SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                           ---------------------------

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2001
                         Commission file number 0-20943

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


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


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


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


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


                                               Name of each exchange on
       Title of each class                         which registered
       -------------------                     ------------------------

             None
       -------------------                     ------------------------


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

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


<PAGE>

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

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

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

     State the aggregate market value of the voting stock held by non-affiliates
of the  Registrant:  $15,623,317 at March 22, 2002 based on the last sales price
on that date.

     Indicate  the  number of  shares  outstanding  of each of the  Registrant's
classes of common stock, as of March 22, 2002:

Class                                                     Number of Shares
-----                                                     ----------------

Common Stock, $.01 par value                                 16,630,125

     The  following  documents  are  incorporated  by reference  into the Annual
Report on Form 10-K: Portions of the Registrant's definitive Proxy Statement for
its 2002 Annual Meeting of Shareholders  are incorporated by reference into Part
III of this Report.



                                     - 2 -
<PAGE>

                                TABLE OF CONTENTS
                                -----------------

           Item                                                             Page
           ----                                                             ----

PART I     1.  Business...................................................    4

           2.  Properties.................................................   17

           3.  Legal Proceedings..........................................   17

           4.  Submission of Matters to a Vote of Security Holders........   19

PART II    5.  Market for the Company's Common Equity and Related
               Shareholder Matters........................................   20

           6.  Selected Financial Data....................................   20

           7.  Management's Discussion and Analysis of Financial
               Condition and Results of Operations........................   22

           7A. Quantitative and Qualitative Disclosure About Market Risk..   43

           8.  Financial Statements.......................................   43

           9.  Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure........................   43

PART III   10. Directors and Executive Officers of the Registrant.........   44

           11. Executive Compensation.....................................   44

           12. Security Ownership of Certain Beneficial Owners and
               Management.................................................   44

           13. Certain Relationships and Related Transactions.............   44

PART IV    14. Exhibits, List and Reports on Form 8-K.....................   45

SIGNATURES.................................................................  46

EXHIBIT INDEX..............................................................  48

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




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<PAGE>

                                     PART I

ITEM 1.     BUSINESS.

GENERAL

     Overview

     Intelligroup,  Inc. ("Intelligroup" or the "Company") provides a wide range
of high-quality,  cost-effective  information technology solutions and services.
These   services   and   solutions   include   the   development,   integration,
implementation,  management and support of enterprise, e-commerce and m-commerce
software   applications.   The   Company's   onsite/offshore   delivery   model,
comprehensive suite of tools and  industry-specific  solutions provide customers
with a faster time-to-market and lower total cost of ownership.

     Company History

     The Company was  incorporated  in New Jersey in October 1987 under the name
Intellicorp, Inc. to provide systems integration and custom software development
services. The Company's name was changed to Intelligroup,  Inc. in July 1992. In
March 1994, the Company acquired Oxford Systems Inc. ("Oxford"). On December 31,
1996,  Oxford was merged into the Company and ceased to exist as an  independent
entity. In October 1996, the Company  consummated its initial public offering of
its Common Stock.  The Company's  executive  offices are located at 499 Thornall
Street, Edison, New Jersey 08837 and its telephone number is (732) 590-1600.

     In 1994,  the Company began to diversify its customer base by expanding the
scope of its  systems  integration  and custom  development  services to include
Enterprise  Resource  Planning  ("ERP")  software.  ERP  software  products  are
pre-packaged  solutions for a wide-range of business areas,  including financial
information,  manufacturing and human resources.  For prospective customers, ERP
products are 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 them and tailoring
their use for a particular customer's needs.

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

     In late 1999,  the Company  made the  strategic  decision  to leverage  its
traditional  application  integration  and consulting  experience and reposition
Intelligroup for future growth by focusing on the emerging  Application  Service
Provider  ("ASP")  market.  At the same time,  the  Company  made the  strategic
decision  to  spin-off  its  Internet  services  business  to its  shareholders.
Accordingly,   on  January  1,  2000,  the  Company   transferred  its  Internet
applications  services and management  consulting  businesses to SeraNova,  Inc.
("SeraNova"), a wholly-owned subsidiary of the Company on such date.



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<PAGE>

     On July 5, 2000, the Company  distributed all of the outstanding  shares of
the common  stock of  SeraNova  then held by the Company to holders of record of
the  Company's  common  stock as of the close of business on May 12, 2000 (or to
their  subsequent  transferees)  in accordance  with the terms of a Distribution
Agreement  dated as of  January  1,  2000  between  the  Company  and  SeraNova.
Accordingly,  the assets, liabilities and results of operations of SeraNova have
been reported as discontinued operations for all periods presented.

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

     At the same time, the Company redirected some of its ASP infrastructure and
personnel   towards  the  management  and  support  of  customers'   enterprise,
e-commerce  and m-commerce  applications  ("Application  Management  Services").
Additionally,  the Company introduced  certain SAP-based  proprietary tools that
are  designed  to reduce  the time and cost of  upgrading  and  maintaining  SAP
systems.  Finally,  in 2001, the Company developed  pre-configured SAP solutions
for the pharmaceutical  industry ("Pharma  Express(SM)") and the engineering and
construction  industry  ("Contractor  Express(SM)").  Pharma Express, a solution
designed  for   small-to-medium   sized  life   sciences   companies,   improves
manufacturing  efficiencies  and helps  control  the total  cost of  production.
Contractor  Express assists  companies in improving  operational  efficiency and
controlling manufacturing project schedules.

INTELLIGROUP SERVICES

     Intelligroup provides a wide range of information  technology solutions and
services.  These services and solutions  include the  development,  integration,
implementation,  management and full lifecycle support of enterprise, e-commerce
and m-commerce applications to companies of all sizes.

     Historically,  the Company's services have ranged from providing  customers
with a single consultant to  multi-personnel  full-scale  projects.  The Company
provides these services to its customers primarily on a time and materials basis
and pursuant to agreements,  which are terminable upon relatively  short notice.
During  2000,  the Company  began to focus on providing  management  and support
services for their  customers'  applications.  The  contractual  arrangements in
these  situations are typically fixed term,  fixed price and  multi-year,  as is
common in the outsourcing  market. The Company's focus on management and support
services  is  also  intended  to  encourage   ongoing  and   recurring   service
relationships, rather than one-time implementation engagements.

     Professional Consulting Services

     The Company's  professional  consulting  services ("PCS") utilize technical
and  functional   consultants  to  leverage  the  Company's   expertise  in  ERP
architecture and systems integration, and



                                     - 5 -
<PAGE>

to efficiently  assimilate and customize these  applications with new e-commerce
and  m-commerce  applications  and  extensions.  The Company  believes  that its
expertise in a wide variety of technologies, coupled with its ability to provide
comprehensive   business  process   solutions  and  timely  and   cost-effective
implementation  of new  business  systems,  enables  its  customers  to  achieve
substantial  improvements in efficiency and  effectiveness in their  businesses,
and fosters long-term customer relationships.

     Intelligroup has cultivated strong working  relationships  with SAP, Oracle
and  PeopleSoft.  These  companies have a vested  interest in encouraging  third
party  professional  consulting  service  companies,  such as  Intelligroup,  to
provide implementation and customization  services to customers.  These software
vendors  have  established  formal  programs,  which are designed to recruit and
authorize third party service companies as service  partners.  Companies wishing
to become authorized partners must meet performance  criteria established by the
respective  ERP  vendor.  They  are then  allowed  to use the  vendor's  partner
designation and associated  logo to promote their own services.  The ERP product
vendors also promote  these  authorized  partners to customers  and  prospective
customers of their ERP products.  The Company  believes that such partner status
with the ERP vendors has and will  continue  to result in direct  referrals  and
enhanced industry recognition.

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

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

     Additionally,  the Company has  introduced  certain  SAP-based  proprietary
tools that are designed to reduce the time and cost of upgrading and maintaining
SAP  systems  ("Power Up  Services(SM)").  Through  its Power Up  Services,  the
Company helps to  cost-effectively  size and analyze SAP upgrade  projects,  and
efficiently  evaluate and test SAP Support  Packages.  The Company  combines the
assessment  capabilities  of its  proprietary  Uptimizer(SM)  Tool  Kit with the
skills and expertise of its SAP-certified global  implementation team to deliver
high-quality,  cost-effective  upgrades to customized SAP  environments.  HotPac
Analyzer(SM)  enables  customers  to  analyze  and test the  impact of a Support
Package on its own SAP production environment before


                                     - 6 -
<PAGE>

it is actually  applied.  In  addition,  HotPac  Analyzer  enables  customers to
validate  the  overall  impact  that a Support  Package can have and isolate and
identify the business transactions that require thorough testing.

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

     The Company's Advanced  Development  Center ("ADC"),  located in Hyderabad,
India, allows the Company to provide cost-effective, timely and high quality PCS
services to customers  throughout  the world.  The ADC delivers  rapid,  24 by 7
development services, by utilizing its functional and technical consultants,  in
conjunction with on-site consultants at customer locations, to provide customers
with savings in development and implementation  costs and faster time to project
completion.  Intelligroup  is able to deliver high value  services at attractive
prices due to: (i) the high level of expertise and  experience of ADC consultant
programmers; (ii) the rigorous application of the Company's proprietary software
project methodologies,  tools and project management disciplines;  and (iii) the
cost structures associated with the ADC's offshore location.

     The Company provides PCS services directly to end-user organizations, or as
a  member  of  consulting  teams  assembled  by  other  information   technology
consulting  firms. The cumulative  number of PCS customers billed by the Company
has grown  substantially  from 600  customers  in 1999 to over 900  customers in
2001.  The Company's  customers  are primarily  Fortune 1000 and other large and
mid-sized  companies in the United States and abroad.  They have included  Apple
Vacations,  Bristol-Myers  Squibb,  Detroit  Public  Schools,  Eastman  Chemical
Company, Lockheed Martin, Network Associates and Whirlpool. The Company has also
participated in project teams lead by information  technology  consulting  firms
such as Cap Gemini Ernst & Young LLP and KPMG Consulting.

     Application Management Services

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



                                     - 7 -
<PAGE>

     Key to the Company's ability to deliver AMS services is its offshore Global
Support  Center  ("GSC"),  located in Hyderabad,  India,  which helps to provide
responsive  global  support  to  customers  through  delivery  teams  that  work
around-the-clock.  The GSC keeps customers' critical  applications,  systems and
infrastructure   stable,   current   and   optimized   through   efficient   and
cost-effective user,  technical and operations support.  Intelligroup is able to
deliver high value  services at attractive  prices due to: (i) the high level of
expertise  and  experience  of GSC  support  professionals;  and  (ii)  the cost
structures associated with the GSC's offshore location.

     The Company provides its AMS services  directly to end-user  organizations.
The  cumulative  number  of AMS  customers  billed  by  the  Company  has  grown
substantially  from three  customers  in 1999 to 24 customers in 2000 to over 30
customers in 2001. The Company's  customers are primarily Fortune 1000 and other
large and  mid-sized  companies  in the  United  States  and  abroad.  They have
included Armacell  International  GmbH, Dade Behring,  GE Fanuc Automation North
America, Jetstream Communications,  Joy Mining Machinery and Pearsons Technology
Centre.

     ASP Hosting Services

     The  Company  services  the ASP market with its  ASPPlus  Solutions,  which
include  implementation,  management and hosting of  enterprise,  e-commerce and
m-commerce solutions.  ASPPlus utilizes a mass customization approach, providing
pre-configured  vertical  industry  solutions of mission critical  applications.
Through  ASPPlus,  the  Company  offers  customized  solutions  to its  client's
specific enterprise, e-commerce and m-commerce needs.

     To  provide  the global  infrastructure  on which we  deliver  and  support
solutions  for  customers  worldwide,  Intelligroup  became a founding  Platinum
member of AT&T's Ecosystem for ASPs. As our strategic partner and infrastructure
provider,  AT&T provides the data center,  hardware and operating  systems,  and
requisite bandwidth and communications capabilities.

THE INTELLIGROUP SOLUTION

     Intelligroup  improves  its  clients'  business  performance,  through  the
intelligent  application  of information  technology.  We deliver to our clients
timely,  cost-effective  and  innovative  professional  consulting  services and
application management and support solutions by combining our:

     Proven  Offshore  Development and  Maintenance  Model:  The Company has the
ability to develop,  implement  and  maintain  high-quality,  low cost  business
solutions  through its  offshore  ADC and GSC. In May 2000,  the ADC was awarded
Level 2 of the  People  Capability  Maturity  Model(R)  by the  Carnegie  Mellon
Software  Engineering   Institute   ("CMM-SEI").   The  achievement   recognizes
Intelligroup for its ability to attract, develop, motivate,  organize and retain
the talent needed to continuously improve its software  development  capability.
Intelligroup  was  among  the  first in the IT  industry  to  integrate  CMM-SEI
workforce  improvement  with  software  process  improvement,  for which we have
achieved the Software CMM-SEI Level 5 certification  for continuous  improvement
of our software engineering. In addition, we are ISO 9001-certified for software
development, support and optimization.



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<PAGE>

     The ADC and  GSC are  connected  to the  Company's  operations  centers  in
Asia/Pacific,  the United States and Europe via high-speed  satellite links. The
ADC and GSC operate on a 24x7 basis,  allowing next business day  turn-around of
work units to customers. The Centers' quality processes, skilled development and
support  teams,  and low cost of  operation  allow the  Company to  aggressively
compete for  implementation and maintenance  contracts.  As the Company expands,
the  ADC  and  GSC  are  prepared  to  undertake  projects  in any of the  three
enterprise and e-commerce  practices  (SAP,  PeopleSoft and Oracle),  as well as
certain other advanced technologies, including m-commerce.

     Expertise in a Wide Range of Technologies,  Industries and Disciplines: The
Company's  consultants  have expertise with SAP, Oracle and PeopleSoft  products
and with a wide variety of leading computing  technologies,  including Internet,
client/server  architectures,  object-oriented  technologies,  CASE, distributed
database   management    systems,    mainframe    connectivity,    LAN/WAN   and
telecommunications  technologies.  The Company  believes  that its personnel are
effective because of their technical  excellence,  their industry experience and
their  strong  grounding  in  the  disciplines  of  project  implementation  and
management.

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

     Proprietary   Methodologies:   The  Company  has  developed  a  proprietary
implementation methodology, as well as a software-based  implementation toolset,
which are designed to minimize the time required to develop and  implement  SAP,
Oracle and PeopleSoft solutions for its customers.

     Proprietary  Toolsets:  The Company has developed  proprietary SAP toolsets
that reduce the cost and time of keeping an SAP environment  stable and current.
The  Company's  Power Up  Services  are  designed to size and analyze an upgrade
project and evaluate and test SAP Support Packages.

TRADEMARKS AND SERVICE MARKS

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

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

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


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<PAGE>

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

SAFE HARBOR STATEMENTS

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

     o    the continued  uncertainty  associated  with the slowdown in economies
          worldwide, including its impact on IT spending habits by customers;

     o    the  continued  uncertainty  of the  outsourcing  market and  revenues
          derived from anticipated application management and support business;

     o    the failure to maintain the minimum bid price of $1.00 per share for a
          period of 30  consecutive  business days or other criteria as required
          for continued listing by the Nasdaq National Market;

     o    the  substantial  variability  of the  Company's  quarterly  operating
          results  caused by a variety of factors,  many of which are not within
          the Company's control, including (a) patterns of software and hardware
          capital spending by customers,  (b) information technology outsourcing
          trends,  (c) the timing,  size and stage of  projects,  (d) timing and
          impact of acquisitions,  (e) new service  introductions by the Company
          or its competitors and the timing of new product  introductions by the
          Company's  ERP  partners,  (f)  levels  of market  acceptance  for the
          Company's services, (g) general economic conditions, (h) the hiring of
          additional staff and (i) fixed price contracts;

     o    changes in the Company's billing and employee utilization rates;

     o    the Company's ability to manage its business  effectively,  which will
          require  the  Company (a) to continue  developing  and  improving  its
          operational,  financial  and other  internal  systems,  as well as its
          business  development  capabilities,  (b) to attract,  train,  retain,
          motivate and manage its  employees,  (c) to continue to maintain  high
          rates of employee  utilization  at profitable  billing  rates,  (d) to
          successfully  integrate the personnel and  businesses  acquired by the
          Company, and (e) to maintain project quality, particularly if the size
          and scope of the Company's projects increase;

     o    the  Company's  ability to  maintain  an  effective  internal  control
          structure;

     o    the Company's limited operating history within the outsourcing line of
          business;

     o    the Company's  reliance on continued  relationships  with SAP America,
          Oracle and PeopleSoft, and the Company's present partnership status;



                                     - 10 -
<PAGE>

     o    the  Company's   substantial  reliance  on  key  customers  and  large
          projects;

     o    the  highly  competitive  nature  of the  markets  for  the  Company's
          services;

     o    the Company's ability to successfully  address the continuing  changes
          in information  technology,  evolving industry  standards and changing
          customer objectives and preferences;

     o    the Company's  reliance on the continued services of its key executive
          officers and leading technical personnel;

     o    the  Company's  ability to attract and retain a  sufficient  number of
          highly skilled employees in the future;

     o    the Company's ability to protect its intellectual property rights;

     o    uncertainties  resulting  from  pending  litigation  matters  and from
          potential  administrative  and  regulatory  immigration  and  tax  law
          matters and from the outstanding  liability of SeraNova to the Company
          under the promissory note dated May 31, 2000, as amended; and

     o    in  addition,  in March 2001,  SeraNova  and  Silverline  Technologies
          Limited  ("Silverline")  consummated  the  acquisition  of SeraNova by
          Silverline.   SeraNova's   management   has   represented   that  such
          acquisition  was  not  contemplated  at the  time of the  spin-off  of
          SeraNova  by the  Company,  and  accordingly  should  not  impact  the
          tax-free  nature of the  spin-off.  Should the spin-off be  ultimately
          construed  to be  taxable,  there is a risk  that if  SeraNova  and/or
          Silverline  are unable or unwilling to pay the resultant tax liability
          pursuant  to  SeraNova's  indemnification  obligations  under  its Tax
          Sharing  Agreement  with  the  Company,  the  Company  would  bear the
          liability to pay such resultant tax liability.

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

INDUSTRY BACKGROUND

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

     Historically,  many businesses have adopted  information systems strategies
using  client/server  architectures  based on  personal  computers,  local  area
network/wide  area network  ("LAN/WAN"),  shared databases and packaged software
applications. Frequently these



                                     - 11 -
<PAGE>

strategies   are   intended  to  replace   legacy   systems,   which  are  often
mainframe-based,   running   proprietary   software   and   applications.   Such
client/server systems, when developed and implemented appropriately,  enable the
creation  and  utilization  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,   packaged    enterprise-wide   business   software
applications,  including  those  offered by leading  ERP  vendors,  such as SAP,
Oracle and PeopleSoft.  These applications are then implemented or customized to
meet their  particular  business needs.  Alternatively,  the  organizations  may
develop, or commission the development of, customized  software  applications to
meet  their  needs.  In  both  cases,  these  customers  now  have a set of core
operations  applications,  which  they use to  support  their  central  business
processes. These customers may now face competing internal demands against their
budgets and  resources.  The  customers  must  balance  demands  from their user
departments  for new,  innovative  business  applications  against the  absolute
requirement to maintain,  manage and optimize the core operations  applications.
These competing demands reflect areas of potential business  opportunity for the
Company.

     Intense   competitive   and  market   pressures   continue  to  force  many
organizations  to  look  for   improvements  in  the  quality,   efficiency  and
responsiveness of their end-to-end  business models. This would normally require
an in-depth  analysis of their business  strategies,  operational  processes and
supporting delivery mechanisms,  including  information systems.  Customers will
sometimes retain external  business and management  consulting  organizations to
assist with this analysis and the preparation of relevant recommendations.

     The majority of customers who have implemented,  or are  implementing,  ERP
solutions  have  been  Fortune  2000  companies.   The  Company   believes  that
opportunities  for  new ERP  implementations  will  continue  to  exist  in this
segment,  as these companies  deploy ERP solutions to subsidiaries and operating
units.  In addition,  these customers are also faced with the need to manage and
maintain their ERP applications.  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.

     Because of the ERP  penetration  of Fortune 2000  customers,  the marketing
focus of the ERP vendors has turned toward  mid-market  clients.  The mid-market
segment   presents  the  most   opportunity   for  new  ERP  product  sales  and
implementations.  Many of these  companies are growing rapidly and are likely to
have the need  for core  financial  and  other  operations  systems  that can be
addressed by ERP products. The Company believes that opportunity exists for both
professional   consulting  services  and  application   management  services  to
mid-market  clients.  This segment is very cost  conscious and requires a highly
efficient  services  delivery model,  which the Company  believes it can provide
through a  combination  of on-site  services and offshore  services  through its
support centers in Hyderabad, India.

     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



                                     - 12 -
<PAGE>

systems,  databases and networking  protocols,  as well as multiple packaged and
custom developed applications.

     Companies must also  continually keep pace with a broad and often confusing
array of new technological  developments,  which can render internal information
technology 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 information technology 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.

     To support their information technology 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.

     As a result of these industry dynamics,  demand for information  technology
services has grown  significantly.  It has moved from an implementation focus to
one  addressing  an  integrated  view  of  corporate  business  and  information
processes. Such demand has also moved to a focus on value-based pricing and cost
of ownership  over the total life cycle of the  solution.  These  changes  favor
services companies which can provide high quality, low cost life cycle services,
and which address high value solution areas for clients' businesses.

SALES AND MARKETING

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

     The Company has  dedicated  an  increased  level of  resources to sales and
marketing  efforts.  The Company will continue to market to potential  customers
with  demonstrated  needs for the  Company's  expertise  in ERP  solutions.  The
Company intends to implement focused sales management programs,  to leverage its
relationships  with  existing  customers,  as well as those  with ERP and  other
product vendors.

     Among its sales and  marketing  efforts,  the  Company's  has exhibited and
presented the Company's  expertise at trade events  associated  with the primary
ERP offerings.  These include events such as SAPPHIRE, the annual SAP conference
for SAP service providers and end-users, the Americas SAP User Group, the Oracle
Americas User Group and the PeopleSoft Users


                                     - 13 -
<PAGE>

Group. The Company intends to continue participation in such industry-recognized
programs and trade shows.

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

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

     As of December 31, 2001, the Company's  sales and marketing group consisted
of 29 employees in the United States, 5 employees in the Asia-Pacific  region, 5
employees in Europe, and 10 employees in India. The Company markets and delivers
its  services to  customers  on an  international  basis  through its network of
offices.  The  Company's  headquarters  in New Jersey and its branch  offices in
Atlanta, GA; Rosemont, IL and Foster City, CA serve the United States market. In
addition, the Company also maintains offices in Europe (Denmark,  Sweden and the
United Kingdom) and Asia Pacific (Australia, Hong Kong, India, Indonesia, Japan,
New Zealand and Singapore).

