UNITED STATESSECURITIES AND EXCHANGE COMMISSION Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended June
30, 2009

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 Incorporation or     |  | (I.R.S.
      Employer Identification No.)
|Organization)                                              |  |                                           
|                                                           |  |                                           
|5 Independence Way, Suite 220,
      Princeton, New Jersey |  | 08540                                     
|(Address of
      Principal Executive Offices)             |  | (Zip
      Code)                          

|**(646) 810-7400**                                  
|----------------------------------------------------
|(Registrants Telephone Number, Including Area Code)

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 o

Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate website, if any, every
interactive data file required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such
files).YesoNo o

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

|Large accelerated
      filer:  o | Accelerated
      filer:  o | Non-accelerated
      filer:  o | Smaller Reporting
      Company  x
|--------------------------------- | --------------------------- | ------------------------------- | ----------------------------------

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

Yes o      No x

Indicate the number of shares
outstanding of each of the registrants classes of common stock, as of July 31,
2009:

|Class                              | Number of
      Shares
|---------------------------------- | ----------------------
|Common Stock,
      $.01 par value | 41,162,389            

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TABLE OF CONTENTS

|                                  |  |                                                                                                             | Page
|--------------------------------- |  | ----------------------------------------------------------------------------------------------------------- | ----
|PART I. FINANCIAL
    INFORMATION | 
|                                  |  |                                                                                                             |     
|Item
      1.                     |  | Financial statements                                                                                        |     
|                                  |  |                                                                                                             |     
|                                  |  | Condensed consolidated balance
      sheets as of June 30, 2009 (unaudited) and December 31, 2008           | 4   
|                                  |  |                                                                                                             |     
|                                  |  | Condensed consolidated statements of
      operations and comprehensive income (loss) for the three and six | 5   
|                                  |  | months ended June 30, 2009 and 2008 (unaudited)                                                             |     
|                                  |  |                                                                                                             |     
|                                  |  | Consolidated statements of cash flows for the six months
      ended June 30, 2009 and 2008 (unaudited)     | 6   
|                                  |  |                                                                                                             |     
|                                  |  | Notes
      to condensed consolidated financial statements                                                  | 7   
|                                  |  |                                                                                                             |     
|Item
      2.                     |  | Managements discussion and analysis of financial condition
      and results of operations                 | 20  
|                                  |  |                                                                                                             |     
|Item
      3.                     |  | Quantitative and qualitative disclosures about market
      risk                                            | 32  
|                                  |  |                                                                                                             |     
|Item
      4.                     |  | Controls and procedures                                                                                     | 32  
|                                  |  |                                                                                                             |     
|PART
      II. OTHER INFORMATION  | 
|                                  |  |                                                                                                             |     
|Item
      1.                     |  | Legal
      proceedings                                                                                     | 33  
|                                  |  |                                                                                                             |     
|Item
      1a.                    |  | Risk
      factors                                                                                          | 33  
|                                  |  |                                                                                                             |     
|Item
      2                      |  | Unregistered sales of equity
      securities and use of proceeds                                           | 33  
|                                  |  |                                                                                                             |     
|Item
      4.                     |  | Submission of matters to a vote of
      security holders                                                   | 34  
|                                  |  |                                                                                                             |     
|Item
      6.                     |  | Exhibits                                                                                                    | 34  
|                                  |  |                                                                                                             |     
|Signatures                        |  |                                                                                                             | 36  

2

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FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include, among other things, business strategy and
expectations concerning industry conditions, market position, future operations,
margins, profitability, liquidity and capital resources. Forward-looking
statements generally can be identified by the use of terminology such as may,
will, expect, intend, estimate, anticipate or believe or similar
expressions or the negatives thereof. These expectations are based on
managements assumptions and current beliefs based on currently available
information. Although the Company believes that the expectations reflected in
such statements are reasonable, it can give no assurance that such expectations
will be correct. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this quarterly
report on Form 10-Q and the Company does not have any obligation to update the
forward looking statements. The Companys operations are subject to a number of
uncertainties, risks and other influences, many of which are outside its
control, and any one of which, or a combination of which, could cause its actual
results of operations to differ materially from the forward-looking statements.
Important factors that could cause actual results to differ materially from its
expectations are disclosed in Part I, Item 2, Managements Discussion and
Analysis of Financial Condition and Results of Operations, and listed under
Item 1A Risk Factors in our annual report on Form 10-K/A for the year ended
December 31, 2008 and elsewhere in this quarterly report on Form 10-Q.

3

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INTELLIGROUP, INC.CONSOLIDATED
BALANCE SHEETSAS OF JUNE 30, 2009 AND
DECEMBER 31, 2008(In thousands, except
par value)

|                                                                               | June
      30 |         | December
      31
|------------------------------------------------------------------------------ | ------------- | ------- | -----------------
|                                                                               | 2009          |         | 2008             
|                                                                               | (Unaudited)   |         |                  
|ASSETS                                                                         |               |         |                  
|**CURRENT ASSETS**                                                             |               |         |                  
|Cash and cash
      equivalents                                                | $             | 18,496  |                  
|Short-term
      investments                                                   |               | 1,826   |                  
|                                                                               |               |         |                  
|Accounts
      receivable, less allowance for doubtful accounts of $2,089      |               |         |                  
|and $1,996 at June
      30, 2009 and December 31, 2008, respectively          |               | 21,024  |                  
|Unbilled services,
      less allowance for doubtful accounts of $20 as at     |               |         |                  
|June 30, 2009 and
      December 31, 2008                                      |               | 5,843   |                  
|Deferred tax asset,
      current portion                                      |               | 679     |                  
|Prepaid expenses
      and prepaid taxes                                       |               | 1,043   |                  
|Other current
      assets                                                     |               | 868     |                  
|Total current
      assets                                                     |               | 49,779  |                  
|Property and equipment,
      net                                              |               | 3,917   |                  
|Goodwill and intangibles                                                       |               | 2,092   |                  
|Restricted cash and
      investments                                          |               | 2,193   |                  
|Prepaid taxes - non-adjustable, less
      allowance for doubtful accounts of  |               |         |                  
|$104 and
      $95 at June 30, 2009 and December 31, 2008, respectively        |               | 888     |                  
|Deferred taxes, net of
      current portion and other assets                  |               | 2,521   |                  
|Total
    Assets                                                               | $             | 61,390  |                  
|                                                                              
|LIABILITIES AND SHAREHOLDERS'
    EQUITY                                       |               |         |                  
|CURRENT
      LIABILITIES                                                      |               |         |                  
|Line of credit
      borrowings                                                | $             | 125     |                  
|Accounts
      payable                                                         |               | 1,997   |                  
|Liability on
      derivative instruments                                      |               | 1,574   |                  
|Accrued payroll and
      related taxes                                        |               | 9,953   |                  
|Accrued expenses
      and other current liabilities                           |               | 3,920   |                  
|Deferred revenue,
      current portion                                        |               | 1,372   |                  
|Tax
    payable                                                                |               | 1,046   |                  
|Capital lease and
      deferred rent, current portion                         |               | 612     |                  
|Total current liabilities                                                      |               | 20,599  |                  
|Obligations under capital lease, net of
      current portion                  |               | 287     |                  
|Deferred revenue, net of
      current portion                                 |               | 385     |                  
|Other long-term liabilities                                                    |               | 989     |                  
|Total Liabilities                                                              |               | 22,260  |                  
|                                                                              
|SHAREHOLDERS' EQUITY                                                           |               |         |                  
|Preferred stock,
      $.01 par value, 5,000 shares authorized, none issued or |               |         |                  
|outstanding                                                                    |               | -       |                  
|Common stock, $.01
      par value, 65,000 shares authorized                   |               |         |                  
|at June 30, 2009
      and December 31, 2008 and 41,442 and 42,114             |               |         |                  
|shares issued and
      outstanding at June 30, 2009 and December 31,          |               |         |                  
|2008,
      respectively                                                       |               | 414     |                  
|Additional paid-in
      capital                                               |               | 71,475  |                  
|Accumulated
      deficit                                                      |               | (30,120 | )                
|Accumulated other
      comprehensive loss                                     |               | (2,639  | )                
|                                                                               |               |         |                  
|Total shareholders equity                                                     |               | 39,130  |                  
|                                                                               |               |         |                  
|Total liabilities and shareholders equity                                     | $             | 61,390  |                  

See accompanying notes

4

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INTELLIGROUP,
INC.CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(UNAUDITED)(In thousands,
except per share data)

|                                                    | SIX MONTHS
      ENDED |        | THREE MONTHS
      ENDED
|--------------------------------------------------- | ---------------------- | ------ | ------------------------
|                                                    | JUNE
      30          |        | JUNE
      30           
|                                                    | 2009                   |        | 2008                    
|Revenue                                             | $                      | 61,829 |                         
|Cost of revenue                                     |                        | 41,515 |                         
|Gross
    profit                                    |                        | 20,314 |                         
|                                                   
|Selling, general and
      administrative expenses  |                        | 14,292 |                         
|Depreciation and amortization                       |                        | 1,348  |                         
|Total operating
      expenses                      |                        | 15,640 |                         
|                                                   
|Operating
      income                              |                        | 4,674  |                         
|                                                   
|Interest income                                     |                        | 64     |                         
|Interest expense                                    |                        | (38    | )                       
|Foreign currency
      transaction gain (loss), net |                        | 114    |                         
|Other income (expense), net                         |                        | 289    |                         
|                                                   
|Income before
      income taxes                    |                        | 5,103  |                         
|Provision for income taxes                          |                        | 1,123  |                         
|Net
income                                          | $                      | 3,980  |                         
|                                                   
|Basic net income per
      share                    | $                      | 0.10   |                         
|Diluted net income per share                        | $                      | 0.10   |                         
|                                                   
|Weighted average no. of
      common shares         |                        |        |                         
|outstanding                                         |                        |        |                         
|-
      Basic                                       |                        | 41,608 |                         
|- Diluted                                           |                        | 41,626 |                         
|                                                   
|Comprehensive income
      (loss)                   |                        |        |                         
|Net
income                                          | $                      | 3,980  |                         
|Other comprehensive
      income (loss)             |                        |        |                         
|Currency
      translation adjustments              |                        | 729    |                         
|                                                   
|Comprehensive income / (
      loss)                |                        | 4,709  |                         

See accompanying notes.

