U.S 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, 2002

                                       OR

       |_| 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)

            400 North Ashley Drive, Suite 2600, Tampa, Florida 33602

          (Address of principal executive offices, including zip code)

                                 (813) 221-0024

              (Registrant's telephone number, including area code)

           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: (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. |_|

    Issuer's revenues for its most recent fiscal year: $9,503,000.

    The aggregate market value of voting common equity held by
non-affiliates of the Registrant based upon the closing sale price of
common stock on February 25, 2003 as reported by the Nasdaq SmallCap
Market was approximately $1,801,000. Shares of voting stock held by
executive officers, board of directors and each person who owns 5% or
more of the outstanding voting stock have been excluded in that such
persons may be deemed to be affiliates. (This determination of
affiliate status is not necessarily a conclusive determination for
other purposes.)
    As of February 28, 2003, 7,167,671 shares of the Registrant's
common stock, $.01 par value per share, were outstanding.
    Documents Incorporated by Reference. The information called for by
Part III, Items 9-12, is incorporated by reference from the definitive
proxy Statement for our 2003 Annual Meeting of Stockholders, which
will be filed on or before April 30, 2003.


<PAGE>


    Cautionary Statement Regarding Forward-Looking Statements

    Statements in this Annual Report on Form 10-KSB that are not
purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding our
(as hereinafter defined) expectations, hopes, intentions or strategies
regarding the future. Forward-looking statements include: the plans
and objectives of the Company for future operations and trends
affecting our financial condition and results of operations. All
forward-looking statements in this Report are based on information
available to the Company as of the date this Report is filed with the
Securities and Exchange Commission and the Company assumes no obligation
to update any such forward-looking statements. Factors that could cause
actual results to differ materially from those expressed or implied by
such forward-looking statements include, but are not limited to, those
factors listed at "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors Which
May Affect the Company's Future Performance." The Company undertakes no
obligation to release publicly the results of any future revisions it
may make to forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

                                     PART I

    Item 1. Description of Business

    (a) Business Development

    We (as used herein, "we," "us," "our", "Digital Fusion", "DFI" and
the "Company" refer to Digital Fusion, Inc.) are an information
technology (IT) consulting company helping our customers make the most
of technology to access business information, enhance the performance
of their human resources, and meet their business needs. Our success
is based on a total approach, providing the people, processes, and
technology needed to translate business needs into sound IT
strategies.
    Including its headquarters in Tampa, Fla., Digital Fusion has six
locations across the U.S. East Coast: Orlando, Fla.; Washington D.C.;
Philadelphia metro area; Ocean, NJ; and Huntsville, Ala. 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, shareholders approved the corporate name change to
Digital Fusion, Inc. Our stock is traded on the Nasdaq Small Cap
Market under the symbol of "DIGF".

                          Acquisitions and Divestitures

     In July 2001, Digital Fusion discontinued its network services and
installation business unit and sold it to Spectrum Solutions, Inc. ("Spectrum
Solutions") for $350,000. Spectrum Solutions assumed certain lease obligations
of Digital Fusion related to this network services and installation business
unit. Digital Fusion recorded a $188,000 gain related to this sale.
    In April 2001 Digital Fusion discontinued its Web hosting and
non-dial-up Internet access business unit, and sold this unit to
Veraciti, Inc for $200,000 cash and $60,000 worth of services to
complete certain customer projects. In addition, Veraciti assumed
certain lease obligations of Digital Fusion related to the Web
hosting and non-dial-up business. We recorded a $211,000 loss in
connection with this sale.


                                       1
<PAGE>



    On March 1, 2000, in conjunction with our strategic vision to
focus more on our IT consulting business line, we acquired all of the
outstanding stock of digital fusion, inc. in exchange for 975,000
shares of unregistered common stock valued at $13.00 per share, a
$500,000 three-year subordinated note accruing 6% interest per annum
and the assumption of debt totaling approximately $4.2 million. The
value ascribed to the consideration of stock, equity instruments, debt
and related costs was $19.1 million resulting in goodwill of $16.4
million. This was accounted for under the purchase accounting method.

    (b) Business of Issuer

                             Description of Services

    Digital Fusion's experience and expertise covers a wide range of
IT services. We have managed and deployed large-scale, multi-site
infrastructure projects involving complex systems 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 onsite in organizations across the
country providing ongoing support and guidance for in-house IT
projects. Digital Fusion's main service lines include:

    --  IT Consulting to businesses and organizations seeking
        information, guidance, and staffing for building business
        applications. We specialize in helping businesses thoroughly
        define project requirements and processes before they invest
        money, time, and people.

    --  Enterprise Application Solutions, including supplemental
        staffing (major Enterprise Resource Planning and Customer
        relationship management packages), financial analysis,
        upgrades and migrations, business process analysis, project
        audits, and Microsoft Great Plains Dynamics implementations.

    --  IT Support and Integration, helping organizations define,
        develop, and deploy the optimal solution for IT operations,
        including infrastructure consulting, desktop and help-desk
        support, network and server management, system migration and
        integration, and leasehold replacement.

    --  Government Services, working with local, state and national
        public sector organizations to develop a wide range of high
        performance information technology solutions.

    Within these primary 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. We have the
technical expertise and 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.

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. We have
expertise in relational database design, stored procedures, database replication
and synchronization, legacy systems migration, data mining and report
generation. Our 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 many thousands of
transactions per day.



                                       2
<PAGE>


IT Infrastructure Support and Integration--Digital Fusion's IT Support expertise
includes hardware/software installation and ongoing maintenance, onsite end-user
support and training, infrastructure design/analysis and configuration
management, and systems and network administration. Our experience includes such
large-scale projects as operating system rollouts of more than 100,000 PCs
across 30 states and leasehold replacement projects of more than 125,000
computers and peripherals. Digital Fusion maintains multi-year staffing with
several companies and manages more than 60 consultants onsite with companies in
12 states across the U.S., including Hawaii. Digital Fusion effectively and
efficiently provides and manages consultants across geographically diverse
customer sites. We provide dedicated technical managers who work with local
offices and corporate headquarters to provide individuals who match the specific
technical needs of the unit and the organization's particular corporate culture.

Web Design and Development--Digital Fusion designs, develops, and maintains
engaging, interactive, multimedia websites and builds high-performance
internet/intranet applications. We are a Macromedia Alliance Partner with
thorough knowledge and experience in Web technologies such as JavaScript, Java,
ASP, DHTML, XML, ColdFusion, Dreamweaver, Flash, and more. Our solutions also
include complete content management features for managing information and
streamlining communication 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. Our consultants
design processes that integrate the capabilities of the software with the
conditions of our customer's unique business environment, creating streamlined,
highly productive operations. We show customers how to save money by automating
processes and implementing more efficient solutions. We also evaluate the
software and service options in today's crowded marketplace and recommend the
best match for our customer's business.

Financials Analysis, Reporting and Project Support--We provide the expertise to
maximize the capabilities of financials application, including mining and
analyzing financial information and generating custom reports. We can help with
Excel, Crystal Reports, InfoMaker, and more. Whether implementing, customizing,
optimizing, upgrading, migrating, or providing on-going support, we offer
experienced, expert assistance with financials, human resources, or CRM
initiatives. We have expertise in PeopleSoft, Oracle, Lawson, JD Edwards,
Siebel, Microsoft Great Plains, and more.

                                 Strategic Plan

    During 2002, Digital Fusion's strategic plan for business
development was to provide IT consulting services that focused on
providing the best technical solutions to business problems. In a
tight economic climate in which IT spending was dramatically
restricted, our strategic position was to place 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 do more.

                          Federal GSA IT Schedule Award

    During October 2002, Digital Fusion was awarded a five-year
information technology schedule by the U.S. General Services
Administration (GSA). This GSA schedule was an intrinsic part of
Digital Fusion's strategic plan to further develop our public-sector
customer base. A GSA schedule is one of the main procurement vehicles
for government agencies. Created by Congress to improve government
efficiency, the GSA helps other federal agencies acquire supplies and
services such as IT consulting, equipment, telecommunications and
office space.

