================================================================================

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

                                   FORM 10-KSB

|X|  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934

                   For the fiscal year ended December 31, 2005

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934

          For the transition period from _____________ to _____________

                           Commission File No. 0-24073

                              DIGITAL FUSION, INC.
                 (Name of Small Business Issuer in Its Charter)


              Delaware                                 13-3817344
   (State or other jurisdiction of          (I.R.S. Employer Identification No.)
   incorporation or organization)

 4940-A Corporate Drive, Huntsville, Alabama              35805
  (Address of principal executive offices)              (Zip Code)


       (Registrant's telephone number, including area code) (256) 837-2620

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, $.01 par value per share


     Check  whether  the issuer is not  required  to file  reports  pursuant  to
Section 13 or 15(d) of the Exchange Act. |_|

     Check  whether  the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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
|_|

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|

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

     Issuer's revenues for its most recent fiscal year: $20,927,000.

     As of March 15,  2006,  there  were  11,403,383  outstanding  shares of the
issuer's common stock, par value $0.01 per share ("Common Stock"),  which is the
only class of common stock of the issuer.  As of March 15, 2006,  the  aggregate
market value of the shares of Common Stock held by non-affiliates of the issuer,
computed based on the closing bid price of the Common Stock as quoted on the OTC
Bulletin Board, was approximately $25,561,294.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Part III of this Form 10-KSB  incorporates by reference certain information
from the Proxy  Statement for the Annual Meeting of  Stockholders to be held May
25, 2006.


     Transitional  Small  Business  Disclosure  Format
(Check  on):  Yes         ; No     X
                 --------      ---------

================================================================================



<PAGE>

                              DIGITAL FUSION, INC.
                             INDEX TO ANNUAL REPORT
                                 ON FORM 10-KSB

<TABLE>
<CAPTION>
<S>                                                                                            <C>
                                                                                              Page
PART I
Item 1.    Description of Business                                                              3
Item 1A.   Risk Factors Related to our Business                                                10
Item 2.    Description of Property                                                             14
Item 3.    Legal Proceedings                                                                   15
Item 4.    Submission of Matters to a Vote of Security Holders                                 15

PART II
Item 5.    Market for Common Equity and Related Stockholder Matters                            16
Item 6.    Management's Discussion and Analysis or Plan of Operation                           17
Item 7.    Financial Statements                                                                26
Item 8.    Changes in and Disagreements with Accountants on Accounting and Financial
           Disclosure                                                                          26
Item 8A.   Controls and Procedures                                                             26

PART III
Item 9.    Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act                                   27
Item 10.   Executive Compensation                                                              27
Item 11.   Security Ownership of Certain Beneficial Owners and Management and Related          27
           Stockholder Matters
Item 12.   Certain Relationships and Related Transactions                                      27
Item 13.   Exhibits                                                                            28
Item 14.   Principal Accountant Fees and Services                                              30
Signatures                                                                                     31
Index to Consolidated Financial Statements                                                     32
Report of Independent Registered Public Accounting Firm                                        33
</TABLE>


                                       2
<PAGE>
                                     PART I

Forward-Looking Statements

     This Annual Report contains  forward-looking  statements  regarding  future
events and our future results that are subject to the safe harbors created under
the Securities Act of 1933 (the  "Securities  Act") and the Securities  Exchange
Act of 1934  (the  "Exchange  Act").  These  statements  are  based  on  current
expectations,  estimates,  forecasts,  and  projections  about the industries in
which we operate and the beliefs and assumptions of our  management.  Words such
as "expects," "anticipates," "targets," "goals," "projects," "intends," "plans,"
"believes," "seeks," "estimates,"  "continues," "may," variations of such words,
and  similar   expressions   are  intended  to  identify  such   forward-looking
statements.  In addition, any statements that refer to projections of our future
financial performance,  our anticipated growth and trends in our businesses, and
other  characterizations  of future events or circumstances are  forward-looking
statements. Readers are cautioned that these forward-looking statements are only
predictions and are subject to risks,  uncertainties,  and assumptions  that are
difficult to predict,  including  those  identified  below and  elsewhere in our
Annual Report on Form 10-KSB.  Therefore,  actual results may differ  materially
and  adversely  from  those  expressed  in any  forward-looking  statements.  We
undertake no obligation to revise or update any  forward-looking  statements for
any reason.

ITEM 1.   DESCRIPTION OF BUSINESS

Business Development

     Digital Fusion,  Inc.  (sometimes  herein referred to as, "Digital Fusion",
"DFI",  or the  "Company",  refer to  Digital  Fusion,  Inc.) is an  information
technology,  research and  engineering,  and  acquisition  and business  support
services  company that helps its  customers  make the most of technology to meet
their  business  needs.  Digital  Fusion's IT Services  business  unit  provides
solutions to both government and commercial customers,  focused in the following
areas: Business Process Automation, Application Development and Data Management,
Application  Security,  Web Portals and Digital Dashboards,  System Integration,
and IT Support. Digital Fusion's Research and Engineering Services business unit
supports a variety of customers  with  state-of-the-art  solutions that include:
Systems Development and Engineering;  Applied Aerodynamics/  Computational Fluid
Dynamics; Missile Engineering;  Thermal-Structural  Modeling;  Program, Data and
Financial Management Support; Modeling and Simulation; Control System Design and
Analysis;  Mechanical Design and Analysis;  Optical Systems Design,  Development
and  Test;  Hardware-in-the-Loop  Testing;  and  Test  and  Evaluation.  Digital
Fusion's  Acquisition  and Business  Support  Services  business  unit  provides
solutions  focused on the  following  areas:  Budget  Integration  and Analysis;
Accounting  Operations;   Travel  Management;  SAP  Expertise;  Business  System
Development,  Evaluation  and Operation;  Assessing Best Business  Practices and
Tools;   Contracts   Management  and   Administration;   Purchasing   Expertise;
Procurement  Documentation  Generation and Evaluation;  Price and Cost Analysis;
Earned Value Management and Policy Evaluation and Support.

     The Company is  incorporated  in Delaware with its main offices  located in
Huntsville,  Alabama. The Company has satellite offices in New Jersey and Texas.
Digital Fusion's website address is www.digitalfusion.com.

Form and History of Organization

     Digital  Fusion,  Inc.  was  incorporated  in February  1995 in Delaware as
Internet  Broadcasting  Systems,  Inc.  The  company's  name was  changed to IBS
Interactive,  Inc. when it went public in May 1998.  During  October  2001,  the
Company's  shareholders  approved the corporate  name change to Digital  Fusion,
Inc. Its stock is traded on the OTC Bulletin Board under the symbol "DIGF".


                                       3
<PAGE>

Acquisitions and Divestitures

     On January 3, 2005,  pursuant to a Stock Purchase  Agreement  dated October
28, 2004 by and between Digital Fusion and the Chief Executive Officer of Summit
Research Corporation ("Summit"),  Digital Fusion acquired all of the outstanding
capital stock of Summit.

BUSINESS OF ISSUER

Description of Services

     Digital Fusion's experience and expertise covers a wide range of technology
services.   The  company  has  managed  and  deployed  large-scale,   multi-site
infrastructure  projects  involving complex system  integrations and migrations.
Digital Fusion consultants have also designed and developed  customized software
applications  and implemented  third-party  solutions to fulfill specific client
needs.  In  addition,  a number of Digital  Fusion  consultants  work on-site in
organizations  across the country  providing  ongoing  support and  guidance for
in-house  information  technology,  engineering,  and  modeling  and  simulation
projects.

Information Technology Services

     Digital  Fusion's  experience  and  expertise  covers  a wide  range  of IT
services,  with proven past  performance  and  current  initiatives  in both the
commercial and government  (local,  state, and federal) sectors.  It has managed
and deployed large-scale,  multi-site  infrastructure projects involving complex
systems  integrations  and migrations.  Our  consultants  have also designed and
developed customized software applications and implemented third-party solutions
to fulfill  specific  client  needs.  In  addition,  a number of Digital  Fusion
consultants work on-site in organizations  across the country  providing ongoing
support and guidance for in-house IT  projects.  Digital  Fusion's  main service
lines include:

o    Application Development, Support and Security - Following its proven System
     Development  Life  Cycle  Methodology,  Digital  Fusion  builds  customized
     software  solutions  including  database design and  maintenance,  business
     process automation,  Web-enabled client/server  applications,  and complete
     project outsourcing.  With SPI Dynamics'  WebInspect,  the Company performs
     application security audits and the remediation of issues identified.

o    System Migration and Integration - Specializing in Microsoft  solutions and
     Intuit  Track-It!,  Digital  Fusion  installs  and  configures a variety of
     software  packages,  including  complete  system  integration  with  custom
     front-ends,  third-party  packages,  or other external databases and legacy
     system migrations.

o    Data  Management and Support - Enables  customers to better  understand and
     manage their  organization.  Digital  Fusion  creates  solutions that allow
     organizations to securely  manipulate and manage large amounts of financial
     and business  data by creating  innovative  and  easy-to-use  interfaces to
     manage and  interpret  critical  data with Digital  Dashboards,  secure Web
     Portals and interactive financial reporting capabilities.

     Within  these  primary IT service  categories,  Digital  Fusion  performs a
variety of specific technical services. The following describes some of these in
more detail:

     Application  Development  -  Digital  Fusion  has  application  development
experience,  from building  customized  software  solutions to implementing  and
integrating third-party packaged programs,  web-based and client/server.  It has
the technical  expertise,  business process,  and management  experience to help
orchestrate all the elements of the project and balance  customized user demands
with the most  efficient  implementation.  In developing  applications,  Digital
Fusion follows a proven application  development  methodology in which processes
and  requirements  are  thoroughly  defined and documented to ensure the project
stays on track.


                                       4
<PAGE>

     Data  Management - Digital  Fusion has  substantial  experience  working on
database analysis,  design,  integration and administration projects involving a
wide  range  of  technologies,  including  Sybase,  Microsoft,  Oracle,  DB2 and
Informix.  It has expertise in relational  database design,  stored  procedures,
database replication and synchronization, legacy systems migration, data mining,
and  report  generation.  Its  consultants'  expertise  and  training  encompass
databases designed and tuned for mainframe,  client/server,  and distributed/Web
platforms,  from small databases with a few users to large databases  processing
thousands of transactions per day.

     Application  Security - By using SPI Dynamics'  WebInspect,  Digital Fusion
offers  auditing  and  assessments  for  Internet  application  vulnerabilities,
remediation  of  assessed  vulnerabilities,  training  and  mentoring  on secure
development methodologies, and best practices. Digiframe.Net is Digital Fusion's
answer  to a  secure  and  methodical  .NET  development  framework  based  upon
Microsoft best practices. This set of reusable objects allows developers to more
efficiently   design  secure   Internet   applications  in  the  Microsoft  .Net
environment.

     Web  Design  and  Development  -  Digital  Fusion  designs,  develops,  and
maintains engaging, interactive, multimedia websites and builds high-performance
internet/intranet  applications.  The Company is a Macromedia  Alliance  Partner
with thorough  knowledge and experience in web technologies  such as JavaScript,
Java, ASP, DHTML,  XML,  ColdFusion,  Dreamweaver,  Flash,  and others.  Company
solutions  also  include  complete  content  management  features  for  managing
information and streamlining communications company wide, along with easy-to-use
tools to give non-technical  staff full control of website or  intranet/extranet
content.

     Business Process  Analysis - The application a customer  implements is only
as effective as the business  processes involved with using it. Digital Fusion's
consultants  design  processes that integrate the  capabilities  of the software
with the  conditions of the customer's  unique  business  environment,  creating
streamlined,  highly productive  operations.  The Company shows customers how to
save money by automating  processes and implementing  efficient  solutions.  The
Company  also  evaluates  the software  and service  options in today's  crowded
marketplace and recommends the best match for our customer's business.

     Enterprise  Integration - Many companies have made significant  investments
over a long period of time in enterprise  resource  planning  (ERP) systems like
order  management  and  financials.  As their business  changes or grows,  those
companies often need to add new  capabilities  to their  enterprise to help them
manage their growth.  However,  different software packages,  particularly those
that have been customized or home-grown,  don't often  integrate  easily and the
company is faced with  either  manually  transferring  data or  scrapping  their
legacy systems and paying the normal price for a new suite of products.  Digital
Fusion has the experience necessary to seamlessly integrate a company's existing
enterprise  with new  systems;  and utilize  current  technologies  and tools to
ensure the final solution meets the company's objectives.

Research and Engineering Services

     Digital  Fusion's  Research and Engineering  Services  provides  scientific
analysis across a wide variety of technical  disciplines to numerous  government
agencies including the Defense Intelligence Agency (DIA), the United States Army
Space and Missile Defense Command (USASMDC), the United States Army Aviation and
Missile Life Cycle Management Command (USAAMLCMC),  the United States Air Force,
the United States Navy,  the United States  Department  of  Transportation,  the
National  Aeronautics and Space  Administration  (NASA), and the Missile Defense
Agency (MDA).  Research and Engineering  Services  personnel have a proven track
record of creating  unique and  effective  engineering  solutions to satisfy our
customer's   individual  needs.  We  specialize  in  the  design,   development,
integration  and  testing  of  advanced  sensing  and weapon  systems,  software
engineering,   modeling  and  simulation,   aerodynamic  and  thermal-structural
analysis,  project management, and program analysis. We utilize state-of-the-art
technology  to meet today's  challenges.  Our primary  Research and  Engineering
Services are:


                                       5
<PAGE>

o    Optical System Development and Integration--Digital  Fusion develops a wide
     range of optical  systems for government  programs.  These systems  include
     complex re-imaging  assemblies,  integration of  motion-synchronized  image
     capture,  and various  imaging  polarimeters.  Digital Fusion also develops
     application software,  using LabView and C/C++ for imaging systems, as well
     as optical and electrical integration.

o    Machine Vision  Development--Digital Fusion is leveraging its experience in
     optics,  electronics,  and software development to enter the Machine Vision
     market.  Digital Fusion has recently become a National Instruments Alliance
     member and is using this exposure to enter this market.

o    Optical System Characterization and  Calibration--Digital  Fusion personnel
     have  broad  experience  in  characterization  and  calibration  of optical
     systems  ranging  from the visible to infrared  spectra.  Digital  Fusion's
     services  in  this  area  include   radiometric   analysis,   optical  path
     characterization  including conventional and polarimetric analysis,  sensor
     system modeling,  focal plane array modeling, and  radiometric/polarimetric
     calibration of optical systems.

o    Applied Aerodynamics/Computational Fluid Dynamics--Digital Fusion personnel
     provide  aerodynamic  and  computational  fluid dynamic  analysis to a wide
     range of aerospace and defense programs. Systems supported include military
     aircraft  and  missile  systems,  commercial  launch  vehicles,  and ground
     transportation   systems.   Digital   Fusion  also  develops  and  supports
     computational fluid dynamics software for various government agencies.

o    Missile Engineering/Thermal-Structural  Modeling--Digital Fusion provides a
     spectrum of  engineering  analysis  tools for the prediction of aerodynamic
     and thermal  environments.  Services  include the  prediction  of aerospace
     vehicle   structural   and   thermal   response   to  applied   aerodynamic
     environments.

o    Systems  Engineering--Digital  Fusion has  established  system  engineering
     processes  to  ensure  program  success  through a  unified  approach  that
     completely  defines all requirements on the system and establishes a system
     configuration  that is proven  early-on  to be  capable  of  meeting  those
     requirements.

o    Software  Engineering--Digital  Fusion  personnel  develop  automated  tool
     suites for  missile  programs  to provide a  collaborative  environment  to
     facilitate   information  exchange  to  assist  with  risk  mitigation  and
     reduction in life cycle costs.

o    Mechanical  Design and  Analysis--Digital  Fusion's  capabilities  include:
     prototype and production  fabrication,  structural  analysis,  and CAD data
     translation.

o    Project  Management  and Program  Analysis--Digital  Fusion  understands  a
     program's  success is measured  in terms of cost,  schedule  and  technical
     performance.  We have  performed  many  tasks for  multiple  programs  that
     include the tracking, predicting, and managing of cost/schedule utilizing a
     work breakdown structure (WBS) and master schedule architecture.


     Within these broad areas Digital Fusion provides specific  expertise in the
following areas:

     Polarimetric  Systems - Digital  Fusion  is  recognized  as a leader in the
field of imaging  polarimetry.  Digital Fusion personnel support a wide range of
activities within this field including the design,  fabrication,  and testing of
numerous imaging polarimeters;  polarimetric characterization and calibration of
polarimetric  sensors and optical path; and development of  polarimetric  sensor
performance  models.   Digital  Fusion  is  involved  with  the  integration  of
polarimetric sensors onto several military platforms.


                                       6
<PAGE>

     Aeromechanics  - Digital Fusion  possesses a high level of expertise in the
aeromechanics  field.  Personnel  provide support in a wide range of disciplines
including  aerodynamic   analysis,   thermal-structural   analysis,   aero-optic
analysis, aero-acoustic analysis, software development, and test support. We are
currently providing  aerodynamic  analysis to support the development of several
military platforms.

     System  Simulation and  Modeling--Digital  Fusion  supports  customers with
software  development  tools such as the Common  Simulation  Framework (CSF) and
Missile  Component  Library (MCLib),  which allow simulations to be built with a
common approach and facilitate  development  and analysis of missile  subsystems
and their impact on the overall system.  Digital Fusion solutions allow for more
rapid  investigations and trade studies to accurately predict missile and weapon
system performance.

     Propulsion   Systems   Technology--Digital   Fusion  provides   specialized
engineering  analysis and  modeling of various  propulsion  systems.  Propulsion
models are generated by DFI to simulate  propulsion  systems.  Examples  include
variable-area  nozzles (VANs),  gel  bipropellants,  and advanced  boost/sustain
solid rocket motors (SRMs).