CUSTOMERS

     The Company provides its services  directly to many Fortune 2000 companies,
as well as small to medium sized enterprises, or as a member of consulting teams
assembled by other information  technology  consultants,  such as the consulting
practices of "Big Five"  accounting  firms.  The cumulative  number of customers
billed by the Company has grown substantially from 600 customers in 1999 to over
900 customers in 2001.

     In 1999,  2000 and 2001, 48%, 36% and 42%,  respectively,  of the Company's
revenue was  generated by serving as a member of consulting  teams  assembled by
other  information  technology  consulting  firms.  The  Company's  ten  largest
customers accounted for, in the aggregate, approximately 43%, 34% and 33% of its
revenue in 1999, 2000 and 2001, respectively. During 1999 and 2000, one customer
accounted for more than 10% of total  revenue.  During 2001, no single  customer
accounted for more than 10% of total revenue.

     During 1999 and 2000, one customer in the United States  accounted for more
than 10% of the total revenue  generated in the United  States.  During 2001, no
single  customer  in the  United  States  accounted  for more  than 10% of total
revenue generated in the United States.

     During 1999, no single customer in Asia-Pacific accounted for more than 10%
of total revenue generated in the Asia-Pacific region. During 2000, one customer
in Asia-Pacific



                                     - 14 -
<PAGE>

accounted  for more  than 10% of total  revenue  generated  in the  Asia-Pacific
region.  During 2001, two customers in Asia-Pacific  accounted for more than 10%
of total revenue generated in the Asia-Pacific region.

     During 1999 and 2000, no single customer in Europe  accounted for more than
10% of total revenue generated in the European region. During 2001, one customer
in Europe accounted for more than 10% of total revenue generated in the European
region.

     During  1999,  2000 and 2001,  no  single  unaffiliated  customer  in India
accounted for more than 10% of total revenue  generated in India.  A majority of
the  total  revenue  generated  in  India is  derived  from  providing  offshore
development  and support  services to customers  sourced  through the  Company's
affiliated entities.

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

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

COMPETITION

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

     o    Consulting  and  software  integration  firms:  including,  IBM Global
          Services, Electronic Data Systems (EDS), Computer Sciences Corporation
          (CSC),  Cap Gemini Ernst & Young (CGE&Y),  Deloitte  Consulting,  KPMG
          Consulting and PwC Consulting.

     o    Software applications vendors: SAP, Oracle and PeopleSoft.



                                     - 15 -
<PAGE>

     o    Application  management  consulting  firms:  such as  Covansys,  Wipro
          Technologies,   Infosys  Technologies  Limited,  and  Satyam  Computer
          Services Ltd.

     o    Application service providers:  USinternetworking,  Inc., Corio, Inc.,
          Interliant, Inc., and Agilera, Inc.

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

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

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

EMPLOYEES

     As of December 31, 2001, the Company employed 1,238 full-time employees, of
whom 997 were engaged as consultants or as software developers,  49 were engaged
in sales and marketing, and 192 were engaged in delivery management, finance and
administration.  Of the total number of employees,  414 were based in the United
States,  120 were based in the Asia-Pacific  region, 74 were based in Europe and
630 were  based in India.  In  addition,  the  Company  engaged  46  independent
contractors to perform information technology services.

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



                                     - 16 -
<PAGE>

INTELLECTUAL PROPERTY RIGHTS

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

ITEM 2.     PROPERTIES.

     As of December 31, 2001,  the Company owns no real  property and  currently
leases or subleases  all of its office space.  The Company  leases 48,475 square
feet of office  space in  Edison,  New  Jersey,  of which  approximately  50% is
subleased to SeraNova.  Such lease has an initial term of ten (10) years,  which
commenced  in  September  1998.  The  Company  uses such  facility  for  certain
technical and support personnel,  sales and marketing,  administrative,  finance
and  management  personnel.  The  Company  maintains  offices  for its sales and
operations  within the United  States in Atlanta,  GA;  Rosemont,  IL and Foster
City, CA. The Company also maintains offices in Australia,  Denmark,  Hong Kong,
India, Indonesia,  Japan, New Zealand, Singapore, Sweden and the United Kingdom.
Additionally,  the Company remains an obligor on certain leases for office space
located in Phoenix,  AZ and Auburn Hills, MI, under which only SeraNova occupies
such  office  space.  Such  leases  expire in October  2003 and  February  2005,
respectively.

     Beginning in late 2001,  SeraNova failed to pay certain  outstanding  lease
obligations to the Company's landlords.  The Company was unable to resolve these
payment  defaults  through  direct  negotiations  with  SeraNova and  Silverline
Technologies.  Accordingly,  on March 4, 2002,  the Company filed an arbitration
demand with the American Arbitration Association against SeraNova and Silverline
Technologies.  The demand for  arbitration  seeks  reimbursement  from  SeraNova
and/or  Silverline  Technologies  for all rent  payments  made by the Company on
behalf of  SeraNova  and for  jurisdiction  over  further  payment  defaults  by
SeraNova  and/or  Silverline  Technologies to the Company and its landlords (see
Part I, Item 3, Legal Proceedings).

ITEM 3.     LEGAL PROCEEDINGS

     On February 7, 2001, NSA Investments II LLC filed a complaint in the United
States District Court for the District of  Massachusetts  naming,  among others,
SeraNova,  the Company  and  Rajkumar  Koneru,  a director  of the  Company,  as
defendants.  The  plaintiff  alleges that it invested  $4,000,000 in SeraNova as
part of a private placement of SeraNova common stock in March 2000, prior to the
spin-off of SeraNova by the Company. The complaint, which seeks compensatory and
punitive  damages,  alleges  that the  Company,  as a  "controlling  person"  of
SeraNova, is jointly and severally liable with and to the extent as SeraNova for
false and


                                     - 17 -
<PAGE>

misleading  statements  constituting  securities  laws  violations.  After being
served with the complaint,  the Company made a request for indemnification  from
SeraNova pursuant to the various inter-company agreements in connection with the
spin-off.  By letter  dated  April 13,  2001,  SeraNova's  counsel,  advised the
Company that SeraNova acknowledged liability for such indemnification claims and
has elected to assume the defense of the  plaintiff's  claims.  In October 2001,
the motion to dismiss,  filed on behalf of the  Company in May 2001,  was denied
without prejudice to refile at the close of the discovery period.  Court-ordered
mediation  between the plaintiff and SeraNova  during  January and February 2002
was unsuccessful.  In January 2002, plaintiff filed a motion for partial summary
judgment as to certain claims against  SeraNova.  No summary judgment motion was
filed against the Company.  SeraNova filed its opposition to plaintiff's  motion
for partial  summary  judgment in February 2002. Such motion for partial summary
judgment is expected to be heard in April.  The Company  denies the  allegations
made and intends to defend  vigorously the claims made by the  plaintiff.  It is
too early in the dispute  process to  determine  the impact,  if any,  that such
dispute will have upon the Company's business, financial condition or results of
operations.

     On May 21, 2001, Fe-Ri  Construction,  Inc. filed a complaint in the United
States  District  Court for the  District  of Puerto  Rico naming the Company as
defendant. The complaint,  which seeks damages, alleges among other things, that
the  Company  has  failed to pay  plaintiff  amounts  due  under a  construction
contract  totaling  $558,852  together  with  interest  and  costs,   damage  to
plaintiff's   reputation  and  impairment  of  plaintiff's   bonding   capacity.
Subsequently,  the Company  commenced an  arbitration  action  asserting  claims
against plaintiff. On December 21, 2001, the Company, Fe-Ri Construction and the
Puerto  Rico   Industrial   Development   Company  settled  the  litigation  and
arbitration  claims by  executing a  Settlement  Agreement  and Mutual  Release.
Pursuant to the terms of the  Settlement  Agreement  and Mutual  Release,  Fe-Ri
Construction  received a one-time  lump sum payment of $600,000  and all parties
released each other from any and all claims.

     On August 16, 2001,  the Company filed a complaint in the Superior Court of
New Jersey, Middlesex County, against SeraNova, Inc. and Silverline Technologies
Limited,  which  acquired  SeraNova in March 2001.  The  complaint,  which seeks
damages,  alleges among other things that  SeraNova  failed to pay amounts owing
under (i) an unsecured promissory note totaling  $10,079,717,  and (ii) a system
implementation  project totaling $511,573.  On September 25, 2001,  SeraNova and
Silverline  filed  a joint  Answer  to the  Company's  complaint.  In  addition,
SeraNova filed a counterclaim  against the Company for unspecified  damages as a
set-off against the Company's claims.  Thereafter,  in response to the Company's
request for a statement of damages,  SeraNova  stated that it was in the process
of calculating its damages, but for informational  purposes claimed compensatory
damages  in  excess  of  $5,500,000  and  punitive  damages  in  the  amount  of
$10,000,000.  The parties are currently  proceeding with the discovery  process.
The Company  believes  that there is no basis to support the amounts  claimed by
SeraNova  in  its  counterclaim  for  compensatory  and  punitive  damages.  The
inability  of the Company to collect the full  amount due from  SeraNova  and/or
Silverline  or an adverse  decision  with  respect to the  Company  relating  to
SeraNova's   counterclaim  could  negatively  affect  the  Company's   business,
financial condition or results of operations.

     On March 4, 2002, the Company filed an arbitration demand with the American
Arbitration Association against SeraNova, Inc. and Silverline Technologies.  The
demand for


                                     - 18 -
<PAGE>

arbitration,  which seeks damages,  alleges among other things that  respondents
failed to pay outstanding  lease  obligations to the Company's  landlords and to
reimburse the Company for all rent payments made by the Company on behalf of the
respondents.  As of the date the  arbitration  demand  was  filed,  the  Company
claimed that the outstanding lease obligations totaled $236,010.  The Company is
further seeking jurisdiction over further payment defaults by the respondents to
the Company and its landlords.  The Company does not believe that the outcome of
this claim will have a  materially  adverse  effect on the  Company's  business,
financial condition or results of operations.

     There is no other  material  litigation  pending to which the  Company is a
party or to which any of its property is subject.

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

     Not applicable.



                                     - 19 -
<PAGE>

                                     PART II

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

     The Common Stock is quoted on the Nasdaq  National Market (the "NNM") under
the symbol  "ITIG."  The  following  table sets  forth,  for each of the periods
indicated,  the high and low sale prices per share of Common  Stock as quoted on
the NNM. The prices shown represent  quotations among securities dealers, do not
include retail markups,  markdowns or commissions  and may not represent  actual
transactions.

          Quarter Ended                   High                  Low
       -------------------            --------------        -------------
       March 31, 2000                 $   45 3/4            $   19 9/16
       June 30, 2000                  $   29 1/2            $    7 1/4
       September 30, 2000             $   14 1/4            $    1 7/16
       December 31, 2000              $    3 1/8            $     25/32
       March 31, 2001                 $    2 7/32           $     25/32
       June 30, 2001                  $    1 1/2            $     25/32
       September 30, 2001             $    1 1/16           $     21/32
       December 31, 2001              $    1 3/16           $     25/32

     As of March 27, 2002,  the  approximate  number of holders of record of the
Common  Stock was 74 and the  approximate  number of  beneficial  holders of the
Common Stock was 3,052.

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

ITEM 6.     SELECTED FINANCIAL DATA.

     The selected  statement of operations data for the years ended December 31,
1999, 2000 and 2001 and the selected  balance sheet data as of December 31, 2000
and 2001 are derived from,  are qualified by reference to, and should be read in
conjunction with, the more detailed audited  consolidated  financial  statements
and the related notes thereto included  elsewhere herein. The selected statement
of  operations  data  for the  year  ended  December  31,  1997 and 1998 and the
selected  balance  sheet data as of December 31,  1997,  1998 and 1999 have been
derived from audited consolidated financial statements of the Company, which are
not included elsewhere herein.




                                     - 20 -
<PAGE>

     The following should be read in conjunction with the consolidated financial
statements  and notes  thereto  and  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations" appearing elsewhere herein:

<TABLE>
<CAPTION>

                                                                   FOR THE YEARS ENDED DECEMBER 31,
                                                    --------------------------------------------------------------
                                                      1997          1998         1999          2000         2001
                                                    --------     ---------     ---------    ---------    ---------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>          <C>           <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................     $ 90,607     $ 147,462     $ 146,272    $ 112,838    $ 108,106
Cost of sales..................................       63,534        96,024        97,382       75,444       72,984
                                                    --------     ---------     ---------    ---------    ---------
   Gross profit................................       27,073        51,438        48,890       37,394       35,122
                                                    --------     ---------     ---------    ---------    ---------
Selling, general and administrative expenses...       18,816        32,364        42,822       45,191       33,901
Acquisition expenses...........................           --         1,397         2,115           --           --
Restructuring and other special charges........           --            --         7,328           --       13,261
                                                    --------     ---------     ---------    ---------    ---------
   Total operating expenses....................       18,816        33,761        52,265       45,191       47,162
                                                    --------     ---------     ---------    ---------    ---------
   Operating income (loss).....................        8,257        17,677        (3,375)      (7,797)     (12,040)
Other income (expenses), net...................          252           206          (513)         570           39
                                                    --------     ---------     ---------    ---------    ---------
Income (loss) from continuing operations
  before income taxes..........................        8,509        17,883        (3,888)      (7,227)     (12,001)
Provision (benefit) for income taxes...........        2,173         3,852         1,441         (573)         592
                                                    --------     ---------     ---------    ---------    ---------
Income (loss) from continuing operations.......        6,336        14,031        (5,329)      (6,654)     (12,593)
Income (loss) from discontinued operations,
  net of income tax expense (benefit) of $154,
  $599, $(235), $(2,095) and $0................            2          (631)       (1,261)      (4,891)          --
                                                    --------     ---------     ---------    ---------    ---------
     Net income (loss).........................     $  6,338     $  13,400     $  (6,590)   $ (11,545)   $ (12,593)
                                                    ========     =========     =========    =========    =========
Earnings per share
  Basic earnings per share:
     Continuing operations.....................     $   0.43     $    0.91     $   (0.34)   $   (0.40)   $   (0.76)
     Discontinued operations...................           --         (0.04)        (0.08)       (0.30)          --
                                                    --------     ---------     ---------    ---------    ---------
       Net income (loss).......................     $   0.43     $    0.87     $   (0.42)   $   (0.70)   $   (0.76)
                                                    ========     =========     =========    =========    =========

Common shares - Basic..........................       14,637        15,387        15,766       16,485       16,630
                                                    ========     =========     =========    =========    =========
Diluted earnings per share:
   Continuing operations.......................     $   0.42     $    0.88     $   (0.34)   $   (0.40)   $   (0.76)
   Discontinued operations.....................           --         (0.04)        (0.08)       (0.30)          --
                                                    --------     ---------     ---------    ---------    ---------
     Net income (loss).........................     $   0.42     $    0.84     $   (0.42)   $   (0.70)   $   (0.76)
                                                    ========     =========     =========    =========    =========

Common shares - Diluted........................       15,117        15,969        15,766       16,485       16,630
                                                    ========     =========     =========    =========    =========

                                                                        AS OF DECEMBER 31,
                                                    --------------------------------------------------------------
                                                      1997          1998         1999         2000          2001
                                                    --------     ---------     ---------    ---------    ---------
                                                                          (IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents......................     $  8,506     $   3,568     $   5,510    $   1,327    $   2,138
Working capital................................       30,500        32,641        29,133       23,236       17,750
Total assets...................................       44,302        66,924        80,200       67,368       47,549
Short-term debt and current portion of
  obligations under capital leases.............          386            11        10,585        5,623        4,712
Long-term debt and obligations under capital
  leases, less current portion.................          433            60            --        1,037          371
Shareholders' equity...........................       34,036        47,949        48,654       41,201       26,782
</TABLE>



                                     - 21 -
<PAGE>

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

OVERVIEW

     The  Company  provides  a  wide  range  of   high-quality,   cost-effective
information  technology  solutions  and services.  These  services and solutions
include the development, integration, implementation,  management and support of
enterprise,  e-commerce  and  m-commerce  software  applications.  The Company's
onsite/offshore    delivery   model,    comprehensive   suite   of   tools   and
industry-specific  solutions provide customers with a faster  time-to-market and
lower total cost of ownership.

     In late 1999,  the Company  made the  strategic  decision  to leverage  its
traditional  application  integration  and consulting  experience and reposition
Intelligroup  for future  growth by focusing on the emerging ASP market.  At the
same time,  the Company  made the  strategic  decision to spin-off  its Internet
services  business to its  shareholders.  Accordingly,  on January 1, 2000,  the
Company transferred its Internet applications services and management consulting
businesses to SeraNova.

     On July 5, 2000, the Company  distributed all of the outstanding  shares of
the common  stock of  SeraNova  then held by the Company to holders of record of
the  Company's  common  stock as of the close of business on May 12, 2000 (or to
their  subsequent  transferees)  in accordance  with the terms of a Distribution
Agreement  dated as of  January  1,  2000  between  the  Company  and  SeraNova.
Accordingly,  the assets, liabilities and results of operations of SeraNova have
been  reported  as  discontinued  operations  for all  periods  presented.  (See
Discontinued Operations.)

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

     At the same time, the Company redirected some of its ASP infrastructure and
personnel towards Application  Management  Services.  Additionally,  the Company
introduced  Power Up Services.  Finally,  in 2001, the Company  developed Pharma
Express  and  Contractor  Express.  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
assists   companies  in  improving   operational   efficiency  and   controlling
manufacturing project schedules.

     During  1998 and 1999,  the Company  expanded  its  operations  through its
acquisitions of CPI Consulting  Limited,  CPI Resources  Limited and the Empower
Companies.  The CPI Companies  provide  consulting and  implementation  services
related to PeopleSoft applications.



                                     - 22 -
<PAGE>

The Empower Companies provide business process reengineering,  system design and
development, project management and training services.

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

     The Company has provided  services on certain  projects in which it, at the
request of the clients,  offered a fixed price for its  services.  For the years
ended  December 31, 2000 and 2001,  revenues  derived from projects  under fixed
price contracts  represented  approximately  10% and 17%,  respectively,  of the
Company's  total  revenue.  No single  fixed price  project was  material to the
Company's business during 2000 or 2001. The Company believes that, as it pursues
its strategy of providing application management services to customers,  it will
continue to offer  fixed price  projects.  The Company  believes  that there are
certain  risks  related  to  fixed  price  arrangements  and  thus  prices  such
arrangements to reflect the associated  risk. There can be no assurance that the
Company  will  be  able  to  complete  such  projects  within  the  fixed  price
timeframes. The failure to perform within such fixed price contracts, if entered
into, could have a material adverse effect on the Company's business,  financial
condition and results of operations.

     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, 1999,  2000 and 2001, the Company's
ten largest customers accounted for in the aggregate, approximately 43%, 34% and
33% of its revenue,  respectively.  During 1999 and 2000, one customer accounted
for more than 10% of revenue. During 2001, no single customer accounted for more
than 10% of revenue.  For the years ended December 31, 1999, 2000 and 2001, 48%,
36% and 42%, respectively,  of the Company's revenue was generated by serving as
a  member  of  consulting  teams  assembled  by  other  information   technology
consulting  firms.  There can be no assurance that such  information  technology
consulting  firms will  continue  to engage the Company in the future at current
levels of retention, if at all.

     During the years ended December 31, 1999, 2000 and 2001, approximately 54%,
63% and 69%,  respectively,  of the  Company's  total  revenue was derived  from
projects  in which the Company  implemented,  extended,  maintained,  managed or
supported  software  developed by SAP. For each of the years ended  December 31,
1999,  2000 and  2001,  approximately  33%,  24% and 17%,  respectively,  of the
Company's  total  revenue  was  derived  from  projects  in  which  the  Company
implemented,  extended,  maintained,  managed or supported software developed by
PeopleSoft.  For each of the  years  ended  December  31,  1999,  2000 and 2001,
approximately  9%, of the  Company's  total revenue was derived from projects in
which the  Company  implemented,  extended,  maintained,  managed  or  supported
software developed by Oracle.



                                     - 23 -
<PAGE>

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

     The Company  currently  maintains its  headquarters in Edison (New Jersey),
and branch  offices in Atlanta  (Georgia),  Rosemont  (Illinois) and Foster City
(California).  The Company also maintains offices in Europe (Denmark, Sweden and
the United Kingdom), and Asia Pacific (Australia,  Hong Kong, India,  Indonesia,
Japan,  New Zealand,  and  Singapore).  The Company leases its  headquarters  in
Edison,  New Jersey.  Such lease has an initial  term of ten (10)  years,  which
commenced in September 1998.

DISCONTINUED OPERATIONS

     On July 5, 2000, the Company completed the tax-free spin-off of SeraNova by
distributing all of the outstanding  shares of the common stock of SeraNova then
held by the Company to holders of record of the Company's common stock as of the
close of business on May 12, 2000 (or to their subsequent transferees).

     SeraNova  represented  a  significant  segment of the  Company's  business.
Pursuant to Accounting  Principles Board ("APB") Opinion No. 30,  "Reporting the
Results of  Operations  -  Reporting  the  Effects of Disposal of a Segment of a
Business,  and  Extraordinary,  Unusual and  Infrequently  Occurring  Events and
Transactions,"  the Consolidated  Financial  Statements of the Company have been
reclassified  to reflect the spin-off of SeraNova.  Accordingly,  the results of
operations and cash flows of SeraNova have been  segregated in the  Consolidated
Statements  of Operations  and  Consolidated  Statements of Cash Flows.  The net
operating  results  and net  cash  flows  of  SeraNova  have  been  reported  as
"Discontinued  Operations." The historical  carrying amount of the net assets of
SeraNova on the spin-off date has been recorded as a dividend.

     The Company has reported a $4.9 million loss from  discontinued  operations
for the period from January 1, 2000 to July 5, 2000 and a $1.3 million loss from
discontinued operations for the year ended December 31, 1999.

CRITICAL ACCOUNTING POLICIES

     The  preparation of our financial  statements in conformity  with generally
accepted  accounting  principles  in  the  United  States  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  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,  impairments and
estimation  of useful  lives of  long-term  assets,  income tax  recognition  of
current and deferred tax items and accruals for


                                     - 24 -
<PAGE>

contingencies.   In  addition,  the  footnotes  to  the  Consolidated  Financial
Statements include further discussion of our significant accounting policies.

