SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


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                                    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, 2002
                         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. [ ]

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

                   Yes:                         No: X
                       ---                         ---

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant at June 28, 2002 (the last business day of the most recent second
quarter)  was  $17,622,325  (based on the closing  price as quoted on the Nasdaq
National Market on that date).

     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of common stock, as of March 25, 2003:

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

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



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


          Item                                                              Page
          ----                                                              ----

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

          2.   Properties................................................... 18

          3.   Legal Proceedings............................................ 20

          4.   Submission of Matters to a Vote of Security Holders.......... 23

PART II   5.   Market for the Company's Common Equity and Related
               Shareholder Matters.......................................... 24

          6.   Selected Financial Data...................................... 24

          7.   Management's Discussion and Analysis of Financial
               Condition and Results of Operations.......................... 26

          7A.  Quantitative and Qualitative Disclosure About Market Risk.... 51

          8.   Financial Statements and Supplementary Data.................. 51

          9.   Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure.......................... 51

PART III  10.  Directors and Executive Officers of the Registrant........... 52

          11.  Executive Compensation....................................... 57

          12.  Security Ownership of Certain Beneficial Owners and
               Management and Related Shareholder Matters................... 65

          13.  Certain Relationships and Related Transactions............... 68

          14.  Controls and Procedures...................................... 69

PART IV   15.  Exhibits, List and Reports on Form 8-K....................... 70

SIGNATURES.................................................................. 71

CERTIFICATIONS.............................................................. 73

EXHIBIT INDEX............................................................... 76

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




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<PAGE>

                                     PART I

ITEM 1.     BUSINESS.

GENERAL

     Overview

     Intelligroup,  Inc.  ("Intelligroup"  or the  "Company") is an  information
technology  services  strategic  outsourcing  partner  to  the  world's  largest
companies. Intelligroup develops, implements and supports information technology
solutions for global corporations and public sector organizations. The Company's
onsite/offshore  delivery model has enabled  hundreds of customers to accelerate
results  and   significantly   reduce  costs.   With   extensive   expertise  in
industry-specific enterprise solutions, Intelligroup has earned a reputation for
consistently exceeding client expectations.

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



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     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 ("Power Up Services(SM)"). In 2001, the Company developed pre-configured
SAP solutions for the  pharmaceutical  industry  ("Pharma  Express(SM)") and the
engineering  and  construction  industry  ("Contractor   Express(SM)").   Pharma
Express, a solution designed for small-to-medium  sized life sciences companies,
improves  manufacturing  efficiencies  and  helps  control  the  total  cost  of
production.  Contractor  Express  assists  companies  in  improving  operational
efficiency and controlling manufacturing project schedules.

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

INTELLIGROUP SERVICES

     Intelligroup's  strategic  outsourcing services address the implementation,
upgrade,  application management and development needs of information technology
executives.  Its proven  methodologies  and innovative  tools allow customers to
reduce costs by accelerating implementations, upgrades and development.

     Companies around the world turn to Intelligroup  for high-quality  software
development  and support  delivered  at lower  costs.  Intelligroup  created the
industry's  first offshore lab dedicated to SAP development in 1995. Since then,
Intelligroup's  India-based offshore  services--coupled  with its U.S., U.K. and
Singapore centers--have helped hundreds of clients develop, implement, maintain,
support  and  integrate  ERP,  e-commerce  and  m-commerce   applications.   Its
onsite/offshore   model  has  been   refined   into  a  series  of   repeatable,
quality-embedded processes that continually enable it to:



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     o    Significantly reduce clients' development time and costs;

     o    Deliver superior-quality developments and enhancements on schedule;

     o    Ensure reliable service levels;

     o    Accommodate requirement changes and manage risks;

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

     o    Meet the peaks and valleys of resource requirements.

     Customers  partner  with  Intelligroup  in order to  co-develop  a product;
implement,  extend and  support  existing  applications;  or create a  dedicated
offshore center for their own development efforts.

     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  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.



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<PAGE>

     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. In 2001,
the Company's  pharmaceutical  template for the 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, known as Power Up Services, that are designed to reduce the time and cost
of upgrading and  maintaining  SAP systems.  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 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


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<PAGE>

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 1000
customers in 2002. 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,   Coca  Cola  Enterprises,
Colgate-Palmolive,  Detroit Public Schools, Eastman Chemical Company, ExxonMobil
Corporation, Putnam Investments,  Siemens Medical Systems and Steelcase Inc. The
Company has also  participated  in project teams led by  information  technology
consulting firms such as Cap Gemini Ernst & Young and BearingPoint.

     Application Management Services

     Intelligroup's   application   management   services  ("AMS")  provide  the
resources,  processes and tools needed for  quality-driven  user,  technical and
operations  support.  Its experienced  professionals  use a well-defined  set of
assessment, transition and long-term processes to deliver customized, affordable
and highly responsive support.

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

     o    Significant reduction in support costs;

     o    Predictable costs for easier budgeting;

     o    24x7,   on-demand   access  to  skilled   functional   and   technical
          professionals  through  its  Global  Support  Center  and  Application
          Development Center in Hyderabad, India;

     o    Assured service levels and flexible, individualized support programs;

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

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

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



                                     - 8 -
<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 over 35  customers in 2002.  The
Company's  customers  are  primarily  Fortune 1000 and other large and mid-sized
companies in the United States and abroad.  They have included Dade Behring,  GE
Fanuc  Automation North America,  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 to  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:

     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.

     The ADC and GSC are  connected to the Company's  operations  centers in the
United States,  Asia/Pacific 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'


                                     - 9 -
<PAGE>

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.

     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.



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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 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;

     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;



                                     - 11 -
<PAGE>

     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

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

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

     As part of their client/server strategies,  organizations often acquire, or
consider acquisition of, packaged enterprise-wide business software applications
offered by leading  ERP  vendors,  such as SAP,  Oracle  and  PeopleSoft.  These
applications are then implemented and



                                     - 12 -
<PAGE>

maintained  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,  customers have a set of core
operations  applications,  which  they use to  support  their  central  business
processes.  These customers must balance demands from their user departments for
new,  innovative  business  applications  against the  absolute  requirement  to
maintain, manage and optimize the core operations applications.  These competing
demands reflect areas of potential business opportunity for the Company.

     The majority of customers  who  implement  ERP  solutions  are Fortune 2000
companies.  The Company believes that opportunities for new ERP  implementations
will continue  predominantly  in  subsidiaries  and  operating  units and toward
mid-market clients. Many mid-size companies have the need for core financial and
other  operations  systems that can be addressed  by ERP  products.  The Company
believes that opportunity exists 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 innovative  tools and
templates to speed delivery and use of its offshore services.

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

     To support their 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.

     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.  Because of this,
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.

     With such an established  installed base of ERP applications,  a January 8,
2003 Gartner report  entitled,  "2003 ERP  Predictions  Point to the Year of the
Version Upgrade" states,  "Most enterprise resource planning (ERP) customers are
near the end of the  supported  life  cycle of their  software.  To  remain on a
supported version after 2005, or to hope to achieve ERP II, those



                                     - 13 -
<PAGE>

enterprises must act in 2003." With its proven tools to accelerate upgrades, the
Company believes it is well positioned to capitalize on this market opportunity.

     Another  area  of  opportunity  for  the  company  is  strategic   offshore
outsourcing.  With its history as a pioneer in providing offshore management and
support  of mission  critical  applications,  the  Company  can offer  clients a
flexible,  low cost option for managing  ERP  applications.  In recent  economic
times,  this has been an area of growth  within the IT sector.  According to the
January 14, 2003 Gartner report entitled,  "Applications Services Become Hottest
Growth  Areas  in IT  Outsourcing,"  "Growth  expectations  are  greatest  among
outsourcers  for  offshore  applications  services,  followed  by near shore and
application management in general."

SALES AND MARKETING

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

     The Company has  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 establish a brand presence to further differentiate itself in
the marketplace.  The Company also intends to leverage public relations to raise
visibility  for its brand and increase  outbound  email  marketing  campaigns to
remain at top of mind and expand its footprint in its customer base. The Company
will continue 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 Group and industry  analyst shows
like  Gartner IT Expo.  The Company  intends to continue  participation  in such
industry-recognized programs and trade shows.

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

     The  Company's  services  require a  substantial  financial  commitment  by
customers and,  therefore,  typically involve a long sales cycle. Once a lead is
generated,  the Company endeavors to quickly understand the potential customer's
business needs and objectives in order to develop the  appropriate  solution and
bid  accordingly.  The Company's  project  managers are involved  throughout the
sales cycle to ensure mutual understanding of customer goals,  including time to



                                     - 14 -
<PAGE>

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, 2002, the Company's  sales and marketing group consisted
of 41 employees in the United States, 9 employees in the Asia-Pacific  region, 4
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  office in
Atlanta,  GA serve the United States  market.  In addition,  the Company  serves
markets in Asia Pacific (Australia, Hong Kong, Indonesia, Japan, New Zealand and
Singapore), Europe (Denmark, Sweden and the United Kingdom) and India.

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 the former "Big Five" accounting  firms.  The cumulative  number of
customers  billed by the Company has grown  substantially  from 600 customers in
1999 to over 1000 customers in 2002.

     In 2000,  2001 and 2002, 36%, 42% and 34%,  respectively,  of the Company's
revenue  was  generated  by  providing  supplemental  resources  directly to the
end-customer  or as part of a consulting  team assembled by another  information
technology  consulting firm. The Company's ten largest customers  accounted for,
in the aggregate,  approximately  34%, 33% and 40% of its revenue in 2000,  2001
and 2002, respectively.  During 2000 and 2002, one customer accounted for 10% or
more of total revenue.  During 2001, no single customer  accounted for more than
10% of total revenue.

     During 2000 and 2002, 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 2000,  one customer in  Asia-Pacific  accounted for more than 10% of
total revenue generated in the Asia-Pacific  region.  During 2001, two customers
in Asia-Pacific  each accounted for more than 10% of total revenue  generated in
the  Asia-Pacific  region.  During  2002,  no single  customer  in  Asia-Pacific
accounted  for more  than 10% of total  revenue  generated  in the  Asia-Pacific
region.

     During 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 2002, two customers in Europe each accounted for more than 10% of
total revenue generated in the European region.

     During  2000,  2001 and 2002,  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.



                                     - 15 -
<PAGE>

     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, Computer Sciences Corporation, Cap
          Gemini Ernst & Young, and BearingPoint.

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

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

     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



                                     - 16 -
<PAGE>

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, 2002, the Company employed 1,342 full-time employees, of
whom 1,112 were  engaged  as  consultants  or as  software  developers,  64 were
engaged in sales and  marketing,  and 166 were  engaged in delivery  management,
finance and administration.  Of the total number of employees, 461 were based in
the United States,  101 were based in the Asia-Pacific  region, 49 were based in
Europe  and 731 were  based in India.  In  addition,  the  Company  engaged  184
independent  contractors  to  perform  information  technology  services  as  of
December 31, 2002.

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

INTELLECTUAL PROPERTY RIGHTS

     The  Company's  success  is  dependent,   in  part,  upon  its  proprietary
implementation  methodology,  development tools and other intellectual  property
rights.  The Company relies upon a combination  of trade secret,  non-disclosure
and other contractual arrangements, and copyright and trademark laws, to protect
its  proprietary  rights.  The Company  generally  enters  into  confidentiality
agreements with its employees,  consultants and customers,  and limits access to
and distribution of its proprietary information.  The Company also requires that
substantially  all of its employees and consultants  assign to the Company their
rights in  intellectual  property  developed  while  employed  or engaged by the
Company.  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.



                                     - 17 -
<PAGE>

ITEM 2.     PROPERTIES.

     As of December 31, 2002,  the Company owns no real  property and  currently
leases or  subleases  all of its office  space.  Within the United  States,  the
Company  leases  office space in Edison,  NJ for certain  technical  and support
personnel,   sales  and  marketing,   administrative,   finance  and  management
personnel,  and in Atlanta, GA for certain other sales and operations personnel.
The Company also leases office space in Australia,  Denmark,  India,  Japan, New
Zealand,  Singapore and the United Kingdom.  The following table  summarizes the
Company's leased office space as of December 31, 2002:

<TABLE>
<CAPTION>
                         AREA                                                                       LEASE
                         ----                                                                       -----
  LOCATION          (IN SQ. FEET)                            USE                                 EXPIRATION
  --------          -------------                            ---                                 ----------
<S>                    <C>          <C>                                                          <C>
                                    o   Corporate Headquarters
Edison,                             o   Consulting Services - focus on SAP, PeopleSoft             9/9/2008
New Jersey            48,476 (A)        commercial, Oracle and E-Business markets in the US
                                    o   Selling, General and Administrative functions in the US

                                    o   Consulting Services - focus on PeopleSoft public
Atlanta,                                sector market in the US
Georgia                4,051        o   Limited Selling, General and Administrative               7/31/2005
                                        functions in the US

                                    o   Consulting Services - focus on SAP market in
North Sydney,                           Australia
Australia              2,660        o   Selling, General and Administrative functions in          3/31/2004
                                        Australia

                                    o   Consulting Services - focus on SAP market in
Odense,                                 Denmark
Denmark                9,900        o   Selling, General and Administrative functions in          1/31/2006
                                        Denmark

Hyderabad,            18,359        o   Offshore Development Consulting Services                 12/31/2007
India                                   (Advanced Development Center)

                                    o   Selling, General and Administrative functions in
Hyderabad,                              India
India                 15,858        o   Global Sales and Marketing Support Services               1/31/2005
                                        (Business Development Center)

                                                                                                   Multiple
                                                                                                    leases
Hyderabad,            15,968        o   Consulting Services - focus on SAP, PeopleSoft             expiring
India                                   and Oracle markets in India                               3/19/2003
                                                                                                 - 6/1/2003

Hyderabad,            10,727        o   Offshore Application Management and Support               2/15/2006
 India                                  Consulting Services (Global Support Center)

Tokyo,                              o   Consulting Services - focus on SAP market in Japan
Japan                  2,803        o   Selling,  General and Administrative  functions in        1/31/2004
                                        Japan


                                     - 18 -
<PAGE>

                                    o   Consulting Services - focus on SAP market in
Wellington,            5,354            New Zealand and Indonesia
New Zealand                         o   Selling, General and Administrative functions in           2/6/2006
                                        New Zealand

                                    o   Consulting Services - focus on SAP market in
Singapore,                              Singapore and Hong Kong
Singapore              1,299        o   Selling, General and Administrative functions in          8/31/2005
                                        Singapore and Hong Kong

                                    o   Consulting Services - focus on PeopleSoft and SAP
Milton Keynes,                          market in the UK
United Kingdom           650        o   Selling, General and Administrative functions in           7/1/2003
                                        the UK
</TABLE>

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

     Beginning in 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,  Silverline and Silverline  Technologies,  Inc. (collectively,
the "SeraNova Group"). The demand for arbitration, which sought damages, alleged
among other  things that the  SeraNova  Group  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. An arbitration hearing was held on
June  25,  2002  and  June  28,  2002  seeking  $525,000  in  outstanding  lease
obligations.  On August 9, 2002,  an award was issued in the amount of  $616,905
(including  attorney's fees) plus reimbursement of administrative fees, in favor
of the Company  and against the  SeraNova  Group  jointly and  severally.  In an
action  filed in the  Superior  Court of New  Jersey,  the Court  confirmed  the
$624,000  award,  jointly and severally as to the SeraNova  Group,  and issued a
writ of execution against the SeraNova Group's assets.  The Sheriff of Middlesex
County  levied this writ of  execution on October 8, 2002 against a bank account
held by  Silverline  Technologies,  Inc. On October 16,  2002,  pursuant to this
writ,  the bank turned over  $626,247  to the  Sheriff.  On November 6, 2002 the
Sheriff sent the funds to the Company's  attorneys and the funds were  deposited
into an attorney  trust account on November 8, 2002.  On December 13, 2002,  the
Company  commenced  an  action in the  Superior  Court of New  Jersey,  Chancery
Division,  to recover  additional  amounts due and owing from the SeraNova Group
under the Arbitration Award and to determine  whether HSBC Bank USA ("HSBC"),  a
creditor of the  SeraNova  Group,  has  priority to the funds levied upon by the
Sheriff.  On January 31, 2003, the Court entered judgment in the Company's favor
in the amount of $218,805,  representing the SeraNova Group's  additional unpaid
rent  arrearages  under the  arbitration  award. On February 28, 2003, the Court
entered judgment in the Company's favor in the amount of $220,415,  representing
the  Company's  attorney's  fees in  connection  with the  Company's  efforts to
enforce the SeraNova Group's  obligations under the arbitration  award. On March
10, 2003,  the Court ordered HSBC to produce  discovery  proving its priority to
the $626,247 being held in trust. The Court is expected to rule on this issue on
May 1, 2003.  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 (see Part I, Item 3, Legal Proceedings).



                                     - 19 -
<PAGE>

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 former 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 same  extent  as
SeraNova  for false  and  misleading  statements  constituting  securities  laws
violations and breach of contract.  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.  On
September  30,  2002,  the Court  granted  plaintiff's  motion in part,  finding
SeraNova  liable for breach of contract  as a matter of law. On March 27,  2003,
the  parties  agreed  to the  terms of a  settlement  agreement,  which  will be
effective upon payment of the settlement amount. Pursuant to such agreement, the
Company is  obligated  to pay its portion of the  settlement  amount equal to an
aggregate  amount of $50,000 within two weeks. The payment by the Company of its
portion of the  settlement  amount will not have a material  adverse effect upon
the Company's business, financial condition or results of operations.

     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 have  completed the discovery  process and the Company
has moved for summary  judgment,  which is scheduled to be heard by the Court on
April 4, 2003.  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 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.


                                     - 20 -
<PAGE>

     Beginning in 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 the SeraNova Group.  The demand for  arbitration,  which sought damages,
alleged  among other  things that the SeraNova  Group 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.  An  arbitration  hearing
was held on June 25, 2002 and June 28,  2002  seeking  $525,000  in  outstanding
lease  obligations.  On August 9,  2002,  an award was  issued in the  amount of
$616,905 (including  attorney's fees) plus reimbursement of administrative fees,
in favor of the Company and against the SeraNova Group jointly and severally. In
an action filed in the Superior  Court of New Jersey,  the Court  confirmed  the
$624,000  award,  jointly and severally as to the SeraNova  Group,  and issued a
writ of execution against the SeraNova Group's assets.  The Sheriff of Middlesex
County  levied this writ of  execution on October 8, 2002 against a bank account
held by  Silverline  Technologies,  Inc. On October 16,  2002,  pursuant to this
writ,  the bank turned over  $626,247  to the  Sheriff.  On November 6, 2002 the
Sheriff sent the funds to the Company's  attorneys and the funds were  deposited
into an attorney  trust account on November 8, 2002.  On December 13, 2002,  the
Company  commenced  an  action in the  Superior  Court of New  Jersey,  Chancery
Division,  to recover  additional  amounts due and owing from the SeraNova Group
under the Arbitration Award and to determine  whether HSBC Bank USA ("HSBC"),  a
creditor of the  SeraNova  Group,  has  priority to the funds levied upon by the
Sheriff.  On January 31, 2003, the Court entered judgment in the Company's favor
in the amount of $218,805,  representing the SeraNova Group's  additional unpaid
rent  arrearages  under the  arbitration  award. On February 28, 2003, the Court
entered judgment in the Company's favor in the amount of $220,415,  representing
the  Company's  attorney's  fees in  connection  with the  Company's  efforts to
enforce the SeraNova Group's  obligations under the arbitration  award. On March
10, 2003,  the Court ordered HSBC to produce  discovery  proving its priority to
the $626,247 being held in trust. The Court is expected to rule on this issue on
May 1, 2003.  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.

     On June 14, 2002,  the Company  filed a complaint in the Superior  Court of
New Jersey,  Mercer  County,  against  Ashok Pandey,  a  shareholder  and former
officer and  director of the  Company.  The  complaint,  which seeks  damages in
excess of $400,000,  alleges among other things that Mr. Pandey breached certain
terms and conditions of a separation  agreement he entered into with the Company
and that Mr. Pandey has been unjustly enriched in an amount of $350,000 from the
Company.  Mr. Pandey has filed an Answer to the Company's  complaint denying the
Company's  claims.  Discovery is ongoing.  The Company does not believe that the
outcome  of this  claim will have a  material  adverse  effect on the  Company's
business, financial condition or results of operations.

     On June 26,  2002,  Ashok  Pandey  filed a Complaint  in the United  States
District   Court  for  the  District  of  New  Jersey,   alleging  that  certain
shareholders  of the Company  constituted  a group that held more than 5% of the
outstanding  shares of the  Company's  common stock and had not filed a Schedule
13D disclosure  statement with the Securities and Exchange  Commission.  On June
28, 2002, plaintiff obtained an ex parte injunctive order from the Court barring
Srini Raju, an alleged member of the "group" and a shareholder  holding 4.61% of
the Company's  common  stock,  from voting in the annual  election.  On July 12,
2002, after reviewing actual evidence of



                                     - 21 -
<PAGE>

record,  and hearing argument from Pandey's  counsel,  the Court held that there
was no basis to enjoin Mr.  Raju from  voting his shares at the Annual  Meeting.
After the election,  Pandey sought to file an amended complaint dropping certain
defendants, and adding others, including the Company. On September 27, 2002, the
Court granted  plaintiff's  motion,  and allowed  certain  limited  discovery to
proceed.  On October 11,  2002,  the Company  filed a motion for Judgment on the
Pleadings  in its  favor,  arguing  that the  relief  sought by  plaintiff,  the
retroactive sterilization of Mr. Raju's shares and the invalidation of his votes
at the Annual Meeting, is not sanctioned by law, and is unavailable as a remedy.
In  response,  Pandey  filed a motion  seeking  leave  to file a Second  Amended
Complaint,  seeking to drop the  Section  13D claims  against  the  Company  and
substitute  them with claims  brought  under Section 14A of the  Securities  and
Exchange  Act.  On January  31,  2003,  the Court  denied  each of the  parties'
motions. The parties are continuing with the discovery process.