     Guidance   Technology--Digital    Fusion's    HardWare-In-the-Loop   (HWIL)
capabilities perform test verification and quantification of real-time operation
and performance of missile systems  including flight  computer,  ground station,
semi-active laser seeker, inertial sensors, and control actuation system.

     Warheads--Digital  Fusion  provides  design,   prototyping,   testing,  and
delivery of missile systems that meet all system  requirements  and current Army
safety standards.

Acquisition and Business Support Services

     Digital Fusion's  Acquisition and Business  Support Services  business unit
supports the NASA  Marshall  Space  Flight  Center  through a prime  contract to
provide a wide range of operational and administrative  support services for the
Office of the Chief  Financial  Officer,  the Office of  Procurement,  and other
program offices and directorates.  Our primary  Acquisition and Business Support
Services are: Budget Integration and Analysis;  Accounting Operations;  Business
System  Development,   Evaluation  and  Operation;   Contracts   Management  and
Administration;  Purchasing and Procurement  Expertise;  Earned Value Management
and Policy Evaluation and Support.


Existing Contract Profile

     Contract Types. In the Company's contract  engagements,  one of three types
of  price  structures  is  employed:  cost-plus-fee,   time-and-materials,   and
fixed-price.

     Cost-plus-fee contracts.  Cost-plus-fee contracts provide for reimbursement
of   allowable   costs  and  the  payment  of  a  fee,   which  is  our  profit.
Cost-plus-fixed-fee   contracts   specify   the   contract   fee   in   dollars.
Cost-plus-award-fee contract may provide for a base fee amount plus an award fee
that varies,  within specified limits, based upon the client's assessment of our
performance  as  compared  to  contractual  targets  for  factors  such as cost,
quality, schedule, and performance.

     Time-and-materials  contracts. Under a time-and-materials  contract, we are
paid a fixed  hourly  rate  for  each  direct  labor  hour  expended  and we are
reimbursed  for allowable  material  costs and  out-of-pocket  expenses.  To the
extent our actual  direct  labor and  associated  costs vary in  relation to the
fixed hourly  billing rates  provided in the contract,  we will generate more or
less profit or could incur a loss.

     Fixed-price  contracts.  Under a fixed-price  contract, we agree to perform
the specified work for a  pre-determined  price.  To the extent our actual costs
vary from the estimates  upon which the price was  negotiated,  we will generate
more or less than the  anticipated  amount of profit or could incur a loss. Some
fixed-price contracts have a performance-based  component,  pursuant to which we
can  earn  incentive  payments  or  incur  financial   penalties  based  on  our
performance.  We  generally  do not  undertake  complex,  high-risk  work  under
fixed-price terms.


                                       7
<PAGE>

     Digital Fusion holds three GSA schedule  contracts.  GSA schedule contracts
are popular contract award methods, offering more flexible,  cost-effective, and
rapid procurement processes.

     The  following  table  sets  forth our GSA  schedule  contract  on which we
currently act a prime  contractor.  The period of  performance  indicated  below
includes all option years.

<TABLE>
<CAPTION>
<S>                             <C>             <C>                                          <C>
Contract Name                 Host agency       Period of Performance                   Contract ceiling value
------------------------    ----------------    ------------------------------------    ---------------------------

GSA Schedule 70                 GSA FAS         October 2002 - October 2012                  No ceiling
GSA PES                         GSA FAS         February 2004 - February 2014                No ceiling
GSA LOGWORLD                    GSA FAS         July 2005 - July 2015                        No ceiling
</TABLE>

Sales and Marketing

     Our  marketing  efforts  are focused on teaming  and  developing  strategic
partnerships to successfully  compete for government and commercial  procurement
opportunities.  Our  goal is to  establish  Digital  Fusion  as a  services  and
technology implementation leader and to build the Digital Fusion brand.

     During 2005, Digital Fusion completed several strategic hires and continued
to devote  substantial  resources  to further  develop U.S.  federal  government
business  in order  to  accelerate  its  growth.  Digital  Fusion  continued  to
cultivate  existing  technical  competencies  and,  through  hiring and a recent
acquisition, has developed new competencies that are very marketable in both the
commercial and government sectors. As a result of this strategy,  Digital Fusion
is increasing  its  penetration of the government  sector and  diversifying  its
business.

     Digital Fusion's strategic plan for business development continued to focus
on  growth  of its IT  services  that  focus on  providing  the  best  technical
solutions  to business  problems.  A  significant  new  strategic  focus for the
company's IT business is an aggressive  posture on collaboration  and teaming on
federal  services  procurement  opportunities.  Digital  Fusion  places  special
emphasis on helping  customers  maximize  their current IT systems to create the
most  cost-effective  solutions  to immediate  business  problems and make their
technology investments perform more efficiently.

     We market and sell our  services  through  multiple  channels  by using our
business   development   staff,   leveraging   existing  client   relationships,
capitalizing   on  our  task  order   contracts,   responding   to   competitive
solicitations, attending marketing events and engaging in other public relations
activities.  We  employ  marketing  research  services  to  identify  and  track
potential  contract   opportunities.   We  also  cultivate   relationships  with
leading-edge technology vendors, such as Microsoft, and prime contractors,  such
as Computer  Science  Corporation  (CSC),  to identify and obtain  project leads
consistent with our capabilities. We employ a team selling approach, whereby our
business  developers  collaborate  with our service delivery  professionals  and
management to identify prospects, conduct sales and manage client relationships.
Our  Vice  President  of  Strategic   Planning  initiates  and  coordinates  the
activities of our business development.  We allocate business developers to each
of our business  units who pursue new clients and  programs  across their market
segments.


Customers

     Digital  Fusion's  customer  base  consists  primarily  of  businesses  and
government  organizations  with  system  engineering  and  integration,   system
modeling and simulation,  program management,  business application development,
and IT support and  integration  needs.  The company  has greatly  expanded  its
federal  customer  base and has  undertaken  an  aggressive  program  to further
increase  its  customer  base  in all of its  business  lines.  The  GSA  award,
mentioned   above,  is  an  important  part  of  this  effort  to  increase  our
governmental customer base.


                                       8
<PAGE>

     Customers during the year ended December 31, 2005 included:

<TABLE>
<CAPTION>
<S>                                       <C>                                <C>
ATK Missile Systems                       Auburn University                  Aviation & Mission Solutions
BAE Systems                               Bridgestone                        CAS
Colsa                                     Command Alkon                      Commerce Bank
Computer Science Corp.                    Dynetics                           Echelon
Electronic Data Systems                   Flow Analysis, Inc.                General Dynamics
Gray Research, Inc.                       GSA                                Healthcare Solutions
InterArch, Inc.                           Intergraph                         Intuit
Kingsway America                          L3 Systems                         M&R Marking Systems
McBee Payroll Co.                         Monroe MUA                         Marshall Space Flight Center
NASP                                      Northrop Grumman                   Office of Naval Research
Orange County Board of Comm.              Phifer Wire Products               Polaris
Protective Life Corp.                     Raytheon                           Rheem Mfg.
SAIC                                      Science & Engineering Services     SMDC
Sparta                                    Spherion Corp.                     SPI
State of Tennessee                        Sverdrup Technology, Inc.          Teledyne Brown Solutions
</TABLE>


Competition

     Our  current  competitors  include,  and  may in the  future  include,  the
following:

     o    information   technology   services  providers  and  large  government
          contractors  such  as  Accenture,  Booz,  Allen &  Hamilton,  Computer
          Sciences   Corporation,   Electronic  Data  Systems,   Bearing  Point,
          International  Business Machines,  Science Applications  International
          Corporation, Unisys, Lockheed Martin and Northrop Grumman

     o    application services providers

     Many of our  competitors  have long  operating  histories and strong client
relationships,  greater  financial,  technical,  marketing and public  relations
resources,  larger  client bases and greater brand or name  recognition  than we
have.

     We believe  that the major  competitive  factors in our market  relate to a
company's   distinctive   technical   capabilities,   successful  past  contract
performance,  reputation  for quality and key  management  and marketing  staff.
Under  best-value  procurement  methods,  price is an important,  but secondary,
factor in the selection of a technology service provider.


Employees and Corporate Culture

     Our success as an information  technology,  research and  engineering,  and
acquisition and business  support  services  company is highly  dependent on our
employees.  We believe we have been  successful  in  developing  a culture  that
enables our employees to succeed.  We emphasize three essential  attributes - an
ethic of honesty and service,  quality work and client satisfaction,  and caring
about our people.  We reinforce  these  principles  regularly in our  recruiting
process,   training  programs,   proposals,   company  meetings,   and  internal
communications.  Our  active  recruiting  effort is aligned  with our  strategic
business units and relies heavily on employee referrals in addition to a variety
of other  recruiting  methods.  At December  31,  2005,  Digital  Fusion had 185
employees,  of which  166  were  full-time  employees,  including  12  executive
officers, 1 sales and marketing employee, and 15 administrative personnel. There
were 164 billable employees.


                                       9
<PAGE>

Geographic area

     The majority of the  Company's  customers  are from the United  States with
less  than 1%  derived  elsewhere.  This is also  representative  of  where  its
revenues are  derived.  All assets are located in the Eastern part of the United
States.


Seasonality

     Quarterly  operating results are affected by the number of billable days in
the quarter,  holiday seasons and vacations.  Demand for the Company's  billable
services has  historically  been lower during the fourth  quarter as a result of
holidays and vacations.


Website Access to Reports

     Our  Internet   website  can  be  found  at   http://www.digitalfusion.com.
Information  contained on our Internet  website is not part of this report.  Our
Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB, Current Reports
on Form 8-K, and any amendments to those reports filed or furnished  pursuant to
Section 13(a) or 15(d) of the  Securities  Exchange Act of 1934, and the Section
16 filings of our officers,  directors, and shareholders beneficially owning 10%
or more of our common stock are  available on our  website,  free of charge,  as
soon as reasonably practicable after such reports are filed with or furnished to
the SEC.  Alternatively,  you may access  these  reports  at the SEC's  Internet
website: http://www.sec.gov.


ITEM 1A.   RISK FACTORS RELATED TO OUR BUSINESS


Revenues would decline if our relationships with agencies of the federal
government were harmed.

     Our largest clients are agencies of the federal government.  If the federal
government in general,  or any significant  government agency,  uses less of our
services or  terminates  its  relationship  with us, our revenues  would decline
substantially,  and  our  business  would  be  seriously  harmed.  During  2005,
contracts with the federal  government  and contracts with prime  contractors of
the federal  government  accounted for  approximately  88% of our  revenues.  We
believe that federal  government  contracts  are likely to account for a greater
portion of our revenues for the foreseeable  future.  The volume of work that we
perform for a specific client, however, is likely to vary from year to year, and
a significant client in one year may not use our services as extensively,  or at
all, in a subsequent year.

Our government contracts may be terminated prior to their completion, and if we
do not replace them, our operating results may be harmed.

     We derive some of our revenues from government contracts that typically are
awarded through competitive processes and span a one year base period and one or
more option years.  The unexpected  termination or non-renewal of one or more of
our significant  contracts could result in significant revenue  shortfalls.  Our
clients  generally  have the  right  not to  exercise  the  option  periods.  In
addition,  our contracts  typically contain  provisions  permitting an agency to
terminate the contract on short notice, with or without cause.

     Following termination,  if the client requires further services of the type
provided in the contract,  there is frequently a competitive re-bidding process.
We may not win  any  particular  re-bid  or be able to  successfully  bid on new
contracts  to  replace  those that have been  terminated.  Even if we do win the
re-bid,  we may  experience  revenue  shortfalls in periods where we anticipated
revenues  from  the  contract   rather  than  its   termination  and  subsequent
re-bidding.  These revenue  shortfalls  could harm  operating  results for those
periods.


                                       10
<PAGE>

Our lack of long-term contracts with clients and our relatively fixed operating
expenses expose us to greater risk of incurring losses.

     Our clients  retain us on an  engagement-by-engagement  basis,  rather than
under long-term  contracts.  We incur costs based on our  expectations of future
revenues.  Our operating  expenses are relatively fixed and cannot be reduced on
short notice to compensate for unanticipated variations in the number or size of
engagements  in progress.  These factors make it difficult for us to predict our
revenues and operating results.  If we fail to predict our revenues  accurately,
it may seriously harm our financial condition and results of operation.


A reduction in or the termination of our services could lead to underutilization
of our employees and could harm our operating results.

     Our employee  compensation expenses are relatively fixed.  Therefore,  if a
client defers, modifies or cancels an engagement or chooses not to retain us for
additional  phases of a project,  our operating results will be harmed unless we
can rapidly  re-deploy our employees to other  engagements  in order to minimize
underutilization.


Failing to maintain strong relationships with prime contractors could result in
a decline in our revenues.

     We derived  approximately  63% of our  revenues  during  2005  through  our
relationships  with  prime   contractors,   which,  in  turn,  have  contractual
relationships  with  end-clients.  We  expect  to  continue  to  depend on these
relationships for a material portion of our revenues in the foreseeable  future.
If any of these prime contractors eliminate or reduce their engagements with us,
or have their engagements  eliminated or reduced by their  end-clients,  we will
lose a source of revenues,  which,  if not replaced,  will adversely  affect our
operating results.


The loss of a key executive could impair our relationships with government
clients and disrupt the management of our business.

     We believe that our success depends on the continued  contributions  of the
members of our  senior  management.  We rely on senior  management  to  generate
business and execute programs  successfully.  In addition, the relationships and
reputation that many members of our senior  management team have established and
maintain with  government  personnel  contribute to our ability to maintain good
client  relations  and to identify new business  opportunities.  The loss of any
member of our senior  management could impair our ability to identify and secure
new contracts,  to maintain good client  relations,  and otherwise to manage our
business.


We may lose money on fixed-price contracts if we miscalculate the resources we
need to complete the contract.

     We  anticipate  an  immaterial  portion  of our  future  engagements  to be
contracted at a fixed price. Unlike time and materials  contracts,  for which we
are  reimbursed  based on our  actual  expenditures  of  resources,  fixed-price
contracts  require us to price our contracts by predicting our  expenditures  in
advance.  If we  miscalculate  the  resources  we need to  complete  fixed-price
engagements,  our operating results could be seriously harmed because we are not
compensated for the higher costs.


We could lose revenues and clients and expose our Company to liability if we
fail to meet client expectations.

     We create,  implement  and  maintain  technology  solutions  that are often
critical  to our  clients'  operations.  If our  technology  solutions  or other
applications  have  significant  defects or errors or fail to meet our  clients'
expectations, we may:

     o    lose revenues due to adverse client reaction


                                       11
<PAGE>

     o    be required to provide additional  remediation services to a client at
          no charge

     o    receive  negative  publicity,  which could damage our  reputation  and
          adversely affect our ability to attract or retain clients

     o    suffer claims for substantial  damages  against us,  regardless of our
          responsibility for the failure


     While many of our contracts  limit our liability for damages that may arise
from negligent acts, errors,  mistakes or omissions in rendering services to our
clients,  we cannot be sure that these  contractual  provisions  will protect us
from liability for damages if we are sued.  Furthermore,  our general  liability
insurance  coverage may not continue to be available on  reasonable  terms or in
sufficient  amounts  to cover  one or more  large  claims,  or the  insurer  may
disclaim coverage as to any future claim. The successful  assertion of any large
claim against us could seriously harm our business. Even if not successful, such
claims  could  result  in  significant  legal  and  other  costs  and  may  be a
distraction to management.


Security breaches in sensitive government systems could result in the loss of
clients and negative publicity.

     Many of the systems we develop involve managing and protecting  information
involved in law enforcement and other sensitive government functions. A security
breach in one of these systems  could cause serious harm to our business,  could
result in negative publicity, and could prevent us from having further access to
such critically  sensitive systems or other similarly  sensitive areas for other
governmental  clients.  Losses that we could  incur from such a security  breach
could  exceed the policy  limits  that we have for  "errors  and  omissions"  or
product liability insurance.


If we cannot obtain the necessary security clearances, we may not be able to
perform classified work for the government and our revenues may suffer.

     Government  contracts  require us, and some of our  employees,  to maintain
security clearances. If we lose or are unable to obtain security clearances, the
client can terminate the contract or decide not to renew it upon its expiration.
As a result, to the extent we cannot obtain the required security clearances for
our employees working on a particular engagement,  we may not derive the revenue
anticipated from the engagement,  which, if not replaced with revenue from other
engagements, could seriously harm our operating results.


We may not be able to successfully identify, manage, finance and integrate
future acquisitions, which may harm our operating results.

     We may use a portion of the proceeds from public  offerings and  operations
to acquire companies or businesses that are complementary to ours.  However,  we
have no  immediate  plans  or  current  agreements  to  acquire  any  additional
companies  or  businesses,  and we  cannot  assure  you  that we  will  identify
appropriate acquisition candidates. If we do identify an appropriate acquisition
candidate,  we cannot assure you that we would be able to successfully negotiate
the terms of an acquisition,  finance the acquisition, or integrate the acquired
business into our existing business.  Negotiations of potential acquisitions and
the integration of an acquired  business could disrupt our business by diverting
management away from  day-to-day  operations.  Further,  failure to successfully
integrate any acquisition may cause  significant  operating  inefficiencies  and
adversely  affect our  profitability.  Consummating a merger could require us to
raise additional funds through  additional equity or debt financing.  Additional
equity financing could result in further dilution of the per share value of your
stock.   Additional  debt  financing  could  force  us  to  accept   contractual
limitations that could harm our ability to grow.


Audits of our government contracts may result in a reduction in revenues we
receive from those contracts or may result in civil or criminal penalties that
could harm our reputation.


                                       12
<PAGE>

     Federal  government  agencies routinely audit government  contracts.  These
agencies review a contractor's  performance on its contract,  pricing practices,
cost structure,  and compliance with applicable laws, regulations and standards.
An audit could result in a substantial  adjustment  to our revenues  because any
costs  found to be  improperly  allocated  to a  specific  contract  will not be
reimbursed,  while  improper  costs already  reimbursed  must be refunded.  If a
government audit uncovers improper or illegal  activities,  we may be subject to
civil and criminal penalties and administrative sanctions, including termination
of  contracts,  forfeiture  of  profits,  suspension  of  payments,  fines,  and
suspension or debarment from doing business with federal government agencies. In
addition,   we  could  suffer  serious   reputational  harm  if  allegations  of
impropriety were made against us.