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

     The  Company  also   recognizes   revenue  under  certain   unit-price  and
fixed-price  contracts.  The Company  follows the  guidance  contained  in AICPA
Statement  of  Position   ("SOP")   81-1,   "Accounting   for   Performance   of
Construction-Type and Certain Production-Type  Contracts." SOP 81-1 requires the
use of percentage-of-completion  accounting for long-term contracts that contain
enforceable  rights  regarding  services  to be  provided  and  received  by the
contracting parties,  consideration to be exchanged, and the manner and terms of
settlement, assuming reasonably dependable estimates of revenue and expenses can
be made.  The  percentage-of-completion  methodology  generally  results  in the
recognition of reasonably consistent profit margins over the life of a contract.
Amounts  recognized in revenue are  calculated  using the percentage of services
completed,  on a  current  cumulative  hours to  total  estimated  hours  basis.
Cumulative  revenues recognized may be less or greater than cumulative costs and
profits  billed at any point in time during a  contract's  term.  The  resulting
difference is included in deferred revenue.

     Billings  to  customers  for  out-of-pocket  expenses  are  recorded  as  a
reduction of expenses incurred.  Unbilled services at December 31, 2001 and 2000
represent  services  provided through December 31, 2001 and 2000,  respectively,
which are billed subsequent to year-end.  All such amounts are anticipated to be
realized in the following year.

     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.




                                     - 25 -
<PAGE>

RESULTS OF OPERATIONS - CONSOLIDATED

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

<TABLE>
<CAPTION>
                                                                          PERCENTAGE OF REVENUE
                                                             -----------------------------------------------
                                                                         YEAR ENDED DECEMBER 31
                                                             -----------------------------------------------
                                                                 2001              2000              1999
                                                                 ----              ----              ----

<S>                                                              <C>              <C>               <C>
Revenue.................................................         100.0 %          100.0 %           100.0 %
Cost of sales...........................................          67.5             66.9              66.6
                                                                -------          -------           -------
     Gross profit.......................................          32.5             33.1              33.4
Selling, general and administrative expenses............          27.9             37.2              27.3
Depreciation and amortization expense...................           3.4              2.8               2.0
Acquisition expenses....................................            --               --               1.4
Restructuring and other special charges.................          12.3               --               5.0
                                                                -------          -------           -------
     Total operating expenses...........................          43.6             40.0              35.7
                                                                -------          -------           -------
     Operating loss.....................................         (11.1)            (6.9)             (2.3)
Other income (expense), net.............................           0.0              0.5              (0.4)
                                                                -------          -------           -------
Loss from continuing operations before income taxes.....         (11.1)            (6.4)             (2.7)
Provision (benefit) for income taxes....................           0.5             (0.5)              0.9
                                                                -------          -------           -------
Net loss from continuing operations.....................         (11.6)%           (5.9)%            (3.6)%
                                                                =======          =======           =======
</TABLE>

     Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     The following  discussion  compares the consolidated  results of continuing
operations  for the year ended December 31, 2001 and the year ended December 31,
2000.

     Revenue.  Total revenue  decreased by 4.2%,  or $4.7  million,  from $112.8
million  in 2000 to $108.1  million  in 2001.  This  decrease  was  attributable
primarily  to the  continued  weakness in the global  economy and the  resulting
impact on the IT  services  market.  Throughout  the year,  the  effects  of the
uncertain  and weakened  economic  climate  impacted  the Company,  as customers
delayed  and/or  decreased  the  scope  of  IT  projects,  and  as  the  Company
experienced  competitive  pricing  pressures  in  the  provision  of  consulting
services.

     Gross profit.  The Company's cost of sales  primarily  includes the cost of
salaries to consultants  and related  employee  benefits and payroll taxes.  The
Company's cost of sales  decreased by 3.3%, or $2.5 million,  from $75.4 million
in 2000 to $73.0 million in 2001. The Company's gross profit  decreased by 6.1%,
or $2.3  million,  from $37.4  million in 2000 to $35.1  million in 2001.  These
decreases were attributable primarily to lower revenues.  Gross margin decreased
slightly  to 32.5% in 2001 from 33.1% in 2000.  The Company was able to maintain
gross margins relatively  comparable to the prior year by reducing  non-billable
consultant time and other related costs.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses  primarily  consist  of  administrative  salaries,  and
related benefits costs,  occupancy costs, sales person compensation,  travel and
entertainment  and  professional  fees.  Selling,   general  and  administrative
expenses  decreased by 28.1%,  or $11.8  million,  from $42.0 million in 2000 to
$30.2  million in 2001,  and  decreased as a percentage of revenue from 37.2% to
27.9%,


                                     - 26 -
<PAGE>

respectively.  The decrease in selling,  general and administrative expenses, in
absolute  dollars and as a percentage of revenue,  was related  primarily to the
significant  investments in marketing and developing the application  management
services  business  in 2000.  Subsequently,  the  Company  has been  focused  on
improving  operating  efficiencies  and controlling  discretionary  expenditures
throughout the organization to maintain a proper alignment with revenue.

     Depreciation  and  amortization.  Depreciation  and  amortization  expenses
increased  15.9% to $3.7 million in 2001,  compared to $3.2 million in 2000. The
increase is due primarily to additional computers, equipment and software placed
in service since 2000.

     Restructuring and other special charges. In an effort to further refine our
business  strategy  around our core  competencies  and to refocus on more active
markets,  we recorded a $13.3 million  restructuring  and other special  charges
provision  in 2001.  The  charges,  which were mainly  non-cash in nature,  were
related  primarily to the ASP business in the United States,  the termination of
an agreement to build and operate a technology development and support center in
Puerto Rico, and to the restructuring and downsizing of the Company's operations
in the United Kingdom.

     The charges  associated with the ASP business in the United States included
a write-down of approximately  $6.1 million in purchased  computer  software and
$469,000 in fixed assets, as well as $215,000 in severance costs and $152,000 in
exit costs. The Company determined that an impairment charge was required, since
the  recoverability  of the value of the  computer  software  and fixed  assets,
acquired for use in the ASP service offering,  seemed unlikely given current and
future expected market conditions.  The severance costs and exit costs relate to
the reduction of headcount associated with the ASP service offering.

     The Company also determined that, based upon the current economic  climate,
it did not need the expanded  capacity  associated  with the planned  technology
development and support center in Puerto Rico. Accordingly,  the Company reached
an agreement  with the Government of Puerto Rico to terminate the project and to
cancel  the  associated  grant  and  other  related  contracts.  As  part of the
termination  agreement,  the Company was  released  from all future  obligations
related to the  project,  but in exchange  had to forego  reimbursement  of $1.3
million in  previously  incurred  operating  costs and fixed  assets,  which had
already been paid for by the Company.

     Finally,  the  Company  executed  a plan to  reorganize  and  downsize  the
Company's  operations in the United  Kingdom  ("UK").  The  restructuring  costs
included the  write-down  of $4.3 million of  intangible  assets and $174,000 of
fixed assets,  as well as severance costs of $315,000 and exit costs of $273,000
associated  with  reducing  employee  headcount  in the  region.  The  Company's
operations  in the UK now  consist  of a much  smaller  core  group of  billable
consultants,  focused primarily on providing application support services in the
PeopleSoft market.

     In conjunction with the  reorganization  of the UK operations,  the Company
performed an  assessment of the carrying  value of the  intangible  assets.  The
intangible  asset  balance,  consisting  primarily  of  goodwill  and  assembled
workforce,  represents the excess purchase price associated with the acquisition
of CPI Consulting Limited during 1998. The analysis of intangible assets



                                     - 27 -
<PAGE>

was conducted in accordance  with  Statement of Financial  Accounting  Standards
("SFAS") No. 121, " Accounting for the  Impairment of Long-Lived  Assets and for
Long-Lived  Assets to Be Disposed Of"  guidelines  and involved a combination of
financial forecasting and cash flow analysis.  The Company considered the recent
trend in the UK operations of declining revenues and increasing operating losses
and the resulting impact on cash flows. The Company also considered that certain
key  founders of CPI  Consulting  Limited  have left the Company to pursue other
interests.  Based  upon the  impairment  test that was  conducted,  the  Company
recorded an intangible asset impairment charge of $4.3 million.

     Other income (expense), net. The Company earned $729,000 in interest income
in 2001,  compared  with $1.2 million in 2000.  The interest  income was related
primarily  to the  interest  earned on the balance of the note  receivable  with
SeraNova.  The  decrease  was related  primarily  to the  Company not  recording
accrued interest on the balance of the note receivable with SeraNova  subsequent
to the  maturity  date of the note of July 31,  2001.  Such note  receivable  is
currently in default and we have commenced litigation against SeraNova (see Part
I, Item 3, Legal  Proceedings).  The Company  incurred  $690,000 and $603,000 in
interest expense in 2001 and 2000, respectively, related primarily to borrowings
under its line of credit.  Borrowings under the line of credit were used to fund
operating activities.

     Provision (benefit) for income taxes. The Company's effective rate was 4.9%
and (7.9)% for the years ended  December  31, 2001 and 2000,  respectively.  The
Company's  net deferred  tax asset as of December 31, 2001 relates  primarily to
the US  operations.  Based on  anticipated  profitability  in the  near  future,
management  believes it is more likely than not, that the net deferred tax asset
of $1.6 million will be realized.

     During 2001 and 2000,  the Company  continued to generate  overall  pre-tax
losses even though there were profits  generated in foreign  jurisdictions.  The
Company  provided a valuation  allowance  against certain of these net operating
loss carryforwards, as the ability to utilize these losses may be limited in the
future.  This negatively  impacted the amount of income tax benefit  recorded in
both 2001 and 2000.

     In  1996,  the  Company  elected  a five  year tax  holiday  in  India,  in
accordance with a local tax incentive  program whereby no income tax will be due
in such period.  Such tax holiday was extended an additional five years in 1999.
Effective  April 1, 2000 pursuant to changes  introduced  by the Indian  Finance
Act, 2000,  the tax holiday  previously  granted is no longer  available and has
been  replaced  in the form of a tax  deduction  incentive.  The  impact of this
change is not expected to be material to the consolidated  financial  statements
of the Company.  For the years ended December 31, 2001 and 2000, the tax holiday
and new tax deduction favorably impacted the Company's effective tax rate.

     The Company's Indian  subsidiary has received an assessment from the Indian
taxing authority denying tax exemptions claimed for certain of their fiscal year
March  31,  1998  revenue.   The  assessment  is  for  20  million  rupees,   or
approximately  $417,000.  Management,  after  consultation  with  its  advisors,
believes the Company is entitled to the tax  exemption  claimed and thus has not
recorded a liability as of December 31, 2001.  If the Company is not  successful
with its  appeal,  which was  filed in 2001,  a future  charge of  approximately
$417,000 would be recorded and reflected in the Company's consolidated statement
of operations.




                                     - 28 -
<PAGE>

     Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     The following  discussion  compares the consolidated  results of continuing
operations  for the year ended December 31, 2000 and the year ended December 31,
1999.

     Revenue.  Total revenue  decreased by 22.9%, or $33.5 million,  from $146.3
million  in 1999 to $112.8  million  in 2000.  This  decrease  was  attributable
primarily  to the  anticipated  decline in sales of  traditional  implementation
services  offerings and slower than expected  growth in outsourcing  and hosting
revenues  as the  Company  refocused  resources  into  the  application  service
provider market. The decline in traditional  implementation  services and slower
than  expected  growth  in the  application  service  provider  market  resulted
primarily from the general  economic  slowdown in which customers have decreased
technology  budgets  and have  displayed a lack of urgency to  immediately  fund
information technology projects.

     Gross profit.  The  Company's  cost of sales  decreased by 22.6%,  or $22.0
million,  from $97.4  million in 1999 to $75.4  million in 2000.  The  Company's
gross profit decreased by 23.5%, or $11.5 million, from $48.9 million in 1999 to
$37.4 million in 2000.  These  decreases  were  attributable  primarily to lower
revenues.  Gross margin decreased  slightly to 33.1% in 2000 from 33.4% in 1999.
The Company was able to maintain  gross  margins  relatively  comparable  to the
prior year by managing non-billable consultant time.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses increased by 5.3%, or $2.1 million,  from $39.9 million
in 1999 to $42.0 million in 2000,  and increased as a percentage of revenue from
27.3%  to  37.2%,   respectively.   The   increase  in   selling,   general  and
administrative expenses, in absolute dollars and as a percentage of revenue, was
related  primarily to additional sales staff and expanded  marketing  efforts as
the Company refocused resources around the emerging application service provider
market.

     Depreciation  and  amortization.  Depreciation  and  amortization  expenses
increased  8.8% to $3.2 million in 2000,  compared to $2.9 million in 1999.  The
increase is due primarily to additional computers, equipment and software placed
in service since 1999, in support of the ASPPlus business model.

     Acquisition expense. In 1999, the Company incurred costs of $2.1 million in
connection with the acquisition of the Empower  Companies.  This acquisition was
accounted for as a pooling of interests.  Acquisition costs consisted  primarily
of professional fees associated with the acquisition.

     Restructuring  and other special charges.  In connection with  management's
plan to reduce costs and improve operating efficiencies,  the Company incurred a
non-recurring charge of $5.6 million related to restructuring initiatives during
1999. The restructuring charge included settlement of the former chief executive
officer's  employment  agreement  and  additional  severance  payment,  expenses
associated  with the  termination of certain  employees in the United States and
the United  Kingdom,  the  closing of  certain  satellite  offices in the United
States  and  an  additional  office  in  Belgium,  and  costs  to  exit  certain
contractual  obligations.  Over 83% of the total restructuring charges were paid
out in 1999 and an  additional  11% were  paid  out in 2000.  Additionally,  the
Company recorded a reserve of $1.7 million against an outstanding receivable



                                     - 29 -
<PAGE>

from a large ERP account,  whose parent  corporation  filed for protection under
Chapter 11 of the U.S. bankruptcy laws.

     Other income  (expense),  net. The Company  earned $1.2 million in interest
income in 2000,  compared with $241,000 in 1999. The increase was related to the
additional  interest earned on the balance of the note receivable with SeraNova,
which increased in 2000. The Company incurred  $603,000 and $754,000 in interest
expense in 2000 and 1999,  respectively,  related  primarily to borrowings under
its line of  credit.  Borrowings  under  the line of  credit  were  used to fund
operating activities.

     (Benefit)  provision for income taxes.  During 1999, the Company  generated
losses for tax purposes in the United  States and income  related to its foreign
entities  (foreign source income).  As of December 31, 1999, the Company planned
to file a consolidated tax return. As a result, the Company would have generated
unused foreign tax credits  related to this foreign source income.  Accordingly,
as of December 31, 1999, included in deferred taxes was an asset for foreign tax
credits and a related valuation  allowance as the ability to apply these credits
may be limited in the future.

     During 2000,  the Company  changed their tax strategy,  and filed  separate
company  returns for 1999,  which resulted in the realization of the foreign tax
credits and a portion of the valuation  allowance  being  reversed.  By choosing
this strategy the Company was able to generate net operating  losses,  which are
less restrictive than the foreign tax credits.

     During 2000, the Company  continued to generate overall pre-tax losses even
though there were profits  generated in foreign  jurisdictions.  The Company has
provided a  valuation  allowance  against  certain of these net  operating  loss
carryforwards,  as the  ability  to utilize  these  losses may be limited in the
future.  This has negatively  impacted the amount of income tax benefit recorded
in 2000.  Accordingly,  the Company's  effective tax rate was (7.9%) in 2000 and
37.1% in 1999. Based on anticipated profitability in the near future, management
believes  it is more likely than not,  that the 2000 net  deferred  tax asset of
$1,142,000 will be realized.

     In  1996,  the  Company  elected  a five  year tax  holiday  in  India,  in
accordance with a local tax incentive  program whereby no income tax will be due
in such period.  Such tax holiday was extended an additional five years in 1999.
Effective  April 1, 2000 pursuant to changes  introduced  by the Indian  Finance
Act, 2000,  the tax holiday  previously  granted is no longer  available and has
been  replaced  in the form of a tax  deduction  incentive.  The  impact of this
change is not expected to be material to the consolidated  financial  statements
of the Company.  For the years ended December 31, 2000 and 1999, the tax holiday
and new tax deduction favorably impacted the Company's effective tax rate.

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

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

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



                                     - 30 -
<PAGE>

          subsidiary, Empower, Inc., and all corporate functions and activities.
          The US and corporate headquarters are located in Edison, New Jersey;

     o    Asia-Pacific  ("APAC") - includes  the  operations  of the  Company in
          Australia, Hong Kong, Indonesia, Japan, New Zealand and Singapore. The
          APAC headquarters are located in Wellington, New Zealand;

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

     o    India - includes the  operations of the Company in India,  Jamaica and
          the United  Arab  Emirates.  The Indian  headquarters  are  located in
          Hyderabad, India.

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

     Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

     The following  discussion  compares the segment  results for the year ended
December 31, 2001 and the year ended December 31, 2000.

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

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31
                                     ------------------------------------------------------------
                                                2001                           2000
                                     ----------------------------    ----------------------------
                                                    PERCENTAGE OF                   PERCENTAGE OF
                                       DOLLARS          TOTAL          DOLLARS          TOTAL
                                     -----------    -------------    -----------    -------------
<S>                                   <C>               <C>           <C>               <C>
United States.......................  $ 72,285          66.9%         $ 77,814          69.0%
Asia-Pacific........................    12,757          11.8            10,806           9.6
Europe..............................    10,636           9.8            17,844          15.8
India...............................    12,428          11.5             6,374           5.6
                                     -----------    -------------    -----------    -------------
Total...............................  $108,106         100.0%         $112,838         100.0%
                                     ===========    =============    ===========    =============
</TABLE>

     US revenue  decreased by 7.1%, or $5.5 million,  from $77.8 million in 2000
to $72.3  million  in 2001.  The  decrease  was  attributable  primarily  to the
continued weakness in the US economy and the resulting impact on the IT services
market.  Throughout the year, the effects of the uncertain and weakened economic
climate  impacted the US, as customers  delayed and/or decreased the scope of IT
projects,  and  as the  US  experienced  competitive  pricing  pressures  in the
provision of consulting services.

     APAC revenue  increased by 18.1%,  or $2.0  million,  from $10.8 million in
2000 to $12.8  million in 2001.  The increase was due  primarily to new business
signings in Indonesia (an



                                     - 31 -
<PAGE>

increase of $1.6 million), Japan (an increase of $1.0 million) and Australia (an
increase of $851,000). The increase was partially offset by challenging economic
conditions in New Zealand (a decrease of $1.5 million).

     Europe revenue  decreased by 40.4%, or $7.2 million,  from $17.8 million in
2000 to $10.6 million in 2001.  The decrease was  attributable  primarily to the
United Kingdom ("UK") operations (a decrease of $7.1 million),  while the Nordic
operations  (Denmark and Sweden) remained  relatively  stable. The UK operations
were  negatively  impacted  by  the  competitive  economic  conditions  and  the
resulting  impact on the IT services market,  particularly the SAP market.  As a
result,  the Company  executed a plan to  reorganize  and downsize the Company's
operations in the UK during late 2001.  The UK operations  now consist of a much
smaller  core group of billable  consultants,  focused  primarily  on  providing
application management and support services in the PeopleSoft market.

     India revenue  increased by 95.0%,  or $6.1  million,  from $6.4 million in
2000 to $12.4 million in 2001.  The increase was  attributable  primarily to the
growth in  professional  consulting  services  delivered  through  the  Advanced
Development  Center and application  management  services  delivered through the
Global Support Center.

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

                                             YEAR ENDED DECEMBER 31
                                   ------------------------------------------
                                           2001                  2000
                                   -------------------   --------------------
United States.....................      $ (6,991)             $ (6,228)
Asia-Pacific......................           368                    81
Europe............................        (8,495)               (1,741)
India.............................         3,078                    91
                                   -------------------   --------------------
Total.............................      $(12,040)             $ (7,797)
                                   ===================   ====================

     The US operating loss increased by 12.3%, or $763,000, from $6.2 million in
2000  to  $7.0  million  in  2001.  The  increase  in  the  operating  loss  was
attributable  primarily to the $8.2 million of  restructuring  and other special
charges  recorded in 2001.  The  restructuring  and other  special  charges were
related  primarily to the ASP business and the termination of a project to build
and operate a technology development and support center in Puerto Rico.

     The charges  associated  with the ASP  business  included a  write-down  of
approximately  $6.1 million in purchased computer software and $469,000 in fixed
assets,  as well as $215,000 in severance costs and $152,000 in exit costs.  The
charges  associated  with the center in Puerto  Rico  resulted  from the Company
foregoing  reimbursement of $1.3 million in previously  incurred operating costs
and fixed assets in exchange for the  Government  of Puerto Rico  releasing  the
Company from all future obligations associated with the project.

     Excluding the $8.2 million of charges,  the US operating  position improved
by 119.2%,  or $7.4 million,  from an operating  loss of $6.2 million in 2000 to
operating  income of $1.2 million in 2001.  This  improvement  was  attributable
primarily to a $12.5 million  reduction in selling,  general and  administrative
expenses to $19.3 million, or 26.7% of revenue, in 2001, compared



                                     - 32 -
<PAGE>

with $31.8 million,  or 40.9% of revenue, in 2000. In 2000, the Company invested
significantly  in marketing and developing the application  management  services
business.  Since late 2000, the Company has been focused on improving  operating
efficiencies   and  controlling   discretionary   expenditures   throughout  the
organization to maintain a proper alignment with revenue.

     The decline in selling,  general  and  administrative  expenses in 2001 was
partially  offset by a decline in gross  profit  margin from 35.5% of revenue in
2000 to 31.4% of revenue in 2001.  The decline in gross  profit  margin  results
from  competitive  pricing  pressures  in the US market as well as a decrease in
consultant utilization rates.

     APAC operating  income  increased by 354.3%,  or $287,000,  from $81,000 in
2000 to  $368,000  in  2001.  The  increase  was  attributable  primarily  to an
improvement in operating  performance in Australia (an increase of $643,000) and
Indonesia (an increase of $557,000),  as both countries  realized an improvement
in gross profit  margins as consultant  utilization  improved.  The increase was
partially  offset by a decline  in  operating  income  in Japan (a  decrease  of
$941,000), as gross margins declined as a result of local market conditions.

     Europe  operating  loss  increased by 387.9%,  or $6.8  million,  from $1.7
million in 2000 to $8.5 million in 2001. The increase was attributable primarily
to an increase in the  operating  loss from the UK  operations  of $6.9 million,
while  the  Nordic  operations   remained  relatively  stable.  The  significant
operating  loss in the UK  resulted  primarily  from the  restructuring  program
initiated in the UK during late 2001 as well as  competitive  pricing  pressures
and low  consultant  utilization.  The UK  restructuring  costs,  which  totaled
approximately $5.1 million, included the write-down of certain intangible assets
and  other  long-lived  assets,  as well  as  severance  costs  and  exit  costs
associated with reducing employee headcount in the region.

     India operating income increased by 3,282.4%, or $3.0 million, from $91,000
in 2000 to $3.1 million in 2001.  The increase was  attributable  primarily to a
significant improvement in gross margins and selling, general and administrative
expenses as a percentage of revenue.

     Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     The following  discussion  compares the segment  results for the year ended
December 31, 2000 and the year ended December 31, 1999.

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

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31
                                     ------------------------------------------------------------
                                                2000                           1999
                                     ----------------------------    ----------------------------
                                                    PERCENTAGE OF                   PERCENTAGE OF
                                       DOLLARS          TOTAL          DOLLARS          TOTAL
                                     -----------    -------------    -----------    -------------
<S>                                   <C>               <C>           <C>               <C>
United States.......................  $ 77,814           69.0%        $105,898           72.4%
Asia-Pacific........................    10,806            9.6            8,911            6.1
Europe..............................    17,844           15.8           24,585           16.8
India...............................     6,374            5.6            6,878            4.7
                                     -----------    -------------    -----------    -------------
Total...............................  $112,838          100.0%        $146,272          100.0%
                                     ===========    =============    ===========    =============
</TABLE>

                                     - 33 -
<PAGE>

     US revenue  decreased by 26.5%,  or $28.1  million,  from $105.9 million in
1999 to $77.8 million in 2000.  The decrease was  attributable  primarily to the
decline in sales of  traditional  implementation  services  offerings and slower
than expected  growth in  outsourcing  and hosting  revenues as the US refocused
resources  into  the  application   service  provider  market.  The  decline  in
traditional  implementation  services  and slower  than  expected  growth in the
application service provider market resulted primarily from the general economic
slowdown in which customers have decreased technology budgets and have displayed
a lack of urgency to immediately fund information technology projects.

     APAC revenue increased by 21.3%, or $1.9 million, from $8.9 million in 1999
to $10.8  million  in 2000.  The  increase  was due  primarily  to new  business
signings in Japan (an increase of $2.6  million) and  Singapore  (an increase of
$282,000). The increase was partially offset by unfavorable market conditions in
Australia (a decrease of $957,000).

     Europe revenue  decreased by 27.4%, or $6.7 million,  from $24.6 million in
1999 to $17.8 million in 2000. The decrease was attributable primarily to the UK
operations (a decrease of $6.4 million) and operations in Denmark (a decrease of
$880,000),  while the operations in Sweden began in early 2000 (total revenue of
$561,000).

     India revenue decreased by 7.3%, or $504,000,  from $6.9 million in 1999 to
$6.4 million in 2000. The decrease was attributable  primarily to the decline in
sales  of  traditional   implementation  services  offerings.   The  decline  in
traditional implementation services resulted primarily from the general economic
slowdown in which customers have decreased technology budgets and have displayed
a lack of urgency to immediately fund information technology projects.

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


                                             YEAR ENDED DECEMBER 31
                                   ------------------------------------------
                                           2000                  1999
                                   ------------------------------------------
United States.....................      $ (6,228)             $ (6,133)
Asia-Pacific......................            81                  (483)
Europe............................        (1,741)                  473
India.............................            91                 2,768
                                   -------------------   --------------------
Total.............................      $ (7,797)             $ (3,375)
                                   ===================   ====================

     The US operating loss  increased by 1.5%, or $95,000,  from $6.1 million in
1999 to  $6.2  million  in  2000.  The  decline  in  operating  performance  was
attributable  primarily  to an increase in selling,  general and  administrative
expenses  from 39.4% of  revenue  in 1999 to 43.5% of  revenue  in 2000,  as the
Company  invested  significantly  in marketing and  developing  the  application
service provider business during 2000.

     In connection with  management's plan to reduce costs and improve operating
efficiencies,  the  Company  incurred  a  non-recurring  charge of $4.8  million
related to  restructuring  initiatives  during 1999.  The  restructuring  charge
included settlement of the former chief


                                     - 34 -
<PAGE>

executive  officer's  employment  agreement and  additional  severance  payment,
expenses  associated  with the  termination  of certain  employees in the United
States, the closing of certain satellite offices in the United States, and costs
to exit certain contractual  obligations.  Additionally,  the Company recorded a
reserve of $1.7  million  against  an  outstanding  receivable  from a large ERP
account,  whose parent  corporation filed for protection under Chapter 11 of the
U.S.  bankruptcy  laws.  Finally,  in 1999,  the Company  incurred costs of $2.1
million in  connection  with the  acquisition  of the  Empower  Companies.  This
acquisition  was  accounted  for as a pooling of  interests.  Acquisition  costs
consisted primarily of professional fees associated with the acquisition.

     Excluding all non-recurring  charges, the US operating performance declined
from  operating  income of $2.4  million  in 1999 to an  operating  loss of $6.2
million in 2000. The decrease in  performance  was  attributable  primarily to a
decrease in gross  profit from $35.6  million in 1999 to $27.7  million in 2000,
and an increase in selling,  general and administrative expenses as a percentage
of revenue.

     APAC operating income increased by 116.8%,  or $564,000,  from an operating
loss of $483,000 in 1999 to  operating  income of $81,000 in 2000.  The increase
was attributable  primarily to an improvement in operating  performance in Japan
(an  increase of  $671,000),  as a result of a decline in  selling,  general and
administrative  expenses as a percentage of revenue,  and Australia (an increase
of $278,000),  as a result of an improvement in gross margins.  The increase was
partially  offset by a  decrease  in  operating  performance  in New  Zealand (a
decrease of $361,000), as a result of a decline in gross margins.

     Europe  operating loss increased  468.1%,  or $2.2 million,  from operating
income of $473,000 in 1999 to an  operating  loss of $1.7  million in 2000.  The
change was  attributable  primarily  to the UK  operations  (an  increase in the
operating  loss of $1.3  million) and the  operations in Denmark (an increase in
the operating loss of $809,000).  The change in operating  performance  reflects
local market conditions.

     In connection with  management's plan to reduce costs and improve operating
efficiencies, the Company incurred a non-recurring charge of $794,000 related to
restructuring   initiatives  during  1999.  The  restructuring  charge  included
expenses  associated  with the  termination  of certain  employees in the United
Kingdom,  the  closing of an  additional  office in  Belgium,  and costs to exit
certain contractual obligations.

     Excluding all non-recurring  charges, the UK operating performance declined
from  operating  income of $889,000 in 1999 to an operating loss of $1.2 million
in 2000. The decrease in performance was attributable primarily to a decrease in
gross profit from $5.1 million in 1999 to $3.1 million in 2000,  and an increase
in selling, general and administrative expenses as a percentage of revenue.

     India  operating  income  decreased by 96.7%,  or $2.7  million,  from $2.8
million in 1999 to $91,000 in 2000. The decrease was attributable primarily to a
decrease in gross  margins  from 63.9% of revenue in 1999 to 40.4% of revenue in
2000. The decrease in gross margins  results  primarily from the increased costs
associated  with the  expanding  of  infrastructure  in India in  support of the
application service provider market.



                                     - 35 -
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     The Company funds its  operations  primarily  from cash flow generated from
operations  and  financing  activities,  and prior to 1998  from  cash  balances
generated from the Company's initial and follow-on public offerings  consummated
in October 1996 and July 1997, respectively.

     The Company had cash and cash  equivalents  of $2.1 million at December 31,
2001 and $1.3 million at December 31, 2000.  The Company had working  capital of
$17.8 million at December 31, 2001 and $23.2 million at December 31, 2000.

     Cash provided by continuing  operating  activities  was $8.0 million during
the year ended  December 31, 2001,  resulting  primarily from  depreciation  and
amortization  of $4.5  million,  the  provision  for  doubtful  accounts of $1.8
million,  the restructuring and other special charges provision of $13.3 million
and decreases in accounts receivable of $7.1 million and other current assets of
$782,000.  These amounts were partially offset by increases in unbilled services
of $1.6 million and  decreases  in accounts  payable of $3.3 million and accrued
payroll and related taxes of $1.0 million.  The decrease in accounts  receivable
results from enhanced  credit and collection  efforts as well as the decrease in
revenues. The decrease in accounts payable and accrued payroll and related taxes
results  from the  overall  decrease in  operating  expenses.  Cash  provided by
continuing operating activities during the year ended December 31, 2000 was $7.9
million.  Cash used in continuing  operating  activities was $544,000 during the
year ended December 31, 1999.

     The  Company  invested  $3.1  million,  $3.2  million  and $2.4  million in
computer  equipment,  internal-use  computer  software and office  furniture and
fixtures in 2001, 2000 and 1999,  respectively.  The increase reflects purchases
of computer and telecommunications equipment, internal-use computer software and
office furniture and fixtures for consultants and administrative staff.

     In  conjunction  with the  strategic  decision to focus on the emerging ASP
market, the Company invested $2.7 million and $4.0 million in purchased computer
software licenses in 2001 and 2000,  respectively.  The computer software was to
be re-sold to customers as part of the Company's ASPPlus solutions and services.
However,  during  2001,  the  Company  recorded a  write-down  of the  purchased
computer software, as management believed the recoverability of the value of the
assets  acquired for use in the ASP service  offering was unlikely given current
and future expected market conditions.

     From  January 29,  1999 until May 31,  2000,  the Company had an  unsecured
three-year  $30.0 million  revolving  credit  facility with PNC Bank,  N.A. (the
"Bank").  The credit facility contained certain financial covenants in which the
Company was not in  compliance  with as of June 30, 1999 and September 30, 1999.
In January 2000,  the Company  finalized with the Bank the terms of a waiver and
amendment to the credit  agreement to remedy  defaults,  which existed under the
credit agreement.  However,  the Company was not in compliance with the modified
financial covenants as of March 31, 2000. Accordingly,  on May 9, 2000, the Bank
issued to the Company a waiver of the  defaults,  which existed under the credit
agreement for the quarter ended March 31, 2000.



                                     - 36 -
<PAGE>

     On May 31,  2000,  the Company and the Bank  entered  into an  agreement to
replace the previous  facility with a new three-year  revolving credit facility.
Such credit  facility is  comprised  of a revolving  line of credit  pursuant to
which the Company can borrow up to $20.0 million either at the Bank's prime rate
per annum or the Euro Rate plus 1.75% to 2.5% based upon the Company's  ratio of
debt to EBITDA.  The credit facility is  collateralized  by substantially all of
the  assets  of the  United  States  based  operations.  The  maximum  borrowing
availability  under the line of credit is based upon a  percentage  of  eligible
billed and unbilled accounts  receivable,  as defined.  As of December 31, 2001,
the  Company  had  outstanding  borrowings  under the  credit  facility  of $4.1
million. The Company estimates undrawn availability under the credit facility to
be $6.1 million as of December 31,  2001.  As of December 31, 2000,  the Company
had outstanding borrowings under the credit facility of $5.0 million.

     The credit facility provides for the following financial  covenants,  among
other things,  (1) the Company must maintain  consolidated net worth, as defined
("consolidated net worth") of (a) not less than 95% of consolidated net worth of
the immediately  preceding  fiscal year-end as at each such fiscal quarter after
December 31,  2000;  and (b) at least 105% of  consolidated  net worth as of the
immediately preceding fiscal year-end as at each such fiscal year-end subsequent
to December 31, 2000;  provided,  however,  the foregoing  covenant shall not be
tested for any quarter so long as the  Company  maintains,  at all times  during
such fiscal quarter,  undrawn availability of more than $5.0 million and (2) the
Company must maintain unconsolidated net worth, as defined  ("unconsolidated net
worth") of (a) not less than 95% of unconsolidated  net worth of the immediately
preceding  fiscal  year-end as at each such fiscal  quarter  after  December 31,
2000; and (b) at least 105% of  unconsolidated  net worth as of the  immediately
preceding fiscal year-end as at each such fiscal year-end subsequent to December
31, 2000; provided,  however, the foregoing covenant shall not be tested for any
quarter  so long as the  Company  maintains,  at all times  during  such  fiscal
quarter,  undrawn  availability  of more than $5.0  million.  Additionally,  the
credit  facility  contains  material  adverse  change clauses with regard to the
financial condition of the assets, liabilities and operations of the Company.

     As of  December  31,  2001,  the  Company  was not in  compliance  with the
consolidated  net worth and  unconsolidated  net worth financial  covenants.  In
March  2002,  the  Company  finalized  with the Bank the  terms of a waiver  and
amendment  to the credit  agreement  to remedy such  defaults.  The terms of the
waiver and amendment included,  among other things, (1) a waiver of the covenant
defaults as of December 31, 2001, (2) a modification to the financial  covenants
to  require  that  consolidated  net  worth and  unconsolidated  net worth as of
December  31,  2002  be not  less  than  102%  of  consolidated  net  worth  and
unconsolidated net worth,  respectively,  as of December 31, 2001, and (3) a new
financial covenant requiring that the Company generate earnings before interest,
taxes,  depreciation  and  amortization  ("EBITDA") of at least 90% of the prior
year's  EBITDA.  The Company  believes  that it will be in  compliance  with all
financial covenants throughout 2002.

     On May 31,  2000,  SeraNova  and the  Company  formalized  a $15.1  million
unsecured  promissory  note (the "Note")  relating to net borrowings by SeraNova
from the Company  through such date.  The Note bears  interest at the prime rate
plus 1/2%. The Company has recorded  total accrued  interest of $1.0 million and
$803,000 as of December  31,  2001 and 2000,  respectively.  The Company has not
recorded  any  accrued  interest on the  balance of the Note  subsequent  to the



                                     - 37 -
<PAGE>

maturity date of July 31, 2001. On September  29, 2000,  the Company  received a
$3.0 million payment from SeraNova.

     In September  2000,  SeraNova  consummated an $8.0 million  preferred stock
financing  with  two  institutional   investors.   According  to  the  mandatory
prepayment provisions of the Note, SeraNova was required to make a prepayment of
$3.0 million on the Note as a result of the stock financing.  Subsequently,  the
Company  finalized with SeraNova the terms of an agreement to waive,  subject to
certain conditions, certain of the mandatory prepayment obligations arising as a
result of the financing.  The terms of the new agreement  included,  among other
things,  that  SeraNova  pay the  Company (i)  $500,000  upon  execution  of the
agreement;  (ii)  $500,000 on or before each of January 31,  2001,  February 28,
2001,  March 31, 2001, April 30, 2001 and May 31, 2001; and (iii) $400,000 on or
before  December 15, 2000 to be applied either as (a) an advance payment towards
a  contemplated  services  arrangement  for  hosting  services to be provided to
SeraNova by the Company (the "Hosting  Agreement");  or (b) in the event that no
such Hosting Agreement is executed on or before December 15, 2000, an additional
advance prepayment toward the principal of the Note.

     The Company  received from SeraNova the $500,000  payment that was due upon
execution of the agreement and a $400,000 payment in December 2000 as an advance
payment  towards  the  principal  of the Note  since no  Hosting  Agreement  was
executed before December 15, 2000.

     In 2001, the Company received principal payments totaling $2.1 million from
SeraNova.  However,  SeraNova  failed to make final  payment of all  amounts due
under the Note to the  Company  as of July 31,  2001.  On August 16,  2001,  the
Company filed a complaint against SeraNova and Silverline  Technologies  Limited
("Silverline"), which acquired SeraNova in March 2001. As of such date, SeraNova
was obligated to pay to the Company the remaining principal  (approximately $9.1
million) and accrued interest  (approximately $1.0 million),  or an aggregate of
$10.1  million.  Although  management  believes  they are entitled to the entire
$10.1 million balance, there can be no assurance that SeraNova and/or Silverline
will pay the entire balance due the Company.  In the event the Company accepts a
payment in less than full  satisfaction  of the $10.1  million  due, the Company
will record a charge against earnings for such  difference.  The Company has not
recorded a reserve against the remaining balance of $10.1 million under the Note
as of December 31, 2001,  as the amount of loss,  if any,  cannot be  reasonably
estimated.  Management believes that SeraNova and/or Silverline have the ability
to pay  the  entire  balance  due.  The  resolution  of this  uncertainty  could
materially impact the Company's  consolidated  financial position and results of
operations.  In addition,  SeraNova filed a counterclaim against the Company for
unspecified  damages as a set-off against the Company's  claims.  In response to
the Company's request for a statement of damages, SeraNova stated that it was in
the process of calculating its damages,  but for informational  purposes claimed
compensatory  damages  in excess of $5.5  million  and  punitive  damages in the
amount of $10.0 million (see Part I, Item 3, Legal Proceedings). The parties are
currently proceeding with the discovery process. The Company believes that there
is no basis to support such amounts claimed by SeraNova.

     In June 2000,  the Company  announced an agreement  with the  Government of
Puerto Rico, in conjunction with the Puerto Rico Industrial  Development Company
("PRIDCO"), to



                                     - 38 -
<PAGE>

locate a new  technology  development  center in  Puerto  Rico  ("PR-ADC").  The
agreement  provided for substantial  incentive  grants to the Company,  totaling
approximately  $9.0 million.  In mid-2000,  the Company began  constructing  the
building, acquiring the necessary furniture, fixtures and equipment and engaging
in sales,  marketing and other administrative  activities to support the PR-ADC.
Accordingly, the Company had previously recorded an asset for the costs of these
activities and had requested  reimbursement  from the Government of Puerto Rico,
through PRIDCO in accordance with its contractual right.

     During the second  quarter of 2001,  the Company  found that  processing of
reimbursement requests, previously submitted by the Company to PRIDCO, was being
delayed.  Upon inquiry to PRIDCO,  the Company was  verbally  advised that there
were certain  concerns  raised  within  PRIDCO about the delayed  opening of the
PR-ADC, and about the Company's adherence to other commitments  contained within
the grant  documents.  After  repeated  inquiries  by the  Company,  the Company
received a letter from PRIDCO's  counsel in July 2001,  stating that the Company
was not in compliance with certain terms of the agreements,  although  specifics
were not provided. During the period from July through October 2001, the Company
met and  corresponded  with PRIDCO  representatives  on multiple  occasions,  to
determine the source of their concerns and seek appropriate resolution.

     On November 2, 2001, the general  counsel for PRIDCO notified the Company's
attorney  advising  that PRIDCO was amenable to an amicable  termination  of the
agreements,  and would work with the  Company to close out  certain  outstanding
issues,  including the resolution of the litigation with Fe-Ri Construction (see
Part I, Item 3, Legal Proceedings).

     The Company  determined that this  resolution was  reasonable,  and had the
least  detrimental  effect  on the  Company's  continuing  endeavors,  including
opportunities  for  additional  business  within Puerto Rico.  Accordingly,  the
Company reached an agreement with the Government of Puerto Rico to terminate the
project and to cancel the associated grant and other related contracts.  As part
of  the  termination  agreement,  the  Company  was  released  from  all  future
obligations related to the project,  but in exchange had to forego reimbursement
of $1.3 million in previously  incurred operating costs and fixed assets,  which
had already been paid for by the Company.  Accordingly,  the Company  recorded a
charge of $1.3  million,  which is included in  restructuring  and other special
charges in the Consolidated Statements of Operations.

     The Company's 2002 operating plan contains  assumptions  regarding  revenue
and  expenses.  The  achievement  of the operating  plan depends  heavily on the
timing of work performed by the Company on existing  projects and the ability of
the Company to gain and perform  work on new  projects.  Project  cancellations,
delays in the timing of work  performed  by the Company on existing  projects or
the inability of the Company to gain and perform work on new projects could have
an adverse  impact on the Company's  ability to execute its  operating  plan and
maintain  adequate  cash  flow.  In the  event  actual  results  do not meet the
operating  plan,  management  believes  it could  execute  contingency  plans to
mitigate such effects.  Such plans include additional cost reductions or seeking
additional financing.  Considering the cash on hand, the remaining  availability
under the credit facility and based on the achievement of the operating plan and
management's  actions taken to date,  management  believes it has the ability to
continue to generate  sufficient  cash to satisfy its operating  requirements in
the  normal  course  of  business.  However,  no  assurance  can be  given  that
sufficient cash will be generated from operations.



                                     - 39 -
<PAGE>

     The Company believes that its available funds, together with current credit
arrangements and the cash flow expected to be generated from operations, will be
adequate to satisfy its current and planned  operations for at least the next 12
months.

NASDAQ NATIONAL MARKET

     From time to time,  the  Company's  Common  Stock has failed to  maintain a
minimum bid price of $1.00 per share. If the Company fails to maintain a minimum
bid price of $1.00 per share for a period of 30  consecutive  business  days, it
would be subject to notification by the Nasdaq National Market that it failed to
meet its requirements for continued listing. Upon such notice, the Company would
have 90 days from the notice date to regain  compliance  by having the bid price
for its Common  Stock close at $1.00 or greater for a minimum of 10  consecutive
business days during the 90-day  compliance  period. A delisting from the Nasdaq
National Market could severely and adversely  affect the market liquidity of the
Company's Common Stock.

COMMITMENTS

     The Company  leases  office  space,  office  equipment  and vehicles  under
capital and operating leases that have initial or remaining non-cancelable lease
terms in excess of one year as of December 31, 2001.  Future  minimum  aggregate
annual lease payments are as follows:

                FOR THE YEARS
             ENDING DECEMBER 31,              CAPITAL       OPERATING
       -------------------------------     ------------   -------------
       2002..........................       $  727,000     $2,162,000
       2003..........................          383,000      1,670,000
       2004..........................               --      1,421,000
       2005..........................               --      1,038,000
       2006..........................               --        980,000
       Thereafter....................               --      1,397,000
                                           ------------
       Subtotal......................        1,110,000
       Less-Interest.................           93,000
                                           ------------
                                             1,017,000
       Less-Current Portion..........          646,000
                                           ------------
                                            $  371,000
                                           ============

     During  late  2001,  SeraNova  failed  to  pay  certain  outstanding  lease
obligations  to the  Company's  landlords.  Accordingly,  on March 4, 2002,  the
Company filed an arbitration  demand with the American  Arbitration  Association
against SeraNova and Silverline  Technologies.  The demand for arbitration seeks
reimbursement from SeraNova and/or Silverline Technologies for all rent payments
made by the  Company on behalf of SeraNova  and for  jurisdiction  over  further
payment defaults by SeraNova and/or  Silverline  Technologies to the Company and
its  landlords  (see Part I, Item 3, Legal  Proceedings).  The Company  does not
believe that the outcome of this claim will have a materially  adverse effect on
the  Company's  business,  financial  condition  or results of  operations.  The
Company  also  believes it has  sufficient  funds to pay the  outstanding  lease
obligations  on behalf of SeraNova for the shared  office space for at least the
next 12 months.