                               Sales and Marketing

    Each service line described above has a specific target market and
customer size. Overall, we market our IT Consulting services and
Enterprise Application Services to mid-sized businesses (including
mid-size departments of larger enterprises) and public sector
institutions. Our suite of services enables our customers to capitalize
on the wide variety of critical business and data communication
opportunities made possible by the Internet and Internet-related
technologies while maximizing their investment in their legacy systems.



                                       3
<PAGE>


    Our sales and marketing strategy is driven by our ability to offer
solutions specific to each customer's needs, and then to cross sell
additional services to that customer when appropriate. In this way, we
are able to increase awareness of our comprehensive business and IT
consulting services and desktop support and integration. Our marketing
efforts are primarily focused on mid-sized businesses and
organizations for our strategic services, and large-sized
organizations for our staffing, application development, and desktop
support services. We use a direct sales model for marketing and
selling our services.
    Our marketing efforts principally involve tradeshows, direct
mailing, telesales, involvement in appropriate industry professional
organizations, and informal networking in areas within the geographic
scope of our network. These efforts are critical to increasing the
brand recognition of the name "Digital Fusion," which will make it
easier for our sales group to convert the customer interest to closed
business.
    We also generate sales leads through referrals from customers,
consultants, requests for proposals, referrals from other business and
IT consulting service businesses, our website and associated links and
industry seminars and trade shows.
    In 2002, we also put concentrated effort into strengthening our
relationships with existing partners and establishing new strategic
partnerships for bringing in new business. Currently we are a
Microsoft Certified Solution Provider, Microsoft Great Plains
Certified Business Solutions Provider, and a Macromedia Associate
Partner. We also have an arrangement with Intuit, which allows their
federal government customers to use Digital Fusion's GSA IT schedule
to procure Intuit's TrackIt products.

              Sales Management and Services Distribution Structure

    Digital Fusion's organizational structure adheres to a regional
sales management and services distribution model that allows the
company to be flexible and responsive to client needs. Management
and sales for our IT Consulting service line operate regionally with
area services managers (ASMs) for Florida, Mid-south, Northeast, and
New York City each managing service delivery, consultant resources,
and sales for his respective region. This structure gives the Company
regional control to manage resources and develop sales strategies,
tailored to regional market demands. The IT Support, Enterprise
Application, and Government service lines have a national client base
with programs, consultant resources, and sales managed at the corporate
level.

                                    Customers

    Digital Fusion's customer base consists primarily of businesses
and organizations with IT consulting, business application development
and IT support and integration needs. We intend to expand our customer
base in all of our business lines through internal growth to lessen
our dependence on any one particular customer or group of customers.
Our GSA award, mentioned above, is an important part of this effort.

    Our customers during the year ended December 31, 2002 included:

Amana                  Bank of America                   Bentley
                                                          Systems
ABN AMRO               Bridgestone/Firestone             Commerce
                                                          Bancorp
Darden Restaurants     Florida Hospital Health Sciences  Deutsche Bank
Harcourt Brace         Hillsborough County, Fla.         Intergraph
                                                          Corporation
Jacobs Sverdrup        Kingsway America                  Lucent
                                                          Technologies
Marriott Vacation Club New York University               Nielsen Media
 Int'l                                                    Research
Orange County, Fla.    Progress Energy                   Rutgers
                                                          University
Scandinavian Tourist   State of Florida                  State of
 Board                                                    Tennessee
Strahman Valves        Somerset Hills School District    TIAA/CREF
Time Warner            U.S. Army                         VitalWorks
 Communications
Vitality Beverages     Wharton School of Business        Zenith
                                                          Products


                                       4
<PAGE>



                       Dependence on a Few Major Customers

    We are dependent on a limited number of customers for a
substantial portion of our revenues. For the years ended December 31,
2002 and 2001, our largest customer, Aetna, accounted for
approximately 24% and 18%, respectively, of our revenues. Our contract
with Aetna provides that we render services pursuant to purchase
orders, each of which constitutes a separate contractual commitment by
Aetna. Non-renewal or termination of our contract with Aetna or the
failure by Aetna to issue additional purchase orders to us under the
existing contract would have a materially adverse effect on us. There
can be no assurance that we will obtain additional contracts for
projects similar in scope to those previously obtained, that we will
be able to retain existing customers and attract new customers or that
we will not remain largely dependent on a limited customer base
accounting for a substantial portion of our revenues. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Certain Factors Which May Affect the
Company's Future Performance - A loss of a significant customer could
substantially decrease our revenues."

                                   Competition

    The markets for our services are highly competitive, but are
specific to each individual service line. With limited barriers to
entry we believe the competitive landscape will continue to increase
both from new entrants to the market as well as from existing players.
We continue to face increasing competition from outsourced recruiting
companies. In addition, the growing trend in 2002 for companies to
ship part of their software programming work overseas, especially to
India, has increased competition in the IT services industry.
    Traditional professional service firms (e.g. management
consultants), traditional IT service providers and advertising firms,
have created divisions within their organizations that focus on the
business needs of their customers. Many of these service providers,
however, do not provide the breadth of services needed to offer
comprehensive, integrated business solutions and services. Management
consulting firms focus on overall business strategies and the
remodeling of business processes for use in an Internet environment.
The more traditional IT service providers are focused on systems
integration and the development and implementation of enterprise
software applications. Advertising agencies and pure Web design shops
have focused on the marketing and creative development of services,
but typically lack technical capabilities depth and the ability to
provide complete, integrated solutions.
    We compete with numerous large companies that have substantially
greater market presence and financial, technical, marketing and other
resources than we have, including

    --  Large information technology consulting and service providers
        and application software firms
    --  International, national, regional and commercial ISPs who have
        consulting services divisions
    --  Computer hardware and software and other technology companies
        also providing services
    --  Application service providers
    --  Staffing companies

    Many of our competitors have expanded their service offerings and
increased their focus on e-Business and IT professional services
markets, thus increasing the number of organizations that were
providing similar services to ours. We remain focused on delivering
better service than our competitors who also deliver business
application development services.

                               Pricing Competition

    In 2002, we continued to encounter extensive pricing pressure,
which in turn resulted in reductions to the average selling price of
our services. There can be no assurance that we will be able to offset
the effects of any such price reductions through an increase in the
number of customers, higher revenue from enhanced services, cost
reductions or otherwise. In addition, we believe that consolidation in
the business and IT professional services market will continue to
result in increased price competition, partly due to a market surplus
of software developers, which drives down the consultant bill rate,
and the trend toward outsourcing programming work overseas. This may
make it difficult for us to gain additional customers and could have a
material adverse effect on us. There can be no assurance that we will
be able to compete successfully. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain
Factors Which May Affect the Company's Future Performance - We May Not
Have The Resources To Compete Effectively With Our Larger Competitors,
Which Could Result In Lost Market Share and Decreased Pricing."


                                       5
<PAGE>


                                    Employees

    At December 31, 2002, Digital Fusion had 88 full-time employees
including three executive officers, 70 billable employees, eight
people dedicated to sales and marketing activities and seven
administrative personnel. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors Which
May Affect the Company's Future Performance - If We Are Unable To
Retain The Services Of Key Personnel, Our Business Operations May Be
Disrupted."
    To maximize the use of our resources and evaluate the skills and
knowledge of certain prospective employees, we routinely hire
temporary personnel to satisfy demand for additional personnel with
the new projects. We have also implemented an internal skills-tracking
application and other support systems.

                                 Geographic area

    The majority of our customers are from the United States with less
than 1% located elsewhere, and this is also representative of where
our revenues are derived. All assets are located in the Eastern part of
the United States.

