UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

|(Mark
      One)                                       
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|[X]                                                    
|                                                       
|For
      the fiscal year ended December 31,
      2008
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|[_]                                                    

For the transition period from
__________________to __________________

Commission File Number 0-20943

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


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|New Jersey                                                          
|(State or other jurisdiction of
      incorporation or organization)
|                                                                    
|5 Independence Way, Suite 220,
      Princeton, NJ 08540            
|(Address of
      principal executive offices including zip code)   

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

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

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

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 þ No o

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

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

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

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

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The aggregate market value of the
voting stock held by non-affiliates of the registrant as of June 30, 2008 (the
last business day of the most recent second quarter) was $25,940,376 (based on
the closing price as quoted on Nasdaq on that date). For purposes of this
calculation, shares owned by officers, directors and 10% shareholders known to
the registrant have been deemed to be owned by affiliates. This determination of
affiliate status is not a determination for other purposes.

Indicate the number of shares
outstanding of each of the registrants classes of common stock, as of February
27, 2009:



|Class                         |            | Number of Shares | 
|----------------------------- | ---------- | ---------------- | 
|Common Stock, $0.01 par value | 42,114,157

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|TABLE OF CONTENTS    |   
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|PART I               |   
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|PART II              |   
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|PART III             |   
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|PART
      IV        |   
|EXHIBIT INDEX        | 40
|SIGNATURES           | 43
|FINANCIAL STATEMENTS | 44

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

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PART I

Item 1.
Business.

General Business
Overview.

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

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

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

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

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

Company
History

We were
incorporated in New Jersey in October 1987 under the name Intellicorp, Inc. to
provide systems integration and custom software development services. Our name
was changed to Intelligroup, Inc. in July 1992. In March 1994, we acquired
Oxford Systems Inc. (Oxford). On December 31, 1996, Oxford was merged into
Intelligroup and ceased to exist as an independent entity. In October 1996, we
consummated our initial public offering of our common stock (Common Stock).
Our executive offices are located at Princeton, New Jersey 08540.

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

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

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

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

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

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

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

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

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

Intelligroup
Services

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

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

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

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

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

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

In 1995,
we achieved the status of a SAP National Implementation Partner. In 1997, we
enhanced our partnership status with SAP, by first achieving National Logo
Partner status and then Accelerated SAP Partner status. In July 1997, we were
awarded PeopleSoft Implementation Partnership status. In June 1998, we
expanded our Oracle applications implementation services practice and added
upgrade services to meet market demand of mid to large size companies that were
implementing or upgrading Oracle applications. In 2000, we achieved SAP
Services Partner status and SAP Hosting Partner for the pharmaceuticals
industry vertical status. In 2001, Intelligroups pharmaceutical template for
the small and medium-size businesses market (covering current Good Manufacturing
Processes (cGMP) and validation standards) was certified by SAP America. In
2002, we were awarded the SAP Services Partner Award of Excellence. In 2004 our
Japan Subsidiary was awarded the SAP Award of Excellence  Upgrade Business
Award. In 2005, we became SAP Powered by Net weaver Partner and in 2006, we
became a member of the SAP Enterprise Services Community. Recently, we have
become SAP All-in-One partner for discrete manufacturing in Denmark and
Livestock industry for India. We have also been recognized as either a finalist
or winner of SAP Pinnacle Award in 2007 and 2008. In 2007, we also became
Reseller and Implementation partners of HP-Mercury and Compuware Testing
products.

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

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

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

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

The offshore centers are structured
along the following lines 

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

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

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

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

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

Our
customers are primarily global Fortune 500 and other large and mid-sized
companies in the United States and other diverse geographical locations. They
include Cox Newspapers, Inc., KLA Tencor, T-Mobile, AIG, Exxon Mobil, Joy
Mining, Eastman Chemical, Infineon Technologies, Hitachi America and
2Wire.

We have also participated in project
teams led by IT consulting firms such as Hitachi Consulting.

Application
Management Services

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

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

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

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

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

We
provide Application Management Services directly to end-user organizations. Our
customers are primarily Fortune 500 and other large and mid-sized companies in
the United States and other global locations. They include Hitachi,
Bristol-Myers Squibb, Power One, 2Wire, Joy Mining Machinery and Pearson
Publishing.

Testing Services

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

Trademarks and
Service Marks

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

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

Empower Solutions is a service
mark of Empower Solutions, a subsidiary of Intelligroup.

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

Sales and
Marketing

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

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

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

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

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

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

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

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

Industry
Background

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

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

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

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

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

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

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

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

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

Customers

We
provide our services directly to many Fortune 500 companies, as well as small to
medium sized enterprises, and, to a lesser extent, as a member of consulting
teams assembled by other information technology consultants, such as the
consulting practices of the former Big Five accounting firms.

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

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

Competition

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

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

11

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

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

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

Employees

As of
December 31, 2008, we employed 2,296 full-time employees, of whom 1,932 were
engaged as consultants or as software developers, 120 were engaged in sales and
marketing, and 196 were engaged in delivery management, finance and
administration and 48 were employed as trainees. Of the total number of
employees, 468 were based in the United States, 39 were based in Japan, 60 were
based in Europe and 1,734 were based in India. In addition, we engaged 127
independent contractors to perform information technology services as of
December 31, 2008.

None of
our employees are covered by a collective bargaining agreement. Substantially
all of our employees have executed employment agreements containing
non-competition, non-disclosure and non-solicitation clauses. In addition, we
require that all new employees execute such agreements as a condition of
employment by Intelligroup. We believe that we have been successful in
attracting and retaining skilled and experienced personnel. There is increasing
competition for experienced sales and marketing personnel and technical
professionals. Our future success will depend in part on our ability to continue
to attract, retain, train and motivate highly qualified personnel. We consider
relations with our employees to be good.

Intellectual Property
Rights

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

Available
Information

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

12

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Item 1A. Risk Factors

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

If we
are unable to generate new sales and maintain our profitability, our business
and financial condition and results of operations may be adversely
impacted.

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

Our
business, financial condition and results of operations may be materially
impacted by economic conditions, particularly economic conditions in the United
States, and related fluctuations in customer demand for marketing, business,
technology and other consulting services.

Our
business and financial condition depends on the health of the general economy,
as well as the demand for information technology services, particularly in the
United States as we derive a significant portion of our revenue from clients in
the United States. Our revenue and profits are driven by demand for our
services. The United States economy is currently in a recession and a continuing
deterioration in economic activity in the United States could adversely affect
demand for our services, which may materially and adversely impact our revenue
and profitability. During economic cycles in which many companies are
experiencing financial difficulties or uncertainty, clients and potential
clients may cancel or delay spending on marketing, technology and other business
initiatives. In particular, the economic downturn that began in 2008 may cause
our clients and potential clients to cancel or delay consulting initiatives for
which they have engaged us. If the current downturn in worldwide economic
conditions continues or conditions worsen, particularly in the United States,
the financial condition of our clients may be adversely affected, which could
result in a reduced demand for our services, project cancellations or delays,
lower revenues and operating margins resulting from price reduction pressures
for our services, and payment and collection issues with our clients. Any of
these events could materially and adversely impact our business, financial
condition and results of operations.

The
departure of one or more key employees may have a material adverse effect on our
ability to operate our business.

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

If we
are unable to attract and retain a sufficient number of highly skilled employees
our profitability may adversely be affected.

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

13

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A
substantial portion of our operations are located in India and we are subject to
regulatory, economic and political uncertainties in India.

We intend
to continue to develop and expand our offshore facilities in India where, as of
December 31, 2008, a majority of our technical professionals were located. While
wage costs are lower in India than in the United States and other developed
countries for comparably skilled professionals, wages in India are increasing at
a faster rate than in the United States, which could result in our incurring
increased costs for technical professionals and reduced operating margins. In
addition, there is intense competition in India for skilled technical
professionals and we expect that competition to increase.

Unlike
operating in the United States, operating in India involves certain regional
geopolitical risks than operating in the US including a history of civil unrest,
terrorism and substantial economic regulation by the Indian Government. Such
geopolitical risks may cause disruptions to our operations or may cause our
customers to decline to contract with us for offshore services.

If we
are unable to maintain access to external funding, we may be unable to continue
our ongoing business or fund future growth.

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

The
information technology services industry is highly competitive and we may not be
able to compete effectively.

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

**Business and financial risks
to important business partners may negatively impact our financial
condition.**

We rely
on continued relationships and business associated with SAP America and Oracle
and the continued demand for and success of SAP and Oracle software products in
the geographic markets in which we operate. In particular 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 adversely impacted and may continue to adversely impact
our ability to sell professional consulting services related to such enterprise
resource applications.

**If we lose any large
customer, our financial condition could be materially, negatively
impacted.**

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

We
frequently need to negotiate customer contract renewals on comparable terms to
maintain our profitability.

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

Our
ability to effectively manage our business is dependent, in part, on our ability
to maintain effective internal controls.

We have
previously experienced material weaknesses in internal control over financial
reporting. If we are unable to continue to maintain an effective control
environment and to prevent material weaknesses, or to remediate any weaknesses
that may arise, such failure will adversely impact our ability: (i) to
effectively manage our business; (ii) to timely record, process, summarize and
report financial statements that fairly present, in all material aspects, our
financial condition, statements of operations and cash flows; and (iii) to
comply with applicable law, including Section 404 of the Sarbanes-Oxley Act of
2002 (Section 404). In addition, our independent auditors will be required to
opine on the effectiveness of our internal control over financial reporting as
of December 31, 2009.

14

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

The
fact that our common stock is not listed on a national exchange may negatively
impact our ability to attract investors and to use our common stock to fund
future growth.

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

Currency fluctuations may negatively impact our financial results, and
this may in turn discourage investment.

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

Future
legislation and anti-offshoring sentiment in the United States and other
jurisdictions could significantly affect the ability of our clients to utilize
our services.

The issue
of companies outsourcing services to organizations operating in other countries
is a topic of political discussion in many countries. For example, many
organizations and public figures in the United States have publicly expressed
concern about a perceived association between offshore service providers and the
loss of jobs in the United States. In addition, there has been publicity about
negative experiences associated with offshore outsourcing, such as inadequate
security procedures and misappropriation of sensitive client data, particularly
involving service providers in India. As a result, current or prospective
clients may elect to perform such services themselves or may be discouraged from
transferring these services from onshore to offshore providers to avoid negative
perceptions that may be associated with using an offshore provider. Such
anti-offshoring sentiments and negative publicity may materially impact our
ability to compete effectively for clients in the United States

In the
United States measures aimed at limiting or restricting offshore outsourcing
have been proposed, including in connection with the recent Troubled Assets
Relief Program. Such measures have been enacted in a few states and there is
currently legislation pending in several states. The measures that have been
enacted to date generally have restricted the ability of government entities to
outsource work to offshore business process service providers and have not
materially adversely affected our business, primarily because we do not
currently work for such governmental entities. . In addition, legislation aimed
at limiting or restricting offshore outsourcing has been enacted in certain
European jurisdictions but to date such legislation has not had a significant
impact on our business, results of operations and financial condition. However,
there can be no assurance that pending or future legislation aimed at limited or
restricting offshore outsourcing will not be enacted in the United States,
Europe or other jurisdictions and, if enacted, that such legislation would not
significantly adversely affect our business, results of operations and financial
condition will not be enacted.

Legislation enacted in certain European jurisdictions and any future
legislation in Europe, Japan or any other country in which we have clients
restricting the performance of business process services from an offshore
location could also have a material adverse effect on our business, results of
operations and financial condition.

**We can not predict shifts in
policy or political changes in India which can impact our business
operations.**

There is
continued uncertainty relating to the current geopolitical climate, particularly
relative to internal India politics and their relation to Indias continuing
efforts to liberalize its economy and be receptive to economic conditions and
policies favorable to our business model. Changes in Indias economic policies
or additional legislation regarding information technology services businesses
may adversely affect our business model.

15

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

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

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

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

System
failure or disruptions in telecommunications could disrupt our business and
result in lost customers and curtailed operations which would reduce our revenue
and profitability.

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

**Our growth may be hindered
by immigration restrictions.**

The vast
majority of our IT professionals in the United States are Indian nationals. The
ability of Indian nationals to work in the United States depends on their
ability and our ability to obtain the necessary visas and work
permits.

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

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

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

16

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If our
measures to protect our intellectual property rights are inadequate, our
financial condition could be negatively impacted.

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

We may
be subject to increased tax liabilities, including if the spin-off of our former
subsidiary, SeraNova, is determined to be taxable. We could be liable in the
range of $55 million to $65 million and related penalties (if assessed) and
interest could increase the amount by $45 million to $55 million as at December
31, 2008.

In July
2000, we completed the tax-free spin-off of SeraNova, our former subsidiary. In
March 2001, SeraNova and Silverline Technologies Limited (Silverline)
consummated the acquisition of SeraNova by Silverline. Had the acquisition of
SeraNova by Silverline been contemplated at the time of the spin-off, the
spin-off would have been a taxable transaction. Based upon the information
available to us, we believe that such acquisition was not contemplated at the
time of the spin-off of SeraNova by Intelligroup, and accordingly should not
impact the tax-free nature of the spin-off. However, if it were determined that
the spin-off was taxable, Intelligroup may be obliged to pay such tax liability,
which would be material. Please refer to Note 9 to the financial statements for
the fiscal year ended December 31, 2008.

Third
parties may claim that our services or deliverables infringe upon their
intellectual property rights, which could result in material
costs.

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

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

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

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

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

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

17

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

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

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

18

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Item 1B. Unresolved Staff
Comments.

Not applicable.

19

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Item 2. Properties.