                                     - 40 -
<PAGE>

RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES

     Nagarjun  Valluripalli,  the Chief Executive  Officer and a Director of the
Company,  Rajkumar  Koneru,  a Director of the  Company,  and Ashok  Pandey,  an
affiliate  of the  Company,  were the sole  shareholders  of  Intelligroup  Asia
Private Ltd. ("Intelligroup Asia"). Historically, Intelligroup Asia operated the
Advanced  Development Center in Hyderabad,  India for the sole and exclusive use
and benefit of the Company and all  contracts  and  commercial  arrangements  of
Intelligroup Asia were subject to prior approval by the Company. The Company and
Messrs.  Valluripalli,  Koneru and Pandey entered into an agreement  pursuant to
which the Company  would,  subject to  necessary  Indian  government  approvals,
acquire the shares of Intelligroup Asia for nominal  consideration.  Such Indian
government  approvals were received in September 1997. As a result,  the Company
currently owns 99.8% of the shares of Intelligroup Asia.

     The Board of Directors of the Company has adopted a policy  requiring  that
any  future  transactions  between  the  Company  and its  officers,  directors,
principal shareholders and their affiliates be on terms no less favorable to the
Company than could be obtained from unrelated  third parties.  In addition,  New
Jersey law requires that any such  transactions be approved by a majority of the
disinterested members of the Company's Board of Directors.

     During 2001,  the Company  provided  services to FirePond,  which  produced
revenues  for the  Company  totaling  approximately  $156,000.  A member  of the
Company's  Board of Directors,  Klaus P. Besier,  serves as the Chief  Executive
Officer of FirePond. The Company provided implementation services to various end
clients,  as a  sub-contractor  to  FirePond.  Services  were  priced  at  rates
comparable to other similar  sub-contracting  arrangements  in which the Company
regularly participates.

     On May 30,  2001,  the  Company  advanced  the  amount  of  $60,000  to Mr.
Valluripalli,  with the intent  that such  amount  would be applied  against any
performance  bonus due Mr.  Valluripalli  for the full year 2001.  In connection
with such  arrangement,  the parties executed a compensation  advance  agreement
executed  by Mr.  Valluripalli  in  favor  of  the  Company  (the  "Compensation
Advance").  The  Compensation  Advance  provides,  among other  things,  for (i)
repayment of the outstanding  principal amount of the Compensation Advance on or
before May 22,  2002;  (ii) the accrual of no  interest  on amounts  outstanding
under  the  Compensation  Advance  during  the  period  of  Mr.   Valluripalli's
employment  with the  Company;  and (iii) the  accrual  of  interest  on amounts
outstanding  under the  Compensation  Advance  at a rate per annum  equal to the
Federal Funds  Effective Rate announced by the Federal Reserve Bank of New York,
in the event of and following the termination of Mr.  Valluripalli's  employment
with the Company.  The largest  aggregate amount of indebtedness  outstanding at
any time during the term of the  Compensation  Advanced  was  $60,000.  In March
2002, the Compensation  Committee of the Company's Board of Directors approved a
full year 2001 bonus for Mr. Valluripalli in an amount of $200,000.



                                     - 41 -
<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  141,  "Business
Combinations."  SFAS No. 141 changes the accounting  for business  combinations,
requiring  that all business  combinations  be accounted  for using the purchase
method and that intangible assets be recognized as assets apart from goodwill if
they arise from  contractual or other legal rights,  or if they are separable or
capable of being  separated  from the  acquired  entity  and sold,  transferred,
licensed,  rented or  exchanged.  SFAS No.  141 is  effective  for all  business
combinations initiated after June 30, 2001.

     In June 2001, the FASB issued SFAS No. 142,  "Goodwill and Other Intangible
Assets."  SFAS No. 142  specifies  the  financial  accounting  and reporting for
acquired  goodwill and other intangible  assets.  Goodwill and intangible assets
that have  indefinite  useful  lives will not be  amortized  but rather  will be
tested at least  annually for  impairment.  SFAS No. 142 is effective for fiscal
years  beginning  after December 15, 2001. SFAS No. 142 requires that the useful
lives of intangible assets acquired on or before June 30, 2001 be reassessed and
the remaining  amortization periods adjusted accordingly.  Previously recognized
intangible   assets  deemed  to  have  indefinite  lives  shall  be  tested  for
impairment. Goodwill recognized on or before June 30, 2001, shall be assigned to
one or more  reporting  units  and  shall be  tested  for  impairment  as of the
beginning of the fiscal year in which SFAS No. 142 is  initially  applied in its
entirety.  As of December  31,  2001,  the  Company  had no  recorded  goodwill.
Therefore,  the Company believes that the adoption of SFAS No. 142 will not have
a material impact on its financial position or results of operations.

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations."  SFAS  No.  143  addresses  financial  accounting  and
reporting  obligations  associated  with the  retirement of tangible  long-lived
assets and the associated asset retirement  costs. SFAS No. 143 is effective for
fiscal years beginning after June 14, 2002. The Company has evaluated the impact
of the  adoption  of SFAS No.  143,  which is  effective  for the  Company as of
January  1,  2003,  does not  believe  it will  have a  material  impact  on the
Company's financial position or results of operations.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets."  SFAS  No.  144  changes  the
accounting  for long-lived  assets by requiring  that all  long-lived  assets be
measured  at the  lower of  carrying  amount  or fair  value  less cost to sell,
whether reporting continuing operations or in discontinued operations.  SFAS No.
144, which replaces SFAS No. 121,  "Accounting  for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to Be Disposed  Of," is effective  for fiscal
years beginning after December 15, 2001.  Management has evaluated the impact of
the adoption of SFAS No. 144,  which is effective  for the Company as of January
1, 2002,  and does not believe it will have a material  impact on the  Company's
financial position or results of operations.

     In November  2001,  the  Emerging  Issues  Task Force  ("EITF") of the FASB
concluded that reimbursements  received for  "out-of-pocket"  expenses should be
classified as revenue, and correspondingly cost of services, in the statement of
operations.  Most service companies,  whose employees incur incidental  expenses
such as airfare, mileage, hotel and out-of-town meals while



                                     - 42 -
<PAGE>

working  on  behalf  of   customers,   currently   report   reimbursements   for
"out-of-pocket"  expenses on a "net" basis in the statement of  operations.  The
new reporting  treatment requires companies to report these  reimbursements on a
"gross" basis beginning in financial  reporting periods after December 15, 2001.
The  Company  is still  evaluating  the  impact  of the  adoption  of this  EITF
interpretation, which will negatively impact gross margins, but does not believe
it will have a material impact on the Company's results of operations.

EUROPEAN MONETARY UNION (EMU)

     The euro was  introduced  on  January  1,  1999,  at which  time the eleven
participating  EMU member countries  established  fixed conversion rates between
their  existing   currencies  (legacy  currencies)  and  the  euro.  The  legacy
currencies  will  continue to be used as legal tender  through  January 1, 2002;
thereafter, the legacy currencies will be canceled and euro bills and coins will
be used for cash  transactions  in the  participating  countries.  The Company's
European  sales and  operations  offices  affected by the euro  conversion  have
established  plans to address the  systems  issues  raised by the euro  currency
conversion  and  are  cognizant  of  the  potential  business   implications  of
converting to a common currency. The Company is unable to determine the ultimate
financial  impact of the  conversion on its  operations,  if any, given that the
impact will be  dependent  upon the  competitive  situations  which exist in the
various  regional  markets in which the Company  participates  and the potential
actions  which  may or may  not  be  taken  by  the  Company's  competitors  and
suppliers.

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

     Although the Company cannot accurately determine the precise effect thereof
on its  operations,  it does not believe  inflation,  currency  fluctuations  or
interest rate changes have historically had a material effect on its revenues or
results  of  operations.   Any  significant   effects  of  inflation,   currency
fluctuations  and  changes  in  interest  rates on the  economies  of the United
States, Europe or Asia Pacific could adversely impact the Company's revenues and
results of operations in the future.  If there is a material  adverse  change in
the  relationship  between European  currencies  and/or Asian currencies and the
United  States  Dollar,  such change  would  adversely  affect the result of the
Company's  European and/or Asia Pacific operations as reflected in the Company's
financial  statements.  The Company has not hedged its exposure  with respect to
this currency  risk,  and does not expect to do so in the future,  since it does
not believe that it is practicable for it to do so at a reasonable cost.

ITEM 8.     FINANCIAL STATEMENTS.

     The financial  statements  required to be filed pursuant to this Item 8 are
included in this Annual Report on Form 10-K. A list of the financial  statements
filed herewith is found at "Item 14. Exhibits, List, and Reports on Form 8-K."

ITEM 9.     CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
            FINANCIAL DISCLOSURE.

     Not applicable.




                                     - 43 -
<PAGE>

                                    PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information relating to the Company's directors,  nominees for election
as directors and executive  officers under the headings  "Election of Directors"
and "Executive  Officers" in the Company's  definitive  proxy  statement for the
2002 Annual Meeting of Shareholders is incorporated  herein by reference to such
proxy statement.

ITEM 11.     EXECUTIVE COMPENSATION.

     The discussion under the heading "Executive  Compensation" in the Company's
definitive  proxy  statement  for the 2002  Annual  Meeting of  Shareholders  is
incorporated herein by reference to such proxy statement.

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

     The discussion under the heading "Security  Ownership of Certain Beneficial
Owners and Management" in the Company's  definitive proxy statement for the 2002
Annual Meeting of Shareholders is incorporated herein by reference to such proxy
statement.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The  discussion  under  the  heading  "Certain  Relationships  and  Related
Transactions"  in the Company's  definitive  proxy statement for the 2002 Annual
Meeting  of  Shareholders  is  incorporated  herein by  reference  to such proxy
statement.




                                     - 44 -
<PAGE>

                                     PART IV

ITEM 14.       EXHIBITS, LIST, AND REPORTS ON FORM 8-K.

    (a)  (1)   Financial Statements.

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

         (2)   Financial Statement Schedules.

               None.

         (3)   Exhibits.

               Reference is made to the Exhibit Index on Page 48.

    (b)        Reports on Form 8-K.

               No  reports  on Form 8-K were  filed  during  the  quarter  ended
               December 31, 2001.



                                     - 45 -
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned,  thereunto duly authorized this 29th day of March
2002.

                                            INTELLIGROUP, INC.


                                            By:  /s/ Nagarjun Valluripalli
                                               ---------------------------------
                                               Nagarjun Valluripalli,
                                               Chief Executive Officer




                                     - 46 -
<PAGE>

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

         SIGNATURE                         TITLE                       DATE
         ---------                         -----                       ----

/s/ Nagarjun Valluripalli       Chief Executive Officer and       March 29, 2002
---------------------------
Nagarjun Valluripalli           Director (principal executive
                                officer)

/s/ Nicholas Visco              Senior Vice President- Finance    March 29, 2002
---------------------------
Nicholas Visco                  and Administration (principal
                                financial and accounting officer)

/s/ Rajkumar Koneru             Director                          March 29, 2002
---------------------------
Rajkumar Koneru

/s/ Klaus Besier                Director                          March 29, 2002
---------------------------
Klaus Besier

/s/ Dennis McIntosh             Director                          March 29, 2002
---------------------------
Dennis McIntosh

/s/ Gregory S. Dimit            Director                          March 29, 2002
---------------------------
Gregory S. Dimit


                                     - 47 -
<PAGE>

                                  EXHIBIT INDEX

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

   2           Agreement  and Plan of Merger of the Company and its wholly owned
               subsidiary Oxford Systems Inc.  (Incorporated by reference to the
               Company's  Annual  Report  on  Form  10-KSB  for the  year  ended
               December 31, 1996.)

   3.1         Amended and Restated Certificate of Incorporation.  (Incorporated
               by reference to the Company's Registration Statement on Form SB-2
               (Registration  Statement  No.  333-5981)  declared  effective  on
               September 26, 1996.)

   3.2         Amended and Restated  Bylaws.  (Incorporated  by reference to the
               Company's  Registration  Statement  on  Form  SB-2  (Registration
               Statement  No.  333-5981)  declared  effective on  September  26,
               1996.)

   4.1         Shareholder  Protection  Rights Agreement dated as of November 6,
               1998,  between the Company and  American  Stock  Transfer & Trust
               Company  which  includes (I) the Form of Rights  Certificate  and
               (ii) the  Certificate  of  Amendment  to the Amended and Restated
               Certificate of Incorporation of Intelligroup,  Inc. (Incorporated
               by reference to Exhibit No. 4.1 of the  Company's  Report on Form
               8-K  dated  November  9,  1998,  filed  with the  Securities  and
               Exchange Commission on November 9, 1998.)

  10.1*+       1996 Stock Plan, as amended, of the Company.

  10.2*        1996  Non-Employee  Director Stock Option Plan.  (Incorporated by
               reference to the  Company's  Registration  Statement on Form SB-2
               (Registration  Statement  No.  333-5981)  declared  effective  on
               September 26, 1996.)

  10.3         Form of Indemnification Agreement entered into by the Company and
               each of its Directors and officers. (Incorporated by reference to
               the Company's  Registration  Statement on Form SB-2 (Registration
               Statement  No.  333-5981)  declared  effective on  September  26,
               1996.)

  10.4         Employment  Agreement  dated  October 1, 1999 between the Company
               and Nicholas Visco. See Exhibit 10.30.

  10.5         Employee's  Invention  Assignment and Confidentiality  Agreement.
               (Incorporated   by  reference  to  the   Company's   Registration
               Statement  on Form SB-2  (Registration  Statement  No.  333-5981)
               declared effective on September 26, 1996.)

  10.6         Services Provider Agreement by and between Oracle Corporation and
               the Company  dated July 26, 1994.  (Incorporated  by reference to
               the Company's  Registration  Statement on Form SB-2 (Registration
               Statement  No.  333-5981)  declared  effective on  September  26,
               1996.) See Exhibit 10.8.



                                     - 48 -
<PAGE>

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

  10.7         Agreement  by and  between  the  Company  and  Intelligroup  Asia
               Private  Limited  ("Intelligroup  Asia")  relating to operational
               control  of   Intelligroup   Asia,   with   related   agreements.
               (Incorporated   by  reference  to  the   Company's   Registration
               Statement  on Form SB-2  (Registration  Statement  No.  333-5981)
               declared effective on September 26, 1996.)

  10.8         Amendment  No. 1 to Services  Provider  Agreement  by and between
               Oracle  Corporation  and the Company  dated  December  30,  1996.
               (Incorporated by reference to the Company's Annual Report on Form
               10-KSB for the year ended December 31, 1996.) See Exhibit 10.6.

  10.9         R/3 National  Logo Partner  Agreement by and between SAP America,
               Inc. and the Company dated as of April 29, 1997. (Incorporated by
               reference to the  Company's  Registration  Statement on Form SB-2
               (Registration Statement No. 333-29119) declared effective on June
               26, 1997.) See Exhibits 10.10, 10.21 and 10.31.

  10.10        ASAP  Partner  Addendum to R/3 National  Logo  Partner  Agreement
               between SAP America,  Inc. and the Company effective July 1, 1997
               (amends   existing   R/3  National   Logo   Partner   Agreement).
               (Incorporated  by reference to the Company's  Quarterly Report on
               Form  10-QSB  for the  quarter  ended  September  30,  1997.) See
               Exhibits 10.9, 10.21 and 10.31.

  10.11        Implementation Partner Agreement between PeopleSoft, Inc. and the
               Company  effective July 15, 1997.  (Incorporated  by reference to
               the  Company's  Quarterly  Report on Form  10-QSB for the quarter
               ended September 30, 1997.) See Exhibit 10.20.

  10.12        Consulting  Alliance  Agreement with Baan  International B.V. and
               the  Company  effective  September  29,  1997.  (Incorporated  by
               reference to the  Company's  Quarterly  Report on Form 10-QSB for
               the quarter ended September 30, 1997.)

  10.13        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.)

  10.14        Agreement  of Purchase and Sale dated as of May 7, 1998 among the
               Company,  Intelligroup Europe Limited and the Shareholders of CPI
               Consulting  Limited.  (Incorporated by reference to the Company's
               Report on Form 8-K filed May 27, 1998.)

  10.15        Agreement of Purchase and Sale dated as of May 21, 1998 among the
               Company,  Intelligroup Europe Limited and the Shareholders of CPI
               Resources  Limited.  (Incorporated  by reference to the Company's
               Report on Form 8-K filed May 27, 1998.)


                                     - 49 -
<PAGE>

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

  10.16        Agreement  of  Purchase  and Sale dated as of  November  25, 1998
               among  the  Company  and the  Shareholders  of  each  of  Azimuth
               Consulting   Limited,   Azimuth  Holdings  Limited,   Braithwaite
               Richmond Limited and Azimuth Corporation  Limited.  (Incorporated
               by reference to the Company's  Report on Form 8-K filed  December
               8, 1998.)

  10.17        Stock Purchase  Agreement dated as of December 21, 1998 among the
               Company  and  the  Shareholders  of  Network   Publishing,   Inc.
               (Incorporated  by reference to the  Company's  Report on Form 8-K
               filed January 8, 1999.)

  10.18        Agreement and Plan of Merger dated as of February 16, 1999 by and
               among the Company,  ES Merger Corp.,  Empower Solutions,  LLC and
               the members of Empower Solutions, LLC. (Incorporated by reference
               to the Company's Report on Form 8-K filed February 24, 1999.)

  10.19        Agreement and Plan of Merger dated as of February 16, 1999 by and
               among the Company, ES Merger Corp.,  Empower Solutions,  Inc. and
               the stockholders of Empower,  Inc.  (Incorporated by reference to
               the Company's Report on Form 8-K filed February 24, 1999.)

  10.20*       Fifth  Amendment to the  Implementation  Partner  Agreement dated
               July 15,  1998,  between  the Company and  PeopleSoft,  Inc.  See
               Exhibit 10.11.

  10.21*       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 10.31.

  10.22        Contribution  Agreement  by and between  Intelligroup,  Inc.  and
               SeraNova,  Inc.  dated as of January 1,  2000.  (Incorporated  by
               reference  to the  Company's  Annual  Report on Form 10-K for the
               year ended December 31, 1999.)

  10.23        Distribution  Agreement  by and between  Intelligroup,  Inc.  and
               SeraNova,  Inc.  dated as of January 1,  2000.  (Incorporated  by
               reference  to the  Company's  Annual  Report on Form 10-K for the
               year ended December 31, 1999.)

  10.24        Services  Agreement  by  and  between   Intelligroup,   Inc.  and
               SeraNova,  Inc.  dated as of January 1,  2000.  (Incorporated  by
               reference  to the  Company's  Annual  Report on Form 10-K for the
               year ended December 31, 1999.)

  10.25        Space  Sharing  Agreement  by and among  Intelligroup,  Inc.  and
               SeraNova,  Inc.  dated as of January 1,  2000.  (Incorporated  by
               reference  to the  Company's  Annual  Report on Form 10-K for the
               year ended December 31, 1999.)


                                     - 50 -
<PAGE>

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

  10.26        Tax Sharing  Agreement  by and  between  Intelligroup,  Inc.  and
               SeraNova,  Inc.  dated as of January 1,  2000.  (Incorporated  by
               reference  to the  Company's  Annual  Report on Form 10-K for the
               year ended December 31, 1999.)

  10.27*       Amended and Restated Revolving Credit Loan and Security Agreement
               among  the  Company,   Empower,   Inc.  and  PNC  Bank,  National
               Association.   (Incorporated   by  reference  to  the   Company's
               Quarterly  Report on Form  10-Q for the  quarter  ended  June 30,
               2000.)

  10.28        Amended and Restated  Promissory  Note by and between the Company
               and SeraNova,  Inc.  dated as of May 31, 2000.  (Incorporated  by
               reference to the Company's  Report on Form 8-K/A filed  September
               14, 2000.) See Exhibit 10.29.

  10.29        Agreement  and  Waiver  with  respect  to  Amended  and  Restated
               Promissory  Note by and between the  Company and  SeraNova,  Inc.
               dated as of September 29, 2000. (Incorporated by reference to the
               Company's  Quarterly  Report on Form 10-Q for the  quarter  ended
               September 30, 2000.) See Exhibit 10.28.

  10.30*       First Amendment to Employment  Agreement  between the Company and
               Nicholas Visco dated November 1, 2000.

  10.31        mySap.com Partner-Services Addendum effective June 7, 2000 to R/3
               National Logo Partner Agreement between SAP America, Inc. and the
               Company. See Exhibits 10.9, 10.10 and 10.21.

  10.32        Service Alliance Master Agreement and Addendums dated May 5, 2000
               between PeopleSoft, Inc. and the Company.

  10.33+       First  Amendment to Loan  Documents  and Waiver  Agreement  dated
               March 27, 2002 between the Company,  Empower,  Inc. and PNC Bank,
               National Association.

  21+          Subsidiaries of the Registrant.

  23+          Consent of Arthur Andersen LLP.

  99+          Letter to the Securities and Exchange  Commission dated March 29,
               2002,  regarding  the  receipt  of certain  representations  from
               Arthur Andersen LLP.

--------------

*       A management contract or compensatory plan or arrangement required to be
        filed as an exhibit pursuant to Item 14(c) of Form 10-K.

+       Filed herewith. All other exhibits previously filed.


                                     - 51 -
<PAGE>


                       INTELLIGROUP, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

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

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2001 and 2000............    F-3

Consolidated Statements of Operations for the years ended
     December 31, 2001, 2000 and 1999...................................    F-4

Consolidated Statements of Shareholders' Equity for the years ended
     December 31, 2001, 2000 and 1999...................................    F-5

Consolidated Statements of Cash Flows for the years ended
     December 31, 2001, 2000 and 1999...................................    F-6

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

Financial Statement Schedules
     Financial  Statement  Schedules  required by the  Securities  and
     Exchange   Commission   have  been   omitted,   as  the  required
     information  is included in the Notes to  Consolidated  Financial
     Statements or is not applicable.



                                      F - 1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Intelligroup, Inc.:

     We  have  audited  the   accompanying   consolidated   balance   sheets  of
Intelligroup,  Inc. (a New Jersey  corporation)  and subsidiaries as of December
31,  2001 and 2000,  and the  related  consolidated  statements  of  operations,
shareholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 2001. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the  financial  position of  Intelligroup,  Inc. and
subsidiaries  as of  December  31,  2001  and  2000,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting  principles  generally accepted
in the United States.