     On July 2, 2002,  Ashok Pandey  filed a complaint in the Superior  Court of
New Jersey,  Middlesex  County,  in connection  with the Company's  recent Proxy
contest with respect to the Annual Meeting. In his Complaint,  plaintiff claimed
that  Intelligroup's  Board of  Directors  violated  their  fiduciary  duties by
adjourning  the Annual  Meeting from July 2, 2002 to July 16,  2002.  On July 3,
2002, the Court denied  Plaintiff's  application for emergent relief,  and ruled
that  Intelligroup  could adjourn its Annual Meeting,  finding that  plaintiff's
conduct in obtaining ex parte  injunctive  relief in federal court enjoining the
voting of 4.61% of the Company's  outstanding common stock without notice to the
Company, "estopped [Pandey] from complaining about the adjournment." Despite the
court's denial of his emergent application,  plaintiff indicated to the Court on
August 16, 2002,  that he would continue the litigation in an effort to have the
court sanction his unilateral  attempt to hold an annual meeting and election on
July 2, 2002,  despite the Company's  adjournment of the meeting and the absence
of its Board of Directors and a quorum of its  shareholders on July 2, 2002. The
Company  filed its  Answer  and  Affirmative  Defenses  on August  30,  2002 and
discovery  is  ongoing.  On November  6, 2002,  the  Company  filed a Motion for
Summary  Judgment  and on January 7, 2003,  the Court  granted  Partial  Summary
Judgment. A trial date has been scheduled for May 5, 2003.

     On July 3,  2002,  the  Company  filed a  complaint  in the  United  States
District  Court for the  District  of New  Jersey,  naming  Ashok  Pandey,  TAIB
Securities,  Inc.,  Beechrock  Holdings  Limited and Braydon Holdings Limited as
defendants.  The  complaint  alleges,  among other things,  that the  defendants
violated  federal  securities laws in connection with the Company's recent proxy
contest.  The defendants have filed an Answer to the Company's complaint denying
the Company's claims and discovery is ongoing. The Company does not believe that
the outcome of this claim will have a material  adverse  effect on the Company's
business, financial condition or results of operations.

     On October 4, 2002,  the Company filed a complaint in the Superior Court of
New  Jersey,  Middlesex  County  against  the  SeraNova  Group and HSBC  seeking
compensatory,  consequential  and punitive damages arising out of SeraNova's and
Silverline's  failure  to  pay  certain  amounts  due  and  owing  the  Company,
SeraNova's  fraudulent conveyance of assets and customer accounts to Silverline,
and  HSBC's  allegedly   knowing   acceptance  of  a  fraudulent   guarantee  of
Silverline's debt to HSBC from SeraNova. Defendants have been served. Defendants
SeraNova and Silverline answered the Complaint on January 2, 2003. The inability
of the Company to



                                     - 22 -
<PAGE>

collect the full amount due from SeraNova  and/or  Silverline  could  negatively
affect the Company's business, financial condition or results of operations.

     On February 10, 2003, CA Metro Center Limited Partnership filed a complaint
in the Superior  Court of California,  County of San Mateo,  against the Company
and SeraNova as defendants.  The Complaint  seeks damages against the defendants
in the amount of $186,312 for breach of a lease  agreement.  The  plaintiff  has
granted the Company an extension of time in which to answer the complaint  while
the parties engage in settlement discussions.

     During 2002,  SeraNova failed to pay certain  obligations under a telephone
equipment lease agreement, which the Company assigned to SeraNova in February of
2001.  On  March  12,  2003,  CIT  Communications  Finance  Corporation  filed a
complaint in the Superior  Court of New Jersey,  Law  Division,  Morris  County,
against  Intelligroup and SeraNova,  jointly and severally,  as defendants.  The
complaint,  which seeks damages,  alleges among other things that the defendants
failed to pay  outstanding  lease  obligations  in the amount of  $217,899.  The
Company  has  been  served  with  the   complaint  and  is  in  the  process  of
investigating  the claim in order to  prepare an answer.  The  Company  does not
believe  that the outcome of this claim will have a material  adverse  effect on
Intelligroup'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.

     No matters were submitted to a vote of security  holders during the quarter
ended December 31, 2002.


                                     - 23 -
<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, 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
       March 31, 2002                 $   1 3/16          $   27/32
       June 30, 2002                  $   1 3/4           $   15/16
       September 30, 2002             $   1 19/32         $   27/32
       December 31, 2002              $   1 1/16          $    9/16

     As of March 18, 2003,  the  approximate  number of holders of record of the
Common  Stock was 79 and the  approximate  number of  beneficial  holders of the
Common Stock was 2,678.

     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.

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

     The consolidated  statement of operations data for the years ended December
31, 2002,  2001, and 2000 and the balance sheet data as of December 31, 2002 and
2001  have been  derived  from our  audited  consolidated  financial  statements
included  elsewhere  herein,  and  should  be read  in  conjunction  with  those
financial statements  (including notes thereto).  The selected financial data as
of December  31, 2000,  1999 and 1998 and for the years ended  December 31, 1999
and 1998 have been derived from audited  consolidated  financial  statements not
included  herein,  but which  were  previously  filed  with the  Securities  and
Exchange  Commission,  or  SEC.  Our  historical  results  are  not  necessarily
indicative of the operating results to be realized in the future.



                                     - 24 -
<PAGE>

     The consolidated financial statements as of and for the year ended December
31,  2002 have  been  audited  by  Deloitte  & Touche  LLP,  independent  public
accountants.  The  previous  periods  referred  to above were  audited by Arthur
Andersen LLP, independent public accountants.

<TABLE>
<CAPTION>
                                                                   FOR THE YEARS ENDED DECEMBER 31,
                                                   ----------------------------------------------------------------
                                                       1998         1999         2000          2001         2002
                                                       ----         ----         ----          ----         ----
                                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                <C>            <C>          <C>          <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................................     $ 152,066      $ 151,205    $ 115,118    $ 110,413     $ 108,331
Cost of sales.................................       100,628        102,315       77,724       75,291        75,774
                                                   ---------      ---------    ---------    ---------     ---------
   Gross profit...............................        51,438         48,890       37,394       35,122        32,557
                                                   ---------      ---------    ---------    ---------     ---------
Selling, general and administrative expenses..        30,977         39,892       42,004       30,206        27,576
Depreciation and amortization.................         1,387          2,930        3,187        3,695         2,872
Acquisition expenses..........................         1,397          2,115           --           --            --
SeraNova receivable impairment and other
   charges....................................            --             --           --           --         8,362
Proxy contest charges.........................            --             --           --           --         1,073
Restructuring and other special charges.......            --          7,328           --       13,261            30
                                                   ---------      ---------    ---------    ---------     ---------
   Total operating expenses...................        33,761         52,265       45,191       47,162        39,913
                                                   ---------      ---------    ---------    ---------     ---------
   Operating income (loss)....................        17,677         (3,375)      (7,797)     (12,040)       (7,356)
Interest income...............................           181             99        1,178          538            37
Interest expense..............................           (53)          (752)        (603)        (690)         (454)
Other income (expense)........................            78            140           (5)         191          (149)
                                                   ---------      ---------    ---------    ---------     ---------
Income (loss) from continuing operations
   before income taxes........................        17,883         (3,888)      (7,227)     (12,001)       (7,922)
Provision (benefit) for income taxes..........         3,852          1,441         (573)         592           561
                                                   ---------      ---------    ---------    ---------     ---------
Income (loss) from continuing operations......        14,031         (5,329)      (6,654)     (12,593)       (8,483)
Income (loss) from discontinued operations,
   net of income tax expense (benefit) of
   $599, $(235), $(2,095), $0 and $0..........          (631)        (1,261)      (4,891)          --            --
                                                   ---------      ---------    ---------    ---------     ---------
     Net income (loss)........................     $  13,400      $  (6,590)   $ (11,545)   $ (12,593)    $  (8,483)
                                                   =========      =========    =========    =========     =========
Earnings (loss) per share
   Basic earnings (loss) per share:
     Continuing operations....................     $    0.91      $   (0.34)   $   (0.40)   $   (0.76)    $   (0.51)
     Discontinued operations..................         (0.04)         (0.08)       (0.30)          --            --
                                                   ---------      ---------    ---------    ---------     ---------
       Net income (loss)......................     $    0.87      $   (0.42)   $   (0.70)   $   (0.76)    $   (0.51)
                                                   =========      =========    =========    =========     =========
Common shares - Basic.........................        15,387         15,766       16,485       16,630        16,630
                                                   =========      =========    =========    =========     =========
Diluted earnings (loss) per share:
   Continuing operations......................     $    0.88      $   (0.34)   $   (0.40)   $   (0.76)    $   (0.51)
   Discontinued operations....................         (0.04)         (0.08)       (0.30)          --            --
                                                   ---------      ---------    ---------    ---------     ---------
     Net income (loss)........................     $    0.84      $   (0.42)   $   (0.70)   $   (0.76)    $   (0.51)
                                                   =========      =========    =========    =========     =========
Common shares - Diluted.......................        15,969         15,766       16,485       16,630        16,630
                                                   =========      =========    =========    =========     =========

                                                                          AS OF DECEMBER 31,
                                                   ----------------------------------------------------------------
                                                       1998         1999         2000          2001         2002
                                                       ----         ----         ----          ----         ----
                                                                            (IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.....................     $   3,568      $   5,510    $   1,327    $   2,138     $   1,574
Working capital...............................        32,641         29,133       23,236       18,182        12,387
Total assets..................................        66,924         80,200       67,368       47,094        44,119
Short-term debt and current portion of
  obligations under capital leases............            11         10,585        5,623        4,712         6,374
Long-term debt and obligations under capital
  leases, less current portion................            60             --        1,037          371         1,091
Shareholders' equity..........................        47,949         48,654       41,201       26,782        18,726
</TABLE>


                                     - 25 -
<PAGE>

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

OVERVIEW

     The  Company is a strategic  information  technology  services  outsourcing
partner to the world's largest companies.  Intelligroup develops, implements and
supports  information  technology  solutions for global  corporations and public
sector organizations.  The Company's  onsite/offshore delivery model has enabled
hundreds of customers to accelerate results and significantly reduce costs. With
extensive expertise in industry-specific enterprise solutions,  Intelligroup has
earned a reputation for consistently exceeding client expectations.

     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.  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.

     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,



                                     - 26 -
<PAGE>

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, 2001 and 2002,  revenues  derived from projects  under fixed
price contracts  represented  approximately  17% and 23%,  respectively,  of the
Company's  total  revenue.  No single  fixed price  project was  material to the
Company's business during 2001 or 2002. The Company believes that, as it pursues
its strategy of providing application management services to customers,  it will
continue to offer  fixed price  projects.  The Company  believes  that there are
certain  risks  related  to  fixed  price  arrangements  and  thus  prices  such
arrangements to reflect the associated  risk. There can be no assurance that the
Company  will  be  able  to  complete  such  projects  within  the  fixed  price
timeframes. The failure to perform within such fixed price contracts, if entered
into, could have a material adverse effect on the Company's business,  financial
condition and results of operations.

     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, 2000,  2001 and 2002, the Company's
ten largest customers accounted for in the aggregate, approximately 34%, 33% and
40% of its revenue,  respectively.  During 2000 and 2002, 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, 2000, 2001 and 2002, 36%,
42% and 34%,  respectively,  of the Company's revenue was generated by providing
supplemental  resources  directly to the end-customer or as part of a consulting
team assembled by another information  technology  consulting firm. There can be
no assurance that such information  technology consulting firms will continue to
engage the Company in the future at current levels of retention, if at all.

     During the years ended December 31, 2000, 2001 and 2002, approximately 63%,
69% and 62%,  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,
2000,  2001 and  2002,  approximately  24%,  17% and 22%,  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,  2000,  2001 and 2002,
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.

     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).



                                     - 27 -
<PAGE>

     The Company currently serves the United States market with its headquarters
in Edison (New Jersey),  and a branch office in Atlanta  (Georgia).  The Company
also serves the markets in Asia Pacific (Australia, Hong Kong, Indonesia, Japan,
New Zealand, and Singapore),  Europe (Denmark and the United Kingdom) and India.
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 - SERANOVA

     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.

APPLICATION OF 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 and allowance for
doubtful  accounts,  impairments  and  estimation  of useful  lives of long-term
assets,  income tax  recognition  of current and deferred tax items and accruals
for  contingencies.  In addition,  the footnotes to the  Consolidated  Financial
Statements include further discussion of our significant accounting policies.

     Revenue  Recognition  and  Allowance  for  Doubtful  Accounts.  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

                                     - 28 -
<PAGE>

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

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

     Unbilled services at December 31, 2002 and 2001 represent services provided
through December 31, 2002 and 2001, respectively, which are billed subsequent to
year-end. All such amounts are anticipated to be realized in the following year.

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

     Valuation of Long-Term  Assets.  In accordance  with  Financial  Accounting
Standards Board ("FASB")  Statement of Financial  Accounting  Standards ("SFAS")
No. 144,  "Accounting for the Impairment or Disposal of Long-Lived  Assets," the
carrying  value of  long-lived  assets is  reviewed  on a regular  basis for the
existence of facts or  circumstances,  both internally and externally,  that may
suggest  impairment.  If such  circumstances  exist,  the Company  evaluates the
carrying value of long-lived assets to determine if impairment exists based upon
estimated  undiscounted  future cash flows over the remaining useful life of the
assets and  comparing  that value to the  carrying  value of the assets.  If the
carrying value of the asset is greater than the estimated future cash flows, the
asset is written down to its estimated fair value.

                                     - 29 -
<PAGE>

     Accounting  for Income Taxes.  The Company  records  income taxes using the
asset and  liability  method.  Deferred  income tax assets and  liabilities  are
recognized for the future tax consequences  attributable to differences  between
the financial  statement carrying amounts of existing assets and liabilities and
their respective income tax bases, and operating loss credit carryforwards.  The
Company's  consolidated financial statements contain certain deferred tax assets
which have arisen primarily as a result of operating losses incurred since 1999,
as well as other temporary  differences  between book and tax  accounting.  FASB
SFAS No. 109,  "Accounting for Income Taxes,"  requires the  establishment  of a
valuation  allowance to reflect the  likelihood of  realization  of deferred tax
assets. Significant management judgment is required in determining the provision
for  income  taxes,  deferred  tax  assets  and  liabilities  and any  valuation
allowance  recorded against net deferred tax assets.  The Company  evaluates the
weight of all available evidence to determine whether it is more likely than not
that some portion or all of the deferred income tax assets will not be realized.
As a result of historical  operating losses and uncertainty as to the extent and
timing of profitability in future periods,  the Company has recorded a valuation
allowance of  approximately  $8.7 million  against gross  deferred tax assets of
$11.0  million.   The  decision  to  record  the  valuation  allowance  required
significant judgment.  Had the Company not recorded this allowance,  the Company
would have reported materially different results. If the realization of deferred
tax assets in the future is  considered  more likely than not, an  adjustment to
the  deferred  tax  assets  would   increase  net  income  in  the  period  such
determination  was  made.  The  amount  of the  deferred  tax  asset  considered
realizable  is based on  significant  estimates,  and it is at least  reasonably
possible  that  changes in these  estimates  in the near term  could  materially
affect  our  financial  condition  and  results  of  operations.  The  Company's
effective  tax rate may vary from period to period based on changes in estimated
taxable income or loss, changes to the valuation allowance,  changes to federal,
state or foreign tax laws,  future  expansion  into areas with varying  country,
state,  and local  income  tax  rates and  deductibility  of  certain  costs and
expenses by jurisdiction.

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




                                     - 30 -
<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
                                                         ----------------------------------
                                                         2002          2001           2000
                                                         ----          ----           ----

<S>                                                      <C>           <C>            <C>
Revenue.......................................           100.0%        100.0%         100.0%
Cost of sales.................................            69.9          68.2           67.5
                                                         -----         -----          -----
    Gross profit..............................            30.1          31.8           32.5
Selling, general and administrative expenses..            25.5          27.4           36.5
Depreciation and amortization expense.........             2.7           3.3            2.8
SeraNova receivable impairment and other
    charges...................................             7.7            --             --
Proxy contest charges.........................             1.0            --             --
Restructuring and other special charges.......             0.0          12.0            --
                                                         -----         -----          -----
    Total operating expenses..................            36.9          42.7           39.3
                                                         -----         -----          -----
    Operating loss............................            (6.8)        (10.9)          (6.8)
Interest income...............................             0.0           0.5            1.0
Interest expense..............................            (0.4)         (0.6)          (0.5)
Other income (expense)........................            (0.1)          0.1            0.0
                                                         -----         -----          -----
Loss from continuing operations before income
    taxes.....................................            (7.3)        (10.9)          (6.3)
Income tax provision (benefit)................             0.5           0.5           (0.5)
                                                         -----         -----          -----
Loss from continuing operations...............            (7.8)%       (11.4)%         (5.8)%
                                                         =====         =====-         =====
</TABLE>

     Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

     The following  discussion  compares the consolidated  results of continuing
operations  for the year ended December 31, 2002 and the year ended December 31,
2001.

     Revenue.  Total revenue  decreased by 1.9%,  or $2.1  million,  from $110.4
million  in 2001 to  $108.3  million  in 2002.  The  decrease  was  attributable
primarily  to  a  decline  in  revenue  generated  in  Europe  and  Asia-Pacific
(decreases of $4.7 million and $3.0 million, respectively),  partially offset by
growth in revenue  generated in the United  States (an increase of $4.7 million)
and India (an  increase of  $946,000).  The  decline in Europe and  Asia-Pacific
reflects the  continuing  uncertain  and weakened  local  economic  climate,  as
customers delayed,  decreased and/or canceled IT projects. The revenue growth in
the United  States and India  results  directly  from  increased  demand for the
majority of the Company's  services,  including  traditional  consulting service
offerings,  application  management and support services,  offshore  development
services and Power Up services.  The majority of the revenue  generated in India
is derived from providing offshore development and support services to customers
sourced through the Company's  affiliated  entities in other parts of the world,
but most predominately with the United States.

     In November  2001,  the  Emerging  Issues  Task Force  ("EITF") of the FASB
issued  EITF  No.  01-14,  which  concluded  that  reimbursable  "out-of-pocket"
expenses should be classified as revenue,  and correspondingly cost of services,
in the statement of  operations.  Accordingly,  effective  January 1, 2002,  the
Company has reported gross reimbursable "out-of-pocket"



                                     - 31 -
<PAGE>

expenses  incurred  as both  revenue  and  cost of  sales  in the  statement  of
operations. The Company has also reclassified prior period financial information
for presentation consistent with the new EITF No. 01-14 accounting guidance.

     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  increased by 0.6%, or $483,000,  from $75.3 million in
2001 to $75.8 million in 2002. The Company's gross profit  decreased by 7.3%, or
$2.5 million,  from $35.1 million in 2001 to $32.6 million in 2002. Gross margin
decreased  slightly to 30.1% in 2002 from 31.8% in 2001.  The  decrease in gross
margin results from competitive  pricing  pressures  experienced  throughout the
Company's  global  operations as well as an increase in non-billable  consultant
time and other related costs, primarily in Europe and Asia Pacific.

     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 8.7%, or $2.6 million, from $30.2 million in 2001 to $27.6
million in 2002,  and  decreased as a percentage of revenue from 27.4% to 25.5%,
respectively.  The decrease in selling,  general and administrative expenses, in
absolute  dollars and as a percentage of revenue,  was related  primarily to the
further containment of discretionary spending throughout the Company, as well as
the downsizing initiative completed in Europe during the fourth quarter 2001.

     Depreciation  and  amortization.  Depreciation  and  amortization  expenses
decreased  22.3% to $2.9 million in 2002,  compared to $3.7 million in 2001. The
decrease is due primarily to the amortization  and depreciation  associated with
the intangible  assets and long-lived  assets that were  written-down as part of
the Company's  restructuring  and other  special  charges  provision  during the
quarter ended December 31, 2001.

     SeraNova  receivable  impairment  and other  charges.  In 2002, the Company
recorded  approximately $8.4 million in special charges associated with the note
receivable  from  SeraNova  and certain  other  related  issues.  The Company is
continuing  to pursue  its  various  legal  options to obtain  payment  from the
SeraNova Group on the Note and outstanding lease obligations.  At the same time,
the Company has also been periodically engaged in discussions with management of
the SeraNova Group,  with the objective of seeking an out of court resolution to
all outstanding  matters  involving the Note, and certain other  receivables and
lease  obligations.  However,  the Company  believed that the  liquidity  issues
plaguing the SeraNova  Group  required a reassessment  of the  realizability  of
these outstanding  amounts.  Although no final resolution had been reached,  the
Company  believed that the substance of these  discussions  provided a basis for
determining the approximate  realizable value of the Note and other receivables,
as well as an estimate of the costs required to exit certain lease  obligations.
Accordingly,  the Company  recognized an impairment charge in the amount of $5.1
million  related to the Note. In addition,  the Company  recorded a write-off of
$1.3 million related to interest on the Note and other  receivables due from the
SeraNova Group. The Company also recorded $1.5 million in costs required to exit
certain lease obligations related to the SeraNova Group.



                                     - 32 -
<PAGE>

     Proxy contest  charges.  In 2002, the Company incurred  approximately  $1.1
million in charges  associated  with the proxy  contest.  The  charges  resulted
directly from a shareholder of the Company  launching a hostile and costly proxy
contest  to take  control  of the  Company's  Board of  Directors.  The  charges
included legal fees of approximately  $881,000,  proxy solicitation  services of
approximately  $117,000, and printing,  mailing and other costs of approximately
$75,000.

     Restructuring  and other special  charges.  In 2002, the Company recorded a
$30,000  restructuring  and  other  special  charges  provision  related  to the
downsizing  of the  Company's  operations  in  Australia.  The charges  resulted
primarily from severance costs  associated with reducing  employee  headcount in
the region.

     In 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 $13.3 million 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.

     Interest  income.  The Company earned  $37,000 in interest  income in 2002,
compared with $538,000 in 2001. The Company  discontinued  accruing  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
the Company has commenced litigation against SeraNova (see Part I, Item 3, Legal
Proceedings).

