UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-Q
                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2003
                           Commission File No. 0-20943

                               Intelligroup, Inc.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

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

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

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

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

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

     Indicate by checkmark  whether the Registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

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

     Indicate the number of shares  outstanding of each of the Issuer's  classes
of common stock, as of August 11, 2003:

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

  Common Stock, $.01 par value                             16,682,875


<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES

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

                                                                           Page
                                                                           ----
PART I.  FINANCIAL INFORMATION

   Item 1. Consolidated Financial Statements (unaudited)............         1

           Consolidated Balance Sheets as of June 30, 2003 and
            December 31, 2002.......................................         2

           Consolidated Statements of Operations and Comprehensive
            Income (Loss) for the Three and Six Months Ended
            June 30, 2003 and 2002..................................         3

           Consolidated Statements of Cash Flows for the Six
             Months Ended June 30, 2003 and 2002....................         4

           Notes to Consolidated Financial Statements...............         5

   Item 2. Management's Discussion and Analysis of
           Financial Condition and Results of Operations...........         20

   Item 3. Quantitative and Qualitative Disclosures About
           Market Risk..............................................        44

   Item 4. Controls and Procedures..................................        44

PART II.  OTHER INFORMATION

   Item 1. Legal Proceedings........................................        45

   Item 3. Defaults Upon Senior Securities..........................        49

   Item 5. Other Information........................................        49

   Item 6. Exhibits and Reports on Form 8-K.........................        50

SIGNATURES..........................................................        52



                                      - i -
<PAGE>

                          PART I. FINANCIAL INFORMATION

              Item 1. Consolidated Financial Statements (unaudited)




                                     - 1 -
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                       June 30, 2003 and December 31, 2002

<TABLE>
<CAPTION>
                                                                        JUNE 30,       DECEMBER 31,
                                                                          2003             2002
                                                                      ------------    -------------
                              ASSETS
<S>                                                                   <C>             <C>
Current Assets:
  Cash and cash equivalents.....................................      $  2,311,000    $  1,163,000
  Accounts receivable, less allowance for doubtful accounts
       of $857,000 and $1,388,000 at June 30, 2003 and
       December 31,2002, respectively...........................        16,397,000      17,745,000
  Unbilled services.............................................         8,251,000       6,818,000
  Prepaid income taxes..........................................           455,000         624,000
  Deferred tax asset............................................         1,084,000       1,088,000
  Other current assets..........................................         4,066,000       2,858,000
  Note receivable - SeraNova....................................                --       4,000,000
  Assets held for sale..........................................                --       3,069,000
                                                                      ------------    ------------
         Total current assets...................................        32,564,000      37,365,000

  Property and equipment, net...................................         4,781,000       5,725,000
  Deferred tax asset............................................           156,000         118,000
  Other assets..................................................           823,000         911,000
                                                                      ------------    ------------
                                                                      $ 38,324,000    $ 44,119,000
                                                                      ============    ============
              LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable..............................................      $  4,960,000    $  5,229,000
  Accrued payroll and related taxes.............................         7,173,000       5,891,000
  Accrued expenses and other current liabilities................         4,166,000       3,491,000
  Deferred revenue..............................................         1,140,000       1,280,000
  Income taxes payable..........................................           399,000         356,000
  Current portion of long-term debt and obligations under
       capital leases...........................................         7,421,000       6,374,000
  Liabilities held for sale.....................................                --       1,681,000
                                                                      ------------    ------------
         Total current liabilities..............................        25,259,000      24,302,000
                                                                      ------------    ------------
Obligations under capital leases, less current portion..........            69,000          63,000
Other long-term liabilities.....................................           873,000       1,028,000
                                                                      ------------    ------------
         Total long-term liabilities............................           942,000       1,091,000
                                                                      ------------    ------------

Commitments and contingencies

Shareholders' Equity:
  Preferred stock, $.01 par value, 5,000,000 shares authorized,
       none issued or outstanding...............................                --              --
  Common stock, $.01 par value, 25,000,000 shares authorized,
       16,682,000 and 16,630,000 shares issued and outstanding
       at June 30, 2003 and December 31, 2002, respectively.....           167,000         166,000
  Additional paid-in capital....................................        41,425,000      41,366,000
  Accumulated deficit...........................................       (27,012,000)    (19,168,000)
  Accumulated other comprehensive loss..........................        (2,457,000)     (3,638,000)
                                                                      ------------    ------------
        Total shareholders' equity .............................        12,123,000      18,726,000
                                                                      ------------    ------------
                                                                      $ 38,324,000    $ 44,119,000
                                                                      ============    ============
</TABLE>

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


                                     - 2 -
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME (LOSS)
            FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED JUNE 30,    SIX MONTHS ENDED JUNE 30,
                                                      ---------------------------    -------------------------
                                                           2003          2002           2003          2002
                                                       -----------   -----------     -----------   -----------

<S>                                                    <C>           <C>             <C>           <C>
Revenue ..........................................     $28,005,000   $24,806,000     $55,240,000   $47,811,000
Cost of sales ....................................      19,509,000    16,922,000      38,818,000    32,947,000
                                                       -----------   -----------     -----------   -----------
    Gross profit .................................       8,496,000     7,884,000      16,422,000    14,864,000
                                                       -----------   -----------     -----------   -----------
Selling, general and administrative expenses......       6,941,000     6,471,000      13,809,000    12,467,000
Depreciation and amortization.....................         712,000       635,000       1,411,000     1,327,000
SeraNova receivable impairment and other charges..              --     8,362,000       5,060,000     8,362,000
Proxy contest charges ............................         296,000       464,000         593,000       464,000
Provision for guarantee of SeraNova debt..........         581,000            --         581,000            --
                                                       -----------   -----------     -----------   -----------
    Total operating expenses .....................       8,530,000    15,932,000      21,454,000    22,620,000
                                                       -----------   -----------     -----------   -----------
    Operating loss ...............................         (34,000)   (8,048,000)     (5,032,000)   (7,756,000)
Interest income ..................................          12,000        11,000          25,000        18,000
Interest expense .................................        (124,000)      (95,000)       (232,000)     (200,000)
Other income (expense)............................        (184,000)       16,000        (233,000)       56,000
                                                       -----------   -----------     -----------   -----------
Loss from continuing operations before income
    tax provision ................................        (330,000)   (8,116,000)     (5,472,000)   (7,882,000)
Income tax provision .............................         163,000       206,000         238,000       310,000
                                                       -----------   -----------     -----------   -----------
Loss from continuing operations ..................        (493,000)   (8,322,000)     (5,710,000)   (8,192,000)
Loss from discontinued operations (including
    loss on sale of $1,706,000 in 2003), net
    of tax provision of $0, $4,000, $15,000,
    $31,000, respectively ........................              --      (239,000)     (2,134,000)     (358,000)
Net loss .........................................     $  (493,000)  $(8,561,000)    $(7,844,000)  $(8,550,000)
                                                       ===========   ===========     ===========   ===========

Earnings per share:
  Basic and diluted loss per share:
     Loss per share from continuing operations....     $     (0.03)  $     (0.50)    $     (0.34)  $     (0.49)
     Loss per share from discontinued operations..              --         (0.01)          (0.13)        (0.02)
                                                       -----------   -----------     -----------   -----------
       Net loss per share.........................     $     (0.03)  $     (0.51)    $     (0.47)  $     (0.51)
                                                       ===========   ===========     ===========   ===========
     Weighted average number of common shares-
       basic and diluted..........................      16,655,000    16,630,000      16,644,000    16,630,000
                                                       ===========   ===========     ===========   ===========

  Comprehensive Income (Loss)
  ---------------------------
  Net loss .......................................     $  (493,000)  $ (8,561,000)   $(7,844,000)  $(8,550,000)
  Other comprehensive income (loss) -
      Currency translation adjustments ...........        (285,000)      412,000       1,181,000       (13,000)
                                                       -----------   -----------     -----------   -----------
  Comprehensive loss .............................     $  (778,000)  $(8,149,000)    $(6,663,000)  $(8,563,000)
                                                       ===========   ===========     ===========   ===========
</TABLE>

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


                                     - 3 -
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                      SIX MONTHS ENDED JUNE 30,
                                                                        2003             2002
                                                                   -------------    ------------
<S>                                                                <C>              <C>
Cash flows from operating activities:
  Net loss....................................................     $ (7,844,000)    $ (8,550,000)
  Less: loss from discontinued operations, net of tax.........       (2,134,000)        (358,000)
                                                                   ------------     ------------
  Loss from continuing operations.............................       (5,710,000)      (8,192,000)

  Adjustments to reconcile net loss to net cash provided by
     operating activities of continuing operations:
      Depreciation and amortization...........................        1,783,000        1,770,000
      Provision for doubtful accounts.........................           62,000          226,000
      SeraNova receivable impairment and other charges........        5,060,000        8,362,000
      Provision for guarantee of SeraNova debt................          581,000               --
      Deferred income taxes...................................          (34,000)         362,000
  Changes in operating assets and liabilities:
    Accounts receivable.......................................        1,286,000       (3,687,000)
    Unbilled services.........................................       (1,433,000)       2,782,000
    Prepaid income taxes......................................          169,000          (44,000)
    Other current assets......................................       (1,208,000)        (556,000)
    Other assets..............................................           88,000          118,000
    Accounts payable..........................................         (269,000)         258,000
    Accrued payroll and related taxes.........................        1,282,000           57,000
    Accrued expenses and other liabilities....................         (881,000)         316,000
    Accrued restructuring charges.............................          (85,000)        (453,000)
    Deferred revenue..........................................         (140,000)        (357,000)
    Income taxes payable......................................           43,000          137,000
                                                                   ------------     ------------
  Net cash provided by operating activities of continuing
    operations................................................          594,000        1,099,000
                                                                   ------------     ------------

Cash flows from investing activities:
    Purchase of equipment ....................................         (839,000)        (798,000)
                                                                   ------------     ------------
  Net cash used in investing activities of continuing
    operations................................................         (839,000)        (798,000)
                                                                   ------------     ------------

Cash flows from financing activities:
    Principal payments under capital leases...................         (219,000)        (334,000)
    Proceeds from issuance of stock options...................           60,000               --
    Other borrowings (repayments).............................         (149,000)           7,000
    Net change in line of credit borrowings...................        1,266,000          (26,000)
                                                                   ------------     ------------
  Net cash provided by (used in) financing activities of
    continuing operations.....................................          958,000         (353,000)
                                                                   ------------     ------------
  Effect of foreign currency exchange rate changes on cash....        1,181,000          (13,000)
                                                                   ------------     ------------
Net increase (decrease) in cash and cash equivalents from
  continuing operations ......................................        1,894,000          (65,000)
Net decrease in cash and cash equivalents from discontinued
  operations .................................................         (746,000)        (595,000)
                                                                   ------------     ------------
Net increase (decrease) in cash and cash equivalents .........        1,148,000         (660,000)
Cash and cash equivalents at beginning of period..............        1,163,000        1,620,000
                                                                   ------------     ------------
Cash and cash equivalents at end of period....................     $  2,311,000     $    960,000
                                                                   ============     ============
Supplemental disclosures of cash flow information:
  Cash paid for income taxes..................................     $         --     $    572,000
                                                                   ============     ============
  Cash paid for interest......................................     $    232,000     $    200,000
                                                                   ============     ============
</TABLE>


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


                                     - 4 -
<PAGE>

                       INTELLIGROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

     The   consolidated   financial   statements  and   accompanying   financial
information  as of June 30, 2003 and for the three and six months ended June 30,
2003 and 2002 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  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  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  most recent
annual financial  statements.  Such annual financial  statements did not reflect
the  classification  of certain  subsidiaries as held for sale (see Note 5). The
consolidated  balance  sheet as of December  31, 2002  included  herein has been
derived from the consolidated balance sheet included the Company's Annual Report
on Form  10-K,  adjusted  to present  this  classification  with  respect to all
subsidiaries divested subsequent to that date.

     The Company's 2003 operating plan contains  assumptions  regarding  revenue
and  expenses.  The  achievement  of the operating  plan depends  heavily on the
timing of work performed by the Company on existing  projects and the ability of
the Company to gain and perform  work on new  projects.  Project  cancellations,
delays in the timing of work  performed  by the Company on existing  projects or
the inability of the Company to gain and perform work on new projects could have
an adverse  impact on the Company's  ability to execute its  operating  plan and
maintain  adequate  cash  flow.  In the  event  actual  results  do not meet the
operating  plan,  management  believes  it could  execute  contingency  plans to
mitigate such effects.  Such plans include additional cost reductions or seeking
additional  financing.  Considering  the cash on hand,  the credit  facility and
based on the achievement of the operating plan and management's actions taken to
date,  management believes it has the ability to continue to generate sufficient
cash to satisfy its operating requirements in the normal course of business.

     The  results  of  operations  for  interim   periods  are  not  necessarily
indicative of those that may be achieved for a full fiscal year.


                                     - 5 -
<PAGE>

NOTE 2 - STOCK-BASED COMPENSATION

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

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

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

<TABLE>
<CAPTION>
                                                 FOR THE THREE MONTHS ENDED        FOR THE SIX MONTHS ENDED
                                                 --------------------------        ------------------------
                                                         JUNE 30,                          JUNE 30,
                                                         --------                          --------
                                                    2003            2002              2003            2002
                                                -----------     ------------     ------------    ------------
<S>                                             <C>             <C>              <C>             <C>
Net loss, as reported......................     $  (493,000)    $ (8,561,000)    $ (7,844,000)   $ (8,550,000)
Deduct: total stock-based employee
compensation expense determined under
fair-value-based method for all awards,
net of related tax effects.....................  (1,674,000)      (2,050,000)      (1,870,000)     (3,307,000)
                                                -----------     ------------     ------------    ------------
Pro forma net loss.........................     $(2,167,000)    $(10,611,000)    $ (9,714,000)   $(11,857,000)
                                                ===========     ============     ============    ============

Basic and diluted loss per share:
    as reported............................     $     (0.03)    $      (0.51)    $      (0.47)   $      (0.51)
                                                ===========     ============     ============    ============
    pro forma..............................     $     (0.13)    $      (0.64)    $      (0.58)   $      (0.71)
                                                ===========     ============     ============    ============
</TABLE>


                                     - 6 -
<PAGE>

NOTE 2 - STOCK-BASED COMPENSATION (CONTINUED)

     The fair value of option grants for disclosure purposes is estimated on the
date of grant using the Black-Scholes  option-pricing  model using the following
weighted-average  assumptions:  expected volatility of 108% and 109%,  risk-free
interest rate of 1.49% and 3.02% and expected  lives of 2.3 years and 2.3 years,
in 2003 and 2002, respectively.

NOTE 3 - EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                               FOR THE THREE MONTHS ENDED         FOR THE SIX MONTHS ENDED
                                               --------------------------         ------------------------
                                                       JUNE 30,                            JUNE 30,
                                                       --------                            --------
                                                   2003            2002              2003            2002
                                                   ----            ----              ----            ----
<S>                                          <C>               <C>              <C>              <C>
Loss from continuing operations.........     $    (493,000)    $ (8,322,000)    $ (5,710,000)    $ (8,192,000)
Loss from discontinued operations.......                --         (239,000)      (2,134,000)        (358,000)
                                             -------------     -------------    ------------     ------------
Net loss................................     $    (493,000)    $ (8,561,000)    $ (7,844,000)    $ (8,550,000)
                                             =============     ============     ============     ============
Basic and diluted loss per share:
  Weighted average number of common
    shares - basic and diluted..........        16,655,000       16,630,000       16,644,000       16,630,000
                                             -------------     -------------    ------------     ------------
  Basic and diluted loss per share
    from continuing operations..........     $       (0.03)    $      (0.50)    $      (0.34)    $      (0.49)
  Basic and diluted loss per share
    from discontinued operations........                --            (0.01)           (0.13)           (0.02)
                                             -------------     -------------    ------------     ------------
  Basic and diluted net loss per share..     $       (0.03)    $      (0.51)    $      (0.47)    $      (0.51)
                                             =============     ============     ============     ============
</TABLE>


     Stock options, which would be antidilutive (1,859,000 and 2,623,000 for the
three  months  ended June 30, 2003 and 2002,  respectively,  and  1,882,000  and
2,747,000  for the six months ended June 30, 2003 and 2002,  respectively)  have
been excluded from the  calculations  of diluted shares  outstanding and diluted
earnings (loss) per share.