We may be liable for penalties under a variety of procurement rules and
regulations, and changes in government regulations could slow our growth or
reduce our profitability.

     We must comply  with and are  affected  by federal  government  regulations
relating  to  the  formation,  administration,  and  performance  of  government
contracts.  These regulations affect how we do business with our clients and may
impose added costs on our business.  Any failure to comply with  applicable laws
and regulations could result in contract  termination,  price or fee reductions,
or  suspension  or  debarment  from  contracting  with the  federal  government.
Further,  the federal  government may reform its procurement  practices or adopt
new contracting  methods  relating to the GSA schedule or other  government-wide
contract vehicles.  If we are unable to successfully adapt to those changes, our
business could be seriously harmed.


Our failure to adequately protect our confidential information and proprietary
rights may harm our competitive position.

     While our employees execute confidentiality agreements, we cannot guarantee
that  this  will be  adequate  to  deter  misappropriation  of our  confidential
information.  In addition,  we may not be able to detect unauthorized use of our
intellectual  property in order to take appropriate steps to enforce our rights.
If third parties infringe or misappropriate our copyrights, trademarks, or other
proprietary information,  our competitive position could be seriously harmed. In
addition,  other parties may assert infringement claims against us or claim that
we have violated their intellectual  property rights.  Such claims,  even if not
true, could result in significant legal and other costs and may be a distraction
to management.


Changes to federal government procurement rules and regulations could impact
revenues.

     While  the  government  procurement  changes  of  the  mid-1990s  generally
benefited  companies  servicing  the  federal  government  (such  as  government
agencies being able to award  outsourcing  contracts  based on "best value" over
lowest  price),  any future  changes  that sought to limit or reduce  government
outsourcing,  perhaps,  for  example,  bringing  more  technology  systems  work
"in-house," could have a negative impact on company revenues.


Continued involvement in Iraq, or other nations, could impact federal government
spending on our civilian and defense programs.

     Although  our  work  focuses  primarily  on our  clients'  mission-critical
programs, continued involvement in Iraq or a war in another country could change
the federal government's spending priorities for domestic and military programs.
Spending  on  our  clients'  programs  could  also  be  negatively  impacted  by
Congress's  unwillingness to pass the necessary  appropriation bills required to
pay for a war effort.


Our quarterly operating results may fluctuate significantly as a result of
factors outside of our control, which could cause the market price of our stock
to decline.


                                       13
<PAGE>

     Our revenue and operating results could vary  significantly from quarter to
quarter.  In addition,  we cannot  predict with  certainty our future revenue or
results of operations.  As a consequence,  our operating  results may fall below
the  expectations  of securities  analysts and investors,  which could cause the
price of our stock to decline.  Factors  that may affect our  operating  results
include:


     o    fluctuations in revenue earned on contracts

     o    commencement,  completion,  or  termination  of  contracts  during any
          particular quarter

     o    variable purchasing patterns under GSA schedule contracts,  GWACs, and
          agency-specific indefinite delivery/indefinite quantity contracts

     o    providing  services  under  a  share-in-savings  or  performance-based
          contract

     o    additions and departures of key personnel

     o    strategic  decisions by us or our  competitors,  such as acquisitions,
          divestitures,  spin-offs,  joint ventures,  strategic investments,  or
          changes in business strategy

     o    changes  in  policy  or  budgetary   measures  that  adversely  affect
          government contracts in general

     o    the seasonality of our business


     Reductions  in  revenue  in  a  particular  quarter  could  lead  to  lower
profitability  in that quarter because a relatively large amount of our expenses
are fixed in the short-term.  We may incur significant operating expenses during
the  start-up  and  early  stages  of  large   contracts  and  may  not  receive
corresponding  payments  or  revenue  in that same  quarter.  We may also  incur
significant or  unanticipated  expenses when contracts  expire or are terminated
and not renewed. In addition, payments due to us from government agencies may be
delayed due to billing cycles or as a result of failures of governmental budgets
to gain Congressional and administration approval in a timely manner.


Our employees may engage in misconduct or other improper activities, which could
harm our business.

     We are exposed to the risk that employee  fraud or other  misconduct  could
occur. Misconduct by employees could include intentional failures to comply with
federal government procurement regulations, engaging in unauthorized activities,
seeking  reimbursement  for  improper  expenses,  or  falsifying  time  records.
Employee  misconduct  could  also  involve  the  improper  use of  our  clients'
sensitive or classified information,  which could result in regulatory sanctions
against us and  serious  harm to our  reputation.  It is not always  possible to
deter  employee  misconduct,  and the  precautions we take to prevent and detect
this activity may not be effective in controlling  unknown or unmanaged risks or
losses, which could harm our business.


Recent Accounting Pronouncement

     In  December  2004,  the FASB  issued  Statement  No. 123  (revised  2004),
"Share-Based  Payment"  ("SFAS  123(R)"),  which  requires the  measurement  and
recognition of compensation  expense for all stock-based  compensation  payments
and supersedes the current accounting under Accounting  Principles Board Opinion
No. 25,  "Accounting  for Stock Issued to Employees"  ("APB 25"). SFAS 123(R) is
effective as of the  beginning of the first interim or annual  reporting  period
after December 15, 2005. In March 2005,  the Securities and Exchange  Commission
issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to the adoption of
SFAS 123 (R).

     We  adopted  SFAS  123(R) in the  first  quarter  of  fiscal  2006 and will
continue  to  evaluate  the impact of SAS 123(R) on our  operating  results  and
financial condition.  The pro forma information in Note 2 presents the estimated
compensation  charges under  Statement of Financial  Account  Standards No. 123,
"Accounting   for   Stock-Based   Compensation."   The  Company  will  recognize
compensation cost for stock-based  awards issued, or unvested after December 31,
2005 on a straight-line basis over the requisite service period for the unvested
awards at December 31, 2005. The Company  expects the adoption of SFAS 123(R) to
reduce net income by at least $1,000,000.


                                       14
<PAGE>

     In May 2005, The Financial  Accounting  Standards Board issued Statement of
Financial   Accounting   Standard  No.  154,   "Accounting   Changes  and  Error
Corrections."  The  Statement  applies to all  voluntary  changes in  accounting
principle  and to changes  required by an accounting  pronouncement  that do not
include explicit  transition  provisions.  SFAS No. 154 requires that changes in
accounting  principle  be  retroactively  applied,   instead  of  including  the
cumulative  effect in the  income  statement.  The  correction  of an error will
continue to require  financial  statement  restatement.  A change in  accounting
estimate  will  continue  to be  accounted  for in the  period of change  and in
subsequent  periods,  if  necessary.  SFAS No. 154 is effective for fiscal years
beginning  after  December  31,  2005.  We do not  expect the  adoption  of this
Statement  to have a material  impact on our  financial  condition or results of
operations.


ITEM 2.    DESCRIPTION OF PROPERTY

     Digital  Fusion  serves its customers  through its corporate  headquarters,
located in Huntsville,  Alabama,  and regional offices located in New Jersey and
Texas.  The Company does not own any real  property and is currently  conducting
its operations at the following leased premises:

<TABLE>
<CAPTION>
   <S>                             <C>                               <C>                 <C>         <C>
                                                                                      Approximate
                                                                    Approximate      Annual Leased
   Location                        Description of Facility         Square Footage         Cost       Lease Term

   4940-A Corporate Drive          Corporate headquarters,            3,256               $39,625    12/31/04 -
   Huntsville, AL 35805            administration, sales,                                            6/30/07
                                   customer support, and
                                   programming services

   4910-H Corporate Drive          Administration, sales,             3,256               $41,148    01/01/05 -
   Huntsville, AL 35805            customer support                                                  08/31/06

   7067 Old Madison Pike           Sales, customer support and        11,115             $135,264    10/1/04 -
   Suite 170                       programming services                                              9/30/07
   Huntsville, AL 35806

   3 South Broad Street            Sales, customer support,           1,390               $21,545    9/1/03 - 8/31/06
   Suite 2D                        and programming services
   Woodbury, NJ  08096

     The leases for the below facilities were signed in February 2006.

   5030 Bradford Drive             Corporate headquarters,            25,487             $428,298    05/01/06 -
   Building  1,  Suites  120 and   administration, sales,                                            11/30/11
   210                             customer support, and
   Huntsville, AL  35805           programming services

   5 Butterfield Trail             Sales, customer support            1,761               $22,893    03/01/06-02/28/07
   Suite 5A
   El Paso, TX  79906
</TABLE>


                                       15
<PAGE>

     The Company  believes that all of its leased premises are in generally good
condition, well maintained, and adequate for current operations.

ITEM 3.    LEGAL PROCEEDINGS

     The Company is involved in certain legal actions  arising from the ordinary
course of business. While it is not feasible to predict or determine the outcome
of these matters,  we believe that the resolution of these  proceedings will not
have a material adverse effect on our business,  financial  condition or results
of operations.

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

     No matters were submitted to a vote of security  holders during the quarter
ended December 31, 2005.



                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Digital  Fusion's  common  stock was traded on The NASDAQ  Small Cap Market
under the symbol "DIGF" from May 15, 1998 to May 8, 2003.  Prior to May 15, 1998
there was no established market for its common stock.

     Effective  May 9, 2003,  the Company was  de-listed by The NASDAQ Small Cap
Market, and is currently being traded on the OTC Bulletin Board under the symbol
"DIGF." The following  table  indicates  high and low sales  quotations  for the
periods indicated.  Such quotations reflect inter-dealer prices,  without retail
mark-up,  mark-down or  commission,  and may not  necessarily  represent  actual
transactions.


         2005                              High                     Low

     First Quarter                        $2.85                    $2.01

     Second Quarter                       $2.75                    $1.91

     Third Quarter                        $3.28                    $2.30

     Fourth Quarter                       $3.25                    $2.45


        2004                               High                     Low

     First Quarter                        $0.45                    $0.29

     Second Quarter                       $1.41                    $0.35

     Third Quarter                        $1.50                    $0.86

     Fourth Quarter                       $3.30                    $1.03


                                       16
<PAGE>

     The number of holders of record of common stock on March 15, 2006 was 108.

     There were no dividends or other  distributions  made by the Company during
the fiscal year ended  December 31, 2005 with respect to its common  stock.  The
Company  currently  intends to retain any earnings to provide for the  operation
and expansion of its business and does not anticipate  paying any cash dividends
to the holders of its common stock in the foreseeable future.

Sales of Unregistered Stock

     Issuance of  unregistered  stock  during the  preceding  three-year  period
(other than  issuances of  unregistered  stock issued during the fourth  quarter
2005)  have  been  previously  reported  on  Forms  10-KSB  and  10-QSB  and are
incorporated into this 10-KSB by reference.

     On November 9, 2005, the Company issued 6,660 shares of its common stock at
an  exercise  price of $1.00 for the  exercise  of  non-qualified  options.  The
Company received proceeds of $6,660 from the exercise of these options.

     On December 29, 2005, the Company issued 133,333 shares of its common stock
to Summit note holders. See Note 14 to the consolidated financial statements for
a discussion of the  acquisition  and debt acquired  during the first quarter of
2005 from the acquisition of Summit Research Corporation.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


The following discussion and analysis should be read together with the
consolidated financial statements and notes to such statements appearing
elsewhere herein.

Overview

     Digital  Fusion,  Inc.  (used  herein,  "Digital  Fusion",  "DFI",  and the
"Company", refer to Digital Fusion, Inc.) is an information technology, research
and  engineering,  and acquisition and business  support  services  company that
helps its customers  make the most of technology to meet their  business  needs.
Digital Fusion's IT Services business unit provides solutions to both government
and  commercial  customers,  focused in the following  areas:  Business  Process
Automation,  Application Development and Data Management,  Application Security,
Web Portals and Digital Dashboards,  System Integration, and IT Support. Digital
Fusion's  Research and Engineering  Services business unit supports a variety of
customers with state-of-the-art  solutions that include: Systems Development and
Engineering;   Applied  Aerodynamics/   Computational  Fluid  Dynamics;  Missile
Engineering; Thermal-Structural Modeling; Program, Data and Financial Management
Support; Modeling and Simulation; Control System Design and Analysis; Mechanical
Design  and   Analysis;   Optical   Systems   Design,   Development   and  Test;
Hardware-in-the-Loop   Testing;  and  Test  and  Evaluation.   Digital  Fusion's
Acquisition  and Business  Support  Services  business unit  provides  solutions
focused on the following  areas:  Budget  Integration  and Analysis;  Accounting
Operations;  Travel  Management;  SAP Expertise;  Business  System  Development,
Evaluation and Operation; Assessing Best Business Practices and Tools; Contracts
Management and Administration;  Purchasing Expertise;  Procurement Documentation
Generation and Evaluation;  Price and Cost Analysis; Earned Value Management and
Policy Evaluation and Support.  The Company is incorporated in Delaware with its
main offices located in Huntsville,  Alabama.  The Company has satellite offices
in   New   Jersey   and   Texas.    Digital    Fusion's   website   address   is
www.digitalfusion.com.


                                       17
<PAGE>

     Revenues  are derived  primarily  from fees earned in  connection  with the
performance of services provided to customers. The Company typically invoices on
a time and materials basis. The majority of costs are associated with personnel.
Attracting and retaining  billable employees is vital for the Company's success.
Quarterly  operating  results are affected by the number of billable days in the
quarter,  holiday  seasons,  and  vacations.  Demand for the Company's  billable
services  has  historically  been lower  during the  fourth  quarter  because of
holidays and  vacations.  During the third  quarter 2004,  Digital  Fusion began
selling the SPI Dynamics Information Assurance product line WebInspect.  Digital
Fusion is a Value Added Reseller (VAR) for SPI Dynamics.  WebInspect  audits web
based  applications  and  determines  security  vulnerabilities.  Digital Fusion
markets  these  products  along with  remediation  services  to  commercial  and
government customers.

     The  Company had net income and losses of $7,000 and  ($1,044,000)  in 2005
and 2004,  respectively,  and cash flow deficiencies from operations of $640,000
and $990,000 in 2005 and 2004,  respectively.  With the addition of  engineering
services  during  the third  quarter  of 2004 and the  acquisition  of Summit on
January 3, 2005, Digital Fusion greatly expanded its services offerings and past
performance with governmental customers and federal prime contracts. Engineering
services  include the design,  development and  integration of advanced  sensing
systems as well as aerodynamic  analysis and  thermal-structural  analysis.  The
engineering  services  provided  by the Summit  acquisition  include  modeling &
simulation,   hardware-in-the-loop   testing,   mechanical  design  &  prototype
fabrication,  information technology and information management systems, program
analysis,   and  associated   technology  transfer  into  production  automation
processes.  These new services give the Company the ability to capitalize on the
increased  spending by the  governmental  sector due to  increased  military and
homeland security spending.

     With the addition of  engineering  services and the  acquisition of Summit,
the Company  believes it has taken the necessary  steps to attain  positive cash
flow from continuing  operations during 2006. The Company will continue to focus
on consistent  collections of accounts receivable and continued  improvements in
its operational  performance.  Company management  believes that, as a result of
these  actions  and  assuming  it can grow its client  base in the  private  and
federal  sectors,   it  currently  has  sufficient  cash  to  meet  its  funding
requirements over the next year,  although the Company has experienced  negative
cash flows from operations and incurred large net losses in the past.

Results of Operations

     Revenues.   Total  revenues   increased   approximately   $14,161,000  from
$6,766,000  for the year ended  December  31, 2004 to  $20,927,000  for the year
ended  December 31, 2005.  The increase in total  revenue  during the year ended
December 31, 2005,  compared to the year ended  December 31, 2004 was  primarily
related  to the  acquisition  of  Summit  Research  and  growth  in  engineering
services.

     Services  revenues  increased  approximately   $11,739,000  or  270%,  from
$4,343,000  for the year ended  December 31, 2004, to  $16,082,000  for the year
ended  December 31,  2005.  Reimbursed  costs  revenue  increased  approximately
$2,358,000  or 364%,  from  $648,000  for the year ended  December  31,  2004 to
$3,006,000  for the year ended  December  31,  2005.  The  increase  in services
revenues and reimbursed costs revenue during the year ended 2005 compared to the
year ended 2004 was  primarily  related to  increases  in the number of billable
employees,  which was primarily related to growth associated with the startup of
the contract with NASA's  Marshall  Space Flight  Center,  growth in engineering
services, and the acquisition of Summit Research,  partially offset by decreases
in IT services revenue.

     Product revenues increased  approximately  $64,000 or 3.6%, from $1,775,000
for the year ended  December 31, 2004, to $1,839,000 for the year ended December
31, 2005.  During the third quarter of 2004,  Digital Fusion began reselling the
SPI Dynamics  Information  Assurance  product line  WebInspect  to  governmental
organizations.

     Cost of Sales.  Cost of sales consists  primarily of labor, or the salaries
and  wages of our  employees,  plus  fringe  benefit,  and other  direct  costs.
Services cost of sales  increased by  $9,043,000  from  $3,814,000  for the year
ended December 31, 2004 to $12,857,000 for the year ended December 31, 2005. The
increase  in  services  cost of sales is  primarily  related to the  increase in
services revenues.


                                       18
<PAGE>

     Reimbursed  costs  consist  primarily  of  third-party  materials,  such as
hardware and software  that we purchase  for  customer  solutions  and resold to
customers.  Reimbursed costs also include the costs of  subcontracted  labor and
travel  related  expenses that are  reimbursed.  The increase in the  reimbursed
costs from $521,000 for the year ended  December 31, 2004 to $2,896,000  for the
year  ended  December  31,  2005 is  primarily  due to the  materials  that  are
purchased and resold to customers.