As of
December 31, 2008, we lease or sublease all of our office space. Within the
United States, as of December 31, 2008, we lease office space in Princeton, NJ
for certain technical and support personnel, sales and marketing,
administrative, finance and management personnel, and in Atlanta, GA,
Naperville, IL, and Milpitas, CA, for certain other sales and operations
personnel. We also lease office space in Denmark, India, Japan, the UAE and the
United Kingdom. We believe that such facilities are adequate for our present
needs. The following table summarizes our leased office space as of December 31,
2008:

|                  |  | Area       |  |                                                         |  | Lease     
|----------------- |  | ---------- |  | ------------------------------------------------------- |  | ----------
|Location          |  | in Sq. Ft. |  | Use                                                     |  | Expiration
|Princeton, NJ (A) |  | 9,724      |  | Corporate Headquarters                                  |  | 1/1/2015  
|                  |  |            |  | Consulting Services - focus on SAP, Peoplesoft          |  |           
|                  |  |            |  | commercial, Oracle and E-Business markets in            |  |           
|                  |  |            |  | the US. Selling, general and administrative             |  |           
|                  |  |            |  | functions in the US                                     |  |           
|                  |  |            |  |                                                         |  |           
|Atlanta, GA       |  | 2,533      |  | Consulting Services - focus on SAP and Peoplesoft       |  | 3/31/2012 
|                  |  |            |  | public sector market in the US; Limited selling,        |  |           
|                  |  |            |  | general and administrative functions in the US          |  |           
|                  |  |            |  |                                                         |  |           
|Naperville, IL    |  | 2,502      |  | Limited selling and marketing functions in the US       |  | 2/28/2013 
|                  |  |            |  |                                                         |  |           
|Milpitas, CA      |  | 2,197      |  | Limited selling and marketing functions in the US       |  | 5/31/2009 
|                  |  |            |  |                                                         |  |           
|Odense, Denmark   |  | 5,971      |  | Consulting Services - focus on SAP market in            |  | 3/1/2012  
|                  |  |            |  | Denmark; Selling, general and administrative            |  |           
|                  |  |            |  | functions in Denmark                                    |  |           
|                  |  |            |  |                                                         |  |           
|Hyderabad, India  |  | 18,359     |  | IT development and support services                     |  | 12/31/2010
|                  |  |            |  |                                                         |  |           
|Hyderabad, India  |  | 15,938     |  | IT development and support services                     |  | 10/31/2009
|                  |  |            |  |                                                         |  |           
|Hyderabad, India  |  | 10,727     |  | IT development and support services                     |  | 4/30/2010 
|                  |  |            |  |                                                         |  |           
|Hyderabad, India  |  | 56,600     |  | IT development and support services and                 |  | 7/31/2010 
|                  |  |            |  | administrative and
      general functions              |  |           
|                  |  |            |  |                                                         |  |           
|Bangalore, India  |  | 23,645     |  | IT development and support services                     |  | 3/31/2012 
|                 
|Tokyo, Japan      |  | 2,826      |  | Consulting Services - focus on SAP market in            |  | 8/31/2009 
|                  |  |            |  | Japan; Selling, general and administrative functions    |  |           
|                  |  |            |  | in Japan                                                |  |           
|                  |  |            |  |                                                         |  |           
|Milton Keynes, UK |  | 2,800      |  | Consulting Services - focus on Peoplesoft and           |  | 3/23/2011 
|                  |  |            |  | SAP market in the UK; Selling, general and              |  |           
|                  |  |            |  | administrative functions in the UK                      |  |           
|                  |  |            |  |                                                         |  |           
|Ras Al Khaimah    |  | 50         |  | Consulting Services - focus on SAP & Oracle markets     |  |           
|                  |  |            |  | in the Middle East; Selling function in the Middle East |  | 11/29/2009

20

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Item 3. Legal
Proceedings

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

21

---

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

Not applicable.

22

---

PART II

Item 5. Market for the Registrants
Common Equity, Related Shareholder Matters and issuer purchases of equity
securities.

Our
Common Stock is currently being traded on the OTC Bulletin Board operated by the
NASD (the OTCBB) under the symbol ITIG.OB.

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 OTCBB. The prices shown
represent quotations among securities dealers, do not include retail markups,
markdowns or commissions and may not represent actual transactions.

Quarter Ended
    
    High
    
    LowMarch 30, 2007
    
    $
    1.35
    
    $
    1.35June 29,
      2007
    
    $
    1.90
    
    $
    1.70September 28, 2007
    
    $
    2.20
    
    $
    2.19December 31,
      2007
    
    $
    2.40
    
    $
    2.15March 31, 2008
    
    $
    2.50
    
    $
    1.83June 30,
      2008
    
    $
    2.05
    
    $
    1.27September 30, 2008
    
    $
    2.60
    
    $
    1.41December 31,
      2008
    
    $
    1.95
    
    $
    1.30


As of
February 25, 2009, the approximate number of holders of record of the Common
Stock was 70 and the approximate number of beneficial holders of the Common
Stock was 1,920.

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

The
following table summarizes securities authorized for issuance under our equity
compensation plans as of December 31, 2008.

|                                    |  |                               |  |                     |      |                               | 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    
|Equity compensation plans           |  | 3,323,458                     |  | $                   | 2.03 |                               | 1,388,102                 
|approved by security holders        |  |                               |  |                     |      |                               |                           
|Equity
      compensation plans not |  |                               |  |                     |      |                               |                           
|approved by
      security holders  |  | 40,000                        |  | $                   | 2.06 |                               | 65,000                    
|Total                               |  | 3,363,458                     |  | $                   | 2.03 |                               | 1,453,102                 

On
October 24th 2008, our Board of Directors approved a share repurchase program of up to
$5,000,000 of the Companys common stock over 18 month period ending April 24
2010. The share repurchase program will be funded using the Companys working
capital and authorizes the Company to repurchase shares from time to time
through open market or privately negotiated transactions. The Company also has
adopted a Rule 10b5-1 trading plan and intends to adopt additional Rule 10b5-1
trading plans that will allow the Company to purchase its shares at times when
it ordinarily would not be in the market due to its internal trading policy. The
program will expire on the earlier of (i) the repurchase of the maximum number
of shares under the program, (ii) the 18 month anniversary of the approval of
the program or (iii) a determination by the Board of Directors to discontinue
the program. The Company is not obligated to continue to repurchase shares under
the authorization or enter into additional Rule 10b5-1 trading plan and the
timing; actual number and value of shares purchased will depend on many factors,
including the Companys cash flow and the liquidity and price performance of its
shares. As of December 31, 2008, a total of 79,300 shares were repurchased at an
average purchase price of $1.61. Subsequent to year end an additional 573,200
shares were repurchased at an average purchase price of $1.48. All the
repurchased shares are constructively retired.

23

---

Item 6. Selected Financial
Data.

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

The
consolidated statement of operations data for the years ended December 31, 2008
and 2007 and the consolidated balance sheet data as of December 31, 2008 and
2007 have been derived from our audited consolidated financial statements, which
are included in Item 15, and should be read in conjunction with those
consolidated financial statements (including notes thereto). The selected
financial data as of December 31, 2006, 2005 and 2004, and for the years ended
December 31, 2006, 2005 and 2004, have been derived from audited consolidated
financial statements not included herein, but which were previously filed with
the Securities and Exchange Commission, or SEC. Our historical results are not
necessarily indicative of the operating results to be realized in the
future.

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

|                                                   | As of December 31,
|-------------------------------------------------- | ------------------
|                                                   | 2008              
|                                                   | (in thousands)    
|Balance Sheet Data:                                |                   
|Cash and cash
      equivalents                    | $                 
|Working capital                                    |                   
|Total
      assets                                 |                   
|Line of credit borrowings and current portion of   |                   
|obligations under capital leases                   |                   
|Long-term debt
      and obligations under capital |                   
|leases, net of current portion                     |                   
|                                                  
|Shareholders equity                               |                   

24

---

|                                                | For the Years Ended December 31,     
|----------------------------------------------- | -------------------------------------
|                                                | 2008                                 
|Statement of Operations Data:                   | (in thousands, except per share data)
|Revenue                                         |                                      
|Cost of revenue                                 |                                      
|Gross profit                                    |                                      
|                                               
|Selling, general and administrative expenses    |                                      
|Depreciation and
      amortization             |                                      
|Total operating expenses                        |                                      
|                                               
|Operating income (loss)                         |                                      
|                                               
|Interest income                                 |                                      
|Interest
      expense                          |                                      
|Other income (expense), net                     |                                      
|                                               
|Income (loss) from continuing operations before |                                      
|income
      taxes                              |                                      
|Provision for
      (benefit of) income taxes   |                                      
|Net Income / (Loss)                             | $                                    
|                                               
|Basic Net Income / (loss) per share             | $                                    
|Diluted Net Income / (loss) per share           | $                                    
|                                               
|Weighted average number of common shares        |                                      
|outstanding - basic                             |                                      
|outstanding
      - diluted                     |                                      

25

---

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

Overview

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

Key Factors in Evaluating the
Companys Financial Performance

Revenue

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

Fixed Price
Projects

We have
provided services on certain projects in which we, at the request of the
clients, offer a fixed price for our services. For the years ended December 31,
2008, and 2007, revenue derived from projects under fixed price contracts
represented approximately 30% and 39%, respectively, of the Companys total
revenue. No single fixed price project was material to our business during 2008
and 2007.. We
believe that, as we pursue our strategy of providing application management
services to customers, we will continue to offer fixed price projects. We
believe that there are certain risks related to fixed price arrangements and
thus we price such arrangements to reflect the associated risk. There can be no
assurance that we will be able to complete such projects within the fixed price
timeframes. The failure to perform within such fixed price contracts, if entered
into, could have a material adverse effect on our business, financial condition
and results of operations.

Customer
Concentration

We have
derived and believe that we will continue to derive a significant portion of our
revenue from a limited number of customers and projects. For the years ended
December 31, 2008 and 2007, our ten largest customers accounted for, in the
aggregate, approximately 35% and 41% of our revenue, respectively. During 2008
and 2007, no single customer accounted for 10% or more of revenues. As of
December 31, 2008 and 2007, one customer accounted for 11% and 15%,
respectively, of accounts receivable. For both the years ended December 31, 2008
and 2007, 18% of our revenue was generated by providing supplemental resources
directly to the end-customer or as part of a consulting team assembled by
another IT consulting firm. There can be no assurance that such IT consulting
firms will continue to engage us in the future at current or lower levels of
retention.

Software
Partners

For the
years ended December 31, 2008 and 2007, we derived the following percentages of
total revenue from projects in which we implemented, extended, maintained,
managed or supported software developed by SAP, Oracle Universe and other
e-Business application providers:

Percentage of RevenueYear Ended December
  31,2008
    
    2007SAP
    71
    %
    
    76
    %Oracle
    13
    %
    
    15
    %e-Business
    8
    %
    
    6
    %Others
    8
    %
    
    3
    %Total
    100
    %
    
    100
    %


*Oracle universe represents Oracle,
People Soft and Siebel software technologies.

26

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Markets

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

Expenses

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

Application of Critical Accounting
Policies

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

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

Revenue Recognition and Allowance
for Doubtful Accounts.

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

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

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

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, 2008 and 2007 represent services provided through
December 31, 2008 and 2007, respectively, which are billed subsequent to
year-end. All such amounts are anticipated to be collected in the following
year.

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

Recoverability of Long-lived
Assets

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

27

---

Accounting for Income Taxes

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

Significant management judgment is required in determining the provision
for income taxes, deferred tax assets and liabilities and any valuation
allowance recorded against net deferred tax assets. We evaluate the weight of
all available evidence to determine whether it is more likely than not that some
portion or all of the deferred income tax assets will not be realized in the
future. Management considered the recent historical operating losses and the
inherent uncertainty in the extent and timing of future profitability in
determining the appropriate valuation allowance. Based upon this assessment, we
recorded approximately $22.9 million of valuation allowance against gross
deferred tax assets of $23.8 million through December 31, 2008. The decision to
record the valuation allowance required significant judgment including
estimating the various factors impacting future taxable income. Had we not
recorded this allowance, we would have reported materially different results. If
the realization of all deferred tax assets in the future is considered more
likely than not, a decrease in the valuation allowance would be made resulting
in an increase to the net carrying value of deferred tax assets and increase net
income in the period of such determination by approximately $22.9 million. The
amount of the deferred tax asset considered realizable is based on significant
estimates, and it is at least reasonably possible that changes in these
estimates in the near term could materially affect our financial condition and
results of operations. Our effective tax rate may vary from period to period
based on changes in estimated taxable income or loss, changes to the valuation
allowance, changes to federal, state or foreign tax laws, future expansion into
areas with varying country, state, and local income tax rates and deductibility
of certain costs and expenses by jurisdiction.

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

The
adoption of FIN 48 had no significant impact on the Companys results of
operations or and the Companys financials position as of and for the twelve
month period ended December 31, 2008 The total amount of gross unrecognized tax
benefit as of December 31, 2008 was $0.2 million.

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

Derivative
Instruments

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

Share-Based Compensation
Plans

We have share-based compensation
plans that reserve common shares for issuance to key employees and
directors.

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

The
compensation cost that has been charged against income for share-based
compensation plans was $1.1 million for the year ended December 31, 2008. Due to
our net operating losses carried forward we did not recognize income tax benefit
in the consolidated statement of operations and comprehensive income for the
year ended December 31, 2008. We received approximately $43,000 and $292,000
from option exercises under share-based compensation plans for the years ended
December 31, 2008 and 2007, respectively.

28

---

As of
December 31, 2008, there was $1.1 million of total unrecognized compensation
cost related to stock options. Those costs are expected to be recognized during
the next four years.

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

- Expected volatility  we estimate the
  volatility of common stock at the date of grant using a combination of
  unadjusted historical volatility, historical volatility adjusted for periods
  of unusual stock price activity.
- Expected term  we estimate the
  expected term of options granted based on a combination of vesting schedules,
  life of the option, historical experience . In cases where we do not have
  significant historical experience, the simplified method of determining
  expected term outlined in Staff Accounting Bulletin 107 is used for grants
  issued in 2006, 2007 and 2008.
- Risk-free interest rate  we estimate
  the risk-free interest rate using the U.S. Treasury yield curve for periods
  equal to the expected life of the options in effect at the time of
  grant.
- Dividends  we use an expected
  dividend yield of zero since we have never declared or paid any dividends on
  our capital stock and are restricted from making dividend payments under the
  terms of our current line of credit agreement. We intend to retain any
  earnings to fund future growth and for the operation of our business and,
  therefore, do not anticipate paying any cash dividends in the foreseeable
  future.

Additionally, we estimate forfeitures at the time of grant and revise
those estimates in subsequent periods if actual forfeitures differ from those
estimates. We use a combination of historical data, demographic characteristics
and other factors to estimate pre-vesting option forfeitures and record
share-based compensation expense only for those awards that are expected to
vest. However, because a majority of the outstanding options are quarterly
vesting, forfeiture assumptions are not material.

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

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

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

Contingent
Liabilities

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

Principles of Consolidation and Use
of Estimates

The
Consolidated Financial Statements included in Item 15 of this form 10-K include
our accounts and our majority owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.