     Interest  expense.  The Company incurred  $454,000 and $690,000 in interest
expense in 2002 and 2001,  respectively,  related  primarily to borrowings under
its line of  credit.  Borrowings  under  the line of  credit  were  used to fund
operating  activities and the charges  associated  with the proxy  contest.  The
decrease  in  interest  expense  results  from a  combination  of lower  average
outstanding borrowings under the line of credit and lower interest rates charged
on outstanding borrowings in 2002.

     Other income (expense). Other income (expense) results primarily from gains
or (losses)  associated with changes in foreign  currency  exchange  rates.  The
Company  reported other expense of $149,000 in 2002,  compared with other income
of $191,000 in 2001. The change results from foreign currency fluctuations.

     Provision  for income  taxes.  Despite  operating  losses,  a provision for
income   taxes  of  $561,000  and  $592,000  was  required  in  2002  and  2001,
respectively,  due to taxable  income in certain  jurisdictions  combined with a
valuation allowance offsetting other loss benefits in other  jurisdictions.  The
Company's  net deferred  tax asset as of December 31, 2002 relates  primarily to
the US  operations.  Based on  anticipated  profitability  in the  near  future,
management  believes it is more likely than not,  that the deferred tax asset of
$1.6 million 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


                                     - 33 -
<PAGE>

introduced by the Indian Finance Act, 2000, the tax holiday  previously  granted
is no longer  available  and has been  replaced  in the form of a tax  deduction
incentive.  The impact of this  change is not  expected  to be  material  to the
consolidated  financial statements of the Company.  Effective April 1, 2002, the
tax  deduction  incentive  for income  from the export of  software  and related
services is restricted  to 90% of such income.  Further,  domestic  revenue from
software  and related  services is taxable in India.  In 2002 and 2001,  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  revenue  earned
during each of the fiscal years ended March 31, 1997 through March 31, 1999. The
assessment is for 28 million  rupees,  or  approximately  $580,000.  Management,
after  consultation  with its advisors,  believes the Company is entitled to the
tax exemption  claimed and thus has not recorded a provision for taxes  relating
to these items as of December 31, 2002. If the Company were not successful  with
its appeals, which were filed in 2001 and 2002, a future charge of approximately
$580,000 would be recorded and reflected in the Company's consolidated statement
of operations.

     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 4.1%,  or $4.7  million,  from $115.1
million  in 2000 to $110.4  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.

     In  accordance  with  EITF  No.  01-14,  the  Company  has  reported  gross
reimbursable "out-of-pocket" expenses incurred as both revenue and cost of sales
in the statement of operations,  effective January 1, 2002. The Company has also
reclassified prior period financial information for presentation consistent with
EITF No.  01-14.  The impact of this  reclassification  was an  increase to both
revenue and cost of sales of $2.3 million in both 2001 and 2000.

     Gross  profit.  The  Company's  cost of sales  decreased  by 3.1%,  or $2.4
million,  from $77.7  million in 2000 to $75.3  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 31.8% in 2001 from 32.5% 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 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
36.5%  to  27.4%,   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

                                     - 34 -
<PAGE>

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 the
Company's  business strategy around its core competencies and to refocus on more
active markets,  the Company  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  management and 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 was
conducted in accordance  with SFAS No. 121,  "Accounting  for the  Impairment of
Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of" guidelines and
involved a


                                     - 35 -
<PAGE>

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.

     Interest  income.  The Company earned  $538,000 in interest income in 2001,
compared with $1,178,000 in 2000. The Company discontinued  accruing 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
the Company has commenced litigation against SeraNova (see Part I, Item 3, Legal
Proceedings).

     Interest  expense.  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.  The  increase in interest  expense  results  from higher
average outstanding borrowings under the line of credit in 2001.

     Other income (expense). Other income (expense) results primarily from gains
or (losses)  associated with changes in foreign  currency  exchange  rates.  The
Company  reported other income of $191,000 in 2001,  compared with other expense
of $5,000 in 2000. The change results from foreign currency fluctuations.

     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.  In 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  revenue  earned
during each of the fiscal years ended March 31, 1997 through March 31, 1999. The
assessment is for 28 million rupees,


                                     - 36 -
<PAGE>

or approximately  $580,000.  Management,  after  consultation with its advisors,
believes the Company is entitled to the tax  exemption  claimed and thus has not
recorded a provision for taxes  relating to these items as of December 31, 2001.
If the Company were not  successful  with its appeals,  which were filed in 2001
and 2002,  a future  charge of  approximately  $580,000  would be  recorded  and
reflected in the Company's consolidated statement of operations.

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 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.  However,  the Company has ceased
               operations  in Sweden as of January 1,  2003,  due to  continuing
               operating losses. The European headquarters are located in Milton
               Keynes, United Kingdom.

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

     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.


                                     - 37 -
<PAGE>

     Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

     The following  discussion  compares the segment  results for the year ended
December 31, 2002 and the year ended December 31, 2001.

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

                                    Year Ended December 31
                     -------------------------------------------------------
                              2002                        2001
                     -------------------------    --------------------------
                                 Percentage of                Percentage of
                      Dollars        Total        Dollars         Total
                      -------        -----        -------         -----
United States.......  $ 78,712        72.7%       $ 74,023         67.0%
Asia-Pacific........    10,209         9.4          13,213         12.0
Europe..............     6,024         5.6          10,737          9.7
India...............    13,386        12.3          12,440         11.3
                      --------       -----        --------        -----
Total...............  $108,331       100.0%       $110,413        100.0%
                      ========       =====        ========        =====


     US revenue  increased by 6.3%, or $4.7 million,  from $74.0 million in 2001
to $78.7  million  in 2002.  Since the  latter  half of 2001,  the  Company  had
experienced  challenging  economic conditions that precluded many companies from
spending  resources on IT projects,  which had adversely impacted the demand for
the  Company's  services.  Since  mid-2002,  the US has begun to  experience  an
increase in demand for  services,  including  its  professional  consulting  and
application management services.

     APAC revenue  decreased by 22.7%,  or $3.0  million,  from $13.2 million in
2001 to $10.2  million in 2002.  The decrease was due  primarily to  challenging
economic conditions in Japan (a decrease of $1.6 million), Australia (a decrease
of $823,000), Indonesia (a decrease of $366,000), and New Zealand (a decrease of
$268,000).

     Europe revenue  decreased by 43.9%, or $4.7 million,  from $10.7 million in
2001 to $6.0 million in 2002.  The decrease  was  attributable  primarily to the
United Kingdom ("UK") operations (a decrease of $4.2 million),  while the Nordic
operations  (Denmark  and  Sweden)  decreased  by  $503,000.  As a result of the
decline in operating performance,  the Company executed a plan to reorganize and
downsize the Company's  operations in the UK in the fourth  quarter of 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. The decrease in Nordic operations resulted primarily from
challenging economic conditions in Sweden.  Accordingly,  the Company has ceased
operations in Sweden as of January 1, 2003.

     India revenue  increased by 7.6%,  or $1.0  million,  from $12.4 million in
2001 to $13.4  million in 2002.  The  increase  was  attributable  primarily  to
increased  demand  for  services  in the US in the  latter  half of  2002,  as a
majority  of the total  revenue  generated  in India is derived  from  providing
offshore  development  and support  services to  customers  sourced  through the
Company's   affiliated   entities  in  other  parts  of  the  world,   but  most
predominantly with the United States.


                                     - 38 -
<PAGE>

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

                                                  YEAR ENDED DECEMBER 31
                                              ------------------------------
                                                 2002                2001
                                              ---------            ---------

United States........................          $(7,037)            $ (6,991)
Asia-Pacific.........................           (1,510)                 368
Europe...............................           (1,093)              (8,495)
India................................            2,284                3,078
                                               -------             --------
Total................................          $(7,356)            $(12,040)
                                              =========            ========

     The US operating  loss  increased  slightly by 0.6%, or $46,000,  from just
under $7.0 million in 2001 to just over $7.0  million in 2002.  The US operating
losses  were  generated  primarily  as a result of the $9.5  million  of special
charges in 2002 associated with the SeraNova receivable impairment and the proxy
contest, and the $8.2 million of special charges in 2001 associated with the ASP
business  and the  termination  of a project to build and  operate a  technology
development  and  support  center in Puerto  Rico  (collectively,  the  "Special
Charges").

     Excluding all Special  Charges,  US operating  income improved by 98.9%, or
$1.2  million,  from  $1.2  million  in 2001  to  $2.4  million  in  2002.  This
improvement was attributable  primarily to a $2.6 million  reduction in selling,
general and administrative  expenses to $27.6 million,  or 25.5% of revenue,  in
2002,  compared with $30.2 million,  or 27.4% of revenue in 2001. The decline in
selling,  general and administrative  expenses in 2002 was partially offset by a
decline in gross profit margin from 31.8% of revenue in 2001 to 30.1% of revenue
in 2002.  The decline in gross profit margin  results from  competitive  pricing
pressures in the US market.

     APAC  operating  performance  declined  by  511%,  or  $1.9  million,  from
operating  income of $368,000 in 2001 to an  operating  loss of $1.5  million in
2002. The decrease was attributable  primarily to competitive  pricing pressures
on consultant bill rates as well as an increase in non-billable  consultant time
in the local Asia-Pacific markets. Operating performance declined throughout the
Asia-Pacific  region  including  Australia  (a decrease of  $588,000),  Japan (a
decrease of $475,000), Singapore (a decrease of $379,000), Indonesia (a decrease
of $329,000) and New Zealand (a decrease of $106,000).

     Europe operating loss decreased by 87%, or $7.4 million,  from $8.5 million
in 2001 to $1.1 million in 2002. The improvement was  attributable  primarily to
an improvement in the operating performance of the UK of $8.0 million, while the
Nordic  operations  declined by $551,000.  The  improvement  in the UK operating
performance in 2002 resulted primarily from the restructuring  program initiated
in the UK during  late 2001.  Excluding  the $5.1  million  of  special  charges
associated with the 2001 restructuring program, the operating performance of the
UK  in  2002  improved  by  $2.9  million.  The  improvement  is  attributed  to
restructuring  and downsizing of the Company's UK operations,  which now consist
of a much  smaller  core group of billable  consultants,  focused  primarily  on
providing application  management and support services in the PeopleSoft market.
The decline in the Nordic operating  performance resulted from competitive local
conditions, primarily within the SAP software market.



                                     - 39 -
<PAGE>

     India operating income  decreased by 25.8%, or $795,000,  from $3.1 million
in 2001 to $2.3 million in 2002. The decrease was  attributable  primarily to an
increase in  consultant  salaries (as a result of both  increased  headcount and
local market adjustments to base consultant salaries),  non-billable  consultant
time and other related costs as well as a decrease in average consultant billing
rates.

     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).

                                    Year Ended December 31
                     -------------------------------------------------------
                              2001                        2000
                     -------------------------    --------------------------
                                 Percentage of                Percentage of
                      Dollars        Total        Dollars         Total
                      -------        -----        -------         -----
United States......  $ 74,023         67.0%      $ 79,602          69.2%
Asia-Pacific.......    13,213         12.0         11,149           9.6
Europe.............    10,737          9.7         17,976          15.6
India..............    12,440         11.3          6,391           5.6
                     --------        -----       --------         -----
Total..............  $110,413        100.0%      $115,118         100.0%
                     ========        =====       ========         =====

     US revenue  decreased by 7.0%, or $5.6 million,  from $79.6 million in 2000
to $74.0  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 18.5%,  or $2.1  million,  from $11.1 million in
2000 to $13.2  million in 2001.  The increase was due  primarily to new business
signings in Indonesia (an increase of $1.5 million),  Japan (an increase of $1.0
million) and  Australia  (an increase of  $976,000).  The increase was partially
offset by  challenging  economic  conditions  in New Zealand (a decrease of $1.3
million).

     Europe revenue  decreased by 40.3%, or $7.3 million,  from $18.0 million in
2000 to $10.7 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 94.7%,  or $6.0  million,  from $6.4 million in
2000 to $12.4 million in 2001.  The increase was  attributable  primarily to the
growth in professional consulting


                                     - 40 -
<PAGE>

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 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 32.5% of revenue in
2000 to 31.8% 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 $644,000) 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.



                                     - 41 -
<PAGE>

     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.

LIQUIDITY AND CAPITAL RESOURCES

     The Company funds its  operations  primarily  from cash flow generated from
operations and financing activities.

     The Company had cash and cash  equivalents  of $1.6 million at December 31,
2002 and $2.1 million at December 31, 2001.  The Company had working  capital of
$12.4 million at December 31, 2002 and $18.2 million at December 31, 2001.

     Cash used in continuing  operating  activities was $717,000 during the year
ended December 31, 2002,  resulting primarily from the net loss of $8.5 million,
increases in accounts  receivable  of $6.1 million and other  current  assets of
$786,000 and decreases in accrued expenses and other liabilities of $743,000 and
accrued restructuring  charges of $710,000.  These amounts were partially offset
by non-cash  depreciation  and  amortization of $3.7 million,  the provision for
doubtful accounts of $443,000,  SeraNova receivable impairment and other charges
of $8.4 million and  increases  in accounts  payable of $2.1 million and accrued
payroll and related taxes of $1.1 million.  The increase in accounts  receivable
results from an increase in year-end  billings,  driven by escalating  revenues.
The decrease in accrued  restructuring  charges  results from payments under the
various restructuring  programs. The increases in other current assets, accounts
payable and accrued  payroll and related taxes and decrease in accrued  expenses
and other liabilities result primarily from timing differences.

     The  Company  invested  $1.6  million,  $3.1  million  and $3.2  million in
computer  equipment,  internal-use  computer  software and office  furniture and
fixtures in 2002, 2001 and 2000, respectively. The decrease in 2002 results from
concerted   efforts  by  management  to  closely  monitor  and  curtail  capital
expenditures.

     As  discussed  in  Note 3 to the  Consolidated  Financial  Statements,  the
Company  maintains a revolving credit facility with PNC Bank, N.A. (the "Bank").
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.  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


                                     - 42 -
<PAGE>

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, (3) a
modification  to  the  consolidated  net  worth  and  unconsolidated  net  worth
covenants to exclude any changes to  consolidated  net worth and  unconsolidated
net worth  resulting  from the write-down or write-off of up to $10.8 million of
the note due from SeraNova,  and (4) 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.

     During  2002,  the  Company  incurred  charges  related  to  the  Company's
contested  2002 Annual  Meeting of  Shareholders  ("Proxy  Contest").  The Proxy
Contest charges included legal fees, proxy  solicitation  services and printing,
mailing and other costs.  As a direct result of the Proxy Contest  charges,  the
Company was not in compliance  with the EBITDA  covenant as of June 30, 2002 and
September  30, 2002. In January 2003,  the Company  finalized  with the Bank the
terms of a waiver and amendment to the credit agreement. The terms of the waiver
and amendment included,  among other things, (1) a waiver of the EBITDA covenant
defaults as of June 30, 2002 and September 30, 2002, (2) a  modification  to the
definitions of EBITDA, total stockholders equity and unconsolidated stockholders
equity (for purposes of computing related covenant  compliance) to exclude Proxy
Contest charges of $464,000 for the quarter ended June 30, 2002 and $413,000 for
the  quarter  ended  September  30, 2002 only,  (3), a reduction  in the minimum
EBITDA  covenant  for the  fourth  quarter  and full year 2002  only,  and (4) a
modification  to  the  consolidated  net  worth  and  unconsolidated  net  worth
covenants to exclude any changes to  consolidated  net worth and  unconsolidated
net worth  resulting  from the write-down or write-off of up to $12.6 million of
the note due from SeraNova.

     The Company was in  compliance  with all covenants as of December 31, 2002.
The Company expects to be able to comply with all financial covenants in 2003.

     The Company's  current  revolving  credit facility with PNC Bank, N.A. (the
"Bank") is due to expire on May 31, 2003. The Company has requested an extension
of the current  agreement  and believes that such  extension  will be granted on
terms substantially similar to the previous credit facility.  However,  there is
no assurance  that the Company  will be granted such an extension on  acceptable
terms,  if at all.  Should the Company not be able to obtain the credit facility
extension with the Bank, the Company  believes that it has the ability to obtain
another  revolving  credit  facility,  with  substantially  similar terms,  from
another financial institution.

     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 had recorded total accrued interest of $1.0 million as of
December  31, 2001.  The Company has not  recorded  any accrued  interest on the
balance  of the  Note  subsequent  to the  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


                                     - 43 -
<PAGE>

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 the SeraNova Group. 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.  SeraNova  then 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.  The parties have  completed the discovery  process and
the Company has moved for summary  judgment,  which is  scheduled to be heard by
the Court on April 4,  2003.  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 amount due from
the SeraNova Group 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.

     As discussed in Note 5 to the Consolidated  Financial Statements,  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 the SeraNova  Group.  The demand for
arbitration,  which sought damages, alleged among other things that the SeraNova
Group 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.  An  arbitration  hearing  was held on June 25,  2002 and June 28,  2002
seeking $525,000 in outstanding lease  obligations.  On August 9, 2002, an award
was  issued  in  the  amount  of  $616,905  (including   attorney's  fees)  plus
reimbursement  of  administrative  fees, in favor of the Company and against the
SeraNova Group jointly and  severally.  In an action filed in the Superior Court
of New Jersey, the Court confirmed the $624,000 award,  jointly and severally as
to the  SeraNova  Group,  and issued a writ of  execution  against the  SeraNova
Group's assets. The Sheriff of Middlesex County levied this writ of execution on
October 8, 2002 against a bank account held by Silverline Technologies,  Inc. On
October 16, 2002,  pursuant to this writ,  the bank turned over  $626,247 to the
Sheriff.  On  November  6,  2002 the  Sheriff  sent the  funds to the  Company's
attorneys  and the funds  were  deposited  into an  attorney  trust  account  on


                                     - 44 -
<PAGE>

November 8, 2002. On December 13, 2002,  the Company  commenced an action in the
Superior Court of New Jersey,  Chancery Division,  to recover additional amounts
due and  owing  from the  SeraNova  Group  under  the  Arbitration  Award and to
determine whether HSBC Bank USA ("HSBC"),  a creditor of the SeraNova Group, has
priority to the funds levied upon by the Sheriff. On January 31, 2003, the Court
entered judgment in the Company's favor in the amount of $218,805,  representing
the SeraNova  Group's  additional  unpaid rent arrearages  under the arbitration
award.  On February 28, 2003, the Court entered  judgment in the Company's favor
in the  amount  of  $220,415,  representing  the  Company's  attorney's  fees in
connection  with  the  Company's   efforts  to  enforce  the  SeraNova   Group's
obligations  under the  arbitration  award. On March 10, 2003, the Court ordered
HSBC to produce  discovery  proving its priority to the  $626,247  being held in
trust.  The Court is expected to rule on this issue on May 1, 2003.  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 is  continuing  to pursue its various  legal  options to obtain
payment from the SeraNova Group on the Note and outstanding  lease  obligations.
At the same time, the Company has also been periodically  engaged in discussions
with management of the SeraNova  Group,  with the objective of seeking an out of
court  resolution to all  outstanding  matters  involving the Note,  and certain
other receivables and lease obligations.  However, the Company believed that the
liquidity  issues  plaguing the SeraNova Group  required a  reassessment  of the
realizability  of these  outstanding  amounts.  Although no final resolution had
been  reached,  the Company  believed  that the  substance of these  discussions
provided a basis for determining the  approximate  realizable  value of the Note
and other  receivables,  as well as an  estimate  of the costs  required to exit
certain  lease  obligations.  Accordingly,  the Company  recorded the  following
charges during 2002:

<TABLE>
<CAPTION>
                                          WRITE-DOWN      WRITE-OFF        ASSUMPTION
                                           OF  NOTE        OF OTHER       OF  CERTAIN
                                          RECEIVABLE     RECEIVABLES         LEASE          OTHER
                                          - SERANOVA      - SERANOVA       OBLIGATIONS     CHARGES          TOTAL
                                        ----------------------------------------------------------------------------
<S>                                     <C>             <C>              <C>             <C>            <C>
Charges to operations during 2002...    $   5,140,000   $  1,257,000     $   1,501,000   $    464,000   $  8,362,000
Costs paid during 2002..............               --             --          (361,000)      (318,000)      (679,000)
Non-cash items......................       (5,140,000)    (1,257,000)               --             --     (6,397,000)
                                        -------------   ------------     -------------   ------------   ------------
Accrued costs as of December 31,
2002                                    $          --   $         --     $   1,140,000   $    146,000   $  1,286,000
                                        =============   ============     =============   ============   ============
</TABLE>

     In 2002,  the Company  recorded a $5.1  million  charge to  write-down  the
carrying  value of the Note to $4.0  million.  The Company also  recorded a $1.3
million charge to write-off the carrying value of the other SeraNova receivables
(primarily,  accrued  interest  on  the  Note  and a  receivable  for  a  system
implementation  project).  Additionally,  the Company  recorded a charge of $1.5
million  for certain  lease exit costs.  Such  charge  represents  primarily  an
accrued  liability  for  obligated  space costs for which the Company  currently
believes it cannot use or sublease and the differential  between certain Company
lease obligations and sublease amounts to be received.  As of December 31, 2002,
$1.3  million of the  liability  remains  outstanding,  of which $1.0 million is
included in other long-term liabilities.

     At December 31, 2002, the Company  re-evaluated  the  realizability  of the
carrying  value of the Note, as well as any required  change to the  obligations
associated with the office space


                                     - 45 -
<PAGE>

costs.  Based upon the  current  status of the  negotiations  with the  SeraNova
Group,  the Company  determined that no change to the carrying value of the Note
or the recorded liability was appropriate as of December 31, 2002.  However,  if
the Company were to collect  less than $4.0  million on the Note  recorded as of
December  31,  2002,  or incur  additional  obligations  or costs,  the SeraNova
receivable impairment and/or charges would be increased in future periods.

     The Company's 2003 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.