5

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INTELLIGROUP,
INC.CONSOLIDATED STATEMENTS OF CASH
FLOWSFOR SIX MONTH ENDED JUNE 30, 2009 AND 2008(In
thousands)

|                                                               | SIX MONTHS
      ENDED JUNE 30,
|-------------------------------------------------------------- | -------------------------------
|                                                               | 2009                           
|                                                               | (Unaudited)                    
|Cash flows from operating
      activities:                    |                                
|Net
      income                                               | $                              
|Adjustments to reconcile
      net loss to net                 |                                
|Cash
      provided by operating activities:                   |                                
|Depreciation and
      amortization                            |                                
|Provision for doubtful accounts and advances                   |                                
|Stock compensation
      expense                               |                                
|Unrealized gain on investments                                 |                                
|Loss on sale of fixed
      assets                             |                                
|Unrealized exchange (gain) / loss                              |                                
|Deferred taxes                                                 |                                
|Changes in operating assets and
      liabilities:             |                                
|Accounts
      receivable                                      |                                
|Unbilled services                                              |                                
|Prepaid taxes                                                  |                                
|Prepaid
      expenses and other current assets                |                                
|Other assets                                                   |                                
|Restricted cash and investments                                |                                
|Derivative
      liability                                     |                                
|Accounts payable                                               |                                
|Accrued payroll and
      related taxes                        |                                
|Accrued
      expenses and other current liabilities           |                                
|Deferred
    revenue                                           |                                
|Income
      taxes payable                                     |                                
|Other long-term
      liabilities                              |                                
|Net cash provided by operating
      activities                | $                              
|                                                              
|Cash flows from investing
      activities:                    |                                
|Purchase of property and equipment                             | $                              
|Proceeds from sale of
      equipment                          |                                
|Purchases of investments                                       |                                
|Proceeds from sale of
      investments                        |                                
|Net cash used in investing
    activities                      | $                              
|                                                              
|Cash flows from financing
      activities:                    |                                
|Principal payments under capital leases                        | $                              
|Stock
    repurchase                                           |                                
|Net
      change in line of credit borrowings                  |                                
|Net cash used in financing
      activities                    | $                              
|                                                              
|Effect of foreign currency
      exchange rate changes on cash | $                              
|                                                              
|Net increase (decrease) in
      cash and cash equivalents     |                                
|Cash and cash equivalents - beginning of
      year            | $                              
|Cash and cash equivalents
      - end of the period            | $                              

See accompanying notes

6

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INTELLIGROUP, INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 1- BASIS OF PRESENTATION

The
condensed consolidated financial statements and accompanying financial
information as of June 30, 2009 and for the three and six months ended June 30,
2009 and 2008 are unaudited and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position of the
Company at such dates and the operating results and cash flows for those
periods. The unaudited condensed consolidated financial statements included
herein have been prepared in accordance with accounting principles generally
accepted in the United States of America and the instructions of Form 10-Q and
Rule 10-01 of Regulation S-X. Pursuant to accounting requirements of the
Securities and Exchange Commission applicable to quarterly reports on Form 10-Q,
the accompanying unaudited condensed consolidated financial statements and these
notes do not include all disclosures required by accounting principles generally
accepted in the United States of America for audited financial statements.
Accordingly, these statements should be read in conjunction with the accounting
policies and Notes to Consolidated Financial Statements included in the
Companys consolidated financial statements filed on Form 10-K/A for the year
ended December 31, 2008.

The amounts for the December 31,
2008 balance sheet have been extracted from the audited consolidated financial
statements included in our annual report on Form 10-K/A for the year ended
December 31, 2008.

The results of the Companys
operations for the three and six months ended June 30, 2009 are not necessarily
indicative of the results of operations to be expected for the full year ending
December 31, 2009.

Certain prior period amounts have
been reclassified in the consolidated financial statements to conform to the
2009 presentation. Prepaid taxes which represent taxes paid under protest to the
tax authorities in India, previously included as current assets, have now been
classified under non-current assets since the recoverability of such prepayments
is not determinable.

NOTE 2- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

Cash and Cash
Equivalents

The
Company considers all highly liquid debt instruments and other short-term
investments with a maturity of three months or less, when purchased, to be cash
equivalents.

The
Company maintains cash and cash equivalent balances at several financial
institutions that are insured by the Federal Deposit Insurance Corporation up to
$250,000. The Company maintains cash balances in excess of insured amounts.

The Company did not have any cash
equivalents as at June 30, 2009 and December 31, 2008.

Revenue Recognition and Allowance
for Doubtful Accounts

We
generate revenue from professional services rendered to customers. Revenue is
recognized under the Companys contracts generally when persuasive evidence of
an arrangement exists, the sales price is fixed or determinable and collection
of amounts billed is reasonably assured. The majority of our revenue is
generated under time-and-material contracts whereby costs and revenue are
recognized as services are performed, with the corresponding cost of providing
those services reflected as cost of revenue. The majority of customers are
billed on an hourly or daily basis whereby actual time is charged directly to
the customer. Such method is expected to result in reasonably consistent profit
margins over the contract term.

We also
derive a portion of our revenue from fixed-price, fixed-time contracts. Revenue
generated from most fixed-price contracts, including most application management
and support contracts, is recognized using the proportional performance method.
The Company prepares a detailed estimate of the cost of resources needed to
complete such contracts. It determines performance by comparing the actual cost
of work performed to date to the estimated total cost for each project. It
recognizes revenue based upon costs incurred by its consultants during the
period. The Company follows this revenue recognition method for fixed-price,
fixed-time contracts because there is a direct and consistent relationship
between the service patterns and services provided to the customer and the
direct costs incurred to provide such services. The use of the proportional
performance method requires significant judgment relative to estimating the
number of hours or days required to complete the contracted scope of work,
including assumptions and estimates relative to the length of time to complete
the project and the nature and complexity of the work to be performed. The
Company regularly monitors its estimates for completion of a project and record
changes in the period in which a change in an estimate is determined. If a
change in an estimate results in a projected loss on a project, such loss is
recognized in the period in which it is first identified.

7

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INTELLIGROUP, INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 2- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)

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

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

The
Company accrues for revenue and receivables for services rendered between the
last billing date and the balance sheet date. Unbilled services at June 30, 2009
and December 31, 2008 represent services provided through six months ended June
30, 2009 and year ended December 31, 2008, respectively, which are billed
subsequent to year-end. All such amounts are anticipated to be collected over
the next twelve months.

Reimbursements of out-of-pocket expenses received from clients have been
included as part of revenues in accordance with EITF 01-14, Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred.

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

Earnings (loss) per Common Share

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

For the six months period ended June
30, 2009 and 2008, respectively, options to purchase 2,920,158 and 1,433,980
shares of common stock were not included in the computation of diluted earnings
(loss) per share because inclusion would have been anti-dilutive. For the three
months ended June 30, 2009 and 2008, respectively, options to purchase,
2,920,158 and 1,619,532 shares of common stock were not included in the
computation of diluted earnings (loss) per share because inclusion would have
been anti-dilutive.

As explained in Note 6 below, the
Company engaged in a share repurchase program through which it repurchased
750,950 shares as of June 30, 2009. Though not significant, the repurchase has
improved the EPS for both the three and six month period ended June 30, 2009.

Income Taxes

The
Company records tax expense/benefit based upon the taxable income/loss recorded
in each tax jurisdiction. The Company recorded an income tax expense of $0.6
million and $0.3 million on a pretax income of $3.8 million and $1.4 million for
the three months ended June 30, 2009 and 2008, respectively and an income tax
expense of $1.1 million and $0.6 million on a pretax income of $5.1 million and
$3.6 million for the six months ended June 30, 2009 and 2008,
respectively.

8

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INTELLIGROUP, INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 2- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)

The
effective tax rate has decreased to a tax provision of 16% during the three
months ended June 30, 2009 from a tax provision of 22% during the three months
ended June 30, 2008. The effective tax rate has increased to a tax provision of
22% during the six months ended June 30, 2009 from a tax provision of 18% during
the six months ended June 30, 2008. Changes in the effective rate of taxes are
due to the changes in the geographic distribution of our income and changes in
non taxable income.

The
Companys India subsidiary received tax assessments for the fiscal years ended
March 31, 1998 through 2003 and fiscal year ended March 31, 2005, challenging
the tax exemptions of certain revenue earned and disallowing certain expenses.
The Company has deposited additional tax of INR 41.1 million (or approximately
$0.9 million) under protest, net of allowance of $0.1 million, as at June 30,
2009 consequent to the above tax assessments.

The
Companys India subsidiary received tax assessments for the fiscal years ended
March 31, 1998 to 2003 demanding an additional tax of INR 30.1 million (or
approximately $0.6 million). The amounts were deposited by the Company under
protest. The Company is under litigation in respect of these assessments and
received favorable judgment during 2007 for the fiscal years ended March 31,
1998 through March 31, 2000. The judgment refunded approximately $0.2 million of
the amount deposited for the year ended March 31, 1998, while $0.2 million is
pending to be received from the tax authorities for the year ended March 31,
1999. While processing the above refund an amount of INR 2.5 million (or
approximately $0.1 million) for the fiscal year ended March 31, 2000 had been
deducted by the tax authorities challenging certain tax exemptions that had
earlier been allowed to the Company. The Company is under litigation against
this order and does not expect a favorable decision. This has been fully
reserved for as at June 30, 2009.

During
the three months ended June 30, 2009, the Company deposited an amount of INR 2.8
million (or approximately $0.1 million) under protest against the order passed
by the tax authorities challenging certain tax exemptions, earlier allowed to
the Company for the fiscal year ended March 31, 2001. Further, for the fiscal
year ended March 31, 2005, an amount of INR 20.4 million (or approximately $0.4
million) had been deposited by the Company under protest, during the three
months ended March 31, 2009, against an assessment order passed by the tax
authorities, challenging the transfer pricing methodology followed by the
Company and non submission of evidence in support of foreign inward remittance.
The Company has not recorded a reserve on the additional tax paid under protest
as it considers that its tax position is more likely than not will be sustained
based on independent merits.

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

Goodwill and Intangibles

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

Pension Plan Liability

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

9

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INTELLIGROUP,
INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 2- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)

The
discount rate enables the Company to state expected future cash flows at a
present value on the measurement date. The discount rate used is equal to the
yield on high quality fixed income investments in India at the measurement date.
The expected rate of return on plan assets is estimated based on available
market information, Indian law which regulates such investments and historical
returns. The measurement date for these employee retirement benefits coincides
with reporting date of the financial statements. The Company adopted the
recognition and disclosure requirements of SFAS No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement PlansAn Amendment of FASB
No. 87, 88, 106 and 132(R) (SFAS 158) as of December 31, 2006 and the
measurement date requirement as of January 1, 2008. The implementation of this
standard did not have a material impact on its consolidated financial
statements.

Share-Based Compensation
Plans

The Companys share-based
compensation plans are described in Note 6. The Company adopted the provisions
of Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment, (SFAS No. 123R) on January 1, 2006, using the modified
prospective transition method.

There were no share-based payment
awards granted during the three and six months period ended June 30, 2009. The
Company recognizes compensation expense for all share-based payment awards based
on the grant date fair value estimated in accordance with the provisions of SFAS
No. 123R.

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

- Expected volatility  the Company estimates the
  volatility of common stock at the date of grant using a combination of
  unadjusted historical volatility, and historical
  volatility adjusted for periods of unusual stock price
  activity.
- Expected term  the Company estimates the expected
  term of options granted based on a combination of vesting schedules, life of the option, historical experience and in
  cases where the Company does not have significant historical experience, the simplified method of determining expected
  term outlined in Staff Accounting Bulletin(SAB) 107 and SAB 110 is used.
- Risk-free interest rate  the Company estimates
  the risk-free interest rate using the U.S. Treasury yield curve in effect
  at the time of grant for periods equal to the
  expected life of the options.
- Dividends  the Company uses an expected dividend
  yield of zero since it has never declared or paid any dividends on its capital stock. The Company intends to retain any
  earnings to fund future growth and the operation of its business, and, therefore does not anticipate paying any cash dividends
  in the foreseeable future.

Additionally, the Company estimates forfeitures at the time of grant and
revises those estimates in subsequent periods if actual forfeitures differ from
those estimates. It uses a combination of historical data, demographic
characteristics and other factors to estimate pre-vesting option forfeitures and
record share-based compensation expense only for those awards that are expected
to vest. SFAS No. 123R requires the cash flows resulting from the tax benefits
for tax deductions in excess of the compensation expense recorded for those
options to be classified as financing cash flows. There were no options
exercised during the three months ended June 30, 2009 and June 30, 2008.

Recent Accounting Pronouncements

The
Company elected a partial deferral of SFAS No 157 under the provisions of SFAS
157-2, Effective Date of FASB Statement No. 157 (FSP 157-2) related to the
measurement of fair value used when evaluating goodwill, other intangible
assets, and other long-lived assets for impairment. We adopted the provisions of
this statement for non-financial assets and liabilities effective January 1,
2009. This adoption did not have impact on its Consolidated Financial
statements.

