relationships, (ii) solicit the Company's employees, executives and affiliates,
      or (iii) engage in any business that competes with the Company. Mr. Misvaer
      resigned from his position with the Company effective July 1, 2005. Effective
      July 1, 2005, the Company entered into an Independent Contractor Agreement
      with Pontus, Inc. for the purposes of retaining Mr. Misvaer to provide
      certain legal department support services. The Independent Contractor Agreement
      provides for, among other things: (i) a monthly payment of $7,200 for a
      minimum of twenty (20) hours per week; (ii) a potential payment of $90
      per hour for each hour worked in excess of twenty (20) hours per week;
      (iii) a guaranteed performance bonus of $36,000; and (iv) a contract term
      of three months, with a Company option to extend for an additional three
      months.


Others

In addition to the foregoing, the Company generally enters into indemnification agreements with each of its executive officers and directors pursuant to which the Company has agreed to indemnify such party to the full extent permitted by law, subject to certain exceptions, if such party becomes subject to an action because such party is a director, officer, employee, agent or fiduciary of the Company.


Substantially all of the Company's employees have agreed, pursuant to written agreement, not to compete with the Company, not to disclose Company information and not to solicit Company employees.


Compensation Committee Interlocks and Insider Participation

During the first three quarters of 2004, Klaus Besier, Dennis McIntosh and Nic Di Iorio served on the Compensation Committee. Messrs. Besier, McIntosh and DiIorio have not served as either an officer or employee of the Company or any of its subsidiaries at any time. During 2004, Mr. McIntosh served as Executive Vice President, Chief Financial Officer of SBLI USA Mutual Life Insurance Company, Inc.  In 2004, the Company paid $82,113 in fees to SBLI USA Mutual Life Insurance Company, Inc.


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On
    October 8, 2004, the Company reconstituted its Compensation Committee and
    appointed Ravi
    Adusumalli, Sandeep Reddy and Ajit Issac as members of the Compensation Committee.
    Messrs.
      Adusumalli, Reddy and Isaac have not served as either an officer or employee
      of the Company or any of its subsidiaries at any time. Effective August
    1, 2005, the Companys wholly-controlled subsidiary, Intelligroup Asia,
      Pvt. Ltd., entered into a lease agreement with iLabs Hyderabad Technology
Center Pvt. Ltd., of which Mr. Raju is Chairman and Mr. Reddy is Vice Chairman.


Except as described above, there are no, and during 2004 there were no, compensation committee interlocks.


Item 12. Security
OwnershipofCertain
Beneficial
OwnersandManagement
and Other Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners and Management

There
are, as of September 26, 2005, approximately 75 holders of record and approximately
3,285_beneficial holders of the Company's Common Stock.  The following table sets forth
certain information, as of August 15, 2005, with respect to holdings of the Company's
Common Stock by (i) each person known by the Company to beneficially own more than 5% of
the total number of shares of Common Stock outstanding as of such date, (ii) each of the
Company's Directors (which includes all nominees), (iii) each of the Company's Named Executives,
and (iv) all Directors and executive officers as a group. This information is based upon
information furnished to the Company by each such person and/or based upon public filings
with the Securities and Exchange Commission.  Unless otherwise indicated, the address for
the individuals below is that of the
Company address.


|                                     |                                                                                                       | Amount and Nature of |             | Percent |  
|------------------------------------ | ----------------------------------------------------------------------------------------------------- | -------------------- | ----------- | ------- | -
|Name and Address of Beneficial Owner | Beneficial Ownership(1)                                                                               |                      | of Class(2) |        
|                                     |                                                                                                       |                      |             |        
|(i)                                  | Certain
    Beneficial Owners:                                                                        |                      |             |         |  
|                                     |                                                                                                       |                      |             |         |  
|SB Asia Infrastructure Fund LP(3)    | 17,647,058                                                                                            | (4)                  | 50.3        | %      
|Venture Tech Assets Ltd.(5)          | 19,280,445                                                                                            | (6)                  | 55          | %      
|                                     |                                                                                                       |                      |             |         |  
|(ii)                                 | Directors
    (which includes all nominees) and
    Named Executives who are not set forth
    above: |                      |             |         |  
|                                     | Nagarjun Valluripalli                                                                                 | 51,500               | (7)         | *       |  
|                                     | Ravi Adusumalli                                                                                       | 0                    |             | *       |  
|                                     | Andrew Yan                                                                                            | 0                    |             | *       |  
|                                     | Sandeep Reddy                                                                                         | 7,515,750            | (8)         | 21.4    | %
|                                     | Srini Raju                                                                                            | 7,515,750            | (9)         | 21.4    | %
|                                     | Alexander Graham Wilson                                                                               | 473,164              | (10)        | *       |  
|                                     | Ajit Isaac                                                                                            | 160,000              | (11)        | *       |  
|                                     | Madhu Poomalil                                                                                        | 15,000               | (12)        | *       |  
|                                     | Christian Misvaer                                                                                     | 32,393               | (13)        | *       |  
|                                     | Shirley Spoors                                                                                        | 13,436               | (14)        | *       |  
|                                     | Bosco Malapatti                                                                                       | 0                    |             | *       |  
|                                     | David Distel                                                                                          | 0                    |             | *       |  
|(iii)                                | All Directors
    and executive officers as a
    group (12 persons)(14)                              | 8,261,243            |             | 23.4    | %
|                                     |                                                                                                       |                      |             |         |  
|                                     |                                                                                                       |                      |             |        
|                                     | *         Less than one percent.                                                                      |                      |             |         |  

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|(1) | Except
        as set forth in the footnotes to this table and subject to applicable
        community property law, the persons named in the table have sole voting
        and investment power with respect to all shares of Common Stock shown
    as beneficially owned by such shareholder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Applicable
          percentage of ownership is based on 35,102,440 shares of Common Stock
          outstanding on August 15, 2005, plus any presently exercisable stock
          options held by each such holder, and options which will become exercisable
    within sixty (60) days after August 15, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(3) | The
          address for SB Asia Infrastructure Fund L.P. (the Fund)
          is Ugland House, P.O. Box 309, George Town, Grand Cayman, Cayman Islands.
          SB Asia Pacific Partners LP is the sole general partner of the Fund.
          The address for SB Asia
Pacific Partners LP is Ugland House, P.O. Box 309,
George Town, Grand Cayman, Cayman Islands. SB Asia Pacific Investments Limited
is the sole general partner of SB Asia Pacific Partners LP. The address for SB
Asia Pacific Investment Limited is Ugland House, P.O. Box 309, George Town, Grand
Cayman, Cayman Islands. Asia Infrastructure Investments Limited is the sole shareholder
of SB Asia Pacific Investment Limited. The address for Asia Infrastructure Investments
Limited is Ugland House, P.O. Box 309, George Town, Grand Cayman, Cayman Islands.
SB First Singapore Pte. Ltd. is the voting shareholder of Asia Infrastructure
Investments Limited that exercises control with respect to Asia Infrastructure
Investments
Limiteds interest in SB Asia Pacific Investments Limited. The address for
SB First Singapore Pte. Ltd. is 8 Cross Street, #11-000 PwC Building, Singapore,
048424. SOFTBANK Corp. is the sole shareholder of SB First Singapore Pte. Ltd.
The address for SOFTBANK Corp. is 24-1, Nihonbashi-Hakozakicho, Chuo-ku, Tokyo
103-8501.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(4) | Represents
        11,764,705 shares of Common Stock held by SAIF and 5,882,353 shares of
        Common Stock held by Venture Tech. SAIF is a party to a Common Stock
        Purchase Agreement,
dated as of September 29, 2004 (the Purchase Agreement), by and among
the Company, SAIF and Venture Tech. By virtue of the Purchase Agreement, SAIF
may be deemed a group with Venture Tech within the meaning of Section 13(d)(3)
of the Act, and as a result, to have beneficial ownership of the shares of Common
Stock beneficially owned by Venture Tech. SAIF
disclaims such beneficial ownership. SAIF has the sole power to vote or direct
the vote and to dispose or to direct the disposition of 11,764,705 shares of
Common Stock. Because of its position as the sole general partner of SAIF, SB
Asia Pacific Partners LP has the sole power to vote or direct the vote and to
dispose or to direct the disposition of 11,764,705 shares of Common Stock. Because
of its position as sole general partner of SB Asia Pacific Partners LP, SB Asia
Pacific Investment Limited has the sole power to vote or direct the vote and
to dispose or to direct the disposition of 11,764,705 shares of Common Stock.
Because of its position as the sole shareholder of SB Asia Pacific Investment
Limited, Asia Infrastructure Investments Limited has the sole power to vote or
direct the vote and to dispose or to direct the disposition of 11,764,705 shares
of Common Stock. Because of its position as the voting shareholder of Asia Infrastructure
Investments Limited (which exercise control with respect to Asia Infrastructure
Investment Limiteds interest in SB Asia Pacific Investments Limited), the
sole shareholder of SB Asia Investments Limited, the sole general partner of
SB Asia Pacific Partners, LP, and the sole general partner of SAIF, SB First
Singapore Pte. Ltd. has the sole power to vote or to direct the vote and to dispose
or to direct the disposition
of 11,764,705 shares of Common Stock.
|(5) | The
          address for Venture Tech is 4 Whitcome Mews, Richmond TWP 4BT, United
    Kingdom.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|(6)  | Represents
        7,515,750 shares of Common Stock held by Venture Tech and 11,764,705
        shares of Common Stock held by SAIF. Venture Tech is a party to a Common
        Stock Purchase Agreement, dated as of September 29, 2004, by and among
        the Company, SAIF and Venture Tech. By virtue of the Purchase Agreement,
        Venture Tech may be deemed a group with SAIF within the meaning of Section
        13(d)(3) of the Act, and as a result, to have beneficial ownership of
        the shares of Common Stock beneficially owned by SAIF. Venture Tech disclaims
    such beneficial ownership.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7)  | Represents
          29,500 shares of Common Stock owned of record, 22,000 shares of Common
          Stock owned indirectly as spouse. The information on the table is based
          solely upon data derived from a Form 4 filed by Mr. Valluripalli on
    December 16, 2003.                                                                                                                                                                                                                                                                                                                                            
|(8)  | Represents
          7,515,750 shares of Common Stock held by Venture Tech. Due to Mr. Reddys
          position as shareholder and sole director of Venture Tech, Mr. Reddy
          may be deemed to have indirect beneficial ownership of the shares of
          Common Stock beneficially
owned by Venture Tech.                                                                                                                                                                                                                                                                                                       
|(9)  | Represents
          7,515,750 shares of Common Stock held by Venture Tech. Because Mr.
          Rajus son is a shareholder in Venture Tech, Mr. Raju may be deemed
          to have indirect beneficial ownership of the shares of Common Stock
          beneficially owned by Venture
Tech.                                                                                                                                                                                                                                                                                                                             
|(10) | Represents451,164
          shares of Common Stock owned of record and 22,000 shares of Common
          Stock underlying options granted to Mr. Wilson, which are exercisable
          as of August 15, 2005, or sixty (60) days after such date. Excludes
          28,000shares
          of Common Stock underlying options, which become exercisable over time
    after such period.                                                                                                                                                                                                                                   
|(11) | Represents
          160,000 shares of Common Stock underlying options granted to Mr. Isaac,
          which are exercisable as of August 15, 2005, or sixty (60) days after
    such date.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(12) | Represents
        15,000 shares of Common Stock underlying options granted to Mr. Poomalil,
        which are exercisable as of August 15, 2005, or sixty (60) days after
        such date. Excludes 195,000 shares of Common Stock underlying options,
    which become exercisable over time after such period.                                                                                                                                                                                                                                                                                                           
|(13) | Represents
          32,393 shares of Common Stock underlying options granted to Mr. Misvaer,
          which are exercisable as of August 15, 2005, or sixty (60) days after
    such date.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(14) | Represents
        13,436 shares of Common Stock underlying options granted to Ms. Spoors,
        which are exercisable as of August 15, 2005, or sixty (60) days after
    such date.                                                                                                                                                                                                                                                                                                                                                                                                                                       

Equity Compensation Plans.

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


|                                                               | Number
         of securities tobe
         issued uponexercise
         of outstandingoptions |  | Weighted-averageexercise
    price ofoutstanding
    options |      | Number
         of securitiesremaining
         available forfuture
         issuance underequity
         compensationplans |          
|-------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------ | ---- | ---------------------------------------------------------------------------------------------------------------------------- | ---------
|                                                               |                                                                                                |  |                                                              |      |                                                                                                                              |          
|Equity compensation
    plans approved by security holders.    | 2,667,856                                                                                      |  | $                                                            | 3.01 |                                                                                                                              | 1,968,054
|Equity compensation
    plans not approved by security holders | 40,000                                                                                         |  | $                                                            | 2.06 |                                                                                                                              | 65,000   
|                                                               |                                                                                                |  |                                                              |      |                                                                                                                              |          
|Total                                                          | 2,707,856                                                                                      |  | $                                                            | 3.00 |                                                                                                                              | 2,033,054
|                                                               |                                                                                                |  |                                                              |      |                                                                                                                              |          

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Equity Compensation Plans Approved by Security Holders

The 2004 Equity Incentive
  Award Plan (2004 Plan) was approved by the Companys Board of Directors on April 5, 2004 and adopted by the Companys shareholders on June 8, 2004.    The maximum number of shares of Common Stock reserved for issuance under the 2004 Plan is equal to 1,100,000, plus the number of shares of Common Stock which are or become available for issuance under the Companys 1996 Stock Plan (the Prior Plan),
  and which are not issued under such plans. Those eligible to receive stock
  option grants or stock purchase rights under the 2004 Plan include employees,
  non employee Directors and consultants. The Compensation Committee of the Board
  of Directors of the Company administers the 2004 Plan. Subject to the provisions
  of the 2004 Plan, the administrator of the 2004 Plan has the discretion to
  determine the optionees and/or grantees, the type of equity awards to be granted
  (incentive stock options and nonqualified stock options, restricted stock,
  stock appreciation rights, performance shares, performance stock units, stock
  payments, deferred stock, restricted stock units, other stock-based awards,
  and performance-based awards), the vesting provisions, the terms of the grants
  and such other related provisions as are consistent with the 2004 Plan. The
  exercise price of a stock option may not be less than the fair market value
  per share of the Common Stock on the date of grant or, in the case of an optionee
  who beneficially owns 10% or more of the outstanding capital stock of the Company,
  not less than 110% of the fair market value per share on the date of grant.
  The options terminate not more than ten years from the date of grant, subject
  to earlier termination on the optionee's death, disability or termination of
  employment with the Company, but provide that the term of any options granted
  to a holder of more than 10% of the outstanding shares of capital stock may
  be no longer than five years. Options are not assignable or otherwise transferable
  except by will or the laws of descent and distribution. The Compensation Committee
  may provide that if a Change in Control (as defined in the 2004 Plan) of the
  Company occurs and any awards made pursuant to the 2004 Plan are not converted,
  assumed or replaced by a successor, then all outstanding awards that are not
  converted, assumed or replaced will become fully vested and exercisable.


The Compensation Committee,
subject to approval of the Board, may terminate, amend, or modify the 2004 Plan
at any time; provided, however, that stockholder approval must be obtained for
any amendment to the extent necessary or desirable to comply with any applicable
law, regulation or stock exchange rule, to increase the number of shares available
under the 2004 Plan, to permit the Compensation Committee to grant options with
an exercise price below fair market value on the date of grant, or to extend
the exercise period for an option beyond ten years from the date of grant. The
2004 Plan terminates on June 8, 2014 unless terminated earlier by the Companys
Board of Directors.


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


For
      a description of the 1996 Non-Employee Director Plan please refer to the Director Compensation discussion
      in Item 11.


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Equity Compensation Plans Not Approved by Security Holders

On
      October 31, 2000, the Company's Board of Directors approved the grant of
      an option to several employees for an aggregate of 105,000 shares of Common
      Stock at an exercise price of $2.063 per share. Sixty-five thousand (65,000)
      of such options were cancelled in 2003 in connection with the termination
      of the employees to whom such options were granted. On November 1, 2000,
      the Company's Board of Directors approved the grant of an option to Nicholas
      Visco for 60,000 shares of Common Stock at an exercise price of $2.00 per
      share. Each of the above options vest in four equal semiannual installments
      beginning on the first six-month anniversary of the date of grant and expire
      on the tenth anniversary of the date of grant. If the grantee's employment
      relationship terminates on account of disability or death, the grantee
      or grantee's estate, as the case may be, may exercise any outstanding options
      for one year following the termination. If termination is for any other
      reason, the grantee may exercise any outstanding options for 90 days following
      such termination. The options are not assignable or otherwise transferable
      except by will or the laws of descent and distribution and shall be exercisable
      during the grantee's lifetime only by the grantee. The Company's Board
      of Directors is required to make appropriate adjustments in connection
      with such option grants in October and November to reflect stock splits,
      stock dividends and other similar changes in capitalization. The option
      grants also contain provisions addressing the consequences of a merger,
      consolidation or sale of all or substantially all of the Company's assets.
      Upon the occurrence of such events, all outstanding options are to be assumed,
      or substituted for, by the acquiring or succeeding corporation. However,
      if the acquiring or succeeding corporation does not agree to assume, or
      substitute for, outstanding options, then the Board of Directors must accelerate
      the options to make them fully exercisable and notify the grantee that
      the option shall be fully exercisable for a period of 15 days from the
      date of such notice.


Item 13. CertainRelationshipsandRelatedTransactions.

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., a 99.8% owned and wholly-controlled subsidiary of the Company (IGA) and the Owner executed a memorandum of understanding (the MOA)
      relating to a proposed lease whereby the Owner would lease the 5thand 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 5,820,000 rupees (approximately $133,000) and advance lease rentals of 11,640,000 rupees (approximately $266,000) upon the handing over of the amenities and shall pay monthly rent of 1,164,000 rupees (approximately $27,000). Under the terms of the lease for the Premises, IGA paid a deposit of 4,656,000 rupees (approximately $106,000) and advance lease rentals of 9,312,000 rupees (approximately $213,000) upon the handing over of the Premises and shall pay monthly
 rent of 931,000 rupees (approximately $21,000). Prior to entering into this transaction, the Companys
      Board of Directors determined that the terms and conditions were no less
      favorable to the Company than could be obtained from unrelated third parties.


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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 in the amount of 15,282,000 Indian rupees (approximately $352,000); (3) payment of monthly lease fees in the amount of 1,698,000 Indian
rupees (approx. $40,000), subject to yearly five percent (5%) escalation; and (4) monthly operations and maintenance fees of 283,000 Indian rupees (approximately $7,000). Prior to entering into this lease, the Companys
      Board of Directors reviewed the proposed lease and determined that the
      terms and conditions were no less favorable to the Company than could be
      obtained from unrelated third parties.


Item 14. Principal
Accountant Fees and Services.

Independent Registered Public Accounting Firm Fees and Other Matters

Audit and Audit Related Fees.

For
      the years ended December 31, 2004, 2003 and 2002, J.H. Cohn LLP billed
      or expects to bill fees in 2005 (except for $97,445 billed in 2004) as
      indicated below. Those fees were for professional services rendered in
      connection with the audit of the Companys consolidated financial statements for the most recent fiscal year as well as the re-audits of 2003 and 2002 and the reviews of the consolidated financial statements included in each of the Companys
      Quarterly Reports on Form 10-Q or included in this Form 10-K.


|                   |                     |                        |                       | Year-end audits of |         |  |  
|------------------ | ------------------- | ---------------------- | --------------------- | ------------------ | ------- |  | -
|                   |                     | Intelligroup Asia Pvt. | Interim
    Quarterly
|                   | Year-end
    audits | Limited                | Reviews              
|                   |                     |                        |                       |                    |         |  |  
|Audit fees         | $                   | 1,757,000              |                       | $                  | 142,000 |  | $
|                   |                     |                        |                       |                    |         |  |  
|Audit related fees | $                   | 19,000                 | (a)                   |                    |         |  |  
|                   |                     |                        |                       |                    |         |  |  

|   
|---
|(a)

Tax Fees

None

All Other Fees.

None

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Part IV

Item 15. Exhibits
  and Financial Statement Schedules.

|(a) | (1) | Financial
    Statements.                                              
|--- | --- | -----------------------------------------------------------------------
|    |     |                                                                        
|    |     | Reference
    is made to the Index to Financial Statements on Page 102.
|    |     |                                                                        
|    | (2) | Financial
    Statement Schedules.                                     
|    |     |                                                                        
|    |     | None.                                                                  
|    |     |                                                                        
|    | (3) | Exhibits.                                                              
|    |     |                                                                        
|    |     | Reference
    is made to the Exhibit Index on Page 94.                 

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EXHIBIT INDEX

|Exhibit
    No. | Description
    of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2               | Agreement
          and Plan of Merger of the Company and its wholly owned subsidiary Oxford
          Systems Inc. (Incorporated by reference to the Company's Annual Report
    on Form 10-KSB for the year ended December 31, 1996.)                                                                                                                                                                                                                                                                 
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|3.1             | Amended and Restated Certificate of Incorporation. (Incorporated by
          reference to the Company's Registration Statement on Form SB-2 (Registration
    Statement No.333-5981)
    declared effective on September 26, 1996.)                                                                                                                                                                                                                                                                    
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|3.2             | Amended and Restated Bylaws. (Incorporated by reference to the Company's
          Registration Statement on Form SB-2 (Registration Statement No. 333-5981)
    declared effective on September 26, 1996.)                                                                                                                                                                                                                                                                                             
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|4.1             | Shareholder Protection Rights Agreement dated as of November 6, 1998,
          between the Company and American
Stock Transfer & Trust Company which includes (I) the Form of Rights Certificate
and (ii) the Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of Intelligroup, Inc. (Incorporated by reference to Exhibit
No. 4.1 of the Company's Report on Form 8-K dated November 9, 1998, filed with
the Securities and Exchange Commission on November 9, 1998.)
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|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 onForm
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.)                                                                                                                                                                                                                                                           

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

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

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|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.)                                                                                        

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|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 ExchangeCommission
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 Form8-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 Form8-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 Form8-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.)                                  

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|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 Form8-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 onJuly
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 Form8-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 ExchangeCommission
on October 6, 2005.)
|                |  |                                                                                                                                                                                                                                                                                                                                                            
|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                                                                                                                                                                                             
|                |  |                                                                                                                                                                                                                                                                                                                                                            
|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                                                                                                                                                                                             

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

| 
|-
|*
| 
|

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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 21st day of October 2005.


| | INTELLIGROUP,
    INC.
| | ----------------------
| |                       
| | By:                   
| |                       
| |                       

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 |  | October 21, 2005    
|                                |  |                                              |  |                     
|Vikram
        Gulati           |  |                                              |  |                     
|                                |  |                                              |  |                     
|/s/ Madhu
    Poomalil          |  | Chief
        Financial Officer              |  | October 21, 2005    
|                                |  |                                              |  |                     
|Madhu
        Poomalil          |  |                                              |  |                     
|                                |  |                                              |  |                     
|/s/ Ravi
    Adusumalli         |  | Director                                     |  | October 24, 2005    
|                                |  |                                              |  |                     
|Ravi
        Adusumalli         |  |                                              |  |                     
|                                |  |                                              |  |                     
|/s/ Ajit
    Isaac              |  | Director                                     |  | October
    21, 2005
|                                |  |                                              |  |                     
|Ajit
        Isaac              |  |                                              |  |                     
|                                |  |                                              |  |                     
|/s/ Srinivasa
    Raju          |  | Director                                     |  | October 21, 2005    
|                                |  |                                              |  |                     
|Srinivasa
        Raju          |  |                                              |  |                     
|                                |  |                                              |  |                     
|/s/ Sandeep
    Reddy           |  | Director                                     |  | October 24, 2005    
|                                |  |                                              |  |                     
|Sandeep
        Reddy           |  |                                              |  |                     
|                                |  |                                              |  |                     
|/s/ Alexander
    Graham Wilson |  | Director                                     |  | October 21, 2005    
|                                |  |                                              |  |                     
|Alexander
        Graham Wilson |  |                                              |  |                     
|                                |  |                                              |  |                     
|/s/Andrew
    Yan               |  | Director                                     |  | October 24, 2005    
|                                |  |                                              |  |                     
|Andrew
    Yan                  |  |                                              |  |                     
|                                |  |                                              |  |                     

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INTELLIGROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                                             | Page(s) | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------- | 
|Consolidated Financial Statements:                                                                                                                           |         | 
|Reports
    of Independent Registered Public Accounting Firm                                                                                                 | 104     | 
|Consolidated
    Balance Sheets as of December 31, 2004 and 2003 (Restated)                                                                                  | 108     | 
|Consolidated
         Statements of Operations and Comprehensive Income (Loss) for theyears
    ended December 31, 2004, 2003 (Restated) and 2002 (Restated) | 109     | 
|Consolidated
           Statements of Changes in Shareholders Equity for the years ended
    December 31, 2004, 2003 (Restated) and 2002 (Restated)         | 110     | 
|Consolidated
         Statements of Cash Flows for the years ended December
    31, 2004, 2003 (Restated) and 2002 (Restated)                                | 111     | 
|Notes
    to Consolidated Financial Statements                                                                                                               | 112     | 

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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, 2004 and 2003, 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, 2004.
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, 2004 and 2003, and their consolidated results of operations and comprehensive income (loss) and cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.


We were engaged to audit, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, and our report dated October 3, 2005 disclaimed an opinion on both management's assessment of the effectiveness of the Company's internal control over financial reporting and on the effectiveness of the Company's internal control over financial reporting because of the effects of a scope limitation.


As discussed in Note 10, the Company may be exposed to a significant potential tax liability.


As discussed in Notes
1 and 17, the Company has restated its consolidated financial statements for
the
years
ended December 31, 2003 and 2002.




/s/ J.H. Cohn LLP



Roseland, New Jersey 
  October 3, 2005

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and ShareholdersIntelligroup, Inc.

We were engaged to audit
  management's assessment regarding the effectiveness of internal control over
  financial reporting of Intelligroup, Inc. and Subsidiaries (the "Company") as of December 31, 2004, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
  The Company's management is responsible for maintaining effective internal
  control over financial reporting and for its assessment of the effectiveness
  of internal
  control over financial reporting.


Management of the Company was unable to complete their assessment of internal
    control over financial reporting as of December 31, 2004 and due to that
    scope limitation we were unable to perform any procedures required in an
    audit of internal control over financial reporting or an audit of management's
    assessment of the effectiveness of internal control over financial reporting.


A company's internal control over financial reporting is a process designed to
    provide reasonable assurance regarding the reliability of financial reporting
    and the preparation of financial statements for external purposes in accordance
    with accounting principles generally accepted in the United States of America.
    A company's internal control over financial reporting includes those policies
    and procedures that (1) pertain to the maintenance of records that, in reasonable
    detail, accurately and fairly reflect the transactions and dispositions of
    the assets of the company; (2) provide reasonable assurance that transactions
    are recorded as necessary to permit preparation of financial statements in
    accordance with accounting principles generally accepted in the United States
    of America, and receipts and expenditures of the company are being made only
    in accordance with authorizations of management and directors of the company;
    and (3) provide reasonable assurance regarding prevention or timely detection
    of unauthorized acquisition, use or disposition of the company's assets that
    could have a material effect on the financial statements.


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


A material weakness is
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. The following
material weaknesses in internal control have been identified by management and
are discussed in Managements Report on Internal Control Over Financial
Reporting.


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| | • | Accounting
          and Finance Personnel Weaknesses-
          The Company had insufficient resources to perform the accounting and
          financial reporting functions and such resources lacked the appropriate
          level of accounting knowledge, experience and training in the application
          of accounting principles generally accepted in the United States of
          America and were inadequately supervised. The lack of sufficient and
          adequately trained accounting and finance personnel resulted in an
          ineffective segregation of duties relative to key financial reporting
          functions. These in turn caused a lack of senior level review and oversight
          over key accounting decisions and resulted in errors in both the entry
          of financial information and in the preparation of consolidated financial
          statements. Furthermore the Company experienced significant turnover
          in finance and accounting personnel during 2004 and the Company lacked
          adequate transition and knowledge transfer processes which resulted
          in the loss of a significant amount of historical knowledge related
          to the Company's business and its prior accounting practices, processes
    and policies.                                                                     
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | • | Accounting
            Policies and Procedures Weaknesses-
            The Company had inadequate documentation regarding the appropriate
            application of accounting principles generally accepted in the United
            States of America, as well inadequate documentation regarding the
            Company's accounting policies and procedures and the application
    of those policies and procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | • | Weaknesses
            Related to Implementation of ERP System-
            The Company failed to adapt its accounting and business processes
            to conform to the requirements of the Company's new ERP system and
            provided insufficient 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | • | Weaknesses
            Related to Record Retention-
            Inadequate record retention polices and procedures caused a failure
            to obtain, retain and safeguard key documents and narratives necessary
            to provide supporting documentation for how the Company recorded
    transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | • | Closing
            and Consolidation Procedures-
            Management identified deficiencies in the analysis and reconciliation
            of certain general ledger accounts. Specifically, accounting personnel
            did not perform timely reconciliations and did not properly resolve
            reconciling items for the inter-company accounts, foreign currency
            translation adjustment account, unbilled revenues, deferred revenues,
            payroll accounting, vacation accrual and fixed assets. Unreconciled
            differences in the Company's inter-company accounts were improperly
            recorded as changes to the currency translation account, which resulted
            in misstatements of revenue, foreign currency translation adjustments
            and retained earnings. In addition, there were deficiencies in the
            analysis and reconciliation of intercompany accounts in connection
            with the charges reported as a result of the divesture of the Company's
            Asia-Pacific operations, which resulted in misstatements of the charges
            in connection with the loss recorded for the divesture of the Company's
            Asia-Pacific operations. Finally, there were inadequate controls
    over the consolidation process for the Company's international subsidiaries.

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| | • | Inadequate
          Controls Over Income Tax Accounting -The
          Company had ineffective 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.
          As a result, prepaid income taxes, income taxes payable, deferred income
          tax assets and liabilities and retained earnings were not properly
          recorded in accordance with accounting principles generally accepted
    in the United States of America.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | • | Lack
            of an Effective Internal Audit System-
            The Company had an inadequately staffed, inadequately trained and
            inexperienced internal audit department, which was ineffective in
            preventing and detecting control lapses and errors in the accounting
            of certain key areas like revenue recognition, inter-company reconciliations,
            fixed assets, currency translation adjustments, vacation accrual
            and income taxes, which resulted in misstatements in prior periods financial
    statements.               

Since management was unable to complete their assessment of internal control over financial reporting, we are unable to express, and we do not express, an opinion either on management's assessment or on the effectiveness of the Company's internal control over financial reporting.


We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2004, and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders' equity and cash flows for the year then ended and our report dated October 3, 2005 expressed an unqualified opinion on those statements. The fact that management was unable to complete their assessment of internal control over financial reporting was considered in determining the nature, timing and extent of audit tests applied in our audit of the consolidated financial statements, and this report does not affect our report on those financial statements.