                                            ARTHUR ANDERSEN LLP

Roseland, New Jersey
February 1, 2002
(except with respect to paragraph 4
of Note 3, as to which the
date is March 27, 2002)



                                      F - 2
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2001 and 2000
<TABLE>
<CAPTION>
                                                                     2001               2000
                                                                -------------      -------------
                          ASSETS
<S>                                                             <C>                <C>
Current Assets:
  Cash and cash equivalents.............................        $   2,138,000      $   1,327,000
  Accounts receivable, less allowance for doubtful
      accounts of $2,073,000 and $2,061,000 at
      December 31, 2001 and 2000, respectively..........           13,519,000         22,438,000
  Unbilled services.....................................            7,536,000          5,933,000
  Prepaid income taxes..................................              342,000            384,000
  Deferred tax asset....................................            1,736,000          1,348,000
  Other current assets..................................            3,571,000          5,530,000
  Note receivable - SeraNova............................            9,140,000         11,200,000
                                                                -------------      -------------
        Total current assets............................           37,982,000         48,160,000

  Property and equipment, net...........................            8,099,000          9,650,000
  Intangible assets, net................................                   --          4,732,000
  Other assets..........................................            1,468,000          4,826,000
                                                                -------------      -------------
                                                                $  47,549,000      $  67,368,000
                                                                =============      =============

           LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable......................................        $   3,548,000      $   6,849,000
  Accrued payroll and related taxes.....................            5,465,000          6,480,000
  Accrued expenses and other current liabilities........            4,869,000          4,342,000
  Deferred revenue......................................            1,211,000          1,003,000
  Income taxes payable..................................              427,000            627,000
  Current portion of long-term debt and obligations
      under capital leases..............................            4,712,000          5,623,000
                                                                -------------      -------------
          Total current liabilities.....................           20,232,000         24,924,000
                                                                -------------      -------------
Deferred tax liability..................................              164,000            206,000
                                                                -------------      -------------
Obligations under capital leases, less current portion..              371,000          1,037,000
                                                                -------------      -------------

Commitments and contingencies
Shareholders' Equity:
  Preferred stock, $.01 par value, 5,000,000 shares
      authorized,
      none issued or outstanding........................                   --                 --
  Common stock, $.01 par value, 25,000,000 shares
      authorized, 16,630,000 shares issued and
      outstanding at December 31, 2001 and 2000.........              166,000            166,000
  Additional paid-in capital............................           41,366,000         41,366,000
  Retained earnings (accumulated deficit)...............          (10,685,000)         1,908,000
  Currency translation adjustments......................           (4,065,000)        (2,239,000)
                                                                -------------      -------------
        Total shareholders' equity .....................           26,782,000         41,201,000
                                                                -------------      -------------
                                                                $  47,549,000      $  67,368,000
                                                                =============      =============
</TABLE>

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


                                      F - 3
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              For the Years Ended December 31, 2001, 2000 and 1999


<TABLE>
<CAPTION>
                                                       2001              2000               1999
                                                  -------------     -------------      -------------
<S>                                               <C>               <C>                <C>
Revenue......................................     $ 108,106,000     $ 112,838,000      $ 146,272,000
Cost of sales................................        72,984,000        75,444,000         97,382,000
                                                  -------------     -------------      -------------
    Gross profit.............................        35,122,000        37,394,000         48,890,000
                                                  -------------     -------------      -------------
Selling, general and administrative expenses.        30,206,000        42,004,000         39,892,000
Depreciation and amortization................         3,695,000         3,187,000          2,930,000
Acquisition expenses.........................                --                --          2,115,000
Restructuring and other special charges......        13,261,000                --          7,328,000
                                                  -------------     -------------      -------------
    Total operating expenses.................        47,162,000        45,191,000         52,265,000
                                                  -------------     -------------      -------------
    Operating loss...........................       (12,040,000)       (7,797,000)        (3,375,000)
Interest income (expense), net...............            39,000           570,000           (513,000)
                                                  -------------     -------------      -------------
Loss from continuing operations before
    income tax provision (benefit)...........       (12,001,000)       (7,227,000)        (3,888,000)
Income tax provision (benefit)...............           592,000          (573,000)         1,441,000
                                                  -------------     -------------      -------------
Loss from continuing operations..............       (12,593,000)       (6,654,000)        (5,329,000)
Loss from discontinued operations, net of
    tax benefit of  $0, $(2,095,000) and
    $(235,000), respectively.................                --        (4,891,000)        (1,261,000)
                                                  -------------     -------------      -------------
Net loss.....................................     $ (12,593,000)    $ (11,545,000)     $  (6,590,000)
                                                  =============     =============      =============

Earnings per share:
    Basic and diluted earnings per share:
        Loss from continuing operations .....     $       (0.76)    $       (0.40)     $       (0.34)
        Discontinued operations .............                --             (0.30)             (0.08)
                                                  -------------     -------------      -------------
           Net loss per share................     $       (0.76)    $       (0.70)     $       (0.42)
                                                  =============     =============      =============
        Weighted average number of common
           shares - basic and diluted........        16,630,000        16,485,000         15,766,000
                                                  =============     =============      =============
</TABLE>

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


                                      F - 4
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              For the Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                       CUMULATIVE
                                                                          RETAINED      FOREIGN
                                                           ADDITIONAL     EARNINGS      CURRENCY         TOTAL       COMPREHENSIVE
                                                            PAID-IN     (ACCUMULATED   TRANSLATION   SHAREHOLDERS'   INCOME (LOSS)
                                     COMMON STOCK           CAPITAL       DEFICIT)     ADJUSTMENTS       EQUITY      FOR THE PERIOD
                                     ------------         ----------    ------------   ------------  -------------   --------------
                                  SHARES       AMOUNT
                                ----------   ---------
<S>                             <C>          <C>          <C>            <C>           <C>             <C>             <C>
Balance at December 31, 1998..  15,573,000   $156,000     $35,261,000   $ 13,077,000   $  (545,000)   $ 47,949,000    $ 12,954,000

Issuance of common stock in
connection with acquisitions..     155,000      2,000       4,589,000             --            --       4,591,000              --

Exercise of stock options.....     221,000      2,000       2,996,000             --            --       2,998,000              --

Tax benefit from exercise of
stock options.................          --         --         510,000             --            --         510,000              --

Shareholder dividends.........          --         --              --       (170,000)           --        (170,000)             --

Currency translation
adjustments...................          --         --              --             --      (634,000)       (634,000)   $   (634,000)

Net loss......................          --         --              --     (6,590,000)           --      (6,590,000)     (6,590,000)
                                ----------   --------     -----------    -----------   -----------     -----------    ------------
Balance at December 31, 1999..  15,949,000    160,000      43,356,000      6,317,000    (1,179,000)     48,654,000    $ (7,224,000)

Issuance of common stock in
connection with acquisitions..     100,000      1,000              --             --            --           1,000              --

Spin-off distribution of
SeraNova common stock.........          --         --      (7,733,000)     7,136,000      (107,000)       (704,000)             --

Exercise of stock options.....     581,000      5,000       5,743,000             --            --       5,748,000              --

Currency translation
adjustments...................          --         --              --             --      (953,000)       (953,000)   $   (953,000)

Net loss......................          --         --              --    (11,545,000)           --     (11,545,000)    (11,545,000)
                                ----------   --------     -----------    -----------   -----------     -----------    ------------
Balance at December 31, 2000..  16,630,000    166,000      41,366,000      1,908,000    (2,239,000)     41,201,000    $(12,498,000)

Currency translation
adjustments...................          --         --              --             --    (1,826,000)     (1,826,000)   $ (1,826,000)

Net loss......................          --         --              --    (12,593,000)           --     (12,593,000)    (12,593,000)
                                ----------   --------     -----------    -----------   -----------     -----------    ------------
Balance at December 31, 2001..  16,630,000   $166,000     $41,366,000   $(10,685,000)  $(4,065,000)   $ 26,782,000    $(14,419,000)
                                ==========   ========     ===========   ============   ===========    ============    ============
</TABLE>



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

                                      F - 5
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Years Ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                                                                  2001            2000             1999
                                                              ------------    ------------     ------------
<S>                                                           <C>             <C>              <C>
Cash flows from operating activities:
  Net loss.................................................   $(12,593,000)   $(11,545,000)    $(6,590,000)
  Less: Loss from discontinued operations, net of tax......             --      (4,891,000)     (1,261,000)
                                                              ------------    ------------     -----------
  Loss from continuing operations..........................    (12,593,000)     (6,654,000)     (5,329,000)
  Adjustments to reconcile loss from continuing
    operations to net cash provided by (used in)
    operating activities of continuing operations:
      Depreciation and amortization........................      4,475,000       3,480,000       2,930,000
      Provision for doubtful accounts......................      1,821,000       3,293,000       4,742,000
      Restructuring and other special charges..............     13,261,000              --              --
      Deferred income taxes................................       (430,000)        533,000      (1,430,000)
      Tax benefit from exercise of stock options...........             --              --         510,000
  Changes in operating assets and liabilities:
    Accounts receivable....................................      7,098,000       1,876,000      (1,823,000)
    Unbilled services......................................     (1,603,000)      1,759,000       2,250,000
    Prepaid income taxes...................................         42,000       3,228,000      (3,612,000)
    Other current assets...................................        782,000      (2,121,000)      1,292,000
    Other assets...........................................         (8,000)        735,000        (120,000)
    Accounts payable.......................................     (3,299,000)      3,049,000      (1,021,000)
    Accrued payroll and related taxes......................     (1,015,000)        953,000         312,000
    Accrued expenses and other current liabilities.........         16,000         677,000       4,494,000
    Accrued restructuring charges..........................       (574,000)       (608,000)     (4,679,000)
    Deferred revenue.......................................        208,000       1,003,000              --
    Income taxes payable...................................       (200,000)     (3,277,000)        940,000
                                                              ------------    ------------     -----------
  Net cash provided by (used in) operating activities
    of continuing operations...............................      7,981,000       7,926,000        (544,000)
                                                              ------------    ------------     -----------

Cash flows from investing activities:
    Purchases of equipment ................................     (3,149,000)     (3,212,000)     (2,356,000)
    Purchases of software licenses.........................     (2,678,000)     (3,957,000)             --
                                                              ------------    ------------     -----------
  Net cash used in investing activities of continuing
    operations.............................................     (5,827,000)     (7,169,000)     (2,356,000)
                                                              ------------    ------------     -----------

Cash flows from financing activities:
  Principal payments under capital leases..................       (594,000)       (117,000)        (12,000)
  Proceeds from exercise of stock options..................             --       5,749,000       2,998,000
  Shareholder dividends ...................................             --              --        (170,000)
  Other borrowings (repayments)............................        (36,000)         91,000              --
  Net change in line of credit borrowings..................       (947,000)     (5,572,000)     10,526,000
  Net change in note receivable-SeraNova prior to
    spin-off date..........................................             --      (6,662,000)     (6,618,000)
  Repayment of note receivable-SeraNova subsequent to
      spin-off date........................................      2,060,000       3,149,000              --
                                                              ------------    ------------     -----------
    Net cash provided by (used in) financing activities
      of continuing operations.............................        483,000      (3,362,000)      6,724,000
                                                              ------------    ------------     -----------
    Effect of foreign currency exchange rate changes
      on cash..............................................     (1,826,000)       (953,000)       (634,000)
                                                              ------------    ------------     -----------
Net cash provided by (used in) continuing operations ......        811,000      (3,558,000)      3,190,000
Net cash used in discontinued operations ..................             --        (625,000)     (1,248,000)
                                                              ------------    ------------     -----------
Net increase (decrease) in cash and cash equivalents ......        811,000      (4,183,000)      1,942,000
Cash and cash equivalents at beginning of period...........      1,327,000       5,510,000       3,568,000
                                                              ------------    ------------     -----------
Cash and cash equivalents at end of period.................   $  2,138,000    $  1,327,000     $ 5,510,000
                                                              ============    ============     ===========
Supplemental disclosures of cash flow information:
  Cash paid for income taxes...............................   $  1,216,000    $  4,053,000     $ 3,850,000
                                                              ============    ============     ===========
  Cash paid for interest...................................   $    690,000    $    608,000     $   779,000
                                                              ============    ============     ===========
Supplemental disclosures of non-cash transactions:
  Issuance of common stock in connection with acquisitions.   $         --    $      1,000     $ 4,591,000
                                                              ============    ============     ===========
</TABLE>

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


                                      F - 6
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Operations

     Intelligroup,  Inc., and its  subsidiaries  (the "Company")  provide a wide
range of  high-quality,  cost-effective  information  technology  solutions  and
services.  These services and solutions  include the  development,  integration,
implementation,  management and support of enterprise, e-commerce and m-commerce
software  applications  to  companies  of all sizes.  The  Company  markets  its
services  to a wide  variety of  industries,  the  majority  of which are in the
United States.  The majority of the Company's business is with large established
companies, including consulting firms serving numerous industries.

     On July 5, 2000, the Company  spun-off its Internet  applications  services
and management consulting businesses ("SeraNova").  This transaction resulted in
the distribution of SeraNova common stock to each holder of the Company's common
stock of  record  as of May 12,  2000.  As a  result  of this  transaction,  the
Consolidated  Financial  Statements  and  related  notes have been  restated  to
present the results of this business as discontinued operations (See Note 4).

     The Company's 2002 operating plan contains  assumptions  regarding  revenue
and  expenses.  The  achievement  of the operating  plan depends  heavily on the
timing of work performed by the Company on existing  projects and the ability of
the Company to gain and perform  work on new  projects.  Project  cancellations,
delays in the timing of work  performed  by the Company on existing  projects or
the inability of the Company to gain and perform work on new projects could have
an adverse  impact on the Company's  ability to execute its  operating  plan and
maintain  adequate  cash  flow.  In the  event  actual  results  do not meet the
operating  plan,  management  believes  it could  execute  contingency  plans to
mitigate such effects.  Such plans include additional cost reductions or seeking
additional  financing.  Considering  the cash on hand,  the credit  facility and
based on the achievement of the operating plan and management's actions taken to
date,  management believes it has the ability to continue to generate sufficient
cash to satisfy its  operating  requirements  in the normal  course of business.
However,  no assurance can be given that  sufficient cash will be generated from
operations.

Principles of Consolidation and Use of Estimates

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

     The  preparation  of financial  statements  in conformity  with  accounting
principles  generally accepted in the United States 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.



                                      F - 7
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Reclassifications

     Certain  prior year amounts have been  reclassified  to conform to the 2001
presentation.

Cash and Cash Equivalents

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

Allowance for Doubtful Accounts

     The Company  provides an  allowance  for  doubtful  accounts  arising  from
services,  which is based upon a review of  outstanding  receivables  as well as
historical  collection  information.  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.  The provision
for doubtful  accounts  totaled  $1,821,000,  $3,293,000 and $4,742,000 in 2001,
2000 and 1999, respectively. Accounts written off totaled $1,809,000, $4,171,000
and $2,649,000 in 2001, 2000 and 1999, respectively.

Property and Equipment

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

     In 1999,  the Company  adopted  Statement  of Position  98-1 ("SOP  98-1"),
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal Use." SOP 98-1 requires the  capitalization of direct costs incurred in
connection  with  developing or obtaining  software for internal use,  including
external  direct costs of materials and services and payroll and payroll related
costs for  employees  who are  directly  associated  with and devote  time to an
internal-use software development project. The cost of the internal-use software
and the  capitalized  implementation-related  costs are included within computer
software in property  and  equipment  as of December 31, 2001 and 2000 (See Note
2). Such  capitalized  costs are  amortized  on a  straight-line  basis over the
software's estimated useful life of three years.




                                     F - 8
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Intangible Assets

     Net intangible  assets as of December 31, 2000 included  goodwill and other
intangibles  totaling  $4,732,000,  which was attributable to the acquisition of
CPI  Consulting  (See Note 11).  During the year ended  December 31,  2001,  the
Company recorded an impairment charge of $4,314,000 to write-off the unamortized
balance  of  these  intangible  assets,  as part  of the  Company's  efforts  to
restructure  the  United  Kingdom  operations.  The  charge is  included  on the
Consolidated  Statements  of  Operations  in  restructuring  and  other  special
charges.  These  intangible  assets were  previously  being  amortized  over the
estimated  useful  lives  ranging  from 5 to 15 years  using  the  straight-line
method.  Accumulated  amortization  was  $1,044,000  as of  December  31,  2000.
Amortization expense was $418,000, $456,000 and $441,000 in 2001, 2000 and 1999,
respectively.

     In conjunction with the  reorganization  of the UK operations,  the Company
performed an  assessment of the carrying  value of the  intangible  assets.  The
analysis of  intangible  assets was conducted in  accordance  with  Statement of
Financial  Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" guidelines and
involved a combination  of financial  forecasting  and cash flow  analysis.  The
Company  considered the recent trend in the UK operations of declining  revenues
and  increasing  operating  losses and the resulting  impact on cash flows.  The
Company also considered that certain key founders of CPI Consulting Limited have
left the Company to pursue other interests.  Based upon the impairment test that
was conducted,  the Company recorded an intangible  asset  impairment  charge of
$4,314,000.

Other Assets

     Other  assets  as of  December  31,  2000  included  the cost of  purchased
computer  software  that  was to be  marketed  to  customers  as a  part  of the
Company's ASPPlus  solution.  During the years ended December 31, 2001 and 2000,
the Company purchased $2,678,000 and $3,957,000,  respectively, of such computer
software. However, during the year ended December 31, 2001, the Company recorded
an impairment  charge of $6,044,000 to write-down  the balance of such purchased
computer  software.  In the opinion of  management,  the  recoverability  of the
carrying value is unlikely given current and future expected market  conditions.
For the years ended  December  31, 2001 and 2000,  no  amortization  expense was
recorded since the software had not yet been placed in service.

Recoverability of Long-Lived Assets

     The  Company  reviews  the  recoverability  of its  long-lived  assets on a
periodic basis whenever events and changes in circumstances  have occurred which
may indicate a possible  impairment.  The assessment for potential impairment is
based  primarily on the Company's  ability to recover the carrying  value of its
long-lived  assets from  expected  future cash flows from its  operations  on an
undiscounted basis.


                                     F - 9
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition

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

     The  Company  also   recognizes   revenue  under  certain   unit-price  and
fixed-price  contracts.  The Company  follows the  guidance  contained  in AICPA
Statement  of  Position   ("SOP")   81-1,   "Accounting   for   Performance   of
Construction-Type and Certain Production-Type  Contracts." SOP 81-1 requires the
use of percentage-of-completion  accounting for long-term contracts that contain
enforceable  rights  regarding  services  to be  provided  and  received  by the
contracting parties,  consideration to be exchanged, and the manner and terms of
settlement, assuming reasonably dependable estimates of revenue and expenses can
be made.  The  percentage-of-completion  methodology  generally  results  in the
recognition of reasonably consistent profit margins over the life of a contract.
Amounts  recognized in revenue are  calculated  using the percentage of services
completed,  on a  current  cumulative  hours to  total  estimated  hours  basis.
Cumulative  revenues recognized may be less or greater than cumulative costs and
profits  billed at any point in time during a  contract's  term.  The  resulting
difference is included in deferred revenue.

     Billings  to  customers  for  out-of-pocket  expenses  are  recorded  as  a
reduction of expenses incurred.  Unbilled services at December 31, 2001 and 2000
represent  services  provided through December 31, 2001 and 2000,  respectively,
which are billed subsequent to year-end.  All such amounts are anticipated to be
realized in the following year.

     The adoption of Staff Accounting Bulletin No. 101, "Revenue  Recognition in
Financial  Statements," issued in December 1999, and effective during the fourth
quarter of 2000,  did not have a material  impact to the Company's  accompanying
consolidated financial statements.

Stock-Based Compensation

     Stock-based  compensation issued to employees and directors is valued using
the intrinsic value method under Accounting Principles Board ("APB") Opinion No.
25,  "Accounting  for Stock Issued to Employees." For disclosure  purposes,  pro
forma net income (loss) and earnings (loss) per share impacts are provided as if
the fair market value method had been applied.  Stock-based  compensation issued
to non-employees is valued using the fair value method.



                                     F - 10
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Currency Translation

     Assets and liabilities  relating to foreign  operations are translated into
U.S.  dollars using exchange  rates in effect at the balance sheet date.  Income
and expenses are translated  into U.S.  dollars using monthly  average  exchange
rates  during  the year.  Translation  adjustments  associated  with  assets and
liabilities  are  excluded  from  income and  credited  or charged  directly  to
shareholders' equity.

Concentrations

     For the years ended December 31, 2001,  2000 and 1999,  approximately  69%,
63% and 54% of revenue,  respectively,  was derived  from  projects in which the
Company's  personnel  implemented,  extended,  maintained,  managed or supported
software  developed  by SAP. The  Company's  future  success in its  SAP-related
consulting  services depends largely on its continued  relationship with SAP and
on its  continued  status as a SAP National  Implementation  Partner,  which was
first obtained in 1995. The Company's  agreement with SAP (the  "Agreement")  is
awarded on an annual basis.  The Company's  current contract expires on December
31, 2002 and is automatically  renewed for successive  one-year periods,  unless
terminated  by  either  party.  This  Agreement   contains  no  minimum  revenue
requirements or cost sharing  arrangements  and does not provide for commissions
or royalties to either party. In July 1997, the Company achieved Accelerated SAP
Partner  Status  with  SAP by  meeting  certain  criteria  established  by  SAP.
Additionally,  for each of the years ended  December  31,  2001,  2000 and 1999,
approximately  17%,  24% and 33%,  respectively,  of revenue  was  derived  from
projects in which the Company's  personnel  implemented,  extended,  maintained,
managed or supported  software  developed by  PeopleSoft.  For each of the years
ended December 31, 2001, 2000 and 1999,  approximately 9% of the Company's total
revenue was derived from  projects in which the Company  implemented,  extended,
maintained, managed or supported software developed by Oracle.

     A substantial  portion of the Company's revenue is derived from projects in
which an information  technology consulting firm other than the Company has been
retained by the end-user  organization to manage the overall project.  For years
ended December 31, 2001, 2000 and 1999, 42%, 36% and 48%,  respectively,  of the
Company's  revenue  was  generated  by serving as a member of  consulting  teams
assembled by other information technology consulting firms.

     During 2001, no single  customer  accounted for more than 10% of revenue or
accounts   receivable.   During  2000  and  1999,  one  customer  accounted  for
approximately 10% and 15% of revenue, respectively. Accounts receivable due from
this customer was approximately $2,979,000 as of December 31, 2000.

Income Taxes

     Deferred income taxes are recognized for the tax  consequences of temporary
differences  between  the  financial  statement  and tax  bases  of  assets  and
liabilities,  using enacted tax rates currently in effect.  The Company does not
provide for additional U.S. income taxes on undistributed earnings considered to
be permanently invested in foreign subsidiaries.