     Product cost of sales are primarily  related to sales of the Intuit product
Track-It!  and SPI  Dynamics  Information  Assurance  product  line  WebInspect.
Product cost of sales  increased by $41,000 from  $1,673,000  for the year ended
December 31, 2004 to $1,714,000 for the year ended December 31, 2005.

     Gross  Profit.  Gross profit is $3,460,000 or 16.5% of revenues in the year
ended  December 31, 2005  compared to $758,000 or 11.2% of services  revenues in
the year ended  December 31, 2004.  During the year ended December 31, 2005, the
Company's  business changed from primarily a commercial IT consulting company to
primarily a  government  services  contractor.  The increase in gross profit was
primarily related to revenue growth associated with engineering services and the
acquisition of Summit Research.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  ("SG&A")  expenses  consist  primarily  of salaries and expenses
associated  with  marketing,  accounting,  finance,  sales,  and  administrative
personnel, as well as professional fees and other corporate costs related to the
administration  of  the  Company.   SG&A  expenses  increased   $1,005,000  from
$1,655,000  in the year ended  December 31, 2004 to $2,660,000 in the year ended
December 31, 2005. The increase in SG&A is primarily  related to the addition of
engineering services and the acquisition of Summit. SG&A as a percent of revenue
was 12.7% and 24.5% for the year ended December 31, 2005 and 2004, respectively.
The Company  expects its SG&A will  continue to decrease as a percent of revenue
during 2006; however, the Company expects its SG&A actual dollars to continue to
increase during 2006 compared to the same periods in 2005 due to the addition of
support personnel.

     Interest  Expense.  Interest expense increased $39,000 from $147,000 in the
year ended  December  31, 2004 to $186,000 in the year ended  December 31, 2005.
The  majority of 2004  interest  expense is related to a  convertible  debenture
(which  includes  the  amortization  of deferred  financing  fees) and the notes
associated with buying a division in a prior year. The convertible debenture was
paid off during 2004.  The majority of 2005  interest  expense is related to the
Company's  line of credit  facility  and  additional  debt  issued to the former
Summit shareholders for the acquisition of Summit.

     Other  Income.  The  $88,000  of other  income  recorded  in the year ended
December 31, 2005 is primarily  related to a gain on investment and the reversal
of deferred revenue recorded in prior years for obligations that no longer exist
and for services the Company no longer provides.

     Amortization of Intangible Assets. The $308,000  amortization of intangible
assets in the year ended December 31, 2005 is related to the Summit acquisition.
The Company  allocated  $1,669,000  to the customer base  intangible  assets and
allocated $275,000 to employment  agreements acquired in the Summit acquisition.
The Company is amortizing the customer base and employment  agreements over five
and four years, respectively. There was no such expense during 2004.

     Amortization of Discount on Debt and Intrinsic  Value of Convertible  Debt.
The  $387,000   amortization  of  debt  discount  and  intrinsic  value  of  the
convertible  debt  in the  year  ended  December  31,  2005  is  related  to the
convertible  debt  issued to the former  Summit  shareholder.  There was no such
expense during 2004.


                                       19
<PAGE>

     Income Tax Benefit.  The income tax expense for the  Company's  income from
operations  generated  during  2005 was offset by a reduction  in the  valuation
allowance  established  against  deferred tax assets arising from prior periods.
The Company has not  recognized an income tax benefit for its  operating  income
and loss generated  during 2005 and 2004 based on  uncertainties  concerning its
ability to generate  taxable income in future periods.  The tax benefit for 2005
and 2004 is offset by a valuation  allowance  established  against  deferred tax
assets  arising  from  operating  losses and other  temporary  differences,  the
realization  of which  could not be  considered  more likely than not. In future
periods,  tax benefits and related  deferred tax assets will be recognized  when
management considers realization of such amounts to be more likely than not.

     Net Income (Loss).  As a result of the above factors,  net income increased
$1,051,000 from a net loss of $1,044,000 for the year ended December 31, 2004 to
net income of $7,000 for the year ended  December 31, 2005.  The increase in net
income for the year ended  December 30, 2005  compared to the same period during
2004 is  primarily  the result of the addition of  engineering  services and the
Summit acquisition.

Liquidity and Capital Resources

     Net cash used in operating  activities  decreased  from $990,000 in 2004 to
$640,000 in 2005.  The largest  cost of sales is  personnel  costs and this cost
must be paid timely and cannot be delayed;  thus, as the Company's revenues grow
this will cause a use of cash in the  interim  period  until the  revenue can be
collected.  The Company is able to borrow on its line of credit up to 90% of its
eligible  accounts  receivable  to a maximum  borrowing  of $3.5  million.  This
borrowing capability helps the Company's cash flow until the accounts receivable
are collected.  The decrease in cash used in operations is primarily  related to
the  increase  in net  income,  partially  offset  by an  increase  in  accounts
receivable.

     During the year ended  December  31, 2005 and 2004,  the  Company  invested
$180,000  and  $436,000,  respectively,  primarily  in  computer  equipment  and
furniture.  The Company expects to have higher capital  expenditures during 2006
than  2005 as the  Company  investments  primarily  in  computer  equipment  and
furniture to support anticipated growth.

     On January 3, 2005, the Company closed on its acquisition of Summit.  Under
the terms of the Summit acquisition agreement, the Company (a) paid $1.6 million
in cash (of which  $500,000  was in  escrow at  December  31,  2004) (b)  issued
575,000 shares of the Company's common stock, (c) executed a $898,692  six-month
note and (d) executed a $2.7 million convertible  promissory note. The principal
portion of the convertible  note may be converted at any time by the note holder
into the Company's common stock at a conversion price of $2.25 per share. In the
event the entire  convertible  note is  converted,  the Company  would issue 1.2
million  shares of the Company's  common stock.  No interest will accrue for the
first six  months and during any  calendar  month in which the  average  closing
price of the Company's common stock is greater than $2.80 per share.

     On July 1, 2005, the Company paid an installment payment as required by the
Summit  acquisition  of $905,047 that was comprised of $877,195 of principal and
the  remaining  amount was accrued  interest.  During the third quarter of 2005,
$49,000 was paid to the Summit CEO as old receivables were collected. On October
4, 2005,  the Company was  notified  that  $299,999  of the  $600,000  principal
payment  due  December  31, 2005 would be  converted  to company  common  stock.
Accordingly,  the Company  paid  $300,001 and issued  133,333  shares of company
common stock to the Summit note holders.

     Net cash provided by financing  activities  for the year ended December 31,
2005 was $1,746,000. The Company received $715,000 of proceeds from the exercise
of warrants and options and $2,862,000 from its line of credit.  This was offset
by the  payment of  $1,831,000  to certain  note  holders  during the year ended
December  31,  2005.  On  April  29,  2005,  the  Company  executed  a  $374,000
convertible  note payable to its CEO at the time to  refinance  two notes it had
outstanding to the CEO. The interest on the convertible  debt is payable monthly
with the principal due on April 29, 2007.  The note can be converted by the note
holder into the Company's common stock at a conversion price of $2.43 per share.


                                       20
<PAGE>

     The  Company's  working  capital,  which  consists  of current  assets less
current liabilities,  was negative $246,000 as of December 31, 2005. Included in
current maturities of long-term debt on the company's consolidated balance sheet
at December 31, 2005 is the Company's  $2,862,000  line of credit.  During 2005,
the Company has funded its cash needs through consistent collections of accounts
receivable,  through the exercise of warrants  and options,  and by borrowing on
its line of credit,  which is secured by the Company's  receivables  and certain
guarantees, at an interest rate equal to the First Commercial Bank prime rate.

     Digital  Fusion's  ability  to grow  substantially  may be  dependent  upon
obtaining cash flow from its operations and other external sources.

     The Company has taken numerous  actions to  restructure  and streamline its
operations  and has obtained a line of credit secured with its  receivables  and
certain guarantees.  Because of these actions, management believes it has enough
cash to meet its funding  requirements over the next year. The Company's current
growth has been funded  through  internally  generated  funds,  the  exercise of
warrants and options,  and its line of credit.  Future  growth will be supported
with revenue from continuing operations. If the Company fails to meet its goals,
seeks to expand  its  operations  at a level  above its  current  cash flow from
operations,  or does not collect its accounts  receivable in a timely manner, it
may require an infusion of working capital of which the  availability  and terms
cannot be predicted.

Off-Balance Sheet Arrangements

     The Company does not have any off-balance sheet arrangements.

Fluctuations in Operating Results

     The Company's operating results may fluctuate  significantly from period to
period as a result of the length of its sales cycles, customer budgeting cycles,
the  introduction  of new products and  services by  competitors,  the timing of
expenditures,  pricing  changes in the  industry,  technical  difficulties,  and
general  economic  conditions.  The nature of the Company's  business  generally
requires making expenditures and using significant resources prior to receipt of
corresponding  revenues.  Operating  results can also  fluctuate  based upon the
number of billable days in a reporting period and the fourth quarter results are
normally lower due to the holiday season and vacation time.

Inflation

     Inflation  has not had a  significant  impact on the  Company's  results of
operations.

CERTAIN FACTORS WHICH MAY AFFECT THE COMPANY'S FUTURE PERFORMANCE

Critical Accounting Policies

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions  that have a significant  impact on
the  results  reported  in the  financial  statements.  Some  of the  accounting
policies require  management to make difficult and subjective  judgments,  often
because of the need to make estimates of matters that are inherently  uncertain.
Digital Fusion's most critical accounting policies include revenue  recognition,
accounts receivable reserves, and the valuation of goodwill.  Actual results may
differ from the estimates  under  different  assumptions  or  conditions.  These
policies are discussed below, as are the estimates and judgments involved:


                                       21
<PAGE>

Revenue Recognition

     We recognize  revenue when  persuasive  evidence of an arrangement  exists,
services have been rendered or goods  delivered,  the contract price is fixed or
determinable,  and  collectibility  is reasonably  assured.  The majority of the
Company's current contracts are with Federal Government Departments or Agencies,
or  subcontracts  to  companies  whose  prime  contracts  are with  the  Federal
Government.  Most of these  contracts are Time and Material  (T&M) or Firm Fixed
Price Level of Effort (FFP LOE).  The LOE clause  requires the Company to have a
certain  number of labor  hours and that  these  hours are  worked by  personnel
qualified to perform under certain labor categories.  Revenue on these contracts
is recognized as time is expended and or materials are  delivered.  The price is
based on effort expended,  not results achieved.  The revenue on these contracts
is  recognized  by hours worked  which serves as a proxy for output.  Revenue on
cost-plus-fee  contracts is recognized to the extent of costs or hours  actually
incurred plus a  proportional  amount of the fee earned.  We consider fixed fees
under  cost-plus-fee  contracts to be earned in proportion to the allowable cost
actually  incurred or by hours  actually  worked in performance of the contract.
The Company's  deferred  revenue relates to payments we have received in advance
of services (hours worked).

     From time to time,  we may proceed  with work based on  customer  direction
prior to the  completion  and signing of formal  contract  documents.  We have a
formal review process for approving any such work.  Revenue associated with such
work is recognized  only when it can be reliably  estimated and  realization  is
probable.  We base our  estimates  on  previous  experiences  with  the  client,
communications  with the client regarding  funding status,  and our knowledge of
available funding for the contract or program.

Allowance for Doubtful Accounts

     The Company's  accounts  receivable are reduced by $26,000 for an allowance
for amounts that may become uncollectible in the future. The estimated allowance
for  uncollectible  amounts is based on a specific  analysis  of accounts in the
receivable portfolio and a general reserve based on the aging of receivables and
historical write-off experience. The Company's management believes the allowance
to be  reasonable.  The Company  does not accrue  interest on past due  accounts
receivable. Certain of Digital Fusion's trade accounts receivable are subject to
bad debt losses. A reserve has been recorded to reflect expected bad debt losses
based on past  experience  with  similar  accounts  receivable.  The  reserve is
reviewed on a regular  basis and  adjusted  as  necessary.  Although  management
believes  the reserve is a reasonable  approximation,  there can be no assurance
that the  Company  can  accurately  estimate  bad debt  losses  on its  accounts
receivable.


Valuation of Goodwill and Intangible Assets

     Goodwill and intangible assets are reviewed annually for impairment or more
frequently  if  impairment  indicators  arise.  This annual  impairment  test is
performed in the last quarter of each fiscal year. The goodwill  impairment test
requires a comparison of the fair value of the Company to the amount of goodwill
recorded.  If this  comparison  reflects  impairment,  then  the  loss  would be
measured  as the  excess of  recorded  goodwill  over its  implied  fair  value.
Although the Company's  management  believes that the estimates and  assumptions
used are reasonable, actual results could differ.


Digital Fusion has a limited operating history, which makes it difficult to
evaluate its business.

     The Company has been in operation  since 1995 and many of its services have
only been offered since 1997 or later.  In 1999 and 2000,  the Company  acquired
multiple  companies.  In 2000 and  2001,  it sold  off  multiple  divisions  and
underwent  significant  restructurings.  In 2001,  2004,  and 2005,  there was a
significant  change in  management.  As a result of the change in management and
business units,  prior operating  history may not be  representative  of current
operations, which makes it difficult to evaluate the Company and forecast future
results.

The Company has experienced significant prior operating losses. If it does not
generate sufficient cash flow from operations or is unable to raise capital in
sufficient amounts, it may be unable to continue to operate.


                                       22
<PAGE>

     Digital Fusion has experienced significant losses in its operations. It may
continue to incur losses for the foreseeable future. For the year ended December
31, 2005 and 2004 income and losses from  continuing  operations were $7,000 and
($1,044,000),  respectively.  Its  expenses may increase as it seeks to grow its
business and as business grows. Even if the Company becomes  profitable,  it may
be unable to sustain  profitability.  It may not generate  sufficient  cash flow
from  operations or be able to raise capital in sufficient  amounts to enable it
to continue to operate. An inability to sustain profitability may also result in
an impairment loss in the value of long-lived assets, such as goodwill, property
and  equipment,  and other tangible and  intangible  assets.  If it is unable to
generate  sufficient  cash flow from  operations  or raise capital in sufficient
amounts, the Company may be unable to continue as a going concern.

A loss of a significant customer could substantially decrease revenues.

     The  Company has  several  large  customers  and a  termination  by a major
customer could substantially decrease revenues.

If revenues do not meet forecasted revenue, it may have an adverse effect on the
Company's financial condition, and could cause material losses.

     A large  portion of the revenues  derived from the  consulting  business is
generally non-recurring in nature. There can be no assurance that Digital Fusion
will  obtain  additional  contracts  for  projects  similar  in  scope  to those
previously  obtained from any of its  customers,  that it will be able to retain
existing customers or attract new customers,  or that it will not remain largely
dependent  on a limited  customer  base,  which may  continue  to account  for a
substantial portion of revenues.  In addition,  the Company is generally subject
to delays in customer  funding,  lengthy  customer review processes for awarding
contracts,  non-renewal,  delay,  termination,   reduction  or  modification  of
contracts  in the  event of  changes  in  customer  policies  or as a result  of
budgetary constraints,  and increased or unexpected costs resulting in losses in
the event of "fixed-price" contracts.

     The Company may increase its  operating  expenses to increase the number of
its sales,  marketing and technical personnel to sell, provide,  and support its
products and services.  It may not be able to adjust spending  quickly enough to
offset  any  unexpected  revenue  shortfall.  It may have  significant  accounts
receivable  balances  with  customers  that  expose it to  credit  risks if such
customers  are  unable to settle  such  obligations.  If there is an  unexpected
shortfall in revenues in relation to expenses,  or significant bad debt expense,
there could be a material adverse effect on the Company's  financial  condition,
and it could suffer material losses.

If Digital Fusion fails to adequately keep up with the rapidly changing,
evolving information technology market, it may not be able to attain
profitability.

     The markets for some of the  Company's  services  are rapidly  changing and
evolving, and therefore the ultimate level of demand for its services is subject
to a  high  degree  of  uncertainty.  Any  significant  decline  in  demand  for
programming  and  applications   development  and  IT  support  and  integration
consulting services could materially adversely affect its business and prospects
and it may not be able to attain profitability.

     The Company's  success is dependent on its ability to  continually  attract
and retain new customers as well as to replace customers that do not renew their
contracts.  Achieving  significant  market  acceptance will require  substantial
efforts and expenditures to create awareness of its services.

The Company may not have the resources to compete effectively with larger
competitors, which could result in lost market share and decreased pricing.

     Competition for the Internet and IT consulting services that Digital Fusion
provides is significant,  and the Company expects that competition will continue
to  intensify  due to the  ease of  entering  that  market.  It may not have the
financial  resources,  technical  expertise,  sales and  marketing,  or  support
capabilities to successfully meet this  competition.  If it is unable to compete
successfully  against  such  competitors,  it will  lose its  market  share.  It
competes against numerous large companies that have substantially greater market
presence,  longer  operating  histories,  more  significant  customer bases, and
greater  financial,  technical,   facilities,   marketing,  capital,  and  other
resources.


                                       23
<PAGE>

     The  Company's  competitors  may respond more quickly than it can to new or
emerging technologies and changes in customer requirements.  The competitors may
also devote greater resources to the development,  promotion,  and sale of their
products and services.  They may develop Internet products and services that are
superior to or have greater market acceptance than Digital Fusion's. Competitors
may also engage in more  extensive  research  and  development,  undertake  more
extensive marketing campaigns,  adopt more aggressive pricing policies, and make
more  attractive  offers to  existing  and  potential  employees  and  strategic
partners.

     New competitors,  including large computer software, professional services,
and other technology and telecommunications  companies,  may enter the Company's
markets and rapidly acquire  significant  market share. As a result of increased
competition  and vertical and horizontal  integration  in the industry,  Digital
Fusion could encounter  significant  pricing pressures.  These pricing pressures
could result in significantly  lower average selling prices for its products and
services.  It may not be able to offset the effects of any price reductions with
an increase in the number of customers, higher revenue from consulting services,
cost reductions or otherwise. In addition,  professional services businesses are
likely to  encounter  consolidation  in the near  future,  which could result in
decreased pricing and other competition.