                                     - 7 -
<PAGE>

NOTE 4 - LINES OF CREDIT

     On May 31,  2000,  the  Company  and the  Bank  entered  into a  three-year
revolving credit facility. Such credit facility is comprised of a revolving line
of credit pursuant to which the Company could borrow up to $20,000,000 either at
the  Bank's  prime rate per annum or the Euro Rate plus 1.75% to 2.5% based upon
the Company's ratio of debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA").  The credit facility is collateralized by substantially
all of the assets of the Company's United States based  operations.  The maximum
borrowing  availability  under the line of credit is based upon a percentage  of
eligible billed and unbilled  accounts  receivable,  as defined.  As of June 30,
2003,  the  Company  had  outstanding  borrowings  under the credit  facility of
$7,325,000. The Company estimates undrawn availability under the credit facility
to be $6,581,000  as of June 30, 2003. As of December 31, 2002,  the Company had
outstanding borrowings under the credit facility of $6,059,000.

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

     In March 2002,  the Company  finalized  with the Bank the terms of a waiver
and  amendment to the credit  agreement.  The terms of the waiver and  amendment
included,  among  other  things,  (1) a waiver of the  covenant  defaults  as of
December 31, 2001, (2) a modification to the financial covenants, as of December
31, 2002 only, to require that  consolidated  net worth and  unconsolidated  net
worth as of December  31, 2002 be not less than 102% of  consolidated  net worth
and  unconsolidated  net worth,  respectively,  as of December 31,  2001,  (3) a
modification  to  the  consolidated  net  worth  and  unconsolidated  net  worth
covenants to exclude any changes to  consolidated  net worth and  unconsolidated
net worth resulting from the write-down or write-off of up to $10,833,000 of the
note due from  SeraNova,  and (4) a new financial  covenant  requiring  that the
Company generate EBITDA of at least 90% of the prior year's EBITDA.


                                     - 8 -
<PAGE>

NOTE 4 - LINES OF CREDIT (CONTINUED)

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

     As a result of the SeraNova receivable impairment and other related charges
and the Proxy Contest charges  incurred during the quarter ended March 31, 2003,
the  Company  was  not  in   compliance   with  the   consolidated   net  worth,
unconsolidated  net worth and EBITDA  covenants  as of March 31,  2003.  In July
2003, the Company  executed with the Bank an amendment to the credit  agreement.
The terms of the amendment included,  among other things, (1) a 3-year extension
of the credit facility to May 31, 2006, (2) a reduction of the maximum revolving
advance  amount under the credit  facility to  $15,000,000,  (3) a waiver of the
covenant  defaults  existing as of March 31,  2003,  (4) a  modification  to the
definitions  of total  stockholders'  equity  and  unconsolidated  stockholders'
equity  (for  purposes  of  computing   related   covenant   compliance)  and  a
modification  to the  computation  of minimum  EBITDA to exclude  Proxy  Contest
charges of $297,000 for the quarter ended March 31, 2003 only,  (5), an increase
in the minimum EBITDA covenants to $1,290,000, $1,778,000 and $1,880,000 for the
second, third and fourth quarters of 2003, respectively,  and (6) a modification
to the consolidated net worth and  unconsolidated net worth covenants to exclude
any changes to  consolidated  net worth and  unconsolidated  net worth resulting
from the  write-down  or  write-off  of up to  $13,600,000  of the note due from
SeraNova.

     As a result of the charge  incurred  during the quarter ended June 30, 2003
related to the  guarantee of SeraNova  debt,  the Company was not in  compliance
with  the  EBITDA  covenant  as of June  30,  2003.  The  Company  is  currently
negotiating  with the Bank and  expects  to  receive  a waiver  of the  existing
covenant default.  There can be no assurance,  however, that the Company will be
able to obtain a waiver to the agreement on terms acceptable to the Company,  if
at all.

     Interest expense on debt and obligations  under capital leases was $232,000
and $200,000 for the six months ended June 30, 2003 and 2002, respectively.


                                     - 9 -
<PAGE>

NOTE 5 - DISCONTINUED OPERATIONS

     On April 2, 2003, the Company consummated the sale (the "Sale"),  effective
as  of  March  1,  2003,  of  Intelligroup   Singapore  Pte  Ltd.,  a  Singapore
corporation;   Intelligroup   Hong  Kong  Limited,   a  Hong  Kong  corporation;
Intelligroup Australia Pty Limited, an Australian corporation;  and Intelligroup
New  Zealand  Limited,  a New Zealand  corporation,  together  representing  the
Company's  Asia-Pacific group of subsidiary  companies,  operating in Australia,
New Zealand,  Singapore, Hong Kong and Indonesia (together, the "Subsidiaries"),
to Soltius Global  Solutions PTE Ltd, a Singapore  corporation  ("Soltius").  As
consideration,  the Company received a 5% minority shareholding in Soltius and a
$650,000  note to be paid by Soltius to the Company  over a period of 12 months.
The Company  received  $75,000  from Soltius  during the quarter  ended June 30,
2003.

     The Consolidated Financial Statements of the Company have been reclassified
to  reflect  the Sale of the  Subsidiaries  to  Soltius  as of March  31,  2003.
Accordingly,  the assets, liabilities,  results of operations, and cash flows of
the Subsidiaries prior to April 2, 2003 have been segregated in the Consolidated
Balance Sheets,  Consolidated  Statements of Operations and Comprehensive Income
(Loss) and  Consolidated  Statements of Cash Flows.  The net operating  results,
assets, liabilities and net cash flows of the Subsidiaries have been reported as
discontinued operations.

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

<TABLE>
<CAPTION>
                                          FOR THE THREE MONTHS       FOR THE SIX MONTHS
                                          --------------------       ------------------
                                             ENDED JUNE 30,            ENDED JUNE 30,
                                             --------------            --------------
                                                 2002              2003              2002
                                           -----------------    -----------     ------------

<S>                                        <C>                  <C>             <C>
Revenue.................................   $    1,670,000       $ 1,691,000     $  3,274,000
Pre-tax loss............................         (235,000)         (413,000)        (327,000)
Income tax provision....................            4,000            15,000           31,000
Loss from discontinued operations,
   excluding loss on sale...............         (239,000)         (428,000)        (358,000)

                                            DECEMBER 31, 2002
                                            -----------------
Current assets..........................   $    2,393,000
Total assets............................        3,069,000
Current liabilities.....................        1,681,000
Net intercompany liabilities............        3,619,000
Total liabilities.......................        5,300,000
Net deficit of discontinued operations..       (2,231,000)
</TABLE>

     Additionally,  the Company  reported a loss on the sale of the Subsidiaries
of $1,706,000 for the six months ended June 30, 2003.



                                     - 10 -
<PAGE>

NOTE 6 - NOTE RECEIVABLE - SERANOVA

     On May 31, 2000, SeraNova,  Inc.  ("SeraNova") and the Company formalized a
$15,100,000 unsecured promissory note (the "Note") relating to net borrowings by
SeraNova  from the Company  through  such date.  The Note bears  interest at the
prime rate plus 1/2%.

     SeraNova  failed to make final payment of all amounts due under the Note to
the  Company  as of July 31,  2001.  On August 16,  2001,  the  Company  filed a
complaint against SeraNova and Silverline  Technologies Limited  ("Silverline"),
which acquired  SeraNova in March 2001. As of such date,  SeraNova was obligated
to pay to the Company the remaining  principal  (approximately  $9,140,000)  and
accrued interest (approximately  $940,000),  or an aggregate of $10,080,000.  On
September  25,  2001,  SeraNova  and  Silverline  filed  a joint  Answer  to the
Company's  complaint.  In addition,  SeraNova filed a  counterclaim  against the
Company  for  unspecified  damages as a set-off  against the  Company's  claims.
Thereafter,  in response to the  Company's  request for a statement  of damages,
SeraNova stated that it was in the process of calculating  its damages,  but for
informational  purposes claimed compensatory damages in excess of $5,500,000 and
punitive  damages in the amount of  $10,000,000.  The parties have completed the
discovery process and the Company moved for summary judgment. On April 17, 2003,
the Court granted partial summary judgment and required supplemental briefing on
certain  issues.  On July 11, 2003,  the Court heard  arguments on the Company's
renewed motion for summary judgment and dismissed the defendants'  counterclaims
seeking  compensatory  and  punitive  damages.  Although  a trial  date has been
scheduled for September 16, 2003,  counsel for  defendants has filed a motion to
be relieved as counsel based upon defendants' failure to pay their counsel fees.

     In addition,  SeraNova failed to pay certain  outstanding lease obligations
to the Company's landlords.  Accordingly, on March 4, 2002, the Company filed an
arbitration demand with the American  Arbitration  Association against SeraNova,
Silverline  and  Silverline  Technologies,  Inc.  (collectively,  the  "SeraNova
Group"). The demand for arbitration,  which sought damages,  alleged among other
things that the SeraNova Group failed to pay  outstanding  lease  obligations to
the Company's  landlords and to reimburse the Company for all rent payments made
by the Company on their behalf. An arbitration hearing was held on June 25, 2002
and June 28, 2002 seeking $525,000 in outstanding lease  obligations.  On August
9, 2002,  an award was issued in the amount of  $616,905  (including  attorney's
fees) plus  reimbursement  of  administrative  fees, in favor of the Company and
against the  SeraNova  Group  jointly and  severally.  In an action filed in the
Superior Court of New Jersey,  the Court confirmed the $624,000  award,  jointly
and severally as to the SeraNova Group,  and issued a writ of execution  against
the SeraNova Group's assets. The Sheriff of Middlesex County levied this writ of
execution  on  October  8,  2002  against  a bank  account  held  by  Silverline
Technologies,  Inc. On October 16, 2002,  pursuant to this writ, the bank turned
over $626,247 to the Sheriff.  On November 6, 2002 the Sheriff sent the funds to
the Company's  attorneys  and the funds were  deposited  into an attorney  trust
account on November 8, 2002.  On December  13,  2002,  the Company  commenced an
action in the  Superior  Court of New  Jersey,  Chancery  Division,  to  recover
additional  amounts due and owing from the SeraNova Group under the  Arbitration
Award and to determine whether HSBC Bank USA ("HSBC"), a



                                     - 11 -
<PAGE>

NOTE 6 - NOTE RECEIVABLE - SERANOVA (CONTINUED)

creditor of the  SeraNova  Group,  has  priority to the funds levied upon by the
Sheriff.  On January 31, 2003, the Court entered judgment in the Company's favor
in the amount of $218,805,  representing the SeraNova Group's  additional unpaid
rent  arrearages  under the  arbitration  award. On February 28, 2003, the Court
entered judgment in the Company's favor in the amount of $220,415,  representing
the  Company's  attorney's  fees in  connection  with the  Company's  efforts to
enforce the SeraNova Group's  obligations under the arbitration  award. On March
10, 2003,  the Court ordered HSBC to produce  discovery  proving its priority to
the $626,247 being held in trust. Thereafter,  the Company and HSBC entered into
a settlement  agreement  only as to the $626,247 being held in trust whereby the
Company remitted  $570,228 to HSBC, and the remaining funds were released to the
Company. The Company does not believe that the outcome of this claim will have a
materially  adverse  effect on the Company's  business,  financial  condition or
results of operations.

     The Company is  continuing  to pursue its various  legal  options to obtain
payment from the SeraNova Group on the Note and outstanding  lease  obligations.
At the same time, the Company has also been periodically  engaged in discussions
with management of the SeraNova  Group,  with the objective of seeking an out of
court  resolution to all  outstanding  matters  involving the Note,  and certain
other receivables and lease obligations.  However, the Company believed that the
liquidity  issues  plaguing the SeraNova Group  required a  reassessment  of the
realizability  of these  outstanding  amounts as of June 30,  2002.  Although no
final  resolution had been reached,  the Company  believed that the substance of
these  discussions  provided a basis for determining the approximate  realizable
value of the Note and other  receivables,  as well as an  estimate  of the costs
required to exit certain lease obligations.

     Accordingly,   the  Company  recorded  $8,362,000  of  SeraNova  receivable
impairment  and  other  charges  during  the six  months  ended  June 30,  2002.
Specifically,  the  Company  recorded  a  $5,140,000  charge to  write-down  the
carrying value of the Note to $4,000,000.  Additionally,  the Company recorded a
$1,257,000 charge to write-off the carrying value of other SeraNova receivables.
Also, the Company  recorded a charge of $1,501,000 for certain lease exit costs.
Such charge  represents  primarily an accrued  liability  for certain  obligated
space and equipment costs for which the Company currently believes it cannot use
or sublease and the differential  between certain Company lease  obligations and
sublease  amounts to be received.  As of December 31,  2002,  $1,286,000  of the
liability  remains  outstanding,  of  which  $1,028,000  is  included  in  other
long-term liabilities.

     As of March 31,  2003,  the  Company  believed  there had been an  apparent
deterioration in the financial condition of the SeraNova Group. Accordingly, the
Company re-assessed,  as of March 31, 2003, the likelihood of recovering amounts
owed by the SeraNova  Group as well as the  assumptions  used in  recording  the
original lease obligation charge. Additionally,  the Company was notified during
the first quarter of 2003 of its obligation to pay  additional  office space and
equipment  rentals,  which  had been  previously  assigned  to  SeraNova  by the
Company, because the SeraNova Group had failed to make the required payments.


                                     - 12 -
<PAGE>

NOTE 6 - NOTE RECEIVABLE - SERANOVA (CONTINUED)

     Although the Company  expects to pursue the full legal  prosecution  of the
SeraNova Group, the Company recorded $5,060,000 of additional charges associated
with the Note and certain other related  issues during the six months ended June
30, 2003. The Company  recognized an additional  impairment charge of $4,000,000
related  to  the  Note,   approximately   $321,000   related  to  other  assets,
approximately  $474,000 in costs required to exit certain lease  obligations and
$265,000 in legal fees.  The Company  has  determined  that due to the  apparent
financial  condition of the SeraNova Group that recovery of the SeraNova Note is
not probable.

<TABLE>
<CAPTION>
                                      WRITE-DOWN    WRITE-OFF        LEASE
                                       OF NOTE      OF OTHER      OBLIGATIONS    LEGAL AND
                                      RECEIVABLE   RECEIVABLES        AND          OTHER
                                      - SERANOVA    - SERANOVA    SETTLEMENTS     CHARGES         TOTAL
                                     -----------   -----------    -----------    ----------    -----------

<S>                                  <C>           <C>            <C>            <C>           <C>
Charges to operations during 2002..  $ 5,140,000   $ 1,257,000    $ 1,501,000    $ 464,000     $ 8,362,000
Costs paid during 2002.............           --            --       (361,000)    (318,000)       (679,000)
Non-cash items.....................   (5,140,000)   (1,257,000)            --          --       (6,397,000)
                                     -----------   -----------    -----------    ---------     -----------
Accrued  costs as of December 31,
2002...............................           --            --      1,140,000      146,000       1,286,000

Charges to operations during 2003..    4,000,000            --        795,000      265,000       5,060,000
Costs paid during 2003.............           --            --       (644,000)    (234,000)       (878,000)
Non-cash items.....................   (4,000,000)           --             --           --      (4,000,000)
                                     -----------   -----------    -----------    ---------     -----------

Accrued costs as of June 30, 2003..  $        --   $        --    $ 1,291,000    $ 177,000     $ 1,468,000
                                     ===========   ===========    ===========    =========     ===========
</TABLE>

     As of June 30, 2003,  $1,468,000 of the liability remains  outstanding,  of
which $873,000 is included in other long-term  liabilities.  The Company expects
to pay out this liability through 2008.