                                   Seasonality

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

Item 2. Description of Property

    We serve our customers through our corporate headquarters, located
in Tampa Florida, and our regional offices located in New Jersey, DC,
Florida and Alabama. By April 30, 2003, DFI will move its corporate
headquarters to Huntsville, Alabama and will close its Tampa, Florida
office location.  The existing facility in Huntsville will be sufficient
to house the corporate headquarters.
    At December 31, 2002, we did not own any real property and
conducted our operations at the following leased premises:


                                       6
<PAGE>


<TABLE>
<CAPTION>


                                                                                           Approximate
                                                                               Approximate   Annual
                                                                                  Square     Leased
Location                       Description of Facility                            Footage      Cost   Lease Term
------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                                                <C>         <C>    <C>
400 N. Ashley Drive            Corporate headquarters, sales, administration,
Suite 2600                      education                                            7,012    $96,000  Month-to-Month
Tampa, FL  33602

1930 Route 70                  Sales, customer support, and programming
Suite K 54                      services
Cherry Hill, NJ  08003                                                               1,946    $28,000  9/22/01-8/31/03

3430 Sunset Ave.               Sales, customer support, and programming        1,200 (eff.
Suite 20                        services                                        2/1/03 300
Ocean, NJ  07712                                                                  sq ft)      $17,000  Month-to-Month

4970 Corporate Drive           Sales, customer support, and programming
Suite 100A                      services
Huntsville, AL 35805                                                                 3,256    $37,000  1/1/02 - 12/31/04

5778 S. Semoran Blvd.          Sales, customer support and programming services
Orlando, FL  32822                                                                   4,566    $69,000  3/1/98 - 2/28/03

8965 Center Street             Sales, customer support and programming services
Manassas, VA  20110                                                                    800     $8,900  4/1/02 - 3/31/05

</TABLE>


We believe that all of our leased premises are in generally good condition, well
maintained and adequate for our current operations.

Item 3. Legal Proceedings

    The Company is involved in certain legal actions arising in the
ordinary course of business. The Company is defending these proceedings.
While it is not feasible to predict or determine the outcome of these
matters, the Company does not anticipate that any of these matters or
these matters in the aggregate will have a material adverse effect on
the Company's business or its consolidated financial position 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, 2002.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

    Our common stock is traded on the Nasdaq SmallCap Market 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.



                                       7
<PAGE>




               2002         High                Low
------------------------------------------------------------
First Quarter                     $1.19               $0.40
Second Quarter                    $1.40               $1.00
Third Quarter                     $1.09               $0.68
Fourth Quarter                    $0.80               $0.37


               2001         High                Low
------------------------------------------------------------
First Quarter                     $1.81               $0.41
Second Quarter                    $1.15               $0.35
Third Quarter                     $0.85               $0.30
Fourth Quarter                    $2.00               $0.26


    On October 28, 2002, the Company was notified by The Nasdaq Stock
Market, Inc. that its common stock failed to maintain a minimum bid
price of $1.00 over the last 30 consecutive trading days as required
by The Nasdaq SmallCap Market listing requirements. The letter stated
that the Company has 180-days or until April 28, 2003 to regain
compliance by maintaining a minimum closing bid price of $1.00 per
share for 10 consecutive trading days. If the Company fails to meet
this requirement by April 28, 2003, the Companies securities will be
delisted.
    The number of holders of record of our common stock on February
28, 2003 was 105.
    There were no dividends or other distributions made by DFI during
the fiscal year ended December 31, 2002 with respect to its common
stock. DFI 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 our common stock in the
foreseeable future.

                           Sales of Unregistered Stock

    Sales of unregistered stock during the preceding three-year period
(other than sales of unregistered stock issued during the fourth
quarter 2002) have been previously reported on our Forms 10-KSB and
10-QSB and are incorporated into this 10-KSB by reference.
    As part of our 1999 acquisition of Florence Business Net, on
December 27, 2002 we issued 3,235 shares of common stock that had been
held in reserve for Florence Business Net, pursuant to the terms of
the related acquisition agreement. Because this issuance did not
involve any public offering, it was exempt from registration under
Section 4(2) of the Securities Act of 1933.
    On January 8, 2003, our registration statement on From S-3, as
amended (file number 333-100052), relating to our convertible note
issued to Laurus Master Fund was declared effective by the SEC. We
registered 951,153 shares of common stock for issuance upon conversion
of a convertible note. At the noteholder's election, this note is
convertible into shares of common stock at $0.922 a share after the
DFI common stock price is at or above $1.15 a share for ten
consecutive days. We registered 75,000 shares for issuance upon
exercise of a common stock purchase warrant. The warrant is
exercisable for a five-year period commencing on July 26, 2002 at a
price of $1.15 per share.



                                       8
<PAGE>



Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations

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

                                    OVERVIEW

    We are an information technology (IT) consulting company helping
our customers make the most of technology to access business
information, enhance the performance of their human resources, and
meet their business needs. Our success is based on a total approach,
providing the people, processes, and technology needed to translate
business needs into sound IT strategies. We provide our services to
businesses, organizations and public sector institutions in the
Eastern United States. Our revenues are derived principally from fees
earned in connection with the performance of services provided to
customers. We typically bill on a time and materials basis. The
majority of our costs are associated with personnel, which varies with
our revenue. Attracting and retaining billable personnel will be
important for our Company going forward.
    During the past year, we have continued our strategic vision to
focus on being an IT consulting services company, concentrate on our
profitable business units and further developing our public-sector
customer base. In furtherance of this goal, we were awarded our GSA IT
schedule during October 2002, continued to stream-line the costs of our
continuing business units, closed unprofitable offices and sold or
shut down business units that did not fit our strategic vision of
being an IT consulting services company.
    We currently have an office location in Alabama, two in Florida,
two in New Jersey, and one in the Washington DC area. We are in the
process of moving the corporate headquarters from Tampa, Florida to
Huntsville, Alabama by April 30, 2003. The Tampa office will be closed
at that time. Our Huntsville office has our largest federal customer
base and this move will help us increase our penetration into the
federal markets. Due to the headquarters relocating out of state, the
Company's Chief Financial Officer will be resigning effective June
30, 2003 but will be available for assistance during the subsequent
transition.
    During the fourth quarter of 2002, we recorded an impairment of
goodwill associated with prior years acquisitions of $1.2 million. The
$3.3 million value of remaining goodwill on our balance sheet as of
December 31, 2002 was determined by the quoted market value of DFI.
During the first quarter 2002, we adopted SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets". Under these new standards, goodwill is subject to a periodic
impairment test of fair value and is no longer amortized over its
useful life.
    As a result of significant restructuring, closing of unprofitable
offices and selling certain business divisions during 2000 and the
first half of fiscal year 2001, the Company accumulated unpaid
liabilities not associated with current operations in excess of $3.9
million ("Legacy Liabilities"). These creditor liabilities include
terminated equipment leases, property leases and telecommunication
contracts as well as certain professional fees. Through productive
negotiations with the creditors, these liabilities have been settled
and paid.
     The Company has incurred losses of $403,000 and $11,412,000 in 2002
and 2001, respectively, and cash flow deficiencies from operations of
$1,026,000 and $513,000 in 2002 and 2001, respectively. These factors
raise substantial doubt about the ability of the Company to continue as
a going concern. The ability of the Company to continue as a going
concern is dependent upon restructuring our outstanding debt, obtaining
cash flow from external sources and attaining positive cash flow from
operations. The financial statements do not include any adjustments that
may result from the outcome of this uncertainty.


                                       9
<PAGE>



    The Company believes that, as a result of the actions it has taken
during prior years to restructure and streamline the Company and assuming
it can restructure its outstanding debt by extending the payment terms,
it currently has sufficient cash to meet its funding requirements over
the next year; however, the Company has experienced negative cash
flows from operations and incurred large net losses in the past.
    The Company's current growth has been funded through internally
generated funds. In order for the Company to support substantial
growth, the Company may need to fund this growth through externally
generated funds. The Company is reviewing its options, which include a
line of credit secured by receivables, issuance of addtional equity or a
combination of both. There can be no assurance as to the availability of
such financing and capital or whether the terms upon which they are
available would be acceptable to the Company.

                              Results of Operations

Revenues.

    Revenues decreased by $7,760,000, or 45%, from $17,263,000 for the
year ended December 31, 2001, to $9,503,000 for the year ended
December 31, 2002. Approximately $4 million of this decrease is due to
reduced revenues from the business divisions and offices that were
shut down or sold during our 2001 restructurings. Approximately $3
million of the decrease is due to the softening of the IT consulting
market over the past year. Revenue from our largest professional
service customer was responsible for 24% of our revenue in 2002 as
compared to 18% in 2001.