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

     During the first quarter of 2003, the Company has been actively  evaluating
strategic  alternatives related to its Asia-Pacific  operations,  as a result of
continuing operating  underperformance and the resulting negative impact on cash
flows within the region. Although no definitive agreement has been executed, the
Company has been  negotiating  the  divestiture  of certain of its  Asia-Pacific
entities to an unrelated third party.  The divesture  transaction  would involve
the sale of stock of the Company's  subsidiaries  in Australia,  Hong Kong,  New
Zealand  (including  Indonesia)  and  Singapore  (the  "APAC  Subsidiaries")  in
exchange  for a nominal  ownership  interest  in a newly  created  company.  The
Company plans on continuing to conduct  negotiations  with such unrelated  third
party.


                                     - 46 -
<PAGE>

     The   following  is   summarized   financial   information   for  the  APAC
Subsidiaries:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                       -----------------------------------------------------------
                                                2002                2001                2000
                                       ------------------- ------------------- -------------------
<S>                                       <C>                 <C>                 <C>
Revenue.............................      $   7,029,000       $   8,426,000       $   7,372,000
Pre-tax income (loss)...............           (976,000)            582,000            (715,000)
Income tax provision (benefit)......             69,000             252,000              48,000
Income (loss) from operations.......         (1,045,000)            330,000            (763,000)


                                        December 31, 2002   December 31, 2001
                                        -----------------   -----------------
Current assets......................      $   3,136,000       $   2,677,000
Total assets........................          3,811,000           3,251,000
Current liabilities.................          6,042,000           4,456,000
Total liabilities...................          6,042,000           4,460,000
Net assets of operations............         (2,231,000)         (1,209,000)
</TABLE>


CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

     The following  tables summarize the Company's  contractual  obligations and
other commercial commitments as of December 31, 2002:

<TABLE>
<CAPTION>
                                                                  PAYMENTS DUE BY PERIOD
                                      -----------------------------------------------------------------------------
DESCRIPTION OF                                          LESS THAN         1 - 3           3 - 5          MORE THAN
---------------                                         ---------         -----           -----          ---------
CONTRACTUAL OBLIGATION                    TOTAL           1 YEAR          YEARS           YEARS           5 YEARS
----------------------                    -----           ------          -----           -----           -------

<S>                                     <C>             <C>             <C>             <C>               <C>
Revolving Credit Facility               $6,059,000      $6,059,000      $       --      $       --        $      --
Capital Lease Obligations                  378,000         315,000          63,000              --               --
Operating Lease Obligations              9,451,000       2,227,000       3,743,000       2,586,000          895,000
Other Long-Term Liabilities              1,028,000         213,000         426,000         389,000              --
                                       -----------     -----------      ----------      ----------        ---------
Total Contractual Obligations          $16,916,000     $ 8,814,000      $4,232,000      $2,975,000         $895,000
                                       ===========     ===========      ==========      ==========         ========
</TABLE>

     The Company uses its $20.0 million  revolving credit facility with PNC Bank
to fund the working  capital needs of the business;  therefore,  the outstanding
borrowings under the credit facility fluctuate accordingly.  The credit facility
is  collateralized by substantially all of the assets of the United States based
operations. The maximum borrowing availability under the line of credit is based
upon a  percentage  of eligible  billed and  unbilled  accounts  receivable,  as
defined.  As of December 31, 2002, the Company had outstanding  borrowings under
the credit facility of $6.1 million.  The Company estimates undrawn availability
under the credit facility to be $7.4 million as of December 31, 2002.

     The Company's  current  revolving  credit facility with PNC Bank, N.A. (the
"Bank") is due to expire on May 31, 2003. The Company has requested an extension
of the current  agreement  and believes that such  extension  will be granted on
terms substantially similar to the

                                     - 47 -
<PAGE>

previous credit facility.  However,  there is no assurance that the Company will
be granted such an extension on acceptable  terms, if at all. Should the Company
not be able to obtain the credit  facility  extension with the Bank, the Company
believes that it has the ability to obtain another  revolving  credit  facility,
with substantially similar terms, from another financial institution.

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

NASDAQ NATIONAL MARKET

     On April 4,  2002,  the  Company  received a letter  from the Nasdaq  Stock
Market   ("Nasdaq")   advising  the  Company  that  it  failed  to  meet  Nasdaq
requirements  for continued  listing as the closing "bid" price of the Company's
common  stock was less than  $1.00 for 30 trading  days.  On May 13,  2002,  the
Company  received a letter from Nasdaq advising the Company that it had regained
compliance with the continued listing requirements.

     On  November  7, 2002,  the  Company  received  another  letter from Nasdaq
advising the Company that it failed to meet Nasdaq  requirements  for  continued
listing as the closing "bid" price of the  Company's  common stock was less than
$1.00 for 30 trading  days. On January 28, 2003,  the Company  received a letter
from  Nasdaq  advising  the Company  that it had  regained  compliance  with the
continued listing requirements.

     In the future,  should the Company  fail to maintain a minimum  closing bid
price of $1.00 for a period of 30 consecutive  trading days, it would once again
be subject to notification by Nasdaq that it failed to meet Nasdaq  requirements
for continued  listing.  Upon such notice,  the Company would have 180 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  trading  days
during the  180-day  compliance  period.  A delisting  from the Nasdaq  National
Market could severely and adversely affect the market liquidity of the Company's
Common Stock.

RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES

     Nagarjun  Valluripalli,  the Chief Executive  Officer and a Director of the
Company, Rajkumar Koneru, a former 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

                                     - 48 -
<PAGE>

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 2002,  the Company  provided  services to FirePond,  which  produced
revenues  for the  Company  totaling  approximately  $329,000.  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.

     During  2002,  the  Company  provided  implementation  services  to  McCann
Erickson,  which  produced  revenues  for  the  Company  totaling  approximately
$242,000. A member of the Company's Board of Directors,  Nic Di Iorio, serves as
the Chief Technology  Officer of McCann Erickson.  Services were priced at rates
comparable  to  other  similar  arrangements  in  which  the  Company  regularly
participates.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In August  2001,  the  Financial  Accounting  Standards  Board (the "FASB")
issued Statement of Financial  Accounting Standard ("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 consolidated financial position or consolidated results of operations.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities." SFAS No. 146 addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and  nullifies  Emerging  Issues Task Force (EITF)  Issue No.  94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)."  The Company is
evaluating  the impact of the adoption of SFAS No. 146,  which is effective  for
the Company as of January 1, 2003,  but does not believe it will have a material
impact on the Company's  consolidated financial position or consolidated results
of operations.

     In  November  2002,  the  FASB  issued   Interpretation   ("FIN")  No.  45,
Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,  Including
Indirect   Guarantees  of  Indebtedness  of  Others.  FIN  No.  45  expands  the
disclosures  made  by  a  guarantor  in  its  financial   statements  about  its
obligations  under certain  guarantees and requires the guarantor to recognize a
liability (with a corresponding  reduction in revenue) for the fair value of the
obligation  assumed  under  certain   guarantees.   FIN  No.  45  clarifies  the
requirements  of  SFAS  No.5,   "Accounting  for  Contingencies,"   relating  to
guarantees.  In  general,  FIN No. 45 applies to  contracts  or  indemnification
agreements  that  contingently  require the  guarantor  to make  payments to the
guaranteed party based on changes in a specified interest rate,  security price,
foreign exchange rate or other variable that is related to an asset,  liability,
or equity  security  of the  guaranteed  party,  or failure of another  party to
perform under an obligating agreement



                                     - 49 -
<PAGE>

(performance guarantees). Certain guarantee contracts are excluded from both the
disclosure and recognition requirements of this interpretation, including, among
others, guarantees relating to employee compensation,  residual value guarantees
under  capital  lease   arrangements,   commercial   letters  of  credit,   loan
commitments,  subordinated  interests in a special purpose entity and guarantees
of a  company's  own future  performance.  Other  guarantees  are subject to the
disclosure  requirements of FIN No. 45 but not to the recognition provisions and
include,  among others,  a guarantee  accounted  for as a derivative  instrument
under SFAS No. 133, and a guarantee  covering product  performance,  not product
price.  The disclosure  requirements of FIN No. 45 are effective for the Company
as of December 31, 2002, and require  disclosure of the nature of the guarantee,
the maximum  potential  amount of future  payments that the  guarantor  could be
required to make under the  guarantee,  and the current amount of the liability,
if any, for the  guarantor's  obligations  under the guarantee.  The recognition
requirements of FIN No. 45 are to be applied  prospectively to guarantees issued
or modified after December 31, 2002. The Company has evaluated the impact of the
adoption of FIN No. 45, and does not  believe it will have a material  impact on
the  Company's  consolidated  financial  position  or  consolidated  results  of
operations.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure."  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation,"  to provide  alternative  methods of
transition for a voluntary change to the fair  value-based  method of accounting
for stock-based employee compensation  ("Transition  Provisions").  In addition,
SFAS No. 148 amends the disclosure  requirements  of Accounting  Principal Board
("APB")  Opinion No. 28,  "Interim  Financial  Reporting,"  to require pro forma
disclosure in interim  financial  statements by companies  that elect to account
for stock-based  compensation using the intrinsic value method prescribed in APB
Opinion No. 25 ("Disclosure Provisions").  The Transition Provisions of SFAS No.
148 are  effective  for  financial  statements  for fiscal  years  ending  after
December 31, 2002.  The Company  continues to use the intrinsic  value method of
accounting for stock-based compensation.  As a result, the Transition Provisions
do not have an effect on the Company's  consolidated  financial statements.  The
Company has adopted the Disclosure Provisions of SFAS No. 148.

EUROPEAN MONETARY UNION (EMU)

     The Company  currently only operates in certain European  countries that do
not  participate  in the EMU.  Therefore,  the Company  believes that the recent
conversion  to  the  euro  did  not  have a  material  financial  impact  on its
operations  in Europe.  However,  the Company  would  re-evaluate  the financial
impact of the conversion to the euro on its operations should those countries in
which the Company operates decide to join the EMU.



                                     - 50 -
<PAGE>

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

     Although the Company cannot accurately determine the precise effect thereof
on its  operations,  it does not believe  inflation,  currency  fluctuations  or
interest rate changes have historically had a material effect on its revenues or
results  of  operations.   Any  significant   effects  of  inflation,   currency
fluctuations  and  changes  in  interest  rates on the  economies  of the United
States, 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 AND SUPPLEMENTARY DATA.

     The  financial  statements  and  supplementary  data  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 and  supplementary  data filed herewith is found at
"Item 15. Exhibits, List, and Reports on Form 8-K."

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

     In June 2002, after a review of the events  concerning  Arthur Andersen LLP
("Andersen"),  the Company's Board of Directors delegated to its Audit Committee
the  responsibility  to  work  with  the  Company's  management  to  review  the
qualifications of the major national  accounting firms to serve as the Company's
independent  public accountants for the fiscal year ending December 31, 2002. On
July 25,  2002,  the  Company  dismissed  Andersen  as the  Company's  auditors.
Andersen's reports on the Company's  consolidated  financial statements for each
of the years ended  December 31, 2001,  2000 and 1999 did not contain an adverse
opinion or  disclaimer  of opinion,  nor were they  qualified  or modified as to
uncertainty,  audit  scope or  accounting  principals.  During  the years  ended
December 31, 2001 and 2000 and the  subsequent  interim  period through July 25,
2002,  there were no  disagreements  with  Andersen on any matter of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure which, if not resolved to Andersen's  satisfaction,  would have caused
Andersen to make reference to the subject  matter in connection  with its report
on the Company's  consolidated  financial  statements  for such years.  Further,
there were no reportable  events as defined in Item  304(a)(1)(v)  of Regulation
S-K.

     On July 25, 2002, the Company's Board of Directors, upon the recommendation
of its Audit  Committee,  engaged  Deloitte  & Touche LLP as the  Company's  new
independent auditors.



                                     - 51 -
<PAGE>

                                    PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     All of the persons whose names and biographies  appear below are at present
Directors  of the  Company.  Nominees  for  election to the  Company's  Board of
Directors at the  Company's  Annual  Meeting of  Shareholders  have not yet been
determined.

     The current members of the Board of Directors are:

                                     SERVED AS A
 NAME                        AGE    DIRECTOR SINCE    POSITIONS WITH THE COMPANY
 ----                        ---    --------------    --------------------------

Nagarjun Valluripalli......  34           1994        Chairman of the Board,
                                                      President, Chief Executive
                                                      Officer and Director

Klaus P. Besier............  51           1996        Director

Dennis McIntosh............  47           2000        Director

Alexander Graham Wilson....  54           2002        Director

Prabhas Panigrahi..........  43           2002        Director

Nic Di Iorio...............  43           2002        Director


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

     Nagarjun Valluripalli joined the Company in March 1994 and currently serves
as Chairman of the Board,  President,  Chief Executive Officer and as a Director
of the Company.  From January 4, 2000 until December 15, 2000, Mr.  Valluripalli
served as Co-Chief Executive Officer.  From March 1994 through October 1997, Mr.
Valluripalli  served as an Executive Vice President of the Company. In May 1993,
Mr. Valluripalli  co-founded Oxford Systems, Inc., a systems integration company
("Oxford").  In March 1994, Mr.  Valluripalli and his co-founder sold all of the
issued and outstanding capital stock of Oxford to the Company. Prior to founding
Oxford, from 1990, Mr. Valluripalli was marketing manager for VJ Infosystems,  a
software  training and services  company.  From September 9, 1999 until March 8,
2001, Mr. Valluripalli also served on the Board of Directors of SeraNova,  Inc.,
formerly a majority-owned subsidiary of the Company spun off from the Company in
a tax-free distribution to its shareholders on July 5, 2000.

     Klaus P.  Besier  served as a Director of the Company  from  December  1996
until his  resignation  in April 1999.  Mr.  Besier  rejoined the Board upon his
election  by the Board in May 1999.  Since July 1997,  Mr.  Besier has served as
President,  Chief  Executive  Officer  and  a  Director  of  FirePond,  Inc.,  a
publicly-traded provider of e-business solutions.  From 1996 to 1997, Mr. Besier
was Chairman and Chief Executive Officer of Primix Solutions. From 1992 to



                                     - 52 -
<PAGE>

1996, Mr. Besier served as Chief Executive Officer and President of SAP America,
Inc., a subsidiary of SAP AG and a leading provider of  client/service  business
application solutions software.  Prior to joining SAP America,  Inc., Mr. Besier
was  Corporate  Vice  President  and general  manager of a subsidiary of Hoechst
Celanese.

     Dennis  McIntosh  was elected to the Board of  Directors  of the Company in
February  2000.  Since April 1999,  Mr.  McIntosh has served as  Executive  Vice
President  of SBLI  Mutual Life  Insurance  Company of New York,  Inc.,  and has
fifteen years of business  experience in insurance  operations  and  technology,
financial  management  and  consulting.  From March 1997 until April  1999,  Mr.
McIntosh  served as Senior  Manager at Ernst & Young  Consulting,  LLP. Prior to
that,  from September 1993 until March 1997, Mr.  McIntosh  served as CIO & Vice
President of Operations at Blue Cross and Blue Shield of Massachusetts. From May
1986 to September  1993, Mr. McIntosh served as Audit Director for Reed Elsevier
Corporation. From May 1985 to May 1986, Mr. McIntosh served as Audit Manager for
Chelsea  Industries.  From May 1981 to May 1985 he served as an auditor  for GTE
Corporation.  From May 1981 to May 1983,  Mr.  McIntosh  served as an auditor at
Coopers and Lybrand. Mr. McIntosh received a Masters of Business  Administration
degree from The  University  of  Connecticut  in 1981 and is a certified  public
accountant.

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

     Prabhas  Panigrahi was elected to the Board of Directors in June 2002.  Mr.
Panigrahi currently serves as a Director of Research at Kevin Dann & Partners, a
New York based  investment  banking firm.  From August 2001 until March 2002 Mr.
Panigrahi served as Partner, Managing Director and Head of Research at Brask and
Company, a European investment bank, based in London,  where he covered European
technology strategy and software and services sectors.  From July 1998 to August
2001,  Mr.  Panigrahi  worked as Senior Vice  President  and  Director in equity
research  for Dresdner  Kleinwort  Wasserstein  in New York and London  covering
multiple sectors,  including the global technology  sector.  Prior to that, from
June 1996 to July 1998,  Mr.  Panigrahi  worked at Credit Suisse First Boston in
New York as Vice President in equity research and from 1992 to 1996 with Bankers
Trust Company  (Deutsche Bank) in New York as an Associate in corporate  finance
and mergers and acquisition departments. Prior to his investment-banking career,
from 1984-1989 Mr. Panigrahi worked with McDermott,  Inc. in Houston, Texas as a
Professional Engineer. As an analyst,  Institutional  Investors,  Reuters, Latin
Finance,  Global  Investors and Greenwich polls have ranked Mr.  Panigrahi.  Mr.
Panigrahi has a

                                     - 53 -
<PAGE>

Bachelor of  Technology  (with  Honors)  degree in  engineering  from the Indian
Institute  of  Technology,  a  Masters  degree  in  Engineering  from  Texas A&M
University,  a Masters of Business Administration in International Business from
Katholieke  Universiteit,  Belgium and a Masters of Business  Administration  in
Finance from the University of Chicago.

     Nic Di Iorio was  elected to the Board of  Directors  in July 2002.  Mr. Di
Iorio joined  McCann-Erickson  Worldwide in April 1995 as Senior Vice President,
Director  of  Information   Technology,   with  overall   responsibilities   for
McCann-Erickson's  worldwide  IT  strategy  and  implementation.  Mr.  Di  Iorio
emphasizes  the use of  technology  to enhance the quality of McCann's  product,
business development and management  decision-making.  He sets overall direction
and strategies on IT, working with  management  from every level of professional
and  administrative  discipline.  Additionally,  Mr. Di Iorio heads MCT Inc.,  a
wholly owned subsidiary of the McCann-Erickson  WorldGroup,  that specializes in
general and  industry-specific  IT  services.  MCT  operates as an  applications
services  provider  and  delivers  financial,  production  and media  management
systems,  and  collaborative/strategic  Intranet/Extranet  web tools  worldwide.
Prior to  joining  McCann,  Mr. Di Iorio  spent four years at Young & Rubicam as
Vice  President,  Director  of  Global  Network  Services,  responsible  for the
worldwide strategy and  implementation of its IT infrastructure.  Prior to that,
he spent ten years in Research  and  Development  organizations  at GTE and AT&T
Bell  Laboratories  working  on new  technologies  in the  area  of  distributed
systems,  data  networking,  security  and  telecommunications.  He held various
leadership roles in the ISO and CCITT international standards committees,  where
he authored two international  standards and chaired two subcommittees.  He also
participated in the Internet's  IETF committee.  Mr. Di Iorio holds Bachelor and
Master degrees in Computer Science, has published in both trade and professional
publications and has been a key speaker at trade and professional conferences.

     All Directors hold office until the next Annual Meeting of Shareholders and
until  their  successors  are duly  elected and  qualified.  There are no family
relationships among any of the executive  officers,  Directors and key employees
of the Company.

COMPENSATION OF DIRECTORS

     On August 8, 2002, the Company's  Board of Directors (the "Board")  amended
its policy to compensate  each of its  non-employee  Directors.  Pursuant to the
Company's amended policy, each non-employee  director will receive the following
cash payments and option  grants:  (i) $30,000  annual fee to be paid in arrears
after the Company's Annual Meeting of Shareholders (the "Annual Meeting");  (ii)
$3,000 per each meeting of the Board attended;  (iii) $2,000 per each meeting of
the  Audit  Committee  attended;  (iv)  $1,000  per each  meeting  of any  other
committee of the Board attended;  and (v) an annual stock option grant of 10,000
shares of the  Company's  Common Stock to be granted in arrears after the Annual
Meeting.  The option grant is subject to the Company's standard vesting program.
With respect to Directors who serve less than one year,  the $30,000  annual fee
is pro rated as to the number of Board  meetings  held during the year for which
such compensation is being paid. Other than Messrs.  Besier,  McIntosh,  Wilson,
Panigrahi and Di Iorio, who are compensated  pursuant to such policy,  Directors
do not otherwise receive cash compensation  pursuant to such policy. The Company
reimburses   Directors  for  reasonable  and  necessary   expenses  incurred  in
connection with attendance at meetings of the Board.



                                     - 54 -
<PAGE>

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

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

     Members of the Board of Directors,  including non-employee Directors,  also
are eligible to receive option grants pursuant to the 1996 Plan.

     On June 6, 2002, each of Messrs.  Wilson and Panigrahi  received options to
purchase  20,000  shares of the  Company's  Common  Stock  under  the  Company's
Director Plan at an exercise price of $1.62 per share,  the fair market value of
the Company's Common Stock at the date of grant.

     On July 25, 2002, Mr. Di Iorio received  options to purchase  20,000 shares
of the Company's  Common Stock under the Company's  Director Plan at an exercise
price of $1.09 per share, the fair market value of the Company's Common Stock at
the date of grant.

     On August 8, 2002, each of Messrs.  Besier and McIntosh received options to
purchase  10,000 shares of the Company's  Common Stock under the Company's  1996
Stock Plan at an exercise price of $1.15 per share, the fair market value of the
Company's Common Stock at the date of grant.


                                     - 55 -
<PAGE>

EXECUTIVE OFFICERS

     The  following  table  identifies  the  current  executive  officers of the
Company:

                                   CAPACITIES IN                  IN CURRENT
NAME                      AGE      WHICH SERVED                   POSITION SINCE
----                      ---      -------------                  --------------
Nagarjun Valluripalli....  34      Chairman of the Board,             2000
                                   President, Chief Executive
                                   Officer and Director

Nicholas Visco(1)........  43      Senior Vice                        2000
                                   President-Finance &
                                   Administration, Chief
                                   Financial Officer,
                                   Treasurer and Secretary
-------------------

(1)  Nicholas  Visco  joined the  Company in July 1998 and  currently  serves as
     Senior Vice President - Finance & Administration,  Chief Financial Officer,
     Treasurer and Secretary. Mr. Visco was appointed Vice President-Finance and
     Chief  Financial  Officer  in October  1999.  Additionally,  Mr.  Visco was
     appointed  Treasurer and Secretary in November 1999. From July 1998 through
     September  1999,  Mr. Visco served as the Company's  Corporate  Controller.
     Prior to joining the  Company,  from  September  1993 until July 1998,  Mr.
     Visco served as Director of Financial Planning and Corporate Controller for
     Xpedite Systems, Inc., a provider of enhanced messaging services. Mr. Visco
     received his undergraduate  degree from Rutgers University in Economics and
     Accounting and is a Certified Public Accountant.