10

---

INTELLIGROUP,
INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 2- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)

In
December 2007, the FASB issued FAS No.141 (revised 2007), Business Combinations
(SFAS 141R). SFAS 141R establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non controlling interest in the
acquiree and the goodwill acquired. SFAS 141R also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. This statement was adopted beginning January 1, 2009.
There was no significant impact on the Companys financial position or results
of operations as a result of the adoption of SFAS 141R.

In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161), which
requires additional disclosures about the objectives of using derivative
instruments, the method by which the derivative instruments and related hedged
items are accounted for under FASB Statement No.133 and its related
interpretations, and the effect of derivative instruments and related hedged
items on financial position, financial performance, and cash flows. SFAS 161
also requires disclosure of the fair values of derivative instruments and their
gains and losses in a tabular format. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early adoption encouraged. The Company adopted this standard
effective January 1, 2009. The implementation of this standard did not have a
material impact on our consolidated financial statements. (Please see Note 10
below for the expanded disclosure regarding derivative instruments in accordance
with the pronouncement).

In April
2009, the FASB issued FSP SFAS 115-2 and FAS 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments. This FSP amends the other-than-temporary
impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary
impairments in the financial statements. The most significant change the FSP
brings is a revision to the amount of other-than-temporary loss of a debt
security recorded in earnings. The Company adopted this standard effective April
1, 2009. The implementation of this standard did not have a material impact on
our consolidated financial statements.

In April
2009, the FASB issued FSP SFAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. This FSP provides additional
guidance for estimating fair value in accordance with FASB Statement No. 157,
Fair Value Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. This FSP
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. The Company adopted this standard
effective April 1, 2009. The implementation of this standard did not have a
material impact on our consolidated financial statements.

In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments. This FSP amends FASB Statement No. 107,
Disclosures about Fair Value of Financial Instruments, to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. This FSP
also amends APB Opinion No. 28, Interim Financial Reporting, to require those
disclosures in summarized financial information at interim reporting periods.
The Company adopted this standard effective April 1, 2009. (Please see Note 10
below for the expanded disclosure on the fair value of financial instruments in
accordance with the pronouncement).

In May
2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS No. 165). SFAS No.
165 established general standards of accounting for the disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. The adoption of SFAS No. 165 required us
to disclose the date through which we have evaluated subsequent events and
whether that date is the date the financials were issued. The Company adopted
this standard effective April 1, 2009. (Please see Note 14 below for the
disclosure on subsequent events in accordance with the
pronouncement).

In June
2009, the FASB issued FASB No. 168, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles  a replacement of
FASB Statement No. 162 (SFAS No. 168). SFAS No. 168 establishes the FASB
Accounting Standards Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by non-governmental entities in
the preparation of financial statements in conformity with GAAP in the United
States. SFAS No. 168 is effective for financial statements issued for interim
and annual periods ending after September 15, 2009. The Company does not expect
the impact of the adoption of this statement to be material on its consolidated
financial position, results of operations or cash flows.

11

---

INTELLIGROUP,
INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 3- LINE OF
CREDIT

On May 22, 2008, the Company and its
wholly-owned subsidiary Empower, Inc. closed out the existing $15 million line
of credit with Steel City Capital Funding. Concurrently, the Company entered
into a revolving credit loan and security agreement (Credit Agreement) with
HSBC Bank, (the Bank). The Credit Agreement is comprised of a three year
revolving line of credit pursuant to which the Company can borrow up to $10.0
million at the Banks Base Rate (as defined in the Credit Agreement) of 3.25% as
of June 30 2009, minus 0.85% percent. The credit facility is collateralized by
substantially all of the assets of the United States based operations and all
subsidiary stock (not to exceed 65% of the Equity Interests of any Foreign
Subsidiary). The maximum borrowing availability under the Credit Agreement is
based upon a percentage of eligible billed and unbilled accounts receivable. The
Credit Agreement provides for certain financial covenants that shall only be
tested as of the end of any fiscal quarter.

The
Company was in compliance with the applicable financial covenants of the loan
agreement related to the Credit Agreement as of June 30, 2009.

As of June 30, 2009, the Company had
$0.1 million outstanding borrowings under the Credit Agreement. The Company
estimates undrawn availability under the Credit Facility to be $9.9 million as
of June 30, 2009.

The Company is prohibited from
paying dividends under the terms of its credit agreement.

NOTE 4- RELATED PARTY
TRANSACTIONS

Effective August 1, 2005,
Intelligroup Asia Pvt. Ltd. (IGA) entered into an agreement to lease certain
premises for certain of the Companys India operations from iLabs Hyderabad
Technology Center Pvt. Ltd. (iLabs), a party with which two members of the
Companys Board of Directors are affiliated. The terms of the lease agreement
provide for, among other things: (1) a minimum lease period of five years with
an option for two three-year renewal periods; (2) payment of a security deposit
equivalent to nine (9) months rent in the amount of 16.3 million Indian rupees
(approximately $340,000); (3) payment of monthly lease fees in the amount of 1.7
million Indian rupees (approximately $37,000), subject to yearly five percent
(5%) escalation; and (4) monthly operations and maintenance fees of 0.5 million
Indian rupees (approximately $10,000). Rent paid for the three months ended June
30, 2009 towards such lease was 7.7 million rupees (approximately $158,000).
There are no advance lease rentals as of June 30, 2009.

NOTE 5- LITIGATION

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

NOTE 6- SHAREHOLDERS
EQUITY

**Share-Based Compensation
Plans**

The Company has four share-based
compensation plans that reserve common shares for issuance to key employees,
consultants and directors. The compensation cost that has been charged against
income for those plans was $0.2 million for the three months ended June 30, 2009
and $0.3 million for the three months ended June 30, 2008. The compensation cost
that has been charged against income for those plans was $0.4 million for the
six months ended June 30, 2009 and $0.6 million for the six months ended June
30, 2008. The Company did not recognize income tax benefit in the condensed
consolidated statement of operations and comprehensive income (loss) for the
first six months of 2009 or 2008, due to its accumulated net operating losses.
No options were forfeited or exercised during the six months ended June 30,
2009.

12

---

INTELLIGROUP, INC.NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND
2008

NOTE 6- SHAREHOLDERS EQUITY
(Continued)

*Stock
Options:*

The fair value of option grants is
estimated on the date of grant using the Black-Scholes option-pricing model.
There were no grants issued during the six months ended June 30,
2009.

|                            |  | Three Months Ended |  | Six Months Ended
|--------------------------- |  | ------------------ |  | ----------------
|                            |  | 30-Jun             |  | 30-Jun          
|                            |  | 2009               |  | 2008            
|Expected Volatility         |  | -                  |  | 83.86%          
|Expected
      Lives(years) |  | -                  |  | 6.0625          
|Risk free Interest Rate     |  | -                  |  | 3.50%           
|Expected
      Dividends    |  | -                  |  | 0%              

The
weighted average grant date fair value of options granted during the three and
six months ended June 30, 2008 was $1.26 and $1.49 respectively.

As of June 30, 2009, there was $0.6
million of total unrecognized compensation cost related to the stock options.
That cost is expected to be recognized over the next 3.5 years.

The
following table summarizes the share-based compensation expense for stock
options that were recorded in accordance with SFAS No. 123R for the six months
ended June 30, 2009 and 2008 (in thousands except per share
information):

|                                                   |  | Six Months Ended |     | Three Months Ended
|-------------------------------------------------- |  | ---------------- | --- | ------------------
|                                                   |  | June 30,         |     | June
      30,    
|                                                   |  | 2009             |     | 2008              
|Cost of Revenue                                    |  | $                | 125 |                   
|Selling, general
      and administrative expenses |  | $                | 258 |                   
|Decrease in net income                             |  | $                | 383 |                   

*Share Repurchase
Program:*

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

As of
June 30, 2009, a total of 750,950 shares have been repurchased at an average
price of $1.51 out of which 86,800 and 671,650 shares were repurchased at an
average price of $1.41 and $1.49 during three and six months ended June 30,
2009, respectively. Subsequently, the Company further repurchased a total of
282,451 shares at an average price of $1.53 between July 1, 2009 and August 14,
2009 (the filing date). All the repurchased shares are constructively
retired.

13

---

INTELLIGROUP,
INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 7- SEGMENT DATA AND GEOGRAPHIC
INFORMATION

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

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

- United States (US)  the largest segment of the
  Company, with operations in the US 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 is located in Princeton, New
  Jersey;
- India  includes the operations of the Company in
  India, including services provided on behalf of other group subsidiaries, primarily to the US. The India offices are
  located in Hyderabad and Bangalore, India. A majority of total revenue generated in India is derived from providing
  offshore development and support services to customers through the Companys affiliated entities in other parts of
  the world, but predominantly with the US. This Segment also covers our operations in the United Arab Emirates
  (UAE);
- Europe  includes the operations of the Company in
  Denmark and the United Kingdom. The European offices are located in Milton Keynes, United Kingdom and Odense in
  Denmark; and
- Japan  includes the operations of the Company in
  Japan. The office is located in Tokyo, Japan.

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

14

---

INTELLIGROUP,
INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 7- SEGMENT DATA AND GEOGRAPHIC
INFORMATION (Continued)

Accordingly, the Companys consolidated operating results for the three
and six months ended June 30, 2009 and 2008 are presented in the following
geographic segments (in thousands):

|                                     |  | **United States** |  | **India** |  | **Europe** |  | **Japan** |   | **Elimination** |         | **Total**
|------------------------------------ |  | ----------------- |  | --------- |  | ---------- |  | --------- | - | --------------- | ------- | ---------
|Three Months ended June 30,
    2009 |  |                   |  |           |  |            |  |           |   |                 |         |          
|Revenue                              |  | 22,339            |  | 1,857     |  | 5,761      |  | 1,003     |   |                 |         |          
|Inter-segment Revenue                |  | 231               |  | 6,039     |  | -          |  | -         |   |                 | (6,270  | )        
|Operating Income /
      (Loss)      |  | 1,867             |  | 341       |  | 792        |  | (135      | ) |                 |         |          
|Income Tax Expense                   |  | 91                |  | 360       |  | 142        |  | -         |   |                 |         |          
|Net Income /
    (Loss)              |  | 1,788             |  | 885       |  | 644        |  | (113      | ) |                 |         |          
|                                     |  |                   |  |           |  |            |  |           |   |                 |         |          
|Three Months ended June 30,
    2008 |  |                   |  |           |  |            |  |           |   |                 |         |          
|Revenue                              |  | 30,999            |  | 2,787     |  | 4,983      |  | 1,368     |   |                 |         |          
|Inter-segment Revenue                |  | 6                 |  | 9,117     |  | -          |  | -         |   |                 | (9,123  | )        
|Operating Income /
      (Loss)      |  | 811               |  | 1,705     |  | 325        |  | (216      | ) |                 |         |          
|Income Tax Expense                   |  | 54                |  | 223       |  | 35         |  | -         |   |                 |         |          
|Net Income /
    (Loss)              |  | 901               |  | 294       |  | 285        |  | (346      | ) |                 |         |          
|                                    
|Six months ended June 30,
    2009   |  |                   |  |           |  |            |  |           |   |                 |         |          
|Revenue                              |  | 46,031            |  | 3,723     |  | 9,981      |  | 2,094     |   |                 |         |          
|Inter-segment Revenue                |  | 297               |  | 13,253    |  | -          |  | -         |   |                 | (13,550 | )        
|Operating Income /
      (Loss)      |  | 2,036             |  | 1,518     |  | 1,378      |  | (258      | ) |                 |         |          
|Income Tax Expense                   |  | 92                |  | 706       |  | 325        |  | -         |   |                 |         |          
|Net Income /
    (Loss)              |  | 1,963             |  | 1,565     |  | 896        |  | (444      | ) |                 |         |          
|Property & Equipment, net            |  | 521               |  | 2,397     |  | 946        |  | 53        |   |                 |         |          
|Total
      Assets                   |  | 40,721            |  | 33,634    |  | 9,880      |  | 1,399     |   |                 | (24,244 | )        
|                                     |  |                   |  |           |  |            |  |           |   |                 |         |          
|Six months ended June 30,
    2008   |  |                   |  |           |  |            |  |           |   |                 |         |          
|Revenue                              |  | 60,485            |  | 5,549     |  | 9,800      |  | 2,756     |   |                 |         |          
|Inter-segment Revenue                |  | 60                |  | 17,237    |  | -          |  | -         |   |                 | (17,297 | )        
|Operating Income /
      (Loss)      |  | 1,230             |  | 2,655     |  | 554        |  | (108      | ) |                 |         |          
|Income Tax Expense                   |  | 46                |  | 493       |  | 99         |  | -         |   |                 |         |          
|Net Income /
    (Loss)              |  | 1,423             |  | 1,013     |  | 566        |  | (4        | ) |                 |         |          
|Property & Equipment, net            |  | 505               |  | 2,596     |  | 2,331      |  | 58        |   |                 |         |          
|Total Assets                         |  | 47,621            |  | 34,749    |  | 11,202     |  | 2,019     |   |                 | (30,016 | )        