Cost of Services.

    Cost of services for Consulting Services consists primarily of
salaries and expenses of engineering, programming and technical
personnel, expenses relating to cost of equipment and applications
sold to customers and fees paid to outside consultants engaged for
customer projects. Cost of services decreased by $5,813,000, or 44%,
from $13,132,000 for 2001 to $7,319,000 for 2002. This 44% decrease in
cost of services is mainly due to the 45% decrease in revenues as
discussed above.

Gross Profit.

    Our gross profit was $4,131,000 or 24% of revenues in 2001 and
$2,184,000 or 23% of revenues in 2002. The decrease of $1,947,000 of
gross profit during 2002 is primarily due to the reduction of revenues
discussed above.

Selling, General and Administrative.

    Selling, general and administrative (SG&A) expenses consist
primarily of salaries and expenses associated with marketing
literature, advertising, direct mailings, accounting, finance, sales
and administrative personnel, as well as professional fees and other
costs associated with being a public company and the administration of
the Company. SG&A expenses decreased by $2,489,000, or 44%, from
$5,632,000 in 2001 to $3,143,000 for 2002. This decrease was primarily
due to the administrative headquarters move from New Jersey to Florida
during January 2001, the reduction of costs related to the business
units that were sold and offices closed during 2001, and the April
2001 restructuring.

Amortization of Intangible Assets.

    We implemented SFAS 142 on January 1, 2002 and in accordance with
SFAS 142, we discontinued amortization of goodwill as of January 1,
2002. The amortization recorded for 2001 was $3,776,000. In accordance
with SFAS 142, there was no amortization of goodwill during 2002.

Impairment of Goodwill.

    During the fourth quarter of 2001 and 2002, we recorded
impairment of goodwill charges of $6.5 million and $1.2 million,
respectively, associated with prior years acquisitions. The value of
the remaining $3.3 million of goodwill on our balance sheet as of
December 31, 2002 was determined by the quoted market price of DFI at
yearend. We will continue to review the goodwill balance during 2003
to determine if any further write-downs are needed.


                                       10
<PAGE>



Severance and Restructuring.

    During April 2001, we took cost reduction and restructuring steps
to become profitable. We closed our Detroit facility and reduced our
sales and general and administrative management headcount by 21
employees. As a result, we recognized a severance and restructuring
expense of $518,000 in April 2001. This is comprised of $456,000
relating to the closing of the office, and $62,000 relating to
severance, benefits and entitlements.
    During 2002, we reduced our severance and restructuring liability
by $271,000 based upon our current estimates of our remaining
liabilities associated with our 2001 restructurings.

Gains on Forgiveness of Debt

    During 2002, we reached settlement agreements on some debts
associated with offices that were closed, business units that were
sold and services not used, which resulted in forgiveness of debt of
$1,585,000.
    During 2001, we recorded gains on forgiveness of debt of $977,000
related to settlement agreements.

Interest Expense.

    Interest expense consists primarily of interest payments and
accruals on indebtedness in connection with the acquisition of digital
fusion, inc (a Florida corporation). On July 26, 2002, the Company
completed an $800,000 secured convertible debt financing which
increased its 2002 interest expense over 2001. Interest expense was
$87,000 and $154,000, respectively for the years ended 2001 and 2002.

Interest Income.

    Interest income decreased from $16,000 in 2001 to $12,000 in 2002
due to a decrease in our cash position in 2002 relative to 2001.

Loss on Disposal of Assets.

    During April 2001, the Company sold its web hosting and
non-dial-up internet access business to Veraciti, Inc. for $200,000
cash and $60,000 worth of services to complete certain customer
projects. In addition, Veraciti assumed certain lease obligations of
the Company related to the web hosting and non-dial-up internet access
business and subleased 4,000 square feet of the Cedar Knolls office
space through lease termination. The Company recorded a $211,000 loss
related to this sale. Veraciti is owned by Frank Altieri, a former
member of the DFI Board of Directors.
    During July 2001, the Company sold its network services and
installation business unit to Spectrum Solutions, Inc. (Spectrum) for
$350,000 and Spectrum assumed certain lease obligations of the Company
related to this network services and installation business unit. The
Company recorded a $188,000 gain related to this sale.
    No such gain or loss was recorded during 2002.

Other income(expense), net.

    During 2002, at the request of PowerCerv Corporation, Inc.
(PowerCerv), we made debt payments of $188,000 owed on the promissory
note issued to PowerCerv earlier than scheduled. For this, the Company
received a discount of $42,000. The next scheduled debt payment on this
PowerCerv debt is June 30, 2003. The remaining debt outstanding at year
end was $135,000.


                                       11
<PAGE>


Income tax provision.

    The Company has not recognized an income tax benefit for its
operating losses generated during 2001 and 2002 based on uncertainties
concerning its ability to generate taxable income in future periods.
The tax benefit for 2001 and 2002 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 loss.

     The Company has incurred net losses of $11,412,000 for 2001 and $403,000
for 2002. The Company adopted FASB 142 effective January 1, 2002, which requires
the Company to discontinue amortizing its goodwill. Thus, no goodwill
amortization was recorded during 2002. The Company recorded goodwill
amortization of $3,776,000 during 2001. The net loss for 2001 excluding this
goodwill amortization would have been $7,636,000. The reduction of net loss from
2001 to 2002 is discussed above and includes recording an impairment of goodwill
charge that was $5.3 million less than 2001, gain on forgiveness of debt that
was $608,000 higher than in 2001 and lower revenues during 2002 compared to
2001.

Liquidity and Capital Resources.

    The net cash used in operating activities increased from $513,000
in 2001 to $1,026,000 in 2002. This increase in cash used in
operations is mainly due to having lower accounts receivable
collections in 2002 compared to 2001. During 2001, we collected our
receivables faster compared to years earlier than 2001 which resulted in
increased accounts receivable collections in 2001. Also, during 2002
our accounts receivable balances were lower due to lower sales.
    Net cash provided by investing activities was $500,000 in
2001. This was from the sale of two business units (non-dial up
internet access and web hosting business unit and network services and
installation business unit). Net cash used in investing activities was
$23,000 in 2002. We do not anticipate having significant equipment
purchases during 2003, however to support substantial growth we will
need to make certain equipment investments.
     During 2002, financing activities provided $717,000 of cash through a
secured note from Laurus Master Fund. This was offset by note repayments of
$365,000. During 2001, financing activities used $216,000 of cash to pay down
the PowerCerv note related to the Digital acquisition (see Footnote 8 in the
Notes to Consolidated Financial Statements section). Going forward, our ability
to grow substantially may be dependent upon obtaining cash flow from external
sources.
     Our working capital at December 31, 2002 is $(41,000). During the last
quarter of 2002, we were cash flow positive from operating activities by
$65,000. To accomplish this, we stream-lined our continuing business units,
closed unprofitable offices and sold or shut down business units that did not
fit our new strategic vision of being an IT consulting services company. Also by
April 30, 2003, we will close down our Tampa office and move the Company
headquarters from Tampa, Florida to Huntsville, Alabama. With these actions, we
believe we have taken the steps necessary to become cash flow positive from our
continuing operations. We will continue to focus on consistent collections of
accounts receivable and continued improvements in the operational performance of
our ongoing business lines. However, the Company received a going concern audit
opinion from its auditors because of its previous losses.
    We believe that if we meet our Company plan and we restructure our
outstanding debt, we will be able to have sufficient cash and cash
flows from operations to meet our funding requirements over the next
year. If we have potential short falls in execution of our Company
plan, seek to expand our operations, and/or do not receive our
customer payments in a timely manner, we may require an infusion of
working capital, the availability and terms of which can not be predicted.


                                       12
<PAGE>


Fluctuations in Operating Results.