NOTE 7 - RESTRUCTURING AND OTHER SPECIAL CHARGES

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

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


                                     - 13 -
<PAGE>

NOTE 7 - RESTRUCTURING AND OTHER SPECIAL CHARGES (CONTINUED)

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

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

<S>                                      <C>              <C>            <C>             <C>
Accrued costs as of December 31, 1999..  $    865,000     $        --    $    84,000     $   949,000

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

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

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

Costs paid during 2003.................       (85,000)             --             --         (85,000)
                                         ------------     -----------    -----------     -----------
Accrued costs as of June 30, 2003......  $      4,000     $        --    $    83,000     $    87,000
                                         ============     ===========    ===========     ===========
</TABLE>

     The Company  expects to pay out the remaining costs above within the next 6
months.

NOTE 8 - SEGMENT DATA AND GEOGRAPHIC INFORMATION

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

     On April 2, 2003, the Company  consummated the sale,  effective as of March
1,  2003,  of its  Asia-Pacific  group of  subsidiary  companies,  operating  in
Australia,  New Zealand,  Singapore,  Hong Kong and Indonesia  (See Note 5). The
operating results and financial position of the Asia-Pacific group of subsidiary
companies are reported as discontinued operations for all periods presented. The
Company now has four reportable  operating segments from continuing  operations,
which are organized and managed on a geographical basis, as follows:

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

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

     o    Europe - includes the operations of the Company in Denmark, Sweden and
          the United Kingdom.  However,  the Company transitioned its operations
          in Sweden to Denmark as of January 1, 2003. The European  headquarters
          are located in Milton Keynes, United Kingdom; and


                                     - 14 -
<PAGE>

NOTE 8 - SEGMENT DATA AND GEOGRAPHIC INFORMATION (CONTINUED)

     o    Japan - includes the operations of the Company in Japan.  The Japanese
          headquarters are located in Tokyo, Japan.

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

     Accordingly, the Company's operating results and financial position for its
continuing operations are presented in the following geographic segments for the
three and six months ended June 30, 2003 and 2002.

<TABLE>
<CAPTION>
                                    UNITED STATES         INDIA         EUROPE           JAPAN           TOTAL
                                    -------------         -----         ------           -----           -----
<S>                                  <C>               <C>            <C>             <C>           <C>
THREE MONTHS ENDED JUNE 30, 2003
--------------------------------
Revenue.........................     $21,861,000       $ 3,743,000    $ 1,584,000     $  817,000    $ 28,005,000
Depreciation & amortization.....         449,000           220,000         36,000          7,000         712,000 (1)
Operating income (loss).........        (470,000)          205,000         84,000        147,000         (34,000)(2)
Total assets....................      28,059,000         6,722,000      2,035,000      1,508,000      38,324,000

THREE MONTHS ENDED JUNE 30, 2002
--------------------------------
Revenue.........................     $19,269,000        $3,543,000    $ 1,444,000     $  550,000    $ 24,806,000
Depreciation & amortization.....         450,000           112,000         58,000         15,000         635,000 (3)
Operating income (loss).........      (8,150,000)          862,000       (352,000)      (408,000)     (8,048,000)(4)
Total assets....................      28,463,000         5,744,000      1,738,000      1,379,000      37,324,000 (5)

SIX MONTHS ENDED JUNE 30, 2003
------------------------------
Revenue.........................     $43,210,000       $ 7,230,000    $ 3,065,000     $1,735,000    $ 55,240,000
Depreciation & amortization.....         900,000           424,000         72,000         15,000       1,411,000 (6)
Operating income (loss).........      (6,019,000)          698,000         81,000        208,000     (5,032,000) (7)

SIX MONTHS ENDED JUNE 30, 2002
------------------------------
Revenue.........................     $36,738,000       $ 6,597,000    $ 3,029,000     $1,447,000    $ 47,811,000
Depreciation & amortization.....         923,000           260,000        115,000         29,000       1,327,000  (8)
Operating income (loss).........      (8,035,000)        1,345,000       (541,000)      (525,000)     (7,756,000) (9)
</TABLE>

-----------
     (1)  Excludes $191,000 of depreciation and amortization included in cost of
          sales for the three months ended June 30, 2003.
     (2)  Includes  $296,000 of proxy  contest  charges and  $581,000 of charges
          related to the  guarantee of SeraNova  debt for the three months ended
          June 30, 2003.
     (3)  Excludes $181,000 of depreciation and amortization included in cost of
          sales for the three months ended June 30, 2002.
     (4)  Includes  $8,362,000  of  SeraNova  receivable  impairment  and  other
          charges and  $464,000 of proxy  contest  charges for the three  months
          ended June 30, 2002.
     (5)  Excludes $2,897,000 of assets held for sale as of June 30, 2002.
     (6)  Excludes $372,000 of depreciation and amortization included in cost of
          sales for the six months ended June 30, 2003.
     (7)  Includes  $5,060,000  of  SeraNova  receivable  impairment  and  other
          charges,  $593,000 of proxy  contest  charges and  $581,000 of charges
          related to the  guarantee  of SeraNova  debt for the six months  ended
          June 30, 2003.
     (8)  Excludes $443,000 of depreciation and amortization included in cost of
          sales for the six months ended June 30, 2002.
     (9)  Includes  $8,362,000  of  SeraNova  receivable  impairment  and  other
          charges and $464,000 of proxy contest charges for the six months ended
          June 30, 2002.

                                     - 15 -
<PAGE>

NOTE 8 - SEGMENT DATA AND GEOGRAPHIC INFORMATION (CONTINUED)

     Included  above  are  application   management  and  support   revenues  of
$8,341,000  and  $6,110,000  for the three  months ended June 30, 2003 and 2002,
respectively.  In addition,  application management and support revenues for the
six  months  ended  June 30,  2003 and 2002 were  $15,106,000  and  $12,281,000,
respectively.  Other  information  related  to the  application  management  and
support  business is not maintained and the Company  determined that it would be
impractical to calculate such data.

NOTE 9 - CONTINGENCIES

Guarantee of SeraNova Debt

     By letter dated May 12, 2003, Zions First National Bank ("Zions")  informed
the Company that Network Publishing,  Inc., a former wholly-owned  subsidiary of
the  Company,  which  became a  wholly-owned  subsidiary  of  SeraNova  upon the
spin-off of SeraNova by the Company in 2000,  was  delinquent  on a loan made by
Zions and guaranteed by the Company. Zions is demanding payment of $535,608 from
the Company, plus interest accrued from April 1, 2002. The Company has requested
documentation   from  Zions.   Zions   requested  that  the  Company  execute  a
confidentiality  agreement  before  providing  the  documentation.  The  Company
intends  to  investigate  Zion's  claims  upon  receipt  of such  documentation.
However,   the  Company   could  have  a  liability  in  this  matter  once  all
documentation  is provided  by Zions.  Accordingly,  the Company has  recorded a
$581,000  provision  for the  guarantee  of  SeraNova  debt in the  consolidated
statement of operations during the three months ended June 30, 2003.

Tax-Free Spin-off of SeraNova

     On  July  5,  2000,  the  Company  distributed  SeraNova  common  stock  to
shareholders  in a  transaction  that was  intended  to be a  tax-free  spin-off
pursuant to Section 355 of the Internal  Revenue Code  ("Section  355").  If the
distribution  qualifies  as a tax-free  spin-off,  neither  the  Company nor the
Company's  shareholders  recognize  any gain or  income in  connection  with the
transaction.  However,  Section 355 provides that the Company may be required to
recognize  a gain  on the  transaction  if the  distribution  is  part of a plan
pursuant to which one or more  persons  acquire  50% or more of SeraNova  common
stock  within two years of the  distribution  date.  The  Company  and  SeraNova
executed  a  Tax  Sharing  Agreement,   dated  January  1,  2000  ("Tax  Sharing
Agreement"),   whereby   SeraNova  would  indemnify  the  Company  for  any  tax
liabilities  in the  event a  future  transaction  of  SeraNova  results  in the
spin-off being deemed a taxable event.

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


                                     - 16 -
<PAGE>

NOTE 9 - CONTINGENCIES (CONTINUED)

under the Tax Sharing Agreement.  Should the spin-off be ultimately construed to
be taxable,  there is a risk that if SeraNova  and/or  Silverline  are unable or
unwilling  to  pay  the   resultant   tax   liability   pursuant  to  SeraNova's
indemnification  obligations  under its Tax Sharing  Agreement with the Company,
the Company would bear the liability to pay such resultant tax liability.

Tax Contingency in India

     The Company's Indian  subsidiary has received an assessment from the Indian
taxing  authority  denying tax  exemptions  claimed for certain  revenue  earned
during each of the fiscal years ended March 31, 1997 through March 31, 2000. The
assessment is for 28 million  rupees,  or  approximately  $600,000.  Management,
after  consultation  with its advisors,  believes the Company is entitled to the
tax exemption  claimed and thus has not recorded a provision for taxes  relating
to these items as of June 30, 2003. If the Company were not successful  with its
appeals,  which were filed in 2001 and 2002,  a future  charge of  approximately
$600,000 would be recorded and reflected in the Company's consolidated statement
of operations.

Proxy Contest and Related Legal Matters

     During the six months ended June 30, 2003, the Company incurred $593,000 of
Proxy  Contest  charges.  As  discussed  in Note 4, the Proxy  Contest  resulted
directly from a shareholder of the Company  launching a hostile and costly proxy
contest to take control of the Company's  Board of  Directors.  Since the second
quarter of 2002, the Company has incurred  cumulative  Proxy Contest  charges of
$1,666,000.  The cumulative  Proxy Contest  charges  included legal fees,  proxy
solicitation services and printing, mailing and other costs. Legal costs related
to this matter continue to be incurred.  However, on August 7, 2003, the Company
and Mr. Pandey executed a settlement  agreement relating to, among other things,
the litigation  matters  including the Proxy Contest.  As part of the settlement
agreement  the Company has agreed to pay to Mr.  Pandey an  aggregate  amount of
$750,000 in three equal  installments over two years.  Accordingly,  the Company
will  record  a  $750,000  provision  for  such  liability  in the  consolidated
statement of operations during the three months ended September 30, 2003.

     On June 26,  2002,  Ashok  Pandey  filed a Complaint  in the United  States
District   Court  for  the  District  of  New  Jersey,   alleging  that  certain
shareholders  of the Company  constituted  a group that held more than 5% of the
outstanding  shares of the  Company's  common stock and had not filed a Schedule
13D disclosure  statement with the Securities and Exchange  Commission.  On June
28, 2002, plaintiff obtained an ex parte injunctive order from the Court barring
Srini Raju, an alleged member of the "group" and a shareholder  holding 4.61% of
the Company's  common  stock,  from voting in the annual  election.  On July 12,
2002,  after  reviewing  actual  evidence of record,  and hearing  argument from
Pandey's counsel, the Court held that there was no basis to enjoin Mr. Raju from
voting his shares at the Annual  Meeting.  After the election,  Pandey sought to
file an amended  complaint  dropping  certain  defendants,  and  adding  others,
including  the Company.  On September 27, 2002,  the Court  granted  plaintiff's
motion,  and allowed certain limited discovery to proceed.  On October 11, 2002,
the Company filed a motion for Judgment on the  Pleadings in its favor,  arguing
that the relief sought by plaintiff, the retroactive



                                     - 17 -
<PAGE>

NOTE 9 - CONTINGENCIES (CONTINUED)

sterilization  of Mr.  Raju's  shares and the  invalidation  of his votes at the
Annual  Meeting,  is not sanctioned by law, and is  unavailable as a remedy.  In
response,  Pandey  filed  a  motion  seeking  leave  to  file a  Second  Amended
Complaint,  seeking to drop the  Section  13D claims  against  the  Company  and
substitute  them with claims  brought  under Section 14A of the  Securities  and
Exchange  Act.  On January  31,  2003,  the Court  denied  each of the  parties'
motions.  On August 7, 2003,  the Company and Mr.  Pandey  executed a settlement
agreement  relating to, among other things, the litigation matters between them.

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

     On July 3,  2002,  the  Company  filed a  complaint  in the  United  States
District  Court for the  District  of New  Jersey,  naming  Ashok  Pandey,  TAIB
Securities,  Inc.,  Beechrock  Holdings  Limited and Braydon Holdings Limited as
defendants.  The  complaint  alleges,  among other things,  that the  defendants
violated  federal  securities laws in connection with the Company's recent proxy
contest.  The defendants have filed an Answer to the Company's complaint denying
the Company's  claims.  On August 7, 2003, the Company and Mr. Pandey executed a
settlement  agreement  relating to, among other things,  the litigation  matters
between them.

Other Legal Matters

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

                                     - 18 -
<PAGE>

NOTE 9 - CONTINGENCIES (CONTINUED)

served with the complaint,  the Company made a request for indemnification  from
SeraNova pursuant to the various inter-company agreements in connection with the
spin-off.  By letter  dated  April 13,  2001,  SeraNova's  counsel,  advised the
Company that SeraNova acknowledged liability for such indemnification claims and
has elected to assume the defense of the  plaintiff's  claims.  In October 2001,
the motion to dismiss,  filed on behalf of the  Company in May 2001,  was denied
without prejudice to refile at the close of the discovery period.  Court-ordered
mediation  between the plaintiff and SeraNova  during  January and February 2002
was unsuccessful.  In January 2002, plaintiff filed a motion for partial summary
judgment as to certain claims against  SeraNova.  No summary judgment motion was
filed against the Company.  On September 30, 2002, the Court granted plaintiff's
motion in part,  finding  SeraNova  liable for breach of contract as a matter of
law. The parties  executed a settlement  agreement,  which became effective upon
payment of the settlement amount. The Company paid its portion of the settlement
amount equal to an aggregate amount of $50,000 in April 2003.

     The  Company  is  engaged in other  legal and  administrative  proceedings.
Management  believes the outcome of these  proceedings  will not have a material
adverse effect on the Company's  consolidated  financial  position or results of
operations.



                                     - 19 -
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

     HISTORY
     -------

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

     In October 1987, the Company first began to provide systems integration and
custom software development services to customers. In 1994, the Company began to
diversify its customer  base by expanding  the scope of its systems  integration
and custom development  services to include Enterprise Resource Planning ("ERP")
software.  ERP software products are pre-packaged  solutions for a wide-range of
business  areas,  including  financial  information,   manufacturing  and  human
resources.  For  prospective  customers,  ERP products are an alternative to the
custom design and development of their own  applications.  Although ERP products
are  pre-packaged  solutions,  there is a significant  amount of technical  work
involved  in  implementing  them  and  tailoring  their  use  for  a  particular
customer's needs.

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

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

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


                                     - 20 -
<PAGE>

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

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

     On April 2, 2003, the Company consummated the sale (the "Sale"),  effective
as of  March  1,  2003,  of its  Asia-Pacific  group  of  subsidiary  companies,
operating  in  Australia,  New  Zealand,  Singapore,  Hong  Kong  and  Indonesia
(together, the "Subsidiaries"), to Soltius Global Solutions PTE Ltd, a Singapore
corporation  ("Soltius").  As consideration,  the Company received a 5% minority
shareholding in Soltius and a $650,000 note to be paid by Soltius to the Company
over a period of 12 months. The Company received $75,000 from Soltius during the
quarter ended June 30, 2003.