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

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

     Each of Prabhas  Panigrahi  and  Alexander  Graham Wilson filed a Form 3 on
June 18, 2002. Such Form 3 should have been filed no later than June 17, 2002.


                                     - 56 -
<PAGE>

ITEM 11.     EXECUTIVE COMPENSATION.

SUMMARY OF COMPENSATION

     The following Summary Compensation Table sets forth information  concerning
compensation  for services in all  capacities  awarded to,  earned by or paid to
each  person who served as the  Company's  Chief  Executive  Officer at any time
during 2002 and each other executive officer of the Company whose aggregate cash
compensation exceeded $100,000 (collectively, the "Named Executives") during the
years ended December 31, 2000, 2001 and 2002.

<TABLE>
                                         SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                        LONG-TERM
                                                        ANNUAL COMPENSATION              COMPEN-
                                                                                         SATION
                                                                                         AWARDS
                                            ----------------------------------------------------------------------
                                                                           OTHER
                                                                           ANNUAL       SECURITIES       ALL OTHER
                                                                           COMPEN-      UNDERLYING        COMPEN-
 NAME AND PRINCIPAL                YEAR        SALARY           BONUS      SATION        OPTIONS          SATION
    POSITION                                     ($)             ($)        ($)            (#)              ($)
      (a)                          (b)           (c)             (d)        (e)(1)         (g)              (i)
------------------------------------------------------------------------------------------------------------------

<S>                                <C>         <C>             <C>            <C>       <C>               <C>
Nagarjun Valluripalli...........   2002        350,000              --         --       1,050,000         10,202(3)
  Chairman of the Board,           2001        350,000         200,000(2)      --              --         10,202(3)
  President, and Chief             2000        349,992              --         --         300,000(4)      10,202(3)
  Executive Officer

Nicholas Visco..................   2002        200,000              --         --          25,000             --
  Senior Vice President -          2001        200,000          75,000(5)      --              --             --
  Finance & Administration,        2000        158,333          50,000(5)      --         117,500(6)          --
  Chief Financial Officer,
  Treasurer and Secretary
------------------------------------------------------------------------------------------------------------------
</TABLE>

----------

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

(2)  Represents  a bonus  for the full year  2001,  which  was  approved  by the
     Company's  Compensation  Committee  in March 2002.  A $60,000  compensation
     advance  provided to Mr.  Valluripalli  in May 2001 was offset against such
     bonus. The balance of such bonus was paid in August 2002.



                                     - 57 -
<PAGE>

(3)  Represents the value of insurance premiums paid by the Company with respect
     to term and whole life insurance for the benefit of the Named Executive.

(4)  Represents  stock  options  granted  during fiscal year 1999 and which were
     outstanding  as of July 5, 2000,  the  exercise  price of which the Company
     adjusted  in 2000 to reflect  the impact of the  spin-off by the Company of
     SeraNova, Inc.

(5)  Mr.  Visco  earned a bonus of $75,000 and $50,000 for the fiscal years 2000
     and  1999,  respectively.   Such  bonuses  were  paid  in  2001  and  2000,
     respectively.

(6)  Represents  stock  options  previously  granted to Mr. Visco during  fiscal
     1998,  1999 and 2000 and which were  outstanding  as of July 5,  2000,  the
     exercise price of which the Company  adjusted in 2000 to reflect the impact
     of the spin-off by the Company of SeraNova, Inc.

OPTION GRANTS IN 2002

     The following table sets forth information  concerning individual grants of
stock options made  pursuant to the  Company's  1996 Plan during 2002 to each of
the Named  Executives.  The  Company has never  granted  any stock  appreciation
rights.

<TABLE>
                        OPTION GRANTS IN LAST FISCAL YEAR
-------------------------------------------------------------------------------------------------------------
                                             Individual Grants
-------------------------------------------------------------------------------------------------------------
<CAPTION>
                         Number of      Percent of                                    Potential Realizable
                        Securities    Total Options                                     Value At Assumed
                        Underlying      Granted to                                    Annual Rates of Stock
        Name              Options      Employees in   Exercise                       Price Appreciation For
                          Granted     Fiscal Year(2)  or Base      Expiration Date       Option Term(3)
                                                        Price
                          (#) (1)                       ($/SH)                         5%($)       10%($)
         (a)                (b)            (c)           (d)             (e)            (f)          (g)
---------------------- -------------- --------------- ----------- ------------------ ----------- ------------

<S>                       <C>              <C>            <C>           <C>           <C>        <C>
Nagarjun Valluripalli..   750,000          67.9%          0.90          9/22/12       424,508    1,075,748
                          300,000          27.1%          0.90          9/22/12       169,803      430,299

Nicholas Visco.........    25,000           2.3%          1.07           2/7/12        16,823       42,631
</TABLE>

---------

(1)  Such options were granted  pursuant to the  Company's  1996 Plan.  The 1996
     Plan was adopted by the Board of Directors and approved by the shareholders
     of the Company on June 3, 1996,  and became  effective  on July 12, 1996. A
     total of 5,200,000  shares are  reserved for issuance  upon the exercise of
     options and/or stock purchase rights granted under the 1996 Plan, 3,962,034
     of which have been  granted as of  December  31,  2002.  Those  eligible to
     receive  stock option grants or stock  purchase  rights under the 1996 Plan
     include employees, non-employee Directors and consultants. The Compensation
     Committee  of the Board of Directors  of the Company  administers  the 1996
     Plan.  Subject to the provisions of the 1996 Plan, the administrator of the
     1996 Plan has the  discretion to


                                     - 58 -
<PAGE>

     determine the optionees and/or grantees,  the type of options to be granted
     (incentive   stock  options   ("ISOs")  or   non-qualified   stock  options
     ("NQSOs")),  the vesting provisions, the terms of the grants and such other
     related provisions as are consistent with the 1996 Plan. The exercise price
     of an ISO may not be less  than  the fair  market  value  per  share of the
     Common  Stock on the  date of grant  or,  in the  case of an  optionee  who
     beneficially  owns  10% or more of the  outstanding  capital  stock  of the
     Company,  not less than 110% of the fair market value per share on the date
     of grant. The exercise price of a NQSO may not be less than 85% of the fair
     market  value per share of the Common Stock on the date of grant or, in the
     case of an optionee who  beneficially  owns 10% or more of the  outstanding
     capital  stock of the Company,  not less than 110% of the fair market value
     per  share on the date of  grant.  The  purchase  price  of  shares  issued
     pursuant  to stock  purchase  rights  may not be less  than 50% of the fair
     market  value of such  shares  as of the  offer  date of such  rights.  The
     options  terminate not more than ten years from the date of grant,  subject
     to earlier  termination on the optionee's death,  disability or termination
     of  employment  with the Company,  but provide that the term of any options
     granted to a holder of more than 10% of the  outstanding  shares of capital
     stock may be no longer  than five  years.  Options  are not  assignable  or
     otherwise   transferable  except  by  will  or  the  laws  of  descent  and
     distribution. In the event of a merger or consolidation of the Company with
     or into another  corporation or the sale of all or substantially all of the
     Company's  assets  in which  the  successor  corporation  does  not  assume
     outstanding options or issue equivalent options,  the Board of Directors of
     the  Company is  required  to provide  accelerated  vesting of  outstanding
     options. The 1996 Plan terminates on July 11, 2006 unless sooner terminated
     by the Board of Directors.

(2)  Based on an aggregate of  1,105,000  options  granted to employees in 2002,
     including options granted to the Named Executives.

(3)  Based on a grant  date fair  market  value of $0.90  for the  grants to Mr.
     Valluripalli and $1.07 for the grant to Mr. Visco.


                                     - 59 -
<PAGE>

AGGREGATED OPTION EXERCISES IN FISCAL 2002 AND YEAR-END OPTION VALUES

     The  following  table sets forth  information  concerning  each exercise of
options during 2002 by each of the Named  Executives and the year-end number and
value of unexercised options held by each of the Named Executives.

<TABLE>
                       AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES
--------------------------------------------------------------------------------------------
<CAPTION>
                                                              NUMBER OF
                                                              SECURITIES         VALUE OF
                                                              UNDERLYING        UNEXERCISED
                                                             UNEXERCISED       IN-THE-MONEY
                                                              OPTIONS AT        OPTIONS AT
                                                                FISCAL            FISCAL
                              SHARES                           YEAR-END          YEAR-END
                            ACQUIRED ON        VALUE             (#)              ($)(1)
        NAME                 EXERCISE        REALIZED        EXERCISABLE/      EXERCISABLE/
                                (#)             ($)         UNEXERCISABLE      UNEXERCISABLE
        (a)                     (b)             (c)              (d)                 (e)
--------------------------------------------------------------------------------------------
<S>                             <C>             <C>           <C>                 <C>
Nagarjun Valluripalli...        --              --              225,000/            -- /
                                                              1,125,000           $94,500
Nicholas Visco..........        --              --              105,000/          -- / --
                                                                 37,500
</TABLE>
--------------

(1)  Based on a year-end fair market value of the underlying securities equal to
     $0.99 less the exercise price for such shares.

EMPLOYMENT AGREEMENTS, CHANGE-IN-CONTROL AGREEMENTS, INDEMNIFICATION AGREEMENTS,
NON-COMPETITION, NON-DISCLOSURE AND NON-SOLICITATION AGREEMENTS

     Mr.  Valluripalli  entered into a two-year  employment  agreement  with the
Company  commencing  on  September  20,  2002.  Pursuant  to the  terms  of such
agreement,  Mr.  Valluripalli is entitled to, among other things,  (i) an annual
base salary of  $350,000;  (ii) a potential  annual bonus based upon meeting and
exceeding  the  Company's  annual  budget  approved  by the  Company's  Board of
Directors for pre-tax income;  (iii)  continuation of base salary payments for a
fifteen (15) month period and  reimbursement for medical benefits pursuant to an
election  under  COBRA  in  the  event  of  the  Company's  termination  of  Mr.
Valluripalli's  employment  with the Company  without cause.  In addition to the
provisions  of  such  agreement  requiring  Mr.  Valluripalli  to  maintain  the
confidentiality of the Company's  proprietary  information and assign inventions
to the  Company,  Mr.  Valluripalli  has  agreed  that  during  the  term of his
employment and for a period of fifteen (15) months  following the termination of
his employment with the Company, he shall not, among other things, (i) interfere
with  the  Company's  customer  relationships  or  (ii)  solicit  the  Company's
employees,  executives  and  affiliates.  In the event  that Mr.  Valluripalli's
employment is terminated  during the period beginning one (1) month before,  and
ending twelve (12) months after, a Change in Control (as such term is defined in
the


                                     - 60 -
<PAGE>

Employment  Agreement),  then (i) Mr. Valluripalli shall receive continuation of
base salary  payments  for a fifteen  (15) month  period and  reimbursement  for
medical benefits pursuant to an election under COBRA;  (ii) the  non-competition
restrictions,  including the restrictions that Mr.  Valluripalli not solicit the
Company's  customers  or  solicit  the  Company's   employees,   executives  and
affiliates  shall  lapse;  and (iii) the unvested  portion of any stock  options
granted  by the  Company  to Mr.  Valluripalli  shall  vest in full  and  become
exercisable.

     On November 4, 1998, Mr. Visco entered into a  change-in-control  agreement
with the  Company.  Mr.  Visco  entered into an  employment  agreement  with the
Company  commencing  October 1, 1999, which, in addition to terms of employment,
amended certain provisions of his change-in-control  agreement.  Pursuant to his
change-in-control agreement, as amended, if Mr. Visco's employment is terminated
during the  three-month  period  before or during the  one-year  period  after a
Change-in-Control  (as defined  therein)  then Mr.  Visco is entitled  to, among
other things,  (i) twelve times his regular  monthly  salary minus the number of
months  since  the  change-in-control,  (ii)  the  Company's  cost  of the  then
available health insurance  benefits for a period of twenty-four (24) months and
(iii) eighty (80%) percent of the unvested  portion of any stock options granted
by  the  Company  to Mr.  Visco  shall  vest  in  full  and  become  immediately
exercisable.  Such  employment  agreement,  as amended on November  1, 2000,  is
terminable at will by either party upon 30 days notice. Pursuant to the terms of
such agreement, Mr. Visco is entitled to, among other things, (i) an annual base
salary of  $200,000;  (ii) a potential  annual bonus of 50% of such base salary;
and (iii)  continuation  of base salary  payments for a twelve (12) month period
and a pro-rata  bonus payment in the event of the Company's  termination  of Mr.
Visco's employment with the Company without cause. In addition to the provisions
of such  agreement  requiring Mr. Visco to maintain the  confidentiality  of the
Company's  proprietary  information  and assign  inventions to the Company,  Mr.
Visco has agreed that during the term of his  employment and for a period of one
year following the termination of his employment with the Company, he shall not,
among other things, (i) interfere with the Company's  customer  relationships or
(ii) solicit the Company's employees, executives and affiliates.

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

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Compensation Committee currently consists of Messrs.  Besier,  McIntosh
and Panigrahi.  Messrs. Besier, McIntosh and Panigrahi have not served as either
an officer or employee of the  Company or any of its  subsidiaries  at any time.
Mr. Besier serves as the Chief  Executive  Officer of FirePond,  Inc.  (formerly
Clear With  Computers,  Inc.)  ("FirePond").  During 2002, the Company  provided
services  to  FirePond,   which  produced  revenues  for  the  Company  totaling
approximately  $329,000.  The Company also provided  implementation  services to



                                     - 61 -
<PAGE>

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.  There are no, and during  2002 there were no,
Compensation Committee Interlocks.

PERFORMANCE GRAPH

     The following graph compares the cumulative total shareholder return on the
Company's  Common Stock with the  cumulative  total return on the Nasdaq  Market
Index and Peer Group Index (capitalization weighted) for the period beginning on
December  31, 1997 and ending on the last day of the  Company's  last  completed
fiscal year. The stock performance shown on the graph below is not indicative of
future price performance.

              COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN (1)(2)
         AMONG INTELLIGROUP, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
                              AND A PEER GROUP (3)



                              [GRAPH INSERTED HERE]





<TABLE>
<CAPTION>
                            12/31/97   12/31/98   12/31/99   12/31/00   12/31/01   12/31/02
                            --------   --------   --------   --------   --------   --------
<S>                          <C>        <C>        <C>        <C>        <C>        <C>
Intelligroup, Inc..........  $100.00    $ 93.46    $129.41    $  4.58    $  5.12    $  5.18

Nasdaq Market Index........  $100.00    $140.99    $261.48    $157.42    $124.89    $ 86.34

Peer Group Index
(Capitalization Weighted)..  $100.00    $117.59    $236.60    $ 38.55    $ 32.79    $ 12.97
</TABLE>

-----------

(1)  Graph assumes $100  invested on December 31, 1997 in the  Company's  Common
     Stock, the Nasdaq Composite Index and the Peer Group Index  (capitalization
     weighted).

(2)  Cumulative total return assumes reinvestment of dividends.

(3)  The  Company  has  constructed  a Peer  Group  Index of  other  information
     technology  consulting firms consisting of Sapient Corporation,  Technology
     Solutions  Company,  Answer Think  Consulting  Group,  Inc.,  Igate Capital
     Corporation,  Covansys  Corporation  (formerly  known as Complete  Business
     Solutions, Inc.) and Computer Horizons Corp.



                                     - 62 -
<PAGE>

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

     The Compensation Committee has furnished the following report:

     The  Company's  executive  compensation  policy is  designed to attract and
retain highly qualified  individuals for its executive  positions and to provide
incentives  for such  executives  to  achieve  maximum  Company  performance  by
aligning the executives'  interest with that of shareholders by basing a portion
of compensation on corporate performance.

     Some of the Named  Executives are subject to employment  agreements,  which
establish  salaries and other terms of employment.  The Compensation  Committee,
however,  generally  reviews  and  approves  base  salary  levels for  executive
officers of the  Company at or about the start of the fiscal  year and  approves
actual  bonuses  after  the  end of the  fiscal  year  based  upon  Company  and
individual   performance.   The  Compensation  Committee  also  administers  the
Company's 1996 Plan.

     The Company's executive officer  compensation  program is comprised of base
salary,  discretionary  and contractual  annual cash bonuses,  stock options and
various other benefits, including medical insurance and a 401(k) Plan, which are
generally available to all employees of the Company.

     Salaries,  whether  established  pursuant  to contract  or  otherwise,  are
established  in accordance  with industry  standards  through review of publicly
available  information  concerning  the  compensation  of officers of comparable
companies.  Consideration is also given to relative  responsibility,  seniority,
individual experience and performance. Salary increases are generally made based
on  increases in the industry  for similar  companies  with similar  performance
profiles and/or attainment of certain division or Company goals.

     Bonuses are paid on an annual basis and are  discretionary  or contractual.
The  amount of bonus is based on  criteria  which are  designed  to  effectively
measure a particular  executive's attainment of goals which relate to his or her
duties and responsibilities as well as overall Company performance.  In general,
the annual incentive bonus is based on operational and financial  results of the
Company and focuses on the  contribution  to these results of a business unit or
division, and the executive's individual performance in achieving the results.

     The stock  option  program is  designed to relate  executives'  and certain
middle  managers' and other key personnel  long-term  interests to shareholders'
long-term interests. In general, stock option awards are granted if warranted by
the Company's growth and  profitability.  Stock options are awarded on the basis
of  individual   performance   and/or  the  achievement  of  internal  strategic
objectives.

     When  considering  information  relevant to the Chief  Executive  Officer's
compensation,  the Committee is comprised solely of Messrs. Besier, McIntosh and
Panigrahi. Based on review of available information, the Committee believes that
the Chief Executive  Officer's  current total annual  compensation is reasonable
and  appropriate  given the size,  complexity and historical  performance of the
Company's  business,  the  Company's  position  as  compared to its peers in the
industry, and the specific challenges faced by the Company during the year, such
as changes in


                                     - 63 -
<PAGE>

the market for computer  products and services and other  industry  factors.  No
specific  weight  was  assigned  to any of the  criteria  relative  to the Chief
Executive Officer's compensation.

     Section 162(m) of the Internal Revenue Code of 1986, as amended,  generally
disallows a tax deduction to public companies for certain compensation in excess
of $1 million paid to the company's Chief  Executive  Officer and the four other
most highly compensated  executive  officers.  Certain  compensation,  including
qualified performance-based  compensation,  will not be subject to the deduction
limit if certain requirements are met. The Company does not currently meet these
requirements  and  therefore the Company will be subject to the  limitations  of
Section 162(m).

                                            Compensation Committee Members

                                            (as currently constituted)



                                            Klaus P. Besier

                                            Dennis McIntosh

                                            Prabhas Panigrahi


                                     - 64 -
<PAGE>

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
              RELATED SHAREHOLDER MATTERS.

EQUITY COMPENSATION PLANS

     The following table provides  information  about the securities  authorized
for issuance under the Company's  equity  compensation  plans as of December 31,
2002.
<TABLE>

                      EQUITY COMPENSATION PLAN INFORMATION
-------------------------------------------------------------------------------------------------------------
<CAPTION>
                                             NUMBER OF                                  NUMBER OF SECURITIES
                                         SECURITIES TO BE                             REMAINING AVAILABLE FOR
                                            ISSUED UPON           WEIGHTED-AVERAGE      FUTURE ISSUANCE UNDER
                                            EXERCISE OF          EXERCISE PRICE OF      EQUITY COMPENSATION
                                            OUTSTANDING             OUTSTANDING          PLANS (EXCLUDING
                                         OPTIONS, WARRANTS       OPTIONS, WARRANTS    SECURITIES REFLECTED IN
             PLAN CATEGORY                  AND RIGHTS               AND RIGHTS              COLUMN (A))
                                                (a)                     (b)                      (c)
-------------------------------------------------------------------------------------------------------------
<S>                                           <C>                     <C>                     <C>
(i)  Equity compensation plans
     approved by security holders:
     Option Plans(1).................         3,033,201               $2.39                   1,267,966
(ii) Equity compensation plans not
     approved by security holders....           165,000               $2.04                          --
                                             -----------             -------                 -----------
     Total...........................         3,198,201               $2.37                   1,267,966
</TABLE>

-----------

(1) Includes  information  regarding the following  stockholder-approved  equity
compensation  plans: (i) 1996 Non-Employee  Director Stock Option Plan; and (ii)
the 1996 Stock Plan.

EQUITY COMPENSATION PLANS NOT APPROVED BY SECURITY HOLDERS

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



                                     - 65 -
<PAGE>

COMMON STOCK

     There were,  as of March 18, 2003,  approximately  79 holders of record and
2,678 beneficial holders of the Company's Common Stock. The following table sets
forth certain information, as of March 18, 2003, with respect to holdings of the
Company's  Common Stock by (i) each person known by the Company to  beneficially
own more than 5% of the total number of shares of Common Stock outstanding as of
such date, (ii) each of the Company's  Directors  (which includes all nominees),
(iii)  each of the  Company's  Named  Executives,  and  (iv) all  Directors  and
executive  officers  as a group.  This  information  is based  upon  information
furnished to the Company by each such person  and/or  based upon public  filings
with the Securities and Exchange  Commission.  Unless otherwise  indicated,  the
address for the individuals below is that of the Company address.

<TABLE>
<CAPTION>
                                                    AMOUNT AND NATURE OF         PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER               BENEFICIAL OWNERSHIP(1)       OF CLASS(2)
------------------------------------               --------------------          --------
<S>                                                      <C>                         <C>
(i)   Certain Beneficial Owners:

Ashok Pandey(3)..............................            2,141,583                  12.9%

Beechrock Holdings Limited(4)................            1,762,740                  10.6%

Braydon Holdings Limited(5)..................            1,563,185                   9.4%

(ii)  Directors (which includes all nominees)
      and Named Executives who are not set
      forth above:

Nagarjun Valluripalli(6).....................              251,500                   1.5%

Klaus Besier(7)..............................               32,000                     *

Dennis McIntosh(8)...........................               15,000                     *

Alexander Graham Wilson(9)...................              451,164                   2.7%

Prabhas Panigrahi(10)........................                   --                    --

Nic Di Iorio(11).............................                7,500                     *

Nicholas Visco(12)...........................              112,050                     *

(iii) All Directors and executive officers
      as a group (7 persons)(13).............              869,214                   5.1%
</TABLE>

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

*       Less than one percent.