If the Company is unable to maintain efficient and uninterrupted operation of
its computer systems, it could cause the loss of certain customers.

     Some of the Company's  business depends on the efficient and  uninterrupted
operation   of  its   computer   and   communications   hardware   systems   and
infrastructure.  Currently,  most  of  its  computer  systems  are  located  and
maintained  in  its  corporate   headquarters  in  Huntsville,   Alabama.  While
precautions have been taken against systems failure,  interruptions could result
from natural disasters, as well as power loss,  telecommunications  failure, and
similar events. A disaster recovery plan is being implemented to avoid any major
interruptions.  The Company also leases  telecommunications lines from local and
regional carriers, whose service may be interrupted.  Any damage or failure that
interrupts or delays network operations could result in an unacceptable level of
service to customers and their possible loss.

If the Company is unable to maintain the security integrity of its systems, it
may result in a liability to the Company or a loss of customers.

     Although measures have been taken to protect the integrity of the Company's
infrastructure  and the privacy of confidential  information,  it is potentially
vulnerable to physical or electronic  intrusions,  computer viruses,  or similar
issues.  If the security  measures are circumvented the security of confidential
information stored on the system could be jeopardized,  proprietary  information
misappropriated,  or operations interrupted. The Company may be required to make
significant  additional  investments  and  efforts to protect  against or remedy
security  breaches.  Security  breaches  that  result in access to  confidential
information  could  damage  its  reputation  and  expose it to a risk of loss or
liability.

     The security services that are offered in connection with customers' use of
the  networks  cannot  guarantee  complete  protection  from  computer  viruses,
break-ins,  and other disruptive problems.  Although an attempt is made to limit
contractually the liability in such instances,  the occurrence of these problems
may result in claims against the Company or liability on its part. These claims,
regardless of their  ultimate  outcome,  could result in costly  litigation  and
could have a material  adverse  effect on its financial  position and reputation
and on its ability to attract and retain customers.

If Digital Fusion is unable to retain the services of key personnel, business
operations may be disrupted.


                                       24
<PAGE>

     The  loss of  existing  personnel  or the  failure  to  recruit  additional
qualified  technical,  managerial,  and sales personnel  could disrupt  business
operations  as  well  as  increase  the  expenses  in  connection   with  hiring
replacement  personnel.  The Company depends on the performance of its executive
officers  and key  employees,  some of whom  have not  entered  into  employment
agreements. The loss of these executives or key employees could disrupt business
operations.

The Company may need additional capital and not be able to attain it, which
could affect its ability to continue as a going concern.

     Future  capital  uses and  requirements  will depend on  numerous  factors,
including:

     o    extent to which solutions and services gain market acceptance
     o    level of revenues from present and future solutions and services
     o    expansion of operations
     o    costs and timing of product  and service  developments,  and sales and
          marketing activities
     o    costs related to acquisitions of technology or businesses
     o    competitive developments
     o    costs related to downsizing  and  discontinuation  or sale of business
          units
     o    need for working capital
     o    timing of accounts receivable collections
     o    timing of debt payments

     In order to continue to increase  sales and marketing  efforts and continue
to expand and enhance the solutions  and services  offered to present and future
customers,  the Company may require additional capital that may not be available
on acceptable terms, or at all. In addition, if unforeseen difficulties arise in
the course of these or other  aspects of  business,  it may be required to spend
funds  that are  greater  than  originally  anticipated.  Therefore,  it will be
required to raise  additional  capital  through public or private equity or debt
financings, collaborative relationships, bank facilities, or other arrangements.
There can be no  assurances  that such  additional  capital will be available on
acceptable  terms, or at all. Any additional  equity financing is expected to be
dilutive  to  stockholders,  and  debt  financing,  if  available,  may  involve
restrictive  covenants  and  increased  interest  costs.  Operations  have  been
financed to date primarily through private sales of equity securities,  proceeds
from the initial public offering in May 1998, and debt facilities.

     There can be no  assurance  that  additional  funding  will be available to
finance  ongoing  operations  when needed or that adequate funds for operations,
whether  from  financial  markets,  collaborative  or  other  arrangements  with
corporate  partners,  or other  sources,  will be available  when needed,  or on
acceptable  terms.  The  inability  to obtain  sufficient  funds may require the
Company to delay, reduce, or eliminate some or all of its expansion programs, to
limit the marketing of its  products,  or to license to third parties the rights
to  commercialize  products  or  technologies  that it would  otherwise  seek to
develop and market.

The unpredictability of quarterly operating results may cause the price of
Digital Fusion's common stock to fluctuate.

     Revenues and operating results vary significantly  from  quarter-to-quarter
due to a number of  factors,  many of which are  beyond the  Company's  control.
Investors  should  not rely on  quarter-to-quarter  comparisons  of  results  of
operations as an indication of future  performance.  It is possible that in some
future  periods,  results of operations may be below the  expectations of public
market  analysts and  investors.  In that event,  the market price of its common
stock may fall.

     Factors that could cause quarterly results to fluctuate include:

     o    change in customer demand for products and services
     o    timing of the expansion of operations
     o    seasonality  in revenues,  principally  during the summer and year-end
          holidays
     o    the mix of products and services revenues from operating divisions
     o    changes in pricing by competitors or the Company


                                       25
<PAGE>

     o    introduction of new products or services by competitors or the Company
     o    costs related to acquisitions of technology or businesses
     o    recession or slow-down in economy
     o    termination of customer contracts

The Company has limited intellectual property protection and may not be able to
successfully protect proprietary information, which could results in lost sales
and lost competitive advantage.

     The Company relies on a combination of copyright and trademark laws,  trade
secrets  laws,  and  license  and   nondisclosure   agreements  to  protect  its
proprietary information, particularly the computer software applications that it
has  developed.  It currently has no registered  copyrights or patents or patent
applications  pending. It may be possible for unauthorized third parties to copy
aspects  of,  or  otherwise  obtain  and use,  proprietary  information  without
authorization.   The  majority  of  current  contracts  with  customers  contain
provisions granting to the customer  intellectual  property rights to certain of
the Company's work product, including the customized programming that is created
for such customer.  It is anticipated  that contracts with future customers will
contain similar provisions.  Other existing agreements and future agreements may
be silent as to the  ownership of such rights.  To the extent that the ownership
of such  intellectual  property rights is expressly  granted to a customer or is
ambiguous, the ability to reuse or resell such rights may be limited.

     The  Company's  policy is to execute  confidentiality  agreements  with its
employees and consultants  upon the  commencement of an employment or consulting
relationship.   These  agreements   generally   require  that  all  confidential
information  developed or made known to the individual  during the course of the
individual's  relationship  with  the  Company  be  kept  confidential  and  not
disclosed  to third  parties.  These  agreements  also  generally  provide  that
inventions  conceived by the  individual in the course of rendering  services to
Digital  Fusion  shall be the  Company's  exclusive  property.  There  can be no
assurance  that  such  agreements  will not be  breached,  that  there  would be
adequate  remedies  for any breach,  or that trade  secrets  will not  otherwise
become known to or be independently developed by competitors which may result in
lost sales and lost competitive advantage.

If the Company fails to perform to customers' expectations it could result in
claims against it which could reduce its earnings.

     Digital  Fusion's  services  involve   development,   implementation,   and
maintenance of computer  systems and computer  software that are critical to the
operations  of  its  customers'  businesses.  Failure  or  inability  to  meet a
customer's  expectations  in the  performance  of its  services  could  harm its
business reputation or result in a claim for substantial damages,  regardless of
its responsibility for such failure or inability.  In addition, in the course of
performing  services,  company  personnel often gain access to technologies  and
content that includes confidential or proprietary customer information. Although
policies have been  implemented to prevent such customer  information from being
disclosed to unauthorized parties or used inappropriately, any such unauthorized
disclosure or use could result in a claim for substantial  damages.  The Company
attempts  to limit  contractually  any damages  that could arise from  negligent
acts, errors, mistakes, or omissions in rendering services and, although general
liability  insurance  coverage is maintained,  including coverage for errors and
omissions,  there can be no assurance  that such  coverage  will  continue to be
available on  reasonable  terms or will be available  in  sufficient  amounts to
cover one or more large claims.  The  successful  assertion of one or more large
claims  against the  Company  that are  uninsured,  exceed  available  insurance
coverage,  or result in  changes  to  corporate  insurance  policies,  including
premium  increases  or the  imposition  of a large  deductible  or  co-insurance
requirements, would have a material adverse effect on the financial condition of
the Company.

Large quantities of common stock sales by Company shareholders could cause its
common stock price to decrease due to the lack of a liquid market for its common
stock.


                                       26
<PAGE>

     The market price of the Company's common stock could decline as a result of
sales of a large  number  of  shares of its  common  stock in the  market or the
perception  that  these  sales may  occur.  These  sales also might make it more
difficult  for it to sell  equity  securities  in the  future at a time and at a
price that it deems appropriate.

     The Company has holders of options and warrants  that if  exercised,  could
also have an adverse effect on the market price of its common stock.

Anti-Takeover Provisions

     Provisions of Digital Fusion's Restated  Certificate of Incorporation,  its
Amended and Restated  By-laws,  and Delaware law,  could make it difficult for a
third  party  to  acquire  it,  even if doing  so  would  be  beneficial  to its
stockholders.

ITEM 7.    FINANCIAL STATEMENTS

     Financial Statements are attached hereto at page 34.



ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     There were no changes in or disagreements with the Company's accountants on
accounting and financial disclosures during 2004 or 2005.


ITEM 8A.    CONTROLS AND PROCEDURES

     We maintain  disclosure  controls  and  procedures  designed to ensure that
material  information  related to us is  recorded,  processed,  summarized,  and
reported  in  accordance  with SEC rules and  forms.  Our  management,  with the
participation of our Chairman and Chief Executive  Officer,  and Chief Financial
Officer,  evaluated the effectiveness of our disclosure  controls and procedures
as of the end of the period covered by this report.  Management  recognizes that
any controls and  procedures,  no matter how well  designed  and  operated,  can
provide only reasonable  assurance of achieving their  objectives and management
necessarily applies its judgment in evaluating the cost-benefit  relationship of
possible  controls  and  procedures.  Based  upon  that  evaluation,  our  Chief
Executive  Officer and Chief  Financial  Officer  concluded  that our disclosure
controls and  procedures  are effective in causing  material  information  to be
recorded,  processed,  summarized,  and reported so as to ensure the quality and
timeliness of our public disclosures in compliance with SEC rules and forms.

     There was no change in our internal control over financial reporting during
the most recent fiscal quarter that materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.

Code of Ethics

     The  Company  has a code of ethics  that  applies  to all of the  Company's
principal executive,  financial, and accounting officers, controller, and others
performing similar functions.  The code of ethics was amended on April 12, 2004,
effective  as of March 24,  2004.  In lieu of filing a form 8-K, the Company has
posted      the     code     of      ethics      on     its      website      at
http://www.digitalfusion.com/corporategovernance.htm  and  is  available  to the
public without charge, by request to Digital Fusion,  Inc., Corporate Secretary,
4940-A Corporate Drive, Huntsville,  Alabama 35805. A copy of this code is filed
and is  incorporated  as reference  as an exhibit to this annual  report on Form
10-KSB.


                                       27
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND CONTROL  PERSONS;
COMPLIANCE  WITH SECTION  16(A) OF THE EXCHANGE ACT


     The response to this item will be contained in the Proxy  Statement for the
2006  Annual  Meeting  of  Stockholders  (the  "2006  Proxy  Statement")  and is
incorporated by reference.


ITEM 10.    EXECUTIVE COMPENSATION


     The response to this item will be contained in the 2006 Proxy Statement and
is incorporated by reference.


ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


     The response to this item will be contained in the 2006 Proxy Statement and
is incorporated by reference.


ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The response to this item will be contained in the 2006 Proxy Statement and
is incorporated by reference.


ITEM 13.    EXHIBITS


   The following is a list of Exhibits filed as a part of this Report.


Exhibit
No.                             Description of Exhibit
-------  -----------------------------------------------------------------------
*3.1     Restated Certificate of Incorporation of the Company (filed as Exhibit
         3.1 to our Registration Statement on Form SB-2, File No. 333-47741,
         filed on April 23, 1998 "Registration Statement").

*3.2     Amended and Restated  By-Laws of the Company  (filed as Exhibit 3.2 to
         our Report on 8-K, filed February 14, 2006).

*3.3     Amendment to Restated  Certificate  of  Incorporation  (filed as
         Exhibit 3.1 to our Report on 8-K, filed November 8, 2001).

 4.1     See Exhibit numbers 3.1, 3.2 and 3.3 for provisions of the Restated
         Certificate of Incorporation and Restated By-Laws of the Company, as
         amended, defining the rights of the holders of common stock.

*4.2     Specimen form of certificate evidencing the shares of common stock of
         the Company (filed as Exhibit 4.1 to our Registration Statement).

*10.1    Digital Fusion, Inc. 1998 Stock Option Plan (filed as Exhibit 10.14 to
         our Registration Statement).+

*10.2    Digital  Fusion,  Inc.  1999 Stock  Option  Plan  (filed as part of our
         Proxy  Statement  for the Annual Meeting of Stockholders held on
         June 4, 1999).+

*10.3    Digital  Fusion,  Inc.  2000 Stock  Option  Plan  (filed as part of our
         Proxy  Statement  for the Annual Meeting of Stockholders held June 9,
         2000). +

*10.4    Employment Agreement, dated as of May 4, 2004, by and between Digital
         Fusion and Jeffrey L. Williams.+


                                       28
<PAGE>

*10.5    Stock Purchase Agreement, dated as of October 28, 2004, by and between
         Digital Fusion and Michael W. Wicks.

*10.6    Convertible Promissory Note, dated January 3, 2005, by and between
         Digital Fusion and Michael W. Wicks.

*10.7    Registration Rights Agreement, dated January 3, 2005, by and between
         Digital Fusion and Michael W. Wicks.

*10.8    Escrow  Agreement,  dated October 28, 2004, by and among Digital
         Fusion,  Michael W. Wicks and Synovus Trust Company.

*10.9    Employment Agreement, dated January 3, 2005, by and between Digital
         Fusion and Michael W. Wicks. +

*10.10   Employment Agreement, dated January 3, 2005, by and between Digital
         Fusion and Steven Thornton. +

*10.11   Employment Agreement, dated January 3, 2005, by and between Digital
         Fusion and Joseph L. Summers. +

*10.12   Loan Agreement, note and security agreements, each dated May 10, 2005
         among First Commercial Bank of Huntsville and the Company, for a
         $3,500,000 revolving line of credit.

*10.13   Convertible Promissory Note dated April 29, 2005 for $374,303.52
         between Roy E Crippen, III (former CEO) and the Company is
         incorporated herein by reference to Exhibit 10.1 to the Form 8-K
         filed May 5, 2005.

*10.14   Registration Rights Agreement dated April 29, 2005 between Roy E.
         Crippen, III (former CEO) and the Company is incorporated herein by
         reference to Exhibit 10.2 to the Form 8-K filed May 5, 2005.

*10.15   Employment  Agreement  dated August 5, 2005  between  Digital  Fusion
         and Eugene Edward Lyons, III. +

*10.16   Employment Agreement dated September 19, 2005 between Digital Fusion
         and Frank Libutti. +

*10.17   Employment Agreement dated October 20, 2005 between Digital Fusion and
         Stacey G. Rock. +

*10.18   Employment Agreement dated October 20, 2005 between Digital Fusion and
         Omer Stephen Brown. +

**10.19  Amended and Restated Employment Agreement, dated November 10, 2005, by
         and between Digital Fusion and Christopher L. Brunhoeber. +

**10.20  Lease Agreement dated February 7, 2006, by and between Colonial Realty
         Limited Partnership and Digital Fusion.

**10.21  Second Amended and Restated Employment Agreement, dated February 24,
         2006, by and between Digital Fusion and Gary S. Ryan. +

**10.22  Second Amended and Restated Employment Agreement, dated February 24,
         2006, by and between Digital Fusion and Edward G. Rawlinson. +

**10.23  Amended and Restated Employment Agreement, dated February 24, 2006, by
         and between Digital Fusion and Elena I. Crosby. +

*14.1    Digital Fusion, Inc. Code of Ethics for Principal Executive and
         Financial Officers.

**21.1   Subsidiaries of the Company.

**31.1   Certification of the Chief Executive Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002.


                                       29
<PAGE>

**31.2   Certification of the Chief Financial Officer pursuant to Section 302 of
         the Sarbanes-Oxley Act of 2002.

**32.1   Certification of Chief Executive Officer pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed
         "filed" for purposes of Section 18 of the Securities Exchange Act of
         1934, as amended, or otherwise subject to the liability of that
         section. Further, this exhibit shall not be deemed to be
         incorporated by reference into any filing under the Securities Act
         of 1933, as amended, or the Securities Exchange Act of 1934, as
         amended.)

**32.2   Certification of Chief Financial Officer pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed
         "filed" for purposes of Section 18 of the Securities Exchange Act of
         1934, as amended, or otherwise subject to the liability of that
         section. Further, this exhibit shall not be deemed to be
         incorporated by reference into any filing under the Securities Act
         of 1933, as amended, or the Securities Exchange Act of 1934, as
         amended.)

------------
* Incorporated by reference.
** Filed herewith.
+ Management contract or compensatory plan or arrangement.




ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

     During  2004,  Digital  Fusion  was  billed  by Pender  Newkirk &  Company,
approximately  $80,000  for audit and review  fees  associated  with its 10-QSB,
10-KSB filings and Employee Benefit Plan. During 2005, Digital Fusion was billed
by Pender  Newkirk & Company,  approximately  $114,000 for audit and review fees
associated with its 10-QSB, 10-KSB filings and Employee Benefit Plan.