/s/ J.H. Cohn LLP

Roseland,
      New Jersey 
  October 3, 2005

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INTELLIGROUP,
      INC.
  CONSOLIDATED BALANCE SHEETS
  DECEMBER 31, 2004 AND 2003

|                                                                                                                                                                                              |   | December
    31,
    2004 |   |   | Restated
     December
    31,
    2003 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------- | - | - | --------------------------------------- | -
|                                                                                                                                                                                              |   |                           |   |  
|ASSETS                                                                                                                                                                                        |   |                           |   |   |                                         |  
|CURRENT ASSETS                                                                                                                                                                                |   |                           |   |   |                                         |  
|Cash and cash equivalents                                                                                                                                                                     | $ | 6,239,000                 |   | $ | 1,872,000                               |  
|Accounts
       receivable, less allowance for doubtful accounts of $1,627,000 and $933,000
    at December 31, 2004 and 2003, respectively                                                   |   | 23,136,000                |   |   | 23,931,000                              |  
|Unbilled services                                                                                                                                                                             |   | 10,482,000                |   |   | 5,614,000                               |  
|Prepaid expenses and other current assets                                                                                                                                                     |   | 3,218,000                 |   |   | 3,965,000                               |  
|                                                                                                                                                                                              |   |                           |   |   |                                         |  
|Total current assets                                                                                                                                                                          |   | 43,075,000                |   |   | 35,382,000                              |  
|Property and equipment, net                                                                                                                                                                   |   | 3,485,000                 |   |   | 4,249,000                               |  
|Deferred tax and other assets                                                                                                                                                                 |   | 1,611,000                 |   |   | 1,807,000                               |  
|                                                                                                                                                                                              |   |                           |   |   |                                         |  
|Total assets                                                                                                                                                                                  | $ | 48,171,000                |   | $ | 41,438,000                              |  
|                                                                                                                                                                                              |   |                           |   |   |                                         |  
|LIABILITIES
    AND SHAREHOLDERS' EQUITY                                                                                                                                                      |   |                           |   |   |                                         |  
|CURRENT LIABILITIES                                                                                                                                                                           |   |                           |   |   |                                         |  
|Line of credit                                                                                                                                                                                | $ | 2,356,000                 |   | $ | 8,288,000                               |  
|Accounts payable                                                                                                                                                                              |   | 3,424,000                 |   |   | 5,222,000                               |  
|Accrued payroll and related taxes                                                                                                                                                             |   | 10,635,000                |   |   | 10,420,000                              |  
|Accrued expenses and other current liabilities                                                                                                                                                |   | 5,074,000                 |   |   | 3,463,000                               |  
|Deferred revenue                                                                                                                                                                              |   | 977,000                   |   |   | 3,002,000                               |  
|Income taxes payable                                                                                                                                                                          |   | 196,000                   |   |   | 312,000                                 |  
|Current
    portion of  obligations under capital lease                                                                                                                                       |   | 422,000                   |   |   | 529,000                                 |  
|                                                                                                                                                                                              |   |                           |   |   |                                         |  
|Total current liabilities                                                                                                                                                                     |   | 23,084,000                |   |   | 31,236,000                              |  
|Obligations under capital lease, net of current portion                                                                                                                                       |   | 45,000                    |   |   | 256,000                                 |  
|Other long-term liabilities                                                                                                                                                                   |   | 395,000                   |   |   | 893,000                                 |  
|                                                                                                                                                                                              |   |                           |   |   |                                         |  
|Total liabilities                                                                                                                                                                             |   | 23,524,000                |   |   | 32,385,000                              |  
|                                                                                                                                                                                              |   |                           |   |   |                                         |  
|Commitments and contingencies                                                                                                                                                                 |   |                           |   |   |                                         |  
|Shareholders' Equity                                                                                                                                                                          |   |                           |   |   |                                         |  
|Preferred
    stock, $.01 par value, 5,000,000 shares authorized, none issued or outstanding                                                                                                  |   | —                         |   |   | —                                       |  
|Common stock, $.01 par
       value, 40,000,000 and 25,000,000 shares authorized, 35,103,000 and 16,987,000
    shares issued and outstanding at 
   December 31, 2004 and 2003, respectively |   | 351,000                   |   |   | 170,000                                 |  
|Additional paid-in capital                                                                                                                                                                    |   | 58,012,000                |   |   | 42,190,000                              |  
|Accumulated deficit                                                                                                                                                                           |   | (33,455,000               | ) |   | (32,589,000                             | )
|Accumulated other comprehensive loss                                                                                                                                                          |   | (261,000                  | ) |   | (718,000                                | )
|                                                                                                                                                                                              |   |                           |   |   |                                         |  
|Total shareholders' equity                                                                                                                                                                    |   | 24,647,000                |   |   | 9,053,000                               |  
|                                                                                                                                                                                              |   |                           |   |   |                                         |  
|Total liabilities and shareholders' equity                                                                                                                                                    | $ | 48,171,000                |   | $ | 41,438,000                              |  
|                                                                                                                                                                                              |   |                           |   |   |                                         |  

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

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INTELLIGROUP, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) 
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

|                                                                            |   |             |   | Restated |            
|--------------------------------------------------------------------------- | - | ----------- | - | -------- | -----------
|                                                                            |   |             |   |          |            
|                                                                            |   | 2004        |   |          | 2003       
|                                                                            |   |             |   |          |            
|Revenue                                                                     | $ | 128,903,000 |   | $        | 117,142,000
|Cost of revenue                                                             |   | 91,818,000  |   |          | 83,387,000 
|                                                                            |   |             |   |          |            
|Gross profit                                                                |   | 37,085,000  |   |          | 33,755,000 
|                                                                            |   |             |   |          |            
|Selling, general and administrative expenses                                |   | 34,741,000  |   |          | 29,036,000 
|Depreciation and amortization                                               |   | 2,475,000   |   |          | 2,661,000  
|Proxy contest charges                                                       |   | —           |   |          | 711,000    
|                                                                            |   |             |   |          |            
|Total operating expenses                                                    |   | 37,216,000  |   |          | 32,408,000 
|                                                                            |   |             |   |          |            
|Operating income (loss)                                                     |   | (131,000    | ) |          | 1,347,000  
|Interest income                                                             |   | 36,000      |   |          | 83,000     
|Interest expense                                                            |   | (472,000    | ) |          | (453,000   
|Other income (expense)                                                      |   | 59,000      |   |          | (907,000   
|                                                                            |   |             |   |          |            
|Income (loss) from
    continuing operations before income tax provision    |   | (508,000    | ) |          | 70,000     
|Provision for (benefit of) income taxes                                     |   | 358,000     |   |          | 186,000    
|                                                                            |   |             |   |          |            
|Loss from continuing operations                                             |   | (866,000    | ) |          | (116,000   
|Loss from discontinued operations                                           |   | —           |   |          | (925,000   
|                                                                            |   |             |   |          |            
|Net loss                                                                    | $ | (866,000    | ) | $        | (1,041,000 
|                                                                            |   |             |   |          |            
|Loss per share:                                                             |   |             |   |          |            
|Basic and diluted loss per share                                            |   |             |   |          |            
|Loss from continuing operations                                             | $ | (0.04       | ) | $        | —          
|Loss from discontinued operations                                           |   | —           |   |          | (0.06      
|                                                                            |   |             |   |          |            
|Net loss per share                                                          | $ | (0.04       | ) | $        | (0.07      
|                                                                            |   |             |   |          |            
|Weighted
    average number of common sharesoutstanding - basic and diluted |   | 22,790,000  |   |          | 16,697,000 
|                                                                            |   |             |   |          |            
|Comprehensive income (loss)                                                 |   |             |   |          |            
|Net loss                                                                    | $ | (866,000    | ) | $        | (1,041,000 
|Other comprehensive income (loss)                                           |   |             |   |          |            
|Currency translation adjustments                                            |   | 457,000     |   |          | 471,000    
|                                                                            |   |             |   |          |            
|Comprehensive loss                                                          | $ | (409,000    | ) | $        | (570,000   
|                                                                            |   |             |   |          |            

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

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INTELLIGROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

|                                                     |                      |            |             |               |               |                       |        |            | Accumulated |   |             |  
|---------------------------------------------------- | -------------------- | ---------- | ----------- | ------------- | ------------- | --------------------- | ------ | ---------- | ----------- | - | ----------- | -
|                                                     |                      |            | Additional  |               | Other         | Total                 |       
|                                                     | Common
        Stock | Paid-in    | Accumulated | Comprehensive | Shareholders' |                      
|                                                     | Shares               |            | Amount      | Capital       | Deficit       | Income
        (Loss) | Equity |           
|                                                     |                      |            |             |               |               |                       |        |            |             |   |             |  
|Balance,
    January 1, 2002, as previously reported |                      | 16,630,000 |             | $             | 166,000       |                       | $      | 41,366,000 |             | $ | (10,685,000 | )
|Prior period
        adjustments                     |                      | —          |             |               | —             |                       |        | —          |             |   | (19,477,000 | )
|                                                     |                      |            |             |               |               |                       |        |            |             |   |             |  
|Balance,
        January 1, 2002, as restated        |                      | 16,630,000 |             |               | 166,000       |                       |        | 41,366,000 |             |   | (30,162,000 | )
|Currency
        translation adjustment, as restated |                      | —          |             |               | —             |                       |        | —          |             |   | —           |  
|Net loss,
        as restated                        |                      | —          |             |               | —             |                       |        | —          |             |   | (1,386,000  | )
|                                                     |                      |            |             |               |               |                       |        |            |             |   |             |  
|Balance,
        December 31, 2002, as restated      |                      | 16,630,000 |             |               | 166,000       |                       |        | 41,366,000 |             |   | (31,548,000 | )
|Exercise
        of stock options                    |                      | 357,000    |             |               | 4,000         |                       |        | 824,000    |             |   | —           |  
|Currency
        translation adjustment, as restated |                      | —          |             |               | —             |                       |        | —          |             |   | —           |  
|Net loss,
        as restated                        |                      | —          |             |               | —             |                       |        | —          |             |   | (1,041,000  | )
|                                                     |                      |            |             |               |               |                       |        |            |             |   |             |  
|Balance,
        December 31, 2003, as restated      |                      | 16,987,000 |             |               | 170,000       |                       |        | 42,190,000 |             |   | (32,589,000 | )
|Exercise
        of stock options                    |                      | 469,000    |             |               | 5,000         |                       |        | 1,323,000  |             |   | —           |  
|Issuance
    of common stock in a private placement  |                      | 17,647,000 |             |               | 176,000       |                       |        | 14,499,000 |             |   | —           |  
|Currency
        translation adjustment              |                      | —          |             |               | —             |                       |        | —          |             |   | —           |  
|Net loss                                             |                      | —          |             |               | —             |                       |        | —          |             |   | (866,000    | )
|                                                     |                      |            |             |               |               |                       |        |            |             |   |             |  
|Balance,
        December 31, 2004                   |                      | 35,103,000 |             | $             | 351,000       |                       | $      | 58,012,000 |             | $ | (33,455,000 | )
|                                                     |                      |            |             |               |               |                       |        |            |             |   |             |  

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

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INTELLIGROUP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002



|                                                                                     |   |              |   |   | Restated     |  
|------------------------------------------------------------------------------------ | - | ------------ | - | - | ------------ | -
|                                                                                     |   |              |   |   |              |  
|                                                                                     |   | December 31, |   |   | December 31, |  
|                                                                                     |   | 2004         |   |   | 2003         |  
|                                                                                     |   |              |   |   |              |  
|Cash flows from operating activities:                                                |   |              |   |   |              |  
|Net loss                                                                             | $ | (866,000     | ) | $ | (1,041,000   | )
|Less: Loss from discontinued operations                                              |   | —            |   |   | (925,000     | )
|                                                                                     |   |              |   |   |              |  
|Loss from continuing operations                                                      |   | (866,000     | ) |   | (116,000     | )
|Adjustments to reconcile net loss to net                                             |   |              |   |   |              |  
|cash used in operating activities                                                    |   |              |   |   |              |  
|Depreciation and amortization                                                        |   | 2,901,000    |   |   | 3,449,000    |  
|Provision for doubtful accounts                                                      |   | 868,000      |   |   | 91,000       |  
|Exchange (gain) loss                                                                 |   | 115,000      |   |   | 873,000      |  
|Deferred income taxes                                                                |   | (196,000     | ) |   | (198,000     | )
|Changes in operating assets and liabilities                                          |   |              |   |   |              |  
|Accounts receivable                                                                  |   | 159,000      |   |   | (5,951,000   | )
|Unbilled services                                                                    |   | (4,813,000   | ) |   | 1,195,000    |  
|Prepaid expenses and other current assets                                            |   | 840,000      |   |   | (727,000     | )
|Other assets                                                                         |   | 452,000      |   |   | (450,000     | )
|Accounts payable                                                                     |   | (1,815,000   | ) |   | (63,000      | )
|Accrued payroll and related taxes                                                    |   | 61,000       |   |   | 3,010,000    |  
|Accrued expenses and other current liabilities                                       |   | 1,518,000    |   |   | (1,503,000   | )
|Accrued restructuring charges                                                        |   | —            |   |   | (96,000      | )
|Deferred revenue                                                                     |   | (2,024,000   | ) |   | 795,000      |  
|Income taxes payable                                                                 |   | (155,000     | ) |   | (93,000      | )
|Other liabilities                                                                    |   | (498,000     | ) |   | (635,000     | )
|                                                                                     |   |              |   |   |              |  
|Net
    cash used in operating activities of continuing operations                   |   | (3,453,000   | ) |   | (419,000     | )
|                                                                                     |   |              |   |   |              |  
|Cash flows from investing activities:                                                |   |              |   |   |              |  
|Purchase of property and equipment                                                   |   | (2,076,000   | ) |   | (1,376,000   | )
|                                                                                     |   |              |   |   |              |  
|Net cash used in investing activities                                                |   | (2,076,000   | ) |   | (1,376,000   | )
|                                                                                     |   |              |   |   |              |  
|Cash flows from financing activities:                                                |   |              |   |   |              |  
|Principal payments under capital leases                                              |   | (322,000     | ) |   | (300,000     | )
|Net proceeds from private placement                                                  |   | 14,675,000   |   |   | —            |  
|Proceeds from exercise of stock options                                              |   | 1,328,000    |   |   | 827,000      |  
|Net change in line of credit borrowings                                              |   | (5,933,000   | ) |   | 2,229,000    |  
|                                                                                     |   |              |   |   |              |  
|Net cash provided by financing activities                                            |   | 9,748,000    |   |   | 2,756,000    |  
|                                                                                     |   |              |   |   |              |  
|Effect of foreign currency exchange rate changes on cash                             |   | 148,000      |   |   | 96,000       |  
|                                                                                     |   |              |   |   |              |  
|Net cash provided by continuing operations                                           |   | 4,367,000    |   |   | 1,057,000    |  
|Net cash used in discontinued operations                                             |   | —            |   |   | (348,000     | )
|                                                                                     |   |              |   |   |              |  
|Net increase (decrease) in cash and cash equivalents                                 |   | 4,367,000    |   |   | 709,000      |  
|Cash and
    cash equivalents - beginning of year                                    |   | 1,872,000    |   |   | 1,163,000    |  
|                                                                                     |   |              |   |   |              |  
|Cash and
    cash equivalents - end of year                                          | $ | 6,239,000    |   | $ | 1,872,000    |  
|                                                                                     |   |              |   |   |              |  
|Supplemental
    disclosures of cash flow information Cash
    paid for income taxes | $ | 144,000      |   | $ | 356,000      |  
|                                                                                     |   |              |   |   |              |  
|Cash paid for interest                                                               | $ | 472,000      |   | $ | 441,000      |  
|                                                                                     |   |              |   |   |              |  
|Supplemental disclosures of noncash investing and financing activities               |   |              |   |   |              |  
|Property and equipment acquired by capital lease                                     | $ | —            |   | $ | (461,000     | )
|                                                                                     |   |              |   |   |              |  

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

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INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

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.


Restatement of Prior Period Consolidated Financial Statements

The historical financial information in this document has been restated. In September 2004, the Company discovered unreconciled differences in intercompany accounts and certain other accounting errors in prior periods which resulted in adjustments to revenues, the cumulative currency translation adjustment account and accumulated deficit.  As a result, the Company's Audit Committee concluded that the Company's previously issued consolidated financial statements for the years ended December 31, 2003, 2002 and 2001, as well as all quarterly periods beginning January 1, 2001 through the quarter ended March 31, 2004, should no longer be relied upon.


Due to the volume of transactions underlying the proposed adjustments and the Companys
      engagement of a new independent registered public accounting firm as of
      November 1, 2004, the Company decided, in consultation with its new independent
      registered public accounting firm, to re-audit its consolidated financial
      statements for the years ended December 31, 2003 and 2002 and to re-review
      the quarterly periods included therein and the quarterly period ended March
      31, 2004.


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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 1- ORGANIZATION
AND BASIS OF PRESENTATION (CONTINUED)

Restatement of Prior Period Consolidated Financial Statements (Continued)

As
      a result of the adjustments identified during the restatement and re-audit
      process, the Companys accumulated deficit as of March 31, 2004 increased
      $6.9 million from $25.3 million to $32.2 million. The adjusting entries
      identified during the restatement and re-audit process were extensive and
      affected virtually every line item of the Companys financial statements
      as of each date and for each period presented. The following table presents
      a summary of the effects of the adjustments identified during the restatement
      and re-audit process on the applicable line items and the impact on the
      Companys net income or loss for the periods subject to the restatement
      and re-audit process:


|                                                  | Increase (Decrease)
         from Previously Reported Amounts for the |          
|------------------------------------------------- | --------------------------------------------------------------------- | ---------
|                                                  |                                                                      
|                                                  |                                                                       |          
|                                                  | CUMULATIVE                                                            | Ended    
|                                                  | TOTAL                                                                 | March 31,
|                                                  |                                                                       |          
|                                                  | Through Quarter                                                       |          
|                                                  | ended March 31,                                                       |          
|                                                  | 2004                                                                  | 2004     
|                                                  |                                                                       |          
|                                                  | (In thousands, except per share amounts)                              |          
|                                                  |                                                                       |          
|Statement of Operations Data:                     | (unaudited                                                            | )        
|Revenue                                           | $                                                                     | (3,430   
|Cost of revenue                                   |                                                                       | 1,803    
|Selling,
    general & administrative             |                                                                       | 850      
|SeraNova charges                                  |                                                                       | (362     
|Operating income (loss)                           |                                                                       | (5,721   
|Income
    (loss) before incometaxes
    and      |                                                                       |          
|discontinuedoperations                            |                                                                       | (6,428   
|Income tax provision (benefit)                    |                                                                       | 761      
|Income
    (loss) fromdiscontinued
    operations |                                                                       | 252      
|Net income (loss)                                 | $                                                                     | (6,938   
|Income per
    common                             |                                                                       |          
|share  basic and diluted                         |                                                                       |          
|                                                  |                                                                       |          
|Balance Sheet Data:                               |                                                                       |          
|Total assets                                      |                                                                       |          
|Total liabilities                                 |                                                                       |          
|                                                  |                                                                       |          
|Accumulated deficit                               |                                                                       |          
|                                                  |                                                                       |          

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE
1- ORGANIZATION AND BASIS OF PRESENTATION(CONTINUED)

Restatement
        of Prior Period Consolidated Financial Statements (Continued)

The
        following is a description of the significant adjustments to previously
        reported financial statements resulting from the restatement and re-audit
        process. While this description does not purport to explain each correcting
        entry, the Company believes that it fairly describes the significant
        factors underlying the adjustments and the overall impact of the restatement
        and re-audit in all material respects.


Adjustments to Revenue

Significant errors affecting revenue are as follows.

|• | Adjustments
              in percentage-of-completion for fixed-price contracts–Through
              the restatement and re-audit process, the Company reviewed
              the accounting estimates used in its percentage of completion calculations,
              which determine the basis for revenue accruals for fixed price
              contracts. These estimates pertain to the number of man-hours
              required to perform services under the contract. During the course
              of the restatement, these estimates were replaced with the actual
              number of manhours required to complete the services resulting
              in significant adjustments to the revenue accruals throughout the
      periods subject to the restatement.                                                                                                                                                                                                                                                                                    
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|• | Errors
              in revenue recognition under multiple-element contracts –Contracts
              with multiple elements (i.e.,sales
              of services, sales of software and sale of hardware) require different
              methods of revenue recognition for each element. Throughout each
              of the periods subject to restatement, the Company applied inconsistent
              methods for determining revenue recognition for the individual
              elements of its multiple element contracts and in some cases failed
              to properly identify certain of its contracts as multiple element
              contracts and therefore did not apply the appropriate method for
              determining revenue recognition for such contracts. As part of
              the restatement, the Company applied the appropriate revenue recognition
              methods to each element of all multiple-element contracts,
              resulting in adjustments to revenue in each period covered by the
      restatement.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|• | Errors
              related to unrecorded time entries–Revenue
              accruals for time and materials contracts are based on the time
              entries by the Companys consultants. In situations where
              the employee time-sheets were not received prior to quarter
              end, the Company followed a practice of accruing revenue based
              upon the expected number of hours worked, which led to timing differences
              in situations where the timesheets were received in the subsequent
              quarters, and over accruals in situations where the timesheets
              were never received. As part of the restatement, the Company recorded
              revenue in each period based on timesheets in the Companys
      records with respect to each period.                                                                                                                                                                                                                                     

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INTELLIGROUP,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004,
2003 AND 2002

NOTE 1-ORGANIZATION
AND BASIS OF PRESENTATION(CONTINUED)

Restatement
of Prior Period Consolidated Financial Statements (Continued)

|•                                                                                            | Inter-company transaction errors -Throughout each of the periods
      subject to restatement, the Company failed to reconcile discrepancies in
      its inter-company accounts caused by timing differences between companies
      in recording transactions as well as failures by one party to a transaction
      to record the transaction at all. This led to errors in various income
      statement items, including revenue, as well as imbalances in the inter-company
      account as of each balance sheet date, which the Company erroneously reconciled
      using an entry in its currency translation adjustment account, which is
      grouped under accumulated other comprehensive loss in the balance sheet.
      Through the restatement and re-audit process the Company analyzed the transactions
      by and between the Company and its subsidiaries and reconciled the balances
      in its inter-company accounts for each period being restated. This reconciliation
      resulted in adjustments to various line items in the consolidated income
    statements through March 31, 2004, including revenue.
|-------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Adjustments to Cost of Revenue                                                              
|                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Significant errors affecting cost of revenue
    are as follows.                            
|                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|•                                                                                            | Vacation
          Accrual- The primary reason for the adjustments to cost of revenue
          in the restated financial statements related to errors in calculating
          vacation accruals. Throughout each of the periods subject to restatement,
          the Company used an estimated number of days when calculating its liability
          for accrued vacation. As a result, the Company under-charged its vacation
          accruals. As part of the restatement and re-audit process, the Company
          recalculated its liability for accrued vacation in accordance with
          Financial Accounting Standard No. 43: "Accounting for Compensated Absences" ("FAS
          43"), which requires the use of actual accrued vacation days as of
          each balance sheet date. As a result, the Companys net loss increased
          for each of the periods subject to restatement and there was a cumulative
    increase in the accumulated deficit as of March 31, 2004.                                                                                                                                     
|                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|•                                                                                            | Inter-company
          transaction errors- The reconciliation of inter-company account
          balances discussed above under Adjustments to Revenue-Inter-company
    transaction errors resulted in adjustments to the cost of revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Adjustments
    to Selling, General and Administrative Expense                              
|                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Significant
    errors affecting selling, general and administrative expense are as follows.
|                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|•                                                                                            | Depreciation
          errors resulting from inter-company asset transfer- Prior to 1999
          the Company transferred certain fixed assets, mainly computer systems,
          to its India subsidiary on a no cost basis; however, the
          Company did not record the appropriate amortization charges at the
          time of transfer. Although this error did not affect selling, general
          and administrative expense for periods subsequent to 1999, the correction
          of this error resulted in a cumulative increase in the accumulated
          deficit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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INTELLIGROUP, INC.
  NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  DECEMBER 31, 2004, 2003
AND 2002

NOTE 1-   ORGANIZATION
AND BASIS OF PRESENTATION(CONTINUED)

Restatement
of Prior Period Consolidated Financial Statements (Continued)

|•                                                                                 | Inter-company
          transaction errors- The reconciliation of inter-company account
          balances discussed above under Adjustments to Revenue-Inter-company
          transaction errors resulted in adjustments to selling, general
    and administrative expense through March 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Adjustments
    to SeraNova Charges                                              
|                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Significant
    adjustments and errors affecting SeraNova charges are as follows.
|                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|•                                                                                 | Write-off
          of Receivables- In connection with the restatement and re-audit
          process, the Company reevaluated the charges taken in relation to SeraNova
          in previously reported financial statements in light of changes in
          circumstances since the original reporting dates. In connection with
          the Companys July 2000 spin-off of SeraNova, Inc. (SeraNova)
          the Company retained a $15.1 million unsecured promissory note dated
          May 31, 2000 between the Company and SeraNova (the Note).
          Beginning in 2001, SeraNova failed to repay the amounts owed under
          the Note and also 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. In
          2002 and 2003, the Company recorded charges of $8.4 million and $5.5
          million, respectively, related to the impairment of the note receivable,
          the receivables related to the lease and costs incurred in connection
          with the Companys guarantee of a bank loan on which SeraNova
          defaulted, as well as the legal fees and other costs incurred in the
          attempts to recover payment from SeraNova for the balance of the note
          receivable and its past and future lease obligations. In connection
          with the restatement and re-audit process, the Company reversed $8.0
          million and $5.1 million of the charges recorded in 2002 and 2003,
          respectively, and moved such charges to 2000, the period in which SeraNova
          was spun off. The Company left the portion of such charges related
          to the legal fees and other costs incurred in trying to recover payment
    from SeraNova in the respective periods in which such costs were incurred.
|                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|•                                                                                 | Inter-company
          transaction errors- The reconciliation of inter-company account
          balances discussed above under Adjustments to Revenue-Inter-company
          transaction errors resulted in an additional write-off on account
          of cash paid to SeraNova but erroneously charged to one of the Companys
    subsidiaries in the year 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 1-   ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

Restatement of
Prior Periods Consolidated Financial Statements (Continued)

Tax Adjustments

Throughout each of the periods subject to restatement, the Company has restated
            its tax assets and liabilities for the periods January 1, 2001 through
            March 31, 2004, which has resulted in recording an additional net provision
            for income taxes. During the course of the restatement and re-audit process,
            the Company reassessed and corrected the valuation allowance for its U.S.
            deferred tax assets, tax provisions pertaining to its India subsidiary
            for the years 2002 and prior and accrual for taxes in its Japan subsidiary
            for the years 2001 and prior and thereby increasing the provision for income
            taxes. These increases were partially offset by tax benefits which were
            not recorded in the periods subject to restatement. The changes in the
            net operating income (loss) on account of the adjustments set forth in
            the above paragraphs also impacted the provision for income taxes throughout
            each of the periods subject to restatement.


The effects of the restatements and re-audit adjustments on net income (loss),
    accumulated deficit and earnings (loss) per share for all of the respective
    periods are as follows:


|• | As of and for
          the unaudited three months ended March 31, 2002, net income increased
          $373,000, from $11,000 to $384,000; accumulated deficit increased $19,104,000
          from $10,674,000 to $29,778,000; and basic and diluted earnings (loss)
    per share increased $.02 from $.00 to $.02;                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|• | As of and
            for the unaudited six and three months ended June 30, 2002, net income
            (loss) increased $9,846,000, from $(8,550,000) to $1,296,000 for
            the six months ended June 30, 2002, and net income (loss) increased
            $9,473,000, from $(8,561,000) to $912,000 for the unaudited three
            months ended June 30, 2002; accumulated deficit increased $9,631,000
            from $19,235,000 to $28,866,000; and basic and diluted earnings (loss)
            per share increased $.59 from $(.51) to $.08 for the unaudited six
            months ended June 30, 2002, and basic and diluted earnings (loss)
            per share increased $.56 from $(.51) to $.05 for the unaudited three
            months ended June 30, 2002.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|• | As of and for
          the unaudited nine and three months ended September 30, 2002, net loss
          decreased $8,067,000, from $(8,537,000) to $(470,000) for the unaudited
          nine months ended September 30, 2002, and net income (loss) decreased
          $1,779,000, from $13,000 to $(1,766,000) for the unaudited three months
          ended September 30, 2002; accumulated deficit increased $11,408,000
          from $19,222,000 to $30,630,000; and basic and diluted earnings (loss)
          per share increased $.48 from $(.51) to $(.03) for the unaudited nine
          months ended September 30, 2002, and basic and diluted loss per share
          increased $.11 from $.00 to $(.11) for the unaudited three months ended
    September 30, 2002;      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|• | As of and for
          the year ended December 31, 2002, net loss decreased $7,097,000, from
          $(8,483,000) to $(1,386,000); accumulated deficit increased $12,381,000
          from $19,168,000 to $31,549,000; and basic and diluted loss per share
    decreased $.43 from $(.51) to $(.08);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|• | As of and for
          the unaudited three months ended March 31, 2003, net loss decreased
          $6,271,000, from $(7,351,000) to $(1,080,000); accumulated deficit
          increased $6,110,000 from $26,519,000 to $32,629,000; and basic and
    diluted loss per share decreased $.37 from $(.44) to $(.07);                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 1-   ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

Restatement of
Prior Periods Consolidated Financial Statements (Continued)

|• | As of and for
          the unaudited six and three months ended June 30, 2003, net loss decreased
          $5,721,000, from $(7,844,000) to $(2,123,000) for the unaudited six
          months ended June 30, 2003, and net loss increased $550,000, from $(493,000)
          to $(1,043,000) for the unaudited three months ended June 30, 2003;
          accumulated deficit increased $6,660,000 from $27,012,000 to $33,672,000;
          and basic and diluted loss per share decreased $.34 from $(.47) to
          $(.13) for the unaudited six months ended June 30, 2003, and basic
          and diluted loss per share increased $.03 from $(.03) to $(.06) for
    the unaudited three months ended June 30, 2003;                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|• | As
          of and for the unaudited nine and three months ended September 30,
          2003, net loss decreased $6,832,000, from $(7,826,000) to $(994,000)
          for the unaudited nine months ended September 30, 2003, and net income
          increased $1,111,000, from $17,000 to $1,128,000 for the unaudited
          three months ended September 30, 2003; accumulated deficit increased
          $5,549,000 from $26,994,000 to $32,543,000; and basic and diluted loss
          per share decreased $.41 from $(.47) to $(.06) for unaudited nine months
          ended September 30, 2003, and basic earnings per share increased $.07
          from $.00 to $.07 for the unaudited three months ended September 30,
          2003; and diluted earnings per share increased $.06 from $.00 to $.06
    for the unaudited three months ended September 30, 2003;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|• | As
          of and for the year ended December 31, 2003, net loss decreased $5,344,000,
          from $(6,385,000) to $(1,041,000); accumulated deficit increased $7,036,000
          from $25,553,000 to $32,589,000; and basic and diluted loss per share
    decreased $.32 from $(.38) to $(.06); and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|• | As
          of and for the unaudited three months ended March 31, 2004, net income
          increased $99,000, from $279,000 to $378,000; accumulated deficit increased
          $6,938,000 from $25,274,000 to $32,212,000; and basic earnings per
          share did not change for the unaudited three months ended March 31,
          2004; and diluted earnings per share increased $.01 from $.01 to $.02
    for the unaudited three months ended March 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                              

See Note 17 for detailed restated consolidated balance sheets, statements of
    operations and comprehensive income (loss) and cash flows for the respective
    restated periods.


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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

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.


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 $3,200,000 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:


|               |                       |           |                |                    |   |          |   |   |         |  |   |            |  
|-------------- | --------------------- | --------- | -------------- | ------------------ | - | -------- | - | - | ------- |  | - | ---------- | -
|Charged
    to
|Year Ended     | Balance at            | costs and | Write-offs and | Balance
    at end
|December 31,   | beginning
    of year | expenses  | other          | of year           
|               |                       |           |                |                    |   |          |   |   |         |  |   |            |  
|2002           |                       | $         | (1,434,000     | )                  | $ | (569,000 | ) | $ | 495,000 |  | $ | (1,508,000 | )
|2003           |                       |           | (1,508,000     | )                  |   | (91,000  | ) |   | 666,000 |  |   | (933,000   | )
|2004           |                       |           | (933,000       | )                  |   | (868,000 | ) |   | 174,000 |  |   | (1,627,000 | )

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INTELLIGROUP, INC.
  NOTES TO CONSOLIDATED
    FINANCIAL STATEMENTS (CONTINUED)
  DECEMBER 31, 2004, 2003 AND 2002

NOTE 2-        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment


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


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
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 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.


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INTELLIGROUP, INC.
  NOTES TO CONSOLIDATED
    FINANCIAL STATEMENTS (CONTINUED)
  DECEMBER 31, 2004, 2003 AND 2002

NOTE 2-        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition(Continued)


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.


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


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


Unbilled services represent services provided which are billed subsequent to the period end in accordance with the contract terms. All 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.


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INTELLIGROUP, INC.
  NOTES TO CONSOLIDATED
    FINANCIAL STATEMENTS (CONTINUED)
  DECEMBER 31, 2004, 2003 AND 2002

NOTE 2-        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-Based Compensation(Continued)


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:




|                                                                                                                                                                                  | Year
    Ended |                       
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ----------------------
|                                                                                                                                                                                  |               
|December
    31,                                                                                                                                                                  |                | December
          31,
|2004                                                                                                                                                                              | 2003           | 2002                  
|                                                                                                                                                                                  |                | (Restated)            
|                                                                                                                                                                                  |                |                       
|Net loss,
        as reported                                                                                                                                                     | $              | (866,000              
|Less: Total
        stock-based employee compensation
        expense determined under
        fair value-based
        method for all awards,
        net of related tax effects |                | 866,000               
|                                                                                                                                                                                  |                |                       
|Pro forma
        net loss                                                                                                                                                        | $              | (1,732,000            
|                                                                                                                                                                                  |                |                       
|Basic and
        diluted loss per share:                                                                                                                                         |                |                       
|As
        reported                                                                                                                                                               | $              | (0.04                 
|                                                                                                                                                                                  |                |                       
|Pro
        forma                                                                                                                                                                 | $              | (0.09                 
|                                                                                                                                                                                  |                |                       

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, 2004, 2003 and 2002, the Company recorded approximately $59,000, $(907,000) and $368,000 in transaction gains (losses) as a result of currency translation, primarily as a result of currency fluctuations in India, Japan and the United Kingdom.


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.


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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 2-        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Concentrations


For the years ended December
31, 2004, 2003 and 2002, approximately 68%, 68% and 67% 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.


The Companys current
contract expired on December 31, 2004 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, 2004, 2003 and 2002, the Company's ten largest customers accounted for in the aggregate approximately 45%, 46% and 43% of its revenue, respectively. During 2002, one customer accounted for 10% of revenue. During 2004 and 2003, no single customer accounted for 10% or more of revenue.


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, 2004, 2003 and 2002, 22%, 25%
and 27%, 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, 2004, 2003 and 2002, approximately 25%, 25% and 23% 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, 2004, 2003 and 2002, approximately 2%, 4% and 8% of revenue, respectively,
was derived from projects in which the Companys personnel implemented,
extended, maintained, managed or supported software developed by Oracle.


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.


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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 2-        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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. The
Company does not provide for additional U.S. income taxes on undistributed earnings
considered to be permanently invested in foreign subsidiaries. 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 in addition to net income
(loss) from operations.


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


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 common stock equivalents, such as stock issuable pursuant
to the exercise of stock options and warrants. Common stock equivalents 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.