(1)  Except  as set  forth  in the  footnotes  to  this  table  and  subject  to
     applicable community property law, the persons named in the table have sole
     voting  and  investment  power with  respect to all shares of Common  Stock
     shown as beneficially owned by such shareholder.

(2)  Applicable  percentage of ownership is based on 16,630,125 shares of Common
     Stock  outstanding on March 18, 2003, plus any presently  exercisable stock
     options held by each such holder, and options which will become exercisable
     within 60 days after March 18, 2003.



                                     - 66 -
<PAGE>

(3)  The address for Mr. Pandey is 944 Stuart Road, Princeton, New Jersey 08540.
     The  information set forth relating to the number of shares owned of record
     is based solely upon data derived from a Form 4 filed by such shareholder.

(4)  The address for Beechrock  Holdings  Limited is 3rd Floor,  Cerne House, La
     Chaussee,  Port Luis, Mauritius.  The information set forth on the table is
     based  solely  upon  data  derived  from  a  Schedule  13D  filed  by  such
     shareholder.

(5)  The address for Braydon  Holdings  Limited is 3rd Floor,  Cerne  House,  La
     Chaussee,  Port Luis, Mauritius.  The information set forth on the table is
     based  solely  upon  data  derived  from  a  Schedule  13D  filed  by  such
     shareholder.

(6)  Represents  4,500 shares of Common Stock owned of record,  22,000 shares of
     Common Stock owned  indirectly as spouse and 225,000 shares of Common Stock
     underlying options,  granted to Mr. Valluripalli,  which are exercisable as
     of March 18, 2003, or sixty (60) days after such date.  Excludes  1,125,000
     shares of Common Stock underlying  options,  which become  exercisable over
     time after such period.

(7)  Includes 2,000 shares of Common Stock owned indirectly as spouse and 30,000
     shares of Common Stock underlying options, granted to Mr. Besier, which are
     exercisable  as of March 18,  2003 or sixty  (60)  days  after  such  date.
     Excludes  20,000 shares of Common Stock  underlying  options,  which became
     exercisable over time after such period.

(8)  Represents  15,000  shares of Common Stock  underlying  options,  which are
     exercisable  as of March 18,  2003,  or sixty  (60) days  after  such date.
     Excludes  15,000 shares of Common Stock  underlying  options,  which become
     exercisable over time after such period.

(9)  Represents  451,164  shares of Common Stock owned of record as of March 18,
     2003.  Excludes  20,000 shares of Common Stock  underlying  options,  which
     become exercisable as of March 18, 2003 or sixty (60) days after such date.

(10) Excludes  20,000 shares of Common Stock  underlying  options,  which become
     exercisable  over time after  March 18,  2003 or sixty (60) days after such
     date.

(11) Represents  7,500  shares of Common  Stock  owned of record as of March 18,
     2003.  Excludes  20,000 shares of Common Stock  underlying  options,  which
     become  exercisable  as of March 18,  2003 or sixty  (60) days  after  such
     date.

(12) Includes 800 shares of Common  Stock owned of record and 111,250  shares of
     Common Stock  underlying  options,  which are  exercisable  as of March 18,
     2003, or sixty (60) days after such date.  Excludes 31,250 shares of Common
     Stock underlying options, which become exercisable after such period.

(13) Includes an aggregate of 381,250 shares of Common Stock underlying  options
     granted to Directors and executive  officers  listed in the table which are
     exercisable as of March 18, 2003 or within sixty (60) days after such date.
     Excludes  1,251,250 shares underlying options granted to executive officers
     and Directors, which become exercisable over time after such period.


                                     - 67 -
<PAGE>

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Nagarjun  Valluripalli,   the  Chairman  of  the  Board,  President,  Chief
Executive  Officer  and a Director of the  Company,  Rajkumar  Koneru,  a former
officer and director of the Company,  and Ashok Pandey, a shareholder and former
officer and director 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 2002,  the Company  provided  services to FirePond,  which  produced
revenues  for the  Company  totaling  approximately  $329,000.  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.

     During  2002,  the  Company  provided  implementation  services  to  McCann
Erickson,  which  produced  revenues  for  the  Company  totaling  approximately
$242,000. A member of the Company's Board of Directors,  Nic Di Iorio, serves as
the Chief Technology  Officer of McCann Erickson.  Services were priced at rates
comparable  to  other  similar  arrangements  in  which  the  Company  regularly
participates.


                                     - 68 -
<PAGE>

ITEM 14.     CONTROLS AND PROCEDURES

     The Company maintains  disclosure controls and procedures that are designed
to ensure  that  information  required  to be  disclosed  by the  Company in the
reports that it files or submits under the  Securities  Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and  communicated  to the Company's  management,  President and Chief  Executive
Officer and Senior Vice President-Finance and Administration and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.

     Within 90 days prior to the date of this report, the Company carried out an
evaluation,  under the supervision and with the  participation  of the Company's
management,   President   and  Chief   Executive   Officer   and   Senior   Vice
President-Finance  and  Administration  and  Chief  Financial  Officer,  of  the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures.  Based upon that evaluation,  the Company's  President and Chief
Executive Officer and Senior Vice President-Finance and Administration and Chief
Financial  Officer,  have concluded that the Company's  disclosure  controls and
procedures  are  effective.  There  have  been  no  significant  changes  in the
Company's internal controls or in other factors that could significantly  affect
the  internal  controls  subsequent  to  the  date  the  Company  completed  its
evaluation.



                                     - 69 -
<PAGE>

                                     PART IV

ITEM 15.     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 76.

    (b)      Reports on Form 8-K.

             No reports on Form 8-K were filed during the quarter ended December
             31, 2002.



                                     - 70 -
<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 28th day of March
2003.

                                            INTELLIGROUP, INC.



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



                                     - 71 -
<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 28, 2003
---------------------------
Nagarjun Valluripalli           Director (principal executive
                                officer)

/s/ Nicholas Visco              Senior Vice President- Finance    March 28, 2003
---------------------------
Nicholas Visco                  and Administration (principal
                                financial and accounting officer)


/s/ Klaus Besier                Director                          March 28, 2003
---------------------------
Klaus Besier

/s/ Dennis McIntosh             Director                          March 28, 2003
---------------------------
Dennis McIntosh

/s/ Alexander Graham Wilson     Director                          March 28, 2003
---------------------------
Alexander Graham Wilson

/s/ Prabhas Panigrahi           Director                          March 28, 2003
---------------------------
Prabhas Panigrahi

/s/ Nic Di Iorio                Director                          March 28, 2003
---------------------------
Nic Di Iorio



                                     - 72 -
<PAGE>

                                 CERTIFICATIONS

I, Nagarjun Valluripalli certify that:

     1.   I have reviewed this Annual Report on Form 10-K of Intelligroup, Inc.;

     2.   Based on my knowledge,  this Annual Report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this Annual Report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this  Annual  Report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this Annual Report;

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and we have:

               a.   designed such  disclosure  controls and procedures to ensure
                    that  material   information  relating  to  the  registrant,
                    including its consolidated subsidiaries, is made known to us
                    by others  within those  entities,  particularly  during the
                    period in which this Annual Report is being prepared;

               b.   evaluated the  effectiveness of the registrant's  disclosure
                    controls and procedures as of a date within 90 days prior to
                    the  filing  date of this  Annual  Report  (the  "Evaluation
                    Date"); and

               c.   presented in this Annual  Report our  conclusions  about the
                    effectiveness  of the  disclosure  controls  and  procedures
                    based on our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent function):

               a.   all  significant  deficiencies in the design or operation of
                    internal   controls   which  could   adversely   affect  the
                    registrant's  ability  to  record,  process,  summarize  and
                    report   financial   data  and  have   identified   for  the
                    registrant's  auditors any material  weaknesses  in internal
                    controls; and

               b.   any fraud, whether or not material, that involves management
                    or  other  employees  who  have a  significant  role  in the
                    registrant's internal controls; and


                                     - 73 -
<PAGE>

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this Annual Report  whether or not there were  significant  changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.

DATE: March 28, 2003                        By: /s/ Nagarjun Valluripalli
                                               -----------------------------
                                            Nagarjun Valluripalli
                                            Chairman of the Board, President
                                            and Chief Executive Officer


I, Nicholas Visco certify that:

     1.   I have reviewed this Annual Report on Form 10-K of Intelligroup, Inc.;

     2.   Based on my knowledge,  this Annual Report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this Annual Report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this  Annual  Report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this Annual Report;

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and we have:

               a.   designed such  disclosure  controls and procedures to ensure
                    that  material   information  relating  to  the  registrant,
                    including its consolidated subsidiaries, is made known to us
                    by others  within those  entities,  particularly  during the
                    period in which this Annual Report is being prepared;

               b.   evaluated the  effectiveness of the registrant's  disclosure
                    controls and procedures as of a date within 90 days prior to
                    the  filing  date of this  Annual  Report  (the  "Evaluation
                    Date"); and

               c.   presented in this Annual  Report our  conclusions  about the
                    effectiveness  of the  disclosure  controls  and  procedures
                    based on our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent function):


                                     - 74 -
<PAGE>

               a.   all  significant  deficiencies in the design or operation of
                    internal   controls   which  could   adversely   affect  the
                    registrant's  ability  to  record,  process,  summarize  and
                    report   financial   data  and  have   identified   for  the
                    registrant's  auditors any material  weaknesses  in internal
                    controls; and

               b.   any fraud, whether or not material, that involves management
                    or  other  employees  who  have a  significant  role  in the
                    registrant's internal controls; and

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this Annual Report  whether or not there were  significant  changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.


DATE: March 28, 2003            By: /s/ Nicholas Visco
                                   ---------------------------------------------
                                Nicholas Visco
                                Senior Vice President-Finance and Administration
                                and Chief Financial Officer


                                     - 75 -
<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.  (Incorporated  by reference to the Company's
               Annual Report on Form 10-K for the year ended December 31, 1999.)
               See Exhibit 10.23.

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



                                     - 76 -
<PAGE>

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

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

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

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

    10.9       R/3 National  Logo Partner  Agreement by and between SAP America,
               Inc. and the Company dated as of April 29, 1997. (Incorporated by
               reference to the  Company's  Registration  Statement on Form SB-2
               (Registration Statement No. 333-29119) declared effective on June
               26, 1997.) See Exhibits 10.10, 10.14 and 10.24.

    10.10      ASAP  Partner  Addendum to R/3 National  Logo  Partner  Agreement
               between SAP America,  Inc. and the Company effective July 1, 1997
               (amends   existing   R/3  National   Logo   Partner   Agreement).
               (Incorporated  by reference to the Company's  Quarterly Report on
               Form  10-QSB  for the  quarter  ended  September  30,  1997.) See
               Exhibits 10.9, 10.14 and 10.24.

    10.11      Implementation Partner Agreement between PeopleSoft, Inc. and the
               Company  effective July 15, 1997.  (Incorporated  by reference to
               the  Company's  Quarterly  Report on Form  10-QSB for the quarter
               ended September 30, 1997.) See Exhibit 10.13.

    10.12      Lease Agreement between Alfieri-Parkway  Associates, as Landlord,
               and  Intelligroup,   Inc.,  as  Tenant,  dated  March  17,  1998.
               (Incorporated  by reference to the Company's  Quarterly Report on
               Form 10-Q for the quarter ended March 31, 1998.)

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

    10.14      Amendment to the National  Implementation Partner Agreement dated
               as of January 1, 1999,  between SAP America and the Company.  See
               Exhibits 10.9, 10.10 and 10.24.



                                     - 77 -
<PAGE>

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

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

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

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

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

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

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

    10.21      Amended and Restated  Promissory  Note by and between the Company
               and SeraNova,  Inc.  dated as of May 31, 2000.  (Incorporated  by
               reference to the Company's  Report on Form 8-K/A filed  September
               14, 2000.) See Exhibit 10.22.

    10.22      Agreement  and  Waiver  with  respect  to  Amended  and  Restated
               Promissory  Note by and between the  Company and  SeraNova,  Inc.
               dated as of September 29, 2000. (Incorporated by reference to the
               Company's  Quarterly  Report on Form 10-Q for the  quarter  ended
               September 30, 2000.) See Exhibit 10.21.

    10.23*     First Amendment to Employment  Agreement  between the Company and
               Nicholas Visco dated November 1, 2000. (Incorporated by reference
               to the  Company's  Annual  Report on Form 10-K for the year ended
               December 31, 2000.) See Exhibit 10.4.



                                     - 78 -
<PAGE>

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

    10.24      mySap.com Partner-Services Addendum effective June 7, 2000 to R/3
               National Logo Partner Agreement between SAP America, Inc. and the
               Company.  (Incorporated  by  reference  to the  Company's  Annual
               Report on Form 10-K for the year ended  December  31,  2000.) See
               Exhibits 10.9, 10.10 and 10.14.

    10.25      Service Alliance Master Agreement and Addendums dated May 5, 2000
               between  PeopleSoft,  Inc.  and  the  Company.  (Incorporated  by
               reference  to the  Company's  Annual  Report on Form 10-K for the
               year ended December 31, 2000.)

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

    10.27*     Amended and Restated  Employment  Agreement  dated  September 20,
               2002 between the Company and Nagarjun Valluripalli. (Incorporated
               by reference to the Company's  Quarterly  Report on Form 10-Q for
               the quarter ended September 30, 2002.)

    10.28+     Second  Amendment to Loan  Documents and Waiver  Agreement  dated
               January 6, 2003 between the Company,  Empower, Inc. and PNC Bank,
               National Association.

    21+        Subsidiaries of the Registrant.

    23+        Consent of Deloitte & Touche LLP.

    99.1+      Statement pursuant to 18 U.S.C. Section 1350.

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

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

+    Filed herewith. All other exhibits previously filed.



                                     - 79 -
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Independent Auditors' Report - Deloitte & Touche LLP..................      F-2

Report of Independent Public Accountants - Arthur Andersen LLP........      F-3

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2002 and 2001..........      F-4

Consolidated Statements of Operations for the years ended
        December 31, 2002, 2001 and 2000..............................      F-5

Consolidated Statements of Shareholders' Equity for the years ended
        December 31, 2002, 2001 and 2000..............................      F-6

Consolidated Statements of Cash Flows for the years ended
        December 31, 2002, 2001 and 2000..............................      F-7

Notes to Consolidated Financial Statements............................      F-8

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>

                          INDEPENDENT AUDITORS' REPORT

To the Shareholders of Intelligroup, Inc.:

     We  have   audited  the   accompanying   consolidated   balance   sheet  of
Intelligroup,  Inc. and  subsidiaries  as of December 31, 2002,  and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  based on our  audit.  The
consolidated financial statements of Intelligroup,  Inc. as of December 31, 2001
and 2000, and for the years then ended,  were audited by other auditors who have
ceased  operations.  Those auditors  expressed an  unqualified  opinion on those
consolidated financial statements in their report dated February 1, 2002 (except
with respect to paragraph 4 of Note 3, as to which the date is March 27, 2002).

     We conducted our audit in  accordance  with  auditing  standards  generally
accepted in the United States of America.  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  audit  provides  a
reasonable basis for our opinion.

     In our opinion, such 2002 consolidated financial statements present fairly,
in all material  respects,  the  financial  position of  Intelligroup,  Inc. and
subsidiaries  as of December 31, 2002,  and the results of their  operations and
their  cash flows for the year ended  December  31,  2002,  in  conformity  with
accounting principles generally accepted in the United States of America.

     As discussed above, the consolidated  financial statements of Intelligroup,
Inc.  as of  December  31,  2001 and 2000,  and for the years then  ended,  were
audited by other  auditors who have ceased  operations.  As described in Note 1,
these  consolidated  financial  statements  have been  revised.  We audited  the
adjustments  described  in Note 1 that were  applied to revise the 2001 and 2000
consolidated  financial  statements.   In  our  opinion,  such  adjustments  are
appropriate  and have been  properly  applied.  However,  we were not engaged to
audit,  review,  or apply  any  procedures  to the  2001  and 2000  consolidated
financial  statements of the Company other than with respect to such adjustments
and, accordingly, we do not express an opinion or any other form of assurance on
the 2001 and 2000 consolidated financial statements taken as a whole.



                                            DELOITTE & TOUCHE LLP

Parsippany, New Jersey
February 10, 2003


                                     F - 2
<PAGE>

    INFORMATION REGARDING PREDECESSOR INDEPENDENT PUBLIC ACCOUNTANTS' REPORT

THE FOLLOWING REPORT IS A COPY OF A PREVIOUSLY  ISSUED REPORT BY ARTHUR ANDERSEN
LLP ("ANDERSEN").  THE REPORT HAS NOT BEEN REISSUED BY ANDERSEN NOR HAS ANDERSEN
CONSENTED  TO ITS  INCLUSION  IN THIS ANNUAL  REPORT ON FORM 10-K.  THE ANDERSEN
REPORT REFERS TO THE CONSOLIDATED  BALANCE SHEET AS OF DECEMBER 31, 2000 AND THE
CONSOLIDATED  STATEMENTS OF OPERATIONS,  SHAREHOLDERS' EQUITY AND CASH FLOWS FOR
THE  YEAR  ENDED  DECEMBER  31,  1999,  WHICH  ARE  NO  LONGER  INCLUDED  IN THE
ACCOMPANYING FINANCIAL STATEMENTS.


                    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 - 3
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001
<TABLE>
<CAPTION>
                                                                         2002              2001
                                                                    -------------     -------------
                             ASSETS
<S>                                                                 <C>               <C>
Current Assets:
  Cash and cash equivalents...................................      $   1,574,000     $   2,138,000
  Accounts receivable, less allowance for doubtful accounts
      of $1,453,000 and $2,073,000 at December 31, 2002
      and 2001, respectively..................................         19,212,000        13,519,000
  Unbilled services...........................................          7,141,000         7,536,000
  Prepaid income taxes........................................            624,000           342,000
  Deferred tax asset..........................................          1,088,000         1,736,000
  Other current assets........................................          3,050,000         3,548,000
  Note receivable - SeraNova..................................          4,000,000         9,140,000
                                                                    -------------     -------------
          Total current assets................................         36,689,000        37,959,000
  Property and equipment, net.................................          6,025,000         8,099,000
  Deferred tax asset..........................................            490,000                --
  Other assets................................................            915,000         1,036,000
                                                                    -------------     -------------
                                                                    $  44,119,000     $  47,094,000
                                                                    =============     =============

              LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable............................................      $   5,606,000     $   3,548,000
  Accrued payroll and related taxes...........................          6,590,000         5,465,000
  Accrued expenses and other current liabilities..............          3,901,000         4,414,000
  Deferred revenue............................................          1,280,000         1,211,000
  Income taxes payable........................................            551,000           427,000
  Current portion of long-term debt and obligations under
     capital leases...........................................          6,374,000         4,712,000
                                                                    -------------     -------------
          Total current liabilities...........................         24,302,000        19,777,000
                                                                    -------------     -------------

Deferred tax liability........................................                 --           164,000
Obligations under capital leases, less current portion........             63,000           371,000
Other long-term liabilities...................................          1,028,000                --
                                                                    -------------     -------------
          Total long-term liabilities.........................          1,091,000           535,000
                                                                    -------------     -------------

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, 2002 and 2001............................            166,000           166,000
  Additional paid-in capital..................................         41,366,000        41,366,000
  Accumulated deficit.........................................        (19,168,000)      (10,685,000)
  Accumulated other comprehensive loss........................         (3,638,000)       (4,065,000)
                                                                    -------------     -------------
        Total shareholders' equity ...........................         18,726,000        26,782,000
                                                                    -------------     -------------
                                                                    $  44,119,000     $  47,094,000
                                                                    =============     =============
</TABLE>

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


                                     F - 4
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                       2002              2001             2000
                                                  -------------     -------------    -------------
<S>                                               <C>               <C>              <C>
Revenue......................................     $ 108,331,000     $ 110,413,000    $ 115,118,000
Cost of sales................................        75,774,000        75,291,000       77,724,000
                                                  -------------     -------------    -------------
    Gross profit.............................        32,557,000        35,122,000       37,394,000
                                                  -------------     -------------    -------------
Selling, general and administrative expenses.        27,576,000        30,206,000       42,004,000
Depreciation and amortization................         2,872,000         3,695,000        3,187,000
SeraNova receivable impairment and other
    charges..................................         8,362,000                --               --
Proxy contest charges........................         1,073,000                --               --
Restructuring and other special charges......            30,000        13,261,000               --
                                                  -------------     -------------    -------------
    Total operating expenses.................        39,913,000        47,162,000       45,191,000
                                                  -------------     -------------    -------------
    Operating loss...........................        (7,356,000)      (12,040,000)      (7,797,000)
Interest income..............................            37,000           538,000        1,178,000
Interest expense.............................          (454,000)         (690,000)        (603,000)
Other income (expense).......................          (149,000)          191,000           (5,000)
                                                  -------------     -------------    -------------
Loss from continuing operations before
    income tax provision (benefit)...........        (7,922,000)      (12,001,000)      (7,227,000)
Income tax provision (benefit)...............           561,000           592,000         (573,000)
                                                  -------------     -------------    -------------
Loss from continuing operations..............        (8,483,000)      (12,593,000)      (6,654,000)
Loss from discontinued operations, net of
    tax benefit of  $0, $0 and
    $(2,095,000), respectively...............                --                --       (4,891,000)
                                                  -------------     -------------    -------------
Net loss.....................................     $  (8,483,000)    $ (12,593,000)   $ (11,545,000)
                                                  =============     =============    =============

Earnings (loss) per share:
    Basic and diluted earnings (loss)
    per share:
        Loss from continuing operations .....     $       (0.51)    $       (0.76)   $       (0.40)
        Discontinued operations .............                --                --            (0.30)
                                                  -------------     -------------    -------------
           Net loss per share................     $       (0.51)    $       (0.76)   $       (0.70)
                                                  =============     =============    =============