    Our operating results may fluctuate significantly from period to
period as a result of the length of our sales cycle, as well as from
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. Our business is generally subject to making expenditures
and using significant resources prior to receipt of corresponding
revenues. Our operating results can also fluctuate based upon the
number of billable days in a quarter and the fourth quarter is
typically lower due to vacations taken during the holidays. Our
business is somewhat dependent upon the economy. Certain customers
(including our largest customer) have put projects on hold due to the
slow down in the economy and may terminate their contracts, which
could have a material impact on our Company.

Inflation.

    Inflation has not had a significant impact on our results of
operations.

Recent Events.

    We are moving our headquarters to Huntsville, Alabama from Tampa,
Florida by April 30, 2003.

Certain Factors Which May Affect the Company's Future Performance

WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS.

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

WE HAVE EXPERIENCED SIGNIFICANT PRIOR OPERATING LOSSES. IF WE DO NOT GENERATE
SUFFICIENT CASH FLOW FROM OPERATIONS OR IF WE ARE UNABLE TO RAISE CAPITAL IN
SUFFICIENT AMOUNTS, WE MAY BE UNABLE TO CONTINUE TO OPERATE OUR BUSINESS.

    We have recently experienced significant losses in our operations.
We may continue to incur losses for the foreseeable future. For the
year ended December 31, 2001 and 2002 our losses from continuing
operations were $12.0 million and $400,000, respectively. Our expenses
may increase as we seek to grow our business and as our business
expands. Even if we become profitable, we may be unable to sustain our
profitability. We may not generate sufficient cash flow from
operations or be able to raise capital in sufficient amounts to enable
us to continue to operate our business. An inability to sustain
profitability may also result in an impairment loss in the value of
our long-lived assets, principally goodwill, property and equipment,
and other tangible and intangible assets. If we are unable to generate
sufficient cash flow from operations or raise capital in sufficient
amounts, we may be unable to continue as a going concern.

WE HAVE RECEIVED AN AUDITOR'S OPINION WHICH INCLUDES AN EMPHASIS PARAGRAPH ABOUT
OUR ABILITY TO CONTINUE AS A GOING CONCERN.

    We may be unable to continue as a going concern. We have suffered
recurring losses and negative cash flow from operations. During 2002,
we incurred a net loss of $400,000 and used net cash of $1 million in
operations. We will need to restructure our outstanding debt and
become cash flow positive to continue as a going concern. See the
auditor's opinion which includes an emphasis paragraph about our
ability to continue as a going concern in the financial statement
section of this report (Page F-2). We can give you no assurance that
we will be able to restructure our outstanding debt or that we will
become cash flow positive.


                                       13
<PAGE>


A LOSS OF A SIGNIFICANT CUSTOMER COULD SUBSTANTIALLY DECREASE OUR REVENUES.

    Our largest customer, Aetna accounted for 24% of our revenue at
December 31, 2002. Our contract with this customer is up for renewal
on December 31, 2003. There can be no assurance that we will be able
to renew this contract. A termination by a major customer could
substantially decrease our revenues.

IF OUR REVENUES DO NOT MEET FORECASTED REVENUES, THIS MAY HAVE AN ADVERSE EFFECT
ON OUR FINANCIAL CONDITION, AND WE COULD SUFFER MATERIAL LOSSES.

    A large portion of our revenues derived from our consulting business
is generally non-recurring in nature. There can be no assurance that we
will obtain additional contracts for projects similar in scope to
those previously obtained from any of our customers, that we will be
able to retain existing customers or attract new customers or that we
will not remain largely dependent on a limited customer base, which
may continue to account for a substantial portion of our revenues. In
addition, we generally will be 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.
    We may increase our operating expenses to increase the number of
our sales, marketing and technical personnel to sell, provide and
support our products and services. We may not be able to adjust our
spending quickly enough to offset any unexpected revenue shortfall. In
addition, at any given point in time, we may have significant accounts
receivable balances with customers that expose us to credit risks if
such customers are unable to settle such obligations. If we have an
unexpected shortfall in revenues in relation to our expenses, or
significant bad debt experience, this could have a material adverse
effect on our financial condition, and we could suffer material losses.

IF WE FAIL TO ADEQUATELY KEEP UP WITH THE RAPIDLY CHANGING, EVOLVING INFORMATION
TECHNOLOGY MARKET, WE MAY NOT BE ABLE TO ATTAIN PROFITABILITY.

    The markets for some of our services are changing rapidly and
evolving, and therefore the ultimate level of demand for our 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 our
business and prospects and we may not be able to attain profitability.
    Our success is dependent on our ability to continually attract and
retain new customers as well as to replace customers who have not
renewed their contracts. Achieving significant market acceptance will
require substantial efforts and expenditures on our part to create
awareness of our services.

WE MAY NOT HAVE THE RESOURCES TO COMPETE EFFECTIVELY WITH OUR LARGER
COMPETITORS, WHICH COULD RESULT IN LOST MARKET SHARE AND DECREASED PRICING.

    Competition for the Internet and IT consulting services that we
provide is significant, and we expect that competition will continue
to intensify due to the low barriers to entry. We may not have the
financial resources, technical expertise, sales and marketing or
support capabilities to successfully meet this competition. If we are
unable to compete successfully against such competitors, we will lose
market share. We compete 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 than we have.
    Our competitors may respond more quickly than we can to new or
emerging technologies and changes in customer requirements. Our
competitors may also devote greater resources than we can 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 ours. 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 our existing and potential employees and
strategic partners.


                                       14
<PAGE>


    New competitors, including large computer software, professional
services and other technology and telecommunications companies, may
enter our markets and rapidly acquire significant market share. As a
result of increased competition and vertical and horizontal
integration in the industry, we could encounter significant pricing
pressures. These pricing pressures could result in significantly lower
average selling prices for our products and services. We 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.

WE MAY NOT BE ABLE TO KEEP PACE WITH THE RAPIDLY EVOLVING TECHNOLOGICAL CHANGES
IN THE INFORMATION TECHNOLOGY INDUSTRY AND THIS COULD RENDER OUR PRODUCT AND
SERVICE OFFERINGS OBSOLETE.

    The technology required to provide Internet and IT professional
services is rapidly evolving. Significant technological changes could
render our existing products and services obsolete. To be successful,
we must adapt to this rapidly changing technology environment by
continually improving the responsiveness, functionality and features
of our products and services to meet customers' needs. If we are
unable to respond to technological advances and conform to emerging
industry standards in a cost-effective and timely basis, it may render
our existing products and services obsolete which would have a
material and adverse affect on our financial position and results of
operation.

IF WE ARE UNABLE TO MAINTAIN AN EFFICIENT AND UNINTERRUPTED OPERATION OF OUR
COMPUTER SYSTEMS, THIS COULD CAUSE US TO LOSE SOME OF OUR CUSTOMERS.

    Some of our business depends on the efficient and uninterrupted
operation of our computer and communications hardware systems and
infrastructure. We currently maintain most of our computer systems in
our facilities in Tampa, Florida. While we have taken precautions
against systems failure, interruptions could result from natural
disasters as well as power loss, telecommunications failure and
similar events. We also lease telecommunications lines from local and
regional carriers, whose service may be interrupted. Any damage or
failure that interrupts or delays our network operations could cause
us to provide an unacceptable level of service to our customers which
might result in losing some of our customers.

IF WE ARE UNABLE TO MAINTAIN THE SECURITY INTEGRITY OF OUR SYSTEMS, THIS MAY
RESULT IN A LIABILITY TO US OR A LOSS OF CUSTOMERS.

    We have taken measures to protect the integrity of our
infrastructure and the privacy of confidential information.
Nonetheless, our infrastructure is potentially vulnerable to physical
or electronic break-ins, viruses or similar problems. If a person
circumvents our security measures, he or she could jeopardize the
security of confidential information stored on our systems,
misappropriate proprietary information or cause interruptions in our
operations. We 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 our reputation and expose us to a risk of
loss or liability.
    The security services that we offer in connection with customers'
use of the networks cannot insure complete protection from computer
viruses, break-ins and other disruptive problems. Although we attempt
to limit contractually our liability in such instances, the occurrence
of these problems may result in claims against us or liability on our
part. These claims, regardless of their ultimate outcome, could result
in costly litigation and could have a material adverse effect on our
financial position and reputation and on our ability to attract and
retain customers.