NOTE 8- COMMITMENTS AND
CONTINGENCIES

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

15

---

INTELLIGROUP,
INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 8- COMMITMENTS AND
CONTINGENCIES (Continued)

IRC
Section 355(e) provides that the Company may be required to recognize a gain
equal to the excess of the fair market value of the SeraNova shares distributed
over their tax basis if the distribution is part of a plan pursuant to which one
or more persons acquire 50% or more of SeraNova common stock within two years of
the distribution date. Should the spin-off ultimately be construed as taxable
the resultant tax liability could be in the range of $55 million to $65 million
and related penalties (if assessed) and interest could increase the amount by
$45 million to $55 million as at June 30, 2009, depending on the facts that
ultimately are established. No future benefits would inure to the Company as a
result of imposition of a tax on the SeraNova distribution, and no reserve has
been recorded for this potential tax. However, should such a tax liability be
imposed, the Company may be able to utilize some of its existing net operating
losses to mitigate this tax liability.

***Employment
Agreements***

As of June 30, 2009, the Company had
employment agreements with certain of its executive officers, which provide for
minimum payments in the event of termination for reasons other than just cause.
The aggregate amount of compensation commitment in the event of termination
under such agreements is approximately $1.6 million.

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

NOTE 9- RESTRICTED CASH AND
INVESTMENTS

The various components of restricted
cash and investments consist of the following as on June 30, 2009:

|                                 |  |                                                                  |  | in
      thousands
|-------------------------------- |  | ---------------------------------------------------------------- |  | ------------------
|Kind of Cash/Investment          |  | Restricted against                                               |  | 6/30/2009         
|Non
      Convertible Debentures |  | Lien
      towards derivative contracts                          |  | $                 
|Term deposits                    |  | Lien towards derivative
      contracts                          |  |                   
|Term
      deposits              |  | Bank
      guarantees for various statutory and customer related |  |                   
|Total                            |  |                                                                  |  | $                 

Please refer to Note 10  Financial
instruments for the fair value measurement reporting of the restricted cash and
investments.

16

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INTELLIGROUP,
INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 10- FINANCIAL
INSTRUMENTS

The
Company measures certain financial assets and liabilities at fair value on a
recurring basis, including derivative instruments and investments. The fair
value measurements of these derivative instruments and investments were
determined using the following inputs of June 30, 2009:

|                                      |  |           |        |               |  | Fair Value Measurements at Reporting Date Using
|------------------------------------- |  | --------- | ------ | ------------- |  | -----------------------------------------------
|                                      |  |           |        |               |  | **Quoted Prices in**                           
|                                      |  |           |        |               |  | **Active Markets for**                         
|                                      |  |           |        |               |  | **Identical Assets**                           
|                                      |  | **Total** |        | **(Level 1)** |  | **(Level 2)**                                  
|Assets:                               |  |           |        |               |  |                                                
|Short-term
      investments (Note a) |  | $         | 1,826  |               |  | $                                              
|Term Deposits (Note b)                |  |           | 157    |               |  |                                                
|Investments
      (Note c)            |  |           | 2,036  |               |  |                                                
|Total                                 |  | $         | 4,019  |               |  | $                                              
|                                     
|Liabilities:                          |  |           |        |               |  |                                                
|Derivative
      Instruments (Note d) |  | $         | (1,574 | )             |  | $                                              
|Total                                 |  | $         | (1,574 | )             |  | $                                              

| | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Represents Term
      deposits and is reported under the head Short Term Investments in the
      current assets on the consolidated balance sheet as of June 30, 2009. The
      fair value in the table is the face value of the instruments plus interest
      accrued up to June 30, 2009.                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Reported as
      Restricted cash and investments on the consolidated balance sheet as of
      June 30, 2009. (Please refer note 9  Restricted cash and investments.)
      The fair value is the face value of the instruments plus interest accrued
      up to June 30, 2009.                               
| | The short-term investments and
      term deposits referred above are considered as trading securities. The
      carrying value of these investments as of June 30, 2009 approximates the
      fair value. Unrealized and realized gains on these investments were
      insignificant for the three month and six months ended June 30, 2009.
      Gross proceeds from sale of such investments amounted to approximately $7
      millions for the six month ended June 30, 2009. No significant gains were
      recorded on the sale of such investments.
| | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Represents non
      convertible debentures reported under Restricted cash and Investments on
      the consolidated balance sheet as of June 30, 2009. (Please refer note 9 
      Restricted cash and investments.) The fair value is derived through
      external valuation based on market related inputs.
| | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Reported under current
      liabilities on the consolidated balance sheets. The fair value is derived
      through external valuation based on market related
  inputs.                                                                                                                                          

Derivative
Instruments:

In the
normal course of business, the Indian subsidiary of the Company actively looks
to mitigate the exposure of foreign currency market risk, by entering into
various derivative instruments, authorized under Company policies, with
counterparties that are highly rated financial institutions. The primary
exchange rate exposure of the Indian subsidiary is to the US Dollars.

The
Company uses derivative instruments consisting of foreign currency exchange
option and forward contracts not designated as hedging instruments under SFAS
133 to hedge exposure of foreign currency market risk. Changes in the fair value
of these instruments are recognized in the condensed consolidated statement of
operations and are included in foreign exchange gain/ (loss). The Company had
outstanding foreign exchange contracts totaling $16.4 million as of June 30,
2009 and $29.1 million as of December 31, 2008. The Company has an option to
settle its option contracts in the event the contracted rates are more favorable
than the prevalent spot rates. The Company did not enter into any new foreign
currency forward or option contract during the six months ended June 30,
2009.

17

---

INTELLIGROUP,
INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 10- FINANCIAL INSTRUMENTS
(Continued)

At June 30,
2009, summary information about the instruments is as follows.

|                 |  | Option Contracts             |  | Forward Contracts             
|---------------- |  | ---------------------------- |  | ------------------------------
|Notional Amount  |  | $11
      million            |  | $5.4 million                  
|Rates            |  | INR 43.45                    |  | INR 43.96 to 44.93            
|Effective date   |  | 5/18/2007                    |  | 6/30/2008, 8/14/2008
      and
|                 |  |                              |  | 8/20/2008                     
|Maturity Dates   |  | 07/28/2009 to
      05/26/10 |  | 07/31/2009 to 12/31/09        
|Fair
      Value |  | $
      (1.2) million        |  | $ (0.4)
  million             

The fair
values of derivative instruments in the consolidated balance sheet as of June
30, 2009 are as follows:

|                                                       | Balance Sheet
      Location        | Fair Value
      '000s
|------------------------------------------------------ | ----------------------------------- | ----------------------
|Derivative Instruments not designated as
      hedges: |                                    
|Fair value of foreign
      exchange contracts         | Liability on derivative instruments | ($1,574)              
|Fair Value Total                                       |                                     | ($1,574)              

The
effect of derivative instruments on the condensed consolidated statement of
operations for the six and three months ended June 30, 2009 and 2008 is as
follows:

|Amount of gain/ (loss)
      recognized (000s)
|-----------------------------------------------
|Derivatives                                    
|instruments not                                
|designated as
    hedges                       
|                                               
|                                               
|Foreign exchange                               
|contracts                                      
|Total                                          

Please
also refer Note 12 below for the various components of foreign currency
transaction gain / (loss) as reported on the condensed consolidated statement of
operations and comprehensive income (loss) for the three and six month periods
ending June 30, 2009 and 2008.

NOTE 11- EMPLOYEE BENEFIT
PLANS

The Gratuity
Plan provides a lump sum payment to vested employees on retirement or on
termination of employment in an amount based on the respective employees salary
and years of employment with the Company. Liabilities with regard to the
Gratuity Plan are determined by actuarial valuation. Current service costs for
the Gratuity Plan are accrued in the year to which they relate.

18

---

INTELLIGROUP,
INC.NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)June 30, 2009 AND 2008

NOTE 11- EMPLOYEE BENEFIT PLANS
(Continued)

Net Gratuity
Plan cost includes the following components:

|                                |  | Six Months Ended |     | Three Months Ended
|------------------------------- |  | ---------------- | --- | ------------------
|                                |  | June
      30,   |     | June 30,          
|                                |  | 2009             |     | 2008              
|Service Cost                    |  | $                | 57  |                   
|Interest Cost                   |  |                  | 37  |                   
|Actuarial (Gain) / Loss         |  |                  | (16 | )                 
|Expected Return on
      Assets |  |                  | (5  | )                 
|Net
      Gratuity Cost         |  | $                | 73  |                   

NOTE 12- FOREIGN CURRENCY
TRANSACTION GAIN/(LOSS), NET

Foreign
currency transaction gain / (loss) comprises of two components  i) FAS 52
re-measurement gains or losses on the Accounts receivable denominated in other
than the functional currency and the mark to market gains or losses of the
derivative instruments as follows

|                                                       |  | Six Months Ended |          | Three Months Ended
|------------------------------------------------------ |  | ---------------- | -------- | ------------------
|                                                       |  | June
      30,   |          | June
      30,    
|                                                       |  | 2009             |          | 2008              
|Foreign currency gain / (loss)                         |  | $                | 27       |                   
|Derivative unrealized gain
      / (loss)              |  |                  | 345      |                   
|Derivative realized gain / (loss)                      |  |                  | ****(258 | )                 
|Total foreign
      currency transaction gain / (loss) |  | $                | 114      |                   

NOTE 13- OTHER COMPREHENSIVE
INCOME/(LOSS)

The changes in
Other Comprehensive Income (Loss) are mainly due to the foreign currency
translation adjustments of overseas subsidiaries.

For the three months ended June 30, 2009, the Company recorded other
comprehensive income due to translation adjustment of approximately $1.7 million
on account of currency fluctuations in Asia and Europe. Other comprehensive loss
of approximately $2.1 million was recorded for the three months ended June 30,
2008.

For the six months ended June 30, 2009, the Company recorded other
comprehensive income due to translation adjustment of approximately $0.7 million
on account of currency fluctuations in Asia and Europe. Other comprehensive loss
of approximately $2.5 million was recorded for the six months ended June 30,
2008.

NOTE 14- SUBSEQUENT
EVENTS

The Company has evaluated and disclosed in the paragraphs below all
material subsequent events that provide additional evidence about conditions
that existed as of June 30, 2009. The Company evaluated these subsequent events
through August 14, 2009, the date on which the financial statements contained
herein were issued.