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INTELLIGROUP,
INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND
2002

NOTE
        2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Earnings (Loss) Per Share of Common Stock(Continued)


The following is a reconciliation of the computation for basic and diluted EPS:


|                                                                     |              |            |              | (Restated) |              | (Restated) |  
|-------------------------------------------------------------------- | ------------ | ---------- | ------------ | ---------- | ------------ | ---------- | -
|                                                                     | Year Ended   |            | Year Ended   |            | Year Ended   |           
|                                                                     | December 31, |            | December 31, |            | December 31, |           
|                                                                     | 2004         |            | 2003         |            | 2002         |           
|                                                                     |              |            |              |            |              |            |  
|Loss from continuing operations                                      | $            | (866,000   | )            | $          | (116,000     | )          | $
|Loss from discontinued operations                                    |              | —          |              |            | (925,000     | )          |  
|                                                                     |              |            |              |            |              |            |  
|Net loss                                                             | $            | (866,000   | )            | $          | (1,041,000   | )          | $
|                                                                     |              |            |              |            |              |            |  
|Weighted
    average common shares outstanding - basic and diluted : |              | 22,790,000 |              |            | 16,697,000   |            |  
|                                                                     |              |            |              |            |              |            |  
|Continuing operations - loss per share                               | $            | (0.04      | )            | $          | —            |            | $
|Discontinued
    operations - loss per share                         |              | —          |              |            | (0.06        | )          |  
|                                                                     |              |            |              |            |              |            |  
|Basic and diluted net loss per share                                 | $            | (0.04      | )            | $          | (0.07        | )          | $
|                                                                     |              |            |              |            |              |            |  

Options to purchase 2,368,000, 1,987,000 and 2,116,000 shares of Common Stock at December 31, 2004, 2003 and 2002, respectively, were not included in the computation of diluted EPS because inclusion would have been anti-dilutive.


Recent Issued Accounting Standards

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


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INTELLIGROUP,
INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 2-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Issued Accounting Standards(Continued)

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 this revised standard, which
 may materially impact the Companys
      consolidated results of operations in the first quarter of fiscal year
2006 and thereafter.


On
        December 16, 2004, 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 this standard 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 financial statements.


Reclassifications

Certain amounts for the years ended December 31, 2003 and 2002 have been reclassified to conform to the presentation of the December 31, 2004 amounts.


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INTELLIGROUP,
INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 3-  PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of December 31, 2004 and 2003:

|                                                 | Estimated Useful |  |      |              |      | Restated |             
|------------------------------------------------ | ---------------- |  | ---- | ------------ | ---- | -------- | ------------
|                                                 | Lives (Years)    |  | 2004 |              | 2003 |         
|                                                 |                  |  |      |              |      |          |             
|Vehicles                                         | 5                |  | $    | 340,000      |      | $        | 254,000     
|Furniture                                        | 5                |  |      | 2,927,000    |      |          | 3,458,000   
|Equipment                                        | 3-5              |  |      | 6,343,000    |      |          | 11,508,000  
|Computer software                                | 3                |  |      | 6,320,000    |      |          | 5,164,000   
|Leasehold improvements                           | 5-10             |  |      | 1,146,000    |      |          | 1,115,000   
|                                                 |                  |  |      |              |      |          |             
|                                                 |                  |  |      | 17,076,000   |      |          | 21,499,000  
|Less: Accumulated depreciation and amoritization |                  |  |      | (13,591,000) |      |          | (17,250,000)
|                                                 |                  |  |      |              |      |          |             
|Total, net                                       |                  |  | $    | 3,485,000    |      | $        | 4,249,000   
|                                                 |                  |  |      |              |      |          |             

Depreciation expense includes amortization of assets held under capital lease and was $2,901,000, $3,449,000 and $3,567,000 (including $426,000, $788,000 and $831,000 within cost of revenue) for the years ended December 31, 2004, 2003 and 2002, respectively. Included in property and equipment is $1,001,000 and $469,000 of assets held under capital lease at December 31, 2004 and 2003, respectively. Accumulated amortization of the assets held under capital lease is $445,000 and $161,000 at December 31, 2004 and 2003, respectively.


NOTE 4-  LEASE OBLIGATIONS AND SETTLEMENTS

On
      May 31, 2000, SeraNova and the Company formalized a $15,100,000 unsecured
      promissory
      note (the Note) relating to net borrowings by SeraNova from the Company through such date. The Note bears interest at the prime rate plus .50%. SeraNova failed to make final payment of all amounts due under the Note to the Company as of July 31, 2001. On August 16, 2001, the Company filed a complaint against SeraNova and Silverline Technologies Limited and Silverline Technologies, Inc., which acquired SeraNova in March 2001. As of such date, SeraNova was obligated to pay to the Company the remaining principal (approximately $9,140,000) and accrued interest (approximately $940,000), or an aggregate of $10,080,000. On September 25, 2001, SeraNova and Silverline Technologies Limited and Silverline Technologies, Inc. filed a joint Answer to the Companys complaint. In addition, SeraNova filed a counterclaim against the Company for compensatory damages in excess of $5,500,000 and punitive damages in the amount of $10,000,000. After completion of the discovery
 process, the Company moved for
summary judgment. On April 17, 2003, the Court granted partial summary judgment. On July 11, 2003, the Court dismissed the defendants counterclaims seeking compensatory and punitive damages. On August 8, 2003, SeraNova and Silverline Technologies, Inc. filed for Chapter 7 Bankruptcy, thereby staying this action as to these defendants. There has been no notice that Silverline Technologies Limited is insolvent. Shortly thereafter, counsel for defendants asked the Court and was granted permission to be relieved as counsel. On September 22, 2003, the Company moved for entry of default against Silverline Technologies Limited. On May 24, 2004, the Superior Court entered final judgment against Silverline Technologies Limited in the amount of $11,472,000 (Judgment).
      The Company currently believes that collecting such Judgment from Silverline
      Technologies Limited is not probable.


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INTELLIGROUP,
INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 4-  LEASE OBLIGATIONS AND SETTLEMENTS(CONTINUED)

SeraNova
        failed to pay certain outstanding lease obligations incurred under the
        terms of the Space Sharing
    Agreement dated January 1, 2000 between the Company and SeraNova to the Companys landlords. Accordingly on March 2, 2002, the Company filed an arbitration demand with the American Arbitration Association against SeraNova, Silverline Technologies Limited and Silverline Technologies, Inc. (collectively, the SeraNova Group) to recover damages and reimbursement for all rent payments made by the Company on their behalf. An arbitration hearing was held on June 25, 2002 and June 28, 2002 seeking $525,000 in outstanding lease obligations. On August 9, 2002, an award was issued in the amount of $617,000 (including attorneys fees) plus reimbursement of administrative fees, in favor of the Company and against the SeraNova Group jointly and severally. In an action filed in the Superior Court of New Jersey, the Court confirmed the $624,000 award, jointly and severally as to the SeraNova Group, and issued a writ of execution against the SeraNova Groups assets. The
 Sheriff of Middlesex County levied this writ of execution on October 8, 2002 against a bank account held by Silverline Technologies, Inc. On October 16, 2002, pursuant to this writ, the bank turned over $626,000 to the Sheriff. On November 6, 2002, the Sheriff sent the funds to the Companys attorneys and the funds were deposited into an attorney trust account on November 8, 2002. On December 13, 2002, the Company commenced an action in the Superior Court of New Jersey, Chancery Division, to recover additional amounts due and owing from the SeraNova Group under the Arbitration Award and to determine whether HSBC Bank USA (HSBC), a creditor of the SeraNova Group, had priority to the funds levied upon by the Sheriff. On January 31, 2003, the Court entered judgment in the Companys favor in the amount of $219,000, representing the SeraNova Groups additional unpaid rent arrearages under the arbitration award. On February 28, 2003, the Court entered judgment in
 the Companys favor
 in the amount of $220,0
00, representing the Companys attorneys fees in connection with the Companys efforts to enforce the SeraNova Groups obligations under the arbitration award. On March 10, 2003, the Court ordered HSBC to produce discovery proving its priority to the $626,000 being held in trust. Thereafter, the Company and HSBC entered into a settlement agreement only as to the $626,000 being held in trust whereby the Company remitted $570,000 to HSBC, and the remaining funds were released to the Company. The Company does not believe that the future outcome of this claim has had or will have a materially adverse effect on the Companys
business, financial condition or results of operations.


Additionally, the Company was notified during the first quarter of 2003 of its obligations to pay additional office space and equipment rentals, which had been previously assigned to SeraNova by the Company, because the SeraNova Group had failed to make the required payments.


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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 4-  LEASE OBLIGATIONS AND SETTLEMENTS(CONTINUED)

|                                                     |             |           | Lease       |   |           |  |           |           |       |  
|---------------------------------------------------- | ----------- | --------- | ----------- | - | --------- |  | --------- | --------- | ----- | -
|                                                     | Write Off   |           | Obligations |   |           |  | Legal     |           |       |  
|                                                     | of Other    |           | and         |   | Bank      |  | and Other |           |       |  
|                                                     | Receivables |           | Settlements |   | Guarantee |  | Charges   |           | Total |  
|                                                     |             |           |             |   |           |  |           |           |       |  
|Accrued
    costs as of January 1, 2002 - Restated   | $           | —         |             | $ | 1,875,000 |  | $         | 474,000   |       | $
|Charges to operations during 2002 - Restated         |             | 258,000   |             |   | —         |  |           | —         |       |  
|Costs paid during 2002                               |             | (258,000) |             |   | (390,000) |  |           | —         |       |  
|                                                     |             |           |             |   |           |  |           |           |       |  
|Accrued
    costs as of December 31, 2002 - Restated |             | —         |             |   | 1,485,000 |  |           | 474,000   |       |  
|Charges to operations during 2003 - Restated         |             | —         |             |   | —         |  |           | —         |       |  
|Costs paid during 2003                               |             | —         |             |   | (658,000) |  |           | (334,000) |       |  
|                                                     |             |           |             |   |           |  |           |           |       |  
|Accrued
    costs as of December 31, 2003 - Restated |             | —         |             |   | 827,000   |  |           | 140,000   |       |  
|Charges to operations during 2004                    |             | —         |             |   | —         |  |           | —         |       |  
|Costs paid during 2004                               |             | —         |             |   | (290,000) |  |           | (140,000) |       |  
|                                                     |             |           |             |   |           |  |           |           |       |  
|Accrued
    costs as of December 31, 2004            | $           | —         |             | $ | 537,000   |  | $         | —         |       | $
|                                                     |             |           |             |   |           |  |           |           |       |  

As of December 31, 2004 and 2003, $537,000 and $967,000 of the liability remained outstanding, of which $395,000 and $647,000 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.


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INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

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. In July 2003, the credit facility was extended until May 31, 2006. The credit facility is currently comprised of a revolving line of credit pursuant to which the Company could borrow up to $15,000,000 either at the banks prime rate per annum (5.25% at December 31, 2004) or the Euro rate plus 1.75% to 2.5% (4.31% to 5.06% at December 31, 2004) based upon the Companys ratio of debt to earnings before interest, taxes, depreciation and amortization (EBITDA). The credit facility is collateralized by substantially all of the assets of the Companys
United States based operations. The maximum borrowing availability under the
line of credit is based upon a percentage of eligible billed and unbilled accounts
receivable, as defined.


The Company was in default
under its credit facility as a result of the Companys failure to timely file its periodic report on Form 10-Q for the second quarter of 2004 and under certain financial covenants based upon its second quarter results. On September 29, 2004, the Company and the Bank executed the Fifth Amendment to the Loan Documents and Waiver Agreement (the Fifth Amendment). Under the terms of the Fifth Amendment, the Company agreed, among other things, to maintain an average undrawn availability balance of not less than five million dollars ($5,000,000) or otherwise be subject to financial covenants, submit third quarter financial results to the Bank within sixty (60) days of the quarter end, apply a sufficient portion of the fifteen million dollar ($15,000,000) purchase price (the Purchase Price) paid in the private placement equity transaction completed on September 30, 2004 (the Private Placement) to the Companys revolving loan obligations (as
 defined in the Fifth Amendment
) so as to cause the undrawn availability to be not less than five million dollars ($5,000,000) and to deposit the balance of the Purchase Price in an investment account with the Bank. In the event the Company fails to maintain a minimum average undrawn availability balance of five million dollars ($5,000,000), the Company will have to satisfy certain financial covenants, including a one-to-one fixed charge coverage ratio covenant, as set forth in the Fifth Amendment. Pursuant to the terms of the Fifth Amendment, the Bank agreed to waive certain existing and prospective defaults, including but not limited to, the Companys failure to comply with the following Loan Agreement covenants: Total Stockholders Equity, Unconsolidated Stockholders Equity and Minimum EBITDA, any event of default arising from the issuance of corrected financial statements for the years ended December 31, 2003, 2002 and 2001 and each quarterly period beginning on January 1, 2004, any event of
 default which would occur a
s a result of the Private Placement (See Note 7), and any event of default arising from the delisting of the Companys
Common Stock from the NASDAQ.


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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 5- LINE OF CREDIT (CONTINUED)

The Company was in default
under its Credit Facility as a result of the Companys removal of Arjun
Valluri as Chief Executive Officer and President and the Companys failure
to timely deliver to the Bank certain monthly reporting schedules, monthly financial
statements, quarterly financial statements, and annual financial statements during
2004 and 2005. The Company secured waivers of such defaults under the terms of
the Sixth Amendment to the Loan Document and Waiver Agreement (Sixth Amendment).
The terms of the Sixth Amendment, amend the Loan Documents as follows: (i) to
prevent the Company from electing to borrow, convert to or continue a Eurodollar
Rate Loan and to provide that all Advances bear an interest rate per annum equal
to the Base Rate; (ii) to define Change in Management as any change
in the Companys Chief Executive Officer or Chief Financial Officer, which
is not acceptable to the Bank; (iii) to define Revolving Interest Rate as
interest rate per annum equal to the Base Rate; (iv) to define Undrawn
Availability to include the redemption value of a specified bank account,
i.e. Black Rock Account, in the calculation of Undrawn Availability; and (v) to add an early termination
fee in an amount equal to one-half of one percent (.50%) of the maximum revolving
advance amount. Under the terms of the Sixth Amendment, among other things, the
Company is required, among other things, to deliver draft, unaudited financial
statements to the Bank on or before September 30, 2005 and to deliver audited
annual financial statements to the Bank on or before October 15, 2005.
The Company also agreed to resume timely
filing of the periodic reports due to the listing exchange upon which the Companys
shares are traded and to any governmental agency beginning with the filing of
the Companys annual report on Form 10-K for the year ending December 31,
2005. The Bank agreed to waive any events of default arising from the Companys
failure to timely deliver to the Bank the monthly reporting schedules, monthly
financial statements, quarterly financial statements and annual financial statements
and the Companys
removal of Arjun Valluri from his position as Chief Executive Officer and President.


As of December 31, 2004 and 2003, the Company had outstanding borrowings under the credit facility of $2.4 million and $8.3 million. The Company estimates undrawn availability under the credit facility to be $5.3 million as of December 31, 2004.


The weighted average interest rate on outstanding borrowings under the credit facility were 4.82% and 4.99% as of December 31, 2004 and 2003 respectively.


Interest expense on debt and obligations under capital leases approximated $472,000, $453,000 and $392,000 for the years ended December 31, 2004, 2003 and 2002, respectively.


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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 6- OBLIGATIONS UNDER CAPITAL LEASES

The Company is the lessee of equipment and computer software under capital leases expiring in 2006. Minimum
        lease payments under capital leases at December 31, 2004 are as follows:


|2005                                | $ | 463,000  |  
|----------------------------------- | - | -------- | -
|2006                                |   | 45,000   |  
|                                    |   |          |  
|                                    |   | 508,000  |  
|Less: amounts representing interest |   | (41,000  | )
|Less: current portion               |   | (422,000 | )
|                                    |   |          |  
|Long-term portion                   | $ | 45,000   |  
|                                    |   |          |  

NOTE 7-SHAREHOLDERS EQUITY

Preferred Stock


At December 31, 2004 and 2003, 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, 2004 and 2003, there are 40,000,000 and 25,000,000 shares of Common Stock, par value $.01 authorized and 35,103,000 and 16,987,000 shares issued and outstanding.


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 17,647,000 shares of Common Stock in a private placement transaction for gross proceeds of $15,000,000 and net proceeds of $14,675,000.


In 2004, the Company issued 469,000 shares of Common Stock upon the exercise of stock options and received proceeds of approximately $1,328,000.


In 2003, the Company issued 357,000 shares of Common Stock upon the exercise of stock options and received proceeds of approximately $828,000.


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.


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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 7-SHAREHOLDERS EQUITY(CONTINUED)

Stock Options (Continued)


|                                           | Number     |   |   | Weighted                | 
|------------------------------------------ | ---------- | - | - | ----------------------- | 
|                                           | of         |   |   | Average                 | 
|                                           | Shares     |   |   | Exercise
         Price | 
|                                           |            |   |   |                         | 
|Balance - December 31, 2001 - Restated     | 2,836,674  |   | $ | 3.09                    | 
|Granted                                    | 1,165,000  |   | $ | 0.94                    | 
|Exercised                                  | —          |   | $ | —                       | 
|Canceled - Restated                        | (810,748   | ) | $ | 2.87                    | 
|                                           |            |   |   |                         | 
|Balance - December 31, 2002 - Restated     | 3,190,926  |   | $ | 2.36                    | 
|Granted - Restated                         | 530,500    |   | $ | 4.61                    | 
|Exercised - Restated                       | (366,451   | ) | $ | 2.33                    | 
|Canceled - Restated                        | (382,817   | ) | $ | 3.52                    | 
|                                           |            |   |   |                         | 
|Balance
    - December 31, 2003 - Restated | 2,972,158  |   | $ | 2.62                    | 
|Granted                                    | 1,320,612  |   | $ | 5.16                    | 
|Exercised                                  | (458,806   | ) | $ | 2.84                    | 
|Canceled                                   | (1,126,108 | ) | $ | 4.58                    | 
|                                           |            |   |   |                         | 
|Balance - December 31, 2004                | 2,707,856  |   | $ | 3.00                    | 
|                                           |            |   |   |                         | 

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 7- SHAREHOLDERS EQUITY (CONTINUED)

Stock Options (Continued)


The following summarizes information about stock options outstanding and exercisable at December 31, 2004:


|                         |  | Outstanding |  | Exercisable    | 
|------------------------ |  | ----------- |  | -------------- | 
|                         |  |             |  |                | 
|                         |  |             |  | Weighted       | 
|                         |  |             |  | Average        | 
|                         |  | Number of   |  | Remaining Life | 
|Exercise
    Price Range |  | Shares      |  | (in Years)     | 
|                         |  |             |  |                | 
|$0.86 to
    $1.20       |  | 1,169,750   |  | 1.4            | 
|$1.21 to
    $1.80       |  | 48,718      |  | 8.2            | 
|$1.81 to
    $2.65       |  | 414,671     |  | 3.4            | 
|$2.66 to
    $3.99       |  | 357,310     |  | 1.2            | 
|$4.00 to
    $5.99       |  | 366,520     |  | 5.5            | 
|$6.00 to
    $8.75       |  | 329,637     |  | 6.8            | 
|$8.76 to
    $13.00      |  | 21,250      |  | 0.2            | 
|                         |  |             |  |                | 
|$0.86 to
    $13.00      |  | 2,707,856   |  | 3.0            | 
|                         |  |             |  |                | 

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: expected
volatility of 109.77% and expected lives of 1.95 for 2004, 2003 and 2002, and
risk free interest rates of 3.08%, 1.84% and 1.61% for 2004, 2003 and 2002, respectively.
The weighted average fair value of options granted during the years ended December
31, 2004, 2003 and 2002 was $5.16, $4.61 and $0.94, respectively. For fixed awards
with pro-rata vesting, the Company recognizes compensation cost 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.


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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 8-  RELATED PARTY TRANSACTIONS

In 2004, the Company paid $82,113 in fees to SBLI USA Mutual Life Insurance Company, Inc.  A member of the Board of Directors served as the Chief Financial Officer of SBLI USA Mutual Life Insurance Company during 2004.


During 2003, the Company
provided services to FirePond, which produced revenues for the Company totaling
approximately $2,000. The Company did not provide any services to FirePond in
2004. A member of the Companys Board of Directors served as the Chief Executive
Officer of FirePond until December 2003. The Company provided implementation
services to various end clients, as a subcontractor to FirePond.


During 2003, the Company
provided implementation services to McCann-Erickson, which produced revenues
for the Company totaling approximately $93,000. The Company did not provide any
services to McCann-Erickson in 2004. A member of the Companys Board of
Directors serves as the Chief Technology Officer of McCann-Erickson.


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 5,820,000 rupees (approximately $133,000) and advance lease rentals of 11,640,000 rupees (approximately $266,000) upon the handing over of the amenities and shall pay monthly rent of 1,164,000 rupees (approximately $27,000). Under the terms of the lease for the Premises, IGA paid a deposit of 4,656,000 rupees (approximately $106,000) and advance lease rentals of 9,312,000 rupees (approximately $213,000) upon the handing over of the Premises and shall pay monthly rent of
 931,000 rupees (approximately $21,000).  Rent expense for the year ended December 31, 2004 towards the said lease was 15,570,000 rupees (approximately $358,000). The value of un-amortized rentals as of December 31, 2004 was 14,667,000 rupees (approximately $337,000).


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 15,282,000 Indian rupees (approximately $352,000); (3) payment
  of monthly lease fees in the amount of 1,698,000 Indian rupees (approximately
  $40,000), subject to yearly five percent (5%) escalation; and (4) monthly operations
  and maintenance fees of 283,000 Indian rupees (approximately $6,500).


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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 9-  RESTRUCTURING AND OTHER SPECIAL CHARGES

During the year ended
  December 31, 2001, in an effort to further refine the Companys business strategy around its core competencies and to refocus on more active markets, the Company recorded a $13,261,000 restructuring and other special charges provision. The charges, which were mainly non-cash in nature, were related primarily to the Application Service Provider business in the United States, the termination of an agreement to build and operate a technology development and support center in Puerto Rico and to the restructuring and downsizing of the Companys
  operations in the United Kingdom. The Company has restated $77,000 of the accrual
  balance related to exit costs in 2002.


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


|                                               | Severance
     and
    Related
    Costs |          | Asset
    Impairments |   | Exit
Costs |  | Total |         
|---------------------------------------------- | ---------------------------------------- | -------- | --------------------- | - | ---------- |  | ----- | --------
|                                               |                                          |          |                       |   |            |  |       |         
|Accrued costs - January 1, 2002                | $                                        | 385,000  |                       | $ | —          |  | $     | 467,000 
|Charges to operations
    during 2002-Restated |                                          | 30,000   |                       |   | —          |  |       | (77,000 
|Costs paid during 2002                         |                                          | (326,000 | )                     |   | —          |  |       | (384,000
|                                               |                                          |          |                       |   |            |  |       |         
|Accrued
    costs - December 31, 2002-Restated |                                          | 89,000   |                       |   | —          |  |       | 6,000   
|Charges to operations during 2003              |                                          | —        |                       |   | —          |  |       | —       
|Costs paid during 2003                         |                                          | (89,000  | )                     |   | —          |  |       | (6,000  
|                                               |                                          |          |                       |   |            |  |       |         
|Accrued
    costs - December 31, 2003-Restated | $                                        | —        |                       | $ | —          |  | $     | —       
|                                               |                                          |          |                       |   |            |  |       |         

NOTE 10- COMMITMENTS AND CONTINGENCIES

Tax-Free Spin-off of SeraNova


On July 5, 2000, the
  Company distributed SeraNova common stock to its shareholders in a transaction
  that was structured to be and reported as a tax-free spin-off pursuant to Section
  355 of the Internal Revenue Code (IRC Section 355). For distributions of stock qualifying under IRC Section 355, neither the Company nor the Companys shareholders recognize any gain or income in connection with the transaction. 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.


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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 10- COMMITMENTS AND CONTINGENCIES (CONTINUED)

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 $65,000,000, 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, 2004,
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 $1,785,000. Of this amount,
approximately $1,057,000 represents amounts provided for in Severance Packages
between Intelligroup Asia Pvt. Ltd. (IGA) and certain 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, four 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 $560,000 to such individuals.


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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 10- COMMITMENTS AND CONTINGENCIES (CONTINUED)

Tax Contingency in India


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 (See Note 11). In the
      event the Companys
  appeal is not successful, future cash outlays of approximately $89,000 would
  be required. The tax provisions for these assessments have already been recorded
  in prior year consolidated financial statements.


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:


|For
    the Years Ended December 31, |  | Gross
    Operating
    Lease
    Payments |           | Sublease
    Income |   | Net
    Operating
    Lease Payments | 
|------------------------------------ |  | ------------------------------------------ | --------- | ------------------- | - | ------------------------------------ | 
|                                     |  |                                            |           |                     |   |                                      | 
|2005                                 |  | $                                          | 3,014,000 |                     | $ | 350,000                              | 
|2006                                 |  |                                            | 2,527,000 |                     |   | 350,000                              | 
|2007                                 |  |                                            | 1,994,000 |                     |   | 350,000                              | 
|2008                                 |  |                                            | 1,199,000 |                     |   | 262,000                              | 
|2009                                 |  |                                            | 132,000   |                     |   |                                      | 
|2010 thereafter                      |  |                                            | 12,000    |                     |   |                                      | 
|                                     |  |                                            |           |                     |   |                                      | 
|                                     |  | $                                          | 8,878,000 |                     | $ | 1,312,000                            | 
|                                     |  |                                            |           |                     |   |                                      | 

Rent
      expense for the years ended December 31, 2004, 2003 and 2002 was $2,572,000,
      $1,482,000 and $1,552,000, net of sublease income of $321,000, $326,000,
and $157,000, respectively.


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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 10- COMMITMENTS AND CONTINGENCIES (CONTINUED)

Other


On September 30, 2004,
the Company closed a $15,000,000 private placement of an aggregate of 17,647,000
shares of the Companys Common Stock at a purchase price of $0.85 per share with SAIF and Venture Tech. The private placement was completed pursuant to the terms of a definitive common stock purchase agreement (the Purchase Agreement) executed on September 29, 2004 with SAIFand Venture Tech (collectively, the Investors) pursuant to which the Investors agreed to acquire an aggregate of 17,647,000 shares of the Companys Common Stock in a private placement at a purchase price of $0.85 per share for a total purchase price of $15,000,000. Through  the private placement transaction, SB Asia Infrastructure Fund, L.P. acquired approximately 33.5% of the Companys outstanding Common Stock and Venture Tech acquired approximately 16.8% of the Companys outstanding Common Stock. The agreement also provides that the Investors would have the right to designate five of the nine members of the Companys Board of Directors, and granted the Investors
 certain other rights, including the right to have their shares of Common Stock registered under the Securities Act of 1933, as amended, the right to participate in future equity offerings and approval rights with respect to specified significant transactions. The shares were offered by the Company without general solicitation, and each of the Investors had represented to the Company that it is an accredited investor as
defined in Rule 501(a) under the Securities Act and that it was acquiring the
shares for investment purposes only, and not with a view to distribution.


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.


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INTELLIGROUP,
INC.NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 11-LITIGATION

On August 16,
  2001, the Company filed a complaint in the Superior Court of New Jersey, Middlesex
  County (Superior Court), against SeraNova, Inc., and Silverline Technologies Limited and Silverline Technologies, Inc. (collectively, Silverline), which acquired SeraNova in March 2001.  The complaint, which seeks damages, alleges among other things that SeraNova failed to pay amounts owing under (i) an unsecured promissory note totaling $10,080,000, and (ii) a system implementation project totaling $512,000.  On September 25, 2001, SeraNova and Silverline filed a joint Answer to the Company's complaint.  In addition, SeraNova filed a counterclaim against the Company for compensatory damages in excess of $5,500,000 and punitive damages in the amount of $10,000,000. After completion of the discovery process, the Company moved for summary judgment. On April 17, 2003, the Court granted partial summary judgment.  On July 11, 2003, the Court dismissed the defendants
  counterclaims seeking compensatory and punitive damages. On August 8, 2003,
  SeraNova and Silverline Technologies, Inc. filed for Chapter 7 Bankruptcy,
  thereby staying this action as to these defendants. There has been no notice
  that Silverline Technologies Limited is insolvent. Shortly thereafter, counsel
  for defendants asked the Court and was granted permission to be relieved as
  counsel. On September 22, 2003, the Company moved for entry of default against
  Silverline Technologies Limited. On May 24, 2004, the Superior Court entered
  final Judgment against Silverline Technology, Ltd. in the amount of $11,472,000.


The Company currently believes that collecting such Judgment from Silverline Technology, Ltd. is not probable.


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


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INTELLIGROUP,
INC.NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 11-LITIGATION(CONTINUED)

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


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


On August 7, 2003, the Company and Mr. Pandey executed a Settlement Agreement resolving, among other things, the litigation matters between them.


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


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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 11-LITIGATION(CONTINUED)

On October
  4, 2002, the Company filed a complaint in the Superior Court of New Jersey,
  Middlesex County against the SeraNova Group and HSBC seeking compensatory,
  consequential and punitive damages resulting from SeraNovas failure to pay its obligations to the Company under its promissory note. The complaint alleges that this failure was due to SeraNovas fraudulent conveyance of assets, including but not limited to lucrative customer accounts, to Silverline, and HSBCs allegedly knowing acceptance of a fraudulent guarantee of Silverlines
  debt to HSBC from SeraNova. All defendants have answered the complaint and
  discovery has commenced. On August 8, 2003, SeraNova and Silverline Technologies,
  Inc. filed for Chapter 7 Bankruptcy, thereby staying this action as to these
  defendants. There has been no notice that Silverline Technologies Limited is
  insolvent. The Company entered into a settlement agreement dated July 19, 2004
with HSBC resolving the matters related to this action.


By
        letter dated May 12, 2003, Zions First National Bank (Zions)
        informed the Company that Network Publishing, Inc., a former wholly-owned
        subsidiary of the Company, which became a wholly-owned subsidiary of
        SeraNova upon the spin-off of SeraNova by the Company in 2000, was delinquent
        on a loan made by Zions and guaranteed by the Company. Zions was demanding
        payment of $536,000 from the Company, plus interest accrued from April
        1, 2002. In the third quarter 2003, the Company negotiated a settlement
        with Zions for a total sum of $430,000, which was paid out in installments
        through January 2004. The Company has made all required payments under
        the settlement. The Company has recorded this sum and related legal costs
        of $44,000 in the SeraNova charges line item.


The
        Companys India subsidiary has received tax assessments dated February
        12, 2002, July 23,
      2002, August 22, 2003 and December 31, 2003 from the India taxing authority
      denying tax exemptions claimed for certain revenue earned and disallowed
      certain expenses claimed during fiscal years ended March 31, 1998 through
      March 31, 2001. The tax assessments were for 14.6 million, 9.5 million,
      2.8 million and 5.6 million Indian rupees, respectively, or approximately
      $742,000. An additional assessment for tax penalties and interest for the
      fiscal year ended March 31, 2001 of 1.7 million Indian rupees or approximately
      $39,000 was also received. The Company has made payments of 14.6 million,
      9.5 million, 2.8 million and 5.7 million Indian rupees, respectively, or
      approximately $815,000 consisting of $682,000 for taxes paid under protest,
      $39,000 for tax penalties and interest and $94,000 for other tax adjustments
      not in dispute to the India tax authority. The Companys resulting
      overpayment of $34,000 has been refunded.


On March 29, 2005, the
  Companys India subsidiary received an additional assessment for 15.0
  million Indian rupees, or approximately $345,000 for the fiscal year ended
  March 31, 2002. The assessment disallowed some of the export revenue claimed
  by the Company and also disallowed certain expenses claimed by the Company.
  The Company has paid approximately 6.0 million Indian rupees or approximately
  $137,000 under protest and has also paid 5.1 million Indian rupees or approximately
  $118,000 for agreed to adjustments through August 2005. The Company is currently
  challenging the remaining unpaid assessment with the Commissioner of Tax Appeals
  and is paying the remaining $89,000 tax assessment in installments over the
  next 12 to 18 months as permitted by the India tax authority.


The Company is currently at the Appellant Tribunal stage for the tax years ended March 31, 1998 through March 31, 2001 related to this matter and at the Commissioner of Income Tax Appeals for fiscal year ended March 31, 2002.


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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 11-LITIGATION(CONTINUED)

Six class action lawsuits have been initiated, purportedly on behalf of plaintiffs who purchased the Companys securities, against the Company and certain former officers, including Arjun Valluri, Nicholas Visco, Edward Carr and David Distel (Defendants) (collectively, Shareholder Class Actions) in the United States District Court, District of New Jersey (District of New Jersey). The Shareholder Class Actions generally allege violations of federal securities laws, including allegations that the Defendants made materially false and misleading statements regarding its 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 Actions generally seek relief in the form of unspecified compensatory damages and reasonable costs,
 expenses and legal fees.
In August 2005, the District of New Jersey consolidated the six class actions and appointed a lead plaintiff. By agreement of the parties, lead plaintiff filed the consolidated amended complaint on or about the second week of October 2005.


On January 28, 2005, the
Company received subpoenas in connection with a formal investigation by the United
States Securities and Exchange Commission (SEC) regarding whether
federal securities laws were violated in connection with the issuance of the
Companys financial statements for prior periods. The Company is cooperating
with the SEC to produce documents in response to the subpoenas.


On or about March 23,
2005, Jefferies & Company, Inc. initiated an arbitration proceeding to recover
fees in the amount of $750,000 plus interest and reasonable attorneys fees
and costs allegedly owed to Broadview International, a division of Jefferies & Company
(Broadview) as a result of the private placement transaction that
the Company closed on September 30, 2004 with SAIF and Venture Tech. The arbitration
proceeding is in the discovery phase.


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 in the event the Company was unsuccessful in such litigation.