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

29

---

Results of Operations -
Consolidated

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

Percentage of RevenueYear Ended December 31,2008
    
    2007Revenue
    100.0
    
    
    %
    
    100.0
    
    
    %Cost of revenue
    68.5
    
    
    
    
    72.6Gross profit
    31.5
    
    
    
    
    27.4Selling, general and administrative
    22.9
    
    
    
    
    23.4Depreciation and
      amortization expense
    1.5
    
    
    
    
    1.7Total operating expenses
    24.4
    
    
    
    
    25.1Operating Income
    7.1
    
    
    
    
    2.3Interest income
    0.2
    
    
    
    
    0.1Interest
      expense
    (0.2
    )
    
    
    
    (0.7
    )Foreign currency exchange gain (loss)
    (2.0
    )
    
    
    
    0.4Other
      income
    0.3
    
    
    
    
    0.4Income before income taxes
    5.4
    
    
    
    
    2.5Income tax
      provision
    1.0
    
    
    
    
    0.5Net Income
    4.4
    
    
    %
    
    2.0
    
    
    %


Year Ended December 31, 2008 Compared
to Year Ended December 31, 2007

The
following discussion compares the consolidated results of operations for the
year ended December 31, 2008 to the year ended December 31, 2007.

*Revenue*. Total revenue has increased to $157.1 million in 2008 from
$145.1 million in 2007, which was attributable to the growth from existing customers as well as
from the increase in new customer base. Geographically, the increase in revenue generated in the United States was $2.7 million, India $6.9 million, Europe $1.4
million and Japan $1 million. In 2008, the net change includes an increase in
e-biz revenues of around $4.0 million, validation & testing service revenues
of around $3.0 million and an increase in infrastructure management services of
$4 million.

Cost
of revenue and gross profit. Our cost of
revenue consists primarily of the salaries paid to the consultants and related
employee benefits and payroll taxes for such consultants, as well as travel
costs. Our cost of revenue has increased by 2%, or $2.3 million, from $105.4
million in 2007, to $107.6 million in 2008. Our gross profit increased by 25% or
$9.8 million, from $39.7 million in 2007, to $49.5 million in 2008. As a
percentage of revenue, the gross margin increased from 27.4% in 2007 to 31.5% in
2008. The increase in gross profit and gross margin reflect the results of the
our efforts to actively manage its cost structure and utilization
rates.

Selling, general and administrative expenses. Selling, general and administrative expenses primarily consist of
salaries and related benefit costs for sales and general administrative
personnel, occupancy costs, compensation costs, travel and entertainment,
professional fees and other general expenses. Selling, general and
administrative expenses increased by 5.3% or $1.8 million, to $35.9 million in
2008, from $34.1 million in 2007, and decreased as a percentage of revenue to
22.9% in 2008 from 23.4% in 2007. The decrease in selling, general and
administrative expenses as a percentage of revenues our ongoing improvement in
operational efficiency and cost management initiatives

Foreign Currency gain (loss). For the year ended December 31, 2008, we recorded foreign
currency transaction losses of approximately $3.1million, primarily the result
of marking to market value of our foreign currency forward and option contracts
due to sharp strengthening of USD against INR and GBP in
particular. We recorded transaction gains of approximately $0.5 million in 2007,
primarily the result of the hedging gains for the year ended December 31,
2007.

Other
Income. Other income primarily represents
sublease income, dividend income and other adjustment items. This was
approximately $0.4 million for the year December 31, 2008 as compared to $0.6
million in the year December 31, 2007.

Income
tax provision. We had pretax income of $8.2
million in 2008 and pretax income of $3.7 million in 2007, on which we recorded
a provision for income taxes of $1.5 million in 2008 compared to $0.7 million in
2007. Please refer to note 12 of our Consolidated Financial Statements for
details of income by jurisdiction and the resultant impact on tax expense
recorded. The increase in provision for income taxes in 2008 was due to the
recording of the tax benefit of $0.7 million in 2007 on account of favorable
decisions by the Income Tax Appellate Tribunal in India.

Our net deferred tax assets as of
December 31, 2008 related to our Indian operations. Based on various positive
evidence, including historical profitability, management believes it is more
likely than not that the Indian operations deferred tax assets of $0.9 million
will be realized in the future and therefore, no valuation allowance has been
established against these net deferred tax assets for the year ended December
31, 2008.

30

---

In 1996,
we elected a five year tax holiday in India, in accordance with a local tax
incentive program whereby no income tax would be due in such period. Such tax
holiday was extended an additional five years in 1999. Effective March 31, 2006,
the tax holiday expired for a majority of our Indian subsidiarys operations and
therefore our tax liability increased in the years 2006 and 2007.

The
Companys India subsidiary received tax assessments for the fiscal years ended
March 31, 1998 to 2003 challenging the tax exemptions of certain revenue earned
and disallowing certain expenses. The assessments demanded an additional tax of
INR 30.1 million (or approximately $0.6 million). The amounts were deposited by
the Company under protest and were fully reserved for. The Company is under
litigation in respect of these assessments and received favorable judgment
during 2007 for the fiscal years ended March 31, 1998 through March 31, 2000.
The judgment refunded approximately $0.2 million of the amount deposited for the
year ended March 31, 1998 while $0.2 million is pending to be received from the
tax authorities for the year ended March 31, 1999 . While processing the above
refund an amount of INR 2.5 million (or approximately $0.1 million) for the
fiscal year ended March 31, 2000 had been deducted by the tax authorities
challenging certain tax exemptions that had earlier been allowed to the Company.
The Company is under litigation against this order and expects a favorable
decision. This has, however, been fully reserved for as at December 31,
2008.

Results of Operations by Business
Segment

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

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

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

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

Accordingly our consolidated operating results for the twelve months
period ended December 31, 2008 and 2007 are presented in the following
geographic segments.

Year Ended December 31, 2008
Compared to Year Ended December 31, 2007

The
following discussion compares the segment results of operations for the year
ended December 31, 2008 to the year ended December 31, 2007.

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

Year Ended December
  312008
    
    2007Percentage of
    
    
    
    
    Percentage ofDollars
    
    Total
    
    Dollars
    
    TotalUnited States
    $
    90,348
    
    57.6
    
    %
    
    $
    87,618
    
    60.4
    
    %India
    
    47,309
    
    30.1
    
    
    
    
    40,428
    
    27.9Europe
    
    14,531
    
    9.2
    
    
    
    
    13,124
    
    9.0Japan
    
    4,914
    
    3.1
    
    
    
    
    3,896
    
    2.7Total
    $
    157,101
    
    100.0
    
    %
    
    $
    145,066
    
    100.0
    
    %


Revenue in the United States
increased by 3.1% or $2.7 million, from $87.6 million in 2007 to $90.3 million
in 2008. The increase in the revenue was due to the increased demand for our
services particularly our E-Biz and IMS service offerings.

India
revenue increased by 17%, or $6.9 million, from $40.4 million in 2007, to $47.3
million in 2008. The increase was attributable primarily to increased demand for
our services from the customers in India, Gulf Coast and Middle East regions, as
well as increased demand for offshore services from our customers in the United
States.

31

---

Europe
revenue increased by 10.7%, or $1.4 million, from $13.1 million in 2007 to $14.5
million in 2008. The increase was attributable to the increased demand for our
services in the local markets and due to full year impact in 2008 of revenue
generated by customers acquired in the Novasoft Acquisition in the fourth
quarter of 2007.

Japan
revenue increased by 26.1% or $1 million, from $3.9 million in 2007, to $4.9
million in 2008. The increase was attributable to the increased demand for our
services in the local market.

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

| |               | Year Ended December
  31,
| | ------------- | -------------------------
| |               | 2008                     
| | United States | $                        
| | India         |                          
| | Europe        |                          
| | Japan         |                          
| | Total         | $                        

US operating performance improved by
$5.4 million, from operating loss of $3.0 million in 2007 to operating income of
$2.4 million in 2008. The improvement in operating performance is primarily
attributable to the increased revenues in the US and to increase in utilization
rate during 2008.

India
operating income increased by $3.5 million, from $4.1 million in 2007 to $7.6
million in 2008. The increase was attributable primarily to an increase in
demand for offshore services and improved utilization rates.

Europe
operating performance decreased marginally by $0.4 million, from operating
income of $1.5 million in 2007 to $1.1 million in 2008. The decrease in
operating performance is primarily attributable to the weakening of the British
currency in the fourth quarter of the year 2008.

Japan
operating performance decreased marginally by $0.6 million, from operating
income of $0.5 million in 2007, to operating loss of $20000 in 2008. The
decrease was primarily due to reduced gross margins on its revenues in 2008 as a
result of increase in its operating costs.

Liquidity and Capital
Resources

2008 Cash Position and Cash
Flows

After
taking into account the outstanding borrowings under our line of credit we had
cash and cash equivalents of $10 million as at December 31, 2008 and $1.9
million at December 31, 2007. We had working capital of $25.5 million at
December 31, 2008 and $18.2 million at December 31, 2007. The increase in
working capital was due to repayment of our lines of credits in the US and
repayment of the UK Loan (described herein) which was used to fund the Novasoft
Acquisition.

Cash
generated by operating activities was $13.2 million for the year ended December
31, 2008, primarily due to the net income of $6.7 million generated in 2008 and
due to the removal of restriction on $3.3 million as a result of repayment of
the UK Loan. Also attributing to the increase in cash generated by from
operating activities was the $6 million of non-cash adjustments to operating
activities, including depreciation and amortization ($2.8 million), provision
for doubtful accounts ($1.1 million), stock option expense ($1.1 million), and
other non-cash expenses ($1.1 million) offset partially by a decrease in
accounts payable by $1.5 million due to improved cash balances and deferred
revenue decrease by $1.7 million, due to lesser advance billing.

We
invested $1.5 million and $2.8 million in computer equipment, office furniture
and fixtures and leasehold improvements during
the years ended December 31, 2008 and 2007, respectively. We made no acquisition
investments during 2008. We invested $3.1 million in the Novasoft Acquisition
during the year ended December 31, 2007. We invested $3.1 million and $6.4
million in investments during the years ended December 31, 2008 and 2007,
respectively. Cash provided from the sale of such investments amounted to $7.2
million during the year ended December 31, 2007. There was no sale of
investments during the year 2008.

Credit Facility

On May
22, 2008, the Company and its wholly-owned subsidiary Empower, Inc. closed out
the previously existing $15 million line of credit with Steel City Capital
Funding. The Company entered into a revolving credit loan and security agreement
(Credit Agreement) with HSBC Bank, (the Bank). The Credit Agreement is
comprised of a three year revolving line of credit pursuant to which the Company
can borrow up to $10.0 million at the Banks Base Rate (as defined in the Credit
Agreement) of 3.25% as of December 31, 2008, minus 0.85% percent. The credit
facility is collateralized by substantially all of the assets of the United
States based operations and all subsidiary stock (not to exceed 65% of the
Equity Interests of any Foreign Subsidiary). The maximum borrowing availability
under the Credit Agreement is based upon a percentage of eligible billed and
unbilled accounts receivable. The Credit Agreement provides for certain
financial covenants that shall only be tested as of the end of any fiscal
quarter.

32

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The Company was in compliance with
the applicable financial covenants of the loan agreement related as of
December 31, 2008.

As of
December 31, 2008, the Company had $0.1 million outstanding borrowings under the
Credit Agreement. The Company estimates undrawn availability under the Credit
Facility to be $9.9 million as of December 31, 2008.

On
October 1, 2007, the Companys subsidiaries Intelligroup Europe Ltd (IGE) and
Intelligroup Asia Pvt Ltd. (IGA) acquired certain assets including without
limitation customer contracts, fixed assets and employees from Novasoft
Information Technology Ltd., (Novasoft Europe) and ISG Novasoft Technologies
Limited (Novasoft India) for an aggregate purchase price of $3,100,000
(Novasoft Acquisition).

In order
to finance a significant portion of the purchase price for the Novasoft
Acquisition, Intelligroup Europe Limited (IGE) received a loan of ₤1,500,000 from Lloyds Bank PLC
Lloyds Bank TBS during 2007 (the UK Loan). This loan was secured by a stand
by letter of credit from Citibank N.A. (Citibank), for which Intelligroup Asia
Private Limited (IGA) placed a 110% margin money deposits with Citibank. The
loan was payable in three annual installments of ₤500,000 starting October 2008, with
interest payable monthly at the rate of 6.75% APR. During the year ended
December 31, 2008 we repaid the UK Loan in its entirety and cancelled the stand
by letter of credit from Citibank. Citibank released the margin money as a
result.

Please see Note 5 to the
Consolidated Financial Statements for additional information regarding our
credit facility and the UK Loan.

Cash to Fund Operating
Activities

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

We must comply with certain
covenants or secure from the Bank waivers of its default on such covenants to
maintain our line of credit with the Bank. Given our variable operating
performance in the past few years, there can be no assurances that we will be
able to maintain compliance with our bank covenants or obtain waivers of any
defaults.

Our 2009
operating plan contains assumptions regarding revenue and expenses. The
achievement of the operating plan depends heavily on the timing of work
performed by us on existing projects and the ability to gain and perform work on
new projects. Project cancellations, delays in the timing of work performed by
us on existing projects or the inability to gain and perform work on new
projects, or inability to timely collect cash from our customers could have an
adverse impact on our ability to execute our operating plan and maintain
adequate cash flow. In the event actual results do not meet the operating plan,
management believes it could execute contingency plans to mitigate such effects.
Such plans include reductions in capital expenditures and operating costs,
and/or seeking additional financing. In addition, we may seek additional
financing from time to time to fund our cash requirements for operating expenses
and capital expenses; however, the availability of financing may be limited
because, among other things, we are not currently listed on a national stock
exchange. Assuming that we achieve the revenue and expense targets included in
our operating plan, management believes that our cash on hand and cash generated
by operations and borrowings under our credit facility will be sufficient to
fund our current and planned operations through at least December 31,
2009.

Contractual Obligations and Other
Commercial Commitments

The following tables summarize our
contractual obligations and other commercial commitments as of December 31,
2008:

|                                    | Payments Due by Period (in
      000s)
|----------------------------------- | ---------------------------------------
|Description
      of Contractual    |                                        
|Obligation                          | **Total**                              
|Revolving Credit Facility           | $                                      
|Capital Lease
      Obligations     |                                        
|Operating Lease Obligations         |                                        
|Total
      Contractual Obligations | $                                      

33

---

We use
our $10.0 million revolving credit facility with the Bank to fund the working
capital needs of the business; therefore, the outstanding borrowings under the
credit facility fluctuate accordingly. The credit facility is collateralized by
substantially all of the assets of our 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 in
the Credit Agreement. As of December 31, 2008, we had outstanding borrowings of
$0.1 million under the credit facility with the Bank.

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

Current Economic
Crisis.