The
Company has repurchased a total of 282,451 shares at an average price of $1.53
between July 1, 2009 and August 14, 2009 (the filing date). All the repurchased
shares are constructively retired.

19

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INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations

The
following discussion of our results of operations and financial condition should
be read in conjunction with the Financial Statements and Notes included in Part
I. Financial Information. This report contains forward looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.

Forward-looking statements include statements with respect to our
beliefs, plans, objectives, goals, expectations, anticipations, assumptions,
estimates, intentions, and future performance, and involve known and unknown
risks, uncertainties and other factors, which may be beyond our control, and
which may cause our actual results, performance or achievements to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements.

All
statements other than statements of historical fact are statements that could be
forward-looking statements. You can identify these forward-looking statements
through our use of words such as may, will, can anticipate, assume,
should, indicate, would, believe, contemplate, expect, seek,
estimate, continue, plan, point to, project, predict, could,
intend, target, potential, and other similar words and expressions of the
future.

Forward-looking statements may not be realized due to a variety of
factors, including, without limitation:

- the continuation of the current global economic
  crisis or further deterioration of the global economy which has and may
  continue to impact demand for our
  services;
- the inability to generate new sales and maintain
  profitability;
- the inability to attract and retain a sufficient
  number of highly skilled technical employees, particularly senior level
  technical personnel and project
  managers;
- changes in the political, regulatory, and economic
  conditions in India, which is where a substantial portion of our operations are located;
- effects of competition in the information
  technology services industry where there is a very high level of competition
  for employees and customers;
- restrictions imposed by U.S. immigration
  regulation which could affect the ability of our employees who are
  primarily Indian nationals to obtain the
  necessary work visas to work in the United States;
- future legislation impacting the off shore
  business model and increased anti-off-shoring sentiment in the United States
  and other jurisdictions could significantly
  affect the demand for our services and our customer delivery
  model.
- inability to maintain access to external
  funding;
- currency fluctuations may negatively impact our
  financial results, and this may in turn discourage
investment.
- inability to maintain effective internal control
  over financial reporting or to remediate any weaknesses that may arise in
  the future;
- claims for damages by third parties, including
  liability claims arising from negligent acts, errors, mistakes or omission
  in rendering our IT professional
  services;
- our dependence on a limited number of large
  customers;
- a systems failure or disruption in
  telecommunications could disrupt our business and result in lost customers and
  negative publicity;
- dependence on a limited number of software
  partners;
- disruption to our operations, including
  disruptions caused by geopolitical conditions in India;
- the effects of volatility and lack of liquidity in
  our common stock;
- our inability to protect our intellectual
  property;
- third party claims that our services infringe on
  their intellectual property rights;
- we may be subject to increased tax liabilities,
  including if the spin-off in 2000 of our former subsidiary, SeraNova,
  is determined to be taxable. We could be liable
  in the range of $55 million to $65 million and related penalties (if
  assessed) and interest could increase the
  amount by $45 million to $55 million. In July 2000, we completed the tax-free
  spin-off of SeraNova, our former subsidiary. In
  March 2001, SeraNova and Silverline Technologies Limited (Silverline)
  consummated the acquisition of SeraNova by Silverline.
  Had the acquisition of SeraNova by Silverline been contemplated at the time of the spin-off, the spin-off would have been a
  taxable transaction. Based upon the information available to the us, we believe that such acquisition was not contemplated at
  the time of the spin-off of SeraNova by Intelligroup, and accordingly should not impact the tax-free nature of the
  spin-off. However, if it were determined that the spin-off was taxable, Intelligroup may have to bear the liability to pay
  such tax liability, which would be material. Please refer to Note 9
  to the financial statements on in our annual report on
  Form 10-K/A for the year ended December 31, 2008; and
- the factors listed under Item 1A. Risk Factors
  in our annual report on Form 10-K/A for the year ended December 31,
  2008 and other reports that we file with the
  Securities and Exchange Commission.

20

---

INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations
(Continued)

All
forward-looking statements are expressly qualified in their entirety by this
cautionary notice. You are cautioned not to place undue reliance on any
forward-looking statements, which speak only as of the date of this report. We
have no obligation, and expressly disclaim any obligation, to update, revise or
correct any of the forward-looking statements, whether as a result of new
information, future events or otherwise. We have expressed our expectations,
beliefs and projections in good faith and we believe they have a reasonable
basis. However, we cannot assure you that our expectations, beliefs or
projections will result or be achieved or accomplished.

Overview

The
Company plans, consults, builds, supports and manages enterprise resource
planning (ERP) solutions based on SAP, Oracle, PeopleSoft and Microsoft
applications and technology platforms and also provide services around business
intelligence, ERP Infrastructure Management, E-Business ERP Integration, ERP
Testing and business process outsourcing or BPO and knowledge process
outsourcing or KPO.

The
Company helps its customers align and optimize their technology platforms,
primarily their ERP systems, with their businesses. While historically ERP
providers had focused on providing solutions for large market companies with
revenues of over $5 billion such systems have increasingly become mission
critical for companies with revenues of between $500 million and $5 billion
(Mid-Tier Market) or more, as these systems are used to help them drive
greater revenue and productivity as well as to better manage and control
costs.

The
Company has worked to position itself as the go-to partner for companies
looking for an ERP and extended ERP solutions partner particularly for Mid-Tier
Market and that positioning provides it with an important competitive edge. This
positioning is reflected in the fact that over 90% of our business is generated
from ERP-driven projects.

In this Section, the Company will
discuss the following: (i) key factors in evaluating the Companys financial
performance; (ii) application of critical accounting principles, which explains
the accounting principles necessary to understand how the Company records its
financial information; (iii) results of operations - consolidated, in which the
Companys consolidated results are compared period to period to recognize
trends; (iv) results of operations by business segment, which allows the Company
to compare the results of its different business units; (v) liquidity and
capital resources; (vi) recent accounting pronouncements, which identifies new
accounting literature that may have an impact on the Companys future results
and (vii) a discussion of our business outlook.

Key Factors in Evaluating the
Companys Financial Performance

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

Revenue

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

Fixed Price Projects

The Company has provided services on
certain projects in which it, at the request of the clients, offers a fixed
price for its services. For the three and six months ended June 30, 2009 and
2008, revenue derived from projects under fixed price contracts represented
approximately 38% and 28%, respectively, of the Companys total revenue. No
single fixed price project was material to the Companys business during the
three and six months ended June 30, 2009 and 2008. 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.

21

---

INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations
(Continued)

Customer Concentration

The Company
has derived and believes that it will continue to derive a significant portion
of its revenue from a limited number of customers and projects. For the three
months ended June 30, 2009 and 2008, the Companys ten largest customers
accounted for in the aggregate approximately 39% and 37% of its revenue,
respectively. For the six months ended June 30, 2009 and 2008, the Companys ten
largest customers accounted for in the aggregate approximately 37% of its
revenue, in both the periods. During the three and six months ended June 30,
2009 and 2008, no single customer accounted for 10% or more of revenues. There
can be no assurance that such customers will continue to engage the Company in
the future at current levels of retention, if at all.

Software Partners

For the three and six months ended June 30, 2009 and 2008, the Company
derived the following percentages of total revenue from projects in which the
Company implemented, extended, maintained, managed or supported software
developed by SAP and Oracle.

Percentage of RevenuesThree Months ended
    
    Six Months endedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008SAP
    
    71
    %
    
    
    78
    %
    
    
    71
    %
    
    
    79
    %Oracle
    
    15
    %
    
    
    12
    %
    
    
    15
    %
    
    
    10
    %e-Business
    
    6
    %
    
    
    4
    %
    
    
    5
    %
    
    
    5
    %Others
    
    8
    %
    
    
    6
    %
    
    
    9
    %
    
    
    6
    %Total
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %


Markets

The Company currently serves the United States market with its
headquarters in Princeton, New Jersey, and branch offices in Atlanta, Georgia,
Naperville, Illinois and Milpitas, California. The Company also maintains local
offices to serve the markets in India, the United Kingdom, Denmark, Japan and
the United Arab Emirates.

Expenses

The Companys most significant cost is project personnel expenses, which
consist of consultant salaries, payroll taxes, benefits and subcontractor fees.
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).

Application of Critical Accounting
Policies

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

Certain of the Companys accounting policies require higher degrees of
judgment than others in their application. These include revenue recognition and
allowance for doubtful accounts, impairments and estimation of useful lives of
long-term assets, income tax recognition of current and deferred tax items,
assumptions used in valuing stock-based compensation arrangements and fair value
measurements, and accruals for contingencies.

While there have been no material changes to its critical accounting
policies and estimates as identified in Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations, included in the
Companys annual report on Form 10-K/A for the fiscal year ended December 31,
2008, the Company has updated below the disclosure of its critical accounting
policies to reflect more accurately the policies it has been following

22

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INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations
(Continued)

Cash and Cash
Equivalents

The
Company considers all highly liquid debt instruments and other short-term
investments with a maturity of three months or less, when purchased, to be cash
equivalents.

The
Company maintains cash balances at several financial institutions that are
insured by the Federal Deposit Insurance Corporation up to $250,000. The Company
maintains cash balances in excess of insured amounts.

The Company did not have any cash
equivalents as at June 30, 2009 and December 31, 2008.

Revenue Recognition and Allowance
for Doubtful Accounts

We
generate revenue from professional services rendered to customers. Revenue is
recognized under the Companys contracts generally when persuasive evidence of
an arrangement exists, the sales price is fixed or determinable and collection
of amounts billed is reasonably assured. The majority of our revenue is
generated under time-and-material contracts whereby costs and revenue are
recognized as services are performed, with the corresponding cost of providing
those services reflected as cost of revenue. The majority of customers are
billed on an hourly or daily basis whereby actual time is charged directly to
the customer. Such method is expected to result in reasonably consistent profit
margins over the contract term.

We also
derive a portion of our revenue from fixed-price, fixed-time contracts. Revenue
generated from most fixed-price contracts, including most application management
and support contracts, is recognized using the proportional performance method.
The Company prepares a detailed estimate of the cost of resources needed to
complete such contracts. It determines performance by comparing the actual cost
of work performed to date to the estimated total cost for each project. It
recognizes revenue based upon costs incurred by its consultants during the
period. The Company follows this revenue recognition method for fixed-price,
fixed-time contracts because there is a direct and consistent relationship
between the service patterns and services provided to the customer and the
direct costs incurred to provide such services. The use of the proportional
performance method requires significant judgment relative to estimating the
number of hours or days required to complete the contracted scope of work,
including assumptions and estimates relative to the length of time to complete
the project and the nature and complexity of the work to be performed. The
Company regularly monitors its estimates for completion of a project and record
changes in the period in which a change in an estimate is determined. If a
change in an estimate results in a projected loss on a project, such loss is
recognized in the period in which it is first identified.

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

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

The
Company accrues for revenue and receivables for services rendered between the
last billing date and the balance sheet date. Unbilled services at June 30, 2009
and December 31, 2008 represent services provided through six months ended June
30, 2009 and year ended December 31, 2008, respectively, which are billed
subsequent to year-end. All such amounts are anticipated to be collected over
the next twelve months.

Reimbursements of out-of-pocket expenses received from clients have been
included as part of revenues in accordance with EITF 01-14, Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred.

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

23

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INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations
(Continued)

Results of Operations  Consolidated
 six months ended June 30, 2009 compared to six months ended June 30, 2008.