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


NOTE 12- INCOME TAXES

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


|          |   |          |   |   | (Restated) |   |   | (Restated) |  
|--------- | - | -------- | - | - | ---------- | - | - | ---------- | -
|          |   | 2004     |   |   | 2003       |   |   | 2002       |  
|          |   |          |   |   |            |   |   |            |  
|Current:  |   |          |   |   |            |   |   |            |  
|Federal   | $ |         |   | $ |           |   | $ | (160,000   | )
|State     |   | 5,000    |   |   | 118,000    |   |   | 88,000     |  
|Foreign   |   | 580,000  |   |   | 284,000    |   |   | 208,000    |  
|          |   |          |   |   |            |   |   |            |  
|          |   | 585,000  |   |   | 402,000    |   |   | 136,000    |  
|Deferred: |   |          |   |   |            |   |   |            |  
|Foreign   |   | (227,000 | ) |   | (216,000   | ) |   | (242,000   | )
|          |   |          |   |   |            |   |   |            |  
|Total     | $ | 358,000  |   | $ | 186,000    |   | $ | (106,000   | )
|          |   |          |   |   |            |   |   |            |  

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


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INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 12- INCOME TAXES (CONTINUED)

|                                         |   |            |   |   | (Restated) |   |   | (Restated) |  
|---------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                         |   | 2004       |   |   | 2003       |   |   | 2002       |  
|                                         |   |            |   |   |            |   |   |            |  
|United States                            | $ | (4,230,000 | ) | $ | (2,531,000 | ) | $ | (813,000   | )
|Foreign                                  |   | 3,722,000  |   |   | 2,601,000  |   |   | 312,000    |  
|                                         |   |            |   |   |            |   |   |            |  
|Income (loss) before provision for taxes | $ | (508,000   | ) | $ | 70,000     |   | $ | (501,000   | )
|                                         |   |            |   |   |            |   |   |            |  

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:


|                                                 |        |    |  | (Restated) |   |  | (Restated) |   
|------------------------------------------------ | ------ | -- |  | ---------- | - |  | ---------- | --
|                                                 | 2004   |    |  | 2003       |   |  | 2002       |   
|                                                 |        |    |  |            |   |  |            |   
|Tax at
        federal statutory rate            | (34.0  | )% |  | 34.0       | % |  | (34.0      | )%
|State income
        tax, net of federal benefit | 0.6    |    |  | 111.0      |   |  | 11.6       |   
|Foreign
        taxes                            | 14.6   |    |  | 59.1       |   |  | 1.4        |   
|Changes
        in valuation allowance           | (520.4 | )  |  | 2,136.0    |   |  | 327.9      |   
|Permanent
        items                          | 866.5  |    |  | (1,048.0   | ) |  | (146.0     | ) 
|Tax refund
        claims                        |       |    |  |           |   |  | (31.8      | ) 
|Tax holiday,
        India                       | (256.8 | )  |  | (1,026.4   | ) |  | (150.3     | ) 
|                                                 |        |    |  |            |   |  |            |   
|Effective
        tax rate                       | 70.5   | %  |  | 265.7      | % |  | (21.2      | )%
|                                                 |        |    |  |            |   |  |            |   

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:


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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 12- INCOME TAXES (CONTINUED)

|                                                  |      |             | (Restated) |  
|------------------------------------------------- | ---- | ----------- | ---------- | -
|2004                                              | 2003
|                                                  |      |             |            |  
|Deferred tax assets:                              |      |             |            |  
|Allowance for doubtful accounts                   | $    | 478,000     |            | $
|Vacation accrual                                  |      | 1,045,000   |            |  
|Net operating losses                              |      | 13,632,000  |            |  
|Other accrued liabilities                         |      | 277,000     |            |  
|                                                  |      |             |            |  
|Total deferred tax assets                         |      | 15,432,000  |            |  
|                                                  |      |             |            |  
|Deferred tax liability - accelerated depreciation |      | (122,000    | )          |  
|Valuation allowance                               |      | (14,626,000 | )          |  
|                                                  |      |             |            |  
|                                                  |      |             |            |  
|Net deferred tax assets - non-current             | $    | 684,000     |            | $
|                                                  |      |             |            |  

During 2004, 2003 and
2002, the Company generated net operating losses in certain tax jurisdictions.
The Company has provided a valuation allowance against these net operating losses
as the ability to utilize these losses may be limited in the future. The Company
decreased the valuation allowance by recording a tax benefit of $2,642,000 in
2004 and increased the valuation allowance by recording a tax provision of $1,307,000
and $1,725,000 in 2003 and 2002, 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 IRC 382 of $5,133,000.  The Companys
valuation allowance as of December 31, 2004 and 2003 was $14,626,000 and $17,268,000
respectively. Net operating loss carry forwards of $34,272,000 expire in various
years through 2024.


NOTE 13- 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 $681,000, $246,000 and $478,000 for the years
ended December 31, 2004, 2003, and 2002, respectively. The Company used $336,000
of forfeitures to offset contributions in the year ended December 31, 2003. The
Companys match in the 401(k) plan is 2%.


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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 14- DISCONTINUED OPERATIONS

Summarized financial information for the discontinued operations of the former subsidiaries is as follows:


|                                                                       | (Restated) |           | (Restated) |  
|---------------------------------------------------------------------- | ---------- | --------- | ---------- | -
|2003                                                                   | 2002      
|                                                                       |            |           |            |  
|                                                                       |            |           |            |  
|Revenue                                                                | $          | 1,691,000 |            | $
|Pre-tax income (loss)                                                  |            | 1,375,000 |            |  
|Income tax provision                                                   |            | 33,000    |            |  
|Income (loss)
    from discontinued operations, excluding loss on sale |            | 1,342,000 |            |  

Additionally, the Company reported a loss on the sale of the former subsidiaries of $2,267,000 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.


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INTELLIGROUP, INC.NOTES
  TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  DECEMBER 31, 2004, 2003 AND
  2002

NOTE 15- 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 14). The Company now has four reportable operating segments from continuing operations, which are organized and managed on a geographical basis, as follows:


| | • | United
          States (US)  the largest segment of the Company,
          with operations in the United States and Puerto Rico. Includes the
          operations of the Companys US subsidiary, Empower, Inc., and
    all corporate headquarters are located in Edison, New Jersey;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                            
| | • | India  includes
          the operations of the Company in India, including services provided
          on behalf of other group subsidiaries. The India headquarters are located
          in Hyderabad,
India;                                                                          
| |   |                                                                                                                                                                                                                                                                                            
| | • | Europe  includes
          the operations of the Company in Denmark, Sweden and the United Kingdom.
          The
European headquarters are located in Milton Keynes, United Kingdom;                                                                                                     
| |   |                                                                                                                                                                                                                                                                                            
| | • | Japan  includes
          the operations of the Company in Japan. The Japanese headquarters are
          located
in Tokyo, Japan.                                                                                                                                                        

Each of the operating
segments has a Managing Director, or equivalent position, 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, 2004, 2003 and
2002 and financial position as of December 31, 2004 and 2003 are presented in
the following geographic segments:


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INTELLIGROUP,
INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND
2002

NOTE 15- SEGMENT DATA AND GEOGRAPHIC INFORMATION (CONTINUED)

|                              | United |            |       |       |            |  |   |            |   |  
|----------------------------- | ------ | ---------- | ----- | ----- | ---------- |  | - | ---------- | - | -
|States                        | India  | Europe     | Japan | Total
|                              |        |            |       |       |            |  |   |            |   |  
|2004                          |        |            |       |       |            |  |   |            |   |  
|                              |        |            |       |       |            |  |   |            |   |  
|Revenue                       | $      | 95,270,000 |       | $     | 22,029,000 |  | $ | 6,890,000  |   | $
|Depreciation and amortization |        | 2,201,000  |       |       | 572,000    |  |   | 112,000    |   |  
|Operating income (loss)       |        | (4,129,000 | )     |       | 3,324,000  |  |   | (183,000   | ) |  
|Total assets                  |        | 35,547,000 |       |       | 8,388,000  |  |   | 2,455,000  |   |  
|                              |        |            |       |       |            |  |   |            |   |  
|2003 - Restated               |        |            |       |       |            |  |   |            |   |  
|                              |        |            |       |       |            |  |   |            |   |  
|Revenue                       | $      | 90,639,000 |       | $     | 16,248,000 |  | $ | 6,683,000  |   | $
|Depreciation and amortization |        | 2,479,000  |       |       | 784,000    |  |   | 156,000    |   |  
|Operating income (loss)       |        | (1,815,000 | )     |       | 2,536,000  |  |   | 189,000    |   |  
|Total assets                  |        | 30,523,000 |       |       | 7,101,000  |  |   | 2,888,000  |   |  
|                              |        |            |       |       |            |  |   |            |   |  
|2002 - Restated               |        |            |       |       |            |  |   |            |   |  
|                              |        |            |       |       |            |  |   |            |   |  
|Revenue                       | $      | 78,587,000 |       | $     | 13,642,000 |  | $ | 5,705,000  |   | $
|Depreciation and amortization |        | 2,470,000  |       |       | 813,000    |  |   | 225,000    |   |  
|Operating income (loss)       |        | (563,000   | )     |       | 2,274,000  |  |   | (1,620,000 | ) |  
|Total assets                  |        | 25,471,000 |       |       | 6,257,000  |  |   | 2,117,000  |   |  
|                              |        |            |       |       |            |  |   |            |   |  

|(1) | Includes
        $426,000 of depreciation and amortization included in costs of revenue
    for the year ended December 31, 2004.                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes
        $787,000 of depreciation and amortization included in costs of revenue
    for the year ended December 31, 2003.                  
|(3) | Includes
        $830,000 of depreciation and amortization included in costs of revenue
    for the year ended December 31, 2002.                  
|(4) | Excludes
    $3,068,000 of assets held for sale for the year ended December 31, 2002.                                                              
|(5) | Of the
        total capital expenditures incurred for the year 2004, $1,617,000 was
    incurred in the US and
    $380,000 was incurred in India.

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INTELLIGROUP, INC.NOTES
  TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  DECEMBER 31, 2004, 2003 AND
  2002

NOTE 16- SUBSEQUENT EVENTS

On January 28, 2005, the
Company learned that the United States Securities and Exchange Commission (SEC) had commenced a formal investigation into matters related to the previously announced restatement of the Companys consolidated financial statements for the years ending December 31, 2003, 2002 and 2001 and for the quarter ended March 31, 2004. In connection with such investigation, the Company received subpoenas from the SEC requesting production of documents relevant to the SECs
investigation. The Company has been working with the SEC to respond to the subpoenas.


On March 21, 2005, the
Company and the Investors entered into an amendment dated March 9, 2005 (the Amendment) to the Purchase Agreement dated September 29, 2004. The Amendment eliminated certain requirements related to the registration of the shares of the Companys common stock issued to the Purchasers pursuant to the Purchase Agreement. Specifically, it eliminates the liquidated damages provisions contained in the Purchase Agreement. The Amendment also eliminated the April 15, 2005 deadline for filing the registration statement as well as the requirement that the registration statement be declared effective within 270 days of the common stock issuance. The Company is still required to file a registration statement related to the resale of the shares of Common Stock issued to the Purchasers as promptly as reasonably practicable, and use best efforts to cause the registration statement to be declared effective as promptly as practicable. The Amendment also eliminated the Companys
covenant to timely file periodic reports as required by the Securities Exchange
Act of 1934.


On or about March 23,
2005, Jeffries & Company, Inc. initiated an arbitration proceeding to recover fees in the amount of $750,000 plus interest and reasonable attorneys fees and costs allegedly owed to Broadview International, a division of Jeffries & Company (Broadview),
as a result of the private placement transaction that the Company closed on September
30, 2004 with SB Asia Infrastructure Fund, L.P. and Venture Tech. The arbitration
proceeding is in the discovery phase.


On March 29, 2005, the
Companys India subsidiary received an additional revised assessment for
15.0 million Indian rupees, or approximately $345,000 for the fiscal year ended
March 31, 2002. The assessment disallowed some of the export revenue claimed
by the Company and also disallowed certain expenses claimed by the Company. The
Company has applied from the previous assessment discussed above approximately
6.0 million Indian rupees or approximately $137,000 under protest and has also
paid 5.1 million Indian rupees or approximately $118,000 for agreed to adjustments
through August 2005. The Company is currently challenging the remaining unpaid
assessment with the Commissioner of Tax Appeals and is paying the remaining $89,000
tax assessment in installments over the next 12 to 18 months as permitted by
the India tax authority.


On April 4, 2005, the Company removed Mr. Valluri from his position as Chief Executive Officer, President and Chairman of the Board. The Company appointed Mr. Gulati to the Board of Directors and to the positions of Chief Executive Officer and President.


Effective August 1, 2005,
IGA entered into an agreement to lease certain premises for certain of the Companys India operations from 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 15,282,000 Indian rupees (approximately $352,000); (3) payment
of monthly lease fees in the amount of 1,698,000 Indian rupees (approximately
$40,000), subject to yearly five percent (5%) escalation; and (4) monthly operations
and maintenance fees of 283,000 Indian rupees (approximately $6,500).


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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
  DECEMBER 31, 2004, 2003 AND 2002

NOTE 16–SUBSEQUENT EVENTS (CONTINUED)

On September 30, 2005,
the Company and the Bank executed the Sixth Amendment to the Loan Documents and
Waiver Agreement. The terms of the Sixth Amendment, amend the Loan Documents
as follows: (i) to prevent the Company from electing to borrow, convert to or
continue a Eurodollar Rate Loan and to provide that all Advances bear an interest
rate per annum equal to the Base Rate (as such term is defined in the Credit
Agreement; (ii) to define Change in Management as any change in the
Companys Chief Executive Officer or Chief Financial Officer, which is not
acceptable to the Bank; (iii) to define Revolving Interest Rate as
interest rate per annum equal to the Base Rate (as defined in the Loan Agreement);
(iv) to define Undrawn Availability to include the redemption value
of a specified bank account, i.e. Black Rock Account, in the calculation of Undrawn
Availability;
and
(v)
to add an early termination fee in an amount equal to one-half of one percent
(.50%) of the maximum revolving advance amount. Under the terms of the Sixth
Amendment, among other things, the Company was required to deliver draft, unaudited
financial statements to the Bank on or before September 30, 2005 and to deliver
audited annual financial statements to the Bank on or before October 15, 2005.
The Company also agreed
to resume timely filing of the periodic reports due to the listing exchange upon
which the Companys shares are traded and to any governmental agency beginning
with the filing of the Companys annual report on Form 10-K for the year
ending December 31, 2005. The Bank agreed to waive any events of default arising
from the Companys failure to timely deliver to the Bank the monthly reporting
schedules, monthly financial statements, quarterly financial statements and annual
financial statements and the Companys
removal of Arjun Valluri from his position as Chief Executive Officer and President.

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INTELLIGROUP,INC.NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS (CONTINUED) 
    DECEMBER 31,
2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS

The
      following consolidated balance sheets, statements of operations and comprehensive
      income (loss) and cash flows give effect to the correction of errors identified
      in
    the restatement and re-audit
    process as discussed in Note 1. Where required, they
    also reflect the reclassification adjustments necessary to
    give effect to the discontinued operations discussed in
    Note 14. The as previously reported columns contain reclassifications
    to conform with the December 31, 2004 presentation.


2004 and 2003 Quarterly
      Financial Data

The
      following tables sets forth certain unaudited results
    of operations for each
    quarter during 2004 and 2003 (as restated  see
    Note 1). 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.


|                                   | For
          Quarters Ended 2004 |           
|---------------------------------- | --------------------------------- | ----------
|                                   |                                   |           
|                                   | 1st
    Quarter                   |           
|                                   |                                   |           
|                                   | As
          Previously           |           
|                                   | Reported                          |           
|                                   |                                   |           
|Revenue                            | $                                 | 30,848,000
|Gross profit                       |                                   | 9,690,000 
|Operating
        income (loss)    |                                   | 1,040,000 
|Income (loss)
        from         |                                   |           
|continuing
          operations    |                                   |           
|before
          income tax        |                                   |           
|provision
          (benefit of)   |                                   | 546,000   
|Net income
        (loss)          |                                   | 279,000   
|                                   |                                   |           
|Earnings
        (loss) per share: |                                   |           
|Basic                              | $                                 | 0.02      
|Diluted                            | $                                 | 0.01      
|Shares outstanding:                |                                   |           
|Basic                              |                                   | 17,184,000
|Diluted                            |                                   | 19,126,000

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INTELLIGROUP,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
  DECEMBER 31,
2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

|                                                         | For
    Quarters Ended 2003 |                
|-------------------------------------------------------- | --------------------------- | ---------------
|                                                        
|1st
    Quarter                                          |                             | 2nd
    Quarter
|                                                         |                             |                
|As
        Previously                                    |                             | As             
|Reported                                                 | Restated                    | Reported       
|                                                         |                             |                
|                                                         |                             |                
|Revenue                                                  | $                           | 27,235,000     
|Gross profit                                             |                             | 7,926,000      
|Operating
        income (loss)                          |                             | (4,998,000     
|Income (loss)
        from                               |                             |                
|continuing
        operations                            |                             |                
|before
        income tax                                |                             |                
|provision
        (benefit of)                           |                             | (5,142,000     
|Loss from
        discontinued                           |                             |                
|operations                                               |                             | (2,134,000     
|Net income
        (loss)                                |                             | (7,351,000     
|                                                         |                             |                
|Earnings
        (loss) per share:                       |                             |                
|Basic                                                    |                             |                
|Income
        (loss) from continuing
        operations | $                           | (0.31          
|Loss
        from                                        |                             |                
|discontinued
            operations                      | $                           | (0.13          
|Diluted                                                  |                             |                
|Income
        (loss) from continuing
        operations | $                           | (0.31          
|                                                         |                             |                
|Loss
        from discontinued
        operations        | $                           | (0.13          
|Shares outstanding:                                      |                             |                
|Basic                                                    |                             | 16,630,000     
|Diluted                                                  |                             | 16,630,000     

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INTELLIGROUP,INC.NOTES TO CONSOLIDATED
        FINANCIAL STATEMENTS (CONTINUED) 
  DECEMBER 31,
2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.RESTATED
CONSOLIDATED BALANCE SHEET 
MARCH 31, 2002 
(unaudited)

RestatedFinancial Statements

The following restated
    consolidated balance sheets, statements of operations and comprehensive income
    (loss) and cash flows give effect to the correction of errors and other adjustments
    identified in the restatement and
    re-audit process discussed in
    Note 1.

|                                                       |                  |                          |             |          | Previously |   |   |             |   |  
|------------------------------------------------------ | ---------------- | ------------------------ | ----------- | -------- | ---------- | - | - | ----------- | - | -
|As
    Previously                                      | Reclassification | Reported
          After | Restatement | As      
|Reported                                               | Adjustments      | Reclassification         | Adjustments | Restated
|                                                       |                  |                          |             |         
|ASSETS                                                 |                  |                          |             |          |            |   |   |             |   |  
|CURRENT
          ASSETS                               |                  |                          |             |          |            |   |   |             |   |  
|Cash
        and cash equivalents                      | $                | 1,972,000                |             | $        | (543,000)  |   | $ | 1,429,000   |   | $
|Accounts
        receivable, net                       |                  | 13,654,000               |             |          | (1,610,000 | ) |   | 12,044,000  |   |  
|Unbilled
        services                              |                  | 6,973,000                |             |          | (485,000   | ) |   | 6,488,000   |   |  
|Deferred
        tax asset, current                    |                  | 1,736,000                |             |          | —          |   |   | 1,736,000   |   |  
|Prepaid
        expenses and other current assets      |                  | 3,924,000                |             |          | (1,479,000 | ) |   | 2,445,000   |   |  
|SeraNova
        receivable                            |                  | 9,140,000                |             |          | 1,245,000  |   |   | 10,385,000  |   |  
|Assets
        held for sale, current                  |                  | —                        |             |          | 2,872,000  |   |   | 2,872,000   |   |  
|                                                       |                  |                          |             |          |            |   |   |             |   |  
|Total
        current assets                           |                  | 37,399,000               |             |          | —          |   |   | 37,399,000  |   |  
|Property and equipment,
        net                    |                  | 7,486,000                |             |          | (267,000   | ) |   | 7,219,000   |   |  
|Other assets                                           |                  | 1,505,000                |             |          | (354,000   | ) |   | 1,151,000   |   |  
|Assets held for
        sale                           |                  | —                        |             |          | 621,000    |   |   | 621,000     |   |  
|                                                       |                  |                          |             |          |            |   |   |             |   |  
|Total
        assets                                   | $                | 46,390,000               |             | $        | —          |   | $ | 46,390,000  |   | $
|                                                       |                  |                          |             |          |            |   |   |             |   |  
|                                                       |                  |                          |             |          |            |   |   |             |   |  
|LIABILITIES
          AND SHAREHOLDERS' EQUITY         |                  |                          |             |          |            |   |   |             |   |  
|CURRENT
          LIABILITIES                          |                  |                          |             |          |            |   |   |             |   |  
|Line
        of credit                                 | $                | 4,725,000                |             | $        | —          |   | $ | 4,725,000   |   | $
|Accounts
        payable                               |                  | 4,150,000                |             |          | (996,000   | ) |   | 3,154,000   |   |  
|Accrued
        payroll and related taxes              |                  | 5,505,000                |             |          | (306,000   | ) |   | 5,199,000   |   |  
|Accrued
        expenses and other current liabilities |                  | 3,910,000                |             |          | (288,000   | ) |   | 3,622,000   |   |  
|Deferred
        revenue                               |                  | 256,000                  |             |          | —          |   |   | 256,000     |   |  
|Income
        taxes payable                           |                  | 457,000                  |             |          | (427,000   | ) |   | 30,000      |   |  
|Current
        portion of obligations                 |                  |                          |             |          |            |   |   |             |   |  
|under
        capital leases and other debt            |                  | 589,000                  |             |          | —          |   |   | 589,000     |   |  
|Liabilities
        held for sale, current             |                  | —                        |             |          | 2,017,000  |   |   | 2,017,000   |   |  
|                                                       |                  |                          |             |          |            |   |   |             |   |  
|Total
        current liabilities                      |                  | 19,592,000               |             |          | —          |   |   | 19,592,000  |   |  
|Long-term debt and
        obligations under           |                  |                          |             |          |            |   |   |             |   |  
|capital
        lease, net of current portion          |                  | 260,000                  |             |          | —          |   |   | 260,000     |   |  
|Deferred taxes                                         |                  | 170,000                  |             |          | —          |   |   | 170,000     |   |  
|Other long-term
        liabilities                    |                  | —                        |             |          | —          |   |   | —           |   |  
|                                                       |                  |                          |             |          |            |   |   |             |   |  
|Total
        liabilities                              |                  | 20,022,000               |             |          | —          |   |   | 20,022,000  |   |  
|                                                       |                  |                          |             |          |            |   |   |             |   |  
|Shareholders'
          Equity                         |                  |                          |             |          |            |   |   |             |   |  
|Preferred
        stock                                |                  | —                        |             |          | —          |   |   | —           |   |  
|Common
        stock                                   |                  | 166,000                  |             |          | —          |   |   | 166,000     |   |  
|Additional
        paid-in capital                     |                  | 41,366,000               |             |          | —          |   |   | 41,366,000  |   |  
|Accumulated
        deficit                            |                  | (10,674,000              | )           |          | —          |   |   | (10,674,000 | ) |  
|Accumulated
        other comprehensive loss           |                  | (4,490,000               | )           |          | —          |   |   | (4,490,000  | ) |  
|                                                       |                  |                          |             |          |            |   |   |             |   |  
|Total
        shareholders' equity                     |                  | 26,368,000               |             |          | —          |   |   | 26,368,000  |   |  
|                                                       |                  |                          |             |          |            |   |   |             |   |  
|Total
        liabilities and shareholders' equity     | $                | 46,390,000               |             | $        | —          |   | $ | 46,390,000  |   | $
|                                                       |                  |                          |             |          |            |   |   |             |   |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED
        FINANCIAL STATEMENTS (CONTINUED) 
    DECEMBER 31, 2004,
2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.RESTATED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE
  INCOME (LOSS) 
  FOR
      THE THREE MONTHS ENDED MARCH 31,
2002 
(unaudited)

RestatedFinancial Statements

The following restated
    consolidated balance sheets, statements of operations and comprehensive income
    (loss) and cash flows give effect to the correction of errors and other adjustments
    identified in the restatement and
    re-audit process discussed in
    Note 1.

|                                                                   | As
    Previously |            |   |   | As         |  
|------------------------------------------------------------------ | ----------------- | ---------- | - | - | ---------- | -
|Reported                                                           | Adjustments       | Restated  
|                                                                   |                   |            |   |   |           
|Revenue                                                            | $                 | 23,005,000 |   | $ | 282,000    |  
|Cost of revenue                                                    |                   | 16,025,000 |   |   | 184,000    |  
|                                                                   |                   |            |   |   |            |  
|Gross
        profit                                               |                   | 6,980,000  |   |   | 98,000     |  
|                                                                   |                   |            |   |   |            |  
|Selling, general
        and administrative expenses               |                   | 5,996,000  |   |   | —          |  
|Depreciation and
        amortization                              |                   | 692,000    |   |   | —          |  
|                                                                   |                   |            |   |   |            |  
|Total
        operating expenses                                   |                   | 6,688,000  |   |   | —          |  
|                                                                   |                   |            |   |   |            |  
|Operating
        income                                           |                   | 292,000    |   |   | 98,000     |  
|                                                                   |                   |            |   |   |            |  
|Interest income                                                    |                   | 7,000      |   |   | —          |  
|Interest expense                                                   |                   | (105,000   | ) |   | —          |  
|Other income                                                       |                   | 40,000     |   |   | 271,000    |  
|                                                                   |                   |            |   |   |            |  
|Income from continuing
        operations before income            |                   |            |   |   |            |  
|tax
        provision                                              |                   | 234,000    |   |   | 369,000    |  
|Provision for income
        taxes                                 |                   | 104,000    |   |   | (99,000    | )
|                                                                   |                   |            |   |   |            |  
|Income from continuing
        operations                          |                   | 130,000    |   |   | 468,000    |  
|                                                                   |                   |            |   |   |            |  
|Loss from discontinued
        operations                          |                   | (119,000   | ) |   | (95,000    | )
|                                                                   |                   |            |   |   |            |  
|Net income                                                         | $                 | 11,000     |   | $ | 373,000    |  
|                                                                   |                   |            |   |   |            |  
|Earnings (loss)
        per share:                                 |                   |            |   |   |            |  
|Basic
        earnings (loss) per share                            |                   |            |   |   |            |  
|Income
        from continuing operations                          | $                 | 0.01       |   | $ | 0.03       |  
|Discontinued
        operations                                    |                   | (0.01      | ) |   | (0.01      | )
|                                                                   |                   |            |   |   |            |  
|Net
        earnings per share                                     | $                 | 0.00       |   | $ | 0.02       |  
|                                                                   |                   |            |   |   |            |  
|Weighted
        average number of common shares                   |                   |            |   |   |            |  
|outstanding
       – basic                                         |                   | 16,630,000 |   |   | 16,630,000 |  
|                                                                   |                   |            |   |   |            |  
|Diluted
        earnings (loss) per share                          |                   |            |   |   |            |  
|Income
        from continuing operations                          | $                 | 0.01       |   | $ | 0.03       |  
|Discontinued
        operations                                    |                   | (0.01      | ) |   | (0.01      | )
|                                                                   |                   |            |   |   |            |  
|Net
        earnings per share                                     | $                 | 0.00       |   | $ | 0.02       |  
|                                                                   |                   |            |   |   |            |  
|Weighted
    average number of common shares outstanding – diluted |                   | 16,631,000 |   |   | 16,631,000 |  
|                                                                   |                   |            |   |   |            |  
|Comprehensive income
        (loss)                                |                   |            |   |   |            |  
|Net
        income                                                 | $                 | 11,000     |   | $ | 373,000    |  
|Other
        comprehensive loss                                   |                   |            |   |   |            |  
|Currency
        translation adjustments                           |                   | 1,466,000  |   |   | (1,790,000 | )
|                                                                   |                   |            |   |   |            |  
|Comprehensive income
        (loss)                                | $                 | 1,477,000  |   | $ | (1,417,000 | )
|                                                                   |                   |            |   |   |            |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS (CONTINUED)
  DECEMBER 31, 2004,
2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,INC.RESTATED
        CONSOLIDATED STATEMENT OF CASH FLOWS 
      FOR
      THE THREE MONTHS ENDED
      MARCH 31, 2002 
(unaudited)

|                                                                                  |             | As Previously |           |   |   | As       |  
|--------------------------------------------------------------------------------- | ----------- | ------------- | --------- | - | - | -------- | -
|Reported                                                                          | Adjustments | Restated     
|                                                                                  |             |               |           |   |   |          |  
|Cash flows
    from operating activities:                                         |             |               |           |   |   |          |  
|Net
        income                                                                |             | $             | 11,000    |   | $ | 373,000  |  
|Less:
        Loss from discontinued operations                                   |             |               | (119,000  | ) |   | (95,000  | )
|                                                                                  |             |               |           |   |   |          |  
|Income from continuing
        operations                                         |             |               | 130,000   |   |   | 468,000  |  
|Adjustments
    to reconcile net income to net  cash used in operating activities |             |               | (218,000  | ) |   | (872,000 | )
|                                                                                  |             |               |           |   |   |          |  
|Net cash
        used in operating activities of continuing
        operations    |             |               | (88,000   | ) |   | (404,000 | )
|                                                                                  |             |               |           |   |   |          |  
|Cash flows from
        investing activities:                                     |             |               |           |   |   |          |  
|Purchase of
        property and equipment                                        |             |               | (298,000  | ) |   | (28,000  | )
|                                                                                  |             |               |           |   |   |          |  
|Net cash used in
        investing activities                                     |             |               | (298,000  | ) |   | (28,000  | )
|                                                                                  |             |               |           |   |   |          |  
|Cash flows from
        financing activities:                                     |             |               |           |   |   |          |  
|Principal
        payments under capital leases                                   |             |               | (165,000  | ) |   | 147,000  |  
|Net change
        in line of credit borrowings                                   |             |               | 659,000   |   |   | 1,000    |  
|                                                                                  |             |               |           |   |   |          |  
|Net cash provided
        by financing activities                                 |             |               | 494,000   |   |   | 148,000  |  
|                                                                                  |             |               |           |   |   |          |  
|Effect of foreign
        currency exchange rate changes on cash                  |             |               | (424,000  | ) |   | 406,000  |  
|                                                                                  |             |               |           |   |   |          |  
|Net cash used in
        continuing operations                                    |             |               | (316,000  | ) |   | 122,000  |  
|Net cash provided
        by discontinued operations                              |             |               | 125,000   |   |   | (122,000 | )
|                                                                                  |             |               |           |   |   |          |  
|Net decrease in
        cash and cash equivalents                                 |             |               | (191,000  | ) |   | —        |  
|Cash and cash equivalents
        - beginning of period                           |             |               | 1,620,000 |   |   | —        |  
|                                                                                  |             |               |           |   |   |          |  
|Cash and cash equivalents
        - end of period                                 |             | $             | 1,429,000 |   | $ | —        |  
|                                                                                  |             |               |           |   |   |          |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004,
2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
      INC.
  RESTATED CONSOLIDATED BALANCE SHEET
  JUNE 30,
  2002(unaudited)

|                                                       |                  |                          |             |          |   |            |   | Previously |             |   |   |            |   |   |            
|------------------------------------------------------ | ---------------- | ------------------------ | ----------- | -------- | - | ---------- | - | ---------- | ----------- | - | - | ---------- | - | - | -----------
|As
          Previously                                | Reclassification | Reported
          After | Restatement | As      
|Reported                                               | Adjustments      | Reclassification         | Adjustments | Restated
|                                                       |                  |                          |             |          |   |            |   |            |             |   |   |            |   |  
|ASSETS                                                 |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|CURRENT
          ASSETS                               |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|Cash
        and cash equivalents                      |                  | $                        | 1,375,000   |          | $ | (415,000   | ) | $          | 960,000     |   | $ | —          |   | $ | 960,000    
|Accounts
        receivable, net                       |                  |                          | 17,173,000  |          |   | (1,520,000 | ) |            | 15,653,000  |   |   | 95,000     |   |   | 15,748,000 
|Unbilled
        services                              |                  |                          | 4,673,000   |          |   | (385,000   | ) |            | 4,288,000   |   |   | 1,170,000  |   |   | 5,458,000  
|Deferred
        tax asset, current                    |                  |                          | 1,736,000   |          |   | —          |   |            | 1,736,000   |   |   | (1,736,000 | ) |   | —          
|Prepaid
        expenses and other current assets      |                  |                          | 3,083,000   |          |   | (299,000   | ) |            | 2,784,000   |   |   | (297,000   | ) |   | 2,487,000  
|SeraNova
        receivable                            |                  |                          | 4,000,000   |          |   | —          |   |            | 4,000,000   |   |   | (4,000,000 | ) |   | —          
|Assets
        held for sale, current                  |                  |                          | —           |          |   | 2,619,000  |   |            | 2,619,000   |   |   | —          |   |   | 2,619,000  
|                                                       |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|Total
        current assets                           |                  |                          | 32,040,000  |          |   | —          |   |            | 32,040,000  |   |   | (4,768,000 | ) |   | 27,272,000 
|Property and equipment,
        net                    |                  |                          | 7,178,000   |          |   | (275,000   | ) |            | 6,903,000   |   |   | 45,000     |   |   | 6,948,000  
|Other assets                                           |                  |                          | 1,003,000   |          |   | (374,000   | ) |            | 629,000     |   |   | 376,000    |   |   | 1,005,000  
|Assets held for
        sale                           |                  |                          | —           |          |   | 649,000    |   |            | 649,000     |   |   | (42,000    | ) |   | 607,000    
|                                                       |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|Total
        assets                                   |                  | $                        | 40,221,000  |          | $ | —          |   | $          | 40,221,000  |   | $ | (4,389,000 | ) | $ | 35,832,000 
|                                                       |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|LIABILITIES
          AND SHAREHOLDERS' EQUITY         |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|CURRENT
          LIABILITIES                          |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|Line
        of credit                                 |                  | $                        | 4,041,000   |          | $ | —          |   | $          | 4,041,000   |   | $ | —          |   | $ | 4,041,000  
|Accounts
        payable                               |                  |                          | 3,796,000   |          |   | (274,000   | ) |            | 3,522,000   |   |   | —          |   |   | 3,522,000  
|Accrued
        payroll and related taxes              |                  |                          | 6,200,000   |          |   | (227,000   | ) |            | 5,973,000   |   |   | 1,255,000  |   |   | 7,228,000  
|Accrued
        expenses and other current liabilities |                  |                          | 4,603,000   |          |   | 625,000    |   |            | 5,228,000   |   |   | (1,452,000 | ) |   | 3,776,000  
|Deferred
        revenue                               |                  |                          | 854,000     |          |   | —          |   |            | 854,000     |   |   | 1,245,000  |   |   | 2,099,000  
|Income
        taxes payable                           |                  |                          | 586,000     |          |   | (352,000   | ) |            | 234,000     |   |   | 218,000    |   |   | 452,000    
|Current
        portion of obligations                 |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|under
        capital leases and other debt            |                  |                          | 529,000     |          |   | 1,000      |   |            | 530,000     |   |   | 149,000    |   |   | 679,000    
|Liabilities
        held for sale, current             |                  |                          | —           |          |   | 1,310,000  |   |            | 1,310,000   |   |   | —          |   |   | 1,310,000  
|                                                       |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|Total
        current liabilities                      |                  |                          | 20,609,000  |          |   | 1,083,000  |   |            | 21,692,000  |   |   | 1,415,000  |   |   | 23,107,000 
|Long-term debt and
        obligations under           |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|capital
        lease, net of current portion          |                  |                          | 156,000     |          |   | —          |   |            | 156,000     |   |   | (53,000    | ) |   | 103,000    
|Deferred taxes                                         |                  |                          | 154,000     |          |   | —          |   |            | 154,000     |   |   | (154,000   | ) |   | —          
|Other long-term
        liabilities                    |                  |                          | 1,082,000   |          |   | (1,082,000 | ) |            | —           |   |   | 1,371,000  |   |   | 1,371,000  
|                                                       |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|Total
        liabilities                              |                  |                          | 22,001,000  |          |   | 1,000      |   |            | 22,002,000  |   |   | 2,579,000  |   |   | 24,581,000 
|                                                       |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|Shareholders'
          Equity                         |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|Preferred
        stock                                |                  |                          | —           |          |   | —          |   |            | —           |   |   | —          |   |   | —          
|Common
        stock                                   |                  |                          | 166,000     |          |   | —          |   |            | 166,000     |   |   | —          |   |   | 166,000    
|Additional
        paid-in capital                     |                  |                          | 41,366,000  |          |   | —          |   |            | 41,366,000  |   |   | —          |   |   | 41,366,000 
|Accumulated
        deficit                            |                  |                          | (19,234,000 | )        |   | (1,000     | ) |            | (19,235,000 | ) |   | (9,631,000 | ) |   | (28,866,000
|Accumulated
        other comprehensive loss           |                  |                          | (4,078,000  | )        |   | —          |   |            | (4,078,000  | ) |   | 2,663,000  |   |   | (1,415,000 
|                                                       |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|Total
        shareholders' equity                     |                  |                          | 18,220,000  |          |   | (1,000     | ) |            | 18,219,000  |   |   | (6,968,000 | ) |   | 11,251,000 
|                                                       |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            
|Total
        liabilities and shareholders' equity     |                  | $                        | 40,221,000  |          | $ | —          |   | $          | 40,221,000  |   | $ | (4,389,000 | ) | $ | 35,832,000 
|                                                       |                  |                          |             |          |   |            |   |            |             |   |   |            |   |   |            