     The Consolidated Financial Statements of the Company have been reclassified
to  reflect  the Sale of the  Subsidiaries  to  Soltius  as of March  31,  2003.
Accordingly,  the assets, liabilities,  results of operations, and cash flows of
the Subsidiaries prior to April 2, 2003 have been segregated in the Consolidated
Balance Sheets,  Consolidated  Statements of Operations and Comprehensive Income
(Loss)  and  Consolidated  Statements  of Cash Flows and have been  reported  as
discontinued operations.

     Financial  information regarding the Company's geographic areas and results
of operations for continuing operations appears in the footnote entitled Segment
Data and  Geographic  Information  in the  Notes to the  Consolidated  Financial
Statements included in Part 1. Financial Information.

     REVENUES
     --------

     The  majority  of the  Company's  revenues  are derived  from  professional
services rendered to customers.  Revenue is typically recognized as services are
performed.  The Company's services range from providing  customers with a single
consultant  to  multi-personnel  full-scale  projects.  Although the Company has
contracts with many of its customers to provide its services,  in general,  such
contracts are terminable upon relatively  short notice,  typically not more than
30 days. There can be no assurance that the Company's customers will continue to
enter into


                                     - 21 -
<PAGE>

contracts  with the Company or that existing  contracts  will not be terminated.
The Company provides its services either directly to end-user organizations,  or
as a member of a consulting  team  assembled by another  information  technology
consulting firm. Where contractual provisions permit,  customers also are billed
for reimbursement of expenses incurred by the Company on the customers' behalf.

     EXPENSES
     --------

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

     FIXED PRICE PROJECTS
     --------------------

     The Company has provided  services on certain  projects in which it, at the
request of the  clients,  offered a fixed  price for its  services.  For the six
months  ended  June 30,  2003 and the year ended  December  31,  2002,  revenues
derived  from  projects  under fixed price  contracts  represented  33% and 35%,
respectively,  of the Company's total revenue. No single fixed price project was
material to the Company's  business during the six months ended June 30, 2003 or
during 2002. The Company  believes that, as it pursues its strategy of providing
application  management  services to customers,  it will continue to offer fixed
price  projects.  The Company  believes  that there are certain risks related to
fixed  price  arrangements  and thus  prices  such  arrangements  to reflect the
associated  risk.  There can be no  assurance  that the Company  will be able to
complete such projects within the fixed price timeframes. The failure to perform
within  such  fixed  price  contracts,  if entered  into,  could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

     CUSTOMER CONCENTRATION
     ----------------------

     The  Company has derived  and  believes  that it will  continue to derive a
significant  portion  of its  revenue  from a limited  number of  customers  and
projects. For the six months ended June 30, 2003 and the year ended December 31,
2002,  the  Company's  ten largest  customers  accounted  for in the  aggregate,
approximately 48% and 42% of its revenue, respectively. For the six months ended
June 30, 2003, no single  customer  accounted for more than 10% of revenue.  For
the year ended  December 31, 2002,  one customer  accounted for more than 10% of
revenue.  For the six months ended June 30, 2003 and the year ended December 31,
2002,  10% and 24%,  respectively,  of the  Company's  revenue was  generated by
providing  supplemental  resources  directly to the end-customer or as part of a
consulting team assembled by another  information  technology  consulting  firm.
There can be no assurance that such information technology consulting firms will
continue to engage the Company in the future at current levels of retention,  if
at all.


                                     - 22 -
<PAGE>

     SOFTWARE PARTNERS
     -----------------

     For each of the six months ended June 30, 2003 and the year ended  December
31, 2002,  approximately  62% of the  Company's  total  revenue was derived from
projects  in which the Company  implemented,  extended,  maintained,  managed or
supported  software developed by SAP. For the six months ended June 30, 2003 and
the year ended December 31, 2002,  approximately 24% and 22%,  respectively,  of
the  Company's  total  revenue  was derived  from  projects in which the Company
implemented,  extended,  maintained,  managed or supported software developed by
PeopleSoft.  For the six months ended June 30, 2003 and the year ended  December
31, 2002, approximately 7% and 9%, respectively,  of the Company's total revenue
was  derived  from  projects  in  which  the  Company   implemented,   extended,
maintained, managed or supported software developed by Oracle.

     COMPETITORS
     -----------

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

     o    Consulting  and  software  integration  firms:  including,  IBM Global
          Services,  Electronic Data Systems, Computer Sciences Corporation, Cap
          Gemini Ernst & Young, and BearingPoint.

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

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

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

     OFFICES
     -------

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


                                     - 23 -
<PAGE>

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RISKS

     The  Company's  critical  accounting  policies  are set forth in its Annual
Report on Form 10-K for the year  ended  December  31,  2002.  There has been no
change,  update  or  revision  to the  Company's  critical  accounting  policies
subsequent to the filing of the Company's  Form 10-K for the year ended December
31, 2002.

FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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

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


                                     - 24 -
<PAGE>

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

     o    the Company's  ability to manage fixed price projects  effectively and
          efficiently;

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

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

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

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

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

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

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

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


                                     - 25 -
<PAGE>

RESULTS OF OPERATIONS - CONSOLIDATED

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

<TABLE>
<CAPTION>
                                                                Percentage of Revenue
                                                   ----------------------------------------------
                                                      Three Months                 Six Months
                                                     Ended June 30,              Ended June 30,
                                                   -------------------         ------------------
                                                   2003           2002         2003          2002
                                                   ----           ----         ----          ----

<S>                                                <C>            <C>          <C>          <C>
Revenue...................................         100.0%         100.0%       100.0%       100.0%
Cost of sales.............................          69.7           68.2         70.3         68.9
                                                  ------          -----        -----        -----
    Gross profit..........................          30.3           31.8         29.7         31.1
Selling, general and administrative
  expenses................................          24.7           26.1         25.0         26.0
Depreciation and amortization expenses....           2.5            2.6          2.5          2.8
SeraNova receivable settlement and
  related charges.........................            --           33.6          9.2         17.5
Proxy contest charges.....................           1.1            1.9          1.1          1.0
Guarantee of SeraNova debt charge.........           2.1             --          1.1          --
                                                  ------          -----        -----        -----
    Total operating expenses..............          30.4           64.2         38.9         47.3
                                                  ------          -----        -----        -----
    Operating loss........................          (0.1)         (32.4)        (9.2)       (16.2)
Interest income...........................            --             --           --           --
Interest expense..........................          (0.4)          (0.4)        (0.4)        (0.4)
Other income (expense)....................          (0.7)           0.1         (0.4)         0.1
                                                  ------          -----        -----        -----
Loss from continuing operations before
   income tax provision...................          (1.2)         (32.7)       (10.0)       (16.5)
Income tax provision......................           0.6            0.8          0.4          0.6
                                                  ------          -----        -----        -----
Loss from continuing operations...........          (1.8)%        (33.5)%      (10.4)%      (17.1)%
                                                  ======          =====        =====        =====
</TABLE>

     Three  Months  Ended June 30, 2003  Compared to Three Months Ended June 30,
2002

     The following  discussion compares the consolidated results from continuing
operations  for the three  months ended June 30, 2003 and the three months ended
June 30, 2002.

     Revenue.  Total revenue  increased by 12.9%,  or $3.2  million,  from $24.8
million for the three months ended June 30, 2002, to $28.0 million for the three
months ended June 30, 2003. The increase was attributable primarily to growth in
revenue generated in the United States (an increase of $2.6 million),  Japan (an
increase of  $267,000),  India (an increase of $200,000) and Europe (an increase
of  $140,000).  In 2002,  the demand for the Company's  services was  negatively
impacted by the challenging and uncertain economic  conditions,  which precluded
many companies from spending resources on IT projects.  Subsequently,  beginning
in  mid-to-late  2002, the Company began to experience an increase in demand for
services. Accordingly, the revenue growth results directly from increased demand
for the majority of the Company's  services,  including  traditional  consulting
service  offerings,  application  management  and support  services and offshore
development services.

     Gross profit.  The Company's cost of sales  primarily  includes the cost of
salaries to consultants  and related  employee  benefits and payroll taxes.  The
Company's cost of sales increased by 15.3%, or $2.6 million,  from $16.9 million
for the three months ended June 30,


                                     - 26 -
<PAGE>

2002, to $19.5  million for the three months ended June 30, 2003.  The Company's
gross  profit  increased by 7.8%,  or $612,000,  from $7.9 million for the three
months ended June 30, 2002,  to $8.5 million for the three months ended June 30,
2003.  The increase in cost of sales and gross profit  results from the increase
in revenue.  Gross margin decreased to 30.3% for the three months ended June 30,
2003,  from 31.8% for the three months ended June 30, 2002. The decline in gross
margin  results  primarily  from  pricing   pressures,   due  to  the  increased
competition for new projects.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses  primarily  consist  of  administrative  salaries,  and
related benefits costs,  occupancy costs, sales person compensation,  travel and
entertainment  and  professional  fees.  Selling,   general  and  administrative
expenses  increased  by 7.3% or  $470,000,  to $6.9 million for the three months
ended June 30, 2003, from $6.5 million for the three months ended June 30, 2002,
but decreased as a percentage of revenue to 24.7% from 26.1%, respectively.  The
increase in selling,  general and administrative  expenses, in absolute dollars,
was related primarily to discretionary sales and marketing  expenditures,  which
vary in proportion to changes in revenue. During the three months ended June 30,
2003, the Company invested in certain targeted sales and marketing  initiatives,
such as  participation  in a number of conferences  and trade shows as well as a
new branding roll-out,  which are expected to grow future revenues. The decrease
in selling,  general and  administrative  expenses,  as a percentage of revenue,
reflects concerted efforts by management to control  expenditures in conjunction
with growth in revenue.

     Depreciation  and  amortization.  Depreciation  and  amortization  expenses
increased to $712,000  for the three  months  ended June 30,  2003,  compared to
$635,000 for the three months  ended June 30, 2002.  The increase was  primarily
due to  depreciation on additional  computers,  equipment and software placed in
service since June 30, 2002.

     SeraNova receivable  impairment and other charges.  During the three months
ended June 30, 2002, the Company recorded  approximately $8.4 million in special
charges associated with the note receivable from SeraNova, Inc. ("SeraNova") and
certain other related issues.  Although the Company had aggressively pursued its
various legal options to obtain payment from SeraNova,  Silverline  Technologies
Inc. and Silverline Technologies Ltd. (collectively the "SeraNova Group") on the
Note and outstanding lease obligations,  the Company believed that the liquidity
issues plaguing the SeraNova Group required a reassessment of the  realizability
of these  outstanding  amounts.  During this time, the Company had also actively
engaged in discussions with management of the SeraNova Group, with the objective
of seeking an out of court resolution to all outstanding  matters  involving the
Note, and certain other  receivables  and lease  obligations.  Although no final
resolution  had been reached,  the Company  believed that the substance of these
discussions provided a basis for determining the approximate realizable value of
the Note and other receivables,  as well as an estimate of the costs required to
exit  certain  lease  obligations.   Accordingly,   the  Company  recognized  an
impairment  charge in the amount of $5.1 million  related to the note during the
three months ended June 30, 2002. Additionally, the Company recorded a write-off
of $1.3 million  related to interest on the note and other  receivables due from
the SeraNova Group. Finally, the Company recorded $1.5 million in costs required
to exit certain lease obligations related to the SeraNova Group.


                                     - 27 -
<PAGE>

     Proxy  contest  charges.  During the three  months  ended June 30, 2003 and
2002, the Company incurred  $296,000 and $464,000,  respectively,  in legal fees
and other charges  related to the  Company's  contested  2002 Annual  Meeting of
Shareholders  ("Proxy  Contest").  The Proxy  Contest  resulted  directly from a
shareholder of the Company  launching a hostile and costly proxy contest to take
control of the Company's  Board of Directors.  Since the second quarter of 2002,
the  Company  has  incurred  cumulative  proxy  charges  of  $1.7  million.  The
cumulative  Proxy  Contest  charges  included  legal  fees,  proxy  solicitation
services and printing,  mailing and other costs.  On August 7, 2003, the Company
and Mr. Pandey executed a settlement  agreement relating to, among other things,
the litigation  matters  between them  including the Proxy Contest.

     Provision  for  guarantee of SeraNova  debt.  By letter dated May 12, 2003,
Zions  First  National  Bank   ("Zions")   informed  the  Company  that  Network
Publishing,  Inc., a former wholly-owned subsidiary of the Company, which became
a  wholly-owned  subsidiary  of  SeraNova  upon the  spin-off of SeraNova by the
Company in 2000,  was  delinquent on a loan made by Zions and  guaranteed by the
Company.  Zions is demanding payment of $535,608 from the Company, plus interest
accrued from April 1, 2002. The Company has requested  documentation from Zions.
Zions  requested that the Company  execute a  confidentiality  agreement  before
providing the  documentation.  The Company intends to investigate  Zion's claims
upon receipt of such documentation.  However, the Company could have a liability
in this matter once all  documentation  is provided by Zions.  Accordingly,  the
Company has recorded a $581,000  provision for the guarantee of SeraNova debt in
the consolidated  statement of operations during the three months ended June 30,
2003.

     Interest  income.  The Company earned $12,000 in interest income during the
three months ended June 30, 2003,  compared with $11,000 during the three months
ended  June 30,  2002.  The  interest  income is  related  primarily  to certain
interest-bearing bank accounts.

     Interest  expense.  The Company  incurred  $124,000 and $95,000 in interest
expense  during the three  months  ended June 30,  2003 and 2002,  respectively,
related  primarily to borrowings under its line of credit.  Borrowings under the
line of credit were used to fund operating activities and the charges associated
with the proxy contest.  The increase in interest  expense results from slightly
higher average outstanding  borrowings under the line of credit during the three
months ended June 30, 2003.

     Other income (expense). Other income (expense) results primarily from gains
(losses) associated with changes in foreign currency exchange rates. The Company
reported other expense of $184,000  during the three months ended June 30, 2003,
compared  with other  income of $17,000  during the three  months ended June 30,
2002. The change results from foreign currency fluctuations.

     Provision for income taxes. The Company's  effective tax rate was 49.4% for
the three  months  ended June 30,  2003.  The large  provision  for income taxes
results from taxable income in certain  jurisdictions  combined with a valuation
allowance offsetting other loss benefits in other  jurisdictions.  The Company's
net  deferred  tax  asset  as of  June  30,  2003  relates  primarily  to the US
operations.  Based on anticipated  profitability in the near future,  management
believes it is more likely than not, that the deferred tax asset of $1.2 million
will be realized.  The  Company's  effective  rate was 2.5% for the three months
ended June 30, 2002.


                                     - 28 -
<PAGE>

     In  1996,  the  Company  elected  a five  year tax  holiday  in  India,  in
accordance with a local tax incentive  program whereby no income tax will be due
in such period.  Such tax holiday was extended an additional five years in 1999.
Effective  April 1, 2000 pursuant to changes  introduced  by the Indian  Finance
Act, 2000,  the tax holiday  previously  granted is no longer  available and has
been  replaced  in the form of a tax  deduction  incentive.  The  impact of this
change is not expected to be material to the consolidated  financial  statements
of the Company.  Effective April 1, 2002, the tax deduction incentive for income
from the export of software and related  services was  restricted to 90% of such
income. Further,  domestic revenue from software and related services is taxable
in India.  Effective April 1, 2003, the 90% tax deduction incentive  restriction
was repealed and the tax  incentive is again  available for the entire amount of
income from the export of software  and related  services.  For the three months
ended  June 30,  2003 and 2002,  the tax  holiday  and tax  deduction  favorably
impacted the Company's effective tax rate.

     The Company's Indian  subsidiary has received an assessment from the Indian
taxing  authority  denying tax  exemptions  claimed for certain  revenue  earned
during each of the fiscal years ended March 31, 1997 through March 31, 2000. The
assessment is for 28 million  rupees,  or  approximately  $600,000.  Management,
after  consultation  with its advisors,  believes the Company is entitled to the
tax exemption  claimed and thus has not recorded a provision for taxes  relating
to these items as of June 30, 2003. If the Company were not successful  with its
appeals,  which were filed in 2001 and 2002,  a future  charge of  approximately
$600,000 would be recorded and reflected in the Company's consolidated statement
of operations.

     Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

     The following  discussion compares the consolidated results from continuing
operations  for the six months ended June 30, 2003 and the six months ended June
30, 2002.

     Revenue.  Total revenue  increased by 15.5%,  or $7.4  million,  from $47.8
million for the six months  ended June 30,  2002,  to $55.2  million for the six
months ended June 30, 2003. The increase was attributable primarily to growth in
revenue generated in the United States (an increase of $6.5 million),  India (an
increase of  $633,000),  Japan (an increase of $288,000) and Europe (an increase
of $37,000).  In 2002,  the demand for the  Company's  services  was  negatively
impacted by the challenging and uncertain economic  conditions,  which precluded
many companies from spending resources on IT projects.  Subsequently,  beginning
in  mid-to-late  2002, the Company began to experience an increase in demand for
services. Accordingly, the revenue growth results directly from increased demand
for the majority of the Company's  services,  including  traditional  consulting
service  offerings,  application  management  and support  services and offshore
development services.

     Gross  profit.  The  Company's  cost of sales  increased by 17.8%,  or $5.9
million,  from $32.9  million for the six months ended June 30,  2002,  to $38.8
million for the six months  ended June 30,  2003.  The  Company's  gross  profit
increased by 10.5%, or $1.6 million, from $14.9 million for the six months ended
June 30, 2002,  to $16.4  million for the six months  ended June 30,  2003.  The
increase in cost of sales and gross profit results from the increase in revenue.
Gross margin  decreased  to 29.7% for the six months  ended June 30, 2003,  from
31.1% for the six  months  ended June 30,  2002.  The  decline  in gross  margin
results primarily from pricing pressures,  due to the increased  competition for
new projects.


                                     - 29 -
<PAGE>

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative expenses increased by 10.8% or $1.3 million, to $13.8 million for
the six months ended June 30, 2003,  from $12.5 million for the six months ended
June 30, 2002,  but  decreased  as a percentage  of revenue to 25.0% from 26.0%,
respectively.  The increase in selling,  general and administrative expenses, in
absolute  dollars,  was related  primarily to discretionary  sales and marketing
expenditures,  which vary in  proportion  to changes in revenue.  During the six
months ended June 30, 2003, the Company  invested in certain  targeted sales and
marketing  initiatives,  such as  participation  in a number of conferences  and
trade  shows as well as a new  branding  roll-out,  which are  expected  to grow
future revenues. The decrease in selling,  general and administrative  expenses,
as a percentage of revenue,  reflects concerted efforts by management to control
expenditures in conjunction with growth in revenue.

     Depreciation  and  amortization.  Depreciation  and  amortization  expenses
increased to $1.4  million for the six months  ended June 30, 2003,  compared to
$1.3 million for the six months ended June 30, 2002.  The increase was primarily
due to  depreciation on additional  computers,  equipment and software placed in
service since June 30, 2002.

     SeraNova  receivable  impairment and other  charges.  During the six months
ended June 30, 2002, the Company recorded  approximately $8.4 million in special
charges  associated with the note  receivable  from SeraNova,  and certain other
related issues.  Although the Company had aggressively pursued its various legal
options to obtain  payment from the SeraNova  Group on the Note and  outstanding
lease  obligations,  the  Company  believed  that the current  liquidity  issues
plaguing the SeraNova  Group  required a reassessment  of the  realizability  of
these  outstanding  amounts.  During this time,  the  Company had also  actively
engaged in discussions with management of the SeraNova Group, with the objective
of seeking an out of court resolution to all outstanding  matters  involving the
Note, and certain other  receivables  and lease  obligations.  Although no final
resolution  had been reached,  the Company  believed that the substance of these
discussions provided a basis for determining the approximate realizable value of
the Note and other receivables,  as well as an estimate of the costs required to
exit  certain  lease  obligations.   Accordingly,   the  Company  recognized  an
impairment  charge in the amount of $5.1 million  related to the note during the
six months ended June 30, 2002.  Additionally,  the Company recorded a write-off
of $1.3 million  related to interest on the note and other  receivables due from
the SeraNova Group. Finally, the Company recorded $1.5 million in costs required
to exit certain lease obligations related to the SeraNova Group.

     During  the  six  months  ended  June  30,  2003,   the  Company   recorded
approximately  $5.1  million  of  additional  charges  associated  with the note
receivable  from  SeraNova  and  certain  other  related  issues.   The  Company
recognized an additional  impairment charge of $4.0 million related to the Note,
approximately $321,000 related to other assets,  approximately $474,000 in costs
required to exit  certain  lease  obligations  and  $265,000 in legal fees.  The
Company has  determined  that due to the  apparent  financial  condition  of the
SeraNova Group that recovery of the SeraNova Note is not probable.

     Proxy contest charges.  During the six months ended June 30, 2003 and 2002,
the Company  incurred  $593,000 and  $464,000,  respectively,  in legal fees and
other  charges  related  to the  Company's  contested  2002  Annual  Meeting  of
Shareholders.  The Proxy Contest  resulted  directly  from a shareholder  of the
Company launching a hostile and costly proxy contest to take


                                     - 30 -
<PAGE>

control of the Company's  Board of Directors.  Since the second quarter of 2002,
the  Company  has  incurred  cumulative  proxy  charges  of  $1.7  million.  The
cumulative  Proxy  Contest  charges  included  legal  fees,  proxy  solicitation
services and printing,  mailing and other costs.  On August 7, 2003, the Company
and Mr. Pandey executed a settlement  agreement relating to, among other things,
the litigation matters between them including the Proxy Contest.

     Provision  for  Guarantee of SeraNova  debt.  By letter dated May 12, 2003,
Zions  First  National  Bank   ("Zions")   informed  the  Company  that  Network
Publishing,  Inc., a former wholly-owned subsidiary of the Company, which became
a  wholly-owned  subsidiary  of  SeraNova  upon the  spin-off of SeraNova by the
Company in 2000,  was  delinquent on a loan made by Zions and  guaranteed by the
Company.  Zions is demanding payment of $535,608 from the Company, plus interest
accrued from April 1, 2002. The Company has requested  documentation from Zions.
Zions  requested that the Company  execute a  confidentiality  agreement  before
providing the  documentation.  The Company intends to investigate  Zion's claims
upon receipt of such documentation.  However, the Company could have a liability
in this matter once all  documentation  is provided by Zions.  Accordingly,  the
Company has recorded a $581,000  provision for the guarantee of SeraNova debt in
the  consolidated  statement of operations  during the six months ended June 30,
2003.

     Interest  income.  The Company earned $25,000 in interest income during the
six months ended June 30,  2003,  compared  with  $18,000  during the six months
ended  June 30,  2002.  The  interest  income is  related  primarily  to certain
interest-bearing bank accounts.

     Interest  expense.  The Company incurred  $232,000 and $200,000 in interest
expense  during  the six  months  ended  June 30,  2003 and 2002,  respectively,
related  primarily to borrowings under its line of credit.  Borrowings under the
line of credit were used to fund operating activities and the charges associated
with the proxy contest.  The increase in interest  expense results from slightly
higher average  outstanding  borrowings  under the line of credit during the six
months ended June 30, 2003.

     Other income (expense). Other income (expense) results primarily from gains
(losses) associated with changes in foreign currency exchange rates. The Company
reported  other  expense of $233,000  during the six months ended June 30, 2003,
compared with other income of $57,000 during the six months ended June 30, 2002.
The change results from foreign currency fluctuations.

     Provision  for income  taxes.  Despite an operating  loss, a provision  for
income  taxes of was  required  for the six months ended June 30, 2003 and 2002,
due to  taxable  income  in  certain  jurisdictions  combined  with a  valuation
allowance offsetting other loss benefits in other  jurisdictions.  The Company's
net  deferred  tax  asset  as of  June  30,  2003  relates  primarily  to the US
operations.  Based on anticipated  profitability in the near future,  management
believes it is more likely than not, that the deferred tax asset of $1.2 million
will be realized.

     In  1996,  the  Company  elected  a five  year tax  holiday  in  India,  in
accordance with a local tax incentive  program whereby no income tax will be due
in such period.  Such tax holiday was extended an additional five years in 1999.
Effective  April 1, 2000 pursuant to changes  introduced  by the Indian  Finance
Act, 2000, the tax holiday previously granted is no longer


                                     - 31 -
<PAGE>

available and has been replaced in the form of a tax  deduction  incentive.  The
impact  of this  change  is not  expected  to be  material  to the  consolidated
financial statements of the Company.  Effective April 1, 2002, the tax deduction
incentive  for income  from the  export of  software  and  related  services  is
restricted to 90% of such income.  Further,  domestic  revenue from software and
related  services  is taxable  in India.  Effective  April 1, 2003,  the 90% tax
deduction  incentive  restriction  was repealed  and the tax  incentive is again
available  for the  entire  amount of income  from the  export of  software  and
related  services.  For the six  months  ended June 30,  2003 and 2002,  the tax
holiday and tax deduction favorably impacted the Company's effective tax rate.

     The Company's Indian  subsidiary has received an assessment from the Indian
taxing  authority  denying tax  exemptions  claimed for certain  revenue  earned
during each of the fiscal years ended March 31, 1997 through March 31, 2000. The
assessment is for 28 million  rupees,  or  approximately  $600,000.  Management,
after  consultation  with its advisors,  believes the Company is entitled to the
tax exemption  claimed and thus has not recorded a provision for taxes  relating
to these items as of June 30, 2003. If the Company were not successful  with its
appeals,  which were filed in 2001 and 2002,  a future  charge of  approximately
$600,000 would be recorded and reflected in the Company's consolidated statement
of operations.

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

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

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

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

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

     o    Europe - includes the operations of the Company in Denmark, Sweden and
          the United Kingdom.  However,  the Company transitioned its operations
          in Sweden to Denmark as of January 1, 2003. The European  headquarters
          are located in Milton Keynes, United Kingdom; and

     o    Japan - includes the operations of the Company in Japan.  The Japanese
          headquarters are located in Tokyo, Japan.


                                     - 32 -
<PAGE>

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

     Three  months  Ended June 30, 2003  Compared to Three months Ended June 30,
2002

     The  following  discussion  compares  the segment  results  for  continuing
operations  for the three  months ended June 30, 2003 and the three months ended
June 30, 2002.

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

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED JUNE 30,
                              -------------------------------------------------------
                                       2003                        2002
                                       ----                        ----
                                           PERCENTAGE                      PERCENTAGE
                              DOLLARS       OF TOTAL         DOLLARS        OF TOTAL
                              -------       --------         -------        --------
<S>                         <C>              <C>            <C>              <C>
United States...........    $   21,861         78.1%        $  19,269          77.7%
India...................         3,743         13.4             3,543          14.3
Europe..................         1,584          5.6             1,444           5.8
Japan...................           817          2.9               550           2.2
                            ----------       --------       ---------        --------
Total...................    $   28,005        100.0%        $  24,806         100.0%
                            ==========       ========       =========        ========
</TABLE>

     US revenue increased by 13.5%, or $2.6 million,  from $19.3 million for the
three months ended June 30,  2002,  to $21.9  million for the three months ended
June 30, 2003. In 2002, the demand for the US services was  negatively  impacted
by the  challenging  and uncertain  economic  conditions,  which  precluded many
companies  from spending  resources on IT projects.  Subsequently,  beginning in
mid-to-late 2002, the US began to experience an increase in demand for services.
Accordingly,  the revenue growth results  directly from increased demand for the
majority of US services,  including  traditional  consulting  service offerings,
application management and support services and offshore development services.

     India  revenue  increased by 5.6%,  or $200,000,  from $3.5 million for the
three  months  ended June 30,  2002,  to $3.7 million for the three months ended
June 30, 2003. The increase was  attributable  primarily to increased demand for
services in the United States,  as a majority of the total revenue  generated in
India is derived from providing  offshore  development  and support  services to
customers  sourced through the Company's  affiliated  entities in other parts of
the world, but most predominantly with the United States.

     Europe  revenue  increased by 9.7%, or $140,000,  from $1.4 million for the
three  months  ended June 30,  2002,  to $1.6 million for the three months ended
June  30,  2003.  The  increase  was  attributable  primarily  to the  Company's
operations in Denmark (an increase of $381,000),  which was slightly offset by a
decrease  of  revenue  in the  Company's  operations  in the  United  Kingdom (a
decrease of $157,000)  and Sweden (a decrease of $84,000).  The  improvement  in
Denmark was attributable primarily to a general increase in demand for local SAP
services,  including  a  $2.0  million  implementation  contract  with  a  large
agricultural-based company. The

                                     - 33 -
<PAGE>

decrease in the United  Kingdom  results  primarily from efforts to maintain the
current  PeopleSoft  application  management  business  while only targeting new
engagements that can be delivered using India resources.  The decrease in Sweden
resulted primarily from challenging local economic conditions.  Accordingly, the
Company transitioned its operations in Sweden to Denmark as of January 1, 2003.

     Japan revenue  increased by 48.5% or $267,000,  from $550,000 for the three
months  ended June 30,  2002,  to $817,000  for the three  months ended June 30,
2003.  The  increase  was due  primarily  to stronger  demand for the  Company's
consulting services within the local SAP market.

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

                                                   THREE MONTHS ENDED JUNE 30,
                                                  -----------------------------
                                                    2003                 2002
                                                  --------            ---------

United States..........................           $  (470)            $ (8,150)
India..................................               205                  862
Europe.................................                84                 (352)
Japan..................................               147                 (408)
                                                  --------            ---------
Total..................................           $   (34)            $ (8,048)
                                                  ========            =========

     US operating  performance improved by $7.7 million,  from an operating loss
of $8.2 million for the three months ended June 30, 2002,  to an operating  loss
of  $470,000  for the three  months  ended June 30,  2003.  The  improvement  in
operating  performance  was  attributable  primarily to the  approximately  $8.4
million of SeraNova receivable  impairment and other charges incurred during the
three months ended June 30, 2002.

     India operating income  decreased by $657,000,  from $862,000 for the three
months  ended June 30,  2002,  to $205,000  for the three  months ended June 30,
2003.  The decrease  was  attributable  primarily  to an increase in  consultant
salaries (as a result of both increased  headcount and local market  adjustments
to base  consultant  salaries),  non-billable  consultant time and other related
costs  as well  as a  decrease  in  average  consultant  billing  rates.

     Europe operating  performance improved by $436,000,  from an operating loss
of $352,000 for the three months  ended June 30,  2002,  to operating  income of
$84,000  for  the  three  months  ended  June  30,  2003.  The  improvement  was
attributable primarily to an improvement in the operating performance of Denmark
(an improvement of $286,000) and Sweden (an improvement of $150,000).

     Japan operating performance improved by $555,000, from an operating loss of
$408,000  for the three  months  ended June 30,  2002,  to  operating  income of
$147,000  for the  three  months  ended  June  30,  2003.  The  improvement  was
attributable  primarily to management efforts to re-organize and restructure the
local  operations  during late 2002.  In  December  2002,  management  initiated
efforts to decrease total operating  expenses by reducing employee headcount and
eliminating  discretionary  expenditures  such as sales and marketing  programs,
training, etc.


                                     - 34 -
<PAGE>

     Six months Ended June 30, 2003 Compared to Six months Ended June 30, 2002

     The  following  discussion  compares  the segment  results  for  continuing
operations  for the six months ended June 30, 2003 and the six months ended June
30, 2002.