The
United States and global economies are experiencing a period of substantial
economic uncertainty with wide-ranging effects, including contraction of overall
economic activity in various parts of the world. Although governments worldwide,
including the U.S. government, have initiated sweeping economic plans, we are
unable to predict the impact, severity and duration of these economic events.
Our outlook is subject to significant risks and uncertainties in this
environment, including possible declines in demand for our services, pricing
pressure, fluctuations in foreign currency exchange rates, inability to access
additional credit and external funding and risks relating to the financial
condition of our clients, including the ability to timely collect
receivables.

34

---

Item 7a. Quantitative &
Qualitative Disclosure About Market Risk - Not applicable

Item 8. Financial Statements and
Supplementary Data

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

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

None.

35

---

Item 9A. Controls and
Procedures.

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

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

Based on
managements evaluation, our chief executive officer and chief financial officer
concluded that, as of December 31, 2008, our disclosure controls and procedures
are effective to provide reasonable assurance that information we are required
to disclose in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms, and that such information
is accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow timely decisions
regarding required disclosure.

Managements Responsibility for
Financial Statements

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

Our Audit
Committee of the Board of Directors, which is composed solely of non-employee
directors, meets regularly with our independent registered public accounting
firm and representatives of management to review accounting, financial
reporting, internal control and audit matters, as well as the nature and extent
of the audit effort. Our Audit Committee also regularly meets with our
independent registered public accounting firm in executive session without the
presence of management. The Audit Committee is responsible for the engagement of the
independent registered public accounting firm. The independent registered public
accounting firm has free access to the Audit Committee.

Managements Report on Internal
Control Over Financial Reporting

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

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

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

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

36

---

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

Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, our management conducted an
evaluation of the effectiveness of the companys internal control over financial
reporting as of December 31, 2008. In making this assessment, we used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal
Control-Integrated Framework.

Based on
our managements evaluation, our management concluded that our internal control
over financial reporting was effective as of December 31, 2008.

This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only managements report in this annual
report.

We
believe that there were no changes in our internal control over financial
reporting during the quarter ended December 31, 2008 that materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

Item 9B. Other Information - Not
applicable

37

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PART III

**Item 10. Directors and
Executive Officers and Corporate Governance.**

The
discussion under the heading Directors and Executive Officers of the
Registrant in our definitive proxy statement for the 2009 Annual Meeting of
Shareholders is incorporated herein by reference to such proxy statement. We
adopted a Code of Business Conduct and Ethics (Code) in 2004. Such Code
applies to our officers, directors, and employees. A copy of the Code is
available on our website at www.intelligroup.com. If the proxy statement is not
filed with the SEC within 120 days after the end of our most recent fiscal year,
we will provide such information by means of an amendment to this Annual Report
on Form 10-K.

**Item 11. Executive
Compensation.**

The
discussion under the heading Executive Compensation in our definitive proxy
statement for the 2009 Annual Meeting of Shareholders is incorporated herein by
reference to such proxy statement. If the proxy statement is not filed with the
SEC within 120 days after the end of our most recent fiscal year, we will
provide such information by means of an amendment to this Annual Report on Form
10-K.

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

The
discussion under the heading Security Ownership of Certain Beneficial Owners
and Management in our definitive proxy statement for the 2009 Annual Meeting of
Shareholders is incorporated herein by reference to such proxy statement. If the
proxy statement is not filed with the SEC within 120 days after the end of our
most recent fiscal year, we will provide such information by means of an
amendment to this Annual Report on Form 10-K.

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

The
discussion under the heading Certain Relationships and Related Transactions in
our definitive proxy statement for the 2009 Annual Meeting of Shareholders is
incorporated herein by reference to such proxy statement. If the proxy statement
is not filed with the SEC within 120 days after the end of our most recent
fiscal year, we will provide such information by means of an amendment to this
Annual Report on Form 10-K.

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

The
discussion under the heading Principal Accounting Fees and Services in our
definitive proxy statement for the 2009 Annual Meeting of Shareholders is
incorporated herein by reference to such proxy statement. If the proxy statement
is not filed with the SEC within 120 days after the end of our most recent
fiscal year, we will provide such information by means of an amendment to this
Annual Report on Form 10-K.

38

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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 44.
| |    
| |     |  | (2) |  | Financial Statement
      Schedules.                                    
| |    
| |     |  | (3) |  | Exhibits.                                                               
| |    
| |     |  |     |  | Reference is made to
      the Exhibit Index on Page 40.                

39

---

INTELLIGROUP, INC.

EXHIBIT INDEX

|Exhibit No. |   |  | Description of
  Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2           |   |  | Agreement and Plan of Merger of
      the Company and its wholly owned subsidiary Oxford Systems Inc. dated
      December 2, 1996 (Incorporated by reference to the Companys Annual Report
      on Form 10-KSB for the year ended December 31, 1996.)                                                                                                                                                                                                                                                                                
|           
|3.1         |   |  | Amended and Restated Certificate
      of Incorporation dated June 08, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|           
|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        | * |  | Employees Invention Assignment
      and Confidentiality Agreement. (Incorporated by reference to the Companys
      Registration Statement on Form SB-2 (Registration Statement No. 333-5981)
      declared effective on September 26, 1996.)                                                                                                                                                                                                                                                                                       
|           
|10.5        |   |  | 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.                                                                                                                                                                                                                           
|           
|10.6        |   |  | 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.)                                                                                                                                                          
|           
|10.7        |   |  | 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.                                                                                                                                                                                                                                                     
|           
|10.8        |   |  | 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.                                                                                                                                                                                            
|           
|10.9        |   |  | 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.                                                                                                                                                           
|           
|10.10       |   |  | 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.                                                                                                                                                                                                                                                                      
|           
|10.11       |   |  | 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.)                                                                                                                                                                                                                                                                        
|           
|10.12       |   |  | Fifth Amendment to the
      Implementation Partner Agreement dated July 15, 1998, between the Company
      and PeopleSoft, Inc. See Exhibit 10.11.                                                                                                                                                                                                                                                                                                                                                                                    

40

---

|Exhibit No. |   |  | Description of
  Exhibit                                                                                                                                                                                                                                                                                                                        
|----------- | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.13       |   |  | 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.                                                                                                                                                                    
|           
|10.14       |   |  | 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.                          
|           
|10.15       |   |  | 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.)                                                                                                     
|           
|10.16       | * |  | 2004 Equity Incentive Award Plan.                                                                                                                                                                                                                                                                                                               
|           
|10.17       | * |  | 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.)                                                                                              
|           
|10.18       |   |  | 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.)
|           
|10.19       |   |  | Amendment No. 1 to the Common Stock Purchase Agreement dated
      September 29, 2004. (Incorporated by reference to the Companys Current
      Report on Form 8-K dated March 25, 2005, filed with the Securities and
      Exchange Commission on March 25, 2005.)                                                                           
|           
|10.20       | * |  | 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.)                                                                           
|           
|10.21       | * |  | Second Amendment to the 2004 Equity Incentive Award
  Plan.                                                                                                                                                                                                                                                                                     
|           
|10.22       |   |  | Common Stock Purchase Agreement dated March 30, 2006 by and between
      Intelligroup Inc., SB Asia Infrastructure Fund LP and Venture Tech Assets,
      Ltd. (Incorporated by reference to the Companys current report on Form
      8-K dated March 30, 2006 filed with the Securities and Exchange Commission
      on April 5, 2006.)    
|           
|10.23       | * |  | First Amendment to the Employment Agreement dated June 30, 2005
      between Intelligroup Inc. and Vikram Gulati. (Incorporated by reference to
      the Companys current report on Form 8-K dated April 6, 2006, filed with
      the Securities and Exchange Commission on April 13, 2006.)                                                
|           
|10.24       | * |  | Second Amendment to Employment Agreement dated June 30, 2005,
      between Intelligroup, Inc. and Vikram Gulati. (Incorporated by reference
      to the Companys current report on Form 8-K dated June 8, 2006 filed with
      the Securities and Exchange Commission on June 12, 2006.)                                                    
|           
|10.25       | * |  | Third Amendment to the 2004 Equity Incentive Award
  Plan.                                                                                                                                                                                                                                                                                      
|           
|10.26       | * |  | Employment Agreement dated September 7, 2006 by and between
      Intelligroup, Inc. and Alok Bajpai. (Incorporated by reference to the
      Companys Current Report on Form 8-K dated September 7, 2006, filed with
      the Securities and Exchange Commission on September 7, 2006.)                                                      
|           
|10.27       | * |  | Amendment No. 3 dated June 8, 2007 to Employment agreement dated
      June 30, 2005 between Intelligroup, Inc. and Vikram Gulati. (Incorporated
      by reference to the Companys Current Report on Form 8-K dated June 8,
      2007, filed with the Securities and Exchange Commission on June 13,
      2007.)                            
|           
|10.28       |   |  | Master Assignment Agreement between Novasoft Information Technology
      (Europe) Limited and Intelligroup Europe Limited dated June 8, 2007
      (Incorporated by reference to the Companys Current Report on Form 8-K
      dated June 8, 2007, filed with the Securities and Exchange Commission on
      June 14, 2007.)                 
|           
|10.29       |   |  | Master Assignment Agreement between ISG Novasoft Technologies
      Limited and Intelligroup Asia Private Limited dated June 8, 2007
      (Incorporated by reference to the Companys Current Report on Form 8-K
      dated June 8, 2007, filed with the Securities and Exchange Commission on
      June 14, 2007.)                          
|           
|10.30       |   |  | Non Compete Agreement between Novasoft Information Technology
      Corporation and Intelligroup Europe Ltd. Dated June 8, 2007. (Incorporated
      by reference to the Companys Current Report on Form 8-K dated June 8,
      2007, filed with the Securities and Exchange Commission on June 14,
      2007.)                              

41

---

|Exhibit No. |   |  | Description of
  Exhibit                                                                                                                                                                                                                                                                                                                                                             
|----------- | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.31       | * |  | Employment Agreement between Intelligroup Asia Pvt. Ltd. and Kalyan
      Sundaram Mahalingam. (Incorporated by reference to the Companys annual
      report on Form 10-K for the year ended December 31, 2007 filed with the
      Securities and Exchange Commission on March 31, 2008).                                                                                         
|           
|10.32       |   |  | Amendment No. 1 dated August 22, 2007 to Master Assignment
      Agreement between Novasoft Information Technology (Europe) Limited and
      Intelligroup Europe Limited dated June 8, 2007 . (Incorporated by
      reference to the Companys Current Report on Form 8-K dated August 22,
      2007, filed with the Securities and Exchange Commission on August 28,
      2007.)
|           
|10.33       |   |  | Amendment No. 1 dated August 22, 2007 to Master Assignment
      Agreement between ISG Novasoft Technologies Limited and Intelligroup Asia
      Private Limited dated June 8, 2007 (Incorporated by reference to the
      Companys Current Report on Form 8-K dated August 22, 2007, filed with the
      Securities and Exchange Commission on August 28, 2007.)                 
|           
|10.34       |   |  | Amendment No. 1 dated August 22, 2007 to Non Compete Agreement
      between Novasoft Information Technology Corporation and Intelligroup
      Europe Ltd. Dated June 8, 2007.                                                                                                                                                                                                      
|           
|10.35       | * |  | Amendment No. 1 dated February 4, 2008 to Employment Agreement
      dated September 7, 2006 between Intelligroup, Inc. and Alok Bajpai.
      (Incorporated by reference to the Companys Current Report on Form 8-K
      dated February 4, 2008, filed with the Securities and Exchange Commission
      on February 4, 2008.)                                                    
|           
|10.36       |   |  | Revolving Credit and Security Agreement dated May 22, 2008 by and
      between Intelligroup Inc., Empower Inc. and HSBC Bank USA, National
      Association (incorporated by reference to Companys current report on Form
      8-K dated May 22, 2008, filed with the Securities and Exchange Commission
      on May 28, 2008.)                                                 
|           
|10.37       |   |  | Revolving Promissory Note dated May 22, 2008 (incorporated by
      reference to Companys current report on Form 8-K dated May 22, 2008 filed
      with the Securities and Exchange Commission on May 28, 2008.)                                                                                                                                                                   
|           
|10.38       | * |  | Amendment No. 2 dated September 11 2008 to Employment Agreement
      dated September 7, 2006 between Intelligroup, Inc. and Alok Bajpai.
      (Incorporated by reference to the Companys Current Report on Form 8-K
      dated September 11, 2008, filed with the Securities and Exchange
      Commission on September 11, 2008.)                                               
|           
|10.39       | * |  | Amendment No. 4 dated March 4, 2009 to Employment Agreement dated
      June 30, 2005 between Intelligroup, Inc. and Vikram Gulati. (Incorporated
      by reference to the Companys Current Report on Form 8-K dated March 4,
      2009, filed with the Securities and Exchange Commission on March 9,
      2009.)                                                               
|           
|21          |  |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                                       
|           
|23          |  |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                                                                                                                         
|           
|31.1        |  |  | Certifications of Chief Executive Officer Pursuant to Rule
      13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002                                                                                                                                                                                                                               
|           
|31.2        |  |  | Certifications of Chief Financial Officer Pursuant to Rule
      13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002                                                                                                                                                                                                                               
|           
|32.1        |  |  | Certifications of Chief Executive Officer Pursuant to 18 U.S.C.
      Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002                                                                                                                                                                                                                       
|           
|32.2        |  |  | Certifications of Chief Financial Officer Pursuant to 18 U.S.C.
      Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002                                                                                                                                                                                                                       

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

42

---

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 19th day of March 2009.