                                     F - 11
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Earnings Per Share

     Basic  earnings per share is computed by dividing  income  attributable  to
common  shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share is computed by dividing income (loss)
available to common shareholders by the weighted average number of common shares
outstanding, adjusted for the incremental dilution of outstanding stock options,
if applicable.  The computation of basic earnings per share and diluted earnings
per share were as follows:

<TABLE>
<CAPTION>
                                                          2001             2000             1999
                                                     -------------    ------------     -------------
<S>                                                  <C>              <C>              <C>
Loss from continuing operations...............       $(12,593,000)    $ (6,654,000)    $ (5,329,000)

Loss from discontinued operations.............                 --       (4,891,000)      (1,261,000)
                                                     ------------     ------------     ------------

Net loss......................................       $(12,593,000)    $(11,545,000)    $ (6,590,000)
                                                     ============     ============     ============

Basic and diluted earnings per share:
  Weighted average number of common shares....         16,630,000       16,485,000       15,766,000
                                                     ------------     ------------     ------------
  Basic and diluted loss per share from
    continuing operations.....................       $      (0.76)    $      (0.40)    $      (0.34)
  Basic and diluted loss per share from
    discontinued operations...................                 --            (0.30)           (0.08)
                                                     ------------     ------------     ------------
  Basic and diluted net loss per share........       $      (0.76)    $      (0.70)    $      (0.42)
                                                     ============     ============     ============
</TABLE>

     Stock  options,  which  would be  antidilutive  (2,833,849,  3,369,746  and
3,927,280  as of  December  31,  2001,  2000 and 1999,  respectively)  have been
excluded  from the  calculations  of  diluted  shares  outstanding  and  diluted
earnings per share.

Financial Instruments

     Financial  instruments that potentially  subject the Company to credit risk
consist  principally of trade receivables and unbilled  services.  Management of
the Company believes the fair value of accounts receivable and unbilled services
approximates  the  carrying  value.  The  Company  does not  utilize  derivative
instruments.

Recently Issued Accounting Standards

     In June 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  141,  "Business
Combinations."  SFAS No. 141 changes the accounting  for business  combinations,
requiring  that all business  combinations  be accounted  for using the purchase
method and that intangible assets be recognized as assets apart from goodwill if
they arise from  contractual or other legal rights,  or if they are separable or
capable of being  separated  from the  acquired  entity  and sold,  transferred,
licensed,  rented or  exchanged.  SFAS No.  141 is  effective  for all  business
combinations initiated after June 30, 2001.



                                     F - 12
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     In June 2001, the FASB issued SFAS No. 142,  "Goodwill and Other Intangible
Assets."  SFAS No. 142  specifies  the  financial  accounting  and reporting for
acquired  goodwill and other intangible  assets.  Goodwill and intangible assets
that have  indefinite  useful  lives will not be  amortized  but rather  will be
tested at least  annually for  impairment.  SFAS No. 142 is effective for fiscal
years  beginning  after December 15, 2001. SFAS No. 142 requires that the useful
lives of intangible assets acquired on or before June 30, 2001 be reassessed and
the remaining  amortization periods adjusted accordingly.  Previously recognized
intangible   assets  deemed  to  have  indefinite  lives  shall  be  tested  for
impairment. Goodwill recognized on or before June 30, 2001, shall be assigned to
one or more  reporting  units  and  shall be  tested  for  impairment  as of the
beginning of the fiscal year in which SFAS No. 142 is  initially  applied in its
entirety.  As of December  31,  2001,  the  Company  had no  recorded  goodwill.
Therefore,  the Company believes that the adoption of SFAS No. 142 will not have
a material impact on its financial position or results of operations.

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
Retirement  Obligations."  SFAS  No.  143  addresses  financial  accounting  and
reporting  obligations  associated  with the  retirement of tangible  long-lived
assets and the associated asset retirement  costs. SFAS No. 143 is effective for
fiscal years beginning after June 14, 2002. The Company has evaluated the impact
of the  adoption  of SFAS No.  143,  which is  effective  for the  Company as of
January 1,  2003,  and does not  believe  it will have a material  impact on the
Company's financial position or results of operations.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets."  SFAS  No.  144  changes  the
accounting  for long-lived  assets by requiring  that all  long-lived  assets be
measured  at the  lower of  carrying  amount  or fair  value  less cost to sell,
whether reporting continuing operations or in discontinued operations.  SFAS No.
144, which replaces SFAS No. 121,  "Accounting  for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to Be Disposed  Of," is effective  for fiscal
years beginning after December 15, 2001.  Management has evaluated the impact of
the adoption of SFAS No. 144,  which is effective  for the Company as of January
1, 2002,  and does not believe it will have a material  impact on the  Company's
financial position or results of operations.

     In November  2001,  the  Emerging  Issues  Task Force  ("EITF") of the FASB
concluded that reimbursements  received for  "out-of-pocket"  expenses should be
classified as revenue, and correspondingly cost of services, in the statement of
operations.  Most service companies,  whose employees incur incidental  expenses
such as airfare, mileage, hotel and out-of-town meals while working on behalf of
customers,  currently report  reimbursements for  "out-of-pocket"  expenses on a
"net" basis in the statement of operations. The new reporting treatment requires
companies  to report  these  reimbursements  on a  "gross"  basis  beginning  in
financial  reporting  periods  after  December  15,  2001.  The Company is still
evaluating  the impact of the adoption of this EITF  interpretation,  which will
negatively  impact gross  margins,  but does not believe it will have a material
impact on the Company's results of operations.



                                     F - 13
<PAGE>

NOTE 2 - PROPERTY AND EQUIPMENT

     Property and equipment consist of the following as of December 31:

                                         2001                      2000
                                    --------------            --------------
Vehicles........................    $     158,000             $     156,000
Furniture.......................        3,347,000                 3,392,000
Equipment.......................       10,520,000                10,152,000
Computer software...............        3,987,000                 2,801,000
Leasehold improvements..........        1,046,000                   801,000
                                    -------------             -------------
                                       19,058,000                17,302,000
Less-Accumulated depreciation...      (10,959,000)               (7,652,000)
                                    -------------             -------------
                                    $   8,099,000             $   9,650,000
                                    =============             =============

     Depreciation expense was $4,057,000,  $3,024,000 and $2,489,000  (including
$780,000 $293,000 and $0 of depreciation  expense recorded within cost of sales,
respectively) in 2001, 2000 and 1999, respectively.


NOTE 3 - LINES OF CREDIT

     From  January 29,  1999 until May 31,  2000,  the Company had an  unsecured
three-year  $30.0 million  revolving  credit  facility with PNC Bank,  N.A. (the
"Bank").  The credit facility contained certain financial covenants in which the
Company was not in  compliance  with as of June 30, 1999 and September 30, 1999.
In January 2000,  the Company  finalized with the Bank the terms of a waiver and
amendment to the credit  agreement to remedy  defaults,  which existed under the
credit agreement.  However,  the Company was not in compliance with the modified
financial covenants as of March 31, 2000. Accordingly,  on May 9, 2000, the Bank
issued to the Company a waiver of the  defaults,  which existed under the credit
agreement for the quarter ended March 31, 2000.

     On May 31,  2000,  the Company and the Bank  entered  into an  agreement to
replace the previous  facility with a new three-year  revolving credit facility.
Such credit  facility is  comprised  of a revolving  line of credit  pursuant to
which the Company can borrow up to  $20,000,000  either at the Bank's prime rate
per annum or the Euro Rate plus 1.75% to 2.5% based upon the Company's  ratio of
debt to EBITDA.  The credit facility is  collateralized  by substantially all of
the  assets  of the  United  States  based  operations.  The  maximum  borrowing
availability  under the line of credit is based upon a  percentage  of  eligible
billed and unbilled accounts  receivable,  as defined.  As of December 31, 2001,
the Company had outstanding  borrowings under the credit facility of $4,066,000.
The  Company  estimates  undrawn  availability  under the credit  facility to be
$6,138,000  as of December  31, 2001.  As of December 31, 2000,  the Company had
outstanding borrowings under the credit facility of $5,013,000.



                                     F - 14
<PAGE>

NOTE 3 - LINES OF CREDIT (CONTINUED)

     The credit facility provides for the following financial  covenants,  among
other things,  (1) the Company must maintain  consolidated net worth, as defined
("consolidated   net  worth")  of  (a)  not  less  than  95%  of  the  Company's
consolidated  net worth of the immediately  preceding fiscal year-end as at each
such  fiscal  quarter  after  December  31,  2000;  and (b) at least 105% of the
Company's consolidated net worth as of the immediately preceding fiscal year-end
as at each such fiscal  year-end  subsequent  to December  31,  2000;  provided,
however,  the foregoing  covenant shall not be tested for any quarter so long as
the  Company  maintains,  at all  times  during  such  fiscal  quarter,  undrawn
availability  of  more  than  $5,000,000  and  (2)  the  Company  must  maintain
unconsolidated  net worth,  as defined  ("unconsolidated  net worth") of (a) not
less  than 95% of the  Company's  unconsolidated  net  worth of the  immediately
preceding  fiscal  year-end as at each such fiscal  quarter  after  December 31,
2000; and (b) at least 105% of the Company's  unconsolidated net worth as of the
immediately preceding fiscal year-end as at each such fiscal year-end subsequent
to December 31, 2000;  provided,  however,  the foregoing  covenant shall not be
tested for any quarter so long as the  Company  maintains,  at all times  during
such fiscal quarter, undrawn availability of more than $5,000,000. Additionally,
the credit facility  contains material adverse change clauses with regard to the
financial condition of the assets, liabilities and operations of the Company.

     As of  December  31,  2001,  the  Company  was not in  compliance  with the
consolidated  net worth and  unconsolidated  net worth financial  covenants.  In
March  2002,  the  Company  finalized  with the Bank the  terms of a waiver  and
amendment  to the credit  agreement  to remedy such  defaults.  The terms of the
waiver and amendment included,  among other things, (1) a waiver of the covenant
defaults as of December 31, 2001, (2) a modification to the financial  covenants
to  require  that  consolidated  net  worth and  unconsolidated  net worth as of
December  31,  2002  be not  less  than  102%  of  consolidated  net  worth  and
unconsolidated net worth,  respectively,  as of December 31, 2001, and (3) a new
financial covenant requiring that the Company generate earnings before interest,
taxes,  depreciation  and  amortization  ("EBITDA") of at least 90% of the prior
year's  EBITDA.  The Company  believes  that it will be in  compliance  with all
financial covenants throughout 2002.

     Interest expense on debt and obligations under capital leases  approximated
$690,000,  $608,000 and $720,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

NOTE 4 - DISCONTINUED OPERATIONS

     In November  1999,  the Company  announced  its  intentions to spin off its
Internet  applications  services and management  consulting  business subject to
certain  approvals and conditions.  On January 1, 2000, the Company  transferred
its Internet  applications  services and  management  consulting  businesses  to
SeraNova, a wholly-owned subsidiary of the Company on such date.

     On March 14, 2000, SeraNova sold 831,470 shares of its common stock to four
institutional  investors for  $10,000,000.  SeraNova  granted certain demand and
piggyback registration rights to such investors.



                                     F - 15
<PAGE>

NOTE 4 - DISCONTINUED OPERATIONS (CONTINUED)

     On July 5, 2000, the Company completed the tax-free spin-off of SeraNova by
distributing all of the outstanding  shares of the common stock of SeraNova then
held by the Company to holders of record of the Company's common stock as of the
close  of  business  on May 12,  2000 (or to their  subsequent  transferees)  in
accordance  with the terms of a  Distribution  Agreement  dated as of January 1,
2000  between the Company  and  SeraNova.  SeraNova  represented  a  significant
segment of the Company's business.

     Pursuant to APB  Opinion No. 30,  "Reporting  the Results of  Operations  -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently  Occurring Events and  Transactions,"  the Consolidated
Financial  Statements  of the  Company  have been  reclassified  to reflect  the
spin-off of SeraNova.  Accordingly,  the results of operations and cash flows of
SeraNova have been segregated in the  Consolidated  Statements of Operations and
Consolidated  Statements of Cash Flows.  The net operating  results and net cash
flows  of  SeraNova  have  been  reported  as  "Discontinued   Operations."  The
historical  carrying  amount of the net assets of SeraNova on the spin-off  date
has been recorded as a dividend.

     The  following is summarized  financial  information  for the  discontinued
operations of SeraNova:

                                          JANUARY 1, 2000 TO      YEAR ENDED
                                             JULY 5, 2000      DECEMBER 31, 1999
                                          ------------------   -----------------
Revenue................................     $  36,019,000       $   39,795,000
Pre-tax loss...........................        (6,986,000)          (1,496,000)
Income tax benefit.....................        (2,095,000)            (235,000)
Loss from discontinued operations......        (4,891,000)          (1,261,000)

                                             JULY 5, 2000
                                          -----------------
Current assets.........................     $  25,319,000
Total assets...........................        36,874,000
Note payable to Intelligroup...........        15,059,000
Current liabilities....................         9,173,000
Total liabilities......................        26,170,000
Net assets of discontinued operations..        10,704,000

NOTE 5 - NOTE RECEIVABLE - SERANOVA

     On May  31,  2000,  SeraNova  and  the  Company  formalized  a  $15,100,000
unsecured  promissory  note (the "Note")  relating to net borrowings by SeraNova
from the Company  through such date.  The Note bears  interest at the prime rate
plus 1/2%.  The Company has  recorded  total  accrued  interest of $940,000  and
$803,000 as of December  31,  2001 and 2000,  respectively.  The Company has not
recorded  any  accrued  interest on the  balance of the Note  subsequent  to the
maturity  date of July 31, 2001. A payment of  $3,000,000  was made on September
29, 2000 with the balance being due on July 31, 2001.


                                     F - 16
<PAGE>

NOTE 5 - NOTE RECEIVABLE - SERANOVA (CONTINUED)

     In September  2000,  SeraNova  consummated  an $8,000,000  preferred  stock
financing  with  two  institutional   investors.   According  to  the  mandatory
prepayment provisions of the Note, SeraNova was required to make a prepayment of
$3,000,000  on the Note as a result of the stock  financing.  Subsequently,  the
Company finalized, with SeraNova, the terms of an agreement to waive, subject to
certain conditions, certain of the mandatory prepayment obligations arising as a
result of the financing.  The terms of the new agreement  included,  among other
things,  that  SeraNova  pay the  Company (i)  $500,000  upon  execution  of the
agreement;  (ii)  $500,000 on or before each of January 31,  2001,  February 28,
2001,  March 31, 2001, April 30, 2001 and May 31, 2001; and (iii) $400,000 on or
before  December 15, 2000 to be applied either as (a) an advance payment towards
a  contemplated  services  arrangement  for  hosting  services to be provided to
SeraNova by Company (the "Hosting Agreement");  or (b) in the event that no such
Hosting  Agreement is executed on or before  December 15,  2000,  an  additional
advance prepayment toward the principal of the Note.

     The Company  received from SeraNova the $500,000  payment that was due upon
execution of the agreement and a $400,000 payment in December 2000 as an advance
payment  towards  the  principal  of the Note  since no  Hosting  Agreement  was
executed before December 15, 2000.

     In 2001, the Company received principal  payments totaling  $2,060,000 from
SeraNova.  However,  SeraNova  failed to make final  payment of all  amounts due
under the Note to the  Company  as of July 31,  2001.  On August 16,  2001,  the
Company filed a complaint against SeraNova and Silverline  Technologies  Limited
("Silverline"), which acquired SeraNova in March 2001. As of such date, SeraNova
was  obligated  to pay to the Company  the  remaining  principal  (approximately
$9,140,000) and accrued interest  (approximately  $940,000),  or an aggregate of
$10,080,000.  Although  management  believes  they are  entitled  to the  entire
$10,080,000  balance,  there can be no assurance that SeraNova and/or Silverline
will pay the entire balance due the Company.  In the event the Company accepts a
payment in less than full  satisfaction of the $10,080,000 due, the Company will
record a charge  against  earnings  for such  difference.  The  Company  has not
recorded a reserve against the remaining  balance of $10,080,000  under the Note
as of December 31, 2001,  as the amount of loss,  if any,  cannot be  reasonably
estimated.  Management believes that SeraNova and/or Silverline have the ability
to pay  the  entire  balance  due.  The  resolution  of this  uncertainty  could
materially impact the Company's  consolidated  financial position and results of
operations.  In addition,  SeraNova filed a counterclaim against the Company for
unspecified  damages as a set-off against the Company's  claims.  In response to
the Company's request for a statement of damages, SeraNova stated that it was in
the process of calculating its damages,  but for informational  purposes claimed
compensatory  damages in excess of $5,500,000 and punitive damages in the amount
of $10,000,000. The parties are currently proceeding with the discovery process.
The Company  believes that there is no basis to support such amounts  claimed by
SeraNova.



                                     F - 17
<PAGE>

NOTE 5 - NOTE RECEIVABLE - SERANOVA (CONTINUED)

     In addition, on March 4, 2002, the Company filed an arbitration demand with
the American Arbitration Association against SeraNova and Silverline. The demand
for arbitration,  which seeks damages,  alleges among other things that SeraNova
and/or  Silverline  failed to pay outstanding lease obligations to the Company's
landlords and to reimburse the Company for all rent payments made by the Company
on their behalf.  As of the date the arbitration  demand was filed,  the Company
claimed that the outstanding lease obligations totaled $236,010.  The Company is
further seeking jurisdiction over further payment defaults by the respondents to
the Company and its landlords.  The Company does not believe that the outcome of
this claim will have a  materially  adverse  effect on the  Company's  business,
financial condition or results of operations.

NOTE 6 - RESTRUCTURING AND OTHER SPECIAL CHARGES

     In connection with the Company's plan to reduce costs and improve operating
efficiencies,  the Company incurred a non-recurring charge of $5,628,000 related
to  restructuring  initiatives  during the year ended  December  31,  1999.  The
restructuring charge included settlement of the former chief executive officer's
employment agreement and additional severance payment,  expenses associated with
the  termination of certain  employees in the United States and United  Kingdom,
the closing of certain  satellite offices in the United States and an additional
office in Belgium, and costs to exit certain contractual obligations.

     During the year ended December 31, 2001, in an effort to further refine the
Company's  business strategy around its core competencies and to refocus on more
active  markets,  the Company  recorded a  $13,261,000  restructuring  and other
special charges  provision.  The charges,  which were mainly non-cash in nature,
were related primarily to the ASP business in the United States, the termination
of an agreement to build and operate a technology development and support center
in  Puerto  Rico,  and to the  restructuring  and  downsizing  of the  Company's
operations in the United Kingdom ("UK").

     The charges  associated with the ASP business in the United States included
a write-down  of  approximately  $6,044,000 in purchased  computer  software and
$469,000 in fixed assets, as well as $215,000 in severance costs and $152,000 in
exit costs. The Company determined that an impairment charge was required, since
the  recoverability  of the value of the  computer  software  and fixed  assets,
acquired for use in the ASP service offering,  seemed unlikely given current and
future expected market conditions.  The severance costs and exit costs relate to
the reduction of headcount associated with the ASP service offering.



                                     F - 18
<PAGE>

NOTE 6 - RESTRUCTURING AND OTHER SPECIAL CHARGES (CONTINUED)

     The  Company  determined  that  it  did  not  need  the  expanded  capacity
associated  with a planned  technology  development and support center in Puerto
Rico.  Accordingly,  the Company  reached an agreement  with the  Government  of
Puerto Rico to  terminate  the project  and to cancel the  associated  grant and
other related contracts.  As part of the termination agreement,  the Company was
released from all future obligations related to the project, but in exchange had
to forego reimbursement of $1,307,000 in previously incurred operating costs and
fixed assets, which had already been paid for by the Company.  Accordingly,  the
Company recorded a charge of $1,307,000,  which is included in restructuring and
other special charges in the Consolidated Statements of Operations.

     Finally,  the  Company  executed  a plan to  reorganize  and  downsize  the
Company's  operations in the UK. The restructuring costs included the write-down
of  $4,314,000 of  intangible  assets and $172,000 of fixed  assets,  as well as
severance costs of $315,000 and exit costs of $273,000  associated with reducing
employee headcount in the region.

     In conjunction with the  reorganization  of the UK operations,  the Company
performed an  assessment of the carrying  value of the  intangible  assets.  The
intangible  asset  balance,  consisting  primarily  of  goodwill  and  assembled
workforce,  represents the excess purchase price associated with the acquisition
of CPI Consulting  Limited  during 1998.  The analysis of intangible  assets was
conducted  in  accordance  with  Statement  of  Financial  Accounting  Standards
("SFAS") No. 121,  "Accounting  for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets to Be Disposed Of"  guidelines  and involved a combination of
financial forecasting and cash flow analysis.  The Company considered the recent
trend in the UK operations of declining revenues and increasing operating losses
and the resulting impact on cash flows. The Company also considered that certain
key  founders of CPI  Consulting  Limited  have left the Company to pursue other
interests.  Based  upon the  impairment  test that was  conducted,  the  Company
recorded an intangible asset impairment charge of $4,314,000.

     Activity  in accrued  costs for  restructuring  and other  special  charges
during 1999, 2000 and 2001 is as follows:

<TABLE>
<CAPTION>
                                               SEVERANCE AND         ASSET
                                               RELATED COSTS      IMPAIRMENTS         EXIT COSTS           TOTAL
                                              ----------------- ----------------- ------------------ -----------------

<S>                                           <C>                <C>                <C>               <C>
Charges to operations during 1999             $    5,027,000     $          --      $     601,000     $    5,628,000
Costs paid during 1999                            (4,162,000)               --           (517,000)        (4,679,000)
Accrued costs as of December 31, 1999                865,000                --             84,000            949,000

Costs paid during 2000                              (608,000)               --                 --           (608,000)
Accrued costs as of December 31, 2000                257,000                --             84,000
                                                                                                             341,000

Charges to operations during 2001                    530,000        10,999,000          1,732,000         13,261,000
Costs paid during 2001                              (402,000)               --           (172,000)          (574,000)
Non-cash utilization during 2001                          --       (10,999,000)        (1,177,000)       (12,176,000)
Accrued costs as of December 31, 2001         $      385,000     $          --      $     467,000     $      852,000
</TABLE>



                                     F - 19
<PAGE>

NOTE 6 - RESTRUCTURING AND OTHER SPECIAL CHARGES (CONTINUED)

     Additionally,  in 1999 the Company recorded a reserve of $1,700,000 against
an outstanding  receivable  from a large ERP account,  whose parent  corporation
filed for protection under Chapter 11 of the U.S. bankruptcy laws.