                                       15
<PAGE>


WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE ACQUISITIONS INTO OUR EXISTING
BUSINESS, WHICH MAY RESULT IN SUBSTANTIAL COSTS, NEGATIVE CASH FLOW AND REDUCED
EARNINGS.

    A key element of our expansion strategy has been to grow through
acquisitions. We may acquire and integrate complementary businesses,
products, services or technologies, but we may not be able to
successfully integrate these acquired businesses into our business.
This may result in substantial costs, negative cash flow and reduced
earnings.
    Some specific issues related to integrating the acquired
businesses are as follows:

          --   The difficulty of assimilating the operations and personnel of
               acquired companies.
          --   The potential disruption of our business.
          --   The inability of our management to maximize our financial and
               strategic position by the incorporation of an acquired technology
               or business into our service offerings.
          --   The difficulty of maintaining uniform standards, controls,
               procedures and policies.
          --   The potential loss of key employees of acquired businesses, and
               the impairment of relationships with employees and customers as a
               result of changes in management.

AN ACQUISITION MAY DILUTE THE INTEREST OF OUR STOCKHOLDERS AND MAY NOT BE
SUCCESSFUL, WHICH COULD RESULT IN AN INABILITY TO SUSTAIN PROFITABILITY AND AN
IMPAIRMENT OF ASSET VALUES.

    We cannot assure you that any completed acquisition will enhance
our business. If we proceed with one or more significant acquisitions
in which the consideration consists of cash, a substantial portion of
our available cash could be used to consummate the acquisitions. If we
were to consummate one or more acquisitions in which the consideration
consisted of stock, our stockholders could suffer significant dilution
of their investment in us. In addition, we could incur or assume
significant amounts of indebtedness in connection with acquisitions.
If one or more acquisitions were not successful, this could result in
an inability to sustain profitability and an impairment loss in the
value of our long-lived assets, principally goodwill, property and
equipment, and other tangible and intangible assets.

IF WE ARE UNABLE TO FULFILL THE CONDITIONS NECESSARY TO MAINTAIN A LISTING ON
THE NASDAQ SMALLCAP MARKET, THIS COULD REDUCE THE LIQUIDITY AND PRICE OF OUR
COMMON STOCK.

    We have received a delisting notice from NASDAQ SmallCap Market
due to our common stock price being below $1.00 for 30 consecutive
trading days. We have until April 28, 2003 to regain compliance. The
stock bid price must be above $1.00 for at least 10 consecutive
trading days to regain compliance.
    In the event our common stock is delisted, the liquidity of our
stock would be reduced, making it more difficult for an investor to
dispose of our common stock or to obtain accurate quotations of the
market value of our common stock. A delisting could also result in a
reduction in the price of our common stock.

IF WE ARE UNABLE TO RETAIN THE SERVICES OF KEY PERSONNEL, OUR BUSINESS
OPERATIONS MAY BE DISRUPTED.

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



                                       16
<PAGE>



WE MAY NEED ADDITIONAL CAPITAL AND MAY NOT BE ABLE TO OBTAIN IT, WHICH COULD
AFFECT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

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

                --  The extent to which our solutions and services
                    gain market acceptance.
                --  The level of revenues from our present and future
                    solutions and services.
                --  The expansion of operations.
                --  The costs and timing of product and service
                    developments and sales and marketing activities.
                --  Costs related to acquisitions of technology or
                    businesses.
                --  Competitive developments.
                --  Costs related to downsizing and discontinuation or
                    sale of business units.
                --  Need for working capital
                --  Timing of Accounts Receivable Collections.
                --  Timing of debt payments.

    In order to continue to increase sales and marketing efforts,
continue to expand and enhance the solutions and services we are able
to offer to present and future customers and fund potential
acquisitions, we may require additional capital that may not be
available on terms acceptable to us, or at all. In addition, if
unforeseen difficulties arise in the course of these or other aspects
of our business, we may be required to spend greater-than-anticipated
funds. As a consequence, we 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 terms acceptable to us, 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. We have financed our operations to date
primarily through private sales of equity securities, proceeds from
our initial public offering in May 1998 and debt facilities.
    We cannot assure you that additional funding will be available for
us to finance our ongoing operations when needed or that adequate
funds for our operations, whether from financial markets,
collaborative or other arrangements with corporate partners or from
other sources, will be available when needed, or on terms acceptable
to us. Our inability to obtain sufficient funds may require us to
delay, scale back or eliminate some or all of our expansion programs,
to limit the marketing of our products, or to license to third parties
the rights to commercialize products or technologies that we would
otherwise seek to develop and market ourselves. It may also not allow
us to have sufficient working capital to continue our business. This
could affect our ability to continue as a going concern.

THE UNPREDICTABILITY OF OUR QUARTERLY OPERATING RESULTS MAY CAUSE THE PRICE OF
OUR COMMON STOCK TO FLUCTUATE.

    Our revenues and operating results vary significantly from
quarter-to-quarter due to a number of factors, not all of which are in
our control. You should not rely on quarter-to-quarter comparisons of
our results of operations as an indication of future performance. It
is possible that in some future periods our results of operations may
be below the expectations of public market analysts and investors. In
that event, the market price of our common stock may fall.
    Factors that could cause quarterly results to fluctuate include:

            --  Change in customer demand for products and services.
            --  Timing of the expansion of operations.
            --  Seasonality in revenues, principally during the summer
                and year-end holidays.
            --  The mix of products and services revenues from our
                operating divisions.
            --  Changes in pricing by competitors or us.
            --  Introduction of new products or services by
                competitors or us.
            --  Costs related to acquisitions of technology or
                businesses.
            --  Recession or slow-down in economy.
            --  Termination of customer contracts.



                                       17
<PAGE>


WE HAVE LIMITED INTELLECTUAL PROPERTY PROTECTION AND WE MAY NOT BE ABLE TO
SUCCESSFULLY PROTECT OUR PROPRIETARY INFORMATION, WHICH COULD RESULT IN LOST
SALES AND LOST COMPETITIVE ADVANTAGE.

    We rely on a combination of copyright and trademark laws, trade
secrets laws and license and nondisclosure agreements to protect our
proprietary information, particularly the computer software
applications that we have developed. We currently have 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, our proprietary information without
authorization. The majority of our current contracts with our
customers contain provisions granting to the customer intellectual
property rights to certain of our work product, including the
customized programming that we create for such customer. We anticipate
that contracts with future customers will contain similar provisions.
Other existing agreements to which we are a party are, 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, our ability to reuse
or resell such rights will or may be limited.
    Our policy is to execute confidentiality agreements with our
employees and consultants upon the commencement of an employment or
consulting relationship with us. These agreements generally require
that all confidential information developed or made known to the
individual by us during the course of the individual's relationship
with us 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 us shall be our
exclusive property. There can be no assurance that such agreements
will not be breached, that we would have adequate remedies for any
breach or that our 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 WE FAIL TO PERFORM TO CUSTOMERS' EXPECTATIONS THIS COULD RESULT IN CLAIMS
AGAINST US, WHICH COULD REDUCE OUR EARNINGS.

    Our services involve development, implementation and maintenance
of computer systems and computer software that are critical to the
operations of our customers' businesses. Our failure or inability to
meet a customer's expectations in the performance of our services
could harm our business reputation or result in a claim for
substantial damages against us, regardless of our responsibility for
such failure or inability. In addition, in the course of performing
services, our personnel often gain access to technologies and content
that includes confidential or proprietary customer information.
Although we have implemented policies 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. We attempt to limit contractually
our damages arising from negligent acts, errors, mistakes or omissions
in rendering services and, although we maintain general liability
insurance coverage, 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 us that are uninsured, exceed available
insurance coverage or result in changes to our insurance policies,
including premium increases or the imposition of a large deductible or
co-insurance requirements, would reduce our earnings.

WE MAY BECOME SUBJECT TO LEGAL CLAIMS RELATING TO THE CONTENT IN THE WEB SITES
WE BUILD OR HOST, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL POSITION.