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INTELLIGROUP, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003
AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC. 
RESTATED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) 
FOR THE SIX MONTHS ENDED JUNE 30, 2002 
(unaudited)

|                                                                         |             | As
          Previously |   |   |             |   |   | As         |  
|------------------------------------------------------------------------ | ----------- | ----------------------- | - | - | ----------- | - | - | ---------- | -
|Reported                                                                 | Adjustments | Restated               
|                                                                         |             |                         |   |   |             |   |   |            |  
|Revenue                                                                  | $           | 47,811,000              |   | $ | 1,243,000   |   | $ | 49,054,000 |  
|Cost of revenue                                                          |             | 32,947,000              |   |   | 313,000     |   |   | 33,260,000 |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Gross
        profit                                                     |             | 14,864,000              |   |   | 930,000     |   |   | 15,794,000 |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Selling, general
        and administrative expenses                     |             | 12,467,000              |   |   | (135,000    | ) |   | 12,332,000 |  
|Depreciation and
        amortization                                    |             | 1,327,000               |   |   | —           |   |   | 1,327,000  |  
|SeraNova receivable
    and impairment and other  charges                |             | 8,362,000               |   |   | (8,307,000  | ) |   | 55,000     |  
|Proxy contest charges                                                    |             | 464,000                 |   |   | —           |   |   | 464,000    |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Total
        operating expenses                                         |             | 22,620,000              |   |   | (8,442,000) |   |   | 14,178,000 |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Operating
        income (loss)                                          |             | (7,756,000              | ) |   | 9,372,000   |   |   | 1,616,000  |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Interest income                                                          |             | 18,000                  |   |   | —           |   |   | 18,000     |  
|Interest expense                                                         |             | (200,000                | ) |   | —           |   |   | (200,000   | )
|Other income                                                             |             | 56,000                  |   |   | 258,000     |   |   | 314,000    |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Income
    (loss) from continuing operations before income tax provision |             | (7,882,000              | ) |   | 9,630,000   |   |   | 1,748,000  |  
|Provision for income
        taxes                                       |             | 310,000                 |   |   | (245,000    | ) |   | 65,000     |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Income (loss) from
        continuing operations                         |             | (8,192,000              | ) |   | 9,875,000   |   |   | 1,683,000  |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Loss from discontinued
        operations                                |             | (358,000                | ) |   | (29,000     | ) |   | (387,000   | )
|                                                                         |             |                         |   |   |             |   |   |            |  
|Net income (loss)                                                        | $           | (8,550,000              | ) | $ | 9,846,000   |   | $ | 1,296,000  |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Earnings (loss)
        per share:                                       |             |                         |   |   |             |   |   |            |  
|Basic
        earnings (loss) per share                                  |             |                         |   |   |             |   |   |            |  
|Income
        (loss) from continuing operations                         | $           | (0.49                   | ) | $ | 0.59        |   | $ | 0.10       |  
|Discontinued
        operations                                          |             | (0.02                   | ) |   | (0.00       | ) |   | (0.02      | )
|                                                                         |             |                         |   |   |             |   |   |            |  
|Net
        earnings (loss) per share                                    | $           | (0.51                   | ) | $ | 0.59        |   | $ | 0.08       |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Weighted
        average number of common shares                         |             |                         |   |   |             |   |   |            |  
|outstanding
        - basic                                              |             | 16,630,000              |   |   | 16,630,000  |   |   | 16,630,000 |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Diluted
        earnings (loss) per share                                |             |                         |   |   |             |   |   |            |  
|Income
        (loss) from continuing operations                         | $           | (0.49                   | ) | $ | 0.59        |   | $ | 0.10       |  
|Discontinued
        operations                                          |             | (0.02                   | ) |   | (0.00       | ) |   | (0.02      | )
|                                                                         |             |                         |   |   |             |   |   |            |  
|Net
        earnings (loss) per share                                    | $           | (0.51                   | ) | $ | 0.59        |   | $ | 0.08       |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Weighted
    average number of common shares outstanding - diluted       |             | 16,630,000              |   |   | 16,639,000  |   |   | 16,639,000 |  
|                                                                         |             |                         |   |   |             |   |   |            |  
|Comprehesnive income
        (loss)                                      |             |                         |   |   |             |   |   |            |  
|Net
        income (loss)                                                | $           | (8,550,000              | ) | $ | 9,846,000   |   | $ | 1,296,000  |  
|Other
        comprehensive loss                                         |             |                         |   |   |             |   |   |            |  
|Currency
        translation adjustments                                 |             | (13,000                 | ) |   | (392,000    | ) |   | (405,000   | )
|                                                                         |             |                         |   |   |             |   |   |            |  
|Comprehensive income
        (loss)                                      | $           | (8,563,000              | ) | $ | 9,454,000   |   | $ | 891,000    |  
|                                                                         |             |                         |   |   |             |   |   |            |  

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INTELLIGROUP,
      INC. 
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
      INC. 
  RESTATED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) 
  FOR THE SIX MONTHS ENDED JUNE 30, 2002 
  (unaudited)

|                                                                   |   | As
          Previously |   |          |            |   |   | As         |  
|------------------------------------------------------------------ | - | ----------------------- | - | -------- | ---------- | - | - | ---------- | -
|Reported                                                           |   | Adjustments             |   | Restated
|                                                                   |   |                         |   |          |            |   |   |            |  
|Revenue                                                            | $ | 24,806,000              |   | $        | 961,000    |   | $ | 25,767,000 |  
|Cost of revenue                                                    |   | 16,922,000              |   |          | 129,000    |   |   | 17,051,000 |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|Gross
        profit                                               |   | 7,884,000               |   |          | 832,000    |   |   | 8,716,000  |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|Selling, general
        and administrative expenses               |   | 6,471,000               |   |          | (135,000   | ) |   | 6,336,000  |  
|Depreciation and
        amortization                              |   | 635,000                 |   |          | —          |   |   | 635,000    |  
|SeraNova receivable
    and impairment and other charges           |   | 8,362,000               |   |          | (8,307,000 | ) |   | 55,000     |  
|Proxy contest charges                                              |   | 464,000                 |   |          | —          |   |   | 464,000    |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|Total
        operating expenses                                   |   | 15,932,000              |   |          | (8,442,000 | ) |   | 7,490,000  |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|Operating
        income (loss)                                    |   | (8,048,000              | ) |          | 9,274,000  |   |   | 1,226,000  |  
|Interest income                                                    |   | 11,000                  |   |          | —          |   |   | 11,000     |  
|Interest expense                                                   |   | (95,000                 | ) |          | —          |   |   | (95,000    | )
|Other income                                                       |   | 16,000                  |   |          | (13,000    | ) |   | 3,000      |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|Income (loss) from
        continuing operations before income     |   |                         |   |          |            |   |   |            |  
|tax provision                                                      |   | (8,116,000              | ) |          | 9,261,000  |   |   | 1,145,000  |  
|Provision for income
        taxes                                 |   | 206,000                 |   |          | (146,000   | ) |   | 60,000     |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|Income (loss) from
        continuing operations                   |   | (8,322,000              | ) |          | 9,407,000  |   |   | 1,085,000  |  
|Loss from discontinued
        operations                          |   | (239,000                | ) |          | 66,000     |   |   | (173,000   | )
|                                                                   |   |                         |   |          |            |   |   |            |  
|Net income (loss)                                                  | $ | (8,561,000              | ) | $        | 9,473,000  |   | $ | 912,000    |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|Earnings (loss)
        per share:                                 |   |                         |   |          |            |   |   |            |  
|Basic
        earnings (loss) per share                            |   |                         |   |          |            |   |   |            |  
|Income
        (loss) from continuing operations                   | $ | (0.50                   | ) | $        | 0.56       |   | $ | 0.06       |  
|Discontinued
        operations                                    |   | (0.01                   | ) |          | 0.00       |   |   | (0.01      | )
|                                                                   |   |                         |   |          |            |   |   |            |  
|Net
        earnings (loss) per share                              | $ | (0.51                   | ) | $        | 0.56       |   | $ | 0.05       |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|Weighted
        average number of common shares                   |   |                         |   |          |            |   |   |            |  
|outstanding
        - basic                                        |   | 16,630,000              |   |          | 16,630,000 |   |   | 16,630,000 |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|Diluted
        earnings (loss) per share                          |   |                         |   |          |            |   |   |            |  
|Income
        (loss) from continuing operations                   | $ | (0.50                   | ) | $        | 0.56       |   | $ | 0.06       |  
|Discontinued
        operations                                    |   | (0.01                   | ) |          | 0.00       |   |   | (0.01      | )
|                                                                   |   |                         |   |          |            |   |   |            |  
|Net
        earnings (loss) per share                              | $ | (0.51                   | ) | $        | 0.56       |   | $ | 0.05       |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|Weighted
    average number of common shares outstanding – diluted |   | 16,630,000              |   |          | 16,651,000 |   |   | 16,651,000 |  
|                                                                   |   |                         |   |          |            |   |   |            |  
|Comprehesnive income
        (loss)                                |   |                         |   |          |            |   |   |            |  
|Net
        income (loss)                                          | $ | (8,561,000              | ) | $        | 9,473,000  |   | $ | 912,000    |  
|Other
        comprehensive income (loss)                          |   |                         |   |          |            |   |   |            |  
|Currency
        translation adjustments                           |   | 412,000                 |   |          | (493,000   | ) |   | (81,000    | )
|                                                                   |   |                         |   |          |            |   |   |            |  
|Comprehensive income
        (loss)                                | $ | (8,149,000              | ) | $        | 8,980,000  |   | $ | 831,000    |  
|                                                                   |   |                         |   |          |            |   |   |            |  



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INTELLIGROUP,
      INC. 
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
      INC. 
  RESTATED CONSOLIDATED STATEMENT OF CASH FLOWS
  FOR THE SIX MONTHS ENDED JUNE 30, 2002 
  (unaudited)

|                                                                 | As
        Previously |            |   |   |             |   | As |           
|---------------------------------------------------------------- | --------------------- | ---------- | - | - | ----------- | - | -- | ----------
|Reported                                                         | Adjustments           | Restated  
|                                                                 |                       |            |   |   |             |   |    |           
|Cash flows from
        operating activities:                    |                       |            |   |   |             |   |    |           
|Net
        income (loss)                                        | $                     | (8,550,000 | ) | $ | 9,846,000   |   | $  | 1,296,000 
|Less:
        Loss from discontinued operations                  |                       | (358,000   | ) |   | (29,000     | ) |    | (387,000  
|                                                                 |                       |            |   |   |             |   |    |           
|Income (loss) from
        continuing operations                 |                       | (8,192,000 | ) |   | 9,875,000   |   |    | 1,683,000 
|Adjustments to reconcile
        net income (loss) to net        |                       |            |   |   |             |   |    |           
|cash
        provided by operating activities                    |                       | 9,298,000  |   |   | (10,353,000 | ) |    | (1,055,000
|                                                                 |                       |            |   |   |             |   |    |           
|Net cash provided
        by operating activities of             |                       |            |   |   |             |   |    |           
|continuing
        operations                                    |                       | 1,106,000  |   |   | (478,000    | ) |    | 628,000   
|                                                                 |                       |            |   |   |             |   |    |           
|Cash flows from
        investing activities:                    |                       |            |   |   |             |   |    |           
|Purchase
        of property and equipment                       |                       | (798,000   | ) |   | 281,000     |   |    | (517,000  
|                                                                 |                       |            |   |   |             |   |    |           
|Net cash used in
        investing activities                    |                       | (798,000   | ) |   | 281,000     |   |    | (517,000  
|                                                                 |                       |            |   |   |             |   |    |           
|Cash flows from
        financing activities:                    |                       |            |   |   |             |   |    |           
|Principal
        payments under capital leases                  |                       | (334,000   | ) |   | 144,000     |   |    | (190,000  
|Net
        change in line of credit borrowings                  |                       | (26,000    | ) |   | 1,000       |   |    | (25,000   
|                                                                 |                       |            |   |   |             |   |    |           
|Net cash used in
        financing activities                    |                       | (360,000   | ) |   | 145,000     |   |    | (215,000  
|                                                                 |                       |            |   |   |             |   |    |           
|Effect of foreign
        currency exchange rate changes on cash |                       | (13,000    | ) |   | 33,000      |   |    | 20,000    
|                                                                 |                       |            |   |   |             |   |    |           
|Net cash used in
        continuing operations                   |                       | (65,000    | ) |   | (19,000     | ) |    | (84,000   
|Net cash used in
        discontinued operations                 |                       | (595,000   | ) |   | 19,000      |   |    | (576,000  
|                                                                 |                       |            |   |   |             |   |    |           
|Net decrease in
        cash and cash equivalents                |                       | (660,000   | ) |   | —           |   |    | (660,000  
|Cash and cash equivalents
        - beginning of period          |                       | 1,620,000  |   |   | —           |   |    | 1,620,000 
|                                                                 |                       |            |   |   |             |   |    |           
|Cash and cash equivalents
        - end of period                | $                     | 960,000    |   | $ | —           |   | $  | 960,000   
|                                                                 |                       |            |   |   |             |   |    |           

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INTELLIGROUP,
      INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  DECEMBER 31,
2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
      INC.RESTATED CONSOLIDATED
    BALANCE SHEET
SEPTEMBER 30, 2002
(unaudited)

|                                                                                           |                  |                          |             |          |            |   | Previously |             |   |   |             |   |             |           
|------------------------------------------------------------------------------------------ | ---------------- | ------------------------ | ----------- | -------- | ---------- | - | ---------- | ----------- | - | - | ----------- | - | ----------- | ----------
|As
    Previously                                                                          | Reclassification | Reported
          After | Restatement | As      
|Reported                                                                                   | Adjustments      | Reclassification         | Adjustments | Restated
|                                                                                           |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|ASSETS                                                                                     |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|CURRENT
          ASSETS                                                                   |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|Cash and cash equivalents                                                                  | $                | 1,980,000                |             | $        | (394,000   | ) | $          | 1,586,000   |   | $ | —           |   | $           | 1,586,000 
|Accounts receivable,
        net                                                           |                  | 16,087,000               |             |          | (1,156,000 | ) |            | 14,931,000  |   |   | 33,000      |   |             | 14,964,000
|Unbilled services                                                                          |                  | 7,992,000                |             |          | (518,000   | ) |            | 7,474,000   |   |   | 110,000     |   |             | 7,584,000 
|Deferred tax asset,
        current                                                        |                  | 1,736,000                |             |          | —          |   |            | 1,736,000   |   |   | (1,736,000  | ) |             | —         
|Prepaid expenses
        and other current assets                                          |                  | 2,461,000                |             |          | (121,000   | ) |            | 2,340,000   |   |   | (775,000    | ) |             | 1,565,000 
|SeraNova receivable                                                                        |                  | 4,000,000                |             |          | —          |   |            | 4,000,000   |   |   | (4,000,000  | ) |             | —         
|Assets held for
        sale, current                                                      |                  | —                        |             |          | 2,189,000  |   |            | 2,189,000   |   |   | —           |   |             | 2,189,000 
|                                                                                           |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|Total current assets                                                                       |                  | 34,256,000               |             |          | —          |   |            | 34,256,000  |   |   | (6,368,000  | ) |             | 27,888,000
|Property and equipment,
        net                                                        |                  | 6,619,000                |             |          | (283,000   | ) |            | 6,336,000   |   |   | 3,000       |   |             | 6,339,000 
|Other assets                                                                               |                  | 1,141,000                |             |          | (361,000   | ) |            | 780,000     |   |   | 363,000     |   |             | 1,143,000 
|Assets held for
        sale                                                               |                  | —                        |             |          | 644,000    |   |            | 644,000     |   |   | —           |   |             | 644,000   
|                                                                                           |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|Total assets                                                                               | $                | 42,016,000               |             | $        | —          |   | $          | 42,016,000  |   | $ | (6,002,000  | ) | $           | 36,014,000
|                                                                                           |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|LIABILITIES
          AND SHAREHOLDERS' EQUITY                                             |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|CURRENT
          LIABILITIES                                                              |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|Line of credit                                                                             | $                | 5,099,000                |             | $        | —          |   | $          | 5,099,000   |   | $ | —           |   | $           | 5,099,000 
|Accounts payable                                                                           |                  | 4,213,000                |             |          | (230,000   | ) |            | 3,983,000   |   |   | —           |   |             | 3,983,000 
|Accrued payroll
        and related taxes                                                  |                  | 6,863,000                |             |          | (540,000   | ) |            | 6,323,000   |   |   | 1,382,000   |   |             | 7,705,000 
|Accrued expenses
        and other current liabilities                                     |                  | 4,106,000                |             |          | 817,000    |   |            | 4,923,000   |   |   | (1,248,000  | ) |             | 3,675,000 
|Deferred revenue                                                                           |                  | 1,228,000                |             |          | —          |   |            | 1,228,000   |   |   | 389,000     |   |             | 1,617,000 
|Income taxes payable                                                                       |                  | 488,000                  |             |          | (108,000   | ) |            | 380,000     |   |   | 37,000      |   |             | 417,000   
|Current portion of
        obligations under capital leases
        and other debt         |                  | 444,000                  |             |          | —          |   |            | 444,000     |   |   | 126,000     |   |             | 570,000   
|Liabilities held
        for sale, current                                                 |                  | —                        |             |          | 1,090,000  |   |            | 1,090,000   |   |   | —           |   |             | 1,090,000 
|                                                                                           |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|Total current liabilities                                                                  |                  | 22,441,000               |             |          | 1,029,000  |   |            | 23,470,000  |   |   | 686,000     |   |             | 24,156,000
|                                                                                           |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|Long-term debt and
        obligations under capital lease, net
        of current portion |                  | 67,000                   |             |          | —          |   |            | 67,000      |   |   | (53,000     | ) |             | 14,000    
|Deferred taxes                                                                             |                  | 167,000                  |             |          | —          |   |            | 167,000     |   |   | (167,000    | ) |             | —         
|Other long-term
        liabilities                                                        |                  | 1,029,000                |             |          | (1,029,000 | ) |            | —           |   |   | 2,120,000   |   |             | 2,120,000 
|                                                                                           |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|Total liabilities                                                                          |                  | 23,704,000               |             |          | —          |   |            | 23,704,000  |   |   | 2,586,000   |   |             | 26,290,000
|                                                                                           |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|Shareholders'
          Equity                                                             |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|Preferred stock                                                                            |                  | —                        |             |          | —          |   |            | —           |   |   | —           |   |             | —         
|Common stock                                                                               |                  | 166,000                  |             |          | —          |   |            | 166,000     |   |   | —           |   |             | 166,000   
|Additional paid-in
        capital                                                         |                  | 41,366,000               |             |          | —          |   |            | 41,366,000  |   |   | —           |   |             | 41,366,000
|Accumulated deficit                                                                        |                  | (19,222,000              | )           |          | —          |   |            | (19,222,000 | ) |   | (11,408,000 | ) | (30,630,000 | )         
|Accumulated other
        comprehensive loss                                               |                  | (3,998,000               | )           |          | —          |   |            | (3,998,000  | ) |   | 2,820,000   |   |             | (1,178,000
|                                                                                           |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|Total shareholders'
        equity                                                         |                  | 18,312,000               |             |          | —          |   |            | 18,312,000  |   |   | (8,588,000  | ) |             | 9,724,000 
|                                                                                           |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           
|Total liabilities
        and shareholders' equity                                         | $                | 42,016,000               |             | $        | —          |   | $          | 42,016,000  |   | $ | (6,002,000  | ) | $           | 36,014,000
|                                                                                           |                  |                          |             |          |            |   |            |             |   |   |             |   |             |           

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INTELLIGROUP,
      INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31,
2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
INC.
RESTATED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(unaudited)

|                                                                                     | As
          Previously |            |   |   | As         |  
|------------------------------------------------------------------------------------ | ----------------------- | ---------- | - | - | ---------- | -
|Reported                                                                             | Adjustments             | Restated  
|                                                                                     |                         |            |   |   |            |  
|Revenue                                                                              | $                       | 74,479,000 |   | $ | 838,000    |  
|Cost of revenue                                                                      |                         | 51,581,000 |   |   | 458,000    |  
|                                                                                     |                         |            |   |   |            |  
|Gross
        profit                                                                 |                         | 22,898,000 |   |   | 380,000    |  
|                                                                                     |                         |            |   |   |            |  
|Selling, general
        and administrative expenses                                 |                         | 18,791,000 |   |   | (137,000   | )
|Depreciation and
        amortization                                                |                         | 1,942,000  |   |   | —          |  
|SeraNova receivable
    and impairment and other charges                             |                         | 8,362,000  |   |   | (7,782,000 | )
|Proxy contest charges                                                                |                         | 876,000    |   |   | 750,000    |  
|                                                                                     |                         |            |   |   |            |  
|Total
        operating expenses                                                     |                         | 29,971,000 |   |   | (7,169,000 | )
|                                                                                     |                         |            |   |   |            |  
|Operating
        income (loss)                                                      |                         | (7,073,000 | ) |   | 7,549,000  |  
|Interest income                                                                      |                         | 22,000     |   |   | —          |  
|Interest expense                                                                     |                         | (297,000   | ) |   | —          |  
|Other income                                                                         |                         | 48,000     |   |   | 221,000    |  
|                                                                                     |                         |            |   |   |            |  
|Income (loss) from
        continuing operations before income tax
        provision |                         | (7,300,000 | ) |   | 7,770,000  |  
|Provision for income
        taxes                                                   |                         | 492,000    |   |   | (304,000   | )
|                                                                                     |                         |            |   |   |            |  
|Income (loss) from
        continuing operations                                     |                         | (7,792,000 | ) |   | 8,074,000  |  
|Loss from discontinued
        operations                                            |                         | (745,000   | ) |   | (7,000     | )
|                                                                                     |                         |            |   |   |            |  
|Net loss                                                                             | $                       | (8,537,000 | ) | $ | 8,067,000  |  
|                                                                                     |                         |            |   |   |            |  
|Earnings (loss)
        per share:                                                   |                         |            |   |   |            |  
|Basic
        earnings (loss) per share                                              |                         |            |   |   |            |  
|Income
        (loss) from continuing operations                                     | $                       | (0.47      | ) | $ | 0.48       |  
|Discontinued
        operations                                                      |                         | (0.04      | ) |   | (0.00      | )
|                                                                                     |                         |            |   |   |            |  
|Net
        loss per share                                                           | $                       | (0.51      | ) | $ | 0.48       |  
|                                                                                     |                         |            |   |   |            |  
|Weighted
        average number of common shares outstanding
        - basic         |                         | 16,630,000 |   |   | 16,630,000 |  
|                                                                                     |                         |            |   |   |            |  
|Diluted
        earnings (loss) per share                                            |                         |            |   |   |            |  
|Income
        (loss) from continuing operations                                     | $                       | (0.47      | ) | $ | 0.48       |  
|Discontinued
        operations                                                      |                         | (0.04      | ) |   | (0.00      | )
|                                                                                     |                         |            |   |   |            |  
|Net
        loss per share                                                           | $                       | (0.51      | ) | $ | 0.48       |  
|                                                                                     |                         |            |   |   |            |  
|Weighted
        average number of common shares outstanding
        - diluted       |                         | 16,630,000 |   |   | 16,630,000 |  
|                                                                                     |                         |            |   |   |            |  
|Comprehensive loss                                                                   |                         |            |   |   |            |  
|Net
        loss                                                                     | $                       | (8,537,000 | ) | $ | 8,067,000  |  
|                                                                                     |                         |            |   |   |            |  
|Other
        comprehensive income (loss)                                            |                         | 67,000     |   |   | (235,000   | )
|Currency translation
    adjustments                                                 |                         |            |   |   |            |  
|Comprehensive loss                                                                   | $                       | (8,470,000 | ) | $ | 7,832,000  |  
|                                                                                     |                         |            |   |   |            |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED
  FINANCIAL STATEMENTS (CONTINUED)
  DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.RESTATED CONSOLIDATED STATEMENT
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED SEPTEMBER
30, 2002
(unaudited)

|                                                                                | As Previously |            |   |   |            | As |  
|------------------------------------------------------------------------------- | ------------- | ---------- | - | - | ---------- | -- | -
|Reported                                                                        | Adjustments   | Restated  
|                                                                                |               |            |   |   |            |    |  
|Revenue                                                                         | $             | 26,668,000 |   | $ | (405,000   | )  | $
|Cost of revenue                                                                 |               | 18,634,000 |   |   | 145,000    |    |  
|                                                                                |               |            |   |   |            |    |  
|Gross
    profit                                                                |               | 8,034,000  |   |   | (550,000   | )  |  
|                                                                                |               |            |   |   |            |    |  
|Selling, general and administrative expenses                                    |               | 6,324,000  |   |   | (2,000     | )  |  
|Depreciation and amortization                                                   |               | 615,000    |   |   | —          |    |  
|SeraNova receivable
    and impairment and other charges                        |               | —          |   |   | 525,000    |    |  
|Proxy contest charges                                                           |               | 412,000    |   |   | 750,000    |    |  
|                                                                                |               |            |   |   |            |    |  
|Total
    operating expenses                                                    |               | 7,351,000  |   |   | 1,273,000  |    |  
|                                                                                |               |            |   |   |            |    |  
|Operating
    income (loss)                                                     |               | 683,000    |   |   | (1,823,000 | )  |  
|Interest income                                                                 |               | 4,000      |   |   | —          |    |  
|Interest expense                                                                |               | (97,000    | ) |   | —          |    |  
|Other expense                                                                   |               | (9,000     | ) |   | (37,000    | )  |  
|                                                                                |               |            |   |   |            |    |  
|Income (loss) from
       continuing operations before income tax
    provision |               | 581,000    |   |   | (1,860,000 | )  |  
|Provision for income taxes                                                      |               | 181,000    |   |   | (59,000    | )  |  
|                                                                                |               |            |   |   |            |    |  
|Income (loss) from continuing operations                                        |               | 400,000    |   |   | (1,801,000 | )  |  
|Loss from discontinued operations                                               |               | (387,000   | ) |   | 22,000     |    |  
|                                                                                |               |            |   |   |            |    |  
|Net income (loss)                                                               | $             | 13,000     |   | $ | (1,779,000 | )  | $
|                                                                                |               |            |   |   |            |    |  
|Earnings (loss) per share:                                                      |               |            |   |   |            |    |  
|Basic
    earnings (loss) per share                                             |               |            |   |   |            |    |  
|Income
    (loss) from continuing operations                                    | $             | 0.02       |   | $ | (0.11      | )  | $
|Discontinued
    operations                                                     |               | (0.02      | ) |   | 0.00       |    |  
|                                                                                |               |            |   |   |            |    |  
|Net
    earnings (loss) per share                                               | $             | 0.00       |   | $ | (0.11      | )  | $
|                                                                                |               |            |   |   |            |    |  
|Weighted
       average number of common shares outstanding
    - basic         |               | 16,630,000 |   |   | 16,630,000 |    |  
|                                                                                |               |            |   |   |            |    |  
|Diluted
    earnings (loss) per share                                           |               |            |   |   |            |    |  
|Income
    (loss) from continuing operations                                    | $             | 0.02       |   | $ | (0.11      | )  | $
|Discontinued
    operations                                                     |               | (0.02      | ) |   | 0.00       |    |  
|                                                                                |               |            |   |   |            |    |  
|Net
    earnings (loss) per share                                               | $             | 0.00       |   | $ | (0.11      | )  | $
|                                                                                |               |            |   |   |            |    |  
|Weighted
       average number of common shares outstanding
    - diluted       |               | 16,633,000 |   |   | 16,630,000 |    |  
|                                                                                |               |            |   |   |            |    |  
|Comprehenive income (loss)                                                      |               |            |   |   |            |    |  
|Net
    income (loss)                                                           | $             | 13,000     |   | $ | (1,779,000 | )  | $
|Other
    comprehensive income                                                  |               |            |   |   |            |    |  
|Currency
    translation adjustments                                            |               | 80,000     |   |   | 157,000    |    |  
|                                                                                |               |            |   |   |            |    |  
|Comprehensive income (loss)                                                     | $             | 93,000     |   | $ | (1,622,000 | )  | $
|                                                                                |               |            |   |   |            |    |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)DECEMBER 31, 2004, 2003 AND
      2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.  RESTATED CONSOLIDATED
  STATEMENT OF CASH FLOWS
  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
  (unaudited)




|                                                                                          | As Previously |            |             |   |            | As |  
|----------------------------------------------------------------------------------------- | ------------- | ---------- | ----------- | - | ---------- | -- | -
|                                                                                          | Reported      |            | Adjustments |   | Restated   |   
|                                                                                          |               |            |             |   |            |    |  
|Cash flows from operating activities:                                                     |               |            |             |   |            |    |  
|Net
    loss                                                                              | $             | (8,537,000 | )           | $ | 8,067,000  |    | $
|Less:
    Loss from discontinued operations                                               |               | (745,000   | )           |   | (7,000     | )  |  
|                                                                                          |               |            |             |   |            |    |  
|Income (loss) from continuing operations                                                  |               | (7,792,000 | )           |   | 8,074,000  |    |  
|Adjustments to reconcile
       net loss to net cash
    provided by operating activities |               | 8,976,000  |             |   | (8,668,000 | )  |  
|                                                                                          |               |            |             |   |            |    |  
|Net cash provided
       by operating activities of continuing
    operations             |               | 1,184,000  |             |   | (594,000   | )  |  
|                                                                                          |               |            |             |   |            |    |  
|Cash flows from investing activities:                                                     |               |            |             |   |            |    |  
|Purchase
    of property and equipment                                                    |               | (1,042,000 | )           |   | 478,000    |    |  
|                                                                                          |               |            |             |   |            |    |  
|Net cash used in investing activities                                                     |               | (1,042,000 | )           |   | 478,000    |    |  
|                                                                                          |               |            |             |   |            |    |  
|Cash flows from financing activities:                                                     |               |            |             |   |            |    |  
|Principal
    payments under capital leases                                               |               | (509,000   | )           |   | 123,000    |    |  
|Net
    change in line of credit borrowings                                               |               | 1,033,000  |             |   | —          |    |  
|                                                                                          |               |            |             |   |            |    |  
|Net cash provided by financing activities                                                 |               | 524,000    |             |   | 123,000    |    |  
|                                                                                          |               |            |             |   |            |    |  
|Effect of foreign currency exchange rate changes on cash                                  |               | 67,000     |             |   | (14,000    | )  |  
|                                                                                          |               |            |             |   |            |    |  
|Net cash provided by continuing operations                                                |               | 733,000    |             |   | (7,000     | )  |  
|Net cash used in discontinued operations                                                  |               | (767,000   | )           |   | 7,000      |    |  
|                                                                                          |               |            |             |   |            |    |  
|Net decrease in cash and cash equivalents                                                 |               | (34,000    | )           |   | —          |    |  
|Cash and cash equivalents - beginning of period                                           |               | 1,620,000  |             |   | —          |    |  
|                                                                                          |               |            |             |   |            |    |  
|Cash and cash equivalents - end of period                                                 | $             | 1,586,000  |             | $ | —          |    | $
|                                                                                          |               |            |             |   |            |    |  