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


Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.



|Signature |                       |  |                               | Title |                      |  |  | Date |  | 
|--------- | --------------------- |  | ----------------------------- | ----- | -------------------- |  |  | ---- |  | 
|          |                       | 
|/s/       |                       |  | Chief
      Executive Officer |       | March 19, 2009       | 
|          | Vikram
      Gulati   |  | and
      Director            |       |                     
|          |                       | 
|/s/       |                       |  | Chief
      Financial Officer |       | March 19, 2009       | 
|          | Alok
      Bajpai     |  |                               |       |                     
|          |                       | 
|          |                       | 
|/s/       |                       |  | Director                      |       | March 19, 2009       | 
|          | Ravi
      Adusumalli |  |                               |       |                     
|          |                       | 
|          |                       | 
|/s/       |                       |  | Director                      |       | March 19, 2009       | 
|          | Ajit
    Isaac        |  |                               |       |                     
|          |                       | 
|          |                       | 
|/s/       |                       |  | Director                      |       | March 19, 2009       | 
|          | Srinivasa
      Raju  |  |                               |       |                     
|          |                       | 
|          |                       | 
|/s/       |                       |  | Director                      |       | March 19,
      2009 | 
|          | Sandeep
      Reddy   |  |                               |       |                     
|          |                       | 
|          |                       | 
|/s/       |                       |  | Director                      |       | March 19, 2009       | 
|          | Babar
    Khan        |  |                               |       |                     

43

---

INTELLIGROUP, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|Consolidated Financial Statements:                                   |   
|-------------------------------------------------------------------- | --
|                                                                     |   
|Report of Independent Registered Public Accounting
    Firm          | 45
|                                                                     |   
|Consolidated Balance Sheets as of December 31, 2008 and
    2007     | 46
|                                                                     |   
|Consolidated Statements of Operations and Comprehensive
      Income |   
|(Loss) for the years ended December 31, 2008 and
    2007            | 47
|                                                                     |   
|Consolidated Statements of Changes in Shareholders Equity
      for |   
|the
      years ended December 31, 2008 and 2007                     | 48
|                                                                     |   
|Consolidated Statements of Cash Flows for the years
    ended        |   
|December 31, 2008 and 2007                                           | 49
|                                                                     |   
|Notes to
      Consolidated Financial Statements                     | 50

44

---

Report of Independent Registered Public
Accounting Firm

The Board of Directors and Shareholders
of Intelligroup, Inc.:

We have audited the accompanying
consolidated balance sheets of Intelligroup, Inc. (Intelligroup) as of
December 31, 2008 and 2007, and the related consolidated statements of
operations and comprehensive income, changes in shareholders equity and cash
flows for each of the two years ended December 31, 2008 and 2007. These
financial statements are the responsibility of Intelligroups management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Companys internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our 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 Intelligroup, Inc. at December 31, 2008 and
2007, and the consolidated results of its operations and its cash flows for each
of the two years ended December 31, 2008 and 2007, in conformity with U.S.
generally accepted accounting principles.

/s/ Ernst & Young LLP



Metropark, New Jersey March 10,
2009

45



---

INTELLIGROUP, INC. CONSOLIDATED
BALANCE SHEETSDECEMBER 31, 2008 AND
2007(In thousands except par
value)

|                                                                                 |  | December 31 |            | December 31
|-------------------------------------------------------------------------------- |  | ----------- | ---------- | -----------
|                                                                                 |  | 2008        |            | 2007       
|ASSETS                                                                           |  |             |            |            
|CURRENT
      ASSETS                                                             |  |             |            |            
|Cash and cash equivalents                                                        |  | $           | 10,161     |            
|Short-term Investments                                                           |  |             | 1,031      |            
|Accounts receivable, less allowance for doubtful
      accounts of $1,996 and    |  |             |            |            
|$1,240 at December 31, 2008 and December 31, 2007,
      respectively            |  |             | 23,805     |            
|Unbilled services, less allowance for doubtful accounts
      of $20 as at       |  |             |            |            
|December 31, 2008 and $911 at December 31,
    2007                              |  |             | 10,456     |            
|Deferred tax asset, current
portion                                              |  |             | 545        |            
|Prepaid expenses and Prepaid Taxes                                               |  |             | 1,508      |            
|Other current assets                                                             |  |             | 617        |            
|Total current assets                                                             |  |             | 48,123     |            
|Property and equipment, net                                                      |  |             | 5,041      |            
|Goodwill and Intangibles                                                         |  |             | 1,941      |            
|Restricted Cash and Investments                                                  |  |             | 882        |            
|Deferred taxes and other assets                                                  |  |             | 4,243      |            
|Total Assets                                                                     |  | $           | **60,230** |            
|                                                                                
|LIABILITIES AND SHAREHOLDERS EQUITY                                             |  |             |            |            
|CURRENT
      LIABILITIES                                                        |  |             |            |            
|Line of credit borrowings                                                        |  | $           | 125        |            
|Accounts payable                                                                 |  |             | 4,441      |            
|Accrued payroll and related taxes                                                |  |             | 11,609     |            
|Accrued expenses and other current
    liabilities                               |  |             | 4,930      |            
|Current portion of Deferred
revenue                                              |  |             | 735        |            
|Current portion of obligations under capital
      lease                         |  |             | 805        |            
|Total current liabilities                                                        |  |             | 22,645     |            
|Obligations under capital lease, net of current portion
      and long term debt |  |             | 533        |            
|Deferred revenue, net of current
    portion                                     |  |             | 454        |            
|Other long-term liabilities                                                      |  |             | 1,556      |            
|Total Liabilities                                                                |  |             | 25,188     |            
|Commitments and contingencies                                                    |  |             |            |            
|SHARE HOLDERS EQUITY                                                            |  |             |            |            
|Preferred stock, $.01 par value, 5,000 shares
      authorized, none issued or   |  |             |            |            
|outstanding                                                                      |  |             | -          |            
|Common stock, $.01 par value, 65,000 shares
      authorized                     |  |             |            |            
|at December 31, 2008 and 2007; 42,114 and 42,160
      shares issued and         |  |             |            |            
|outstanding at December 31, 2008 and December 31,
      2007, respectively       |  |             | 421        |            
|Additional paid-in capital                                                       |  |             | 72,089     |            
|Accumulated deficit                                                              |  |             | (34,100    | )          
|Accumulated other comprehensive income /
    (loss)                              |  |             | (3,368     | )          
|Total shareholders equity                                                       |  |             | 35,042     |            
|Total liabilities and shareholders
      equity                                 |  | $           | 60,230     |            

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

46

---

INTELLIGROUP,
INC.CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2008
AND 2007(in thousands except per
share data)

|                                             | 2008 |         | 2007
|-------------------------------------------- | ---- | ------- | ----
|Revenue                                      | $    | 157,101 |     
|Cost of
      revenue                        | $    | 107,635 |     
|Gross profit                                 |      | 49,466  |     
|                                            
|Selling, general and administrative expenses | $    | 35,938  |     
|Depreciation and
      amortization          | $    | 2,399   |     
|Total operating expenses                     |      | 38,337  |     
|                                            
|Operating Income                             | $    | 11,129  |     
|                                            
|Interest income                              |      | 297     |     
|Interest
      expense                       |      | (535    | )   
|Foreign Currency Transaction gain / (loss)   |      | (3,126  | )   
|Other
      income                           |      | 436     |     
|                                            
|Income before income taxes                   | $    | 8,201   |     
|Provision for
      income taxes             |      | 1,512   |     
|Net Income                                   | $    | 6,689   |     
|                                            
|Earnings per share:                          |      |         |     
|Basic earnings per share                     | $    | 0.16    |     
|Diluted earnings per share                   | $    | 0.16    |     
|Weighted average number of common shares     |      |         |     
|outstanding - basic                          |      | 42,155  |     
|outstanding - diluted                        |      | 42,387  |     
|                                            
|Comprehensive income                         |      |         |     
|Net Income                                   | $    | 6,689   |     
|Other comprehensive income (loss)            |      |         |     
|Currency translation adjustments             |      | (6,001  | )   
|                                            
|Comprehensive Income                         | $    | 688     |     

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

47

---

INTELLIGROUP,
INC.CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007(in thousands)

|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  | Accumulated |        |   |  |  
|--------------------------------------- | ------------ | - |  | ------- | --- | ----------- |  | ------------- | ------ | ------------- |  | ------ | ------- | ----- |  | ----------- | ------ | - |  | -
|                                        |              |   |  |         |     |             |  | Additional    |        |               |  |        |         | Other |  | Total      
|                                        | Common Stock |   |  | Paid-in |     | Accumulated |  | Comprehensive |        | Shareholders
|                                        | Shares       |   |  | Amount  |     | Capital     |  | Deficit       |        | Income (Loss) |  | Equity
|Balance, December 31, 2006              | 41,933       |   |  | $       | 419 |             |  | $             | 69,702 |               |  | $      | (43,753 | )     |  | $           | 26     |   |  | $
|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  |             |        |   |  |  
|Share based compensation expense        | -            |   |  |         | -   |             |  |               | 1,127  |               |  |        | -       |       |  |             | -      |   |  |  
|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  |             |        |   |  |  
|Foreign currency translation adjustment | -            |   |  |         | -   |             |  |               | -      |               |  |        | -       |       |  |             | 2,607  |   |  |  
|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  |             |        |   |  |  
|Exercise of stock options               | 227          |   |  |         | 2   |             |  |               | 290    |               |  |        | -       |       |  |             | -      |   |  |  
|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  |             |        |   |  |  
|Net Income                              | -            |   |  |         | -   |             |  |               | -      |               |  |        | 2,964   |       |  |             | -      |   |  |  
|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  |             |        |   |  |  
|Balance, December 31, 2007              | 42,160       |   |  |         | 421 |             |  |               | 71,119 |               |  |        | (40,789 | )     |  |             | 2,633  |   |  |  
|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  |             |        |   |  |  
|Share based compensation expense        | -            |   |  |         | -   |             |  |               | 1,055  |               |  |        | -       |       |  |             | -      |   |  |  
|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  |             |        |   |  |  
|Foreign currency translation adjustment | -            |   |  |         | -   |             |  |               | -      |               |  |        | -       |       |  |             | (6,001 | ) |  |  
|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  |             |        |   |  |  
|Exercise of stock options               | 34           |   |  |         | 1   |             |  |               | 43     |               |  |        | -       |       |  |             | -      |   |  |  
|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  |             |        |   |  |  
|Shares repurchased                      | (79          | ) |  |         | (1  | )           |  |               | (128   | )             |  |        |         |       |  |             |        |   |  |  
|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  |             |        |   |  |  
|Net Income                              | -            |   |  |         | -   |             |  |               | -      |               |  |        | 6,689   |       |  |             | -      |   |  |  
|                                        |              |   |  |         |     |             |  |               |        |               |  |        |         |       |  |             |        |   |  |  
|Balance, December 31, 2008              | 42,114       |   |  |         | 421 |             |  |               | 72,089 |               |  |        | (34,100 | )     |  |             | (3,368 | ) |  |  

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

48

---

INTELLIGROUP,
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 (in thousands)

|                                                                             | December 31, |        | December 31,
|---------------------------------------------------------------------------- | ------------ | ------ | ------------
|                                                                             | **2008**     |        | **2007**    
|Cash flows from operating activities:                                        |              |        |             
|Net Income                                                                   | $            | 6,689  |             
|                                                                            
|Adjustments to reconcile net income to net                                   |              |        |             
|cash provided by (used in)
      operating activities:                       |              |        |             
|Depreciation and amortization                                                | $            | 2,759  |             
|Provision for doubtful accounts and
      advances                           |              | 1,146  |             
|Share based compensation expense                                             |              | 1,055  |             
|Foreign currency exchange loss                                               |              | 1,166  |             
|Deferred taxes                                                               |              | (77    | )           
|Changes in operating assets and liabilities:                                 |              |        |             
|Accounts receivable                                                          |              | (1,434 | )           
|Unbilled services                                                            |              | 742    |             
|Prepaid expenses and other current
assets                                    |              | (1,235 | )           
|Other assets                                                                 |              | (107   | )           
|Restricted cash                                                              |              | 3,350  |             
|Accounts payable                                                             |              | (1,507 | )           
|Accrued payroll and related taxes                                            |              | 502    |             
|Accrued expenses and other current
      liabilities                         |              | 297    |             
|Deferred revenue and advanced payments                                       |              | (1,659 | )           
|Income taxes payable                                                         |              | 1,027  |             
|Other long-term liabilities                                                  |              | 515    |             
|Net cash provided by (used in) operating activities                          |              | 13,229 |             
|                                                                            
|Cash flows from (used in) investing activities:                              |              |        |             
|Purchase of property and equipment                                           |              | (1,523 | )           
|Proceeds from sale of equipment                                              |              | 84     |             
|Purchases of investments                                                     |              | (3,131 | )           
|Proceeds from sale of Investments                                            |              | -      |             
|Acquisition of businesses                                                    |              | -      |             
|Net cash used in investing activities                                        |              | (4,570 | )           
|                                                                            
|Cash flows from financing activities:                                        |              |        |             
|Principal payments under capital leases                                      |              | (569   | )           
|Stock Repurchase                                                             |              | (129   | )           
|Proceeds from exercise of stock options                                      |              | 44     |             
|Net change in line of credit
    borrowings                                  |              | (6,034 | )           
|Net cash
      provided by (used in) financing activities                    |              | (6,688 | )           
|Effect of foreign currency exchange rate changes on
    cash                 |              | (229   | )           
|                                                                            
|Net increase (decrease) in cash and cash
equivalents                         |              | 1,742  |             
|Cash and cash
      equivalents - beginning of year                          |              | 8,419  |             
|                                                                            
|Cash and cash equivalents - end of year                                      | $            | 10,161 |             
|Supplemental
      disclosures of cash flow information:                     |              |        |             
|Cash paid for income taxes                                                   | $            | 836    |             
|Cash paid for interest                                                       | $            | 277    |             
|                                                                            
|Supplemental disclosures of noncash investing and financing
      activities |              |        |             
|Property and equipment acquired by capital
    lease                         | $            | 288    |             

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

49

---

INTELLIGROUP, INC.

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

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.

NOTE
2-SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Principles of Consolidation

The
accompanying consolidated financial statements include the accounts of
Intelligroup, Inc. and its wholly owned subsidiaries and have been prepared in
US dollars. 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
$250,000. The Company maintains cash balances in excess of insured
amounts.

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 (USD in thousands):

|           |  | Balance at   |         | Charged
      to |       |                      |       |               
|---------- |  | ------------ | ------- | ---------------- | ----- | -------------------- | ----- | --------------
|           |  | beginning of |         | costs
      and  |       | Write-offs
      and |       | Balance at end
|Year ended |  | period       |         | expenses         |       | other                |       | of period     
|2007       |  | $            | (1,882) |                  | (373) |                      | 104   |               
|2008       |  | $            | (2,151) |                  | (901) |                      | 1,035 |               

The balance includes a reserve for unbilled
services of $20 and $911 as of December 31, 2008 and 2007
respectively.

Property
and Equipment

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

Goodwill
and Other Intangibles

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

50

---

Recoverability of Long-Lived Assets

The
Company reviews the recoverability of its long-lived assets including intangible
assets and fixed 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 and revenue are recognized as services are performed, with the
corresponding cost of providing those services reflected as cost of revenue. The
majority of the revenues are billed on an hourly or daily basis whereby actual
time is charged directly to the customer. Such method is expected to result in
reasonably consistent profit margins over the contract term.