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

Percentage of
RevenueSix months ended June
    30,2009
    
    2008Revenue
    100.0
    %
    
    100.0
    %Cost of
      Revenues
    67.1
    
    
    68.9Gross Profit
    32.9
    
    
    31.1Selling
      general and administrative expenses
    23.1
    
    
    23.8Depreciation
      and amortization
    2.2
    
    
    1.8Total operating expenses
    25.3
    
    
    25.6Operating Gain /(Loss)
    7.6
    
    
    5.5Interest income
    0.1
    
    
    0.2Interest
      expense
    (0.1
    )
    
    (0.4
    )Foreign currency transaction gain (loss), net
    0.2
    
    
    (1.4
    )Other income
      (expense), net
    0.5
    
    
    0.7Income / (Loss) before income tax provision (benefit)
    8.3
    
    
    4.6Income
    Tax
    1.8
    
    
    0.8Net income / (loss)
    6.5
    %
    
    3.8
    %


Six months
ended June 30, 2009 compared to six months ended June 30, 2008.

The following discussion compares the consolidated results of operations
for the six months ended June 30, 2009 and 2008.

*Revenue*: Total revenue has
decreased by 21% or $16.8 million from $78.6 million for the six months ended
June 30, 2008 to $61.8 million as compared to the six months period ended June
30, 2009. The decrease was due to the impact of the challenging global economic
environment. In spite of adding 64 new customers during the six month period
ended June 30, 2009, the volume of our business declined as our customers and
prospective customers deferred the decision-making on a range of IT services
initiatives, particularly shorter-term projects.Due to decline in customer demand
competitive pressures have resulted in downward pressure on pricing. Our on site
rates reduced by 1% from an average rate of $106 during the six month period
ended June 30, 2008 to an average rate of $105 during the six month period ended
June 30, 2009. Our off shore rates reduced by 7% from an average rate of $23.00
during the six month period ended June 30, 2008 to an average rate of $21.50
during the six month period ended June 30, 2009. However, recently we have seen
signs that the market for IT services have begun to stabilize and therefore we
are not expecting further significant declines in revenues on a sequential
basis.

*Cost of revenue and gross profit*:
The cost of revenue has decreased by 23% from $54.1 million for the six months
ended June 30, 2008 to $41.5 million for the six months ended June 30, 2009. The
decrease was attributable to the decrease in payroll costs by 7% due to decrease
in the headcount, decrease in sub-contractors cost by 4% due to reduction in the
headcount of subcontractors, decrease in project related expenses by 5% due to
decline in volume of services sold and decrease by 7% due to fluctuations in the
functional currencies of the subsidiaries. The gross profit has decreased by 17%
from $24.4 million for the six months ended June 30, 2008 to $20.3 million for
the six months ended June 30, 2009. The decrease in gross profit was a result of
the decrease in the revenues partially offset by the cost savings during the six
months ended June 30, 2009. Gross margin has increased from 31.1% for the six
months ended June 30, 2008 to 32.9% million for the six months ended June 30,
2009. The increase in gross margin was due to improvement in utilization rate by
2% and fluctuations in the functional currencies of the subsidiaries by 8%. The
cost of revenue has decreased by 23% as opposed to a decrease in revenue by 21%,
thereby contributing to an increase in gross margin.

*Selling, general and administrative expenses*: Selling, general and administrative expenses consist of
salaries and related benefits for sales and general administrative personnel,
facilities costs, related travel and entertainment and professional fees.
Selling, general and administrative expenses decreased by 23% from $18.7 million
for the six months ended June 30, 2008 to $14.3 million for the six months ended
June 30, 2009. The decrease in selling, general and administrative expenses is
due to (i) reduction in operating lease rentals and maintenance by 5% due to
relocation of the office facility, (ii) fluctuations in the functional
currencies of the subsidiaries by 7%, (iii) sales commission and payroll
expenses have decreased by 4% due to reduction in head count andrevenue during the period and iv) other advertising, insurance
and general expenses have decreased by 7% in line with the decrease in the
business of the Company. As a percentage of revenues, the selling, general and
administrative expenses have decreased marginally from 24% for the six months
ended June 30, 2008 to 23% for the six months ended June 30, 2009.

24

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INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations
(Continued)

Depreciation and amortization expenses:The Company recorded depreciation and amortization expenses of $1.3
million for the six months ended June 30, 2009 as compared to $1.5 million for
the six months ended June 30, 2008. The marginal decrease was due to
finalization of the purchase price allocation relating to the Novasoft
acquisition in September 2008 due to which the fair value of the intangibles was
decreased.

Interest Expense:For the six months
ended June 30, 2009 and 2008, the Company recorded $0.04 million and $0.4
million as interest expense. The decrease in interest expense was due to
repayment of the borrowings from the line of credit in 2008.

*Foreign Currency gain
(loss)*: For the six months ended June 30,
2009, the Company recorded foreign currency transaction gains of approximately
$0.1 million as compared to transaction losses of approximately $1.1 million for
the six months ended June 30, 2008. The loss recorded during the six months
ended June 30, 2008 was due to marked to market valuation of the outstanding
derivative instruments consequent to significant fluctuations in Indian Rupee
(INR) and US Dollar (USD).

*Interest and Other
Income:*Interest and other income was
approximately $0.4 million for the six months ended June 30, 2009 as compared to
$0.7 million for the six months ended June 30, 2008. The decrease is due to
decrease in the sub lease income on expiry of the sub-lease agreement in August
2008.

*Income tax
provision:*The Company recorded an income
tax provision of $1.1 million on a pretax income of $5.1 million for the six
months ended June 30, 2009 as compared to an income tax provision of $0.6
million on a pretax income of $3.6 million for the six months ended June 30,
2008. The increase in the tax expense is due to the increase in pretax income in
the subsidiaries in India and UK. The effective tax rate has increased to a tax
provision of 22% during the six months ended June 30, 2009 from a tax provision
of 18% during the six months ended June 30, 2008 primarily due to changes in the
geographic distribution of the income.

Results of Operations  Consolidated
 Three months ended June 30, 2009 compared to three months ended June 30, 2008.

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

Percentage of
RevenueThree months ended June
    30,2009
    
    2008Revenue
    100.0
    %
    
    100.0
    %Cost of
      Revenues
    65.5
    
    
    67.5Gross
      Profit
    34.5
    
    
    32.5Selling
      general and administrative expenses
    22.7
    
    
    24.1Depreciation
      and amortization
    2.6
    
    
    1.8Total operating expenses
    25.3
    
    
    25.9Operating Gain /(Loss)
    9.2
    
    
    6.6Interest income
    0.1
    
    
    0.2Interest
      expense
    (0.1
    )
    
    (0.5
    )Foreign currency transaction gain (loss), net
    2.4
    
    
    (3.6
    )Other income
      (expense), net
    0.6
    
    
    0.9Income / (Loss) before income tax provision (benefit)
    12.2
    
    
    3.6Income
    Tax
    1.9
    
    
    0.8Net income / (loss)
    10.3
    %
    
    2.8
    %


25

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INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations
(Continued)

Three months ended June 30, 2009
compared to three months ended June 30, 2008.

Revenue: Revenue has decreased by 23%
for the three months ended June 30, 2008 as compared to the three months period
ended June 30, 2009. The decrease was due to the impact of the challenging
global economic environment. In spite of adding 32 new customers during the
three month period ended June 30, 2009, the volume of our business declined as
our customers and prospective customers deferred the decision-making on a range
of IT services initiatives, particularly shorter-term projects.Due to the decline in
customer demand competitive pressures resulted in downward pressure on pricing.
Our on site rates reduced by 1% from an average rate of $106 during the three
month period ended June 30, 2008 to an average rate of $105 during the three
month period ended June 30, 2009. Off shore rates reduced by 9% from an average
rate of $23 during the three month period ended June 30, 2008 to an average rate
of $21 during the three month period ended June 30, 2009. However, recently we
have seen signs that the market for IT services have begun to stabilize and
therefore we are not expecting further significant declines in revenues on a
sequential basis.

Cost
of revenue and gross profit: The cost of
revenue has decreased by 25% from $27.1 million for the three months ended June
30, 2008 to $20.3 million for the three months ended June 30, 2009. The decrease
was attributable to the decrease in payroll costs by 7% due to decrease in the
headcount and the related compensation costs, decrease in sub-contractors cost
by 5% due to reduction in the headcount of sub-contractors, decrease in project
related expenses by 8% due to decline in volume of services sold and decrease by
5% due to fluctuations in the functional currencies of the subsidiaries. The
gross profit has decreased by 18% from $13.0 million for the three months ended
June 30, 2008 to $10.7 million for the three months ended June 30, 2009. The
decrease in gross profit was a result of the decrease in the revenues partially
offset by the cost savings during the three months ended June 30, 2009. Gross
margin has increased from 32.5% for the three months ended June 30, 2008 to
34.5% million for the three months ended June 30, 2009. The increase in gross
margin was due to improvement in utilization rate by 5% and fluctuations in the
functional currencies of the subsidiaries by 7%. The cost of revenue has
decreased by 25% as opposed to a decrease in revenue by 23%, thereby
contributing to an increase in gross margin.

*Selling, general and
administrative expenses*: Selling, general
and administrative expenses primarily consist of salaries and related benefits
for sales and general administrative personnel, facilities costs, related travel
and entertainment and professional fees. Selling, general and administrative
expenses have decreased by 27% from $9.7 million for the three months ended June
30, 2008 to $7.0 million for the three months ended June 30, 2009. The decrease
in selling, general and administrative expenses was due to (i) reduction in
sales commission and payroll expenses by 12% on account of reduction in head
count and revenue during the period, (ii) operating lease rentals and
maintenance by 6% due to relocation of the office facility, (iii) fluctuations
in the functional currencies of the subsidiaries by 5%, and (iv) other
advertising, insurance and general expenses have decreased by 4% in line with
the decrease in the business of the Company. As a percentage of revenues, the
selling, general and administrative expenses have decreased marginally from 24%
for the three months ended June 30, 2008 to 23% for the three months ended June
30, 2009.

Depreciation and amortization expenses:The Company recorded depreciation and amortization expenses of $0.8
million for the three months ended June 30, 2009 as compared to $0.7 million the
three months ended June 30, 2008.

Interest Expense:For the three months
ended June 30, 2009 and 2008, the company recorded $0.02 million and $0.2
million towards interest expense. The decrease in interest expense was due to
repayment of the borrowings from the line of credit in 2008.

*Foreign Currency gain
(loss):*For the three months ended June 30,
2009, the Company recorded foreign currency transaction gains of approximately
$0.7 million, as compared to transaction losses of approximately $1.4 million
recorded for the three months ended June 30, 2008. The loss recorded during the
three months ended June 30, 2008 was due to marked to market valuation of the
outstanding derivative instruments consequent to significant fluctuations in
Indian Rupee (INR) and US Dollar (USD). The gain during the three months
ended June 30, 2009 was primarily due to strengthening of INR against USD.

*Interest and Other
Income:*Interest and other income was
approximately $0.2 million for the three months ended June 30, 2009 as compared
to $0.4 million for the three months ended June 30, 2008. The decrease is due to
decrease in the sub lease income as a result of the termination of the sub-lease
agreement.

*Income tax provision:*The Company recorded an income tax provision
of $0.6 million on a pretax income of $3.8 million for the three months ended
June 30, 2009 as compared to an income tax provision of $0.3 million on a pretax
income of $1.4 million for the three months ended June 30, 2008. The increase in
the tax expense is as result of increase in the subsidiaries in India and UK.
The effective tax rate has decreased to a tax provision of 16% during the three
months ended June 30, 2009 from a tax provision of 22% during the three months
ended June 30, 2008 primarily due to changes in the geographic distribution of
the income.