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

<TABLE>
<CAPTION>
                                             SIX MONTHS ENDED JUNE 30,
                              -------------------------------------------------------
                                       2003                        2002
                                       ----                        ----
                                           PERCENTAGE                      PERCENTAGE
                              DOLLARS       OF TOTAL         DOLLARS        OF TOTAL
                              -------       --------         -------        ---------
<S>                          <C>             <C>            <C>              <C>
United States...........     $   43,210        78.2%        $   36,738         76.8%
India...................          7,230        13.1              6,597         13.8
Europe..................          3,065         5.6              3,029          6.3
Japan...................          1,735         3.1              1,447          3.1
                             ----------      -------        ----------       --------
Total...................     $   55,240       100.0%        $   47,811        100.0%
                             ==========      =======        ==========       ========
</TABLE>

     US revenue increased by 17.6%, or $6.5 million,  from $36.7 million for the
six months ended June 30, 2002,  to $43.2  million for the six months ended June
30, 2003. In 2002, the demand for the US services was negatively impacted by the
challenging and uncertain  economic  conditions,  which precluded many companies
from spending resources on IT projects.  Subsequently,  beginning in mid-to-late
2002,   the  US  began  to  experience  an  increase  in  demand  for  services.
Accordingly,  the revenue growth results  directly from increased demand for the
majority of US services,  including  traditional  consulting  service offerings,
application management and support services and offshore development services.

     India revenue increased by 9.6%, or $633,000, from $6.6 million for the six
months  ended June 30,  2002,  to $7.2 million for the six months ended June 30,
2003. The increase was  attributable  primarily to increased demand for services
in the United States,  as a majority of the total revenue  generated in India is
derived from providing  offshore  development and support  services to customers
sourced through the Company's  affiliated  entities in other parts of the world,
but most predominantly with the United States.

     Europe revenue  approximated $3.0 million for the six months ended June 30,
2003 and 2002. The Company's operations in Denmark increased by $537,000,  while
the revenue in the United Kingdom and Sweden decreased by $268,000 and $232,000,
respectively. The improvement in Denmark was attributable primarily to a general
increase  in  demand  for  local  SAP   services,   including  a  $2.0   million
implementation contract with a large agricultural-based company. The decrease in
the United  Kingdom  results  primarily  from  efforts to  maintain  the current
PeopleSoft  application management business while only targeting new engagements
that can be delivered  using India  resources.  The decrease in Sweden  resulted
primarily from challenging local economic conditions.

     Japan revenue increased by 19.9% or $288,000, from $1.4 million for the six
months  ended June 30,  2002,  to $1.7 million for the six months ended June 30,
2003.  The  increase  was due  primarily  to stronger  demand for the  Company's
consulting services within the local SAP market.


                                     - 35 -
<PAGE>

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

                                                    SIX MONTHS ENDED JUNE 30,
                                                  -----------------------------
                                                    2003                 2002
                                                  --------            ---------
United States..........................           $ (6,019)           $ (8,035)
India..................................                698               1,345
Europe.................................                 81                (541)
Japan..................................                208                (525)
                                                  --------            ---------
Total..................................           $ (5,032)           $ (7,756)
                                                  =========           =========

     US operating  performance improved by $2.0 million,  from an operating loss
of $8.0 million for the six months ended June 30, 2002, to an operating  loss of
$6.0 million for the six months ended June 30, 2003. The $8.0 million  operating
loss was  attributable  primarily  to the $8.4  million of  SeraNova  receivable
impairment and other charges recorded during the six months ended June 30, 2002.
The $6.0 million  operating loss was attributable  primarily to the $5.1 million
of SeraNova  receivable  impairment  and other charges  recorded  during the six
months ended June 30, 2003.

     India operating income decreased by $647,000, from $1.3 million for the six
months ended June 30, 2002,  to $698,000 for the six months ended June 30, 2003.
The decrease was  attributable  primarily to an increase in consultant  salaries
(as a result of both  increased  headcount and local market  adjustments to base
consultant  salaries),  non-billable  consultant time and other related costs as
well as a decrease in average consultant billing rates.

     Europe operating  performance improved by $622,000,  from an operating loss
of $541,000  for the six months  ended June 30,  2002,  to  operating  income of
$81,000 for the six months ended June 30, 2003. The improvement was attributable
primarily  to an  improvement  in  the  operating  performance  of  Denmark  (an
improvement  of  $366,000),  the UK (an  improvement  of $32,000) and Sweden (an
improvement of $224,000).

     Japan operating performance improved by $733,000, from an operating loss of
$525,000 for the six months ended June 30, 2002, to operating income of $208,000
for the six  months  ended  June 30,  2003.  The  improvement  was  attributable
primarily  to  management  efforts  to  re-organize  and  restructure  the local
operations during late 2002. In December 2002,  management  initiated efforts to
decrease total operating expenses by reducing employee headcount and eliminating
discretionary expenditures such as sales and marketing programs, training, etc.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had cash and cash  equivalents of $2.3 million at June 30, 2003
and $1.2 million at December 31, 2002.  The Company had working  capital of $7.3
million at June 30, 2003 and $13.1 million at December 31, 2002.

     Cash provided by operating activities of continuing operations was $594,000
for the six months ended June 30, 2003,  resulting  primarily  from the SeraNova
receivable  impairment  and other  charges  of $5.1  million,  depreciation  and
amortization of $1.8 million, a decrease in



                                     - 36 -
<PAGE>

accounts  receivable  of $1.3  million and an  increase  in accrued  payroll and
related taxes of $1.3 million.  These amounts were  partially  offset by the net
loss and increases in unbilled services of $1.4 million and other current assets
of $1.2  million.  The  changes  in  operating  assets  and  liabilities  result
primarily  from timing  differences.  Cash  provided by operating  activities of
continuing operations for the six months ended June 30, 2002 was $1.1 million.

     The  Company  invested   $839,000  and  $798,000  in  computer   equipment,
internal-use  computer software and office furniture and fixtures during the six
months  ended  June 30,  2003  and  2002,  respectively.  The  increase  results
primarily  from the  replacement  of computer  equipment and the  development of
certain internal-use software.

     On May 31, 2000, the Company and PNC Bank, N.A. (the "Bank") entered into a
three-year  revolving  credit  facility.  Such credit facility is comprised of a
revolving  line of credit  pursuant  to which  the  Company  could  borrow up to
$20,000,000  either  at the  Bank's  prime  rate per annum or the Euro Rate plus
1.75%  to 2.5%  based  upon  the  Company's  ratio  of debt to  earnings  before
interest, taxes,  depreciation and amortization ("EBITDA").  The credit facility
is  collateralized  by  substantially  all of the assets of the Company's United
States based operations.  The maximum borrowing  availability  under the line of
credit is based upon a  percentage  of  eligible  billed and  unbilled  accounts
receivable,  as  defined.  As of June 30,  2003,  the  Company  had  outstanding
borrowings  under the credit  facility of $7.3  million.  The Company  estimates
undrawn availability under the credit facility to be $6.6 million as of June 30,
2003. As of December 31, 2002, the Company had outstanding  borrowings under the
credit facility of $6.1 million.

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

     In March 2002,  the Company  finalized  with the Bank the terms of a waiver
and  amendment to the credit  agreement.  The terms of the waiver and  amendment
included,  among  other  things,  (1) a waiver of the  covenant  defaults  as of
December 31, 2001, (2) a modification to the financial covenants, as of December
31, 2002 only, to require that  consolidated  net worth and  unconsolidated  net
worth as of December 31, 2002 be not less than 102% of consolidated net


                                     - 37 -
<PAGE>

worth and unconsolidated net worth, respectively, as of December 31, 2001, (3) a
modification  to  the  consolidated  net  worth  and  unconsolidated  net  worth
covenants to exclude any changes to  consolidated  net worth and  unconsolidated
net worth  resulting  from the write-down or write-off of up to $10.8 million of
the note due from SeraNova,  and (4) a new financial covenant requiring that the
Company generate EBITDA of at least 90% of the prior year's EBITDA.

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

     As a result of the SeraNova receivable impairment and other related charges
and the Proxy Contest charges  incurred during the quarter ended March 31, 2003,
the  Company  was  not  in   compliance   with  the   consolidated   net  worth,
unconsolidated  net worth and EBITDA  covenants  as of March 31,  2003.  In July
2003, the Company  executed with the Bank an amendment to the credit  agreement.
The terms of the amendment included,  among other things, (1) a 3-year extension
of the credit facility to May 31, 2006, (2) a reduction of the maximum revolving
advance amount under the credit  facility to $15.0 million,  (3) a waiver of the
covenant  defaults  existing as of March 31,  2003,  (4) a  modification  to the
definitions  of total  stockholders'  equity  and  unconsolidated  stockholders'
equity  (for  purposes  of  computing   related   covenant   compliance)  and  a
modification  to the  computation  of minimum  EBITDA to exclude  Proxy  Contest
charges of $297,000 for the quarter  ended March 31, 2003 only,  (5) an increase
in the minimum EBITDA  covenants to $1.3 million,  $1.8 million and $1.9 million
for  the  second,  third  and  fourth  quarters  2003,  respectively,  and (6) a
modification  to  the  consolidated  net  worth  and  unconsolidated  net  worth
covenants to exclude any changes to  consolidated  net worth and  unconsolidated
net worth  resulting  from the write-down or write-off of up to $13.6 million of
the note due from SeraNova.

     As a result of the charge  incurred  during the quarter ended June 30, 2003
related to the  guarantee of SeraNova  debt,  the Company was not in  compliance
with  the  EBITDA  covenant  as of June  30,  2003.  The  Company  is  currently
negotiating  with the Bank and  expects  to  receive  a waiver  of the  existing
covenant default.  There can be no assurance,  however, that the Company will be
able to obtain a waiver to the agreement on terms acceptable to the Company,  if
at all.

     On May 31,  2000,  SeraNova  and the  Company  formalized  a $15.1  million
unsecured  promissory  note (the "Note")  relating to net borrowings by SeraNova
from the Company  through such date.  The Note bears  interest at the prime rate
plus 1/2%.


                                     - 38 -
<PAGE>

     SeraNova  failed to make final payment of all amounts due under the Note to
the  Company  as of July 31,  2001.  On August 16,  2001,  the  Company  filed a
complaint  against  SeraNova  and  Silverline.  As of such  date,  SeraNova  was
obligated  to pay to the Company the  remaining  principal  (approximately  $9.1
million) and accrued interest  (approximately $1.0 million),  or an aggregate of
$10.1  million.  On September 25, 2001,  SeraNova and  Silverline  filed a joint
Answer to the Company's  complaint.  In addition,  SeraNova filed a counterclaim
against the Company for  unspecified  damages as a set-off against the Company's
claims.  Thereafter,  in response to the  Company's  request for a statement  of
damages,  SeraNova stated that it was in the process of calculating its damages,
but for informational  purposes claimed  compensatory  damages in excess of $5.5
million and punitive  damages in the amount of $10.0  million.  The parties have
completed the discovery  process and the Company has moved for summary judgment.
On April 17,  2003,  the Court  granted  partial  summary  judgment and required
supplemental  briefing  on certain  issues.  On July 11,  2003,  the Court heard
arguments on the Company's renewed motion for summary judgment and dismissed the
defendant's  counterclaims seeking compensatory and punitive damages. Although a
trial date has been scheduled for September 16, 2003, counsel for defendants has
filed a motion to be relieved as counsel based upon  defendants'  failure to pay
their counsel fees.

     In addition,  SeraNova failed to pay certain  outstanding lease obligations
to the Company's landlords.  Accordingly, on March 4, 2002, the Company filed an
arbitration  demand  with  the  American  Arbitration  Association  against  the
SeraNova Group. The demand for arbitration,  which sought damages, alleged among
other things that the SeraNova Group failed to pay outstanding lease obligations
to the  Company's  landlords  and to reimburse the Company for all rent payments
made by the Company on their behalf. An arbitration hearing was held on June 25,
2002 and June 28, 2002 seeking  $525,000 in outstanding  lease  obligations.  On
August 9,  2002,  an award  was  issued in the  amount  of  $616,905  (including
attorney's  fees) plus  reimbursement  of  administrative  fees, in favor of the
Company and against the SeraNova Group jointly and severally. In an action filed
in the Superior  Court of New Jersey,  the Court  confirmed the $624,000  award,
jointly and severally as to the SeraNova  Group,  and issued a writ of execution
against the SeraNova Group's assets. The Sheriff of Middlesex County levied this
writ of execution  on October 8, 2002 against a bank account held by  Silverline
Technologies,  Inc. On October 16, 2002,  pursuant to this writ, the bank turned
over $626,247 to the Sheriff.  On November 6, 2002 the Sheriff sent the funds to
the Company's  attorneys  and the funds were  deposited  into an attorney  trust
account on November 8, 2002.  On December  13,  2002,  the Company  commenced an
action in the  Superior  Court of New  Jersey,  Chancery  Division,  to  recover
additional  amounts due and owing from the SeraNova Group under the  Arbitration
Award  and to  determine  whether  HSBC Bank USA  ("HSBC"),  a  creditor  of the
SeraNova Group, has priority to the funds levied upon by the Sheriff. On January
31, 2003,  the Court entered  judgment in the  Company's  favor in the amount of
$218,805,  representing the SeraNova Group's  additional  unpaid rent arrearages
under the arbitration award. On February 28, 2003, the Court entered judgment in
the  Company's  favor in the  amount of  $220,415,  representing  the  Company's
attorney's fees in connection with the Company's efforts to enforce the SeraNova
Group's  obligations  under the arbitration  award. On March 10, 2003, the Court
ordered HSBC to produce  discovery  proving its  priority to the $626,247  being
held in trust.  Thereafter,  the  Company  and HSBC  entered  into a  settlement
agreement  only as to the  $626,247  being  held in trust  whereby  the  Company
remitted $570,228 to HSBC, and the remaining funds were released


                                     - 39 -
<PAGE>

to the Company. The Company does not believe that the outcome of this claim will
have a materially adverse effect on the Company's business,  financial condition
or results of operations.

     The Company is  continuing  to pursue its various  legal  options to obtain
payment from the SeraNova Group on the Note and outstanding  lease  obligations.
At the same time, the Company has also been periodically  engaged in discussions
with management of the SeraNova  Group,  with the objective of seeking an out of
court  resolution to all  outstanding  matters  involving the Note,  and certain
other receivables and lease obligations.  However, the Company believed that the
liquidity  issues  plaguing the SeraNova Group  required a  reassessment  of the
realizability  of these  outstanding  amounts as of June 30,  2002.  Although no
final  resolution had been reached,  the Company  believed that the substance of
these  discussions  provided a basis for determining the approximate  realizable
value of the Note and other  receivables,  as well as an  estimate  of the costs
required to exit certain lease obligations.

     Accordingly,  the Company  recorded  $8.4  million of  SeraNova  receivable
impairment  and other  charges as of June 30,  2002.  Specifically,  the Company
recorded a $5.1 million  charge to write-down  the carrying value of the Note to
$4.0  million.  Additionally,  the  Company  recorded a $1.3  million  charge to
write-off the carrying value of other SeraNova receivables  (primarily,  accrued
interest  on the Note and a  receivable  for a system  implementation  project).
Also,  the Company  recorded a charge of $1.5  million  for  certain  lease exit
costs. Such charge represents primarily an accrued liability for obligated space
and equipment  costs for which the Company  currently  believes it cannot use or
sublease and the  differential  between  certain  Company lease  obligations and
sublease  amounts to be received.  As of December 31, 2002,  $1.3 million of the
liability  remains  outstanding,  of which  $1.0  million is  included  in other
long-term liabilities.

     As of March 31,  2003,  the  Company  believed  there had been an  apparent
deterioration in the financial condition of the SeraNova Group. Accordingly, the
Company re-assessed,  as of March 31, 2003, the likelihood of recovering amounts
owed by the SeraNova  Group as well as the  assumptions  used in  recording  the
original lease obligation charge. Additionally,  the Company was notified during
the first quarter of 2003 of its obligation to pay  additional  office space and
equipment  rentals,  which  had been  previously  assigned  to  SeraNova  by the
Company, because the SeraNova Group had failed to make the required payments.