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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
INC.
RESTATED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002

|                                     |                                                | As
    Previously
    Reported |             | Adjustments |   | As
    Restated |  
|------------------------------------ | ---------------------------------------------- | ------------------------------ | ----------- | ----------- | - | --------------- | -
|                                     |                                                |                                |             |             |   |                 |  
|ASSETS                               |                                                |                                |             |             |   |                 |  
|CURRENT ASSETS                       |                                                |                                |             |             |   |                 |  
|                                     | Cash and cash equivalents                      | $                              | 1,163,000   |             | $ | —               |  
|                                     | Accounts receivable, net                       |                                | 17,745,000  |             |   | 44,000          |  
|                                     | Unbilled services                              |                                | 6,818,000   |             |   | (130,000        | )
|                                     | Deferred tax asset, current                    |                                | 1,088,000   |             |   | (1,088,000      | )
|                                     | Prepaid expenses and other current assets      |                                | 3,316,000   |             |   | (170,000        | )
|                                     | SeraNova receivable                            |                                | 4,000,000   |             |   | (4,000,000      | )
|                                     | Assets held for sale, current                  |                                | 3,069,000   |             |   | (676,000        | )
|                                     |                                                |                                |             |             |   |                 |  
|                                     | Total current assets                           |                                | 37,199,000  |             |   | (6,020,000      | )
|                                     |                                                |                                |             |             |   |                 |  
|                                     | Property and equipment, net                    |                                | 5,725,000   |             |   | 26,000          |  
|                                     | Deferred tax asset                             |                                | 118,000     |             |   | (118,000        | )
|                                     | Other assets                                   |                                | 911,000     |             |   | 191,000         |  
|                                     | Assets held for sale                           |                                | —           |             |   | 676,000         |  
|                                     |                                                |                                |             |             |   |                 |  
|                                     | Total assets                                   | $                              | 43,953,000  |             | $ | (5,245,000      | )
|                                     |                                                |                                |             |             |   |                 |  
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                |                                |             |             |   |                 |  
|CURRENT LIABILITIES                  |                                                |                                |             |             |   |                 |  
|                                     | Line of credit                                 | $                              | 6,059,000   |             | $ | —               |  
|                                     | Accounts payable                               |                                | 5,229,000   |             |   | —               |  
|                                     | Accrued payroll and related taxes              |                                | 5,891,000   |             |   | 1,355,000       |  
|                                     | Accrued expenses and other current liabilities |                                | 3,491,000   |             |   | 1,469,000       |  
|                                     | Deferred revenue                               |                                | 1,280,000   |             |   | 927,000         |  
|                                     | Income taxes payable                           |                                | 190,000     |             |   | 192,000         |  
|                                     | Current portion of obligations                 |                                |             |             |   |                 |  
|                                     | under capital leases
    and other debt        |                                | 315,000     |             |   | 307,000         |  
|                                     | Liabilities held for sale, current             |                                | 1,681,000   |             |   | —               |  
|                                     |                                                |                                |             |             |   |                 |  
|                                     | Total current liabilities                      |                                | 24,136,000  |             |   | 4,250,000       |  
|                                     |                                                |                                |             |             |   |                 |  
|                                     | Long-term debt and obligations under           |                                |             |             |   |                 |  
|                                     | capital lease, net
       of current portion   |                                | 63,000      |             |   | (63,000         | )
|                                     | Other long-term liabilities                    |                                | 1,028,000   |             |   | 500,000         |  
|                                     |                                                |                                |             |             |   |                 |  
|                                     | Total liabilities                              |                                | 25,227,000  |             |   | 4,687,000       |  
|                                     |                                                |                                |             |             |   |                 |  
|Shareholders' Equity                 |                                                |                                |             |             |   |                 |  
|                                     | Preferred stock                                |                                | —           |             |   | —               |  
|                                     | Common stock                                   |                                | 166,000     |             |   | —               |  
|                                     | Additional paid-in capital                     |                                | 41,366,000  |             |   | —               |  
|                                     | Accumulated deficit                            |                                | (19,168,000 | )           |   | (12,381,000     | )
|                                     | Accumulated other comprehensive loss           |                                | (3,638,000  | )           |   | 2,449,000       |  
|                                     |                                                |                                |             |             |   |                 |  
|                                     | Total shareholders' equity                     |                                | 18,726,000  |             |   | (9,932,000      | )
|                                     |                                                |                                |             |             |   |                 |  
|                                     | Total liabilities and shareholders' equity     | $                              | 43,953,000  |             | $ | (5,245,000      | )
|                                     |                                                |                                |             |             |   |                 |  

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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND
2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.RESTATED CONSOLIDATED
STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER
31, 2002

|                                              |                                          | As
    Previously
    Reported |            | Adjustments |            | As
    Restated |  
|--------------------------------------------- | ---------------------------------------- | ------------------------------ | ---------- | ----------- | ---------- | --------------- | -
|                                              |                                          |                                |            |             |            |                 |  
|Revenue                                       | $                                        | 101,303,000                    |            | $           | (198,000   | )               | $
|Cost of revenue                               |                                          | 70,333,000                     |            |             | 786,000    |                 |  
|                                              |                                          |                                |            |             |            |                 |  
|                                              | Gross profit                             |                                | 30,970,000 |             |            | (984,000        | )
|                                              |                                          |                                |            |             |            |                 |  
|                                              |                                          |                                |            |             |            |                 |  
|Selling, general and administrative expenses  |                                          | 25,242,000                     |            |             | 45,000     |                 |  
|Depreciation and amortization                 |                                          | 2,753,000                      |            |             | (17,000    | )               |  
|SeraNova receivable and impairment and other  |                                          |                                |            |             |            |                 |  
|charges                                       |                                          | 8,362,000                      |            |             | (7,714,000 | )               |  
|Proxy contest charges                         |                                          | 1,073,000                      |            |             | 750,000    |                 |  
|                                              |                                          |                                |            |             |            |                 |  
|                                              | Total operating expenses                 |                                | 37,430,000 |             |            | (6,936,000      | )
|                                              |                                          |                                |            |             |            |                 |  
|                                              |                                          |                                |            |             |            |                 |  
|                                              | Operating loss                           |                                | (6,460,000 | )           |            | 5,952,000       |  
|                                              |                                          |                                |            |             |            |                 |  
|Interest income                               |                                          | 31,000                         |            |             | —          |                 |  
|Interest expense                              |                                          | (394,000                       | )          |             | 2,000      |                 |  
|Other income
    (expense)                    |                                          | (123,000                       | )          |             | 491,000    |                 |  
|                                              |                                          |                                |            |             |            |                 |  
|                                              |                                          |                                |            |             |            |                 |  
|Loss from continuing operations before income |                                          |                                |            |             |            |                 |  
|tax
    provision (benefit of)                |                                          | (6,946,000                     | )          |             | 6,445,000  |                 |  
|Provision for (benefit of) income taxes       |                                          | 491,000                        |            |             | (597,000   | )               |  
|                                              |                                          |                                |            |             |            |                 |  
|Loss from continuing operations               |                                          | (7,437,000                     | )          |             | 7,042,000  |                 |  
|                                              |                                          |                                |            |             |            |                 |  
|Loss from discontinued operations             |                                          | (1,046,000                     | )          |             | 55,000     |                 |  
|                                              |                                          |                                |            |             |            |                 |  
|Net loss                                      | $                                        | (8,483,000                     | )          | $           | 7,097,000  |                 | $
|                                              |                                          |                                |            |             |            |                 |  
|Loss per share:                               |                                          |                                |            |             |            |                 |  
|                                              | Basic earnings (loss) per share          |                                |            |             |            |                 |  
|                                              | Loss from continuing operations          | $                              | (0.45      | )           | $          | 0.43            |  
|                                              | Discontinued operations                  |                                | (0.06      | )           |            | 0.00            |  
|                                              |                                          |                                |            |             |            |                 |  
|                                              | Net loss per share                       | $                              | (0.51      | )           | $          | 0.43            |  
|                                              |                                          |                                |            |             |            |                 |  
|                                              |                                          |                                |            |             |            |                 |  
|                                              | Weighted average number of common shares |                                |            |             |            |                 |  
|                                              | outstanding - basic                      |                                | 16,630,000 |             |            | 16,630,000      |  
|                                              |                                          |                                |            |             |            |                 |  
|                                              | Diluted loss per share                   |                                |            |             |            |                 |  
|                                              | Loss from continuing operations          | $                              | (0.45      | )           | $          | 0.43            |  
|                                              | Discontinued operations                  |                                | (0.06      | )           |            | 0.00            |  
|                                              |                                          |                                |            |             |            |                 |  
|                                              |                                          |                                |            |             |            |                 |  
|                                              | Net loss per share                       | $                              | (0.51      | )           | $          | 0.43            |  
|                                              |                                          |                                |            |             |            |                 |  
|                                              | Weighted average number of common shares |                                |            |             |            |                 |  
|                                              | outstanding - diluted                    |                                | 16,630,000 |             |            | 16,630,000      |  
|                                              |                                          |                                |            |             |            |                 |  
|Comprehensive loss                            |                                          |                                |            |             |            |                 |  
|                                              | Net loss                                 | $                              | (8,483,000 | )           | $          | 7,097,000       |  
|                                              | Other
    comprehensive income (loss)    |                                |            |             |            |                 |  
|                                              | Currency translation adjustments         |                                | 427,000    |             |            | (606,000        | )
|                                              |                                          |                                |            |             |            |                 |  
|Comprehensive loss                            | $                                        | (8,056,000                     | )          | $           | 6,491,000  |                 | $
|                                              |                                          |                                |            |             |            |                 |  

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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
INC.
RESTATED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
2002

|                                                                           | As
    Previously
    Reported |            | Adjustments |   | As
    Restated |  
|-------------------------------------------------------------------------- | ------------------------------ | ---------- | ----------- | - | --------------- | -
|                                                                           |                                |            |             |   |                 |  
|Cash flows from operating activities:                                      |                                |            |             |   |                 |  
|Net loss                                                                   | $                              | (8,483,000 | )           | $ | 7,096,000       |  
|Less: Loss from discontinued operations                                    |                                | (1,046,000 | )           |   | 55,000          |  
|                                                                           |                                |            |             |   |                 |  
|Loss from continuing operations                                            |                                | (7,437,000 | )           |   | 7,041,000       |  
|Adjustments to reconcile net loss to net                                   |                                |            |             |   |                 |  
|cash used in operating activities                                          |                                | 7,306,000  |             |   | (7,278,000      | )
|                                                                           |                                |            |             |   |                 |  
|Net cash used in operating activities of                                   |                                |            |             |   |                 |  
|continuing operations                                                      |                                | (131,000   | )           |   | (237,000        | )
|                                                                           |                                |            |             |   |                 |  
|Cash flows from investing activities:                                      |                                |            |             |   |                 |  
|Purchase of property and equipment                                         |                                | (1,451,000 | )           |   | 315,000         |  
|                                                                           |                                |            |             |   |                 |  
|Net cash used in investing activities                                      |                                | (1,451,000 | )           |   | 315,000         |  
|                                                                           |                                |            |             |   |                 |  
|Cash flows from financing activities:                                      |                                |            |             |   |                 |  
|Principal payments under capital leases                                    |                                | (583,000   | )           |   | (64,000         | )
|Net change in line of credit borrowings                                    |                                | 1,993,000  |             |   | —               |  
|                                                                           |                                |            |             |   |                 |  
|Net cash provided by financing activities                                  |                                | 1,410,000  |             |   | (64,000         | )
|                                                                           |                                |            |             |   |                 |  
|Effect of foreign currency exchange rate changes on cash                   |                                | 427,000    |             |   | (353,000        | )
|                                                                           |                                |            |             |   |                 |  
|Net cash provided by (used in) continuing operations                       |                                | 255,000    |             |   | (339,000        | )
|Net cash used in discontinued operations                                   |                                | (712,000   | )           |   | 123,000         |  
|                                                                           |                                |            |             |   |                 |  
|Net decrease in cash and cash equivalents                                  |                                | (457,000   | )           |   | (216,000        | )
|Cash and cash equivalents – beginning
       of year                       |                                | 1,620,000  |             |   | —               |  
|                                                                           |                                |            |             |   |                 |  
|Cash and cash equivalents – end of year                                    | $                              | 1,163,000  |             | $ | (216,000        | )
|                                                                           |                                |            |             |   |                 |  
|Supplemental disclosure of cash flow information                           |                                |            |             |   |                 |  
|Cash paid for income taxes                                                 | $                              | 853,000    |             | $ | (117,000        | )
|                                                                           |                                |            |             |   |                 |  
|Cash paid for interest                                                     | $                              | 395,000    |             | $ | —               |  
|                                                                           |                                |            |             |   |                 |  
|Supplemental disclosures
    of noncash investing and financing activities |                                |            |             |   |                 |  
|Property and equipment acquired by capital lease                           | $                              | —          |             | $ | (241,000        | )
|                                                                           |                                |            |             |   |                 |  

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INTELLIGROUP,
INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND
2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
INC.
RESTATED CONSOLIDATED BALANCE SHEET
MARCH 31, 2003(unaudited)

|                                      |                                                    | As
    Previously
    Reported |             | Adjustments |          | As
    Restated |  
|------------------------------------- | -------------------------------------------------- | ------------------------------ | ----------- | ----------- | -------- | --------------- | -
|                                      |                                                    |                                |             |             |          |                 |  
|ASSETS                                |                                                    |                                |             |             |          |                 |  
|CURRENT ASSETS                        |                                                    |                                |             |             |          |                 |  
|                                      | Cash and cash equivalents                          | $                              | 2,256,000   |             | $        | (374,000        | )
|                                      | Accounts
    receivable, net                       |                                | 18,017,000  |             |          | 170,000         |  
|                                      | Unbilled
    services                              |                                | 5,727,000   |             |          | (444,000        | )
|                                      | Deferred
    tax asset, current                    |                                | 1,088,000   |             |          | (1,088,000      | )
|                                      | Prepaid expenses and
    other current assets      |                                | 3,434,000   |             |          | (170,000        | )
|                                      |                                                    |                                |             |             |          |                 |  
|                                      | Total
    current assets                           |                                | 30,522,000  |             |          | (1,906,000      | )
|                                      |                                                    |                                |             |             |          |                 |  
|Property and equipment, net           |                                                    | 5,229,000                      |             |             | 59,000   |                 |  
|Deferred tax asset                    |                                                    | 119,000                        |             |             | (119,000 | )               |  
|Other assets                          |                                                    | 938,000                        |             |             | 342,000  |                 |  
|                                      |                                                    |                                |             |             |          |                 |  
|                                      | Total
    assets                                   | $                              | 36,808,000  |             | $        | (1,624,000      | )
|                                      |                                                    |                                |             |             |          |                 |  
|LIABILITIES AND SHAREHOLDERS' EQUITY  |                                                    |                                |             |             |          |                 |  
|CURRENT LIABILITIES                   |                                                    |                                |             |             |          |                 |  
|                                      | Line
    of credit                                 | $                              | 5,844,000   |             | $        | —               |  
|                                      | Accounts
    payable                               |                                | 4,051,000   |             |          | 207,000         |  
|                                      | Accrued payroll
    and related taxes              |                                | 7,123,000   |             |          | 1,534,000       |  
|                                      | Accrued expenses
    and other current liabilities |                                | 4,302,000   |             |          | 313,000         |  
|                                      | Deferred
    revenue                               |                                | 1,050,000   |             |          | 747,000         |  
|                                      | Income
    taxes payable                           |                                | 394,000     |             |          | (16,000         | )
|                                      | Current
    portions of obligations                |                                |             |             |          |                 |  
|                                      | under capital leases
    and other debts           |                                | 207,000     |             |          | 304,000         |  
|                                      |                                                    |                                |             |             |          |                 |  
|                                      | Total
    current liabilities                      |                                | 22,971,000  |             |          | 3,089,000       |  
|                                      |                                                    |                                |             |             |          |                 |  
|Long-term debt and obligations under  |                                                    |                                |             |             |          |                 |  
|capital lease, net of current portion |                                                    | 64,000                         |             |             | (62,000  | )               |  
|Other long-term liabilities           |                                                    | 932,000                        |             |             | 500,000  |                 |  
|                                      |                                                    |                                |             |             |          |                 |  
|                                      | Total
    liabilities                              |                                | 23,967,000  |             |          | 3,527,000       |  
|                                      |                                                    |                                |             |             |          |                 |  
|                                      |                                                    |                                |             |             |          |                 |  
|Shareholders' Equity                  |                                                    |                                |             |             |          |                 |  
|                                      | Preferred
    stock                                |                                | —           |             |          | —               |  
|                                      | Common
    stock                                   |                                | 166,000     |             |          | —               |  
|                                      | Additional
    paid-in capital                     |                                | 41,366,000  |             |          | —               |  
|                                      | Accumulated
    deficit                            |                                | (26,519,000 | )           |          | (6,110,000      | )
|                                      | Accumulated other comprehensive
    loss           |                                | (2,172,000  | )           |          | 959,000         |  
|                                      |                                                    |                                |             |             |          |                 |  
|                                      | Total
    shareholders' equity                     |                                | 12,841,000  |             |          | (5,151,000      | )
|                                      |                                                    |                                |             |             |          |                 |  
|                                      |                                                    |                                |             |             |          |                 |  
|                                      | Total liabilities and
    shareholders' equity     | $                              | 36,808,000  |             | $        | (1,624,000      | )
|                                      |                                                    |                                |             |             |          |                 |  

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INTELLIGROUP, INC.NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND
2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.RESTATED CONSOLIDATED
STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED
MARCH 31, 2003
(unaudited)

|                                              |   | As
    Previously
    Reported |   |   | Adjustments |   |   | As
    Restated |  
|--------------------------------------------- | - | ------------------------------ | - | - | ----------- | - | - | --------------- | -
|                                              |   |                                |   |   |             |  
|Revenue                                       | $ | 27,235,000                     |   | $ | 131,000     |   | $ | 27,366,000      |  
|Cost of revenue                               |   | 19,309,000                     |   |   | (128,000    | ) |   | 19,181,000      |  
|                                              |   |                                |   |   |             |  
|Gross profit                                  |   | 7,926,000                      |   |   | 259,000     |   |   | 8,185,000       |  
|                                              |   |                                |   |   |             |  
|                                              |   |                                |   |   |             |   |   |                 |  
|Selling, general and administrative expenses  |   | 6,868,000                      |   |   | 139,000     |   |   | 7,007,000       |  
|Depreciation and amortization                 |   | 699,000                        |   |   | —           |   |   | 699,000         |  
|SeraNova receivable and impairment and other  |   |                                |   |   |             |   |   |                 |  
|charges                                       |   | 5,060,000                      |   |   | (4,945,000  | ) |   | 115,000         |  
|Proxy contest charges                         |   | 297,000                        |   |   | —           |   |   | 297,000         |  
|                                              |   |                                |   |   |             |  
|Total operating expenses                      |   | 12,924,000                     |   |   | (4,806,000  | ) |   | 8,118,000       |  
|                                              |   |                                |   |   |             |  
|                                              |   |                                |   |   |             |   |   |                 |  
|Operating
    income (loss)                   |   | (4,998,000                     | ) |   | 5,065,000   |   |   | 67,000          |  
|                                              |   |                                |   |   |             |   |   |                 |  
|Interest income                               |   | 13,000                         |   |   | 1,000       |   |   | 14,000          |  
|Interest expense                              |   | (108,000                       | ) |   | 4,000       |   |   | (104,000        | )
|Other expense                                 |   | (49,000                        | ) |   | 21,000      |   |   | (28,000         | )
|                                              |   |                                |   |   |             |  
|                                              |   |                                |   |   |             |   |   |                 |  
|Loss from continuing operations before income |   |                                |   |   |             |   |   |                 |  
|tax provision                                 |   | (5,142,000                     | ) |   | 5,091,000   |   |   | (51,000         | )
|Provision for income taxes                    |   | 75,000                         |   |   | 29,000      |   |   | 104,000         |  
|                                              |   |                                |   |   |             |  
|Loss from continuing operations               |   | (5,217,000                     | ) |   | 5,062,000   |   |   | (155,000        | )
|                                              |   |                                |   |   |             |   |   |                 |  
|Loss from discontinued operations             |   | (2,134,000                     | ) |   | 1,209,000   |   |   | (925,000        | )
|                                              |   |                                |   |   |             |  
|Net loss                                      | $ | (7,351,000                     | ) | $ | 6,271,000   |   | $ | (1,080,000      | )
|                                              |   |                                |   |   |             |   |   |                 |  
|Loss per share:                               |   |                                |   |   |             |   |   |                 |  
|Basic loss per share                          |   |                                |   |   |             |   |   |                 |  
|Loss from continuing operations               | $ | (0.31                          | ) | $ | 0.30        |   | $ | (0.01           | )
|Discontinued operations                       |   | (0.13                          | ) |   | 0.07        |   |   | (0.06           | )
|                                              |   |                                |   |   |             |  
|                                              |   |                                |   |   |             |   |   |                 |  
|Net loss per share                            | $ | (0.44                          | ) | $ | 0.37        |   | $ | (0.07           | )
|                                              |   |                                |   |   |             |   |   |                 |  
|Weighted average number of common shares      |   |                                |   |   |             |   |   |                 |  
|outstanding – basic                           |   | 16,630,000                     |   |   | 16,630,000  |   |   | 16,630,000      |  
|                                              |   |                                |   |   |             |  
|Diluted loss per share                        |   |                                |   |   |             |   |   |                 |  
|Loss from continuing operations               | $ | (0.31                          | ) | $ | 0.30        |   | $ | (0.01           | )
|Discontinued operations                       |   | (0.13                          | ) |   | 0.07        |   |   | (0.06           | )
|                                              |   |                                |   |   |             |  
|                                              |   |                                |   |   |             |   |   |                 |  
|Net loss per share                            | $ | (0.44                          | ) | $ | 0.37        |   | $ | (0.07           | )
|                                              |   |                                |   |   |             |   |   |                 |  
|Weighted average number of common shares      |   |                                |   |   |             |   |   |                 |  
|outstanding – diluted                         |   | 16,630,000                     |   |   | 16,630,000  |   |   | 16,630,000      |  
|                                              |   |                                |   |   |             |  
|Comprehensive loss                            |   |                                |   |   |             |   |   |                 |  
|Net loss                                      | $ | (7,351,000                     | ) | $ | 6,271,000   |   | $ | (1,080,000      | )
|Other
    comprehensive income (loss)         |   |                                |   |   |             |   |   |                 |  
|Currency translation adjustments              |   | 1,466,000                      |   |   | (1,490,000  | ) |   | (24,000         | )
|                                              |   |                                |   |   |             |  
|                                              |   |                                |   |   |             |   |   |                 |  
|Comprehensive loss                            | $ | (5,885,000                     | ) | $ | 4,781,000   |   | $ | (1,104,000      | )
|                                              |   |                                |   |   |             |   |   |                 |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.
RESTATED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR
THE THREE MONTHS ENDED MARCH 31, 2003
(unaudited)

|                                                                                             |          | As Previously |             |   |            |   |   | As         |  
|-------------------------------------------------------------------------------------------- | -------- | ------------- | ----------- | - | ---------- | - | - | ---------- | -
|                                                                                             | Reported |               | Adjustments |   | Restated   |  
|                                                                                             |          |               |             |   |            |   |   |            |  
|                                                                                             |          |               |             |   |            |   |   |            |  
|Cash flows from operating activities:                                                        |          |               |             |   |            |   |   |            |  
|Net
    loss                                                                                 | $        | (7,351,000    | )           | $ | 6,271,000  |   | $ | (1,080,000 | )
|Less:
    Loss from discontinued operations                                                  |          | (2,134,000    | )           |   | 1,209,000  |   |   | (925,000   | )
|                                                                                             |          |               |             |   |            |   |   |            |  
|Loss from continuing operations                                                              |          | (5,217,000    | )           |   | 5,062,000  |   |   | (155,000   | )
|                                                                                             |          |               |             |   |            |   |   |            |  
|Adjustments to reconcile
       net loss to net cash
    provided by in operating activities |          | 6,298,000     |             |   | (5,493,000 | ) |   | 805,000    |  
|                                                                                             |          |               |             |   |            |   |   |            |  
|Net cash provided
       by operating activities of continuing
    operations                |          | 1,081,000     |             |   | (431,000   | ) |   | 650,000    |  
|                                                                                             |          |               |             |   |            |   |   |            |  
|Cash flows from investing activities:                                                        |          |               |             |   |            |   |   |            |  
|Purchase
    of property and equipment                                                       |          | (384,000      | )           |   | (21,000    | ) |   | (405,000   | )
|                                                                                             |          |               |             |   |            |   |   |            |  
|Net cash used in investing activities                                                        |          | (384,000      | )           |   | (21,000    | ) |   | (405,000   | )
|                                                                                             |          |               |             |   |            |   |   |            |  
|Cash flows from financing activities:                                                        |          |               |             |   |            |   |   |            |  
|Principal
    payments under capital leases                                                  |          | (108,000      | )           |   | (2,000     | ) |   | (110,000   | )
|Net
    change in line of credit borrowings                                                  |          | (216,000      | )           |   | —          |   |   | (216,000   | )
|                                                                                             |          |               |             |   |            |   |   |            |  
|Net cash used in financing activities                                                        |          | (324,000      | )           |   | (2,000     | ) |   | (326,000   | )
|                                                                                             |          |               |             |   |            |   |   |            |  
|Effect of foreign currency exchange rate changes on cash                                     |          | 1,466,000     |             |   | (1,470,000 | ) |   | (4,000     | )
|                                                                                             |          |               |             |   |            |   |   |            |  
|Net cash provided by (used in) continuing operations                                         |          | 1,839,000     |             |   | (1,924,000 | ) |   | (85,000    | )
|Net cash provided by (used in) discontinued operations                                       |          | (746,000      | )           |   | 1,550,000  |   |   | 804,000    |  
|                                                                                             |          |               |             |   |            |   |   |            |  
|Net increase in cash and cash equivalents                                                    |          | 1,093,000     |             |   | (374,000   | ) |   | 719,000    |  
|Cash and cash equivalents – beginning of period                                              |          | 1,163,000     |             |   | —          |   |   | 1,163,000  |  
|                                                                                             |          |               |             |   |            |   |   |            |  
|Cash and cash equivalents – end of period                                                    | $        | 2,256,000     |             | $ | (374,000   | ) | $ | 1,882,000  |  
|                                                                                             |          |               |             |   |            |   |   |            |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
INC.
RESTATED
CONSOLIDATED BALANCE SHEET 
JUNE
30, 2003
(unaudited)

|                                               |             | As
    Previously |   |   |            |   |   | As          |  
|---------------------------------------------- | ----------- | ----------------- | - | - | ---------- | - | - | ----------- | -
|Reported                                       | Adjustments | Restated         
|                                               |             |                   |   |   |            |   |   |             |  
|ASSETS                                         |             |                   |   |   |            |   |   |             |  
|CURRENT ASSETS                                 |             |                   |   |   |            |   |   |             |  
|Cash
    and cash equivalents                  | $           | 2,311,000         |   | $ | (1,000     | ) | $ | 2,310,000   |  
|Accounts
    receivable, net                   |             | 16,397,000        |   |   | (8,000     | ) |   | 16,389,000  |  
|Unbilled
    services                          |             | 8,251,000         |   |   | (551,000   | ) |   | 7,700,000   |  
|Deferred
    tax asset, current                |             | 1,084,000         |   |   | (1,084,000 | ) |   | —           |  
|Prepaid expenses and other current assets      |             | 4,521,000         |   |   | (527,000   | ) |   | 3,994,000   |  
|                                               |             |                   |   |   |            |   |   |             |  
|Total
    current assets                       |             | 32,564,000        |   |   | (2,171,000 | ) |   | 30,393,000  |  
|Property and equipment, net                    |             | 4,781,000         |   |   | 26,000     |   |   | 4,807,000   |  
|Deferred tax asset                             |             | 156,000           |   |   | (156,000   | ) |   | —           |  
|Other assets                                   |             | 823,000           |   |   | 192,000    |   |   | 1,015,000   |  
|                                               |             |                   |   |   |            |   |   |             |  
|Total
    assets                               | $           | 38,324,000        |   | $ | (2,109,000 | ) | $ | 36,215,000  |  
|                                               |             |                   |   |   |            |   |   |             |  
|LIABILITIES
         AND SHAREHOLDERS’ EQUITY  |             |                   |   |   |            |   |   |             |  
|CURRENT LIABILITIES                            |             |                   |   |   |            |   |   |             |  
|Line
    of credit                             | $           | 7,325,000         |   | $ | —          |   | $ | 7,325,000   |  
|Accounts
    payable                           |             | 4,960,000         |   |   | —          |   |   | 4,960,000   |  
|Accrued payroll and related taxes              |             | 7,173,000         |   |   | 1,423,000  |   |   | 8,596,000   |  
|Accrued expenses and other current liabilities |             | 4,166,000         |   |   | (199,000   | ) |   | 3,967,000   |  
|Deferred
    revenue                           |             | 1,140,000         |   |   | 1,114,000  |   |   | 2,254,000   |  
|Income
    taxes payable                       |             | 399,000           |   |   | (56,000    | ) |   | 343,000     |  
|Current
    portion of obligations             |             |                   |   |   |            |   |   |             |  
|under capital leases
    and other debt        |             | 96,000            |   |   | 287,000    |   |   | 383,000     |  
|                                               |             |                   |   |   |            |   |   |             |  
|Total
    current liabilities                  |             | 25,259,000        |   |   | 2,569,000  |   |   | 27,828,000  |  
|Long-term debt and obligations under           |             |                   |   |   |            |   |   |             |  
|capital lease, net of current portion          |             | 69,000            |   |   | (63,000    | ) |   | 6,000       |  
|Other long-term liabilities                    |             | 873,000           |   |   | 500,000    |   |   | 1,373,000   |  
|                                               |             |                   |   |   |            |   |   |             |  
|Total
    liabilities                          |             | 26,201,000        |   |   | 3,006,000  |   |   | 29,207,000  |  
|                                               |             |                   |   |   |            |   |   |             |  
|Shareholders’ Equity                           |             |                   |   |   |            |   |   |             |  
|Preferred
    stock                            |             | —                 |   |   | —          |   |   | —           |  
|Common
    stock                               |             | 167,000           |   |   | —          |   |   | 167,000     |  
|Additional
    paid-in capital                 |             | 41,425,000        |   |   | —          |   |   | 41,425,000  |  
|Accumulated
    deficit                        |             | (27,012,000       | ) |   | (6,660,000 | ) |   | (33,672,000 | )
|Accumulated other comprehensive loss           |             | (2,457,000        | ) |   | 1,545,000  |   |   | (912,000    | )
|                                               |             |                   |   |   |            |   |   |             |  
|Total
    shareholders’ equity                 |             | 12,123,000        |   |   | (5,115,000 | ) |   | 7,008,000   |  
|                                               |             |                   |   |   |            |   |   |             |  
|Total
    liabilities and shareholders’ equity | $           | 38,324,000        |   | $ | (2,109,000 | ) | $ | 36,215,000  |  
|                                               |             |                   |   |   |            |   |   |             |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.
RESTATED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(unaudited)