Audit related fees

     None

Tax Fees

     None

All Other Fees

     None

Audit Committee Pre-Approval Policies and Procedures

     The response to this item will be contained in the 2006 Proxy Statement and
is incorporated by reference.


                                       30
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.


Dated:  March 30, 2006           DIGITAL FUSION, INC.


                                 /s/ FRANK LIBUTTI
                                    -----------------------------------------
                                    Frank Libutti
                                    Chief Executive Officer and Chairman
                                    (Principal Executive Officer)



                                 /s/  CHRISTOPHER BRUNHOEBER
                                    --------------------------------------------

                                    Christopher Brunhoeber
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)




In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates noted.


Dated: March 30, 2006


Directors:




   /s/    JAY M. GARNER                    /s/    FRANK LIBUTTI
   ---------------------------             --------------------
   Jay M. Garner                           Frank Libutti, Chairman



   /s/    O.G. GREENE                      /s/    CHARLES F. LOFTY
   --------------------------              -----------------------
   O.G. Greene                             Charles F. Lofty



   /s/    G. STEWART HALL                  /s/    GARY S. RYAN
   -------------------------               -------------------
   G. Stewart Hall                         Gary S. Ryan



   /s/    RONALD V. HITE
   -------------------------
   Ronald V. Hite


                                       31
<PAGE>

FINANCIAL STATEMENTS AND EXHIBITS

The following are the consolidated financial statements and exhibits of Digital
Fusion, Inc. and Subsidiaries, which are filed as part of this report.


                                                                            Page

Report of Independent Registered Public Accounting Firm.......................33

Consolidated Balance Sheet as of December 31, 2005............................34

Consolidated Statements of Operations for the years ended
      December 31, 2005 and 2004..............................................35

Consolidated Statement of Stockholders' Equity for the years
      ended December 31, 2004 and 2005........................................36

Consolidated Statements of Cash Flows for the years
      ended December 31, 2005 and 2004........................................37

Notes to Consolidated Financial Statements....................................38


                                       32
<PAGE>

             Report of Independent Registered Public Accounting Firm



Board of Directors
Digital Fusion, Inc.
Huntsville, Alabama


We have audited the accompanying consolidated balance sheet of Digital Fusion,
Inc. and Subsidiaries as of December 31, 2005 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 2005 and 2004. These financial statements are the
responsibility of the management of Digital Fusion, Inc. and Subsidiaries. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Digital
Fusion, Inc and Subsidiaries as of December 31, 2005 and the results of its
consolidated operations and cash flows for the years ended December 31, 2005 and
2004 in conformity with United States generally accepted accounting principles.




Pender Newkirk & Company, LLP
Certified Public Accountants
Tampa, Florida
January 27, 2006


                                       33
<PAGE>

                              DIGITAL FUSION, INC.
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2005

                           ASSETS
Current Assets:
    Cash and cash equivalents                                 $         1,000
    Marketable equity securities                                       66,000
    Accounts receivable (net of allowance for doubtful
    accounts of $26,000)                                            5,277,000
    Unbilled receivables                                              256,000
    Prepaid expenses and other current assets                          70,000
                                                                ---------------
         Total current assets                                       5,670,000

Property and equipment, net                                           492,000
Goodwill                                                            5,861,000
Purchased intangible assets, net                                    1,634,000
Other assets                                                           18,000
                                                                ---------------
         Total assets                                         $    13,675,000
                                                                ===============

            LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
    Current maturities of long-term debt                      $     3,041,000
    Accounts payable                                                1,121,000
    Deferred revenue                                                  212,000
    Accrued compensation and related expenses                       1,470,000
    Other current liabilities                                          72,000
                                                                ---------------
         Total current liabilities                                  5,916,000

Long-term debt, less current maturities                             1,685,000
Pension obligation                                                    341,000
                                                                ---------------
         Total liabilities                                          7,942,000
                                                                ---------------
                                                                ---------------


Stockholders' Equity:
    Preferred Stock - $.01 par value; authorized
        1,000,000 shares, no shares issued and outstanding                  -
    Common Stock - $.01 par value; authorized
        30,000,000 shares; 11,246,748 shares issued and
        outstanding  at December 31, 2005                             112,000
    Additional paid in capital                                     44,393,000
    Accumulated deficit                                           (38,772,000)
                                                                ---------------
         Total stockholders' equity                                 5,733,000

                                                                ---------------
         Total liabilities and stockholders' equity           $    13,675,000
                                                                ===============

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       34
<PAGE>

                              DIGITAL FUSION, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

                                                  2005         2004
                                                  ----         ----
Revenues
  Services                                   $16,082,000  $ 4,343,000
  Reimbursed costs                             3,006,000      648,000
  Product                                      1,839,000    1,775,000
                                              -----------  -----------
       Total revenues                         20,927,000    6,766,000
                                              -----------  -----------
Cost of sales
  Services                                    12,857,000    3,814,000
  Reimbursed costs                             2,896,000      521,000
  Product                                      1,714,000    1,673,000
                                              -----------  -----------
       Total cost of services and goods sold  17,467,000    6,008,000
                                              -----------  -----------
       Gross Profit                            3,460,000      758,000

Selling, general and administrative            2,660,000    1,655,000
                                              -----------  -----------

       Operating income (loss)                   800,000     (897,000)

Other income (expenses):
  Interest expense, net                         (186,000)    (147,000)
  Amortization of discount on debt
  and intrinsic value of convertible debt       (387,000)           -
                                              ----------- ------------
Total interest expense                          (573,000)    (147,000)

  Other income                                    88,000            -
  Amortization of intangible assets             (308,000)           -

                                              ----------- ------------
       Total other expenses                     (793,000)    (147,000)
                                              -----------  -----------
       Net income (loss) before income taxes       7,000   (1,044,000)
                                              ===========  ===========

Income tax benefit                                     -            -
                                              ----------- ------------

       Net income (loss)                     $      7,000 $(1,044,000)
                                              ===========  ===========

Basic earnings (loss) per share              $       0.00 $     (0.13)
                                              ===========  ===========
Basic weighted average common
     shares outstanding                       10,868,000    8,025,000
                                              ===========  ===========

Diluted earnings (loss) per share            $       0.00 $     (0.13)
                                              ===========  ===========
Diluted weighted average common
     shares outstanding                       12,968,000    8,025,000
                                              ===========  ===========

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       35
<PAGE>

                              DIGITAL FUSION, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2005
<TABLE>
<CAPTION>
<S>                                    <C>         <C>        <C>            <C>           <C>
                                           Common stock
                                      ---------------------  Additional
                                        No. of                 Paid-in    Accumulated   Stockholders'
                                         shares    Amount      Capital       Deficit        Equity
-----------------------------------------------------------------------------------------------------
Balance, December 31, 2003             7,167,671    72,000    39,919,000   (37,735,000)    2,256,000
Shares issued from exercise of options    11,975                   4,000             -         4,000
Shares issued from exercise of
 warrants                                200,000     2,000        68,000                      70,000
Shares issued from cashless exercise
 of warrants                              83,490     1,000        (1,000)                          -
Shares issued from sale of stock       2,258,108    22,000     2,078,000                   2,100,000
Stock issuance costs                                             (18,000)                    (18,000)
Net loss                                       -         -             -    (1,044,000)   (1,044,000)
-----------------------------------------------------------------------------------------------------
Balance, December 31, 2004             9,721,244   $97,000   $42,050,000  $(38,779,000)   $3,368,000
Shares issued in Summit purchase         575,000     6,000       569,000             -       575,000
Shares issued from exercise of options   234,278     2,000       164,000             -       166,000
Shares issued from exercise of
 warrants                                582,893     6,000       543,000                     549,000
Shares issued from sale of stock         133,333     1,000       299,000                     300,000
Value of beneficial conversion feature                           768,000                     768,000
Net income                                     -         -             -         7,000         7,000
-----------------------------------------------------------------------------------------------------
Balance, December 31, 2005            11,246,748  $112,000   $44,393,000  $(38,772,000)   $5,733,000
=====================================================================================================
</TABLE>

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       36
<PAGE>

                              DIGITAL FUSION, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

<TABLE>
<CAPTION>
<S>                                                           <C>           <C>
                                                              2005            2004
                                                          ------------   -------------
Cash flows from operating activities:
  Net income (loss)                                      $      7,000   $  (1,044,000)
  Adjustments to reconcile net loss to net cash
       used in operating activities:
       Depreciation                                           162,000          48,000
       Recovery of bad debt, reduction of allowance           (28,000)        (32,000)
       Increase in marketable equity security                 (67,000)              -
       Amortization of beneficial interest                    324,000               -
       Amortization of intangible assets                      308,000               -
       Amortization of discount on debt                        63,000               -
       Amortization of deferred financing costs                     -          51,000
       Changes in operating assets and liabilities
            Accounts receivable and unbilled receivables   (2,102,000)       (281,000)
            Prepaid expenses and other assets                  (3,000)        (14,000)
            Accounts payable, accrued expenses, and
               other liabilities                              658,000         275,000
            Pension obligation                                 38,000           7,000
                                                          ------------   -------------
              Net cash used in operating activities          (640,000)       (990,000)
                                                          ------------   -------------

Cash flows from investing activities:
  Capital expenditures - property and equipment              (180,000)       (436,000)
  Acquisition costs and acquisition deposit                (1,177,000)       (285,000)
                                                          ------------   -------------
              Net cash used in investing activities        (1,357,000)       (721,000)
                                                          ------------   -------------

Cash flows from financing activities:
  Proceeds from sales of stock, net of costs                  715,000       2,086,000
  Repayments of notes payable                              (1,831,000)       (542,000)
  Proceeds from line of credit - net                        2,862,000               -
                                                          ------------   -------------
              Net cash provided by financing activities     1,746,000       1,544,000
                                                          ------------   -------------

Net decrease in cash and cash equivalents                    (251,000)       (167,000)
Cash and cash equivalents, at beginning of year               252,000         419,000
                                                          ------------   -------------

Cash and cash equivalents, at end of year                $      1,000   $     252,000
                                                          ============   =============

Supplemental disclosure of cash flow information:
   Cash payments for interest                            $    255,000   $     185,000
   Cash payments for income taxes                        $          -   $           -
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       37
<PAGE>

                              DIGITAL FUSION, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004


1.    ORGANIZATION, BACKGROUND AND BASIS OF PRESENTATION

Digital Fusion, Inc. (used herein, "Digital Fusion", "DFI", and the "Company",
refer to Digital Fusion, Inc.) and its subsidiaries are an information
technology and engineering services company that helps its customers make the
most of technology to meet their business needs. Digital Fusion's IT Services
division provides solutions to both government and commercial customers, focused
in the following areas: Business Process Automation, Application Development and
Data Management, Application Security, Web Portals and Digital Dashboards,
System Integration, and IT Support. Digital Fusion's Engineering Services
division supports a variety of customers with state-of-the-art solutions that
include: Computational Aerodynamics/CFD; Optical Systems Design, Development and
Test; Thermo/structural Dynamics; Modeling and Simulations; Hardware-in-the-Loop
Testing; Program Analysis; and Ground/Flight Planning, Execution, and Data
Analysis. Services are provided to business organizations and public sector
institutions primarily in the Eastern United States. The Company was
incorporated in 1995 under the name Internet Broadcasting System, Inc. and
changed its name to IBS Interactive, Inc. when it went public in May 1998.
During 2001, the shareholders approved a name change to Digital Fusion, Inc.
("DFI"). The Company is incorporated in Delaware with its main administrative
office located in Huntsville, Alabama and regional offices in New Jersey and
Texas.


2.   SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - The Consolidated Financial Statements include
the accounts of Digital  Fusion,  Inc.  and its  subsidiaries.  All  significant
intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition - We recognize revenue when persuasive evidence of an
arrangement exists, services have been rendered or good delivered, the contact
price is fixed or determinable, and collectibility is reasonably assured. The
majority of the Company's current contracts are with Federal Government
Departments or Agencies, or subcontracts to companies whose prime contracts are
with the Federal Government. Most of these contracts are Time and Material (T&M)
or Firm Fixed Price Level of Effort (FFP LOE). The LOE clause requires the
Company to have a certain number of labor hours and that these hours are worked
by personnel qualified to perform under certain labor categories. Revenue on
these contracts is recognized as time is expended and or materials are
delivered. The price is based on effort expended, not results achieved. The
revenue on these contracts is recognized by hours worked which serves as a proxy
for output. Revenue on cost-plus-fee contracts is recognized to the extent of
costs or hours actually incurred plus a proportional amount of the fee earned.
We consider fixed fees under cost-plus-fee contracts to be earned in proportion
to the allowable cost actually incurred or by hours worked in performance of the
contract. The Company's deferred revenue relates to payments we have received in
advance of services (hours worked).

From time to time, we may proceed with work based on customer direction prior to
the completion and signing of formal contract documents. We have a formal review
process for approving any such work. Revenue associated with such work is
recognized only when it can be reliably estimated and realization is probable.
We base our estimates on previous experiences with the client, communications
with the client regarding funding status, and our knowledge of available funding
for the contract or program.


                                       38
<PAGE>

Cash and Cash Equivalents - The Company considers all highly liquid debt
instruments and other short-term investments with an initial maturity date of
three months or less from the purchase date to be cash equivalents. The cash and
short-term investments are maintained with major financial institutions in the
United States. Deposits with these banks may exceed the amount of FDIC insurance
provided on such deposits. Generally, these deposits may be redeemed upon demand
and, therefore, bear minimal risk.

Fair Values of Financial Instruments - The fair value of certain of the
Company's financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable, accrued compensation, and other accrued
liabilities approximate cost because of their short maturities. Notes payable
are recorded net of discounts and beneficial conversion features that totaled
$610,000 at December 31, 2005. Based on the underlying conversion feature of the
debt the note could be potentially worth up to $2.8 million.

Concentrations of Credit Risk - Financial instruments, which potentially subject
the Company to credit risk, consist primarily of a concentration of unsecured
trade accounts receivables.

The Company performs credit evaluations of its customers on a regular basis and
generally does not require collateral on accounts receivable. The Company
monitors the allowance for potential credit losses and adjusts the allowance
accordingly each quarter. During the years ended December 31, 2005 and 2004 the
Company's allowance for doubtful accounts was decreased by $28,000 and $32,000,
respectively for reduced bad debt provision. The Company does not accrue
interest on past due accounts receivable.

Four customers comprised more than 10% of our accounts receivable at December
31, 2005. One customer accounted for 40% and the other customers each accounted
for 14% of our accounts receivable at December 31, 2005.

Allowance for Doubtful Accounts - The allowance for doubtful accounts is based
on the Company's assessment of the collectibility of customer accounts. The
Company regularly reviews the allowance by considering factors such as
historical experience, credit quality, the age of the accounts receivable
balances, and current economic conditions that may affect a customer's ability
to pay

Property and Equipment - Property and equipment are recorded at cost, less
accumulated depreciation and amortization. Major additions are capitalized,
while minor additions and maintenance and repairs, which do not extend the
useful life of an asset, are charged to operations when incurred. When property
and equipment are sold or otherwise disposed of, the asset account and related
accumulated depreciation account are relieved, and any gain or loss is included
in operations. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives of three to five years are used for computer equipment and related
software and five to seven years for furniture and fixtures. Estimated useful
lives are periodically reviewed and, where appropriate, changes are made
prospectively.

Goodwill and Purchased Intangible Assets - Goodwill is tested for impairment on
an annual basis and between annual tests in certain circumstances, and written
down when impaired. Based on the impairment tests performed, there was no
impairment of goodwill in 2005 or 2004. Purchased intangible assets other than
goodwill are carried at cost and amortized over their useful lives, generally
five years, unless these lives are determined to be indefinite.

Income Taxes - Taxes on income are provided in accordance with SFAS No. 109,
Accounting for Income Taxes. Deferred income tax assets and liabilities are
recognized for the expected future tax consequences of events that have been
reflected in the consolidated financial statements. Deferred tax assets and
liabilities are determined based on the differences between the book values and
the tax basis of particular assets and liabilities in addition to the tax
effects of net operating loss and capital loss carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in the tax rate is recognized as income or expense in the period that
included the enactment date.


                                       39
<PAGE>

Valuation allowances have been established against the Company's deferred
tax assets due to uncertainties in the Company's ability to generate sufficient
taxable income in future periods to make realization of such assets more likely
than not. The Company has not recognized an income tax benefit for its
continuing operations for the years ended December 31, 2005 and 2004 based on
uncertainties concerning its ability to generate taxable income in future
periods. There was no income tax receivable at December 31, 2005 and 2004. In
future periods, tax benefits and related deferred tax assets will be recognized
when management considers realization of such amounts to be more likely than
not.

Use of Estimates - The preparation of financial statements and related
disclosures in conformity with accounting principles general accepted in the
Unites States requires management to make estimate and judgments that affect the
amounts reported in the Consolidated Financial Statements and accompanying
notes. Estimates are used for allowance for doubtful accounts, intangibles,
liabilities (including accruals) and fixed assets.

Long-Lived Assets - The Company applies SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses the financial
accounting and reporting for the impairment of long-lived assets, excluding
goodwill and intangible assets with indefinite lives, to be held and used or
disposed of. In accordance with SFAS 144, the carrying values of long-lived
assets are periodically reviewed by the Company and impairments would be
recognized if the expected future operating non-discounted cash flows derived
from an asset were less than its carrying value.

Stock-Based Compensation - The Company accounts for its stock-based awards to
employees and directors using the intrinsic value based method of accounting in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"). Under the intrinsic value method,
compensation cost is measured on the date of grant as the excess of the quoted
market price of the underlying stock over the exercise price. Such compensation
amounts are amortized over the vesting periods of the options.