     Although the Company  expects to pursue the full legal  prosecution  of the
SeraNova  Group,  the  Company  recorded  $5.1  million  of  additional  charges
associated  with the Note and certain other related issues during the six months
ended June 30, 2003. The Company  recognized an additional  impairment charge of
$4.0  million  related  to the Note,  approximately  $321,000  related  to other
assets,   approximately  $474,000  in  costs  required  to  exit  certain  lease
obligations  and $265,000 in legal fees. The Company has determined  that due to
the apparent  financial  condition of the  SeraNova  Group that  recovery of the
SeraNova Note is not probable.


                                     - 40 -
<PAGE>

<TABLE>
<CAPTION>
                                      WRITE-DOWN    WRITE-OFF        LEASE
                                       OF NOTE      OF OTHER      OBLIGATIONS    LEGAL AND
                                      RECEIVABLE   RECEIVABLES        AND          OTHER
                                      - SERANOVA    - SERANOVA    SETTLEMENTS     CHARGES         TOTAL
                                     -----------   -----------    -----------    ----------    -----------

<S>                                  <C>           <C>            <C>            <C>           <C>
Charges to operations during 2002..  $ 5,140,000   $ 1,257,000    $ 1,501,000    $ 464,000     $ 8,362,000
Costs paid during 2002.............           --            --       (361,000)    (318,000)       (679,000)
Non-cash items.....................   (5,140,000)   (1,257,000)            --          --       (6,397,000)
                                     -----------   -----------    -----------    ---------     -----------
Accrued  costs as of December 31,
2002...............................           --            --      1,140,000      146,000       1,286,000

Charges to operations during 2003..    4,000,000            --        795,000      265,000       5,060,000
Costs paid during 2003.............           --            --       (644,000)    (234,000)       (878,000)
Non-cash items.....................   (4,000,000)           --             --           --      (4,000,000)
                                     -----------   -----------    -----------    ---------     -----------

Accrued costs as of June 30, 2003..  $        --   $        --    $ 1,291,000    $ 177,000     $ 1,468,000
                                     ===========   ===========    ===========    =========     ===========
</TABLE>

     As of June 30, 2003, $1.5 million of the liability remains outstanding,  of
which $873,000 is included in other long-term  liabilities.  The Company expects
to pay out this liability through 2008.

CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

     The following  tables summarize the Company's  contractual  obligations and
other commercial commitments as of June 30, 2003:

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

<S>                            <C>            <C>           <C>           <C>           <C>
Revolving Credit Facility      $ 7,325,000    $7,325,000    $       --    $       --    $     --
Capital Lease Obligations          165,000        96,000        69,000            --          --
Operating Lease Obligations      8,203,000     1,149,000     4,956,000     2,098,000          --
Other Liabilities                1,468,000       595,000       535,000       338,000          --
                               -----------    ----------    ----------    ----------    --------
Total Contractual Obligations  $17,161,000    $9,165,000    $5,560,000    $2,436,000    $     --
                               ===========    ==========    ==========    =========     ========
</TABLE>

     The Company uses its $15.0 million  revolving credit facility with PNC Bank
to fund the working  capital needs of the business;  therefore,  the outstanding
borrowings under the credit facility fluctuate accordingly.  The credit facility
is  collateralized by substantially all of the assets of the United States based
operations. The maximum borrowing availability under the line of credit is based
upon a  percentage  of eligible  billed and  unbilled  accounts  receivable,  as
defined.  As of June 30, 2003, the Company had outstanding  borrowings under the
credit  facility of $7.3 million.  The Company  estimates  undrawn  availability
under the credit facility to be $6.6 million as of June 30, 2003. As of December
31, 2002, the Company had  outstanding  borrowings  under the credit facility of
$6.1 million.

     As a result of the charge  incurred  during the quarter ended June 30, 2003
related to the  guarantee of SeraNova  debt,  the Company was not in  compliance
with  the  EBITDA  covenant  as of June  30,  2003.  The  Company  is  currently
negotiating  with the Bank and  expects  to  receive  a waiver  of the  existing
covenant default.  There can be no assurance,  however, that the Company will be
able to obtain a waiver to the agreement on terms acceptable to the Company,  if
at all.


                                     - 41 -
<PAGE>

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

     The Company's 2003 operating plan contains  assumptions  regarding  revenue
and  expenses.  The  achievement  of the operating  plan depends  heavily on the
timing of work performed by the Company on existing  projects and the ability of
the Company to gain and perform  work on new  projects.  Project  cancellations,
delays in the timing of work  performed  by the Company on existing  projects or
the inability of the Company to gain and perform work on new projects could have
an adverse  impact on the Company's  ability to execute its  operating  plan and
maintain  adequate  cash  flow.  In the  event  actual  results  do not meet the
operating  plan,  management  believes  it could  execute  contingency  plans to
mitigate such effects.  Such plans include additional cost reductions or seeking
additional financing.  Considering the cash on hand, the remaining  availability
under the credit facility and based on the achievement of the operating plan and
management's  actions taken to date,  management  believes it has the ability to
continue to generate  sufficient  cash to satisfy its operating  requirements in
the  normal  course  of  business.  However,  no  assurance  can be  given  that
sufficient cash will be generated from operations.

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

COMMITMENTS

     Beginning in late 2001,  SeraNova failed to pay certain  outstanding  lease
obligations  to the  Company's  landlords.  Accordingly,  on March 4, 2002,  the
Company filed an arbitration  demand with the American  Arbitration  Association
against the SeraNova Group.  The demand for  arbitration,  which sought damages,
alleged  among other  things that the SeraNova  Group failed to pay  outstanding
lease  obligations  to the Company's  landlords and to reimburse the Company for
all rent payments made by the Company on their behalf.  An  arbitration  hearing
was held on June 25, 2002 and June 28,  2002  seeking  $525,000  in  outstanding
lease  obligations.  On August 9,  2002,  an award was  issued in the  amount of
$616,905 (including  attorney's fees) plus reimbursement of administrative fees,
in favor of the Company and against the SeraNova Group jointly and severally. In
an action filed in the Superior  Court of New Jersey,  the Court  confirmed  the
$624,000  award,  jointly and severally as to the SeraNova  Group,  and issued a
writ of execution against the SeraNova Group's assets.  The Sheriff of Middlesex
County  levied this writ of  execution on October 8, 2002 against a bank account
held by  Silverline  Technologies,  Inc. On October 16,  2002,  pursuant to this
writ,  the bank turned over  $626,247  to the  Sheriff.  On November 6, 2002 the
Sheriff sent the funds to the Company's  attorneys and the funds were  deposited
into an attorney  trust account on November 8, 2002.  On December 13, 2002,  the
Company  commenced  an  action in the  Superior  Court of New  Jersey,  Chancery
Division,  to recover  additional  amounts due and owing from the SeraNova Group
under the  Arbitration  Award and to determine  whether  HSBC, a creditor of the
SeraNova Group, has priority to the funds levied upon by the Sheriff. On January
31, 2003,  the Court entered  judgment in the  Company's  favor in the amount of
$218,805,  representing the SeraNova Group's  additional  unpaid rent arrearages
under the arbitration award. On February 28, 2003, the Court entered judgment in
the  Company's  favor in the  amount of  $220,415,  representing  the  Company's
attorney's fees in connection with the Company's efforts to enforce the SeraNova
Group's


                                     - 42 -
<PAGE>

obligations  under the  arbitration  award. On March 10, 2003, the Court ordered
HSBC to produce  discovery  proving its priority to the  $626,247  being held in
trust. Thereafter, the Company and HSBC entered into a settlement agreement only
as to the $626,247 being held in trust whereby the Company remitted  $570,228 to
HSBC, and the remaining funds were released to the Company. The Company does not
believe that the outcome of this claim will have a materially  adverse effect on
the Company's business, financial condition or results of operations.

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

     On January 30, 2003, CA Metro Center Limited  Partnership filed a complaint
in the Superior  Court of California,  County of San Mateo,  against the Company
and SeraNova as defendants.  The Complaint  seeks damages against the defendants
in the amount of $186,312 for breach of a lease agreement  relating to the lease
of premises occupied by SeraNova. The plaintiff granted the Company an extension
of time in which to answer the complaint while the parties engaged in settlement
discussions.  The  parties  have  executed a  settlement  agreement  whereby the
Company will pay an aggregate of $160,000 over time, with the last payment being
due on or before November 30, 2003. The Company has paid an aggregate of $85,000
during the six months ended June 30, 2003. The Company has accrued the remaining
balance of $75,000 in the consolidated balance sheet as of June 30, 2003.

     During 2002,  SeraNova failed to pay certain  obligations under a telephone
equipment lease agreement, which the Company assigned to SeraNova in February of
2001. On March 12, 2003, CIT Communications  Finance Corporation ("CIT") filed a
complaint in the Superior  Court of New Jersey,  Law  Division,  Morris  County,
against  Intelligroup and SeraNova,  jointly and severally,  as defendants.  The
complaint,  which seeks damages,  alleges among other things that the defendants
failed to pay outstanding lease obligations in the amount of $217,899.  In March
2003,  the  parties  executed a  settlement  agreement  whereby  the Company was
obligated to pay to CIT an  aggregate of $127,000.  The Company paid such amount
to CIT in May 2003.

     By letter dated May 12, 2003, Zions First National Bank ("Zions")  informed
the Company that Network Publishing,  Inc., a former wholly-owned  subsidiary of
the  Company,  which  became a  wholly-owned  subsidiary  of  SeraNova  upon the
spin-off of SeraNova by the Company in 2000,  was  delinquent  on a loan made by
Zions and guaranteed by the Company. Zions is demanding payment of $535,608 from
the Company, plus interest accrued from April 1, 2002. The Company has requested
documentation   from  Zions.   Zions   requested  that  the  Company  execute  a
confidentiality  agreement  before  providing  the  documentation.  The  Company
intends  to  investigate  Zion's  claims  upon  receipt  of such  documentation.
However,   the  Company   could  have  a  liability  in  this  matter  once  all
documentation  is provided  by Zions.  Accordingly,  the Company has  recorded a
$581,000  provision  for the  guarantee  of  SeraNova  debt in the  consolidated
statement of operations during the three months ended June 30, 2003.


                                     - 43 -
<PAGE>

EUROPEAN MONETARY UNION (EMU)

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

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4.     CONTROLS AND PROCEDURES

     The Company's management, with the participation of the Company's President
and Chief Executive Officer and Senior Vice President-Finance and Administration
and Chief  Financial  Officer,  evaluated  the  effectiveness  of the  Company's
disclosure  controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange  Act) as of June 30, 2003. In designing  and  evaluating  the
Company's  disclosure  controls and procedures,  management  recognized that any
controls and procedures,  no matter how well designed and operated,  can provide
only  reasonable   assurance  of  achieving  their   objectives  and  management
necessarily applied its judgment in evaluating the cost-benefit  relationship of
possible  controls  and  procedures.  Based on this  evaluation,  the  Company's
President  and Chief  Executive  Officer and Senior Vice  President-Finance  and
Administration  and Chief Financial Officer concluded that, as of June 30, 2003,
the Company's  disclosure  controls and  procedures  were (1) designed to ensure
that material  information  relating to the Company,  including its consolidated
subsidiaries,  is made  known to the  Company's  President  and Chief  Executive
Officer and Senior Vice President-Finance and Administration and Chief Financial
Officer by others within those entities, particularly during the period in which
this  report  was  being  prepared  and  (2)  effective,  in that  they  provide
reasonable assurance that information required to be disclosed by the Company in
the  reports  that it files or  submits  under  the  Exchange  Act is  recorded,
processed,  summarized  and reported  within the time  periods  specified in the
SEC's rules and forms.

     No change in the Company's  internal  control over financial  reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during
the fiscal  quarter  ended June 30,  2003 that has  materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.


                                     - 44 -
<PAGE>

PART II.    OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

     On February 7, 2001, NSA Investments II LLC filed a complaint in the United
States District Court for the District of  Massachusetts  naming,  among others,
SeraNova,  the Company and Rajkumar Koneru, a former director of the Company, as
defendants.  The  plaintiff  alleges that it invested  $4,000,000 in SeraNova as
part of a private placement of SeraNova common stock in March 2000, prior to the
spin-off of SeraNova by the Company. The complaint, which seeks compensatory and
punitive  damages,  alleges  that the  Company,  as a  "controlling  person"  of
SeraNova,  is  jointly  and  severally  liable  with and to the same  extent  as
SeraNova  for false  and  misleading  statements  constituting  securities  laws
violations and breach of contract.  After being served with the  complaint,  the
Company made a request for indemnification from SeraNova pursuant to the various
inter-company  agreements in connection with the spin-off. By letter dated April
13, 2001,  SeraNova's  counsel,  advised the Company that SeraNova  acknowledged
liability for such indemnification  claims and has elected to assume the defense
of the  plaintiff's  claims.  In October 2001,  the motion to dismiss,  filed on
behalf of the Company in May 2001, was denied without prejudice to refile at the
close of the discovery period. Court-ordered mediation between the plaintiff and
SeraNova  during  January and February 2002 was  unsuccessful.  In January 2002,
plaintiff  filed a motion for  partial  summary  judgment  as to certain  claims
against SeraNova.  No summary judgment motion was filed against the Company.  On
September  30,  2002,  the Court  granted  plaintiff's  motion in part,  finding
SeraNova liable for breach of contract as a matter of law. The parties  executed
a settlement  agreement,  which became  effective upon payment of the settlement
amount.  The  Company  paid its  portion of the  settlement  amount  equal to an
aggregate amount of $50,000 in April 2003.

     On August 16, 2001,  the Company filed a complaint in the Superior Court of
New Jersey, Middlesex County, against SeraNova, Inc. and Silverline Technologies
Limited,  which  acquired  SeraNova in March 2001.  The  complaint,  which seeks
damages,  alleges among other things that  SeraNova  failed to pay amounts owing
under (i) an unsecured promissory note totaling  $10,079,717,  and (ii) a system
implementation  project totaling $511,573.  On September 25, 2001,  SeraNova and
Silverline  filed  a joint  Answer  to the  Company's  complaint.  In  addition,
SeraNova filed a counterclaim  against the Company for unspecified  damages as a
set-off against the Company's claims.  Thereafter,  in response to the Company's
request for a statement of damages,  SeraNova  stated that it was in the process
of calculating its damages, but for informational  purposes claimed compensatory
damages  in  excess  of  $5,500,000  and  punitive  damages  in  the  amount  of
$10,000,000.  The parties have  completed the discovery  process and the Company
moved for summary judgment. On April 17, 2003, the Court granted partial summary
judgment and required supplemental briefing on certain issues. On July 11, 2003,
the Court heard arguments on the Company's  renewed motion for summary  judgment
and dismissed the defendant's  counterclaims  seeking  compensatory and punitive
damages.  Although a trial  date has been  scheduled  for  September  16,  2003,
counsel for  defendants  has filed a motion to be relieved as counsel based upon
defendants' failure to pay their counsel fees.