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

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

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

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

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

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

Derivative Instruments

The
Company enters into foreign currency derivative contracts to manage a portion of
foreign currency risk related to U.S. Dollar denominated asset balances of its
Indian subsidiary. The foreign currency derivative contract is marked- to-
market and recorded at fair value with unrealized gains and losses in the
caption Foreign Currency Transaction gain / (loss) in the Companys
consolidated statement of operations and comprehensive income (loss). During the
year ended December 31, 2008 the Company entered into foreign currency forward
contracts totaling $12.55 million and European option contracts totaling $12
million to sell U.S Dollars for Indian Rupees. As of December 31, 2008, $17.0
million of its European Options contract remain which are expected to be settled
by May, 2010 and $12 million of forward contracts remain which are expected to
be settled by December, 2009. These contracts are expected to be settled monthly
over the period until the maturity date. The European Option contracts include
an option for the Company to settle the option if the contracts rates are better
than the prevalent spot rates.

51



---

At December 31, 2008
summary information about the foreign exchange options is as follows:

|                      |  | Option
      Contracts       |  | Forward
      Contracts         
|--------------------- |  | ---------------------------- |  | --------------------------------
|Notional
      Amount |  | $17
      million            |  | $12.05
      million            
|Rates                 |  | INR
    43.45                |  | INR 43.25 to
      44.93        
|Effective
      date  |  | 05/18/07.                    |  | 6/6/08, 6/30/2008, 8/14/2008 and
|                      |  |                              |  | 8/20/2008                       
|Maturity
      Dates  |  | 01/28/2009 to
      05/26/10 |  | 01/29/2009 to
      12/31/09    
|Fair
      Value      |  | $ (2.03)
      million       |  | $ (1.24)
      million          

The derivative instruments are reported at
their fair values under current liabilities ($2.62 million) and other long term
liabilities ($0.7 million) on the balance sheet as of December 31, 2008.

Share-Based Compensation Plans

The
Companys share-based compensation plans are described in Note 7. The Company
adopted the provisions of Statement of Financial Accounting Standards (SFAS)
No. 123 (Revised 2004), Share-Based Payment, (SFAS No. 123R) on January 1,
2006, using the modified prospective transition method. Under this method,
share-based compensation expense recognized in the consolidated statement of
operations and comprehensive loss for the years ended December 31, 2008 and 2007
includes compensation expense for all share-based payments granted prior to, but
not yet vested, as of January 1, 2006, based on the grant date fair value
originally estimated in accordance with the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). The Company recognizes compensation expense for all share-based
payment awards granted after January 1, 2006 based on the grant date fair value
estimated in accordance with the provisions of SFAS No. 123R.

Currency
Translation

The
Companys non-US subsidiaries consider their respective local currency as the
functional currency and record the financial position and results of operations
in such local currency. 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 a component of accumulated
other comprehensive income (loss) within shareholders equity. Gains and losses
from foreign currency transactions are included in other income (expense) in the
results of operations. For the year ended December 31, 2008 the Company recorded
approximately $3.1 million as transaction losses and for the year ended December
31 2007, the Company recorded approximately $0.5 million as transaction gain as
a result of currency translation.

Concentrations

For the
years ended December 31, 2008 and 2007, approximately 71% and 76% of revenue,
respectively, was derived from projects in which the Companys personnel
implemented, extended, maintained, managed or supported software developed by
SAP.

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, 2008 and 2007,
18% 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, 2008 and 2007, approximately 13% and 16% of revenue,
respectively, was derived from projects in which the Companys personnel
implemented, extended, maintained, managed or supported software from Oracle
universe which primarily consists of Oracle, Peoplesoft and Siebel
software.

For the
years ended December 31, 2008 and 2007, approximately 8% and 6% of revenue,
respectively, was derived from projects in which the Companys personnel
implemented, extended, maintained, managed or supported e-Business related
software.

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, 2008 and 2007, the Companys ten largest customers
accounted for in the aggregate approximately 35% and 41% of the Companys
revenue, respectively. During the year 2008 and 2007 no single customer
accounted for more than 10% of total revenues. As of December 31, 2008 and 2007,
one customer accounted for 11% and 15% respectively, of accounts
receivable.

52



---

The
Company measures certain financial assets and liabilities at fair value on a
recurring basis in accordance with FAS 157, including derivative instruments and investments. The fair value measurements of these derivative instruments and
investments were determined using the following inputs of December 31,
2008:

|                                               |  |       |           |           | Quoted Prices in   |           | Significant Other |           | Significant Other  
|---------------------------------------------- |  | ----- | --------- | --------- | ------------------ | --------- | ----------------- | --------- | -------------------
|                                               |  |       |           |           | Active Markets for |           | Observable Inputs |           | Unobservable Inputs
|                                               |  |       |           |           | Identical Assets   |           |                   |           |                    
|                                               |  | Total |           | (Level 1) |                    | (Level 2) |                   | (Level 3)
|Assets:                                        |  |       |           |           |                    |           |                   |           |                    
|Short term Investments (Note a)                |  |       | 1,030,817 |           | $                  | -         |                   | $         | 1,030,817          
|Bank
      guarantees & Term deposits (Note b) |  |       | 881,915   |           |                    | -         |                   |           | 881,915            
|Investments (Note c)                           |  |       | 1,815,028 |           |                    | -         |                   |           | 1,815,028          
|Total                                          |  | $     | 3,727,760 |           | $                  | -         |                   | $         | 3,727,760          
|                                              
|Liabilities:                                   |  |       |           |           |                    |           |                   |           |                    
|Derivative Instruments (Note d)                |  | $     | 3,272,201 |           | $                  | -         |                   | $         | 3,272,201          
|Total                                          |  | $     | 3,272,201 |           | $                  | -         |                   | $         | 3,272,201          

| | a) |  | Represents term deposit and is
      reported under current assets on the balance sheet as of 12/31/08. The
      fair value in the table is the face value of the
  instrument.                                                                                                         
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) |  | Reported as Restricted Cash and
      Investments on the balance sheet as of December 31, 2008. (Please refer
      note 4  Restricted Cash and Investments.) The fair value is the face
      value of the instruments.                                                                
| | c) |  | Represents non convertible
      debentures reported under Deferred Taxes and Other Assets on the balance
      sheet as of December 31, 2008. The fair value is derived through external
      valuation.                                                                               
| | d) |  | Reported under current
      liabilities ($2.62 million) and other long term liabilities ($0.7 million)
      on the balance sheet as of December 31, 2008. (Please refer to the note
      above on Derivative instruments). The fair value is derived through
      external valuation.

The
Company elected a partial deferral of SFAS No. 157 under the provisions of FAS
157-2, Effective Date of FASB Statement No. 157 (FSP 157-2) related to the
measurement of fair value used when evaluating goodwill, other intangible
assets, and other long-lived assets for impairment. In addition, the Company did
not elect to fair value any financial instruments under the provisions of SFAS
No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities  Including an Amendment of SFAS No. 115.
Therefore, the adoption of this statement effective January 1, 2008 did not have
an impact on its Consolidated Financial Statements.

Investments

The Company has investments in interest
bearing securities designated as available for sale. These debt securities have been accounted for in accordance with the provisions of SFAS No.
115 Accounting for Certain Investments in Debt and Equity
Securities.

Income
Taxes

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

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

The
adoption of FIN 48 had no significant impact on the results of operations or the
financial position. The total amount of gross unrecognized tax benefit as of the
date of the adoption was $0.5 million and the total amount of gross unrecognized
tax benefits was $0.2 million as of both December 31, 2008 and 2007 . Any
recognition of these tax benefits in future would impact the Companys effective
tax rate. The Company includes interest and penalties related to its uncertain
tax positions as a component of income tax expense.

Earnings
/(Loss) Per Share

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

53



---

Options to purchase
1,872,000 and 1,359,000 shares of Common Stock at December 31, 2008 and 2007
respectively were not included in the computation of diluted EPS because
inclusion would have been anti-dilutive. A reconciliation of the weighted
average number of shares used to compute basic earnings per share to the number
used to compute fully diluted earnings per share follows:

|                                         | in
      thousands
|---------------------------------------- | ------------------
|                                         | 2008              
|Weighted Average number of basic shares  | 42,155            
|Add: Dilutions
      from Stock Options  | 232               
|Weighted Average number of diluted share | 42,387            

RECENT ACCOUNTING
PRONOUNCEMENTS

In
December 2007, the FASB issued FAS No.141 (revised 2007), Business Combinations
(FAS 141R). SFAS 141R establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non controlling interest in the
acquiree and the goodwill acquired. SFAS 141R also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. This statement is effective beginning January 1, 2009. The
Company does not believe that this pronouncement will have a significant impact
on its financial position or results of operations.

In
December 2007, the FASB issued SFAS No.160, Non Controlling Interests in
Consolidated Financial Statements-an amendment of Accounting Research Bulletin
No.51 (FAS 160). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by the parties other than parent, the
amount of the consolidated net income attributable to the parent and to the non
controlling interest, changes in parents ownership interest, and the valuation
of retained non controlling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and interests of
the non controlling owners. This statement is effective for the Company
beginning January 1, 2009. The Company does not believe that this pronouncement
will have a significant impact on its financial position or results of
operations.

In March
2008, the FASB issued SFAS No.161 Disclosures about Derivative Instruments and
Hedging Activities-an amendment of FASB Statement No.133 (FAS 161). FAS161
enhances disclosures about the Companys derivative and hedging activities and
thereby improves the transparency of financial reporting. This statement is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Company does not believe that this
pronouncement will have a significant impact on its financial position or
results of operations.

In May
2008, The FASB issued SFAS No.162 The Hierarchy of Generally Accepted
Accounting Principles. FAS 162 is intended to improve financial reporting by
indentifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with US GAAP for non governmental entities. The Statement makes no
changes to existing accounting principles and therefore will not have any impact
on the Companys financial position or results of operations as a result of this
pronouncement.

In
December 2008, the FASB issued FSP FAS No. 132 (R)-1, Employers Disclosures about
Postretirement Benefit Plan Assets (FSP 132 (R)-1). FSP 132 (R)-1 requires a
plan sponsor to provide improved disclosures about plan assets, including
categories of plan assets, nature and amount of concentrations of risk and
disclosure about fair value measurements of plan assets, similar to those
required by SFAS No. 157. FAS 132 (R)-1 is effective for fiscal years ending
after December 15, 2009. The Company does not expect that the adoption of FSP
132 (R)-1 will have a significant impact on its consolidated financial
statements.

54

---

NOTE 3-PROPERTY AND EQUIPMENT AND
INTANGIBLES

Property and equipment consist of
the following as of December 31, 2008 and 2007 (in thousands, except useful
lives data):

|                               |  | Estimated
      Useful |  |      |         |      |  |   |         |  
|------------------------------ |  | ---------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                               |  | Lives (Years)          |  | 2008 |         | 2007
|Vehicles                       |  | 5                      |  | $    | 703     |      |  | $ | 749     |  
|Furniture                      |  | 5                      |  |      | 2,979   |      |  |   | 3,294   |  
|Equipment                      |  | 3-5                    |  |      | 11,071  |      |  |   | 12,427  |  
|Computer
      software        |  | 3                      |  |      | 9,045   |      |  |   | 8,159   |  
|Leasehold improvements         |  | lesser of
      useful |  |      |         |      |  |   |         |  
|                               |  | life or lease term     |  |      | 2,144   |      |  |   | 2,385   |  
|                               |  |                        |  |      | 25,942  |      |  |   | 27,014  |  
|Less: Accumulated depreciation |  |                        |  |      | (20,901 | )    |  |   | (20,544 | )
|                              
|Total, net                     |  |                        |  | $    | 5,041   |      |  | $ | 6,470   |  

Included in property and equipment
is $1.8 million and $2.2 million of assets held under capital lease at December
31, 2008 and 2007, respectively. Accumulated amortization of the assets held
under capital lease is $1.0 million and $1.1 million at December 31, 2008 and
2007, respectively.

As
reported in Note 3 to the Companys financial statements in its annual report on
Form 10-K for the year ended December 31, 2007, on October 1, 2007, the
Companys wholly owned subsidiaries Intelligroup Europe Ltd and Intelligroup
Asia Pvt Ltd acquired certain assets including without limitation customer
contracts, fixed assets and employees from ISG Novasoft Technologies Limited
(Novasoft India) and Novasoft Information Technology (Europe) Ltd., (Novasoft Europe)
for an aggregate purchase price of $3,100,000 (Novasoft
Acquisition). The Company applied the purchase method of accounting for the
acquisition. The revenues from the acquired contracts along with the
corresponding costs are reflected in the Companys operating results of the
Europe segment beginning October 1, 2007.

During 2008 the Company completed
calculations and finalized its purchase price allocation relating to the
acquisition as follows:.

Assets
    
    LiabilitiesCash
    $
    75Fixed
      Assets
    
    4Intangibles
    
    1,289Goodwill
    
    1,865Accrued Payroll
    
    
    
    $
    91Acquisition
      Expenses Payable
    
    
    
    
    42Payable to lender
    
    
    
    
    3,100Total
    **$**
    **3,233**
    
    **$**
    **3,233**


As a
result of the final allocation, approximately $1.4 million has been reallocated
from intangibles to goodwill and the amortization of intangibles has been
adjusted by approximately $0.3 million for the year ended December 31, 2008. The
goodwill, which is tax deductible, is also allocated to the Europe
segment.

The
following unaudited proforma statements of operations reflect the results of
operations for the year ended December 31, 2007 as though the acquisition had
been completed at the beginning of the year 2007.

|                                                   | In
      thousands
|-------------------------------------------------- | ------------------
|                                                   | except per share  
|                                                   | data              
|                                                   | 2007              
|Revenues                                           | $                 
|Net Income/ (Loss) after tax                       | $                 
|Income / (Loss) per Share                          |                   
|Basic - outstanding
Shares                         | $                 
|Diluted - outstanding
Shares                       | $                 
|                                                  
|Weighted Average Shares outstanding-
      Basic   |                   
|Weighted Average Shares outstanding-
      Diluted |                   

55

---

Components of
Intangible assets as of December 31, 2008 (in thousands, except useful lives
data):

|                                     | Estimated
      Useful |  |      |      |      |  |   |       |  
|------------------------------------ | ---------------------- |  | ---- | ---- | ---- |  | - | ----- | -
|                                     | Lives (Months)         |  | 2008 |      | 2007
|Customer Contracts                   | 3-15                   |  | $    | -    |      |  | $ | 132   |  
|Customer
      Relationship          | 36                     |  |      | 848  |      |  |   | 2,536 |  
|Total                                |                        |  |      | 848  |      |  |   | 2,668 |  
|Less:
      Accumulated amortization |                        |  |      | (359 | )    |  |   | (120  | )
|Total, net                           |                        |  | $    | 489  |      |  | $ | 2,548 |  

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

Year
    
    Estimated
  Amortization2009
    
    
    $
    2452010
    
    
    
    2442011
    
    
    
    -2012
    
    
    
    -2013
    
    
    
    -Total
    
    
    $
    489


The
Company does not amortize goodwill but instead tests goodwill at the reporting
unit level for impairment at least annually or as circumstances warrant. The
Companys reporting units are determined in accordance with SFAS 142, which
defines a reporting unit as an operating segment or one level below an operating
segment. If impairment is indicated, a write down to fair value (normally
measured by discounting estimated cash flows) is recorded. Other intangibles
represent primarily customer relationships which are amortized on a straight
line basis over their estimated useful lives.