        Weighted average number of common
           shares - basic and diluted........        16,630,000        16,630,000       16,485,000
                                                  =============     =============    =============
</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 SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                          RETAINED     ACCUMULATED
                                      COMMON STOCK        ADDITIONAL      EARNINGS        OTHER           TOTAL       COMPREHENSIVE
                                ----------------------      PAID-IN     (ACCUMULATED   COMPREHENSIVE   SHAREHOLDERS'  INCOME (LOSS)
                                  SHARES       AMOUNT       CAPITAL       DEFICIT)     INCOME (LOSS)     EQUITY       FOR THE PERIOD
                                  ------       ------       -------       --------     -------------     ------       --------------
<S>                             <C>            <C>         <C>          <C>             <C>            <C>             <C>
Balance at December 31, 1999... 15,949,000    $160,000    $43,356,000   $  6,317,000    $(1,179,000)   $48,654,000

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)
                                                                                                                       ============

Currency translation
adjustments....................         --          --             --             --        427,000        427,000     $    427,000

Net loss.......................         --          --             --     (8,483,000)            --     (8,483,000)      (8,483,000)
                                ----------    --------    -----------   ------------    -----------    -----------     ------------

Balance at December 31, 2002... 16,630,000    $166,000    $41,366,000   $(19,168,000)   $(3,638,000)   $18,726,000     $ (8,056,000)
                                ==========    ========    ===========   ============    ===========    ===========     ============
</TABLE>

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


                                     F - 6
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                               2002                2001               2000
                                                                          -------------       -------------      -------------
<S>                                                                       <C>                 <C>                <C>
Cash flows from operating activities:
   Net loss..........................................................     $  (8,483,000)      $ (12,593,000)     $ (11,545,000)
   Less: Loss from discontinued operations, net of tax...............                --                  --         (4,891,000)
                                                                          -------------       -------------      -------------
   Loss from continuing operations...................................        (8,483,000)        (12,593,000)        (6,654,000)
   Adjustments to reconcile loss from continuing operations to
     net cash (used in) provided by operating activities of
     continuing operations:
       Depreciation and amortization.................................         3,702,000           4,475,000          3,480,000
       Provision for doubtful accounts...............................           443,000           1,821,000          3,293,000
       SeraNova receivable impairment and other charges..............         8,362,000                  --                 --
       Restructuring and other special charges.......................            30,000          13,261,000                 --
       Deferred income taxes.........................................            (6,000)           (430,000)           533,000
   Changes in operating assets and liabilities:
     Accounts receivable.............................................        (6,136,000)          7,098,000          1,876,000
     Unbilled services...............................................           395,000          (1,603,000)         1,759,000
     Prepaid income taxes............................................          (282,000)             42,000          3,228,000
     Other current assets............................................          (786,000)            805,000         (2,121,000)
     Other assets....................................................           121,000             424,000            735,000
     Accounts payable................................................         2,058,000          (3,299,000)         3,049,000
     Accrued payroll and related taxes...............................         1,125,000          (1,015,000)           953,000
     Accrued expenses and other current liabilities..................          (743,000)           (439,000)           677,000
     Accrued restructuring charges...................................          (710,000)           (574,000)          (608,000)
     Deferred revenue................................................            69,000             208,000          1,003,000
     Income taxes payable............................................           124,000            (200,000)        (3,277,000)
                                                                          -------------       -------------      -------------
   Net cash (used in) provided by operating activities of
     continuing operations...........................................          (717,000)          7,981,000          7,926,000
                                                                          -------------       -------------      -------------

Cash flows from investing activities:
     Purchases of equipment .........................................        (1,628,000)         (3,149,000)        (3,212,000)
     Purchases of software licenses..................................                --          (2,678,000)        (3,957,000)
                                                                          -------------       -------------      -------------
   Net cash used in investing activities of continuing operations....        (1,628,000)         (5,827,000)        (7,169,000)
                                                                          -------------       -------------      -------------

Cash flows from financing activities:
   Principal payments under capital leases...........................          (646,000)           (594,000)          (117,000)
   Proceeds from exercise of stock options...........................                --                  --          5,749,000
   Other borrowings (repayments).....................................             7,000             (36,000)            91,000
   Net change in line of credit borrowings...........................         1,993,000            (947,000)        (5,572,000)
   Net change in note receivable-SeraNova prior to spin-off date.....                --                  --         (6,662,000)
   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.........................................         1,354,000             483,000         (3,362,000)
                                                                          -------------       -------------      -------------
     Effect of foreign currency exchange rate changes on cash........           427,000          (1,826,000)          (953,000)
                                                                          -------------       -------------      -------------
Net cash (used in) provided by continuing operations ................          (564,000)            811,000         (3,558,000)
Net cash used in discontinued operations ............................               --                  --            (625,000)
                                                                          -------------       -------------      -------------
Net (decrease) increase in cash and cash equivalents ................          (564,000)            811,000         (4,183,000)
Cash and cash equivalents at beginning of period.....................         2,138,000           1,327,000          5,510,000
                                                                          -------------       -------------      -------------
Cash and cash equivalents at end of period...........................     $   1,574,000       $   2,138,000      $   1,327,000
                                                                          =============       =============      =============
Supplemental disclosures of cash flow information:
   Cash paid for income taxes........................................     $   1,058,000       $   1,216,000      $   4,053,000
                                                                          =============       =============      =============
   Cash paid for interest............................................     $     454,000       $     690,000      $     603,000
                                                                          =============       =============      =============
Supplemental disclosures of non-cash transactions:
   Issuance of common stock in connection with acquisitions..........     $          --       $          --      $       1,000
                                                                          =============       =============      =============
</TABLE>


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


                                     F - 7
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BUSINESS AND OPERATIONS AND 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.

     The Company's 2003 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.

     The Company's  current  revolving  credit facility with PNC Bank, N.A. (the
"Bank") is due to expire on May 31, 2003. The Company has requested an extension
of the current  agreement  and believes that such  extension  will be granted on
terms substantially similar to the previous credit facility.  However,  there is
no assurance  that the Company  will be granted such an extension on  acceptable
terms,  if at all.  Should the Company not be able to obtain the credit facility
extension with the Bank, the Company  believes that it has the ability to obtain
another  revolving  credit  facility,  with  substantially  similar terms,  from
another financial institution.

Principles of Consolidation and Use of Estimates

     The accompanying  consolidated 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  of  America  requires
management to make estimates and assumptions that affect the recorded amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.



                                     F - 8
<PAGE>

NOTE 1 - BUSINESS AND OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)


Reclassifications

     Certain  prior year amounts have been  reclassified  to conform to the 2002
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,  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   $443,000,   $1,821,000  and   $3,293,000  in  2002,   2001  and  2000,
respectively. Accounts written off totaled $1,063,000, $1,809,000 and $4,171,000
in 2002, 2001 and 2000, 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.

     The Company capitalizes 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, 2002 and 2001 (See Note 2). Such  capitalized
costs are  amortized  on a  straight-line  basis over the  software's  estimated
useful life of three years.

Recoverability of Long-Lived Assets

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


                                     F - 9
<PAGE>

NOTE 1 - BUSINESS AND OPERATIONS AND 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  derives  a portion  of its  revenue  from  fixed-price,
fixed-time  contracts.   Revenue  generated  from  most  fixed-price  contracts,
including  most  application  management  and support  contracts,  is recognized
ratably over the contract term, on a monthly basis in accordance  with the terms
of the contract.  Revenue generated from certain other fixed-price  contracts is
recognized  based on the ratio of labor hours incurred to estimated  total labor
hours.  This  method is used  because  reasonably  dependable  estimates  of the
revenues and costs applicable to various stages of a contract can be made, based
on historical  experience  and  milestones  set in the  contract.  The Company's
project delivery and business unit finance  personnel  continually  review labor
hours incurred and estimated total labor hours, which may result in revisions to
the amount of  recognized  revenue for the  contract.  If the  Company  does not
accurately  estimate the resources required or the scope of work to be performed
for a contract or if the Company does not manage the project properly within the
planned time period, then a loss may be recognized on the contract.  The Company
has committed  unanticipated  additional  resources to complete  projects in the
past,  which has resulted in lower than  anticipated  profitability or losses on
those contracts.

     In November 2001, the Emerging  Issues Task Force ("EITF") of the Financial
Accounting  Standards Board ("FASB") issued EITF No. 01-14, which concluded that
reimbursable  "out-of-pocket"  expenses  should be  classified  as revenue,  and
correspondingly cost of services,  in the statement of operations.  Accordingly,
effective  January  1,  2002,  the  Company  has  reported  gross   reimbursable
"out-of-pocket"  expenses  incurred  as both  revenue  and  cost of sales in the
statement  of  operations.  The  Company  has  also  reclassified  prior  period
financial  information  for  presentation  consistent  with EITF No. 01-14.  The
impact of this  reclassification  was an  increase  to both  revenue and cost of
sales  of  $2,489,000,  $2,307,000  and  $2,280,000  in  2002,  2001  and  2000,
respectively.



                                     F - 10
<PAGE>

NOTE 1 - BUSINESS AND OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)


     The  following  table  reconciles  the revenue and cost of sales amounts as
reported  prior to the adoption of EITF No. 01-14 to the amounts now reported in
the statement of operations, which reflect the adoption of EITF No. 01-14:

                                                      2001              2000
                                                  -------------    -------------
Amounts Prior to Adoption of EITF No. 01-14:
  Revenue.......................................  $ 108,106,000    $ 112,838,000
  Cost of sales.................................  $  72,984,000    $  75,444,000

Amount of reimbursable expense
  reclassification as per EITF No. 01-14........  $   2,307,000    $   2,280,000


Amounts After Adoption of EITF No. 01-14:
  Revenue.......................................  $ 110,413,000    $ 115,118,000
  Cost of sales.................................  $  75,291,000    $  77,724,000

     Unbilled services at December 31, 2002 and 2001 represent services provided
through December 31, 2002 and 2001, respectively, which are billed subsequent to
year-end. All such amounts are anticipated to be realized in the following year.

     Deferred revenue at December 31, 2002 and 2001 represents amounts billed to
customers  but not yet earned or included as revenue as of December 31, 2002 and
2001,  respectively.  Such amounts are  anticipated to be recorded as revenue as
services are performed in the subsequent year.

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." Under this method,  compensation
expense is recorded on the date of grant only if the current market price of the
underlying  stock  exceeded  the  exercise  price.  FASB  Statement of Financial
Accounting Standard ("SFAS") No.123,  "Accounting for Stock-Based Compensation,"
established  accounting and  disclosure  requirements  using a  fair-value-based
method of accounting for stock-based employee  compensation plans. As allowed by
SFAS  No.   123,   the   Company   has   elected  to   continue   to  apply  the
intrinsic-value-based method of accounting described above, and has adopted only
the disclosure requirements of SFAS No. 123. Stock-based  compensation issued to
non-employees is valued using the fair value method.



                                     F - 11
<PAGE>

NOTE 1 - BUSINESS AND OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)


     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation  - Transition  and  Disclosure."  SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based  Compensation,"  to provide  alternative  methods of
transition for a voluntary change to the fair  value-based  method of accounting
for stock-based employee compensation  ("Transition  Provisions").  In addition,
SFAS No. 148 amends the disclosure  requirements of APB Opinion No. 28, "Interim
Financial  Reporting,"  to require  pro forma  disclosure  in interim  financial
statements by companies that elect to account for stock-based compensation using
the  intrinsic  value  method  prescribed  in APB  Opinion  No. 25  ("Disclosure
Provisions").  The  Transition  Provisions  of SFAS No.  148 are  effective  for
financial  statements  for fiscal  years ending  after  December  31, 2002.  The
Company   continues  to  use  the  intrinsic  value  method  of  accounting  for
stock-based compensation.  As a result, the Transition Provisions do not have an
effect on the  Company's  consolidated  financial  statements.  The  Company has
adopted the  Disclosure  Provisions of SFAS No. 148;  however,  the Company will
continue to apply the intrinsic value method under APB Opinion No. 25.

     For disclosure  purposes,  pro forma net income (loss) and earnings  (loss)
per share impacts are provided as if the fair market value method under SFAS No.
123 had been applied:

<TABLE>
<CAPTION>
                                                         2002                   2001                  2000
                                                   -------------         --------------         -------------

<S>                                                <C>                   <C>                    <C>
Net loss, as reported..........................    $  (8,483,000)        $  (12,593,000)        $ (11,545,000)

Deduct: total stock-based employee
compensation expense determined under
fair-value-based method for all awards,
net of related tax effects.....................       (7,884,000)           (10,301,000)          (20,445,000)
                                                   -------------         --------------         -------------
Pro forma net loss.............................    $ (16,367,000)        $  (22,894,000)        $ (31,990,000)
                                                   =============         ==============         =============

Basic and diluted earnings (loss) per share:
     as reported...............................    $       (0.51)        $        (0.76)        $       (0.70)
                                                   =============         ==============         =============
     pro forma.................................    $       (0.98)        $        (1.38)        $       (1.94)
                                                   =============         ==============         =============
</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 111%,  110%  and  121%,
risk-free  interest rate of 1.8%,  3.3% and 5.2% and expected  lives of 2.4, 2.7
and 3.4, in 2002, 2001 and 2000,  respectively.  The weighted average fair value
of  options  granted  during  2002,  2001 and 2000 was  $0.58,  $0.70 and $4.68,
respectively.



                                     F - 12
<PAGE>

NOTE 1 - BUSINESS AND OPERATIONS AND 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
accumulated other comprehensive loss.

Concentrations

     For the years ended December 31, 2002,  2001 and 2000,  approximately  62%,
69% and 63% 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, 2003 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. For each
of the years ended December 31, 2002, 2001 and 2000,  approximately 22%, 17% and
24% of revenue,  respectively,  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, 2002, 2001 and
2000,  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 was generated by providing
supplemental  resources  for  consulting  teams  assembled by other  information
technology  consulting  firms or directly to the  end-customer.  For years ended
December  31,  2002,  2001 and  2000,  34%,  42% and 36%,  respectively,  of the
Company's  revenue  was  generated  by serving as a member of  consulting  teams
assembled by other information technology consulting firms.

     During 2002 and 2000,  one  customer  accounted  for  approximately  10% of
revenue. During 2001, no single customer accounted for more than 10% of revenue.

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 - 13
<PAGE>

NOTE 1 - BUSINESS AND OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)


Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net loss attributable to
common  shareholders by the weighted average number of common shares outstanding
for the period.  Diluted  earnings  per share is  computed by dividing  net 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  (loss) per share and diluted
earnings (loss) per share were as follows:

<TABLE>
<CAPTION>
                                                          2002            2001             2000
                                                     ------------    ------------     ------------

<S>                                                  <C>             <C>              <C>
Loss from continuing operations...............       $(8,483,000)    $(12,593,000)    $ (6,654,000)

Loss from discontinued operations.............                --               --       (4,891,000)
                                                     -----------     ------------     ------------
Net loss......................................       $(8,483,000)    $(12,593,000)    $(11,545,000)
                                                     ===========     ============     ============

Basic and diluted earnings (loss) per share:
  Weighted average number of common shares....        16,630,000       16,630,000       16,485,000
                                                     -----------     ------------     ------------
  Basic and diluted loss per share from
    continuing operations.....................       $     (0.51)    $      (0.76)    $      (0.40)

  Basic and diluted loss per share from
    discontinued operations...................                --               --            (0.30)
                                                     -----------     ------------     ------------
  Basic and diluted net loss per share........       $     (0.51)    $      (0.76)    $      (0.70)
                                                     ===========     ============     ============
</TABLE>

     Stock  options,  which  would be  antidilutive  (3,198,201,  2,833,849  and
3,369,746  as of  December  31,  2002,  2001 and 2000,  respectively)  have been
excluded  from the  calculations  of  diluted  shares  outstanding  and  diluted
earnings (loss) 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.  The carrying  amount of the Company's line of credit  approximates
fair market value based upon current borrowing rates available to the Company.

Recently Issued Accounting Standards

     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 consolidated financial position or consolidated results of operations.


                                     F - 14
<PAGE>

NOTE 1 - BUSINESS AND OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)


     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated with Exit or Disposal  Activities." SFAS No. 146 addresses  financial
accounting and reporting for costs  associated with exit or disposal  activities
and  nullifies  EITF No.  94-3,  "Liability  Recognition  for  Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a Restructuring)." The Company is evaluating the impact of the
adoption of SFAS No. 146,  which is  effective  for the Company as of January 1,
2003,  but does not  believe  it will have a  material  impact on the  Company's
consolidated financial position or consolidated results of operations.

     In  November  2002,  the  FASB  issued   Interpretation   ("FIN")  No.  45,
Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,  Including
Indirect   Guarantees  of  Indebtedness  of  Others.  FIN  No.  45  expands  the
disclosures  made  by  a  guarantor  in  its  financial   statements  about  its
obligations  under certain  guarantees and requires the guarantor to recognize a
liability (with a corresponding  reduction in revenue) for the fair value of the
obligation  assumed  under  certain   guarantees.   FIN  No.  45  clarifies  the
requirements  of  SFAS  No.5,   "Accounting  for  Contingencies,"   relating  to
guarantees.  In  general,  FIN No. 45 applies to  contracts  or  indemnification
agreements  that  contingently  require the  guarantor  to make  payments to the
guaranteed party based on changes in a specified interest rate,  security price,
foreign exchange rate or other variable that is related to an asset,  liability,
or equity  security  of the  guaranteed  party,  or failure of another  party to
perform  under  an  obligating  agreement  (performance   guarantees).   Certain
guarantee  contracts  are  excluded  from both the  disclosure  and  recognition
requirements  of  this  interpretation,   including,  among  others,  guarantees
relating to employee compensation, residual value guarantees under capital lease
arrangements,  commercial  letters of  credit,  loan  commitments,  subordinated
interests in a special  purpose  entity and guarantees of a company's own future
performance.  Other guarantees are subject to the disclosure requirements of FIN
No. 45 but not to the  recognition  provisions  and  include,  among  others,  a
guarantee  accounted  for as a derivative  instrument  under SFAS No. 133, and a
guarantee  covering  product  performance,  not product  price.  The  disclosure
requirements  of FIN No. 45 are  effective  for the Company as of  December  31,
2002,  and  require  disclosure  of the  nature of the  guarantee,  the  maximum
potential amount of future payments that the guarantor could be required to make
under the guarantee,  and the current  amount of the liability,  if any, for the
guarantor's obligations under the guarantee. The recognition requirements of FIN
No. 45 are to be applied  prospectively  to guarantees  issued or modified after
December 31, 2002.  The Company has  evaluated the impact of the adoption of FIN
No. 45, and does not  believe  it will have a material  impact on the  Company's
consolidated financial position or consolidated results of operations.




                                     F - 15
<PAGE>

NOTE 2 - PROPERTY AND EQUIPMENT

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

                                             2002                     2001
                                       --------------            --------------
Vehicles............................   $      171,000            $      158,000
Furniture...........................        3,470,000                 3,347,000
Equipment...........................       11,439,000                10,520,000
Computer software...................        4,361,000                 3,987,000
Leasehold improvements..............        1,109,000                 1,046,000
                                       --------------            --------------
                                           20,550,000                19,058,000
Less-Accumulated depreciation.......      (14,525,000)              (10,959,000)
                                       --------------            --------------
                                       $    6,025,000            $    8,099,000
                                       ==============            ==============

     Depreciation expense was $3,702,000,  $4,057,000 and $3,024,000  (including
$830,000,  $780,000 and $293,000 of depreciation expense recorded within cost of
sales, respectively) in 2002, 2001 and 2000, respectively.


NOTE 3 - LINES OF CREDIT

     On May 31,  2000,  the Company and the Bank  entered  into an  agreement to
replace a previous  facility with a 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,  2002,  the Company had
outstanding  borrowings  under the credit  facility of  $6,059,000.  The Company
estimates undrawn  availability under the credit facility to be $7,394,000 as of
December  31,  2002.  As of December  31,  2001,  the  Company  had  outstanding
borrowings under the credit facility of $4,066,000.

     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



                                     F - 16
<PAGE>

NOTE 3 - LINES OF CREDIT (CONTINUED)

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.  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, (3) a modification  to the  consolidated
net worth and  unconsolidated  net worth  covenants  to exclude  any  changes to
consolidated  net  worth  and   unconsolidated  net  worth  resulting  from  the
write-down or write-off of up to $10,833,000 of the note due from SeraNova,  and
(4) 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.

     During  2002,  the  Company  incurred  charges  related  to  the  Company's
contested  2002 Annual  Meeting of  Shareholders  ("Proxy  Contest").  The Proxy
Contest charges included legal fees, proxy  solicitation  services and printing,
mailing and other costs.  As a direct result of the Proxy Contest  charges,  the
Company was not in compliance  with the EBITDA  covenant as of June 30, 2002 and
September  30, 2002. In January 2003,  the Company  finalized  with the Bank the
terms of a waiver and amendment to the credit agreement. The terms of the waiver
and amendment included,  among other things, (1) a waiver of the EBITDA covenant
defaults as of June 30, 2002 and September 30, 2002, (2) a  modification  to the
definitions of EBITDA, total stockholders equity and unconsolidated stockholders
equity (for purposes of computing related covenant  compliance) to exclude Proxy
Contest charges of $464,000 for the quarter ended June 30, 2002 and $413,000 for
the  quarter  ended  September  30, 2002 only,  (3), a reduction  in the minimum
EBITDA  covenant  for the  fourth  quarter  and full year 2002  only,  and (4) a
modification  to  the  consolidated  net  worth  and  unconsolidated  net  worth
covenants to exclude any changes to  consolidated  net worth and  unconsolidated
net worth resulting from the write-down or write-off of up to $12,600,000 of the
note due from SeraNova.

     The Company was in  compliance  with all covenants as of December 31, 2002.
The Company expects to be able to comply with all financial covenants in 2003.