     Beginning in late 2001,  SeraNova failed to pay certain  outstanding  lease
obligations  to the  Company's  landlords.  Accordingly,  on March 4, 2002,  the
Company filed an arbitration  demand with the American  Arbitration  Association
against the SeraNova Group. The demand


                                     - 45 -
<PAGE>

for  arbitration,  which  sought  damages,  alleged  among other things that the
SeraNova  Group failed to pay  outstanding  lease  obligations  to the Company's
landlords and to reimburse the Company for all rent payments made by the Company
on their behalf.  An arbitration  hearing was held on June 25, 2002 and June 28,
2002 seeking $525,000 in outstanding  lease  obligations.  On August 9, 2002, an
award was  issued in the amount of  $616,905  (including  attorney's  fees) plus
reimbursement  of  administrative  fees, in favor of the Company and against the
SeraNova Group jointly and  severally.  In an action filed in the Superior Court
of New Jersey, the Court confirmed the $624,000 award,  jointly and severally as
to the  SeraNova  Group,  and issued a writ of  execution  against the  SeraNova
Group's assets. The Sheriff of Middlesex County levied this writ of execution on
October 8, 2002 against a bank account held by Silverline Technologies,  Inc. On
October 16, 2002,  pursuant to this writ,  the bank turned over  $626,247 to the
Sheriff.  On  November  6,  2002 the  Sheriff  sent the  funds to the  Company's
attorneys  and the funds  were  deposited  into an  attorney  trust  account  on
November 8, 2002. On December 13, 2002,  the Company  commenced an action in the
Superior Court of New Jersey,  Chancery Division,  to recover additional amounts
due and  owing  from the  SeraNova  Group  under  the  Arbitration  Award and to
determine whether HSBC Bank USA ("HSBC"),  a creditor of the SeraNova Group, has
priority to the funds levied upon by the Sheriff. On January 31, 2003, the Court
entered judgment in the Company's favor in the amount of $218,805,  representing
the SeraNova  Group's  additional  unpaid rent arrearages  under the arbitration
award.  On February 28, 2003, the Court entered  judgment in the Company's favor
in the  amount  of  $220,415,  representing  the  Company's  attorney's  fees in
connection  with  the  Company's   efforts  to  enforce  the  SeraNova   Group's
obligations  under the  arbitration  award. On March 10, 2003, the Court ordered
HSBC to produce  discovery  proving its priority to the  $626,247  being held in
trust. Thereafter, the Company and HSBC entered into a settlement agreement only
as to the $626,247 being held in trust whereby the Company remitted  $570,228 to
HSBC, and the remaining funds were released to the Company. The Company does not
believe that the outcome of this claim will have a materially  adverse effect on
the Company's business, financial condition or results of operations.

     On June 14, 2002,  the Company  filed a complaint in the Superior  Court of
New Jersey,  Mercer  County,  against  Ashok Pandey,  a  shareholder  and former
officer and  director of the  Company.  The  complaint,  which seeks  damages in
excess of $400,000,  alleges among other things that Mr. Pandey breached certain
terms and conditions of a separation  agreement he entered into with the Company
and that Mr. Pandey has been unjustly enriched in an amount of $350,000 from the
Company.  Mr. Pandey has filed an Answer to the Company's  complaint denying the
Company's  claims.  On June 6, 2003, the Court granted summary judgment in favor
of the Company on all counts of the  complaint and Mr. Pandey did not oppose the
Company's  motion for  attorney's  fees. On August 7, 2003,  the Company and Mr.
Pandey  executed a settlement  agreement  relating to, among other  things,  the
litigation matters between them.

     On June 26,  2002,  Ashok  Pandey  filed a Complaint  in the United  States
District   Court  for  the  District  of  New  Jersey,   alleging  that  certain
shareholders  of the Company  constituted  a group that held more than 5% of the
outstanding  shares of the  Company's  common stock and had not filed a Schedule
13D disclosure  statement with the Securities and Exchange  Commission.  On June
28, 2002, plaintiff obtained an ex parte injunctive order from the Court barring
Srini Raju, an alleged member of the "group" and a shareholder  holding 4.61% of
the Company's  common  stock,  from voting in the annual  election.  On July 12,
2002,  after  reviewing  actual  evidence of record,  and hearing  argument from
Pandey's counsel, the Court held that there was no basis to


                                     - 46 -
<PAGE>

enjoin  Mr.  Raju from  voting  his  shares  at the  Annual  Meeting.  After the
election,   Pandey  sought  to  file  an  amended  complaint   dropping  certain
defendants, and adding others, including the Company. On September 27, 2002, the
Court granted  plaintiff's  motion,  and allowed  certain  limited  discovery to
proceed.  On October 11,  2002,  the Company  filed a motion for Judgment on the
Pleadings  in its  favor,  arguing  that the  relief  sought by  plaintiff,  the
retroactive sterilization of Mr. Raju's shares and the invalidation of his votes
at the Annual Meeting, is not sanctioned by law, and is unavailable as a remedy.
In  response,  Pandey  filed a motion  seeking  leave  to file a Second  Amended
Complaint,  seeking to drop the  Section  13D claims  against  the  Company  and
substitute  them with claims  brought  under Section 14A of the  Securities  and
Exchange  Act.  On January  31,  2003,  the Court  denied  each of the  parties'
motions.  On August 7, 2003,  the Company and Mr.  Pandey  executed a settlement
agreement relating to, among other things, the litigation matters between them.

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

     On July 3,  2002,  the  Company  filed a  complaint  in the  United  States
District  Court for the  District  of New  Jersey,  naming  Ashok  Pandey,  TAIB
Securities,  Inc.,  Beechrock  Holdings  Limited and Braydon Holdings Limited as
defendants.  The  complaint  alleges,  among other things,  that the  defendants
violated  federal  securities laws in connection with the Company's recent proxy
contest.  The defendants have filed an Answer to the Company's complaint denying
the Company's  claims.  On August 7, 2003, the Company and Mr. Pandey executed a
settlement  agreement  relating to, among other things,  the litigation  matters
between them.

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


                                     - 47 -
<PAGE>

     On January 30, 2003, CA Metro Center Limited  Partnership filed a complaint
in the Superior  Court of California,  County of San Mateo,  against the Company
and SeraNova as defendants.  The Complaint  seeks damages against the defendants
in the amount of $186,312 for breach of a lease agreement  relating to the lease
of premises occupied by SeraNova. The plaintiff granted the Company an extension
of time in which to answer the complaint while the parties engaged in settlement
discussions.  The  parties  have  executed a  settlement  agreement  whereby the
Company will pay an aggregate of $160,000 over time, with the last payment being
due on or before November 30, 2003. The Company has paid an aggregate of $85,000
during the six months ended June 30, 2003. The Company has accrued the remaining
balance of $75,000 in the consolidated balance sheet as of June 30, 2003.

     During 2002,  SeraNova failed to pay certain  obligations under a telephone
equipment lease agreement, which the Company assigned to SeraNova in February of
2001. On March 12, 2003, CIT Communications  Finance Corporation ("CIT") filed a
complaint in the Superior  Court of New Jersey,  Law  Division,  Morris  County,
against  Intelligroup and SeraNova,  jointly and severally,  as defendants.  The
complaint,  which seeks damages,  alleges among other things that the defendants
failed to pay outstanding lease obligations in the amount of $217,899.  In March
2003,  the  parties  executed a  settlement  agreement  whereby  the Company was
obligated to pay to CIT an  aggregate of $127,000.  The Company paid such amount
to CIT in May 2003.

     By letter dated May 12, 2003, Zions First National Bank ("Zions")  informed
the Company that Network Publishing,  Inc., a former wholly-owned  subsidiary of
the  Company,  which  became a  wholly-owned  subsidiary  of  SeraNova  upon the
spin-off of SeraNova by the Company in 2000,  was  delinquent  on a loan made by
Zions and guaranteed by the Company. Zions is demanding payment of $535,608 from
the Company, plus interest accrued from April 1, 2002. The Company has requested
documentation   from  Zions.   Zions   requested  that  the  Company  execute  a
confidentiality  agreement  before  providing  the  documentation.  The  Company
intends  to  investigate  Zion's  claims  upon  receipt  of such  documentation.
However,   the  Company   could  have  a  liability  in  this  matter  once  all
documentation  is provided  by Zions.  Accordingly,  the Company has  recorded a
$581,000  provision  for the  guarantee  of  SeraNova  debt in the  consolidated
statement of operations during the three months ended June 30, 2003.

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


                                     - 48 -
<PAGE>

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

     On May 31, 2000, the Company and PNC Bank, N.A. (the "Bank") entered into a
three-year  revolving  credit facility.  As a result of the SeraNova  receivable
impairment  and other  related  charges and the Proxy Contest  charges  incurred
during the quarter ended March 31, 2003, the Company was not in compliance  with
the consolidated net worth,  unconsolidated net worth and EBITDA covenants as of
March 31, 2003. In July 2003, the Company executed with the Bank an amendment to
the credit agreement.  The terms of the amendment included,  among other things,
(1) a 3-year  extension of the credit  facility to May 31, 2006, (2) a reduction
of the  maximum  revolving  advance  amount  under the credit  facility to $15.0
million,  (3) a waiver of the covenant  defaults  existing as of March 31, 2003,
(4)  a  modification  to  the  definitions  of  total  stockholders  equity  and
unconsolidated  stockholders  equity (for purposes of computing related covenant
compliance)  and a modification  to the computation of minimum EBITDA to exclude
Proxy Contest charges of $297,000 for the quarter ended March 31, 2003 only, (5)
an increase in the minimum  EBITDA  covenants to $1.3 million,  $1.8 million and
$1.9 million for the second, third and fourth quarters 2003,  respectively,  and
(6) a modification to the  consolidated net worth and  unconsolidated  net worth
covenants to exclude any changes to  consolidated  net worth and  unconsolidated
net worth  resulting  from the write-down or write-off of up to $13.6 million of
the note due from SeraNova.

     As a result of the charge  incurred  during the quarter ended June 30, 2003
related to the  guarantee of SeraNova  debt,  the Company was not in  compliance
with  the  EBITDA  covenant  as of June  30,  2003.  The  Company  is  currently
negotiating  with the Bank and  expects  to  receive  a waiver  of the  existing
covenant default.  There can be no assurance,  however, that the Company will be
able to obtain a waiver to the agreement on terms acceptable to the Company,  if
at all.

ITEM 5.     OTHER INFORMATION

     On April 2, 2003, the Company  consummated the sale,  effective as of March
1,  2003,  of its  Asia-Pacific  group of  subsidiary  companies,  operating  in
Australia,  New Zealand,  Singapore,  Hong Kong and Indonesia to Soltius  Global
Solutions PTE Ltd, a Singapore corporation  ("Soltius").  As consideration,  the
Company received a 5% minority shareholding in Soltius and a $650,000 note to be
paid by Soltius to the Company over a period of 12 months.  The Company received
$75,000 from Soltius during the quarter ended June 30, 2003.  The  consideration
was determined as a result of arms-length negotiations between the parties.

     On May 30,  2003,  the Company  executed a letter  agreement  with PNC Bank
extending the term of the credit facility from May 31, 2003 to July 31, 2003. On
July 31, 2003,  the Company  executed a third  amendment to the loan  documents,
among other things, extending the term of the credit facility to May 31, 2006.

     On August 4, 2003,  Prabhas  Panigrahi,  a member of the Board of Directors
(the  "Board")  of the Company  since June 2002,  resigned  from the Board.  Mr.
Panigrahi's  resignation as a Director did not involve any disagreement with the
Company  on  any  matter  relating  to the  Company's  operations,  policies  or
practices, and Mr. Panigrahi has not requested that any matter be disclosed.



                                     - 49 -
<PAGE>

     On August 7, 2003,  the  Company  and Ashok  Pandey  executed a  settlement
agreement  pursuant to which,  among  other  things:  (1) the parties  agreed to
release  each other from any and all  claims and settle all  current  litigation
matters  between them; (2) the Company agreed to pay Pandey an aggregate  amount
of  $750,000  to Pandey in three  equal  installments  over two  years;  (3) the
Company  waived all amounts  due by Pandey to the Company  pursuant to the award
granted by the Court in one of the actions filed by the Company  against Pandey;
(4) the  Company  agreed to include  Pandey or his  designee  who is  reasonably
acceptable  to the  Company's  Board of Directors  (the "Board") in its slate of
nominees for election to the Board at its Annual Meeting of  Shareholders  to be
held in 2003, 2004 and 2005; (5) Pandey agreed to certain standstill  provisions
relating to acquiring shares of the Company's voting securities, solicitation of
proxies, waging of a proxy contest or tender offer or initiating or supporting a
shareholder  proposal for a three-year period; (6) Pandey agreed to vote for the
slate of directors  proposed by the Board for a three-year  period;  and (7) the
parties agreed not to disparage each other.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

        (a)   Exhibits.

              31.1  Certification  pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 2002.

              31.2  Certification  pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 2002.

              32    Certification pursuant to 18 U.S.C Section 1350.

        (b)   Reports on Form 8-K.

              On April 4, 2003,  the Company  filed a Form 8-K to report that on
              April 2, 2003, the Company  consummated  the sale of  Intelligroup
              Singapore Pte Ltd.,  a Singapore  corporation,  Intelligroup  Hong
              Kong Limited,  a Hong Kong corporation, Intelligroup Australia Pty
              Limited,  an  Australian  corporation and Intelligroup New Zealand
              Limited,  a  New Zealand  corporation,  together  representing the
              Company's  Asia-Pacific group  of subsidiary companies,  operating
              in Australia, New Zealand, Singapore, Hong Kong and  Indonesia, to
              Soltius Global Solutions PTE Ltd., a Singapore corporation.

              On April  17,  2003,  the  Company  filed  a Form  8-K/A  with the
              Securities  and  Exchange  Commission  to  provide  the  financial
              statements and pro forma financial  required under  Item 7 related
              to the  sale of the  Company's  Asia-Pacific  Group of  subsidiary
              companies to Soltius Global Solutions PTE Ltd.

              On May 13, 2003,  the Company  furnished a Form 8-K  under Item 9,
              containing a  copy of its earnings  release for the period  ending
              March 31, 2003  (including financial  statements) pursuant to Item
              12 (Results of Operations and Financial Condition).

              On June 3, 2003, the Company filed a  Form 8-K with the Securities
              and  Exchange  Commission  to report  that on  May 30,  2003,  the
              Company executed a letter



                                     - 50 -
<PAGE>

              agreement  with  PNC  Bank  and  Empower,  Inc.,   a  wholly-owned
              subsidiary  of the  Company,  extending  the term of the  PNC Bank
              credit facility from May 31, 2003 to July 31, 2003.

              On  August  5,  2003,  the  Company  filed  a Form  8-K  with  the
              Securities and Exchange  Commission to  report the following:  (1)
              On July 31, 2003,  the Company  executed a third  amendment to the
              loan  documents  with PNC Bank and Empower,  Inc.,  a wholly-owned
              subsidiary of the Company, among other things,  extending the term
              of the credit facility to May 31, 2006 and  (2) On August 4, 2003,
              Prabhas  Panigrahi,  a  member  of the  Board  of  Directors  (the
              "Board") of  Intelligroup,  Inc. (the "Company") since  June 2002,
              resigned from the Board. Mr. Panigrahi's resignation as a Director
              did not involve any  disagreement with the  Company on any  matter
              relating to  the Company's operations, policies  or practices, and
              Mr. Panigrahi has not requested that any matter be disclosed.

              On  August  12,  2003,  the  Company  filed  a Form  8-K  with the
              Securities  and Exchange  Commission  to report that on  August 7,
              2003,  the  Company  and   Ashok  Pandey  ("Pandey")   executed  a
              settlement  agreement  providing  for,  among  other  things,  the
              settlement of all current litigation between the parties, payments
              to be made by the Company to Mr.  Pandey and that Pandey  abide by
              certain standstill  provisions  relating to, among other  matters,
              participating  in  any  proxy  contests,  and vote for the Company
              slate of directors for a three-year period.



                                     - 51 -
<PAGE>

                                   SIGNATURES


     Pursuant to the  requirements  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.

                                         Intelligroup, Inc.


DATE: August 14, 2003                    By: /s/ Nagarjun Valluripalli
                                            ------------------------------------
                                            Nagarjun Valluripalli,
                                            Chairman of the Board, President and
                                            Chief Executive Officer
                                            (Principal Executive Officer)


DATE: August 14, 2003                    By: /s/ Nicholas Visco
                                            ------------------------------------
                                            Nicholas Visco,
                                            Senior Vice President-Finance and
                                            Administration and Chief Financial
                                            Officer (Principal Financial and
                                            Accounting Officer)


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