NOTE 4- RESTRICTED CASH AND
INVESTMENTS:

During
October 2007, Intelligroup Asia Private Limited (IGA), a wholly owned
subsidiary of Intelligroup Inc., placed a 110% margin money deposit with
Citibank N.A. (Citibank) against a stand by letter of credit issued by Citibank
to Lloyds Bank TSB, London in connection with the Novasoft Acquisition. This
margin money deposit was classified under Restricted Cash on the Balance Sheet
as of December 31, 2007. The restriction was lifted during 2008 as a result of
the repayment in full of the borrowing from Lloyds Bank TSB. The various
components of restricted cash and investments consist of the following as of
December 31 2007 and 2008:

USD in 000sKind of Cash
    
    Restricted against
    
    2008
    
    2007Fixed Deposit
    
    Letter of credit to Lloyds Bank TSB
    
    $
    -
    
    $
    3,490Investments
    
    Lien against
      derivative contracts
    
    
    -
    
    
    828Fixed Deposit
    
    Lien against derivative contracts
    
    
    538
    
    
    241Fixed
      Deposit
    
    Against various statutory and customer related
    344
    
    
    290compliancesTotal
    
    
    
    $
    **882**
    
    $
    4,849


NOTE 5 - LINE OF
CREDIT

On May 22, 2008, the Company and its
wholly-owned subsidiary Empower, Inc. closed out the previously existing $15
million line of credit with Steel City Capital Funding. The Company entered into
a revolving credit loan and security agreement (Credit Agreement) with HSBC
Bank, (the Bank). The Credit Agreement is comprised of a three year revolving
line of credit pursuant to which the Company can borrow up to $10.0 million at
the Banks Base Rate (as defined in the Credit Agreement) of 3.25% as of
December 31, 2008, minus 0.85% percent. The credit facility is collateralized by
substantially all of the assets of the Companys United States based operations
and all subsidiary stock (not to exceed 65% of the Equity Interests of any
Foreign Subsidiary). The maximum borrowing availability under the Credit
Agreement is based upon a percentage of eligible billed and unbilled accounts
receivable. The Credit Agreement provides for certain financial covenants that
shall only be tested as of the end of any fiscal quarter.

56

---

The Company was in compliance with
the applicable financial covenants related to the Credit Agreement as of
December 31, 2008.

As of
December 31, 2008, the Company had $0.1 million outstanding borrowings under the
Credit Agreement. The Company estimates undrawn availability under the Credit
Facility to be $9.9 million as of December 31, 2008.

On
October 1, 2007, the Companys subsidiaries Intelligroup Europe Ltd (IGE) and
Intelligroup Asia Pvt Ltd. (IGA) acquired certain assets including without
limitation customer contracts, fixed assets and employees from Novasoft
Information Technology Ltd., (Novasoft Europe) and ISG Novasoft Technologies
Limited (Novasoft India) for an aggregate purchase price of $3,100,000
(Novasoft Acquisition).

In order
to finance a significant portion of the purchase price for the Novasoft
Acquisition, Intelligroup Europe Limited (IGE) received a loan of ₤1,500,000 from Lloyds Bank PLC
Lloyds Bank TBS during 2007 (the UK Loan). This UK Loan was secured by a
stand by letter of credit from Citibank N.A. (Citibank), for which
Intelligroup Asia Private Limited (IGA) placed a 110% margin money deposits
with Citibank. The UK Loan was payable in three annual installments of
₤500,000 starting October
2008, with interest payable monthly at the rate of 6.75% APR. During the year
ended December 31, 2008 the Company repaid the UK Loan in entirety and cancelled
the stand by letter of credit from Citibank. Citibank released the margin money
deposits as a result.

The Company is prohibited from
paying dividends under the terms of its Credit Agreement.

NOTE 6 -OBLIGATIONS UNDER CAPITAL LEASES

The Company is the lessee of
equipment, vehicles and furniture under capital leases expiring in
2013.

Minimum lease payments under capital
leases at December 31, 2008 are as follows (in thousands):

|2009                                      | $ | 827   |  
|----------------------------------------- | - | ----- | -
|2010                                      | $ | 429   |  
|2011                                      | $ | 97    |  
|2012                                      | $ | 38    |  
|2013 and after                            | $ | 16    |  
|                                          |   | 1,408 |  
|Less: amounts representing
      interest |   | (101  | )
|Less: current
      portion               |   | (773  | )
|                                         
|Long-term portion                         | $ | 533   |  

NOTE 7 -SHAREHOLDERS EQUITY

Preferred
Stock

At
December 31, 2008 and 2007, there are 5,000,000 shares of Preferred Stock, par
value $0.01 per share authorized and no shares issued or outstanding.

Common Stock

At the
Companys 2007 Annual Shareholders Meeting on June 8, 2007, the shareholders
approved an increase to the authorized shares of Common Stock to 65,000,000 from
50,000,000.

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 7,105,000
shares of Common Stock have been reserved for issuance under the plans. All of
the options issued pursuant to these plans expire ten years from the date of
grant (number of shares data in thousands).

57

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Share-Based Compensation
Plans

The
Company has four share-based compensation plans that reserve common shares for
issuance to key employees, consultants and directors, as described below. The
compensation cost that has been charged against income for those plans was $1.1
million each in the years ended December 31, 2008 and 2007. The Company received
approximately $ 43,000 and $292,000 from option exercises under share-based
compensation plans for the year ended December 31, 2008 and December 31, 2007.
Although there were options exercised during the year ended December 31, 2008
and 2007, no tax benefits were recorded as there were no benefits for tax
deductions expected to be utilized, based on the history of net operating losses
in the US.

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

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

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

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

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

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

58

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A summary of stock option activity
as of December 31, 2008, and changes during the year then ended is presented
below:

|                                          |  |                |   |          |           |              |           | Weighted-      |           |   |      
|----------------------------------------- |  | -------------- | - | -------- | --------- | ------------ | --------- | -------------- | --------- | - | -----
|                                          |  |                |   |          | Weighted- |              | Average   |                | Aggregate
|                                          |  |                |   |          | Average   |              | Remaining |                | Intrinsic
|                                          |  | Shares         |   | Exercise |           | Contractual  |           | Value         
|                                          |  | (in thousands) |   | Price    |           | Term (Years) |           | (in thousands)
|Outstanding as of December 31, 2007       |  | 3,271          |   |          | $         | 2.05         |           |                |           |   |      
|Granted                                   |  | 385            |   |          |           | 2.02         |           |                |           |   |      
|Exercised                                 |  | (34            | ) |          |           | 1.28         |           |                |           |   |      
|Cancelled,
      forfeited or expired     |  | (259           | ) |          |           | 2.43         |           |                |           |   |      
|Outstanding as of December 31, 2008       |  | 3,363          |   |          |           | 2.03         |           | 6.6            |           |   | 2,529
|Exercisable as
      of December 31, 2008 |  | 1,391          |   |          | $         | 2.12         |           | 6.2            |           | $ | 2,033

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

Expected
volatility  the Company estimates the volatility of common stock at the date of
grant using historical volatility.

Expected
term  the Company estimates the expected term of options granted based on a
combination of vesting schedules, term of the option, historical experience and,
since the Company did not have significant historical experience, the simplified
method of determining expected term outlined in Staff Accounting Bulletin 107 is
used for grants issued in 2007 and 2008.

Risk-free
interest rate  the Company estimates the risk-free interest rate using the U.S.
Treasury yield curve for periods equal to the expected term of the options in
effect at the time of grant.

Dividends 
the Company uses an expected dividend yield of zero since it has never declared
or paid any dividends on its capital stock. The Company intends to retain any
earnings to fund future growth and the operation of its business and, therefore,
does not anticipate paying any cash dividends in the foreseeable
future. The
Company is prohibited from paying dividends under the terms of its Credit
Agreement.

Additionally, the Company estimates forfeitures at the time of grant and
revises those estimates in subsequent periods if actual forfeitures differ from
those estimates. It uses a combination of historical data, demographic
characteristics and other factors to estimate pre-vesting option forfeitures and
record share-based compensation expense only for those awards that are expected
to vest.

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

|                         | 2008                |  | 2007               
|------------------------ | ------------------- |  | -------------------
|Expected Volatility      | 79 - 85%            |  | 86 - 89%           
|Expected
      Lives     | 1 - 6.1
      years |  | 1 - 6.1
      years
|Risk free Interest Rate  | 1.7 - 3.5%          |  | 4.3 - 5.0%         
|Expected
      Dividends | 0%                  |  | 0%                 

The weighted average grant date fair
value of options granted during the years ended December 31, 2008 and 2007 was
$2.02 and $1.04 respectively. The aggregate intrinsic value of options
outstanding is calculated as the difference between the exercise price of the
underlying options and the market price of common shares for the shares that
were in the money at December 31, 2008. The intrinsic value of exercised options
during the years ended December 31, 2008 and 2007 was $17,000 and $100,000
respectively.

As of
December 31, 2008 and 2007, there was $1.1 and $1.7 million of total
unrecognized compensation cost related to stock options. That cost is expected
to be recognized over the next four years.

59

---

The
following table summarizes the share-based compensation expense for stock
options that were recorded in accordance with SFAS No. 123R for the year ended
December 31, 2008 and December 31, 2007 (in thousands):

|                                                 | Year
      ended December 31,
|------------------------------------------------ | -----------------------------
|                                                 | 2008                         
|Cost of Revenue                                  | $                            
|Selling, general
      & administrative expenses |                              
|Total share based compensation expense           | $                            

Share Buyback
Program:

On
October 24th 2008, our Board of Directors of the Company approved a
share repurchase program of up to $5,000,000 of the Companys common stock over
the 18 month period ending April 24 2010. The share repurchase program will be
funded using the Companys working capital and authorizes the Company to
repurchase shares from time to time through open market or privately negotiated
transactions. The Company also has adopted a Rule 10b5-1 trading plan and
intends to adopt additional Rule 10b5-1 trading plans that will allow the
Company to purchase its shares at times when it ordinarily would not be in the
market due to its internal trading policy. The program will expire on the
earlier of (i) the repurchase of the maximum number of shares under the program,
(ii) the 18 month anniversary of the approval of the program or (iii) a
determination by the Board of Directors to discontinue the program. The Company
is not obligated to continue to repurchase shares under the authorization or
enter into additional Rule 10b5-1 trading plan and the timing; actual number and
value of shares purchased will depend on many factors, including the Companys
cash flow and the liquidity and price performance of its shares. As of December
31, 2008, a total of 79,300 shares were repurchased at an average purchase price
of $1.61. Subsequent to year end an additional 573,200 shares were repurchased
at an average purchase price of $1.48. All the repurchased shares are
constructively retired.

NOTE 8 -RELATED PARTY TRANSACTIONS

Effective
August 1, 2005, Intelligroup Asia Pvt. Ltd. (IGA) entered into an agreement to
lease certain premises for certain of the Companys India operations from ILABS
Hyderabad Technology Center Pvt. Ltd. (iLabs), a party with which two members
of the Companys Board of Directors, Srini Raju and Sandeep Reddy, are
affiliated. The terms of the lease agreement provide for, among other things:
(1) a minimum lease period of five years with an option for two three-year
renewal periods; (2) payment of a security deposit equivalent to nine (9)
months rent in the amount of 16.3 million Indian rupees (approximately
$335,000); (3) payment of monthly lease fees in the amount of 1.7 million Indian
rupees (approximately $35,000), subject to yearly five percent (5%) escalation;
and (4) monthly operations and maintenance fees of 0.5 million Indian rupees
(approximately $10,000). Rent expense for the year ended December 31, 2008
towards the said lease was 29.48 million rupees (approximately $681,000). There
are no advance lease rentals as of December 31, 2008.

NOTE 9 -COMMITMENTS AND CONTINGENCIES

Tax-Free Spin-off of
SeraNova

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

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 in the range of $55 million to $65 million and related
penalties (if assessed) and interest could increase the amount by $45 million to
$55 million as at December 31, 2008, depending on the facts that ultimately are
established. No future benefits would inure to the Company as a result of
imposition of a tax on the SeraNova distribution, and no reserve has been
recorded for this potential tax. However, should such a tax liability be
imposed, the Company may be able to utilize some of its existing net operating
losses to mitigate this tax liability.

Employee
Agreements

As of
December 31, 2008, 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 $2.0 million. In addition, IGA had entered into Severance Packages
totaling approximately $0.6 million with certain former members of the IGA
management team. Pursuant to the terms of the Agreement for Severance Package,
the Severance Package is activated upon the fulfillment of certain events,
including a change in management of the Company or IGA. In April 2005, following
the termination of the Companys Chief Executive Officer, three members of the
IGA management team, each of whom had a Severance Package, resigned. Except as
set forth below, to date, the Company has not received any claim for payment of
the Severance Package. In September 2005, two former members of the IGA
management team sent IGA notices under Section 433 and 434 of the Indian
Companies Act, 1956 for payment of such Severance Package. Such claims have not
been pursued since such initial notice was served, and the Company does not
believe that such severance amount is owed. In the event the Company is
unsuccessful in defending against such claim for payment, the Company would owe
approximately $0.6 million to such individuals.

60

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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 had sublet certain of its office space through August 2008, which
generated sublease income. Certain leases are subject to common area maintenance
or operating expense charges and have options to renew. Future minimum aggregate
annual lease payments are as follows (in thousands):

| | For the
      Years Ended |  | Minimum       
| | ------------------------- |  | --------------
| | December 31,              |  | Lease Payments
| |                          
| | 2009                      |  | $             
| | 2010                      |  |               
| | 2011                      |  |               
| | 2012                      |  |               
| | 2013 and after            |  |               
| |                           |  | $             

Rent expense
for the years ended December 31, 2008 and 2007 was $2.6 million and $2.8
million, net of sublease income of $0.4 million and $0.4 million,
respectively.