     The Company's  current  revolving  credit  facility with the Bank is due to
expire on May 31,  2003.  The Company has  requested an extension of the current
agreement   and  believes  that  such   extension   will  be  granted  on  terms
substantially  similar to the previous  credit  facility.  However,  there is no
assurance  that the Company  will be granted  such an  extension  on  acceptable
terms, if at all.



                                     F - 17
<PAGE>

NOTE 3 - LINES OF CREDIT (CONTINUED)

     Interest expense on debt and obligations under capital leases  approximated
$454,000,  $690,000 and $603,000 for the years ended December 31, 2002, 2001 and
2000, 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 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
                                                    JULY 5, 2000
                                                 -------------------
     Revenue.............................           $  36,019,000
     Pre-tax loss........................              (6,986,000)
     Income tax benefit..................              (2,095,000)
     Loss from discontinued operations...              (4,891,000)


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 had recorded  total  accrued  interest of $940,000 as of
December  31, 2001.  The Company has not  recorded  any accrued  interest on the
balance  of the  Note  subsequent  to the  maturity  date of July 31,  2001.  On
September 29, 2000, the Company received a $3,000,000 payment from SeraNova.


                                     F - 18
<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 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  $2,060,000 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. 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
million and  punitive  damages in the amount of  $10,000,000.  The parties  have
completed the discovery  process and the Company has moved for summary judgment,
which is  scheduled  to be heard by the  Court  on April 4,  2003.  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 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.



                                     F - 19
<PAGE>

NOTE 5 - NOTE RECEIVABLE - SERANOVA (CONTINUED)

     In addition,  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,
Silverline  and  Silverline  Technologies,  Inc.  (collectively,  the  "SeraNova
Group"). The demand for arbitration,  which sought damages,  alleged among other
things that the SeraNova Group 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. An arbitration hearing was held on June 25, 2002
and June 28, 2002 seeking $525,000 in outstanding lease  obligations.  On August
9, 2002,  an award was issued in the amount of  $616,905  (including  attorney's
fees) plus  reimbursement  of  administrative  fees, in favor of the Company and
against the  SeraNova  Group  jointly and  severally.  In an action filed in the
Superior Court of New Jersey,  the Court confirmed the $624,000  award,  jointly
and severally as to the SeraNova Group,  and issued a writ of execution  against
the SeraNova Group's assets. The Sheriff of Middlesex County levied this writ of
execution  on  October  8,  2002  against  a bank  account  held  by  Silverline
Technologies,  Inc. On October 16, 2002,  pursuant to this writ, the bank turned
over $626,247 to the Sheriff.  On November 6, 2002 the Sheriff sent the funds to
the Company's  attorneys  and the funds were  deposited  into an attorney  trust
account on November 8, 2002.  On December  13,  2002,  the Company  commenced an
action in the  Superior  Court of New  Jersey,  Chancery  Division,  to  recover
additional  amounts due and owing from the SeraNova Group under the  Arbitration
Award  and to  determine  whether  HSBC Bank USA  ("HSBC"),  a  creditor  of the
SeraNova Group, has priority to the funds levied upon by the Sheriff. On January
31, 2003,  the Court entered  judgment in the  Company's  favor in the amount of
$218,805,  representing the SeraNova Group's  additional  unpaid rent arrearages
under the arbitration award. On February 28, 2003, the Court entered judgment in
the  Company's  favor in the  amount of  $220,415,  representing  the  Company's
attorney's fees in connection with the Company's efforts to enforce the SeraNova
Group's  obligations  under the arbitration  award. On March 10, 2003, the Court
ordered HSBC to produce  discovery  proving its  priority to the $626,247  being
held in trust.  The Court is expected to rule on this issue on May 1, 2003.  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 is  continuing  to pursue its various  legal  options to obtain
payment from the SeraNova Group on the Note and outstanding  lease  obligations.
At the same time, the Company has also been periodically  engaged in discussions
with management of the SeraNova  Group,  with the objective of seeking an out of
court  resolution to all  outstanding  matters  involving the Note,  and certain
other receivables and lease obligations.  However, the Company believed that the
liquidity  issues  plaguing the SeraNova Group  required a  reassessment  of the
realizability  of these  outstanding  amounts.  Although no final resolution had
been  reached,  the Company  believed  that the  substance of these  discussions
provided a basis for determining the  approximate  realizable  value of the Note
and other  receivables,  as well as an  estimate  of the costs  required to exit
certain  lease  obligations.  Accordingly,  the Company  recorded the  following
charges during 2002:


                                     F - 20
<PAGE>

NOTE 5 - NOTE RECEIVABLE - SERANOVA (CONTINUED)

<TABLE>
<CAPTION>
                                          WRITE-DOWN      WRITE-OFF        ASSUMPTION
                                           OF  NOTE        OF OTHER       OF  CERTAIN
                                          RECEIVABLE     RECEIVABLES         LEASE          OTHER
                                          - SERANOVA      - SERANOVA       OBLIGATIONS     CHARGES          TOTAL
                                        ----------------------------------------------------------------------------
<S>                                     <C>             <C>              <C>             <C>            <C>
Charges to operations during 2002...    $   5,140,000   $  1,257,000     $   1,501,000   $    464,000   $  8,362,000
Costs paid during 2002..............               --             --          (361,000)      (318,000)      (679,000)
Non-cash items......................       (5,140,000)    (1,257,000)               --             --     (6,397,000)
                                        -------------   ------------     -------------   ------------   ------------
Accrued costs as of December 31,
2002                                    $          --   $         --     $   1,140,000   $    146,000   $  1,286,000
                                        =============   ============     =============   ============   ============
</TABLE>

     In 2002,  the  Company  recorded  a  $5,140,000  charge to  write-down  the
carrying value of the Note to $4,000,000. The Company also recorded a $1,257,000
charge  to  write-off  the  carrying  value of the  other  SeraNova  receivables
(primarily,  accrued  interest  on  the  Note  and a  receivable  for  a  system
implementation  project).   Additionally,  the  Company  recorded  a  charge  of
$1,501,000  for certain lease exit costs.  Such charge  represents  primarily an
accrued  liability  for  obligated  space costs for which the Company  currently
believes it cannot use or sublease and the differential  between certain Company
lease obligations and sublease amounts to be received.  As of December 31, 2002,
$1,286,000 of the liability remains outstanding, of which $1,028,000 is included
in other long-term liabilities.

     At December 31, 2002, the Company  re-evaluated  the  realizability  of the
carrying  value of the Note, as well as any required  change to the  obligations
associated  with the office  space costs.  Based upon the current  status of the
negotiations  with the SeraNova Group, the Company  determined that no change to
the carrying value of the Note or the recorded  liability was  appropriate as of
December 31, 2002.  However, if the Company were to collect less than $4,000,000
on the Note recorded as of December 31, 2002, or incur additional obligations or
costs, the SeraNova  receivable  impairment and/or charges would be increased in
future periods.

NOTE 6 - RESTRUCTURING AND OTHER SPECIAL CHARGES

     In 2002,  the Company  recorded a $30,000  restructuring  and other special
charges  provision  related to the  downsizing  of the  Company's  operations in
Australia.  The charges resulted  primarily from severance costs associated with
reducing employee headcount in the region.

     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.



                                     F - 21
<PAGE>

NOTE 6 - RESTRUCTURING AND OTHER SPECIAL CHARGES (CONTINUED)

     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.

     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.


                                     F - 22
<PAGE>

NOTE 6 - RESTRUCTURING AND OTHER SPECIAL CHARGES (CONTINUED)

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

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

<S>                                             <C>               <C>               <C>              <C>
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

Charges to operations during 2002.........             30,000               --                --           30,000
Costs paid during 2002....................           (326,000)              --          (384,000)        (710,000)
                                                -------------     ------------      ------------     ------------
Accrued costs as of December 31, 2002.....      $      89,000     $         --      $     83,000     $    172,000
                                                =============     ============      ============     ============
</TABLE>

The Company  expects to pay out the  remaining  costs  above  within the next 12
months.

NOTE 7 - INCOME TAXES

     Income taxes provision (benefit) consists of the following:

                               2002               2001               2000
                          ------------       ------------      -------------
Current:
    Federal.........      $        --        $   636,000       $ (1,951,000)
    State...........          170,000                 --                 --
    Foreign.........          397,000            386,000            506,000
                          ------------       ------------      -------------
                              567,000          1,022,000         (1,445,000)
                          ------------       ------------      -------------

Deferred:
    Federal.........               --           (430,000)           872,000
    State...........               --                 --                 --
    Foreign.........           (6,000)                --                 --
                          ------------       ------------      -------------
                               (6,000)          (430,000)           872,000
                          ------------       ------------      -------------
Total...............      $   561,000        $   592,000       $   (573,000)
                          ============       ============      ============


                                     F - 23
<PAGE>

NOTE 7 - INCOME TAXES (CONTINUED)

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

<TABLE>
<CAPTION>
                                                      2002            2001             2000
                                                     ------          ------           ------
<S>                                                   <C>             <C>              <C>
Tax at federal statutory rate...............          (34)%           (34)%            (34)%
Nondeductible expenses......................            1              --                1
State income tax, net of federal benefit....            1              --               --
Foreign losses for which no benefit is
    available...............................           12              25                7
Changes in valuation allowance..............           12               8               16
Foreign operations taxed at less than U.S.
    statutory rate, primarily India.........           10              10                2
Other.......................................            5              (4)              --
                                                     ------          ------           ------
Effective tax rate..........................            7%              5%              (8)%
                                                     ======          ======           ======
</TABLE>

     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. Effective April 1, 2002,
the tax  deduction  incentive for income from the export of software and related
services is restricted  to 90% of such income.  Further,  domestic  revenue from
software and related  services is taxable in India. The impact of this change is
not  expected to be material to the  consolidated  financial  statements  of the
Company.

     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, 2002 and 2001 are as follows:

                                                        2002           2001
                                                        ----           ----
     Deferred tax assets:
       Allowance for doubtful accounts........      $   574,000     $  731,000
       Vacation accrual.......................          213,000        326,000
       Net operating losses...................        9,903,000      6,688,000
       Other accrued liabilities..............          301,000        293,000
                                                    -----------     ----------
     Total deferred tax assets................       10,991,000      8,038,000

     Deferred tax liability-accelerated
     depreciation.............................        (745,000)      (621,000)

     Valuation allowance......................       (8,668,000)    (5,845,000)
                                                    -----------     ----------

     Net deferred tax asset...................      $ 1,578,000     $1,572,000
                                                    ===========     ==========


                                     F - 24
<PAGE>

NOTE 7 - INCOME TAXES (CONTINUED)

     During 2002 and 2001, 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 2022. Although the
realization of the deferred tax assets is not assured, management believes it is
more likely than not, that the 2002 net deferred tax asset of $1,578,000 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.

     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, 2002, 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.



                                     F - 25
<PAGE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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, 2002.  Future  minimum  aggregate
annual lease payments are as follows:

                       For the Years
                    Ending December 31,              Capital        Operating
              ------------------------------      -----------      ----------
              2003..........................       $  330,000      $2,227,000
              2004..........................           63,000       1,956,000
              2005..........................               --       1,787,000
              2006..........................               --       1,297,000
              2007..........................               --       1,289,000
              Thereafter....................               --         895,000
                                                   ----------      ----------
              Subtotal......................          393,000       9,451,000
              Less-Interest.................           15,000              --
                                                      378,000       9,451,000
              Less-Current Portion..........          315,000       2,227,000
                                                   ----------      ----------
                                                   $   63,000      $7,224,000
                                                   ==========      ==========

     Rent  expense  for the years ended  December  31,  2002,  2001 and 2000 was
$4,544,000, $4,647,000 and $3,940,000, respectively.

Tax Contingency in India

     The Company's Indian  subsidiary has received an assessment from the Indian
taxing  authority  denying tax  exemptions  claimed for certain  revenue  earned
during each of the fiscal years ended March 31, 1997 through March 31, 1999. The
assessment is for 28 million  rupees,  or  approximately  $580,000.  Management,
after  consultation  with its advisors,  believes the Company is entitled to the
tax exemption  claimed and thus has not recorded a provision for taxes  relating
to these items as of December 31, 2002. If the Company were not successful  with
its appeals, which were filed in 2001 and 2002, a future charge of approximately
$580,000 would be recorded and reflected in the Company's consolidated statement
of operations.

Proxy Contest and Related Legal Matters

     In  2002,  the  Company  incurred  $1,073,000  of  charges  related  to the
Company's contested 2002 Annual Meeting of Shareholders  ("Proxy Contest").  The
Proxy Contest  resulted  directly from a shareholder of the Company  launching a
hostile  and costly  proxy  contest to take  control of the  Company's  Board of
Directors.  The Proxy Contest charges  included legal fees,  proxy  solicitation
services and printing, mailing and other costs.



                                     F - 26
<PAGE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

     On July 2, 2002,  Ashok Pandey  filed a complaint in the Superior  Court of
New Jersey,  Middlesex  County,  in connection  with the Company's  recent Proxy
contest with respect to the Annual Meeting. In his Complaint,  plaintiff claimed
that  Intelligroup's  Board of  Directors  violated  their  fiduciary  duties by
adjourning  the Annual  Meeting from July 2, 2002 to July 16,  2002.  On July 3,
2002, the Court denied  Plaintiff's  application for emergent relief,  and ruled
that  Intelligroup  could adjourn its Annual Meeting,  finding that  plaintiff's
conduct in obtaining ex parte  injunctive  relief in federal court enjoining the
voting of 4.61% of the Company's  outstanding common stock without notice to the
Company, "estopped [Pandey] from complaining about the adjournment." Despite the
court's denial of his emergent application,  plaintiff indicated to the Court on
August 16, 2002,  that he would continue the litigation in an effort to have the
court sanction his unilateral  attempt to hold an annual meeting and election on
July 2, 2002,  despite the Company's  adjournment of the meeting and the absence
of its Board of Directors and a quorum of its  shareholders on July 2, 2002. The
Company  filed its  Answer  and  Affirmative  Defenses  on August  30,  2002 and
discovery  is  ongoing.  On November  6, 2002,  the  Company  filed a Motion for
Summary  Judgment  and on January 7, 2003,  the Court  granted  Partial  Summary
Judgment. A trial date has been scheduled for May 5, 2003.

     On July 3,  2002,  the  Company  filed a  complaint  in the  United  States
District  Court for the  District  of New  Jersey,  naming  Ashok  Pandey,  TAIB
Securities,  Inc.,  Beechrock  Holdings  Limited and Braydon Holdings Limited as
defendants.  The  complaint  alleges,  among other things,  that the  defendants
violated  federal  securities laws in connection with the Company's recent proxy
contest.  The defendants have filed an Answer to the Company's complaint denying
the Company's claims and discovery is ongoing. The Company does not believe that
the outcome of this claim will have a material  adverse  effect on the Company's
business,   consolidated   financial   condition  or  consolidated   results  of
operations.



                                     F - 27
<PAGE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Other Legal Matters

     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 former 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 same  extent  as
SeraNova  for false  and  misleading  statements  constituting  securities  laws
violations and breach of contract.  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.  On
September  30,  2002,  the Court  granted  plaintiff's  motion in part,  finding
SeraNova  liable for breach of contract  as a matter of law. On March 27,  2003,
the  parties  agreed  to the  terms of a  settlement  agreement,  which  will be
effective upon payment of the settlement amount. Pursuant to such agreement, the
Company is  obligated  to pay its portion of the  settlement  amount equal to an
aggregate  amount of $50,000 within two weeks. The payment by the Company of its
portion of the  settlement  amount will not have a material  adverse effect 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 consolidated results
of operations.



                                     F - 28
<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.

<TABLE>
<CAPTION>
                                                                         Weighted Average
                                                    Number of Shares      Exercise Price
    --------------------------------------------------------------------------------------
<S>                                                    <C>                   <C>
    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

    Granted.................................           1,165,000             $    0.94

    Exercised...............................                  --             $     --

    Canceled................................            (800,648)            $    2.86

    --------------------------------------------------------------------------------------
    Options Outstanding, December 31, 2002
    (1,615,300 exercisable).................           3,198,201             $    2.37
                                                   ==============           =============
</TABLE>

        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 - 29
<PAGE>

NOTE 9 - STOCK OPTION PLANS (CONTINUED)

     The following table summarizes  information about stock options outstanding
and exercisable at December 31, 2002:

<TABLE>
<CAPTION>
                                    Outstanding                               Exercisable
                        ----------------------------------------     -----------------------------
                                     Weighted
                                      Average
                                     Remaining        Weighted                       Weighted
    Exercise Price        Number      Life (in        Average          Number of      Average
       Range            of shares      years)      Exercise Price       shares      Exercise Price
-----------------------------------------------------------------    -----------------------------
<S>                     <C>              <C>           <C>              <C>            <C>
 $0.9000 to 0.9499      1,050,000        9.7           $  0.9000             --        $      --

 $0.9500 to 0.9999         19,250        8.5           $  0.9717          3,750        $  0.9750

 $1.0000 to 1.4999        169,625        8.6           $  1.1091         69,500        $  1.1232

 $1.5000 to 2.2499        337,803        7.4           $  2.0244        261,453        $  2.0756

 $2.2500 to 2.7499        833,887        6.5           $  2.5445        733,976        $  2.5443

 $2.7500 to 2.9999        304,500        6.8           $  2.8005        228,000        $  2.8004

 $3.0000 to 4.4999        244,660        6.6           $  4.2738        137,110        $  4.2144

 $4.5000 to 6.7499        165,176        5.5           $  5.2977        128,611        $  5.3527

 $6.7500 to 9.9999         23,300        7.2           $  8.6874         12,900        $  8.6734

$10.0000 to 13.7500        50,000        6.6           $ 13.0760         40,000        $ 13.1464
                        ---------       ----          ----------      ---------       ----------
 $0.9000 to 13.7500     3,198,201        7.8           $  2.3723      1,615,300        $  3.1167
                        =========                                     =========
</TABLE>

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.


                                     F - 30
<PAGE>

NOTE 11 - RELATED PARTY TRANSACTIONS

     During  2002,  2001 and 2000,  the Company  provided  services to FirePond,
which  produced  revenues  for  the  Company  totaling  approximately  $329,000,
$156,000  and  $307,000,  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.

     During  2002,  the  Company  provided  implementation  services  to  McCann
Erickson,  which  produced  revenues  for  the  Company  totaling  approximately
$242,000. A member of the Company's Board of Directors,  Nic Di Iorio, serves as
the Chief Technology  Officer of McCann Erickson.  Services were priced at rates
comparable  to  other  similar  arrangements  in  which  the  Company  regularly
participates.

NOTE 12 - 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.  However,  the Company has ceased
               operations  in Sweden as of January 1,  2003,  due to  continuing
               operating losses. The European headquarters are located in Milton
               Keynes, United Kingdom; and

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

     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.



                                     F - 31
<PAGE>

NOTE 12 - SEGMENT DATA AND GEOGRAPHIC INFORMATION (CONTINUED)

     Accordingly,  the Company's  operating  results and financial  position are
presented in the following  geographic segments for the years ended December 31,
2002, 2001 and 2000.

<TABLE>
<CAPTION>
                                    UNITED STATES    ASIA-PACIFIC        EUROPE            INDIA               TOTAL
                                    -------------    ------------        ------            -----               -----
<S>                                 <C>              <C>              <C>              <C>                <C>
2002
----
Revenue.......................      $ 78,712,000     $ 10,209,000     $  6,024,000     $ 13,386,000       $ 108,331,000

Depreciation & amortization...         1,796,000          197,000          222,000          657,000           2,872,000  (1)

Operating income (loss).......        (7,037,000)      (1,510,000)      (1,093,000)       2,284,000          (7,356,000) (2)

Total assets..................        30,633,000        4,851,000        2,170,000        6,465,000          44,119,000

2001
----

Revenue.......................      $ 74,023,000     $ 13,213,000     $ 10,737,000     $ 12,440,000       $ 110,413,000

Depreciation & amortization...         2,167,000          253,000          684,000          591,000           3,695,000  (3)

Operating income (loss).......        (6,991,000)         368,000       (8,495,000)       3,078,000         (12,040,000) (4)

Total assets..................        34,720,000        4,788,000        2,183,000        5,403,000          47,094,000

2000
----

Revenue.......................      $ 79,602,000     $ 11,149,000     $ 17,976,000     $  6,391,000       $ 115,118,000

Depreciation & amortization...         2,023,000          145,000          697,000          322,000           3,187,000  (5)

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
</TABLE>

---------

(1)  Excludes  $830,000 of  depreciation  and  amortization  included in cost of
     sales for the year ended December 31, 2002.

(2)  Includes  $8,362,000 of SeraNova  receivable  impairment and other charges,
     $1,073,000 of proxy contest charges and $30,000 of restructuring  and other
     special charges for the year ended December 31, 2002.

(3)  Excludes  $780,000 of  depreciation  and  amortization  included in cost of
     sales for the year ended December 31, 2001.

(4)  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.

(5)  Excludes  $293,000 of  depreciation  and  amortization  included in cost of
     sales for the year ended December 31, 2000.

     Included  above  is  application   maintenance  and  support   revenues  of
$27,601,000,  $23,240,000 and $20,173,000 for the years ended December 31, 2002,
2001 and  2000,  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 - 32
<PAGE>

NOTE 13 -QUARTERLY INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                             Fiscal Year Quarters
                                     ----------------------------------------------------------------------
                                        First         Second         Third         Fourth         Total
                                     ----------------------------------------------------------------------
<S>                                  <C>           <C>            <C>           <C>           <C>
Year Ended December 31, 2002
----------------------------
Revenue..........................    $24,609,000   $26,476,000    $28,358,000   $28,888,000   $108,331,000

Gross margin.....................      7,421,000     8,264,000      8,355,000     8,517,000     32,557,000

Net income (loss)................         11,000    (8,561,000)        13,000        54,000     (8,483,000)

Earnings per share - basic and
 diluted:

Net income (loss) per share......           0.00         (0.51)          0.00          0.00          (0.51)


YEAR ENDED DECEMBER 31, 2001
----------------------------
Revenue..........................    $30,789,000   $28,734,000    $25,538,000   $25,352,000   $110,413,000

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)
</TABLE>


                                     F - 33