26

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INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations
(Continued)

Results of Operations by Business
Segment

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

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

- United States (US)  the largest segment of the
  Company, with operations in the US 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 is located in Princeton, New
  Jersey;
- India  includes the operations of the Company in
  India, including services provided on behalf of other group subsidiaries, primarily to the US. The India offices are
  located in Hyderabad and Bangalore, India. A majority of the total revenue generated in India is derived from
  providing off shore development and support services to customers through the Companys affiliated entities in other
  parts of the world, but predominantly with the United States. This Segment also covers our operations in the
  UAE;
- Europe  includes the operations of the Company in
  Denmark and the United Kingdom. The European offices are located in Milton Keynes, United Kingdom; and Odense in
  Denmark; and
- Japan  includes the operations of the Company in
  Japan. The office is located in Tokyo, Japan.

The revenues
are attributed to each segment on the basis of the location of the entity which
contracts with the customer and on the basis of the inter-company agreements
between the affiliated entities. 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.

Six Months Ended June 30, 2009
Compared to Six Months Ended June 30, 2008.

The following discussion compares the segment results of operations for
the six months endedJune 30, 2009and 2008.

*Revenue and Operating
Income*. The following table displays
revenues and operating income by reportable segment (in thousands).

|                           | Six months ended June
    30,
|-------------------------- | -----------------------------
|                           | 2009                         
|                          
|                           |                              
|                           | Revenues                     
|United States              | $                            
|India                      |                              
|Europe                     |                              
|Japan                      |                              
|Inter-segment eliminations |                              
|Total                      | $                            

US revenue has
decreased by 23% from $60.5 million for the six months ended June 30, 2008 to
$46.3 million for the six months ended June 30, 2009. The decrease in revenue
was primarily due to impact of the challenging global economic environment, due
to which many of our customers and prospective customers deferred the
decision-making on a range of IT services initiatives, particularly shorter-term
projects.Operating income for US segment increased by 66% from $1.2 million for
the six month ended June 30, 2008 to $2.0 million for the six months ended June
30, 2009 due to reduction in payroll cost by 19%, travel costs by 48% and
marketing & administrative expenses by 35% as compared to the six month
period ended June 30, 2008. These cost savings were partially offset by 23%
reduction in revenues.

27

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INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations
(Continued)

India revenue
has decreased by 25% from $22.8 million for the six months ended June 30, 2008
to $17.0 million for the six months ended June 30, 2009. The decrease in
revenues was attributable to global economic slowdown which resulted in
decreased demand for our off shore services, particularly from customers in the
US market and reduced demand during the period from customers in the local
geographic markets which our India subsidiary services. Off shore revenues
decreased by 34% while revenues from local geographic markets decreased by 33%
as compared the six month period ended June 30, 2009. In addition to the
decrease in the volume of services sold, increased competition has resulted in
downward pressure on bill rates for our off shore services. Our off shore rates
decreased by an average 7% from an average $23 during the six month period ended
June 30, 2008 to an average $21.50 during the six month period ended June 30,
2009. Operating income for India segment decreased by 43% from $2.7 million for
the three month ended June 30, 2008 to $1.5 million for the six months ended
June 30, 2009. The decrease in operating income resulted from the decrease in
revenue by 25% which was partially off set by decrease in operating expenses of
23% due to a 23% favorable fluctuation in exchange rate of the Indian
subsidiarys functional currency in relation to the Companys reporting
currency.

Europe revenue has increased by 2% from $9.8 million for the six months
ended June 30, 2008 to $10.0 million for the six months ended June 30, 2009. The
marginal increase in revenue is due to the start of one major customer project
during the period partially offset by decrease in revenues due to strengthening
of the British Pound in particular by 32%. Operating income for UK segment
increased by $0.8 million from $0.6 million for the six months ended June 30,
2008 to $1.4 million for the six months ended June 30, 2009. The increase in
operating income is attributable due to strengthening of the U.S. Dollar against
European currencies, the British Pound in particular which moved favorably by
32% during the six months ended June 30, 2009.

Japan revenue has decreased by 24% from $2.8 million for the six months
ended June 30, 2008 to $2.1 million for the six months ended June 30, 2009.
Operating loss increased by 139% from an operating loss of $0.11 million during
the six month period ended June 30, 2008 to an operating loss of $0.26 million
during the six month period ended June 30, 2009. The increase in operating loss
was due to decrease in revenues in the local Japanese market and Japan location
was unable to quickly counter the drop in revenues by implementing cost saving
measures.

Three Months Ended June 30, 2009
Compared to Three Months Ended June 30, 2008.

The following discussion compares the segment results of operations for
the three months endedJune 30, 2009and 2008.

*Revenue and Operating Income*. The
following table displays revenues and operating income by reportable segment (in
thousands).

|                           | Three months ended June
      30,
|-------------------------- | ---------------------------------
|                           | 2009                             
|                           |                                  
|                           | Revenues                         
|United States              | $                                
|India                      |                                  
|Europe                     |                                  
|Japan                      |                                  
|Inter segment eliminations |                                  
|Total                      | **$**                            

US revenue has
decreased by 27% from $31.0 million for the three months ended June 30, 2008 to
$22.6 million for the three months ended June 30, 2009. The decrease in revenue
was primarily due to impact of the challenging global economic environment, due
to which many of our customers and prospective customers deferred the
decision-making on a range of IT services initiatives, particularly shorter-term
projects.Operating income for US segment increased by 130% from $0.8 million for
the three month ended June 30, 2008 to $1.9 million for the three months ended
June 30, 2009, primarily due to reduction in payroll cost by 24%, travel costs
by 61% and marketing and administrative expenses by 34% which was partially
offset by decrease in revenues by 27%.

28

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INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations
(Continued)

India revenue
has decreased by 34% from $11.9 million for the three months ended June 30, 2008
to $7.9 million for the three months ended June 30, 2009. The decrease in
revenues was attributable to global economic slowdown which resulted in
decreased demand for our off shore services, particularly from customers in the
US market and reduced demand during the period from customers in the local
geographic markets which our India subsidiary services. Off shore revenues
decreased by 23% while revenues from local geographic markets decreased by 33%
as compared the three month period ended June 30, 2009. In addition to the
decrease in the volume of services sold, increased competition has resulted in
downward pressure on bill rates for our off shore services. Our off shore rates
decreased by an average 9% from an average $23 during the three month period
ended June 30, 2008 to an average $21 during the three month period ended June
30, 2009. Operating income for the India segment has decreased by 80% from $1.7
million for the three month ended June 30, 2008 to $0.3 million for the three
months ended June 30, 2009 due to decrease in revenues by 34% which was
partially off set by decrease in operating expenses of 26% due to a 17%
favorable fluctuation in exchange rate of the Indian subsidiarys functional
currency in relation to the Companys reporting currency.

Europe revenue has increased by 16% from $5.0 million for the three
months ended June 30, 2008 to $5.8 million for the three months ended June 30,
2009. The increase in revenue is primarily due to the start of one major
customer project in the beginning of 2009 partially offset by decrease in
revenues due to strengthening of the British Pound in particular by 25%.
Operating income for UK segment increased by 144% from $0.3 million for the
three month period ended June 30, 2008 to $0.8 million for the three months
period ended June 30, 2009. The increase in operating income was due to the
strengthening of the U.S. Dollar against European currencies, the British Pound
in particular which moved favorably by 25% during the three months ended June
30, 2009.

Japan revenue decreased by 27% from $1.4 million for the three months
ended June 30, 2008 to $1.0 million for the three months ended June 30, 2009
while operating loss decreased by 37% from an operating loss of $0.2 million
during the three month period ended June 30, 2008 to an operating loss of $0.1
million during the three month period ended June 30, 2009.

Liquidity and Capital Resources

Cash Position and Cash Flows

We had cash and cash equivalents of $18.4 million as at June 30, 2009 net
of amounts outstanding against the line of credit as compared to $10 million as
at December 31, 2008. We had working capital of $29.2 million at June 30, 2009
and $25.1 million as at December 31, 2008.

Cash generated
from operating activities was $10.6 million for the six months ended June 30,
2009, resulting from the net income of $4.0 million for the period and increase
by $7.5 million due to realization of accounts receivable and unbilled services
balances, partially offset by a decrease in other net operating assets by $1.0
million. Cash generated from operating activities was $1.8 million for the six
months ended June 30, 2008 resulting mainly from the net income of $3.0 million
for the period, partially off set by a decrease in net operating assets by $1.2
million.

The Company invested $0.7 million and $0.3 million in purchase of
computer equipment, internal-use computer software and office furniture,
fixtures and leasehold improvements during the six months ended June 30, 2009
and 2008 respectively. Net cash used for investment activities was $0.8 million
during the six months ended June 30, 2009 while there were no such activities
during the six months ended June 30, 2008.

Cash used in
financing activities was $1.1 million during the six months ended June 30, 2009
as compared to $1.4 million during the six months ended June 30, 2008. The
Company repurchased stock amounting to $1.0 million during the six months ended
June 30, 2009 while the borrowings of $1.1 million from the line of credit were
repaid during the six months ended June 2008.

Credit Facility

On May 22, 2008, the Company and its wholly-owned subsidiary Empower,
Inc. closed out the existing $15 million line of credit with Steel City Capital
Funding. Concurrently, the Company entered into a revolving credit loan and
security agreement (Credit Agreement) with HSBC Bank, (the Bank). The Credit
Agreement is comprised of a three year revolving line of credit pursuant to
which the Company can borrow up to $10.0 million at the Banks Base Rate (as
defined in the Credit Agreement) of 3.25% as of June 30, 2009, minus 0.85%. The
credit facility is collateralized by substantially all of the assets of the
United States based operations and all subsidiary stock (not to exceed 65% of
the Equity Interests of any Foreign Subsidiary). The maximum borrowing
availability under the Credit Agreement is based upon a percentage of eligible
billed and unbilled accounts receivable.

29

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INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations
(Continued)

The Credit Agreement provides for certain financial covenants that shall
only be tested as of the end of any fiscal quarter.

The Company was in compliance with the applicable financial covenants of
the loan agreement related to the Credit Agreement as of June 30, 2009.

As of June 30, 2009, the Company had approximately $0.1 million
outstanding borrowings under the Credit Agreement. The Company estimates undrawn
availability under the Credit Facility to be $9.9 million as of June 30, 2009.

Cash to Fund Operating Activities

The Company relies on the cash generated by operating activities, cash on
hand and the financing available under its credit facility to fund ongoing
operations. The Companys credit facility with the Bank represents its sole
source of external financing for ongoing business operations. The Companys
operating plan depends on its cash generated by operating activities and
continued borrowing availability under this credit facility or securing
alternate sources of financing. The Company must comply with certain covenants
or secure from the Bank waivers of any default on such covenants to maintain its
line of credit with the Bank. There can be no assurances that the Company will
be able to maintain compliance with the applicable financial covenants under its
credit agreement or obtain waivers of any defaults.

The Companys 2009 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, or
ability to timely collect cash from its customers could have an adverse impact
on the Companys ability to execute its operating plan and maintain adequate
cash flow. In the event actual results do not meet the operating plan,
management believes it could execute contingency plans to mitigate such effects.
Such plans include reductions in capital expenditures and operating costs,
and/or seeking additional financing. Assuming that the Company achieves the
revenue and expense targets included in the Companys operating plan, management
believes that the Companys cash on hand and cash generated by operations and
borrowings under its credit facility will be sufficient to fund the Companys
current and planned operations through at least the next twelve months.

Contractual Obligations and Other
Commercial Commitments

There have
been no material changes to the contractual obligations and other commercial
commitments previously disclosed in our annual report on Form 10-K/A for the
period ended December 31, 2008.

Recent Accounting Pronouncements

The
Company elected a partial deferral of SFAS No 157 under the provisions of SFAS
157-2, Effective Date of FASB Statement No. 157 (FSP 157-2) related to the
measurement of fair value used when evaluating goodwill, other intangible
assets, and other long-lived assets for impairment. We adopted the provisions of
this statement for non-financial assets and liabilities effective January 1,
2009. This adoption did not have impact on its Consolidated Financial
statements.