    There are an increasing number of laws and regulations pertaining
to the Internet. These laws and regulations relate to liability for
information received from or transmitted over the Internet, online
content regulation, user privacy, taxation and quality of products and
services. Moreover, the applicability to the Internet of existing laws
governing intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment, personal
privacy and other issues is uncertain and developing. We cannot
predict the impact, if any, that future regulation or regulatory
changes may have on our business. The law relating to the liability of
online service providers, private network operators and Internet
service providers for information carried on or disseminated through
their networks is currently unsettled. We may become subject to legal
claims relating to the content in the web sites we host or in email
messages that we transmit. For example, lawsuits may be brought
against us claiming that material inappropriate for viewing by young
children can be accessed from the web sites we host. Claims could also
involve matters such as defamation, invasion of privacy and copyright
infringement. Providers of Internet products and services have been
sued in the past, sometimes successfully, based on the content of
material. If we have to take costly measures to reduce our exposure to
these risks, or are required to defend ourselves against such claims,
our financial position may be materially adversely affected.


                                       18
<PAGE>

LARGE QUANTITIES OF COMMON STOCK SALES BY OUR SHAREHOLDERS COULD CAUSE OUR
COMMON STOCK PRICE TO DECREASE DUE TO THE LACK OF A LIQUID MARKET FOR OUR
COMMON STOCK

    The market price of our common stock could decline as a result of
sales of a large number of shares of our common stock in the market or
the perception that these sales may occur. These sales also might make
it more difficult for us to sell equity securities in the future at a
time and at a price that we deem appropriate.
    We have holders of options and warrants that if they were to
exercise their rights and sell the shares issued to them, it could
have an adverse effect on the market price of our common stock as
well.

ANTI-TAKEOVER PROVISIONS.

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

Item 7. Financial Statements

    Financial Statements are attached hereto at page F-1.

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

    On September 27, 2001, we notified BDO Seidman LLP ("BDO") they
would no longer be engaged as our auditors and appointed Pender
Newkirk & Company, a local Tampa firm, as our independent auditor for
the remainder of 2001. Our change of auditors was approved by our
audit committee and board of directors. BDO's report on financial
statements of DFI for the past two years contained no adverse opinion or,
disclaimer of opinion, nor was it qualified or modified as to audit scope
or accounting principles. BDO's report on the Company's financial
statements was unqualified with an explanatory paragraph for a going
concern due to the fact that DFI incurred significant losses for the
years ended December 31, 2000 and 1999 and our ability to continue as
a going concern is contingent upon our ability to raise additional
funds and restructure our liabilities. There there were no disagreements between
DFI and BDO on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which,
if not resolved to the satisfaction of BDO, would have caused BDO to make
a reference to the subject matter thereof in connection with our report.

                                    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 our Proxy Statement for our
2003 Annual Meeting of Stockholders (the "2003 Proxy Statement") and is
incorporated by reference.

Item 10. Executive Compensation

     The response to this item will be contained in 2003 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 2003 Proxy Statement and is
incorporated by reference


                                       19
<PAGE>


Item 12. Certain Relationships and Related Transactions

     The response to this item will be contained in 2003 Proxy Statement and is
incorporated by reference.

Item 13. Exhibits List and Reports on Form 8-K

    (a) Exhibits

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

Exhibit No.                     Description

   *2.1    Securities Purchase Agreement, dated July 26, 2002, between
           the Company and Laurus Master Fund, Ltd., filed as exhibit 10.30 to
           the Company's Form 10-QSB for the period ended June 30, 2002, and
           incorporated herein by reference
   *2.2    Convertible note, dated July 26, 2002, between the Company
           and Laurus Master Fund, Ltd., filed as exhibit 10.31 to the Company's
           Form 10-QSB for the period ended June 30, 2002, and incorporated
           herein by reference.
   *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 (the "Registration Statement")).
   *3.2    Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 to
           our Quarterly Report on Form 10-QSB for the quarter ended September
           30, 1999).
   *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    Form of Registration Rights Agreement, dated as of May 6, 1997,
           between the Company and the holders of certain shares of common stock
           (filed as Exhibit 10.2 to our Registration Statement).
  *10.2    Form of Warrant to Purchase Shares of Stock, dated as of October 31,
           1997 (filed as Exhibit 10.4 to our Registration Statement).
  *10.3    Digital Fusion, Inc. 1998 Stock Option Plan (filed as Exhibit 10.14
           to our Registration Statement).+
  *10.4    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).+
  *10.7    Professional Service Agreement Consulting, dated as of October 23,
           1997, between Aetna Life Insurance Company and the Company (filed as
           Exhibit 10.21 to our Registration Statement).
  *10.8    Agreement and Plan of Merger dated as of February 10, 2000, among
           Sean D. Mann, Roy E. Crippen III, Michael E. Mandt, Ali A. Husain,
           Robert E. Siegmann, digital infusion, inc., DFI, and Digital Fusion
           Acquisition Corp. (filed as Exhibit 2.1 to our Report on 8-K, filed
           March 24, 2000).
  *10.9    Digital Fusion, Inc. 2000 Stock Option Plan (filed as part of our
           Proxy Statement for the Annual Meeting of Stockholders held June 9,
           2000).
**10.10    Amendment No. 2 to Master Agreement, dated as of January 06, 2003,
           between Aetna Life Insurance Company and the Company which amended
           the initial Agreement dated October 23, 1997.
 **21.1    Subsidiaries of the Company.
 **23.1    Consent of Pender Newkirk and Company
 **24.1    Power of Attorney (appears on signature page).
 **99.1    Written Statement of Chief Executive Officer pursuant to Section 906
           of the Sarbanes-Oxley Act of 2002.
 **99.2    Written Statement of Chief Financial Officer pursuant to Section 906
           of the Sarbanes-Oxley Act of 2002.


* Incorporated by reference.

** Filed herewith.

+ Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

    None


                                       20
<PAGE>


ITEM 14. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.
Within 90 days prior to this report, the Company carried out an evaluation,
under the supervision of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as defined in the Securities Exchange Act
Rule 15d-14(c). Based upon this evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely enabling the Company to record, process,
summarize and report information required to be included in the Company's
periodic SEC filings.

Changes in internal controls
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.

Code of Ethics for Senior Financial Officers

The "code of ethics" established by the Company for its Senior Financial
Officers is required to be signed by each, is maintained on file by the Company,
and incorporates the following:

Senior Financial Officers hold an important and elevated role in corporate
governance. While members of the management team, they are uniquely capable and
empowered to ensure that all stakeholders' interests are appropriately balanced,
protected and preserved. This Code provides principles to which Digital Fusion's
Officers are expected to adhere and advocate. They embody rules regarding
individual and peer responsibilities, as well as responsibilities to employers,
the public and other stakeholders. Our Senior Financial Officers agree by their
signature below that they will:

     1.   Act with honesty and integrity, avoiding actual or apparent conflicts
          of interest in personal and professional relationships.

     2.   Will make reasonable efforts to comply with rules and regulations of
          federal, state, provincial and local governments, and other
          appropriate private and public regulatory agencies as known to them
          and will make reasonable efforts to maintain or obtain a professional
          level of knowledge of applicable rules and regulations.

     3.   Act in good faith, responsibly, with due care, competence and
          diligence, without misrepresenting material facts or allowing one's
          independent judgment to be subordinated.

     4.   Respect the confidentiality of information acquired in the course of
          one's work except when authorized or otherwise legally obligated to
          disclose. Confidential information acquired in the course of one's
          work will not be used for personal advantage.


                                       21
<PAGE>




    SIGNATURES

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

                                              DIGITAL FUSION, INC.

    Dated: March 31, 2003                     By: /s/ Roy E. Crippen, III
                                              Roy E. Crippen, III
                                              Chief Executive Officer
                                              (Principal Executive Officer)



                                       22
<PAGE>



    KNOWN BY ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints both Roy E. Crippen,
III and Karen L. Surplus his true and lawful attorney-in-fact and
agent, with full power of substitution and re-substitution, for him
and in his name, place and stead, in any and all capacities, to sign
any and all amendments to this Annual Report on Form 10-KSB, and to
file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or their or his substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.
    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 indicated on the 31st day of March 2003.