|                                                                   |          | As Previously |             |   |            |   |   | As         |  
|------------------------------------------------------------------ | -------- | ------------- | ----------- | - | ---------- | - | - | ---------- | -
|                                                                   | Reported |               | Adjustments |   | Restated   |  
|                                                                   |          |               |             |   |            |   |   |            |  
|Revenue                                                            | $        | 55,240,000    |             | $ | (358,000   | ) | $ | 54,882,000 |  
|Cost of revenue                                                    |          | 38,818,000    |             |   | (156,000   | ) |   | 38,662,000 |  
|                                                                   |          |               |             |   |            |   |   |            |  
|Gross profit                                                       |          | 16,422,000    |             |   | (202,000   | ) |   | 16,220,000 |  
|                                                                   |          |               |             |   |            |   |   |            |  
|Selling, general and administrative expenses                       |          | 13,809,000    |             |   | 128,000    |   |   | 13,937,000 |  
|Depreciation and amortization                                      |          | 1,411,000     |             |   | —          |   |   | 1,411,000  |  
|SeraNova
    receivable and impairment and other charges           |          | 5,060,000     |             |   | (4,837,000 | ) |   | 223,000    |  
|Proxy contest charges                                              |          | 593,000       |             |   | —          |   |   | 593,000    |  
|Restructuring and other special charges                            |          | 581,000       |             |   | (581,000   | ) |   | —          |  
|                                                                   |          |               |             |   |            |   |   |            |  
|Total operating expenses                                           |          | 21,454,000    |             |   | (5,290,000 | ) |   | 16,164,000 |  
|                                                                   |          |               |             |   |            |   |   |            |  
|Operating income (loss)                                            |          | (5,032,000    | )           |   | 5,088,000  |   |   | 56,000     |  
|Interest income                                                    |          | 25,000        |             |   | 1,000      |   |   | 26,000     |  
|Interest expense                                                   |          | (232,000      | )           |   | (5,000     | ) |   | (237,000   | )
|Other expense                                                      |          | (233,000      | )           |   | (500,000   | ) |   | (733,000   | )
|                                                                   |          |               |             |   |            |   |   |            |  
|Loss from continuing
    operations before income tax provision    |          | (5,472,000    | )           |   | 4,584,000  |   |   | (888,000   | )
|Provision for income taxes                                         |          | 238,000       |             |   | 72,000     |   |   | 310,000    |  
|                                                                   |          |               |             |   |            |   |   |            |  
|Loss from continuing operations                                    |          | (5,710,000    | )           |   | 4,512,000  |   |   | (1,198,000 | )
|Loss from discontinued operations                                  |          | (2,134,000    | )           |   | 1,209,000  |   |   | (925,000   | )
|                                                                   |          |               |             |   |            |   |   |            |  
|Net loss                                                           | $        | (7,844,000    | )           | $ | 5,721,000  |   | $ | (2,123,000 | )
|                                                                   |          |               |             |   |            |   |   |            |  
|Loss per share:                                                    |          |               |             |   |            |   |   |            |  
|Basic loss per share                                               |          |               |             |   |            |   |   |            |  
|Loss from continuing operations                                    | $        | (0.34         | )           | $ | 0.27       |   | $ | (0.07      | )
|Discontinued operations                                            |          | (0.13         | )           |   | 0.07       |   |   | (0.06      | )
|                                                                   |          |               |             |   |            |   |   |            |  
|Net loss per share                                                 | $        | (0.47         | )           | $ | 0.34       |   | $ | (0.13      | )
|                                                                   |          |               |             |   |            |   |   |            |  
|Weighted
    average number of common shares outstanding - basic   |          | 16,644,000    |             |   | 16,644,000 |   |   | 16,644,000 |  
|                                                                   |          |               |             |   |            |   |   |            |  
|Diluted loss per share                                             |          |               |             |   |            |   |   |            |  
|Loss from continuing operations                                    | $        | (0.34         | )           | $ | 0.27       |   | $ | (0.07      | )
|Discontinued operations                                            |          | (0.13         | )           |   | 0.07       |   |   | (0.06      | )
|                                                                   |          |               |             |   |            |   |   |            |  
|Net loss per share                                                 | $        | (0.47         | )           | $ | 0.34       |   | $ | (0.13      | )
|                                                                   |          |               |             |   |            |   |   |            |  
|Weighted
    average number of common shares outstanding - diluted |          | 16,644,000    |             |   | 16,644,000 |   |   | 16,644,000 |  
|                                                                   |          |               |             |   |            |   |   |            |  
|Comprehensive loss                                                 |          |               |             |   |            |   |   |            |  
|Net loss                                                           | $        | (7,844,000    | )           | $ | 5,721,000  |   | $ | (2,123,000 | )
|Other comprehensive income                                         |          |               |             |   |            |   |   |            |  
|Currency translation adjustments                                   |          | 1,181,000     |             |   | (904,000   | ) |   | 277,000    |  
|                                                                   |          |               |             |   |            |   |   |            |  
|Comprehensive loss                                                 | $        | (6,663,000    | )           | $ | 4,817,000  |   | $ | (1,846,000 | )
|                                                                   |          |               |             |   |            |   |   |            |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.RESTATED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30, 2003
(unaudited)

|                                                                                    |             | As
    Previously |   |   |            |   |   | As         |  
|----------------------------------------------------------------------------------- | ----------- | ----------------- | - | - | ---------- | - | - | ---------- | -
|Reported                                                                            | Adjustments | Restated         
|                                                                                    |             |                   |   |   |            |   |   |            |  
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Revenue                                                                             | $           | 28,005,000        |   | $ | (489,000   | ) | $ | 27,516,000 |  
|Cost of revenue                                                                     |             | 19,509,000        |   |   | (28,000    | ) |   | 19,481,000 |  
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Gross
    loss                                                                      |             | 8,496,000         |   |   | (461,000   | ) |   | 8,035,000  |  
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Selling, general and administrative expenses                                        |             | 6,941,000         |   |   | (11,000    | ) |   | 6,930,000  |  
|Depreciation and amortization                                                       |             | 712,000           |   |   | —          |   |   | 712,000    |  
|SeraNova receivable
    and impairment and other charges                            |             | —                 |   |   | 108,000    |   |   | 108,000    |  
|Proxy contest charges                                                               |             | 296,000           |   |   | —          |   |   | 296,000    |  
|Restructuring and other special charges                                             |             | 581,000           |   |   | (581,000   | ) |   | —          |  
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Total
    operating expenses                                                        |             | 8,530,000         |   |   | (484,000   | ) |   | 8,046,000  |  
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Operating
    loss                                                                  |             | (34,000           | ) |   | 23,000     |   |   | (11,000    | )
|Interest income                                                                     |             | 12,000            |   |   | —          |   |   | 12,000     |  
|Interest expense                                                                    |             | (124,000          | ) |   | (9,000     | ) |   | (133,000   | )
|Other expense                                                                       |             | (184,000          | ) |   | (521,000   | ) |   | (705,000   | )
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Loss from continuing
       operations before income tax
    provision              |             | (330,000          | ) |   | (507,000   | ) |   | (837,000   | )
|Provision for income taxes                                                          |             | 163,000           |   |   | 43,000     |   |   | 206,000    |  
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Loss from continuing operations                                                     |             | (493,000          | ) |   | (550,000   | ) |   | (1,043,000 | )
|Income (loss) from discontinued operations                                          |             | —                 |   |   | —          |   |   | —          |  
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Net loss                                                                            | $           | (493,000          | ) | $ | (550,000   | ) | $ | (1,043,000 | )
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Loss per share:                                                                     |             |                   |   |   |            |   |   |            |  
|Basic
    and diluted loss per share                                                |             |                   |   |   |            |   |   |            |  
|Loss
    from continuing operations                                                 | $           | (0.03             | ) | $ | (0.03      | ) | $ | (0.06      | )
|Discontinued
    operations                                                         |             | —                 |   |   | —          |   |   | —          |  
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Net
    loss per share                                                              | $           | (0.03             | ) | $ | (0.03      | ) | $ | (0.06      | )
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Weighted average number
       of common shares outstanding
    – basic and diluted |             | 16,655,000        |   |   | 16,655,000 |   |   | 16,655,000 |  
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Comprehensive loss                                                                  |             |                   |   |   |            |   |   |            |  
|Net
    loss                                                                        | $           | (493,000          | ) | $ | (550,000   | ) | $ | (1,043,000 | )
|Other
    comprehensive income (loss)                                               |             |                   |   |   |            |   |   |            |  
|Currency
    translation adjustments                                                |             | (285,000          | ) |   | 586,000    |   |   | 301,000    |  
|                                                                                    |             |                   |   |   |            |   |   |            |  
|Comprehensive loss                                                                  | $           | (778,000          | ) | $ | 36,000     |   | $ | (742,000   | )
|                                                                                    |             |                   |   |   |            |   |   |            |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
INC.
RESTATED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
2003
(unaudited)

|                                                                                   |   | As Previously |   |             |            |          |   | As         |  
|---------------------------------------------------------------------------------- | - | ------------- | - | ----------- | ---------- | -------- | - | ---------- | -
|                                                                                   |   | Reported      |   | Adjustments |            | Restated |  
|                                                                                   |   |               |   |             |            |          |   |            |  
|                                                                                   |   |               |   |             |            |          |   |            |  
|Cash flows from operating activities:                                              |   |               |   |             |            |          |   |            |  
|Net
    loss                                                                       | $ | (7,844,000    | ) | $           | 5,721,000  |          | $ | (2,123,000 | )
|Less:
    Loss from discontinued operations                                        |   | (2,134,000    | ) |             | 1,209,000  |          |   | (925,000   | )
|                                                                                   |   |               |   |             |            |          |   |            |  
|Loss from continuing operations                                                    |   | (5,710,000    | ) |             | 4,512,000  |          |   | (1,198,000 | )
|Adjustments
    to reconcile net loss to net cash provided by operating activities |   | 6,155,000     |   |             | (3,790,000 | )        |   | 2,365,000  |  
|                                                                                   |   |               |   |             |            |          |   |            |  
|Net cash provided
       by operating activities of continuing
    operations      |   | 445,000       |   |             | 722,000    |          |   | 1,167,000  |  
|                                                                                   |   |               |   |             |            |          |   |            |  
|Cash flows from investing activities:                                              |   |               |   |             |            |          |   |            |  
|Purchase
    of property and equipment                                             |   | (839,000      | ) |             | 59,000     |          |   | (780,000   | )
|                                                                                   |   |               |   |             |            |          |   |            |  
|Net cash used in investing activities                                              |   | (839,000      | ) |             | 59,000     |          |   | (780,000   | )
|                                                                                   |   |               |   |             |            |          |   |            |  
|Cash flows from financing activities:                                              |   |               |   |             |            |          |   |            |  
|Principal
    payments under capital leases                                        |   | (219,000      | ) |             | (14,000    | )        |   | (233,000   | )
|Proceeds
    from exercise of stock options                                        |   | 60,000        |   |             | (1,000     | )        |   | 59,000     |  
|Net
    change in line of credit borrowings                                        |   | 1,266,000     |   |             | —          |          |   | 1,266,000  |  
|                                                                                   |   |               |   |             |            |          |   |            |  
|Net cash provided by financing activities                                          |   | 1,107,000     |   |             | (15,000    | )        |   | 1,092,000  |  
|                                                                                   |   |               |   |             |            |          |   |            |  
|Effect of foreign currency
    exchange rate changes on cash                       |   | 1,181,000     |   |             | (1,166,000 | )        |   | 15,000     |  
|                                                                                   |   |               |   |             |            |          |   |            |  
|Net cash provided by continuing operations                                         |   | 1,894,000     |   |             | (400,000   | )        |   | 1,494,000  |  
|Net cash used in discontinued operations                                           |   | (746,000      | ) |             | 399,000    |          |   | (347,000   | )
|                                                                                   |   |               |   |             |            |          |   |            |  
|Net increase in cash and cash equivalents                                          |   | 1,148,000     |   |             | (1,000     | )        |   | 1,147,000  |  
|Cash and cash equivalents– beginning of period                                     |   | 1,163,000     |   |             | —          |          |   | 1,163,000  |  
|                                                                                   |   |               |   |             |            |          |   |            |  
|Cash and cash equivalents–      end of period                                      | $ | 2,311,000     |   | $           | (1,000     | )        | $ | 2,310,000  |  
|                                                                                   |   |               |   |             |            |          |   |            |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
INC.
RESTATED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
(unaudited)

|                                                                               |   | As
    Previously
    Reported |   |   | Adjustments |   |   | As
    Restated | 
|------------------------------------------------------------------------------ | - | ------------------------------ | - | - | ----------- | - | - | --------------- | 
|                                                                               |   |                                |   |   |             |   |   |                 | 
|ASSETS                                                                         |   |                                |   |   |             |   |   |                 | 
|CURRENT ASSETS                                                                 |   |                                |   |   |             |   |   |                 | 
|Cash and cash equivalents                                                      | $ | 2,178,000                      |   | $ | —           |   | $ | 2,178,000       | 
|Accounts receivable, net                                                       |   | 16,226,000                     |   |   | 75,000      |   |   | 16,301,000      | 
|Unbilled services                                                              |   | 10,177,000                     |   |   | (311,000    | ) |   | 9,866,000       | 
|Deferred tax asset, current                                                    |   | 1,271,000                      |   |   | (1,271,000  | ) |   | —               | 
|Prepaid expenses and other current assets                                      |   | 4,348,000                      |   |   | (441,000    | ) |   | 3,907,000       | 
|                                                                               |   |                                |   |   |             |   |   |                 | 
|Total current assets                                                           |   | 34,200,000                     |   |   | (1,948,000  | ) |   | 32,252,000      | 
|Property and equipment, net                                                    |   | 4,432,000                      |   |   | 26,000      |   |   | 4,458,000       | 
|Deferred tax asset                                                             |   | 152,000                        |   |   | (152,000    | ) |   | —               | 
|Other assets                                                                   |   | 1,066,000                      |   |   | 192,000     |   |   | 1,258,000       | 
|                                                                               |   |                                |   |   |             |   |   |                 | 
|Total assets                                                                   | $ | 39,850,000                     |   | $ | (1,882,000  | ) | $ | 37,968,000      | 
|                                                                               |   |                                |   |   |             |   |   |                 | 
|LIABILITIES AND SHAREHOLDERS' EQUITY                                           |   |                                |   |   |             |   |   |                 | 
|CURRENT LIABILITIES                                                            |   |                                |   |   |             |   |   |                 | 
|Line of credit                                                                 | $ | 6,160,000                      |   | $ | —           |   | $ | 6,160,000       | 
|Accounts payable                                                               |   | 3,936,000                      |   |   | (4,000      | ) |   | 3,932,000       | 
|Accrued payroll and related taxes                                              |   | 8,380,000                      |   |   | 1,222,000   |   |   | 9,602,000       | 
|Accrued expenses and other current liabilities                                 |   | 5,712,000                      |   |   | (211,000    | ) |   | 5,501,000       | 
|Deferred revenue                                                               |   | 1,697,000                      |   |   | 910,000     |   |   | 2,607,000       | 
|Income taxes payable                                                           |   | 588,000                        |   |   | (273,000    | ) |   | 315,000         | 
|Current
       portion of obligations under capital leases
    and other debt  |   | 8,000                          |   |   | 348,000     |   |   | 356,000         | 
|                                                                               |   |                                |   |   |             |   |   |                 | 
|Total current liabilities                                                      |   | 26,481,000                     |   |   | 1,992,000   |   |   | 28,473,000      | 
|Long-term
    debt and obligations under capital lease, net of current portion |   | 69,000                         |   |   | (62,000     | ) |   | 7,000           | 
|Other long-term liabilities                                                    |   | 1,248,000                      |   |   | —           |   |   | 1,248,000       | 
|                                                                               |   |                                |   |   |             |   |   |                 | 
|Total liabilities                                                              |   | 27,798,000                     |   |   | 1,930,000   |   |   | 29,728,000      | 
|                                                                               |   |                                |   |   |             |   |   |                 | 
|Shareholders' Equity                                                           |   |                                |   |   |             |   |   |                 | 
|Preferred stock                                                                |   | —                              |   |   | —           |   |   | —               | 
|Common stock                                                                   |   | 167,000                        |   |   | —           |   |   | 167,000         | 
|Additional paid-in capital                                                     |   | 41,425,000                     |   |   | —           |   |   | 41,425,000      | 
|Accumulated deficit                                                            |   | (26,994,000                    | ) |   | (5,549,000  | ) |   | (32,543,000)    | 
|Accumulated other comprehensive loss                                           |   | (2,546,000                     | ) |   | 1,737,000   |   |   | (809,000)       | 
|                                                                               |   |                                |   |   |             |   |   |                 | 
|Total shareholders' equity                                                     |   | 12,052,000                     |   |   | (3,812,000  | ) |   | 8,240,000       | 
|                                                                               |   |                                |   |   |             |   |   |                 | 
|Total liabilities and shareholders' equity                                     | $ | 39,850,000                     |   | $ | (1,882,000  | ) | $ | 37,968,000      | 
|                                                                               |   |                                |   |   |             |   |   |                 | 

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.RESTATED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) 
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(unaudited)

|                                                                                | As
    Previously
    Reported |            | Adjustments |   | As
    Restated |  
|------------------------------------------------------------------------------- | ------------------------------ | ---------- | ----------- | - | --------------- | -
|                                                                                |                                |            |             |   |                 |  
|Revenue                                                                         | $                              | 86,275,000 |             | $ | (57,000         | )
|Cost of revenue                                                                 |                                | 61,030,000 |             |   | (180,000        | )
|                                                                                |                                |            |             |   |                 |  
|Gross
    profit                                                                |                                | 25,245,000 |             |   | 123,000         |  
|                                                                                |                                |            |             |   |                 |  
|Selling, general and administrative expenses                                    |                                | 20,937,000 |             |   | 48,000          |  
|Depreciation and amortization                                                   |                                | 2,130,000  |             |   | —               |  
|SeraNova receivable
    and impairment and other charges                        |                                | 5,534,000  |             |   | (5,179,000      | )
|Proxy contest charges                                                           |                                | 1,461,000  |             |   | (750,000        | )
|                                                                                |                                |            |             |   |                 |  
|Total
    operating expenses                                                    |                                | 30,062,000 |             |   | (5,881,000      | )
|                                                                                |                                |            |             |   |                 |  
|Operating
    income (loss)                                                     |                                | (4,817,000 | )           |   | 6,004,000       |  
|Interest income                                                                 |                                | 72,000     |             |   | 1,000           |  
|Interest expense                                                                |                                | (323,000   | )           |   | (5,000          | )
|Other expense                                                                   |                                | (254,000   | )           |   | (425,000        | )
|                                                                                |                                |            |             |   |                 |  
|Income (loss) from
       continuing operations before income tax
    provision |                                | (5,322,000 | )           |   | 5,575,000       |  
|Provision for income taxes                                                      |                                | 370,000    |             |   | (48,000         | )
|                                                                                |                                |            |             |   |                 |  
|Loss from continuing operations                                                 |                                | (5,692,000 | )           |   | 5,623,000       |  
|Loss from discontinued operations                                               |                                | (2,134,000 | )           |   | 1,209,000       |  
|                                                                                |                                |            |             |   |                 |  
|Net loss                                                                        | $                              | (7,826,000 | )           | $ | 6,832,000       |  
|                                                                                |                                |            |             |   |                 |  
|Loss per share:                                                                 |                                |            |             |   |                 |  
|Basic
    loss per share                                                        |                                |            |             |   |                 |  
|Loss
    from continuing operations                                             | $                              | (0.34      | )           | $ | 0.34            |  
|Discontinued
    operations                                                     |                                | (0.13      | )           |   | 0.07            |  
|                                                                                |                                |            |             |   |                 |  
|Net
    loss per share                                                          | $                              | (0.47      | )           | $ | 0.41            |  
|                                                                                |                                |            |             |   |                 |  
|Weighted
       average number of common shares outstanding
    - basic         |                                | 16,656,000 |             |   | 16,656,000      |  
|                                                                                |                                |            |             |   |                 |  
|Diluted
    loss per share                                                      |                                |            |             |   |                 |  
|Loss
    from continuing operations                                             | $                              | (0.34      | )           | $ | 0.34            |  
|Discontinued
    operations                                                     |                                | (0.13      | )           |   | 0.07            |  
|                                                                                |                                |            |             |   |                 |  
|Net
    loss per share                                                          | $                              | (0.47      | )           | $ | 0.41            |  
|                                                                                |                                |            |             |   |                 |  
|Weighted
       average number of common shares outstanding
    - diluted       |                                | 16,656,000 |             |   | 16,656,000      |  
|                                                                                |                                |            |             |   |                 |  
|Comprehensive loss                                                              |                                |            |             |   |                 |  
|Net
    loss                                                                    | $                              | (7,826,000 | )           | $ | 6,832,000       |  
|Other
    comprehensive income                                                  |                                |            |             |   |                 |  
|Currency
    translation adjustments                                            |                                | 1,092,000  |             |   | (712,000        | )
|                                                                                |                                |            |             |   |                 |  
|Comprehensive loss                                                              | $                              | (6,734,000 | )           | $ | 6,120,000       |  
|                                                                                |                                |            |             |   |                 |  

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INTELLIGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.RESTATED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) 
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 
(unaudited)

|                                                                          | As
    Previously
    Reported |            | Adjustments |   | As
    Restated |  
|------------------------------------------------------------------------- | ------------------------------ | ---------- | ----------- | - | --------------- | -
|                                                                          |                                |            |             |   |                 |  
|Revenue                                                                   | $                              | 31,035,000 |             | $ | 301,000         |  
|Cost of revenue                                                           |                                | 22,211,000 |             |   | (24,000         | )
|                                                                          |                                |            |             |   |                 |  
|Gross
    profit                                                          |                                | 8,824,000  |             |   | 325,000         |  
|                                                                          |                                |            |             |   |                 |  
|Selling, general and administrative expenses                              |                                | 7,130,000  |             |   | (80,000         | )
|Depreciation and amortization                                             |                                | 719,000    |             |   | —               |  
|SeraNova receivable
    and impairment and other charges                  |                                | (107,000   | )           |   | 239,000         |  
|Proxy contest charges                                                     |                                | 868,000    |             |   | (750,000        | )
|                                                                          |                                |            |             |   |                 |  
|Total
    operating expenses                                              |                                | 8,610,000  |             |   | (591,000        | )
|                                                                          |                                |            |             |   |                 |  
|Operating
    income                                                      |                                | 214,000    |             |   | 916,000         |  
|Interest income                                                           |                                | 47,000     |             |   | —               |  
|Interest expense                                                          |                                | (91,000    | )           |   | —               |  
|Other income (expense)                                                    |                                | (21,000    | )           |   | 75,000          |  
|                                                                          |                                |            |             |   |                 |  
|Income from continuing
       operations before income tax
    provision  |                                | 149,000    |             |   | 991,000         |  
|Provision for income taxes                                                |                                | 132,000    |             |   | (120,000        | )
|                                                                          |                                |            |             |   |                 |  
|Income from continuing operations                                         |                                | 17,000     |             |   | 1,111,000       |  
|Income (loss) from discontinued operations                                |                                | —          |             |   | —               |  
|                                                                          |                                |            |             |   |                 |  
|Net income                                                                | $                              | 17,000     |             | $ | 1,111,000       |  
|                                                                          |                                |            |             |   |                 |  
|Earnings per share:                                                       |                                |            |             |   |                 |  
|Basic
    earnings per share                                              |                                |            |             |   |                 |  
|Income
    from continuing operations                                     | $                              | 0.00       |             | $ | 0.07            |  
|Discontinued
    operations                                               |                                | —          |             |   | —               |  
|                                                                          |                                |            |             |   |                 |  
|Net
    earnings per share                                                | $                              | 0.00       |             | $ | 0.07            |  
|                                                                          |                                |            |             |   |                 |  
|Weighted
       average number of common shares outstanding
    - basic   |                                | 16,683,000 |             |   | 16,683,000      |  
|                                                                          |                                |            |             |   |                 |  
|Diluted
    earnings per share                                            |                                |            |             |   |                 |  
|Income
    from continuing operations                                     | $                              | 0.00       |             | $ | 0.06            |  
|Discontinued
    operations                                               |                                | —          |             |   | —               |  
|                                                                          |                                |            |             |   |                 |  
|Net
    earnings per share                                                | $                              | 0.00       |             | $ | 0.06            |  
|                                                                          |                                |            |             |   |                 |  
|Weighted
       average number of common shares outstanding
    - diluted |                                | 17,132,000 |             |   | 17,132,000      |  
|                                                                          |                                |            |             |   |                 |  
|Comprehensive income (loss)                                               |                                |            |             |   |                 |  
|Net
    income                                                            | $                              | 17,000     |             | $ | 1,111,000       |  
|Other
    comprehensive income (loss)                                     |                                |            |             |   |                 |  
|Currency
    translation adjustments                                      |                                | (89,000    | )           |   | 192,000         |  
|                                                                          |                                |            |             |   |                 |  
|Comprehensive income (loss)                                               | $                              | (72,000    | )           | $ | 1,303,000       |  
|                                                                          |                                |            |             |   |                 |  
|                                                                          |                                |            |             |   |                 |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.
  RESTATED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(unaudited)

|                                                                                       |   | As
    Previously
    Reported |   |   | Adjustments |   |   | As
    Restated |  
|-------------------------------------------------------------------------------------- | - | ------------------------------ | - | - | ----------- | - | - | --------------- | -
|                                                                                       |   |                                |   |   |             |   |   |                 |  
|Cash flows from operating activities:                                                  |   |                                |   |   |             |   |   |                 |  
|Net
    loss                                                                           | $ | (7,826,000                     | ) | $ | 6,832,000   |   | $ | (994,000        | )
|Less:
    Loss from discontinued operations                                            |   | (2,134,000                     | ) |   | 1,209,000   |   |   | (925,000        | )
|                                                                                       |   |                                |   |   |             |   |   |                 |  
|Loss from continuing operations                                                        |   | (5,692,000                     | ) |   | 5,623,000   |   |   | (69,000         | )
|Adjustments to reconcile
       net loss to net cash
    provided operating activities |   | 8,291,000                      |   |   | (5,510,000  | ) |   | 2,781,000       |  
|                                                                                       |   |                                |   |   |             |   |   |                 |  
|Net cash provided
       by operating activities of  continuing
    operations         |   | 2,599,000                      |   |   | 113,000     |   |   | 2,712,000       |  
|                                                                                       |   |                                |   |   |             |   |   |                 |  
|Cash flows from investing activities:                                                  |   |                                |   |   |             |   |   |                 |  
|Purchase
    of property and equipment                                                 |   | (1,784,000                     | ) |   | 451,000     |   |   | (1,333,000      | )
|                                                                                       |   |                                |   |   |             |   |   |                 |  
|Net cash used in investing activities                                                  |   | (1,784,000                     | ) |   | 451,000     |   |   | (1,333,000      | )
|                                                                                       |   |                                |   |   |             |   |   |                 |  
|Cash flows from financing activities:                                                  |   |                                |   |   |             |   |   |                 |  
|Principal
    payments under capital leases                                            |   | (307,000                       | ) |   | 46,000      |   |   | (261,000        | )
|Proceeds
    from exercise of stock options                                            |   | 60,000                         |   |   | —           |   |   | 60,000          |  
|Net
    change in line of credit borrowings                                            |   | 101,000                        |   |   | —           |   |   | 101,000         |  
|                                                                                       |   |                                |   |   |             |   |   |                 |  
|Net cash used in financing activities                                                  |   | (146,000                       | ) |   | 46,000      |   |   | (100,000        | )
|                                                                                       |   |                                |   |   |             |   |   |                 |  
|Effect of foreign currency exchange rate changes on cash                               |   | 1,095,000                      |   |   | (1,011,000  | ) |   | 84,000          |  
|                                                                                       |   |                                |   |   |             |   |   |                 |  
|Net cash provided by continuing operations                                             |   | 1,764,000                      |   |   | (401,000    | ) |   | 1,363,000       |  
|Net cash used in discontinued operations                                               |   | (749,000                       | ) |   | 401,000     |   |   | (348,000        | )
|                                                                                       |   |                                |   |   |             |   |   |                 |  
|Net increase in cash and cash equivalents                                              |   | 1,015,000                      |   |   | —           |   |   | 1,015,000       |  
|Cash and cash equivalents - beginning of period                                        |   | 1,163,000                      |   |   | —           |   |   | 1,163,000       |  
|                                                                                       |   |                                |   |   |             |   |   |                 |  
|Cash and cash equivalents - end of period                                              | $ | 2,178,000                      |   | $ | —           |   | $ | 2,178,000       |  
|                                                                                       |   |                                |   |   |             |   |   |                 |  

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INTELLIGROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.
  RESTATED
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003

|                                                                               |   | As Previously
    Reported |   |   | Adjustments |   |   | As
    Restated |  
|------------------------------------------------------------------------------ | - | -------------------------- | - | - | ----------- | - | - | --------------- | -
|                                                                               |   |                            |   |   |             |   |   |                 |  
|ASSETS                                                                         |   |                            |   |   |             |   |   |                 |  
|CURRENT ASSETS                                                                 |   |                            |   |   |             |   |   |                 |  
|Cash and cash equivalents                                                      | $ | 1,873,000                  |   | $ | (1,000      | ) | $ | 1,872,000       |  
|Accounts receivable, net                                                       |   | 23,941,000                 |   |   | (10,000     | ) |   | 23,931,000      |  
|Unbilled services                                                              |   | 7,298,000                  |   |   | (1,684,000  | ) |   | 5,614,000       |  
|Deferred tax asset, current                                                    |   | 1,041,000                  |   |   | (1,041,000  | ) |   | —               |  
|Other current assets                                                           |   | 3,671,000                  |   |   | 294,000     |   |   | 3,965,000       |  
|                                                                               |   |                            |   |   |             |   |   |                 |  
|Total current assets                                                           |   | 37,824,000                 |   |   | (2,442,000  | ) |   | 35,382,000      |  
|Property and equipment, net                                                    |   | 3,854,000                  |   |   | 395,000     |   |   | 4,249,000       |  
|Deferred tax asset                                                             |   | 917,000                    |   |   | (917,000    | ) |   | —               |  
|Other assets                                                                   |   | 1,893,000                  |   |   | (86,000     | ) |   | 1,807,000       |  
|                                                                               |   |                            |   |   |             |   |   |                 |  
|Total assets                                                                   | $ | 44,488,000                 |   | $ | (3,050,000  | ) | $ | 41,438,000      |  
|                                                                               |   |                            |   |   |             |   |   |                 |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                           |   |                            |   |   |             |   |   |                 |  
|CURRENT LIABILITIES                                                            |   |                            |   |   |             |   |   |                 |  
|Line of credit                                                                 | $ | 8,288,000                  |   | $ | —           |   | $ | 8,288,000       |  
|Accounts payable                                                               |   | 5,061,000                  |   |   | 161,000     |   |   | 5,222,000       |  
|Accrued payroll and related taxes                                              |   | 9,110,000                  |   |   | 1,310,000   |   |   | 10,420,000      |  
|Accrued expenses and other current liabilities                                 |   | 3,876,000                  |   |   | (413,000    | ) |   | 3,463,000       |  
|Deferred revenue                                                               |   | 1,920,000                  |   |   | 1,082,000   |   |   | 3,002,000       |  
|Income taxes payable                                                           |   | 459,000                    |   |   | (147,000    | ) |   | 312,000         |  
|Current portion of obligations under
       capital leases and other debt      |   | 209,000                    |   |   | 320,000     |   |   | 529,000         |  
|                                                                               |   |                            |   |   |             |   |   |                 |  
|Total current liabilities                                                      |   | 28,923,000                 |   |   | 2,313,000   |   |   | 31,236,000      |  
|                                                                               |   |                            |   |   |             |   |   |                 |  
|Long-term debt and obligations
    under capital lease, net of current portion |   | 256,000                    |   |   | —           |   |   | 256,000         |  
|Deferred taxes                                                                 |   | —                          |   |   | —           |   |   | —               |  
|Other long-term liabilities                                                    |   | 893,000                    |   |   |             |   |   | 893,000         |  
|                                                                               |   |                            |   |   |             |   |   |                 |  
|Total liabilities                                                              |   | 30,072,000                 |   |   | 2,313,000   |   |   | 32,385,000      |  
|                                                                               |   |                            |   |   |             |   |   |                 |  
|Shareholders' Equity                                                           |   |                            |   |   |             |   |   |                 |  
|Preferred stock                                                                |   | —                          |   |   | —           |   |   | —               |  
|Common stock                                                                   |   | 170,000                    |   |   |             |   |   | 170,000         |  
|Additional paid-in capital                                                     |   | 42,190,000                 |   |   | —           |   |   | 42,190,000      |  
|Accumulated deficit                                                            |   | (25,553,000                | ) |   | (7,036,000  | ) |   | (32,589,000     | )
|Accumulated other comprehensive loss                                           |   | (2,391,000                 | ) |   | 1,673,000   |   |   | (718,000        | )
|                                                                               |   |                            |   |   |             |   |   |                 |  
|Total shareholders' equity                                                     |   | 14,416,000                 |   |   | (5,363,000  | ) |   | 9,053,000       |  
|                                                                               |   |                            |   |   |             |   |   |                 |  
|Total liabilities and shareholders' equity                                     | $ | 44,488,000                 |   | $ | (3,050,000  | ) | $ | 41,438,000      |  
|                                                                               |   |                            |   |   |             |   |   |                 |  