Pro forma amounts presented below are not representative of the effects on
reported net income in future years because, in general, the options granted
typically do not vest for several years and additional awards are made each
year. Pro forma information regarding option grants made to the Company's
employees and directors is based on specified valuation techniques that produce
estimated compensation charges. The Company provides pro forma disclosures of
net loss and loss per share as if the fair value based method of accounting had
been applied, as required by SFAS No. 123, Accounting for Stock-Based
Compensation. The following table reflects the pro forma information:

                                                    2005            2004
                                           --------------  --------------

Net income (loss) - as reported                   $7,000     $(1,044,000)
Pro forma stock-based compensation expense      (840,000)       (277,000)
                                           --------------  --------------

Net loss - pro forma                           $(833,000)    $(1,321,000)
                                           ==============  ==============

Net loss per common share
Basic net income (loss) per share - as
 reported                                          $0.00          $(0.13)
                                           ==============  ==============
Diluted net income (loss) per share - as
 reported                                          $0.00          $(0.13)
                                           ==============  ==============
Basic loss per share - pro forma                  $(0.08)         $(0.16)
                                           ==============  ==============
Diluted loss per share - pro forma                $(0.08)         $(0.16)
                                           ==============  ==============

There were no differences between basic and diluted loss per common share
because the assumed exercise of common share equivalents was anti-dilutive.


                                       40
<PAGE>

The value of each option grant is estimated as of the date of grant using the
Black-Sholes option pricing model, which was developed for use in estimating the
value of traded options that have no vesting restrictions and are fully
transferable. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the estimated value, in
management's opinion, the existing valuation models do not provide a reliable
measure of the fair value of the Company's employee stock options.

Company estimates the fair value of each stock option at the grant date by using
the Black-Sholes option-pricing model with the following weighted-average
assumptions:

                                                         2005              2004
                                                         ----              ----
  Dividend yield                                          0%                0%
  Expected volatility                                    54%               58%
  Risk-free interest rate                               4.14%             4.29%
  Expected life-years                                     4                 10
  Weighted average fair value of options granted        $0.90             $0.55


Results may vary depending on the assumptions applied within the model.
Compensation expense recognized in providing pro forma disclosures may not be
representative of the effects on net income for future years. The Company has
determined that it will use the Black-Scholes option-pricing model to calculate
the fair value of its options. As allowed by SFAS No. 123R, the Company will
elect to use the Modified Prospective Application method, which applies the
Statement to new awards and modified awards after the effective date, and to any
unvested awards as service is rendered on or after the effective date. The
Company is continuing to evaluate this guidance and the impact it will have on
its consolidated results of operations or financial condition. For a discussion
of our stock-based compensation plans and agreements, see Note 7.

The values ascribed to restricted stock awards are based on the fair value of
the Company's common stock at the date of the grant. The intangible asset
related to the value of the stock awards is amortized on a straight-line basis
over the required service periods. The Company's liability related to such
awards will be converted to common stock and additional paid in capital upon the
formal issuance of the common stock.

Warrants - The fair values ascribed to warrants that are used in connection with
financing arrangements and professional services agreements (see Note 8) are
amortized over the expected life of the underlying debt or the term of the
agreement.

Pension Accounting - The Company follows SFAS No. 132, Employers' Disclosures
about Pensions and Other Post-retirement Benefits as revised in 2003 as it
relates to the Spencer Analysis, Inc. ("Spencer") Defined Benefit plan that is
inactive. Subsequent to the acquisition of Spencer in 1999, the plan was amended
to no longer require the Company to accrue future service benefits.

Earnings (Loss) Per Share - Basic earnings (loss) per share are computed in
accordance with SFAS No. 125, Earnings Per Share" which requires companies to
present basic earnings per share and diluted earnings per share. Basic earnings
per share are computed by dividing net income by the weighted average number of
shares of common stock outstanding during the year. Diluted earnings per common
share are computed by dividing net income by the weighted average number of
shares of common stock outstanding and dilutive options outstanding during the
year.

A summary of the calculation of basic and diluted earnings per share (EPS) for
the years ended December 31, 2005 and 2004 is as follows:


                                       41
<PAGE>

                                                         2005           2004
                                                  ------------  -------------
Numerator
Net income (loss)                                 $     7,000   $ (1,044,000)

Denominator
Weighted average number of shares - basic          10,868,000      8,025,000
Effect of dilutive securities - stock options (1)   2,100,000              -

Weighted average number of shares- diluted          12,968,00      8,025,000

Net income (loss) per share - basic               $      0.00   $      (0.13)
Net income (loss) per share - diluted             $      0.00   $      (0.13)

(1) In 2004, there were no differences between basic and diluted loss per common
share because the assumed exercise of common share equivalents was
anti-dilutive. The assumed exercise of stock options and warrants, as well as
the issuance of common stock under compensation and acquisition agreements,
totaling 3,524,637 shares at December 31, 2004, could potentially dilute basic
earnings per share.

Reclassifications - The Company has reclassified prior year balances of certain
revenues and cost of sales to conform to the current year's presentation.

Recently Issued Accounting Pronouncements - In December 2004, the FASB issued
SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which
requires the measurement and recognition of compensation expense for all
stock-based compensation payments and supersedes the Company's current
accounting under APB 25. SFAS 123(R) is effective as of the beginning or the
first interim or annual reporting period after December 15, 2005. In March 2005,
the Securities and Exchange Commission issued Staff Account Bulletin No. 107
("SAB 107") relating to the adoption of SFAS 123(R).

The Company adopted SFAS 123(R) in the first quarter of 2006 and will continue
to evaluate the impact of SFAS 123(R) on its operating results and financial
condition. The pro forma information presented above presents the estimated
compensation charges under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." The Company's assessment of the
estimated compensation charges is affected by the Company's stock price as well
as assumptions regarding a number of complex and subjective variables and the
related tax impact. These variables include, but are not limited to, the
Company's stock price volatility and employee stock option exercise behaviors.
The Company will recognize the compensation cost for stock-based awards issued,
or unvested after December 31, 2005 on a straight-line basis over the requisite
service period for the entire award. The Company expects the adoption of SFAS
123(R) to reduce net income by at least $1,000,000 for the year ended December
31, 2006.

In May 2005, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 154, "Accounting Changes and Error
Corrections." The Statement applies to all voluntary changes in accounting
principle and to changes required by an accounting pronouncement that do not
include explicit transition provisions. SFAS No. 154 requires that changes in
accounting principle be retroactively applied, instead of including the
cumulative effect in the income statement. The correction of an error will
continue to require financial statement restatement. A change in accounting
estimate will continue to be accounted for in the period of change and in
subsequent periods, if necessary. SFAS No. 154 is effective for fiscal years
beginning after December 31, 2005. We do not expect the adoption of this
Statement to have a material impact on our financial condition or results of
operations.


                                       42
<PAGE>

3.   PROPERTY AND EQUIPMENT

Major classes of property and equipment, net, consist of the following at
December 31, 2005:


Computer equipment                         $        1,408,000
Office equipment, fixtures and vehicles               195,000
                                            ------------------
                                                    1,603,000
Less: accumulated depreciation                     (1,111,000)
                                            ------------------

                                           $          492,000
                                            ==================

Depreciation expense for the years ended December 31, 2005 and 2004 was $162,000
and $48,000, respectively.

4.       INTANGIBLE ASSETS

Intangible assets, net, are comprised of the following at December 31, 2005:

                                                             Accumulated
Intangibles not subject to amortization     Gross Amount      Amortization
                                           --------------- -----------------
  Goodwill                                $     5,861,000 $

Intangibles subject to amortization
  Customer list                                 1,668,000          (256,000)
  Employment and non-compete agreements           274,000           (52,000)
                                           --------------- -----------------

                                          $     7,803,000 $        (308,000)
                                           =============== =================

The value of the remaining $5,861,000 of goodwill on the balance sheet as of
December 31, 2005 was determined not to be impaired by comparing the quoted
market value of Digital Fusion stock at year-end to the total stockholders'
equity at year-end and by analyzing other factors that could decrease the value
of goodwill.

Intangible asset amortization expense for the years ended December 31, 2005 and
December 31, 2004 was approximately $308,000 and $0, respectively.

Estimated annual amortization expense for intangible assets over the weighted
average estimated useful life of four years at December 31, 2005 is as follows:

                 Fiscal Year:
                 2006                      $     427,000
                 2007                            427,000
                 2008                            427,000
                 2009                            353,000
                                            -------------

                                          $   1,634,000
                                            =============


5.   BORROWINGS

At December 31, 2005, the Company's outstanding borrowings were comprised of the
following:



Line of credit                                          $           2,862,000
Note with related party                                               374,000
Acquisition notes with shareholders of Summit                       2,100,000


                                       43
<PAGE>

Discounts on notes payable                                          (610,000)
                                                          ----------------------
                                                                    4,726,000
Less: current portion                                             (3,041,000)
                                                          ----------------------

Total-long term borrowings                              $           1,685,000
                                                          ======================

Line of Credit - On July 1, 2004, Digital Fusion entered into a secured
revolving line of credit with a local bank. The line of credit had an interest
rate of prime plus one percent, was not to exceed $800,000 which was increased
to the lower of 80% of accounts receivable or $2,500,000 on December 22, 2004.
On May 26, 2005, the Company amended this loan agreement. The Amendment (i)
increased the amount to the lower of 90% of eligible accounts receivable or
$3,500,000, (ii) extended the maturity date to May 20, 2006, (iii) stated the
rate of interest at prime, payable monthly and (iv) secured the line of credit
by the Company's receivables and certain personal guarantees by two shareholders
subject to certain company financial ratios and covenants. Included in Current
Maturities of Long-term debt at December 31, 2005 is $2,862,000 that the company
had borrowed on this line of credit.

Notes With Related Parties - On January 12, 2004, Digital Fusion's former
President and CEO paid a note payable on behalf of the Company. In consideration
therefore, Digital Fusion issued a note to the former President and CEO in the
amount of $136,580 (representing the amount of principal and interest on the
note at the time of its retirement). The note bears an interest rate of prime
plus 6% and is payable at $600 per month plus interest for the first twelve
months, $4,400 per month plus interest for the next eleven months, and a balloon
payment of approximately $81,000 plus interest on January 15, 2006.

The Company had unsecured promissory notes with shareholders totaling $500,000.
These notes bear interest at 8% and are payable at maturity. During March 2005
and April 2005, the Company made payments of approximately $405,000 for $340,000
of principal and the remaining accrued interest on these notes. Interest expense
on these notes totaled approximately $14,000 and $53,000 during 2005 and 2004,
respectively.

On April 29, 2005, the Company refinanced the former President and CEO's portion
of these notes by executing a $374,000 convertible note. The convertible note
bears an annual interest rate of prime and interest is payable monthly. The
former CEO can convert the note into the Company's common stock at a conversion
price of $2.43 per share in minimum blocks of $200,000 of principal.

The above amounts are not necessarily indicative of the amounts that would have
been incurred had comparable transactions been entered into with independent
parties.

Summit Notes - As part of the Summit acquisition, two convertible promissory
notes for $2.7 million were issued. The note holders may convert the principal
portion of the convertible notes into the Company's common stock at a conversion
price of $2.25 per share. In the event the entire convertible notes are
converted, the note holders will receive a total of 1.2 million shares of the
Company's common stock. The annual interest rate is 5%; however, no interest
shall accrue for the first six months and during any calendar month in which the
average closing price of the publicly traded Company's common stock is greater
than $2.80 per share. The Company recorded imputed interest of $228,000. The
estimates used to determine the imputed interest will be reviewed each quarter
and adjusted as needed. The Company has not made adjustments to this estimate
through December 31, 2005. The imputed interest amount of $228,000 will be
amortized to interest expense over a four-year period. The Company also
estimated the intrinsic value of the embedded beneficial conversion feature of
the $2.7 million note at $769,000. The $769,000 will be amortized to interest
expense over the life of the note.


                                       44
<PAGE>

On July 1, 2005, the Company paid an installment payment as required by the
Summit acquisition of $905,047 that was comprised of $877,195 of principal and
the remaining amount was accrued interest. On December 29, 2005, the company
paid $300,001, and the Summit note holders elected to convert $300,000 of the
note into company common stock. Accordingly the Company issued 133,333 shares of
company common stock to the Summit note holders. See Note 14 below for a
discussion of the acquisition and debt acquired during the first quarter of 2005
from the acquisition of Summit Research Corporation.

Debt Maturities - At December 31, 2005, aggregate required principal payments of
long-term debt and line of credit are as follows:

                     Year Ending
              December 31, Amount

                        2006                  $      3,462,000
                        2007                         1,874,000
                                               ----------------
                              Total           $      5,336,000
                                               ================


6.   RETIREMENT PLANS

Defined Benefit Plan - Certain employees from a company that Digital Fusion
acquired who met certain requirements of age and length of service at the time
of acquisition are covered by the Company's sponsored non-qualified,
non-contributory defined benefit pension plan. The benefits become fully vested
upon the employees' retirements. Benefits paid to retirees are based upon age at
retirement, compensation levels and years of credited service. The plan was
amended to no longer require the Company to accrue future service benefits. Plan
assets are stated at fair value and are comprised of stocks and bonds. Net
periodic pension cost at December 31, 2005 and 2004 for this plan includes the
following components:

Change in benefit obligation                                2005            2004
                                                  --------------  --------------
Benefit obligation at beginning of year (before
 liability change)                               $      777,000  $      776,000
Liability change due to new census data                  37,000               -
Benefit obligation at beginning of year (before
 liability change)                                      814,000         776,000
Service cost                                                  -               -
Interest cost                                            44,000          41,000
Amendments                                                    -               -
Benefit transactions                                    (40,000)        (40,000)
Actuarial loss/(gain)                                         -               -
Effect of settlement                                          -               -
                                                  --------------  --------------
Benefit obligation at end of year                $      818,000  $      777,000
                                                  --------------  --------------

Change in plan assets
Fair value of plan assets at beginning of year   $      475,000  $      481,000
Actual return on plan assets                             42,000          34,000
Employer contributions                                        -               -
Benefit transactions                                    (40,000)        (40,000)
                                                  --------------  --------------
Fair value of plan assets at end of year         $      477,000  $      475,000

Funded status
Fair value of plan assets                        $      477,000  $      475,000
Benefit obligation                                      818,000         777,000
                                                  --------------  --------------
Funded status at end of year                           (341,000)       (302,000)
Unrecognized net actuarial loss (gain)                  132,000         148,000
Unrecognized prior service cost (benefit)              (132,000)       (148,000)
                                                  --------------  --------------
Accrued liability at end of year                 $     (341,000) $     (302,000)
                                                  ==============  ==============


                                       45
<PAGE>

Amounts recognized in the statement of financial
 position
Prepaid benefit cost                             $     (103,000) $      (98,000)
Accrued benefit cost                                     (2,000)          5,000
Intangible assets
Accumulated other comprehensive income                        -               -
                                                  --------------  --------------
Net amount recognized at end of year             $     (101,000) $     (103,000)
                                                  ==============  ==============

Components of net periodic benefit cost
Service cost                                     $            -  $            -
Interest cost                                            44,000          41,000
Expected return on plan assets                          (36,000)        (37,000)
Amortization of:
                Prior service cost                      (17,000)        (16,000)
                Actuarial loss                            8,000          17,000
                                                  --------------  --------------
Net periodic pension cost                        $       (1,000) $        5,000
                                                  ==============  ==============

Assumptions used in determining actuarial valuations
Discount rate to determine projected benefit                    5.5%        5.5%
Rate of increase in compensation levels                         0.0%        0.0%
Expected rate of return on plan assets                          8.0%        8.0%



401(K) Plan - The Company sponsors a defined contribution benefit plan covering
its employees. Currently, eligible employees are allowed to contribute annually
up to the maximum annual contribution allowed for 401(k) plans. Effective
January 1, 2005, the plan requires us to contribute a "safe harbor" amount equal
to 5% of eligible compensation each year for eligible employees up to the
statutory maximum compensation ($210,000 for 2005). All "safe harbor"
contributions are 100% vested. The company also matches 100% of employee
contributions up to 5% of eligible compensation. In addition, the company
savings plan provides for discretionary profit sharing contributions. Matching
and profit sharing contributions under the 401(K) Savings Plan are subject to 3
year vesting. Charges to operations for employer contributions amounted to
approximately $1,286,000 and $0 for 2005 and 2004, respectively.


7.   STOCKHOLDERS' EQUITY

Capital Stock - During the 2005 Annual Shareholders meeting, the shareholders
approved increasing the number of authorized shares to 31,000,000. The Company's
Board of Directors designated 1,000,000 of the authorized shares as "blank
check" preferred stock and 30,000,000 shares as common stock. During March 2001,
the Company's Board of Directors designated 60,000 of the preferred shares as
Series A Convertible Preferred Stock par value $.01 per share and 45,000 of the
preferred shares as Series B Preferred Stock, par value of $.01. No shares of
the preferred stock have been issued.

On May 11, 2004, Digital Fusion and Madison Run, LLC completed an equity sale
whereby Madison Run bought 608,108 shares of Digital Fusion common stock at
$0.74 per share, was issued a five-year warrant to purchase 304,054 shares of
Digital Fusion common stock at $0.89 per share, and was issued a five-year
warrant to purchase 212,839 shares of Digital Fusion common stock at $0.94 per
share. Digital Fusion President is a member of the Madison Run investment group.
On October 21, 2004, the Company sold 1,650,000 shares of its common stock to
Madison Run at a $1.00 per share for total proceeds of $1,650,000. The Company
issued a five-year warrant to purchase 50,000 shares of its common stock at an
exercise price of $1.25 per share to this investor.


                                       46
<PAGE>

On December 29, 2005, the company paid $300,001, and the Summit note holders
elected to convert $300,000 of the Summit notes into company common stock.
Accordingly the Company issued 133,333 shares of company common stock to the
Summit note holders.

Warrants - At December 31, 2005, 274,000 shares of common stock were reserved
for the exercise of stock warrants comprised of the following:

           Legacy Liability Settlement               250,000
           Consulting                                 24,000
                                                 ------------
               Total                                 274,000
                                                 ============

During January 2002, the Company entered into a settlement agreement on a
certain equipment lease. As part of this settlement, the Company issued a
five-year warrant to purchase 250,000 shares of the Company's common stock at
$1.00 per share. The Company recorded these warrants at fair market value,
recording additional equity of $67,000.