NOTE 10-FOREIGN CURRENCY TRANSACTION GAIN /
(LOSS)

Foreign currency transaction gain /
(loss) comprises of two components  i) FAS 52 translation gains or losses of
the Accounts receivable in foreign currency and ii) the mark to market gains or
losses of the derivative instruments as follows (USD in thousands)

|                                                         | For
      the year ended December 31,
|-------------------------------------------------------- | -------------------------------------
|                                                         | 2008                                 
|Foreign currency reinstatement/ realisation gain/ (loss) | $                                    
|Derivative
      realized gain / (loss)                  |                                      
|Derivative Unrealized gain / (loss)                      |                                      
|Total                                                    | $                                    

NOTE 11-LITIGATION

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

61

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NOTE 12-INCOME TAXES

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

Year
      ended December 312008
    
    2007Current:Federal
    $
    -
    
    
    $
    -State
    $
    85
    
    
    $
    20Foreign
    
    1,637
    
    
    
    8641,722
    
    
    
    884Deferred:Federal
    
    -
    
    
    
    -Foreign
    
    (210
    )
    
    
    (164
    )Total
    $
    1,512
    
    
    $
    720


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

|                                  |  | 2008 |       | 2007
|--------------------------------- |  | ---- | ----- | ----
|United States                     |  | $    | 2,706 |     
|Foreign                           |  |      | 5,495 |     
|Income (loss) before income taxes |  | $    | 8,201 |     

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:

|                                               | 2008 |   |   | 2007 |      
|---------------------------------------------- | ---- | - | - | ---- | -----
|Tax at federal statutory rate                  | 34.0 |   | % |      | 34.0 
|State income
      tax, net of federal benefit | 2.0  |   |   |      | (4.8 
|Foreign taxes                                  | (3.6 | ) |   |      | (1.2 
|Change in
      valuation allowance            | (4.9 | ) |   |      | 37.2 
|Permanent items                                | (5.6 | ) |   |      | (27.0
|Fin 48
      Benefit                           | 0.3  |   |   |      | (18.4
|Other                                          | (3.8 | ) |   |      | (0.3 
|                                              
|Effective tax rate                             | 18.4 |   | % |      | 19.5 

62

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Deferred
income taxes reflect the tax effect of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The significant components of the
Companys deferred tax assets and liabilities are as follows (in
thousands):

|                                                        | 2008 |         | 2007
|------------------------------------------------------- | ---- | ------- | ----
|Current Deferred tax assets:                            |      |         |     
|Allowance for doubtful accounts                         | $    | 914     |     
|Vacation accrual                                        |      | 1,384   |     
|Other accrued liabilities                               |      | 86      |     
|Total current deferred tax assets                       |      | 2,383   |     
|                                                       
|Non-current deferred tax assets:                        |      |         |     
|Net
      operating losses                              |      | 21,379  |     
|Total current
      and non-current deferred tax assets |      | 23,762  |     
|Valuation allowance                                     |      | (22,880 | )   
|Net Deferred tax
      asset                            | $    | 882     |     

During
2008 and 2007, the Company generated net operating losses in certain tax
jurisdictions. The Company has provided a valuation allowance against these net
operating losses in some jurisdictions as the ability to utilize these losses
may be limited in the future. The Companys valuation allowance as of December
31, 2008 and 2007 was $22.9 million and $23.2 million respectively. Cumulative
net operating loss carry forwards of $53.7 million expire in various years
through 2026.

APB 23
(as amended by FAS 109) presumes that all undistributed earnings of subsidiaries
will be transferred to the parent company and income tax will have to be accrued
by the parent company for any such transfers in the foreseeable future. The
Company believes that all the earnings from the foreign operations of the
Company will be indefinitely reinvested and there will not be a need for the
Parent Company to repatriate any funds from its foreign subsidiaries in the
foreseeable future. Hence no income taxes were accrued by the Parent Company
with regards to APB 23.

Uncertain Tax Positions - India
Tax Assessment

The
Companys India subsidiary received tax assessments for the fiscal years ended
March 31, 1998 to 2003 challenging the tax exemptions of certain revenue earned
and disallowing certain expenses. The assessments demanded an additional tax of
INR 30.1 million (or approximately $0.6 million). The amounts were deposited by
the Company under protest and were fully reserved for. The Company is under
litigation in respect of these assessments and received favorable judgment
during 2007 for the fiscal years ended March 31, 1998 through March 31, 2000.
The judgment refunded approximately $0.2 million of the amount deposited for the year ended March 31, 1998 while $0.2 million is pending to be
received from the tax authorities for the year ended March 31, 1999. While
processing the above refund an amount of INR 2.5 million (or approximately $0.1
million) for the fiscal year ended March 31, 2000 had been deducted by the tax
authorities challenging certain tax exemptions that had earlier been allowed to
the Company. The Company is under litigation against this order and expects a favorable
decision. This has however, been fully reserved for as at December 31,
2008.

U.S. and
Indian transfer pricing regulations require that any international transaction
involving associated enterprises be at an arms-length price. Transactions among
the Companys subsidiaries and the Company may be required to satisfy such
requirements. Accordingly, the Company determines the pricing among its
associated enterprises on the basis of detailed functional and economic analysis
involving benchmarking against transactions among entities that are not under
common control. If the applicable income tax authorities review any of the
Companys tax returns and determine that the transfer price applied was not
appropriate, the Company may incur increased tax liability, including accrued
interest and penalties.

During
the second quarter of 2008, the company received an assessment order for the
fiscal year ending March 31, 2005, challenging application of some of its Indian
subsidiarys transfer pricing policies. No additional tax demands have been made
by the India Income Tax Authorities as yet. The Indian tax authorities are
examining income tax returns for other tax years.

63

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Based on
advice from its Indian tax advisors, the facts underlying its position and its
experience with these types of assessments, the Company believes that the
probability of loss is remote and accordingly has not accrued any amount with
respect to these matters.

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

In
      Millions2008
    
    2007Balance as at beginning of the year
    $
    0.20
    
    $
    0.70Decrease in
      unrecognized benefits relating tosettlements with tax authorities
    
    -
    
    
    (0.60
    )Impact of foreign exchange translation
    
    0.03
    
    $
    0.10Balance as at end of the year
    $
    0.23
    
    $
    0.20


NOTE 13-EMPLOYEE BENEFIT PLANS

The
Company maintains a defined contribution 401(k) plan. All United States
employees, who are employed on a full-time basis, are eligible to participate in
the plan, effective the first day of the next quarterly enrollment period. Costs
incurred by the Company related to this plan amounted to $0.6 million and $0.5
million for the years ended December 31, 2008 and 2007, respectively. The
Companys match in the 401(k) plan is 2%, which vests over a service period of
three years. The forfeitures to offset contributions for the years ended
December 2008 and 2007 were not material.

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

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

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

|                                | Years ended 
|------------------------------- | ------------
|                                | December 31,
|                                | 2008        
|Service Cost                    | $           
|Interest
      Cost             |             
|Actuarial (Gain) / Loss         |             
|Expected Return
      on Assets |             
|Net Gratuity Cost               | $           

64

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

|                                                        | December 31, |      | December 31,
|------------------------------------------------------- | ------------ | ---- | ------------
|                                                        | 2008         |      | 2007        
|Change in Benefit Obligation during the year            |              |      |             
|Projected
      Benefit Obligation at beginning of year | $            | 563  |             
|Current Service Cost                                    |              | 85   |             
|Interest
      Cost                                     |              | 32   |             
|Actuarial (Gain) / Loss due to change in
assumptions    |              | 93   |             
|Benefits
      Paid                                     |              | (212 | )           
|Impact of Foreign Exchange Translations                 |              | (108 | )           
|Projected
      Benefit Obligation at EOY               | $            | 453  |             

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

|                                                    | December 31, |      | December 31,
|--------------------------------------------------- | ------------ | ---- | ------------
|                                                    | 2008         |      | 2007        
|Change in Plan Assets During the year               |              |      |             
|Fair Value of
      Plan Asset at beginning of Year | $            | 67   |             
|Actual Return on Plan Asset                         |              | 3    |             
|Employer
      Contribution                         |              | 185  |             
|Benefit Payments                                    |              | (212 | )           
|Asset Gain /
      (Loss)                           |              | -    |             
|Impact of Foreign Exchange Translations             |              | (11  | )           
|Fair Value of
      Plan Asset at End of Year       | $            | 32   |             

The plan assets of the Company are
invested in debt securities with expected returns of approximately 8.7% in the
years 2008 and 2007.

The unfunded benefit obligation as
at December 31, 2008 and 2007 was $421,000 and $496,000 respectively. The short
term portion of the pension liability net of plan assets is recorded under
Accrued Payroll on the Balance Sheet. The long term portion is recorded in Other
Long Term Liabilities. The Company recognizes full amount of actuarial gains and
losses immediately in the Income Statement.

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

Expected**Year
      ending**
    
    Benefit**December 31,**
    
    Payments2009
    
    $
    722010
    
    
    812011
    
    
    782012
    
    
    682013 to 2017
    
    
    220$
    519


The accumulated benefit obligation
as at December 31, 2008 and 2007 was approximately $344,000 and $342,000
respectively.

The following are the assumptions
used for the valuation.

Assumptions
    2008
    
    2007Discount Rate % per annum at year end
    7.50%
    
    8.00%Expected return
      on plan assets
    8.70%
    
    8.70%Salary escalation
    8.00%
    
    8.00%


The expected employer contributions
for the year ending December 31, 2009 are approximately $400,000.

NOTE 14-SEGMENT DATA AND GEOGRAPHIC INFORMATION

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

65

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

United
States (US)  the largest segment of the Company, with operations in the
United States and Puerto Rico. Includes the operations of the Companys US
subsidiary, Empower, Inc., and all corporate headquarters is located in
Princeton, New Jersey;

India 
includes the operations of the Company in India, including services provided on
behalf of other group subsidiaries, primarily to US. The Indian operations are
located in Hyderabad and Bangalore, India. A majority of the total revenue
generated in India is derived from providing offshore development and support
services to customers through the Companys affiliated entities in other parts
of the world, but predominantly with the United States. This segment also covers
our operations in the UAE.

Europe 
includes the operations of the Company in Denmark and the United Kingdom. The
European headquarters is located in Milton Keynes, United Kingdom and Odense in
Denmark.

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

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, 2008 and 2007 and financial position as of December 31, 2008
and 2007 are presented in the following geographic segments (in
thousands):

|                                     | United |        |       |  |        |        |       |  |       |        |  
|------------------------------------ | ------ | ------ | ----- |  | ------ | ------ | ----- |  | ----- | ------ | -
|                                     | States |        | India |  | Europe |        | Japan |  | Total |        |  
|2008                                 |        |        |       |  |        |        |       |  |       |        |  
|Revenue                              |        | 90,348 |       |  |        | 47,309 |       |  |       | 14,531 |  
|Depreciation and amortization        |        | 387    |       |  |        | 1,546  |       |  |       | 453    |  
|Operating income
      / (loss)      |        | 2,405  |       |  |        | 7,629  |       |  |       | 1,115  |  
|Interest expense                     |        | (200   | )     |  |        | (87    | )     |  |       | (248   | )
|Income tax
      provision           |        | 111    |       |  |        | 1,198  |       |  |       | 203    |  
|Net income                           |        | 2,595  |       |  |        | 2,532  |       |  |       | 1,160  |  
|Property and
      Equipment, net    |        | 504    |       |  |        | 3,279  |       |  |       | 1,196  |  
|Total assets                         |        | 36,050 |       |  |        | 15,538 |       |  |       | 6,323  |  
|                                    
|***2007***                           |        |        |       |  |        |        |       |  |       |        |  
|Revenue                              | $      | 87,618 |       |  | $      | 40,429 |       |  | $     | 13,123 |  
|Depreciation and amortization        |        | 725    |       |  |        | 1,534  |       |  |       | 202    |  
|Operating income
      / (loss)      |        | (3,038 | )     |  |        | 4,125  |       |  |       | 1,558  |  
|Interest expense                     |        | (603   | )     |  |        | (118   | )     |  |       | (71    | )
|Income tax
      provision (benefit) |        | (656   | )     |  |        | 1,258  |       |  |       | 118    |  
|Net income (loss)                    |        | (2,265 | )     |  |        | 3,017  |       |  |       | 1,526  |  
|Property and
      Equipment, net    |        | 616    |       |  |        | 3,341  |       |  |       | 2,465  |  
|Total assets                         |        | 33,759 |       |  |        | 19,229 |       |  |       | 10,611 |  

|(1) |  | In addition, $0.5 million and $0.3
      million of depreciation is included in costs of revenue for
      the years ended December 31, 2008 and 2007 respectively.                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Of the total capital expenditures
      incurred for the year ended December 31 2008, $0.3 million was incurred in
      the US, ($0.7) million was incurred in Europe, and $1.9 million was
      incurred in India.
|   
|(3) |  | Of the total capital expenditures
      incurred for the year ended December 31 2007, $0.4 million was incurred in
      the US, $1.7 million was incurred in Europe, and $0.7 million was incurred
      in India.  

NOTE 15 - UNAUDITED QUARTERLY
FINANCIAL DATA

2008 and 2007 Quarterly Financial
Data

The
following tables set forth certain unaudited results of operations for each
quarter during 2008 and 2007. 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.

66

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Accordingly, the sum of the
quarterly earnings (loss) per share may not agree to the total for the year (in
thousands, except per share data).

|                                                   | For the quarters
  ended
|-------------------------------------------------- | ------------------------
|                                                   | March                   
|                                                   | 31, 2008                
|Revenue                                            | $                       
|Cost
      of revenue                              |                         
|Total operating expenses                           |                         
|Operating income                                   |                         
|Income before provision for income taxes           |                         
|Provision for income taxes                         |                         
|Net Income                                         | $                       
|                                                  
|Net income per common share - basic                | $                       
|Net
      income per common share - diluted        |                         
|                                                  
|Shares Outstanding:                                |                         
|Basic                                              |                         
|Diluted                                            |                         
|                                                  
|                                                   | For the quarters
  ended
|                                                   | March                   
|                                                   | 31, 2007                
|Revenue                                            | $                       
|Cost
      of revenue                              |                         
|Total operating expenses                           |                         
|Operating income (loss)                            |                         
|Income (loss) before income taxes                  |                         
|Provision for (benefit of) income taxes            |                         
|Net income (loss)                                  | $                       
|                                                  
|Net income (loss) per common share - basic         | $                       
|Net
      income (loss) per common share - diluted |                         
|                                                  
|Shares Outstanding:                                |                         
|Basic                                              |                         
|Diluted                                            |                         

The provision for (benefit of) income tax
and the net income for the quarter ended March 31, 2007 differ from that
reported on the Form 10 Q filed May 15th2007, due to the recording of an
income tax benefit of approximately $382,000 in the quarter ended December 31,
2007 that pertained to the quarter ended March 31, 2007.

67

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