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INTELLIGROUP,
INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.RESTATED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2003

|                                                                         |                                                                    |                                 | As Previously |            |             |            | As        |            
|------------------------------------------------------------------------ | ------------------------------------------------------------------ | ------------------------------- | ------------- | ---------- | ----------- | ---------- | --------- | -----------
|                                                                         |                                                                    |                                 | Reported      |            | Adjustments |            | Restated  |            
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|Revenue                                                                  | $                                                                  | 118,568,000                     |               | $          | (1,426,000) |            | $         | 117,142,000
|Cost of revenue                                                          |                                                                    | 83,641,000                      |               |            | (254,000    | )          |           | 83,387,000 
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|                                                                         | Gross profit                                                       |                                 | 34,927,000    |            |             | (1,172,000 | )         |            
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|Selling, general and administrative expenses                             |                                                                    | 28,542,000                      |               |            | 91,000      |            |           | 28,633,000 
|Depreciation and amortization                                            |                                                                    | 2,715,000                       |               |            | (54,000     | )          |           | 2,661,000  
|SeraNova
    receivable and impairment and othercharges                  |                                                                    | 5,534,000                       |               |            | (5,131,000  | )          |           | 403,000    
|Proxy contest charges                                                    |                                                                    | 1,461,000                       |               |            | (750,000    | )          |           | 711,000    
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|                                                                         | Total operating expenses                                           |                                 | 38,252,000    |            |             | (5,844,000 | )         |            
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|                                                                         | Operating income (loss)                                            |                                 | (3,325,000    | )          |             | 4,672,000  |           |            
|Interest income                                                          |                                                                    | 83,000                          |               |            | —           |            |           | 83,000     
|Interest expense                                                         |                                                                    | (441,000                        | )             |            | (12,000     | )          |           | (453,000   
|Other expense                                                            |                                                                    | (285,000                        | )             |            | (622,000    | )          |           | (907,000   
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|Income
    (loss) from continuing operations before income tax provision |                                                                    | (3,968,000                      | )             |            | 4,038,000   |            |           | 70,000     
|Provision for income taxes                                               |                                                                    | 283,000                         |               |            | (97,000     | )          |           | 186,000    
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|Loss from continuing operations                                          |                                                                    | (4,251,000                      | )             |            | 4,135,000   |            |           | (116,000   
|Loss from discontinued operations                                        |                                                                    | (2,134,000                      | )             |            | 1,209,000   |            |           | (925,000   
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|                                                                         |                                                                    | Net loss                        | $             | (6,385,000 | )           | $          | 5,344,000 |            
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|Loss per share:                                                          |                                                                    |                                 |               |            |             |            |           |            
|                                                                         | Basic loss per share                                               |                                 |               |            |             |            |           |            
|                                                                         |                                                                    | Loss from continuing operations | $             | (0.25      | )           | $          | 0.25      |            
|                                                                         |                                                                    | Discontinued operations         |               | (0.13      | )           |            | 0.07      |            
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|                                                                         | Net loss per share                                                 | $                               | (0.38         | )          | $           | 0.32       |           | $          
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|                                                                         | Weighted
    average number of common shares outstanding – basic   |                                 | 16,697,000    |            |             | 16,697,000 |           |            
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|                                                                         | Diluted loss per share                                             |                                 |               |            |             |            |           |            
|                                                                         |                                                                    | Loss from continuing operations | $             | (0.25      | )           | $          | 0.25      |            
|                                                                         |                                                                    | Discontinued operations         |               | (0.13      | )           |            | 0.07      |            
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|                                                                         | Net loss per share                                                 | $                               | (0.38         | )          | $           | 0.32       |           | $          
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|                                                                         | Weighted
    average number of common shares outstanding – diluted |                                 | 16,697,000    |            |             | 16,697,000 |           |            
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|Comprehensive loss                                                       |                                                                    |                                 |               |            |             |            |           |            
|                                                                         | Net loss                                                           | $                               | (6,385,000    | )          | $           | 5,344,000  |           | $          
|                                                                         | Other comprehensive income                                         |                                 |               |            |             |            |           |            
|                                                                         | Currency translation adjustments                                   |                                 | 1,247,000     |            |             | (776,000   | )         |            
|                                                                         |                                                                    |                                 |               |            |             |            |           |            
|Comprehensive loss                                                       | $                                                                  | (5,138,000                      | )             | $          | 4,568,000   |            | $         | (570,000   
|                                                                         |                                                                    |                                 |               |            |             |            |           |            

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INTELLIGROUP,
INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
INC.
RESTATED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
2003

|                                                                               |                                         | As Previously |            |             |            | As        |  
|------------------------------------------------------------------------------ | --------------------------------------- | ------------- | ---------- | ----------- | ---------- | --------- | -
|                                                                               |                                         | Reported      |            | Adjustments |            | Restated  |  
|                                                                               |                                         |               |            |             |            |           |  
|Cash flows from operating activities:                                          |                                         |               |            |             |            |           |  
|                                                                               | Net loss                                | $             | (6,385,000 | )           | $          | 5,344,000 |  
|                                                                               | Less: Loss from discontinued operations |               | (2,134,000 | )           |            | 1,209,000 |  
|                                                                               |                                         |               |            |             |            |           |  
|Loss from continuing operations                                                |                                         | (4,251,000    | )          |             | 4,135,000  |           |  
|Adjustments
    to reconcile net loss to net cash used in operating activities |                                         | 3,409,000     |            |             | (3,712,000 | )         |  
|                                                                               |                                         |               |            |             |            |           |  
|Net
    cash used in operating activities of continuing operations             |                                         | (842,000      | )          |             | 423,000    |           |  
|                                                                               |                                         |               |            |             |            |           |  
|Cash flows from investing activities:                                          |                                         |               |            |             |            |           |  
|                                                                               | Purchase of property and equipment      |               | (1,632,000 | )           |            | 256,000   |  
|                                                                               |                                         |               |            |             |            |           |  
|Net cash used in investing activities                                          |                                         | (1,632,000    | )          |             | 256,000    |           |  
|                                                                               |                                         |               |            |             |            |           |  
|Cash flows from financing activities:                                          |                                         |               |            |             |            |           |  
|                                                                               | Principal payments under capital leases |               | (374,000   | )           |            | 74,000    |  
|                                                                               | Proceeds from exercise of stock options |               | 828,000    |             |            | (1,000    | )
|                                                                               | Net change in line of credit borrowings |               | 2,229,000  |             |            | —         |  
|                                                                               |                                         |               |            |             |            |           |  
|Net cash provided by financing activities                                      |                                         | 2,683,000     |            |             | 73,000     |           |  
|                                                                               |                                         |               |            |             |            |           |  
|Effect of foreign currency exchange rate changes on cash                       |                                         | 1,247,000     |            |             | (1,151,000 | )         |  
|                                                                               |                                         |               |            |             |            |           |  
|Net cash provided by continuing operations                                     |                                         | 1,456,000     |            |             | (399,000   | )         |  
|Net cash used in discontinued operations                                       |                                         | (746,000      | )          |             | 398,000    |           |  
|                                                                               |                                         |               |            |             |            |           |  
|Net increase in cash and cash equivalents                                      |                                         | 710,000       |            |             | (1,000     | )         |  
|Cash and
    cash equivalents – beginning of year                              |                                         | 1,163,000     |            |             | —          |           |  
|                                                                               |                                         |               |            |             |            |           |  
|Cash and
    cash equivalents – end of year                                    | $                                       | 1,873,000     |            | $           | (1,000     | )         | $
|                                                                               |                                         |               |            |             |            |           |  
|Supplemental disclosure of cash flow information                               |                                         |               |            |             |            |           |  
|                                                                               | Cash paid for income taxes              | $             | 351,000    |             | $          | 5,000     |  
|                                                                               |                                         |               |            |             |            |           |  
|                                                                               | Cash paid for interest                  | $             | 441,000    |             | $          | —         |  
|                                                                               |                                         |               |            |             |            |           |  
|Supplemental
    disclosures of noncash investing and financing activities     |                                         |               |            |             |            |           |  
|Property
        and equipmentacquired
    by capital lease                    | $                                       | —             |            | $           | (461,000   | )         | $
|                                                                               |                                         |               |            |             |            |           |  

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INTELLIGROUP,
INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.RESTATED CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
(unaudited)

|                                                                               |                                                                        |                                            | As
    Previously |            |          |            | As         |          
|------------------------------------------------------------------------------ | ---------------------------------------------------------------------- | ------------------------------------------ | ----------------- | ---------- | -------- | ---------- | ---------- | ---------
|Reported                                                                       | Adjustments                                                            | Restated                                  
|                                                                               |                                                                        |                                            |                   |            |          |            |            |          
|ASSETS                                                                         |                                                                        |                                            |                   |            |          |            |            |          
|CURRENT ASSETS                                                                 |                                                                        |                                            |                   |            |          |            |            |          
|                                                                               | Cash and cash equivalents                                              | $                                          | 2,938,000         |            | $        | 2,000      |            | $        
|                                                                               | Accounts receivable, net                                               |                                            | 22,003,000        |            |          | 1,136,000  |            |          
|                                                                               | Unbilled services                                                      |                                            | 6,796,000         |            |          | (2,838,000 | )          |          
|                                                                               | Deferred tax asset, current                                            |                                            | 1,041,000         |            |          | (1,041,000 | )          |          
|                                                                               | Prepaid expenses and other current assets                              |                                            | 3,012,000         |            |          | 310,000    |            |          
|                                                                               |                                                                        |                                            |                   |            |          |            |            |          
|                                                                               |                                                                        | Total current assets                       |                   | 35,790,000 |          |            | (2,431,000 | )        
|Property and equipment, net                                                    |                                                                        | 3,701,000                                  |                   |            | 19,000   |            |            | 3,720,000
|Deferred tax asset                                                             |                                                                        | 917,000                                    |                   |            | (917,000 | )          |            | —        
|Other assets                                                                   |                                                                        | 2,477,000                                  |                   |            | 270,000  |            |            | 2,747,000
|                                                                               |                                                                        |                                            |                   |            |          |            |            |          
|                                                                               |                                                                        | Total assets                               | $                 | 42,885,000 |          | $          | (3,059,000 | )        
|                                                                               |                                                                        |                                            |                   |            |          |            |            |          
|LIABILITIES
    AND SHAREHOLDERS' EQUITY                                       |                                                                        |                                            |                   |            |          |            |            |          
|CURRENT LIABILITIES                                                            |                                                                        |                                            |                   |            |          |            |            |          
|                                                                               | Line of credit                                                         | $                                          | 7,675,000         |            | $        | —          |            | $        
|                                                                               | Accounts payable                                                       |                                            | 2,125,000         |            |          | 21,000     |            |          
|                                                                               | Accrued payroll and related taxes                                      |                                            | 9,171,000         |            |          | 1,220,000  |            |          
|                                                                               | Accrued expenses and other current liabilities                         |                                            | 3,575,000         |            |          | (399,000   | )          |          
|                                                                               | Deferred revenue                                                       |                                            | 2,138,000         |            |          | 1,283,000  |            |          
|                                                                               | Income taxes payable                                                   |                                            | 809,000           |            |          | (607,000   | )          |          
|                                                                               | Current portion of
    obligations under capital leases and other debt |                                            | 206,000           |            |          | 286,000    |            |          
|                                                                               |                                                                        |                                            |                   |            |          |            |            |          
|                                                                               |                                                                        | Total current liabilities                  |                   | 25,699,000 |          |            | 1,804,000  |          
|Long-term debt and
    obligations under capital lease, net of current portion |                                                                        | 256,000                                    |                   |            | —        |            |            | 256,000  
|Other long-term liabilities                                                    |                                                                        | 830,000                                    |                   |            | —        |            |            | 830,000  
|                                                                               |                                                                        |                                            |                   |            |          |            |            |          
|                                                                               |                                                                        | Total liabilities                          |                   | 26,785,000 |          |            | 1,804,000  |          
|                                                                               |                                                                        |                                            |                   |            |          |            |            |          
|                                                                               |                                                                        |                                            |                   |            |          |            |            |          
|Shareholders' Equity                                                           |                                                                        |                                            |                   |            |          |            |            |          
|                                                                               | Preferred stock                                                        |                                            | —                 |            |          | —          |            |          
|                                                                               | Common stock                                                           |                                            | 174,000           |            |          | —          |            |          
|                                                                               | Additional paid-in capital                                             |                                            | 43,350,000        |            |          | —          |            |          
|                                                                               | Accumulated deficit                                                    |                                            | (25,274,000       | )          |          | (6,938,000 | )          |          
|                                                                               | Accumulated other comprehensive loss                                   |                                            | (2,150,000        | )          |          | 2,075,000  |            |          
|                                                                               |                                                                        |                                            |                   |            |          |            |            |          
|                                                                               |                                                                        | Total shareholders' equity                 |                   | 16,100,000 |          |            | (4,863,000 | )        
|                                                                               |                                                                        |                                            |                   |            |          |            |            |          
|                                                                               |                                                                        | Total liabilities and shareholders' equity | $                 | 42,885,000 |          | $          | (3,059,000 | )        
|                                                                               |                                                                        |                                            |                   |            |          |            |            |          

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INTELLIGROUP,
INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP, INC.RESTATED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(unaudited)

|                                                                    |                                                                        |                                  | As Previously |         |             |            | As       |           
|------------------------------------------------------------------- | ---------------------------------------------------------------------- | -------------------------------- | ------------- | ------- | ----------- | ---------- | -------- | ----------
|                                                                    |                                                                        |                                  | Reported      |         | Adjustments |            | Restated |           
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|Revenue                                                             | $                                                                      | 30,848,000                       |               | $       | (312,000    | )          | $        | 30,536,000
|Cost of revenue                                                     |                                                                        | 21,158,000                       |               |         | (484,000    | )          |          | 20,674,000
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|                                                                    | Gross profit                                                           |                                  | 9,690,000     |         |             | 172,000    |          |           
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|Selling, general and administrative expenses                        |                                                                        | 8,181,000                        |               |         | 301,000     |            |          | 8,482,000 
|Depreciation and amortization                                       |                                                                        | 469,000                          |               |         | —           |            |          | 469,000   
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|                                                                    | Total operating expenses                                               |                                  | 8,650,000     |         |             | 301,000    |          |           
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|                                                                    | Operating income                                                       |                                  | 1,040,000     |         |             | (129,000   | )        |           
|Interest income                                                     |                                                                        | 17,000                           |               |         | —           |            |          | 17,000    
|Interest expense                                                    |                                                                        | (106,000                         | )             |         | —           |            |          | (106,000  
|Other expense                                                       |                                                                        | (405,000                         | )             |         | (230,000    | )          |          | (635,000  
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|Income
    from operations before income tax provision (benefit of) |                                                                        | 546,000                          |               |         | (359,000    | )          |          | 187,000   
|Provision for (benefit of) income taxes                             |                                                                        | 267,000                          |               |         | (458,000    | )          |          | (191,000  
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|Net income                                                          | $                                                                      | 279,000                          |               | $       | 99,000      |            | $        | 378,000   
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|Earnings per share:                                                 |                                                                        |                                  |               |         |             |            |          |           
|                                                                    | Basic earnings per share                                               |                                  |               |         |             |            |          |           
|                                                                    | Net income per share                                                   | $                                | 0.02          |         |             | 0.00       |          | $         
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|                                                                    | Weighted
    average number of common shares outstanding –    basic    |                                  | 17,184,000    |         |             | 17,184,000 |          |           
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|                                                                    | Diluted earnings per share                                             |                                  |               |         |             |            |          |           
|                                                                    | Net income per share                                                   | $                                | 0.01          |         | $           | 0.01       |          | $         
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|                                                                    | Weighted
    average number of common shares outstanding
    – diluted |                                  | 19,126,000    |         |             | 19,294,000 |          |           
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|Comprehensive income                                                |                                                                        |                                  |               |         |             |            |          |           
|                                                                    | Net income                                                             | $                                | 279,000       |         | $           | 99,000     |          | $         
|                                                                    | Other comprehensive income                                             |                                  |               |         |             |            |          |           
|                                                                    |                                                                        | Currency translation adjustments |               | 241,000 |             |            | 402,000  |           
|                                                                    |                                                                        |                                  |               |         |             |            |          |           
|Comprehensive income                                                | $                                                                      | 520,000                          |               | $       | 501,000     |            | $        | 1,021,000 
|                                                                    |                                                                        |                                  |               |         |             |            |          |           

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INTELLIGROUP,
INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 17– UNAUDITED
      QUARTERLY FINANCIAL DATA AND RESTATED
      FINANCIAL STATEMENTS (CONTINUED)

INTELLIGROUP,
INC.
RESTATED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH
31, 2004
(unaudited)

|                                                                                     |                                         | As Previously |           |             |          | As       |  
|------------------------------------------------------------------------------------ | --------------------------------------- | ------------- | --------- | ----------- | -------- | -------- | -
|                                                                                     |                                         | Reported      |           | Adjustments |          | Restated |  
|                                                                                     |                                         |               |           |             |          |          |  
|Cash flows from operating activities:                                                |                                         |               |           |             |          |          |  
|                                                                                     | Net income                              | $             | 279,000   |             | $        | 99,000   |  
|Adjustments
    to reconcile net income to net cash provided by operating activities |                                         | 427,000       |           |             | (299,000 | )        |  
|                                                                                     |                                         |               |           |             |          |          |  
|Net
    cash provided by operating activities of continuing operations               |                                         | 706,000       |           |             | (200,000 | )        |  
|                                                                                     |                                         |               |           |             |          |          |  
|Cash flows from investing activities:                                                |                                         |               |           |             |          |          |  
|                                                                                     | Purchase of property and equipment      |               | (430,000  | )           |          | 396,000  |  
|                                                                                     |                                         |               |           |             |          |          |  
|Net cash used in investing activities                                                |                                         | (430,000      | )         |             | 396,000  |          |  
|                                                                                     |                                         |               |           |             |          |          |  
|Cash flows from financing activities:                                                |                                         |               |           |             |          |          |  
|                                                                                     | Principal payments under capital leases |               | (4,000    | )           |          | (33,000  | )
|                                                                                     | Proceeds from exercise of stock options |               | 1,164,000 |             |          | —        |  
|                                                                                     | Net change in line of credit borrowings |               | (612,000  | )           |          | (1,000   | )
|                                                                                     |                                         |               |           |             |          |          |  
|Net cash provided by financing activities                                            |                                         | 548,000       |           |             | (34,000  | )        |  
|                                                                                     |                                         |               |           |             |          |          |  
|Effect of foreign currency exchange rate changes on cash                             |                                         | 241,000       |           |             | (159,000 | )        |  
|                                                                                     |                                         |               |           |             |          |          |  
|Net increase in cash and cash equivalents                                            |                                         | 1,065,000     |           |             | 3,000    |          |  
|Cash and cash equivalents – beginning
    of period                                  |                                         | 1,873,000     |           |             | (1,000   | )        |  
|                                                                                     |                                         |               |           |             |          |          |  
|Cash and cash equivalents – end
    of period                                        | $                                       | 2,938,000     |           | $           | 2,000    |          | $
|                                                                                     |                                         |               |           |             |          |          |  

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INTELLIGROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 18  2004
    UNAUDITED CONDENSED CONSOLIDATED QUARTERLY INFORMATION

The following unaudited quarterly financial information is presented for the
    quarters ended June 30, 2004 and September 30, 2004.


INTELLIGROUP, INC.
  CONSOLIDATED
BALANCE SHEET
June 30, 2004
(unaudited)

|ASSETS                                                                         |   |             |  
|------------------------------------------------------------------------------ | - | ----------- | -
|CURRENT ASSETS                                                                 |   |             |  
|Cash and cash equivalents                                                      | $ | 4,015,000   |  
|Accounts
    receivable, net                                                   |   | 20,450,000  |  
|Unbilled
    services                                                          |   | 11,007,000  |  
|Deferred tax asset, current                                                    |   | —           |  
|Other
    current assets                                                       |   | 3,657,000   |  
|                                                                               |   |            
|Total current assets                                                           |   | 39,129,000  |  
|                                                                               |   |             |  
|Property and equipment, net                                                    |   | 4,562,000   |  
|Deferred tax and other assets                                                  |   | 1,683,000   |  
|                                                                               |   |            
|Total
    assets                                                               | $ | 45,374,000  |  
|                                                                               |   |            
|                                                                               |   |             |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                           |   |             |  
|CURRENT LIABILITIES                                                            |   |             |  
|Line
    of credit                                                             | $ | 11,751,000  |  
|Accounts
    payable                                                           |   | 4,130,000   |  
|Accrued payroll and related taxes                                              |   | 10,388,000  |  
|Accrued expenses and other current liabilities                                 |   | 4,446,000   |  
|Deferred
    revenue                                                           |   | 2,694,000   |  
|Income
    taxes payable                                                       |   | 231,000     |  
|Current
    portion of obligations under capital leases and other debt         |   | 496,000     |  
|                                                                               |   |            
|Total current liabilities                                                      |   | 34,136,000  |  
|Long-term
    debt and obligations under capital lease, net of current portion |   | 93,000      |  
|Deferred taxes                                                                 |   | —           |  
|Other long-term liabilities                                                    |   | 754,000     |  
|                                                                               |   |            
|Total
    liabilities                                                          |   | 34,983,000  |  
|                                                                               |   |            
|Shareholders' Equity                                                           |   |             |  
|Preferred
    stock                                                            |   | —           |  
|Common
    stock                                                               |   | 174,000     |  
|Additional
    paid-in capital                                                 |   | 43,479,000  |  
|Accumulated
    deficit                                                        |   | (32,555,000 | )
|Accumulated other comprehensive loss                                           |   | (707,000    | )
|                                                                               |   |            
|Total shareholders' equity                                                     |   | 10,391,000  |  
|                                                                               |   |            
|Total liabilities and shareholders' equity                                     | $ | 45,374,000  |  
|                                                                               |   |            
|                                                                               |   |             |  

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INTELLIGROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 18  2004
    UNAUDITED CONDENSED CONSOLIDATED QUARTERLY INFORMATION (CONTINUED)

INTELLIGROUP, INC.CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX
MONTHS ENDED JUNE 30, 2004
(unaudited)

|                                                                     | Three Months Ended |            | Six Months Ended |  
|-------------------------------------------------------------------- | ------------------ | ---------- | ---------------- | -
|                                                                     | June 30, 2004      |            | June 30, 2004    |  
|                                                                     |                    |            |                  |  
|Revenue                                                              | $                  | 32,064,000 |                  | $
|Cost of revenue                                                      |                    | 22,995,000 |                  |  
|                                                                     |                    |            |                  |  
|Gross
    profit                                                     |                    | 9,069,000  |                  |  
|                                                                     |                    |            |                  |  
|                                                                     |                    |            |                  |  
|Selling, general and administrative expenses                         |                    | 9,249,000  |                  |  
|Depreciation and amortization                                        |                    | 485,000    |                  |  
|                                                                     |                    |            |                  |  
|Total
    operating expenses                                         |                    | 9,734,000  |                  |  
|                                                                     |                    |            |                  |  
|                                                                     |                    |            |                  |  
|Operating
    income (loss)                                          |                    | (665,000   | )                |  
|Interest income                                                      |                    | 1,000      |                  |  
|Interest expense                                                     |                    | (124,000   | )                |  
|Other income                                                         |                    | 671,000    |                  |  
|                                                                     |                    |            |                  |  
|Income (loss) from
       operations before income tax
    provision |                    | (117,000   | )                |  
|Provision for income taxes                                           |                    | 226,000    |                  |  
|                                                                     |                    |            |                  |  
|Net income (loss)                                                    | $                  | (343,000   | )                | $
|                                                                     |                    |            |                  |  
|Earnings (loss) per share:                                           |                    |            |                  |  
|Basic
    earnings (loss) per share                                  |                    |            |                  |  
|Net
    earnings (loss) per share                                    | $                  | (0.02      | )                | $
|                                                                     |                    |            |                  |  
|Weighted
    average number of common shares                         |                    |            |                  |  
|outstanding    – basic                                               |                    | 17,403,000 |                  |  
|                                                                     |                    |            |                  |  
|Diluted
    earnings (loss) per share                                |                    |            |                  |  
|Net
    earnings (loss) per share                                    | $                  | (0.02      | )                | $
|                                                                     |                    |            |                  |  
|Weighted
    average number of common shares                         |                    |            |                  |  
|outstanding
    – diluted                                            |                    | 17,403,000 |                  |  
|                                                                     |                    |            |                  |  
|Comprehensive income (loss)                                          |                    |            |                  |  
|Net
    income (loss)                                                | $                  | (343,000   | )                | $
|Other
    comprehensive income (loss)                                |                    |            |                  |  
|Currency
    translation adjustments                                 |                    | (632,000   | )                |  
|                                                                     |                    |            |                  |  
|Comprehensive income (loss)                                          | $                  | (975,000   | )                | $
|                                                                     |                    |            |                  |  

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INTELLIGROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 18  2004
    UNAUDITED CONDENSED CONSOLIDATED QUARTERLY INFORMATION (CONTINUED)

INTELLIGROUP, INC.CONSOLIDATED STATEMENT
    OF CASH FLOWSFOR THE SIX MONTHS
    ENDED JUNE 30, 2004(unaudited)

|                                                                                        |           |            |  
|--------------------------------------------------------------------------------------- | --------- | ---------- | -
|Cash flows from operating activities:                                                   |           |            |  
|Net
    income                                                                          | $         | 35,000     |  
|Adjustments to reconcile
       net income to net cash
    used in operating activities |           | (898,000   | )
|                                                                                        |           |           
|                                                                                        |           |            |  
|Net cash used in operating
    activities of continuing operations                      |           | (863,000   | )
|                                                                                        |           |           
|Cash flows from investing activities:                                                   |           |            |  
|Purchase
    of property and equipment                                                  |           | (1,513,000 | )
|                                                                                        |           |           
|Net cash used in investing activities                                                   |           | (1,513,000 | )
|                                                                                        |           |           
|Cash flows from financing activities:                                                   |           |            |  
|Principal
    payments under capital leases                                             |           | (197,000   | )
|Proceeds
    from exercise of stock options                                             |           | 1,294,000  |  
|Net
    change in line of credit borrowings                                             |           | 3,462,000  |  
|                                                                                        |           |           
|Net cash provided by financing activities                                               |           | 4,559,000  |  
|                                                                                        |           |           
|Effect of foreign currency exchange rate changes on cash                                | (40,000   | )         
|                                                                                        |           |           
|                                                                                        |           |            |  
|Net increase in cash and cash equivalents                                               |           | 2,143,000  |  
|Cash and cash equivalents – beginning of period                                         | 1,872,000 |           
|                                                                                        |           |           
|Cash and cash equivalents – end of period                                               | $         | 4,015,000  |  
|                                                                                        |           |            |  

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INTELLIGROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 18  2004
    UNAUDITED CONDENSED CONSOLIDATED QUARTERLY INFORMATION (CONTINUED)

INTELLIGROUP, INC.CONSOLIDATED BALANCE SHEETSeptember 30, 2004(unaudited)

|ASSETS                                                                         |   |             |  
|------------------------------------------------------------------------------ | - | ----------- | -
|CURRENT ASSETS                                                                 |   |             |  
|Cash and cash equivalents                                                      | $ | 15,379,000  |  
|Accounts
    receivable, net                                                   |   | 16,039,000  |  
|Unbilled
    services                                                          |   | 20,723,000  |  
|Deferred tax asset, current                                                    |   | —           |  
|Other
    current assets                                                       |   | 6,105,000   |  
|                                                                               |   |            
|Total current assets                                                           |   | 58,246,000  |  
|                                                                               |   |             |  
|Property and equipment, net                                                    |   | 4,330,000   |  
|Deferred tax and other assets                                                  |   | 1,670,000   |  
|                                                                               |   |            
|                                                                               |   |             |  
|Total
    assets                                                               | $ | 64,246,000  |  
|                                                                               |   |             |  
|                                                                               |   |             |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                           |   |             |  
|CURRENT LIABILITIES                                                            |   |             |  
|Line
    of credit                                                             | $ | 13,424,000  |  
|Accounts
    payable                                                           |   | 5,321,000   |  
|Accrued payroll and related taxes                                              |   | 11,571,000  |  
|Accrued expenses and other current liabilities                                 |   | 4,609,000   |  
|Deferred
    revenue                                                           |   | 1,246,000   |  
|Income
    taxes payable                                                       |   | 230,000     |  
|Current portion of obligations under
       capital leases and other debt      |   | 445,000     |  
|                                                                               |   |            
|Total current liabilities                                                      |   | 36,846,000  |  
|Long-term debt and obligations
    under capital lease, net of current portion |   | 46,000      |  
|Deferred taxes                                                                 |   | —           |  
|Other long-term liabilities                                                    |   | 428,000     |  
|                                                                               |   |            
|                                                                               |   |             |  
|Total
    liabilities                                                          |   | 37,320,000  |  
|                                                                               |   |            
|                                                                               |   |             |  
|Shareholders' Equity                                                           |   |             |  
|Preferred
    stock                                                            |   | —           |  
|Common
    stock                                                               |   | 351,000     |  
|Additional
    paid-in capital                                                 |   | 58,012,000  |  
|Accumulated
    deficit                                                        |   | (30,696,000 | )
|Accumulated other comprehensive loss                                           |   | (741,000    | )
|                                                                               |   |            
|Total shareholders' equity                                                     |   | 26,926,000  |  
|                                                                               |   |            
|                                                                               |   |             |  
|Total liabilities and shareholders' equity                                     | $ | 64,246,000  |  
|                                                                               |   |             |  

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INTELLIGROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 18  2004
    UNAUDITED CONDENSED CONSOLIDATED QUARTERLY INFORMATION (CONTINUED)

INTELLIGROUP, INC.CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2004
(unaudited)

|                                                                        | Three Months Ended |            | NIne Months Ended  |  
|----------------------------------------------------------------------- | ------------------ | ---------- | ------------------ | -
|                                                                        | September 30, 2004 |            | September 30, 2004 |  
|                                                                        |                    |            |                    |  
|                                                                        |                    |            |                    |  
|Revenue                                                                 | $                  | 35,492,000 |                    | $
|Cost of revenue                                                         |                    | 24,590,000 |                    |  
|                                                                        |                    |            |                    |  
|Gross
    profit                                                        |                    | 10,902,000 |                    |  
|                                                                        |                    |            |                    |  
|Selling, general and administrative expenses                            |                    | 8,221,000  |                    |  
|Depreciation and amortization                                           |                    | 481,000    |                    |  
|                                                                        |                    |            |                    |  
|Total
    operating expenses                                            |                    | 8,702,000  |                    |  
|                                                                        |                    |            |                    |  
|Operating
    income                                                    |                    | 2,200,000  |                    |  
|Interest income                                                         |                    | 3,000      |                    |  
|Interest expense                                                        |                    | (130,000   | )                  |  
|Other income                                                            |                    | 83,000     |                    |  
|                                                                        |                    |            |                    |  
|Income
       from operations before income tax
    provision           |                    | 2,156,000  |                    |  
|Provision for income taxes                                              |                    | 297,000    |                    |  
|                                                                        |                    |            |                    |  
|Net income                                                              | $                  | 1,859,000  |                    | $
|                                                                        |                    |            |                    |  
|Earnings per share:                                                     |                    |            |                    |  
|Basic
    earnings per share                                            |                    |            |                    |  
|Net
    earnings per share                                              | $                  | 0.09       |                    | $
|                                                                        |                    |            |                    |  
|Weighted
       average number of common shares outstanding
    – basic |                    | 21,858,000 |                    |  
|                                                                        |                    |            |                    |  
|Diluted
    earnings per share                                          |                    |            |                    |  
|Net
    earnings per share                                              | $                  | 0.08       |                    | $
|                                                                        |                    |            |                    |  
|Weighted
    average number of common shares                            |                    |            |                    |  
|outstanding
    – diluted                                               |                    | 22,775,000 |                    |  
|                                                                        |                    |            |                    |  
|Comprehensive income                                                    |                    |            |                    |  
|Net
    income                                                          | $                  | 1,859,000  |                    | $
|Other
    comprehensive income                                          |                    |            |                    |  
|Currency
    translation adjustments                                    |                    | (34,000    | )                  |  
|                                                                        |                    |            |                    |  
|Comprehensive income                                                    | $                  | 1,825,000  |                    | $
|                                                                        |                    |            |                    |  

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INTELLIGROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2004, 2003 AND 2002

NOTE 18  2004
    UNAUDITED CONDENSED CONSOLIDATED QUARTERLY INFORMATION (CONTINUED)

INTELLIGROUP,
              INC.
  CONSOLIDATED STATEMENT
        OF CASH FLOWSFOR THE NINE MONTHS
        ENDED SEPTEMBER 30, 2004(unaudited)

|                                                         |   |            |  
|-------------------------------------------------------- | - | ---------- | -
|Cash flows from operating activities:                    |   |            |  
|Net
    income                                           | $ | 1,894,000  |  
|Adjustments to reconcile net income to net               |   |            |  
|cash
    used in operating activities                    |   | (7,316,000 | )
|                                                         |   |            |  
|Net cash used in operating activities of                 |   |            |  
|continuing
    operations                                |   | (5,422,000 | )
|                                                         |   |            |  
|Cash flows from investing activities:                    |   |            |  
|Purchase
    of property and equipment                   |   | (1,862,000 | )
|                                                         |   |            |  
|Net cash used in investing activities                    |   | (1,862,000 | )
|                                                         |   |            |  
|Cash flows from financing activities:                    |   |            |  
|Principal
    payments under capital leases              |   | (296,000   | )
|Net
    proceeds from private placement                  |   | 14,675,000 |  
|Proceeds
    from exercise of stock options              |   | 1,328,000  |  
|Net
    change in line of credit borrowings              |   | 5,135,000  |  
|                                                         |   |            |  
|Net cash provided by financing activities                |   | 20,842,000 |  
|                                                         |   |            |  
|Effect of foreign currency exchange rate changes on cash |   | (51,000    | )
|                                                         |   |            |  
|Net increase in cash and cash equivalents                |   | 13,507,000 |  
|Cash and cash equivalents – beginning of period          |   | 1,872,000  |  
|                                                         |   |            |  
|Cash
    and cash equivalents– end of period             | $ | 15,379,000 |  
|                                                         |   |            |  

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