NOTE 7 - INCOME TAXES

     Income taxes provision (benefit) consists of the following:

                                 2001               2000               1999
                           -------------      --------------      --------------
Current:
    Federal.........        $   636,000       $ (1,951,000)        $ 2,310,000
    State...........                 --                 --             345,000
    Foreign.........            386,000            506,000             216,000
                            -----------       ------------         -----------
                              1,022,000         (1,445,000)          2,871,000
                            -----------       ------------         -----------
Deferred:
    Federal.........           (430,000)           872,000          (1,267,000)
    State...........                 --                 --            (163,000)
                            -----------       ------------         -----------
                               (430,000)           872,000          (1,430,000)
                            -----------       ------------         -----------
Total...............        $   592,000       $   (573,000)        $ 1,441,000
                            ===========       ============         ===========

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

                                                 2001         2000         1999
                                                ------      -------       ------
Tax at federal statutory rate...............     (34)%        (34)%        (34)%
Nondeductible expenses......................      --            1            2
State income tax, net of federal benefit....      --           --            2
Foreign losses for which no benefit is
available...................................      25            7            3
Changes in valuation allowance..............       8           16           67
Foreign operations taxed at less than U.S.
    statutory rate, primarily India.........      10            2            5
S Corp and L.L.C. income passed through to
    shareholders............................      --           --           (8)
Other.......................................      (4)          --           --
                                                 ----        -----        -----
Effective tax rate..........................       5%          (8)%         37%
                                                 ====        =====        =====

     In 1996, the Company elected a five-year tax holiday in India in accordance
with a local tax incentive  program whereby no income taxes will be due for such
period.  Such tax holiday was  extended  for an  additional  five years in 1999.
Effective  April 1, 2000 pursuant to changes  introduced  by the Indian  Finance
Act, 2000,  the tax holiday  previously  granted is no longer  available and has
been  replaced  in the form of a tax  deduction  incentive.  The  impact of this
change is not expected to be material to the consolidated  financial  statements
of the Company. Prior to their acquisition,  the Empower Companies (see Note 11)
were pass-through entities for tax reporting purposes, thus their income was not
taxed at the corporate level.  Accordingly,  the Company's federal statutory tax
rate was reduced by 8% for 1999.



                                     F - 20
<PAGE>

NOTE 7 - INCOME TAXES (CONTINUED)

     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 as of December
31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                               2001              2000
                                                         --------------     -------------
<S>                                                      <C>                <C>
Deferred tax assets:
  Allowance for doubtful accounts.................       $     731,000      $     742,000
  Vacation accrual................................             326,000            122,000
  Net operating losses............................           6,688,000          4,372,000
  Other accrued liabilities.......................             293,000            484,000
                                                         -------------      -------------
Total deferred tax assets.........................           8,038,000          5,381,000
Deferred tax liability-accelerated depreciation...            (621,000)        (1,040,000)
Valuation allowance...............................          (5,845,000)        (3,538,000)
                                                         -------------      -------------
Net deferred tax asset............................       $   1,572,000      $   1,142,000
                                                         =============      =============
</TABLE>

     During 2001 and 2000, the Company generated  operating losses.  The Company
has  provided a  valuation  allowance  against  certain  of these net  operating
losses, as the ability to utilize these losses may be limited in the future. Net
operating loss carryforwards  expire in various years through 2021. Although the
realization of the net deferred tax assets is not assured,  management  believes
it is more likely than not,  that the 2001 net deferred tax asset of  $1,572,000
will be realized.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Tax-Free Spin-off of SeraNova

     On  July  5,  2000,  the  Company  distributed  SeraNova  common  stock  to
shareholders  in a  transaction  that was  intended  to be a  tax-free  spin-off
pursuant to Section 355 of the Internal  Revenue Code ("Section  355") (See Note
4). If the distribution  qualifies as a tax-free  spin-off,  neither the Company
nor the Company's  shareholders  recognize any gain or income in connection with
the transaction.  However, Section 355 provides that the Company may be required
to recognize a gain on the  transaction  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.  The  Company  and  SeraNova
executed  a  Tax  Sharing  Agreement,   dated  January  1,  2000  ("Tax  Sharing
Agreement"),   whereby   SeraNova  would  indemnify  the  Company  for  any  tax
liabilities  in the  event a  future  transaction  of  SeraNova  results  in the
spin-off being deemed a taxable event.



                                     F - 21
<PAGE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

     On  October  27,  2000,  SeraNova  and  Silverline   Technologies   Limited
("Silverline")  announced  that they had entered into an  agreement  and plan of
merger,  under which  Silverline would acquire SeraNova in exchange for American
depositary  shares of  Silverline  and the  assumption by Silverline of SeraNova
indebtedness.  However, SeraNova management has represented that the merger with
Silverline was not contemplated at the time of the spin-off and accordingly, the
spin-off  should be  tax-free.  Should the spin-off  ultimately  be construed as
taxable,  the resultant tax liability could be up to $65,000,000,  plus interest
and, depending on the facts that ultimately are established, penalties. SeraNova
and/or  Silverline would be obligated to indemnify the Company for these amounts
under the Tax Sharing Agreement.

Employment Agreements

     As of December 31, 2001, the Company had employment agreements with certain
of  its  executives,  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 $550,000.

Leases

     The Company  leases  office  space,  office  equipment  and vehicles  under
capital and operating leases that have initial or remaining non-cancelable lease
terms in excess of one year as of December 31, 2001.  Future  minimum  aggregate
annual lease payments are as follows:

                FOR THE YEARS
             ENDING DECEMBER 31,            CAPITAL        OPERATING
             -------------------            -------        ---------
       2002..........................       $  727,000      $2,162,000
       2003..........................          383,000      1,670,000
       2004..........................               --      1,421,000
       2005..........................               --      1,038,000
       2006..........................               --        980,000
       Thereafter....................               --      1,397,000
                                            ----------
       Subtotal......................        1,110,000
       Less-Interest.................           93,000
                                            ----------
                                             1,017,000
       Less-Current Portion..........          646,000
                                            ----------
                                            $  371,000
                                            ==========

     Rent  expense  for the years ended  December  31,  2001,  2000 and 1999 was
$4,647,000, $3,940,000 and $4,340,000, respectively.



                                     F - 22
<PAGE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Tax Contingency in India

     The Company's Indian  subsidiary has received an assessment from the Indian
taxing authority denying tax exemptions claimed for certain of their fiscal year
March  31,  1998  revenue.   The  assessment  is  for  20  million  rupees,   or
approximately  $417,000.  Management,  after  consultation  with  its  advisors,
believes the Company is entitled to the tax  exemption  claimed and thus has not
recorded a liability as of December 31, 2001.  If the Company is not  successful
with its  appeal,  which was  filed in 2001,  a future  charge of  approximately
$417,000 would be recorded and reflected in the Company's consolidated statement
of operations.

Legal

     On February 7, 2001, NSA Investments II LLC filed a complaint in the United
States District Court for the District of  Massachusetts  naming,  among others,
SeraNova,  the Company  and  Rajkumar  Koneru,  a director  of the  Company,  as
defendants.  The  plaintiff  alleges that it invested  $4,000,000 in SeraNova as
part of a private placement of SeraNova common stock in March 2000, prior to the
spin-off of SeraNova by the Company. The complaint, which seeks compensatory and
punitive  damages,  alleges  that the  Company,  as a  "controlling  person"  of
SeraNova, is jointly and severally liable with and to the extent as SeraNova for
false and misleading statements constituting  securities laws violations.  After
being served with the complaint,  the Company made a request for indemnification
from  SeraNova  pursuant to the various  inter-company  agreements in connection
with the spin-off. By letter dated April 13, 2001,  SeraNova's counsel,  advised
the Company that SeraNova acknowledged liability for such indemnification claims
and has  elected to assume the  defense of the  plaintiff's  claims.  In October
2001,  the motion to dismiss,  filed on behalf of the  Company in May 2001,  was
denied  without  prejudice  to  refile  at the  close of the  discovery  period.
Court-ordered  mediation  between the plaintiff and SeraNova  during January and
February 2002 was  unsuccessful.  In January 2002,  plaintiff filed a motion for
partial  summary  judgment as to certain  claims  against  SeraNova.  No summary
judgment motion was filed against the Company.  SeraNova filed its opposition to
plaintiff's  motion for partial summary against the Company.  SeraNova filed its
opposition to plaintiff's  motion for partial summary judgment in February 2002.
Such motion for partial summary  judgment is expected to be heard in April.  The
Company denies the allegations made and intends to defend  vigorously the claims
made by the plaintiff.  It is too early in the dispute  process to determine the
impact,  if any,  that  such  dispute  will have  upon the  Company's  business,
financial condition or results of operations.

     The  Company  is  engaged in other  legal and  administrative  proceedings.
Except for the litigation  related to the SeraNova Note (See Note 5), management
believes  the  outcome of these  proceedings  will not have a  material  adverse
effect  on  the  Company's   consolidated   financial  position  or  results  of
operations.




                                     F - 23
<PAGE>

NOTE 9 - STOCK OPTION PLANS

     The  Company's  stock  option  plans  permit  the  granting  of  options to
employees,  non-employee directors and consultants.  The Option 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 5,340,000
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.

                                                                WEIGHTED AVERAGE
                                            NUMBER OF SHARES     EXERCISE PRICE
-------------------------------------------------------------------------------
Options Outstanding, December 31, 1998
(262,156 exercisable)...................       1,899,141           $   14.14
Granted.................................       3,465,759           $    8.82
Exercised...............................        (220,645)          $   13.47
Canceled................................      (1,216,975)          $   14.00
-------------------------------------------------------------------------------
Options Outstanding, December 31, 1999
(336,090 exercisable)..................        3,927,280           $    9.55
Granted.................................       4,842,931           $    4.94
Exercised...............................        (581,450)          $   10.06
Canceled................................      (4,819,015)          $    9.31
-------------------------------------------------------------------------------
Options Outstanding, December 31, 2000
(1,038,275 exercisable).................       3,369,746           $    3.18
Granted.................................         157,810           $    1.07
Exercised...............................              --           $     --
Canceled................................        (693,707)          $    3.41
-------------------------------------------------------------------------------
Options Outstanding, December 31, 2001
(1,658,764 exercisable).................       2,833,849           $    3.10
                                              ===========         ===========

     Effective  with the  spin-off  of SeraNova  on July 5, 2000,  all  unvested
Intelligroup   stock  options  held  by  SeraNova   employees   were   canceled.
Additionally,  as of July 6,  2000,  the  exercise  price  of all  employee  and
director  stock  options was  adjusted to offset the  reduction  in option value
caused by the  spin-off of  SeraNova.  The  exercise  price of each stock option
grant  outstanding  as of July 5, 2000,  was  adjusted  based on the  percentage
change in closing price of the Company's stock on the distribution  date of July
5, 2000,  and the  ex-dividend  date of July 6, 2000.  In  accordance  with FASB
Interpretation  No. 44,  "Accounting  for Certain  Transactions  Involving Stock
Compensation,"   the  Company  has  concluded   that  there  are  no  accounting
consequences  for changing the exercise price of outstanding  stock options as a
result of the spin-off.



                                     F - 24
<PAGE>

NOTE 9 - STOCK OPTION PLANS (CONTINUED)

     The following table summarizes  information about stock options outstanding
and exercisable at December 31, 2001:

<TABLE>
<CAPTION>
                                             Outstanding                                       Exercisable
                            -------------------------------------------------     ------------------------------------
                                              Weighted
                                               Average            Weighted                               Weighted
    Exercise Price             Number       Remaining Life        Average              Number of         Average
        Range                of shares        (in years)       Exercise Price            shares        Exercise Price
-----------------------------------------------------------------------------     ------------------------------------
 <S>                         <C>                <C>               <C>                <C>                 <C>
  $0.750 to 0.999               18,000           9.5              $  0.956                   --          $      --
  $1.000 to 1.499              150,250           9.0              $  1.108               31,059          $   1.125
  $1.500 to 2.249              317,090           8.0              $  2.059              152,347          $   2.073
  $2.250 to 2.749              889,788           7.6              $  2.544              664,401          $   2.544
  $2.750 to 2.999              904,500           5.5              $  2.800              601,500          $   2.799
  $3.000 to 4.499              289,560           7.8              $  4.295               89,897          $   4.141
  $4.500 to 6.749              181,341           7.0              $  5.277               85,409          $   5.366
  $6.750 to 9.999               28,237           8.1              $  8.620                8,442          $   8.610
 $10.000 to 13.749              55,083           7.9              $ 12.881               25,709          $  13.090
                             ---------          ----              --------            ---------          ---------
  $0.75 to 13.749            2,833,849           7.1              $   3.10            1,658,764          $   2.993
                             =========                                                =========
</TABLE>

     As permitted by SFAS 123, the Company has chosen to continue accounting for
stock  options  issued to  employees  and  directors at their  intrinsic  value.
Accordingly,  no  compensation  cost has been  recognized  for the stock  option
plans.  Had  compensation  cost  for  the  Company's  stock  option  plans  been
determined  based on the fair value option  pricing  method,  the  tax-effective
impact would be as follows:

<TABLE>
<CAPTION>
                                              2001                2000                 1999
----------------------------------------------------------------------------------------------
<S>                                       <C>                 <C>                 <C>
Net (Loss) Income:
    as reported................           $(12,593,000)       $(11,545,000)       $ (6,590,000)
    pro forma..................           $(22,894,000)       $(31,990,000)       $(14,975,000)
----------------------------------------------------------------------------------------------
Basic and Diluted Earnings per
Share:
    as reported................           $     (0.76)        $     (0.70)        $      (0.42)
    pro forma..................           $     (1.38)        $     (1.94)        $      (0.95)
</TABLE>

     The fair value of option grants for disclosure purposes is estimated on the
date of grant using the Black-Scholes  option-pricing  model using the following
weighted-average  assumptions:  expected  volatility  of  110%,  121%  and  82%,
risk-free  interest rate of 3.3%,  5.2% and 5.6% and expected  lives of 2.7, 3.4
and 2.9 years, in 2001, 2000 and 1999,  respectively.  The weighted average fair
value of options granted during 2001, 2000 and 1999 was $0.70,  $4.68 and $9.75,
respectively.



                                     F - 25
<PAGE>

NOTE 10 - STOCK RIGHTS

     In  October  1998 the  Company's  Board of  Directors  declared  a dividend
distribution  of  one  Preferred  Share  Purchase  Right   ("Rights")  for  each
outstanding  share of the Company's  common  stock.  These Rights will expire in
November  2008 and trade with the Company's  common  stock.  Such Rights are not
presently  exercisable  and have no  voting  power.  In the  event a  person  or
affiliated group of persons, acquires 20% or more, or makes a tender or exchange
offer for 20% or more of the Company's  common stock, the Rights detach from the
common  stock  and  become   exercisable   and  entitle  a  holder  to  buy  one
one-hundredth (1/100) of a share of preferred stock at $100.00.

     If, after the Rights become exercisable, the Company is acquired or merged,
each Right will  entitle  its holder to  purchase  $200.00  market  value of the
surviving company's stock for $100.00,  based upon the current exercise price of
the Rights.  The Company may redeem the Rights, at its option, at $.01 per Right
prior to a public announcement that any person has acquired beneficial ownership
of at least  20% of the  Company's  common  stock.  These  Rights  are  designed
primarily to encourage  anyone  interested in acquiring the Company to negotiate
with the Board of Directors.

NOTE 11 - ACQUISITIONS

     On February 16, 1999, the Company  acquired Empower  Solutions,  L.L.C. and
its affiliate Empower,  Inc. (a corporation organized under sub-chapter S of the
Internal  Revenue  Code).  The  acquisitions  were  accounted for as poolings of
interests.   In  connection   with  these   acquisitions,   the  Company  issued
approximately 2,000,000 shares of the Company's common stock. In connection with
the mergers, acquisition expenses of $2,115,000 were expensed during 1999. These
costs primarily relate to professional fees incurred.

     On May 7, 1998,  the Company  acquired  thirty  percent of the  outstanding
share capital of CPI  Consulting  Limited.  This  acquisition  was accounted for
utilizing  the purchase  method of  accounting.  The  consideration  paid by the
Company  included the issuance of 165,696  shares of the Company's  common stock
with a fair market value of  $3,100,000  at the time of purchase.  An additional
155,208  shares  of the  Company's  common  stock  with a fair  market  value of
$2,500,000  was  paid  during  1999  pursuant  to an  earn-out  relating  to the
operating results for the balance of 1998. The excess of purchase price over the
fair value of the net assets  acquired  was  attributed  to  intangible  assets,
amounting in the aggregate to $5,800,000.

NOTE 12 - RELATED PARTY TRANSACTIONS

     During  2001,  2000 and 1999,  the Company  provided  services to FirePond,
which  produced  revenues  for  the  Company  totaling  approximately  $156,000,
$307,000  and  $58,000,  respectively.  A  member  of  the  Company's  Board  of
Directors,  Klaus P. Besier,  serves as the Chief Executive Officer of FirePond.
The  Company  provided  implementation  services to various  end  clients,  as a
sub-contractor  to FirePond.  Services were priced at rates  comparable to other
similar   sub-contracting   arrangements   in  which   the   Company   regularly
participates.



                                     F - 26
<PAGE>

NOTE 12 - RELATED PARTY TRANSACTIONS (CONTINUED)

     On May 30,  2001,  the Company  advanced  the amount of $60,000 to Nagarjun
Valluripalli,  the Chief Executive  Officer and a Director of the Company,  with
the intent that such amount would be applied against any  performance  bonus due
Mr.  Valluripalli  for the full year 2001. In connection with such  arrangement,
the  parties  executed  a  compensation   advance  agreement   executed  by  Mr.
Valluripalli  in  favor  of  the  Company  (the  "Compensation   Advance").  The
Compensation  Advance  provides,  among other  things,  for (i) repayment of the
outstanding  principal amount of the  Compensation  Advance on or before May 22,
2002;  (ii)  the  accrual  of no  interest  on  amounts  outstanding  under  the
Compensation Advance during the period of Mr. Valluripalli's employment with the
Company;  and (iii) the  accrual of interest  on amounts  outstanding  under the
Compensation  Advance at a rate per annum equal to the Federal  Funds  Effective
Rate  announced  by the Federal  Reserve  Bank of New York,  in the event of and
following the termination of Mr. Valluripalli's employment with the Company. The
largest aggregate amount of indebtedness outstanding at any time during the term
of the  Compensation  Advanced  was  $60,000.  In March 2002,  the  Compensation
Committee of the  Company's  Board of Directors  approved a full year 2001 bonus
for Mr. Valluripalli in an amount of up to $200,000.

NOTE 13 - SEGMENT DATA AND GEOGRAPHIC INFORMATION

     The Company operates in one industry,  information technology solutions and
services.  The  Company  has  four  reportable  operating  segments,  which  are
organized and managed on a geographical basis, as follows:

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

     o    Asia-Pacific  ("APAC") - includes  the  operations  of the  Company in
          Australia, Hong Kong, Indonesia, Japan, New Zealand and Singapore. The
          APAC headquarters are located in Wellington, New Zealand;

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

     o    India - includes the  operations of the Company in India,  Jamaica and
          the United  Arab  Emirates.  The Indian  headquarters  are  located in
          Hyderabad, India.


                                     F - 27
<PAGE>

NOTE 13 - SEGMENT DATA AND GEOGRAPHIC INFORMATION (CONTINUED)

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

     Accordingly,  the Company's  operating  results and financial  position are
presented in the following  geographic segments for the years ended December 31,
2001, 2000 and 1999.

<TABLE>
<CAPTION>

                                    UNITED STATES    ASIA-PACIFIC        EUROPE            INDIA               TOTAL
                                    -------------    ------------        ------            -----               -----
2001
----
<S>                                 <C>              <C>              <C>              <C>                <C>
Revenue.......................      $ 72,285,000     $ 12,757,000     $ 10,636,000     $ 12,428,000       $ 108,106,000
Depreciation & amortization...         2,167,000          253,000          684,000          591,000           3,695,000 (1)
Operating income (loss).......        (6,991,000)         368,000       (8,495,000)       3,078,000         (12,040,000)(2)
Total assets..................        35,175,000        4,788,000        2,183,000        5,403,000          47,549,000

2000
----
Revenue.......................      $ 77,814,000     $ 10,806,000     $ 17,844,000     $  6,374,000       $ 112,838,000
Depreciation & amortization...         2,023,000          145,000          697,000          322,000           3,187,000 (3)
Operating income (loss).......        (6,228,000)          81,000       (1,741,000)          91,000          (7,797,000)
Total assets..................        44,749,000        5,918,000        9,309,000        7,392,000          67,368,000

1999
----
Revenue.......................      $105,898,000     $  8,911,000     $ 24,585,000     $  6,878,000       $ 146,272,000
Depreciation & amortization...         1,675,000          156,000          807,000          292,000           2,930,000
Operating income (loss).......        (6,133,000)        (483,000)         473,000        2,768,000          (3,375,000)
Total assets..................        53,821,000        3,362,000       12,135,000        3,261,000          72,579,000 (4)
</TABLE>

---------
  (1)    Excludes $780,000 of depreciation and amortization  included in cost of
         sales for the year ended December 31, 2001.
  (2)    Includes $13,261,000 of restructuring and other special charges for the
         year ended  December 31,  2001.  Of the total  restructuring  and other
         special  charge,  approximately  $8,187,000 and $5,074,000 are included
         within  the   operating   losses  of  the  United  States  and  Europe,
         respectively.
  (3)    Excludes $293,000 of depreciation and amortization  included in cost of
         sales for the year ended December 31, 2000.
  (4)    Excludes $7,621,000 of net assets of discontinued operations as of
         December 31, 1999.


     Included  above  is  application   maintenance  and  support   revenues  of
$23,240,000,  $20,173,000  and $1,747,000 for the years ended December 31, 2001,
2000 and  1999,  respectively.  Other  information  related  to the  application
maintenance  and support  business is not available  and the Company  determined
that it would be impractical to calculate such data.


                                     F - 28
<PAGE>

NOTE 14 -QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
                                                                            FISCAL YEAR QUARTERS
                                            --------------------------------------------------------------------------------------
                                                 FIRST             SECOND           THIRD           FOURTH            TOTAL
                                            --------------------------------------------------------------------------------------
<S>                                           <C>               <C>               <C>              <C>             <C>
YEAR ENDED DECEMBER 31, 2001
----------------------------
Revenue.................................      $30,037,000       $28,027,000       $25,112,000      $24,930,000     $108,106,000
Gross margin............................        9,165,000         9,387,000         8,641,000        7,929,000       35,122,000
Net income (loss).......................          188,000           179,000           146,000      (13,106,000)     (12,593,000)
Earnings per share - basic and diluted:
Net income (loss) per share.............             0.01              0.01              0.01            (0.79)           (0.76)

YEAR ENDED DECEMBER 31, 2000
----------------------------
Revenue.................................      $29,051,000       $27,689,000       $27,599,000      $28,499,000     $112,838,000
Gross margin............................        9,867,000         9,199,000         9,440,000        8,888,000       37,394,000
Loss from continuing operations.........       (2,108,000)       (2,891,000)       (1,182,000)        (473,000)      (6,654,000)
Loss from discontinued operations.......       (3,079,000)       (1,812,000)               --               --       (4,891,000)
Net loss................................       (5,187,000)       (4,703,000)       (1,182,000)        (473,000)     (11,545,000)
Earnings per share - basic and diluted:
Loss per share from continuing
     operations.........................            (0.13)            (0.17)            (0.07)           (0.03)           (0.40)
Loss per share from discontinued
     operations.........................            (0.19)            (0.11)               --               --            (0.30)
Net loss per share......................            (0.32)            (0.28)            (0.07)           (0.03)           (0.70)
</TABLE>



                                     F - 29