In
December 2007, the FASB issued FAS No.141 (revised 2007), Business Combinations
(SFAS 141R). SFAS 141R establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non controlling interest in the
acquiree and the goodwill acquired. SFAS 141R also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination. This statement was adopted beginning January 1, 2009.
There was no significant impact on the Companys financial position or results
of operations as a result of the adoption of SFAS 141R.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133
(SFAS 161), which requires additional disclosures about the objectives of
using derivative instruments, the method by which the derivative instruments and
related hedged items are accounted for under FASB Statement No.133 and its
related interpretations, and the effect of derivative instruments and related
hedged items on financial position, financial performance, and cash flows. SFAS
161 also requires disclosure of the fair values of derivative instruments and
their gains and losses in a tabular format. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008, with early
adoption encouraged. The Company adopted this standard effective January 1,
2009. The implementation of this standard did not have a material impact on our
consolidated financial statements. (Please see Note 10 below for the expanded
disclosure regarding derivative instruments in accordance with the
pronouncement).

30

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INTELLIGROUP, INC.

Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations (Continued)

In April
2009, the FASB issued FSP SFAS 115-2 and FAS 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments. This FSP amends the other-than-temporary
impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary
impairments in the financial statements. The most significant change the FSP
brings is a revision to the amount of other-than-temporary loss of a debt
security recorded in earnings. The Company adopted this standard effective April
1, 2009. The implementation of this standard did not have a material impact on
our consolidated financial statements.

In April
2009, the FASB issued FSP SFAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. This FSP provides additional
guidance for estimating fair value in accordance with FASB Statement No. 157,
Fair Value Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. This FSP
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. The Company adopted this standard
effective April 1, 2009. The implementation of this standard did not have a
material impact on our consolidated financial statements.

In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments. This FSP amends FASB Statement No. 107,
Disclosures about Fair Value of Financial Instruments, to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. This FSP
also amends APB Opinion No. 28, Interim Financial Reporting, to require those
disclosures in summarized financial information at interim reporting periods.
The Company adopted this standard effective April 1, 2009. (Please see Note 10
below for the expanded disclosure on the fair value of financial instruments in
accordance with the pronouncement).

In May
2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS No. 165). SFAS No.
165 established general standards of accounting for the disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. The adoption of SFAS No. 165 required us
to disclose the date through which we have evaluated subsequent events and
whether that date is the date the financials were issued. The Company adopted
this standard effective April 1, 2009. (Please see Note 14 below for the
disclosure on subsequent events in accordance with the pronouncement).

In June
2009, the FASB issued FASB No. 168, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles  a replacement of
FASB Statement No. 162 (SFAS No. 168). SFAS No. 168 establishes the FASB
Accounting Standards Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by non-governmental entities in
the preparation of financial statements in conformity with GAAP in the United
States. SFAS No. 168 is effective for financial statements issued for interim
and annual periods ending after September 15, 2009. The Company does not expect
the impact of the adoption of this statement to be material on its consolidated
financial position, results of operations or cash flows.

Business Outlook

Our
business and financial condition depend on the health of the general economy, as
well as the demand for information technology services, particularly in the
United States as we derive a significant portion of our revenue from customers
located in the United States. Our revenue and profits are driven by demand for
our services. The United States economy is currently in a recession and we
continue to be impacted by the challenging global economic environment, which
led many companies to defer decision-making on a range of IT services projects,
particularly affecting smaller, shorter-term projects where we have primarily
focused our efforts in order to develop inroads with new customers. We have seen
the impact of such decline in demand for our services as reflected by the 21%
year over year decline in our revenue.

31

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INTELLIGROUP, INC.

Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations
(Continued)

Despite the continuation of a very
challenging business environment, we are seeing some encouraging signs in the
overall IT services sector, including a greater degree of receptiveness from
many of our customers and prospects to discuss new or expanded initiatives. The
Company won 32 new customers during the three months ended June 30, 2009. The
total value of the new contracts entered into during the three months ended June
30, 2009, including new engagements from existing customers wasapproximately $17 million. While these were generally smaller
initial engagements, we believe that the market for IT services is stabilizing
across many industry sectors in which we work. In particular, we saw increased
demand for our services in the life sciences, energy and high tech verticals in
the three months ended June 30, 2009 as compared with the three month ended
March 31, 2009. However our customers and prospects in the consumer products and
manufacturing sectors continued to exhibit challenged demand on a sequential
basis.

During this challenging economic
period our management team has focused its efforts on improvements in its
operational performance and aligning our cost structure to current market
conditions. To date, we have been able to effectively manage our cost structure
to minimize the impact of declining revenues on our operating income, which was
$4.7 million for the six month ended June 30, 2009 compared with $4.3 million
for the six month ended June 30, 2008. However, if the current downturn in
worldwide economic conditions continues or economic conditions worsen,
particularly in the United States and the stabilization we have seen recently in
market demand for our IT services reverses, we may not be able to continue to
reduce costs to a level sufficient to minimize the impact of any possible
further revenue declines on our operating income and any of these events could
materially and adversely impact our business, financial condition and results of
operations.

Item 3. Quantitative and Qualitative
Disclosures about Market Risk.

There
have been no material changes to the information on quantitative and qualitative
disclosures about market risk provided in our annual report on Form 10-K/A for
the period ended December 31, 2008.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We are
responsible for maintaining disclosure controls and procedures designed to
ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Securities Exchange Commissions rules and regulations, and that such
information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow
for timely decisions regarding required disclosures. Our management, with the
participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end
of the period covered by this report. In designing and evaluating our disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving their objectives and management necessarily is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures and implementing controls and procedures based upon the
application of managements judgment. Based on such evaluation, our principal
executive officer and principal financial officer have concluded that, as of
June 30, 2009, our disclosure controls and procedures were effective as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Changes in Internal Controls

There were no changes in our
internal control over financial reporting during the quarter ended June 30, 2009
that materially affected or are reasonably likely to materially affect, our
internal control over financial reporting.

32

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INTELLIGROUP, INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1a. Risk Factors

There have been no material changes
to our risk factors previously disclosed in our annual report on Form 10-K/A for
the period ended December 31, 2008.

Item
2. Unregistered Sales of Equity Securities and Use of Proceeds

|ISSUER
      REPURCHASE OF EQUITY SECURITIES
|--------------------------------------------
|                                            
|                                            
|                                            
|                                            
|Period                                      
|Apr 1 to Apr 30 2009                        
|May 1 to May 31 2009                        
|Jun 1 to Jun 30
      2009                  

*Share Repurchase Program*

The
purchases disclosed in the above table were made under the share repurchase
program which was announced on October 29, 2008. Pursuant to the approval of our
Board of Directors, we are authorized to purchase under this share repurchase
program up to $5,000,000 of our common stock over an 18 month period ending
April 24, 2010. The share repurchase program will be funded using our working
capital and authorizes us to repurchase shares from time to time through open
market or privately negotiated transactions. We also have adopted a Rule 10b5-1
trading plan and intend to adopt additional Rule 10b5-1 trading plans that will
allow us to purchase its shares at times when it ordinarily would not be in the
market due to its internal trading policy. The program will expire on the
earlier of (i) the repurchase of the maximum number of shares under the program,
(ii) the 18 month anniversary of the approval of the program or (iii) a
determination by the Board of Directors to discontinue the program. We are not
obligated to continue to repurchase shares under the authorization or enter into
additional Rule 10b5-1 trading plan and the timing; actual number and value of
shares purchased will depend on many factors, including our cash flow and the
liquidity and price performance of our shares.

Item 3. Defaults Upon Senior
Securities

There are no matters to report
subject to this Item for the period ended June 30, 2009.

33

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INTELLIGROUP, INC.

PART II. OTHER INFORMATION
(Continued)

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

The
Company held its annual meeting on June 11, 2009 (2009 Annual Meeting) at
which the matters described herein were submitted to a vote of the security
holders.

At the
2009 Annual Meeting, the Company submitted a proposal to elect Vikram Gulati,
Ravi Adusumalli, Babar Khan, Srini Raju and Sandeep Reddy to serve as directors
until the next annual meeting of shareholders and until their respective
successors have been duly elected and qualified. The votes cast for or withheld
for each nominee were as follows:

|Nominee:            |  | Votes For:              |  | Votes Withheld:     
|------------------- |  | ----------------------- |  | --------------------
|Ravi Adusumalli     |  | 35,112,154 shares       |  | 691,594 shares      
|Vikram
      Gulati |  | 34,935,150
      shares |  | 868,598
      shares
|Babar Khan          |  | 35,095,647 shares       |  | 708,101 shares      
|Srini
      Raju    |  | 35,097,446
      shares |  | 706,302
      shares
|Sandeep Reddy       |  | 35,092,090 shares       |  | 711,658 shares      

Item 5. Other Information

There are no matters to report
subject to this Item for the period ended June 30, 2009.

Item 6. Exhibits

See exhibit index hereto, which is
incorporated by reference herein.

34

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INTELLIGROUP, INC.

EXHIBIT INDEX

|Exhibit No. |   | Description of Exhibit |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----------- | - | ---------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2           |   |                        | Agreement and Plan of Merger of
      the Company and its wholly owned subsidiary Oxford Systems Inc. dated
      December 2, 1996 (Incorporated by reference to the Company's Annual Report
      on Form 10-KSB for the year ended December 31, 1996.)                                                                                                                                                                                                                                                                                
|           
|3.1         |   |                        | Amended and Restated Certificate
      of Incorporation dated December 27, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|           
|3.2         |   |                        | Amended and Restated Bylaws.
      (Incorporated by reference to the Company's Registration Statement on Form
      SB-2 (Registration Statement No. 333-5981) declared effective on September
      26, 1996.)                                                                                                                                                                                                                                                                                                                         
|           
|4.1         |   |                        | Shareholder Protection Rights
      Agreement dated as of November 6, 1998, between the Company and American
      Stock Transfer & Trust Company which includes (I) the Form of Rights
      Certificate and (ii) the Certificate of Amendment to the Amended and
      Restated Certificate of Incorporation of Intelligroup, Inc. (Incorporated
      by reference to Exhibit No. 4.1 of the Company's Report on Form 8-K dated
      November 9, 1998, filed with the Securities and Exchange Commission on
      November 9, 1998.)
|           
|4.2         |   |                        | Amendment dated September 29,
      2004 to the Shareholder Protection Rights Agreement dated November 6,
      2004. (Incorporated by reference to Exhibit No. 4.1 of the Companys
      Report on Form 8-K dated September 29, 2004, filed with the Securities and
      Exchange Commission on October 5, 2004.)                                                                                                                                                                                                                    
|           
|10.1        | * |                        | Amendment No. 5 to employment
      agreement between Vikram Gulati and Intelligroup, Inc. (Incorporated by
      reference to Exhibit 10.1 of the Companys current report on Form 8-K
      dated July 21, 2009, filed with the Securities and Exchange Commission on
      July 21, 2009).                                                                                                                                                                                                                                           
|           
|31.1        |  |                        | Certifications of Chief Executive
      Officer Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                  
|           
|31.2        |  |                        | Certifications of Chief Financial
      Officer Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                  
|           
|32.1        |  |                        | Certifications of Chief Executive
      Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                          
|           
|32.2        |  |                        | Certifications of Chief Financial
      Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002                                                                                                                                                                                                                                                                                                                                                                          

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

35

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SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized this 14th day of August 2009.



|                            | INTELLIGROUP, INC.
|--------------------------- | ------------------
|                            |                   
|Date: August 14, 2009       | By:               
|                            |                   
|                            |                   
|                            |                   
|                            |                   
|Date: August 14,
      2009 | By:               
|                            |                   
|                            |                   
|                            |                   

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