On April 17, 2003, the Company entered into a consulting agreement with an
independent consultant in which the Company agreed to issue a five-year warrant
to purchase 10,000 shares of the its common stock at $0.33 per share. During May
2004, the Company entered into a consulting agreement with an independent
consultant in which the Company agreed to issue a five-year warrant to purchase
15,000 shares of its common stock at an exercise price of $1.01 per share. On
May 23, 2005, the Company issued 15,000 of its common stock for exercise of
warrants. The Company received proceeds of $15,150 for 15,000 shares of common
stock at an exercise price of $1.01 per share.

On March 17, 2005, the Company issued 354,054 shares of its common stock for
exercises of warrants. The Company received proceeds of $270,608 for 304,054
shares of common stock at an exercise price of $0.89 per share. On March 17,
2005, the Company issued 50,000 shares of its common stock for exercises of
warrants. The Company received proceeds of $62,500 for 50,000 shares of common
stock at an exercise price of $1.25 per share.

On October 28, 2005, the Company agreed to issue a five-year warrant to purchase
15,000 shares of its common stock at $2.68 per share in connection with an
ongoing consultant agreement.

On June 6, 2005, the Company issued 212,839 shares of its common stock for
exercise of warrants. The Company received proceeds of $200,069 for 212,839
shares of common stock at an exercise price of $0.94 per share.

On August 20, 2005, the Company issued 1,000 of its common stock for exercise of
warrants. The Company received proceeds of $330 for 1,000 shares of common stock
at an exercise price of $0.33 per share.


8.   STOCK OPTIONS

Stock Option Plan - At the Company's Annual Meeting of stockholders held on June
28, 2005, the Digital Fusion, Inc. 2005 Stock Option Plan (the "2005 Stock
Option Plan") was approved. The 2005 Stock Option Plan, an incentive and
non-qualified stock option plan which authorizes the issuance of up to 750,000
shares of our common stock was approved by the Board of Directors subject to
stockholder approval. The 750,000 shares of common stock authorized will be used
to grant non-qualified stock options to our employees, directors, officers and
consultants and incentive stock options to our employees.


                                       47
<PAGE>

The 2005 Stock Option Plan provides that the exercise price of each such option
must be at least equal to 100% of the fair market value of our common stock on
the date of grant (110% in the case of stockholders who, at the time the option
is granted, own more than 10% of the outstanding common stock), and requires
that all such options have an expiration date not later than that date which is
one day before the tenth anniversary of the date of the grant (or the fifth
anniversary of the date of grant in the case of 10% stockholders).

The Company maintains four qualified stock option plans. Under the terms of
these plans, the Company has reserved 2,130,000 shares of its common stock under
these plans. The Company granted 1,339,750 and 1,011,000 of stock options
outside of its qualified stock option plans during 2005 and 2004 respectively.
These were granted to Board of Directors as part of their compensation for being
on the Company's board of directors, and certain management to retain key
personnel.

Under the Company's Stock Option Plans, the Company may grant incentive stock
options to certain officers, employees and directors. The options expire ten
years from the date of grant. Accelerated vesting may occur pursuant to
employment agreements following a change in control of the Company and under
certain other conditions. The following table summarizes information about
qualified and non-qualified stock options outstanding at December 31, 2005:

                             Options outstanding             Options exercisable
                    ------------------------------------- ----------------------
                                   Weighted
                                   Average    Weighted                  Weighted
                                  Remaining     average                  Average
                       Number    contractual   exercise     Number      Exercise
  Exercise Price    Outstanding  life (years)    price    exercisable     Price
------------------- ------------ ------------ ----------- ----------- ----------

  $0.29 to $0.55      1,082,500        6.5    $   0.34     923,922     $    0.34
  $0.65 to $1.19      1,408,499        8.4        0.90     364,534          0.90
  $1.35 to $2.65        896,000        9.3        2.32     301,236          2.29
  $2.72 to $2.89        629,250        9.8        2.86     173,000          2.87
  $5.78 to $7.50         77,950        4.4        5.97      77,950          5.97
  $8.13 to $10.49        95,000        4.0       10.18      95,000         10.18
 $17.19 to $22.00        21,000        3.4       20.38      21,000         20.38
                    ------------                          -----------

                      4,210,199        8.1    $   1.65    1,956,642    $    1.89
                    ============                          ===========

As of December 31, 2004, there were approximately 1,537,000 exercisable options
with a weighted average exercise price of $1.72.

Transactions under various qualified and non-qualified option plans for 2005 and
2004 are summarized as follows:

                                                                Weighted Average
                                                    Options      Exercise Price
                                                  -----------   ----------------

Outstanding at January 1, 2004                     1,854,094   $           3.61
Granted                                            1,457,500               0.77
Exercised                                            (11,975)              0.38
Canceled                                            (616,875)              6.92
                                                  -----------


                                       48
<PAGE>

Outstanding at December 31, 2004                   2,682,744   $           1.29
Granted                                            1,864,750               2.24
Exercised                                           (234,278)              0.70
Canceled                                            (103,017)              1.15
                                                  -----------

Outstanding at December 31, 2005                   4,210,199   $           1.29
                                                  ===========

Options exercisable at December 31, 2005           1,537,401   $           1.75
                                                  ===========

Options available for grant at December 31, 2005     703,116
                                                  ===========


9.   TAXES

There is no current or deferred income tax expense or benefit allocated to
continuing operations for the years ended December 31, 2005 and 2004.

The income tax provision differs from the amount of tax determined by applying
the Federal statutory rate as follows:

                                                     2005           2004
                                                 ----------     ----------
Income tax provision (benefit) at statutory
 rate:                                          $    2,500     $ (355,000)
Increase (decrease) in income tax due to:
Meals & entertainment                                4,800          2,000
State income taxes net                               1,300        (63,000)
Change in valuation allowance                       (8,500)       416,000
                                                 -------------------------

                                                $        -     $        -
                                                 ==========     ==========

Net deferred tax assets and liabilities were comprised of the following:


                                                    2005
                                            ------------

Deferred Tax Asset (Liability), Current:
Accounts receivable allowance              $     10,600
Deferred gain on stock sale                     (26,500)
Vacation payable                                114,100
Valuation allowance                             (98,200)
                                            ------------
                                           $          -
                                            ============

Deferred Tax Asset (Liability), Non-
 Current:
Property and equipment                     $    (19,600)
Intangibles                                   2,535,100
Summit acquisition intangibles                 (653,700)
Accrued pension                                 136,300
Net operating loss carryforward              10,847,800
Other - carryovers                                  200
Valuation allowance                         (12,846,100)
                                            ------------
                                           $          -
                                            ============


                                       49
<PAGE>

The Company has not recognized an income tax benefit for its continuing
operations for the years ended December 31, 2005 and 2004 based on uncertainties
concerning its ability to generate taxable income in future periods. The tax
benefit for 2005 is offset by a valuation allowance established against deferred
tax assets arising from operating losses and other temporary differences, the
realization of which could not be considered more likely than not. In future
periods, tax benefits and related deferred tax assets will be recognized when
management considers realization of such amounts to be more likely than not.

As of December 31, 2005, the Company had available net operating loss
carryforwards of approximately $28 million that expire in various years through
the year ended December 31, 2025.


10.  COMMITMENTS AND CONTINGENCIES

Operating Leases - The Company leases facilities and equipment under operating
leases and subleases expiring through August 2007. See Note 14, Subsequent
Events, for additional lease commitments. Some of the leases have renewal
options and most contain provisions for passing through certain incremental
costs. At December 31, 2005 future net minimum annual rental payments under
non-cancelable leases are as follows:


                   Year Ending
                   December 31,                  Amount
                -------------------

                       2006                 $        229,000
                       2007                          141,000
                                             ----------------
                      Total                 $        370,000
                                             ================

Total rental and lease expenses for the years ended December 31, 2005 and 2004
were approximately $258,000 and $143,000, respectively.

Employment Agreements - The Company has several employment agreements which
require payments of approximately $2,079,000 during 2006, $1,322,000 during 2007
and $67,000 during 2008.

Government Contracting - Payments to the Company on cost-plus-fee contracts are
provisional and are subject to adjustment upon audit by the Defense Contract
Audit Agency (DCAA). In the opinion of management, audit adjustments that may
result from DCAA audits are not expected to have a material effect on the
Company's financial position, results of operations, or cash flows.

Litigation - The Company is involved in certain legal actions arising from the
ordinary course of business. While it is not feasible to predict or determine
the outcome of these matters, we believe that the resolution of these
proceedings will not have a material adverse effect on our business, financial
condition or results of operations.


11.  RELATED PARTY TRANSACTIONS

Investment by President - During 2004, Madison Run, LLC purchased DFI's common
stock through private placement transactions. DFI's President is a member of the
Madison Run investment group and personally invested in these offerings. See
footnote 7.


                                       50
<PAGE>

Severance Commitment -Effective September 2, 2005, the Amended and Restated
Employment Agreement (the "Employment Agreement") between the Company and its
CEO was terminated by the Company's Board of Directors. The Employment Agreement
was terminated by the Company without cause; therefore, the Company is obligated
to pay the former CEO his current annual base salary of $175,000 for a period of
18 months after September 2, 2005 in accordance with the employment and
non-compete agreement. Such payments will be made in accordance with the
Company's current customary payroll procedures. The Company must provide the
former CEO medical coverage with substantially similar terms as his current
medical coverage in effect on September 2, 2005. Any and all vested options,
warrants or other securities awarded to the former CEO pursuant to any of the
Company's equity incentive plans shall, as of September 2, 2005, immediately
vest and become exercisable and all such vested options, warrants or other
securities shall remain exercisable by the former CEO for the duration of the
period during which the options, warrants or other securities would have
remained exercisable if the former CEO had remained employed by the Company. Any
unvested options, warrants or other securities awarded to former CEO pursuant to
any of the Company's equity incentive plans shall expire effective as of
September 2, 2005, and shall become null and void. The company paid $57,000 in
accordance with this agreement in 2005.

Consulting Agreement - On April 1, 2005, the Company entered into a consulting
agreement with Mr. Frank Libutti. The term of this agreement was for a one year
period for an amount not to exceed $59,900. Approximately $8,087 was paid under
this agreement. On September 19, 2005, the Company entered into an employment
agreement with Mr. Libutti to serve as Chief Executive Officer. At this time the
consulting agreement was terminated.


12.  CASH FLOW INFORMATION

During 2004, warrants were exercised for 200,000 shares of the Company's common
stock and the exercise was paid for by a reduction of notes payable of $70,000.

During 2004, a note payable was refinanced and the deferred financing fees of
$25,000 were added to the notes payable balance.

During 2005, $500,000 of cash that was in escrow in 2004 was used to offset the
$1,600,000 payment due in accordance with the Summit acquisition. See Note 14
for additional information on the Summit acquisition.

During 2005, the Summit note holders elected to convert $300,000 of the note
into company common stock. Accordingly the Company issued 133,333 shares of
company common stock to the Summit note holders. See Note 14 below for a
discussion of the acquisition and debt acquired during the first quarter of 2005
from the acquisition of Summit Research Corporation.

During 2005 and 2004, the Company paid $255,000 and $185,000 respectively for
interest. No income taxes were paid during 2005 or 2004.


13.  MAJOR CUSTOMERS OF THE COMPANY

Three customers comprised more than 10% of our revenue in 2005. One customer
accounted for 33%, one customer accounted for 15%, and one customer accounted
for 11% of our revenue for the year ended December 31, 2005. No customer account
for over 10% of the Company's revenues during the year ended December 31, 2004.


14.  ACQUISITION

On October 28, 2004, Digital Fusion, Inc. (the "Company") entered into a Stock
Purchase Agreement (the "Agreement") with the CEO of Summit Research Corporation
("Summit") pursuant to which the Summit CEO agreed to sell all of his
outstanding capital stock of On January 3, 2005, the Company closed on its
acquisition of Summit.


                                       51
<PAGE>

Under the terms of the Agreement, the Company paid to the Summit CEO (a)
$1,600,000 in cash at the closing of the transaction (the "Closing"), (b)
575,000 shares of the Company's common stock as of the Closing, (c) on the six
month anniversary of the Closing, $905,047 cash for principal and interest (6%
annual interest), (d) $49,000 in the third quarter of 2005 as old Summit
receivables were collected and (e) a convertible promissory note (the "Note") in
the cumulative amount of $2,700,000.

The note holder may convert the principal portion of the convertible note into
the Company's common stock at a conversion price of $2.25 per share. In the
event the entire convertible note is converted, the note holder will receive a
total of 1.2 million shares of the Company's common stock. The annual interest
rate is 5%; however, no interest shall accrue for the first six months and
during any calendar month in which the average closing price of the publicly
traded Company's common stock is greater than $2.80 per share. The Company
recorded imputed interest of $228,000. The estimates used to determine the
imputed interest will be reviewed each quarter and adjusted as needed. The
Company has not made adjustments to this estimate through December 31, 2005. The
imputed interest amount of $228,000 will be amortized to interest expense over a
four-year period. The Company also estimated the intrinsic value of the embedded
beneficial conversion options of the $2.7 million note at $769,000. The $769,000
will be amortized to interest expense over the life of the note.

In conjunction with this acquisition, on January 3, 2005, the Company entered
into employment agreements with two individuals with Summit. The annual salaries
for these two individuals total $310,000 per year for two years or when the
convertible note is paid off whichever is later.

The Company included the results of Summit in its financial statements beginning
January 1, 2005. The following table summarized the estimated fair values of the
assets acquired and liabilities assumed. During the three months ended June 30,
2005, the Company finished its evaluation of the intangibles purchased and
finalized the purchase price allocation. The $1.9 million of intangible assets
represents $1.7 million allocated to customer base intangibles and $275,000
allocated to employment and non-compete agreements.

                                   (in thousands)

         Cash                                        $               300
         Accounts receivable                                       2,396
         Fixed assets                                                 57
         Other assets                                                294
         Goodwill                                                  2,513
         Intangible assets                                         1,943
                                                      -------------------
         Total assets acquired                                     7,503

         Notes payable                                              (300)
         Accounts payable and accrued liabilities                 (1,402)
                                                      -------------------
         Total liabilities assumed                                (1,702)

         Total purchase price                        $             5,801
                                                      ===================


         Cash paid                                   $             1,600
         Fair value of stock issued                                  575
         Six month note                                              926
         Convertible note                                          2,700
                                                      -------------------
         Total purchase price                        $             5,801
                                                      ===================


                                       52
<PAGE>

The following unaudited pro forma financial information presents the combined
results of operations of the Company as if the Summit acquisition had occurred
on December 31, 2004. The unaudited pro forma financial information is not
intended to represent or be indicative of the consolidated results of operations
of the Company that would have been reported had the acquisition been completed
as of the dates presented, and should not be taken as representative of the
future consolidated results of operations of the Company.


                              Digital Fusion, Inc.
                           Pro Forma Income Statement
                                December 31, 2004

                                 As Reported in          Pro Forma
                                   Accompanying        Adjustments     Pro Forma
                                      Financial         for Summit       Balance
                                     Statements        Acquisition         Sheet

Revenues                        $     6,766,000        9,037,000   $ 15,803,000
--------------------------------------------------------------------------------
Net (loss) income                    (1,044,000)         720,000       (438,000)
--------------------------------------------------------------------------------
Basic (loss) earnings per
 share                          $         (0.13)                    $     (0.05)
--------------------------------------------------------------------------------

Weighted average common
 stock shares outstanding             8,025,000                       8,600,000
--------------------------------------------------------------------------------


14.  SUBSEQUENT EVENTS

On February 7, 2006, the Board of Directors for Digital Fusion, Inc. approved
for execution a lease for office space. The Lease will become effective on May
1, 2006, and will expire after 66 months; there are no options for renewal. The
Company plans to use the leased premises as its principal offices and
headquarters. The Lease is a triple-net lease with the base rental increasing
every six months for the first year an annually thereafter. The average monthly
base rental due under the Lease is $35,692.

In addition to base rent, the Company will also be required to pay, on a monthly
basis, certain operating expenses during the term of the Lease. The Company may
not assign or sublet the leased premises without the prior written consent of
the Landlord. The Lease may not be terminated without the mutual agreement of
both parties. The foregoing summary of the Lease does not purport to be complete
and is subject to, and qualified in its entirety by, reference to the text of
the Lease.

Effective February 7, 2006, Roy Crippen, III, resigned as a director of the
Company. Mr. Crippen's resignation was not due to any disagreement with the
Company.

On February 8, 2006, the Board of Directors adopted the Amended and Restated
Bylaws of the Company (the "Amended and Restated Bylaws"), effective immediately
upon their adoption, to supersede and replace the existing bylaws of the
Company. The modifications to the former bylaws were as a result of a review of
such bylaws by the Board of Directors in an attempt to update the former bylaws
and to clarify certain former bylaw provisions. Various provisions of the former
bylaws were either revised, reworded, reordered, or new provisions were added.


                                       53
<PAGE>

On February 24, 2006, the Company amended the President's employment agreement
to increase his annual salary to $200,000 per year and the employment agreement
expires on February 23, 2008.

On February 24, 2006, the Company amended the Chief Operating Officer's
employment agreement to increase his annual salary to $200,000 per year and the
employment agreement expires on February 23, 2008.

On February 24, 2006, the Company amended the Corporate Secretary's employment
agreement to increase her annual salary to $92,500 per year and the employment
agreement expires on February 23, 2008.


                                       54
<PAGE>

                                                                    Exhibit 21.1

                      SUBSIDIARIES OF DIGITAL FUSION, INC.

                                December 31, 2005


Name of Subsidiary                             Country or State of Incorporation

Digital Fusion Solutions, Inc.                 Florida

Summit Research Corporation                    Alabama


                                       55