    Signature Title(s)


/S/ROY E. CRIPPEN III              Chief Executive Officer, President
---------------------------------- and Director
Roy E. Crippen III                 (Principal Executive Officer)



/S/ KAREN L. SURPLUS               Chief Financial Officer
---------------------------------- (Principal Financial and Accounting
Karen L. Surplus                   Officer)



/S/ NICHOLAS R. LOGLISCI, JR.      Chairman of the Board of Directors
----------------------------------
Nicholas R. Loglisci, Jr.

/S/ AHMAD AL-KHALED                Director
----------------------------------
Ahmad Al-Khaled

/S/ O.G. GREENE                    Director
----------------------------------
O.G. Greene



                                       23
<PAGE>



CERTIFICATIONS

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Roy E. Crippen, III certify that:

1. I have reviewed this annual report on Form 10-KSB of Digital Fusion, Inc.;

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

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

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

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

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

     c)   presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

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

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

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

6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: March 31, 2003                        By: /s/ Roy E. Crippen, III
                                                   Roy E. Crippen, III
                                           Chief Executive Officer and President


                                       24
<PAGE>



CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Karen L. Surplus certify that:

1. I have reviewed this annual report on Form 10-KSB of Digital Fusion, Inc.;

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

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

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

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

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

     c)   presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

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

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

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

6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date: March 31, 2003                                 By: /s/ Karen L. Surplus
                                                         Karen L. Surplus
                                                         Chief Financial Officer


                                       25
<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.

<TABLE>
<CAPTION>


                                                                                                                Page

<S>                                                                                                                <C>
Report of Independent Certified Public Accountants                                                               F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001                                                     F-4
Consolidated Statements of Operations for the years ended December 31, 2002 and 2001                             F-5
Consolidated Statement of Stockholders' Equity for the years ended December 31, 2001 and 2002                    F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2001                             F-7
Notes to Consolidated Financial Statements                                                                       F-8

</TABLE>



                                       F1
<PAGE>



                          Independent Auditors' Report

Board of Directors
Digital Fusion, Inc. and Subsidiaries
Tampa, Florida

We have audited the accompanying balance sheets of Digital Fusion, Inc. and
Subsidiaries as of December 31, 2002 and 2001 and related statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. 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 auditing standards generally accepted
in the United States of America. These standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digital Fusion, Inc. and
Subsidiaries as of December 31, 2002 and 2001 and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred significant negative cash flow from operations of
approximately $1,026,000 and $513,000 for the years ended December 31, 2002 and
2001,respectively and has negative working capital of approximately $41,000 as
of December 31, 2002. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding these
matters are also described in Note 1. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence.

Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
March 21, 2003


                                       F2




                              DIGITAL FUSION, INC.
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001


                                                            2002          2001
                                                     ------------  ------------
                       ASSETS
Current Assets:
  Cash and cash equivalents                         $    653,000  $  1,350,000
  Accounts receivable (net of allowance for doubtful
    accounts of $325,000 in 2002 and $340,000 in
     2001)                                               978,000     1,963,000
  Prepaid expenses and other current assets               87,000        20,000
                                                     ------------  ------------
      Total current assets                             1,718,000     3,333,000

Property and equipment, net                              185,000       495,000
Intangible assets, net                                 3,347,000     4,547,000
Other assets                                              28,000        74,000
                                                     ------------  ------------
      Total Assets                                  $  5,278,000  $  8,449,000
                                                     ============  ============

        LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Current maturities of long-term debt              $    808,000  $    233,000
  Accounts payable                                        89,000       264,000
  Deferred revenue                                        21,000       132,000
  Accrued salaries and related expenses                  250,000       500,000
  Accrued professional fees                              110,000       287,000
  Accrued liabilities on sale of discontinued
   operations                                                  -       437,000
  Accrued severance and restructuring expenses            50,000       883,000
  Other current liabilities                              431,000       630,000
                                                     ------------  ------------
      Total current liabilities                        1,759,000     3,366,000

Acquisition liabilities                                        -        71,000
Accrued liabilities on sale of discontinued
 operations - long-term                                        -     1,103,000
Accrued severance and restructuring expenses - long-
 term                                                          -       187,000
Interest payable - long-term                              86,000             -
Long-term debt, less current maturities                  517,000       709,000
Pension obligation                                       280,000       124,000
                                                     ------------  ------------
      Total liabilities                                2,642,000     5,560,000
                                                     ------------  ------------

Commitments and contingencies                                  -             -

Stockholders' Equity:
  Preferred Stock - $.01 par value; authorized
     1,000,000 shares, no shares issued and
      outstanding                                              -             -
  Common Stock - $.01 par value; authorized
    16,000,000 shares, issued and outstanding
    7,167,671 - 2002 and 7,163,936 shares - 2001          72,000        72,000
  Additional paid in capital                          39,904,000    39,754,000
  Accumulated deficit                                (37,340,000)  (36,937,000)
                                                     ------------  ------------
      Total Stockholders' Equity                       2,636,000     2,889,000

                                                     ------------  ------------
      Total Liabilities and Stockholders' Equity    $  5,278,000  $  8,449,000
                                                     ============  ============

    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       F3

<PAGE>


                              DIGITAL FUSION, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

                                                        2002           2001
                                                 ------------   ------------

Revenues                                        $  9,503,000   $ 17,263,000
Cost of services                                   7,319,000     13,132,000
                                                 ------------   ------------
     Gross profit                                  2,184,000      4,131,000
                                                 ------------   ------------

Operating expenses:
  Selling, general and administrative              3,143,000      5,632,000
  Amortization of intangible assets                        -      3,776,000
  Impairment of goodwill                           1,200,000      6,500,000
  Severance and restructuring                       (271,000)       518,000
  Gain on forgiveness of debt                     (1,585,000)      (977,000)
                                                 ------------   ------------
     Total operating expenses                      2,487,000     15,449,000
                                                 ------------   ------------

     Operating loss                                 (303,000)   (11,318,000)
                                                 ------------   ------------

Other income (expense):
  Interest expense                                  (154,000)       (87,000)
  Interest income                                     12,000         16,000
  Loss on disposal of assets, net                          -        (23,000)
  Other income                                        42,000              -
                                                 ------------   ------------
     Total other income (expense)                   (100,000)       (94,000)
                                                 ------------   ------------

     Loss before income taxes                       (403,000)   (11,412,000)

Income tax provision                                       -              -
                                                 ------------   ------------

     Net loss                                       (403,000)   (11,412,000)
                                                 ============   ============


Loss per share:
  Basic and diluted                             $      (0.06)  $      (1.64)
                                                 ============   ============
Weighted average common stock outstanding:
  Basic and diluted                                7,164,000      6,965,000
                                                 ============   ============


    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                       F4

<PAGE>


                              DIGITAL FUSION, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2002


<TABLE>
<CAPTION>


                                      Common stock         Additional
                               ---------------------------   Paid-in   Accumulated  Stockholders'
                               No. of shares    Amount       Capital      Deficit       Equity
-------------------------------------------------------------------------------------------------
<S>                              <C>              <C>      <C>         <C>           <C>
Balance, January 1, 2001          6,787,129        68,000   38,883,000  (25,525,000)  13,426,000
Additional shares issued in
 connection with acquisitions        59,305         1,000      874,000            -      875,000
Shares rescinded from a former
 officer                            (32,500)            -            -            -            -
Shares issued in connection
 with settlement                    350,002         3,000       (3,000)           -            -
Net loss                                  -             -            -  (11,412,000) (11,412,000)
-------------------------------------------------------------------------------------------------
Balance, December 31, 2001        7,163,936        72,000   39,754,000  (36,937,000)   2,889,000
Additional shares issued in
 connection with acquisitions         3,235             -       71,000            -       71,000
Warrants issued in connection
 with settlement                          -             -       67,000            -       67,000
Warrants issued in connection
 with debt financing                      -             -       12,000            -       12,000
Shares issued in connection
 with options exercised                 500             -            -            -            -
Net loss                                  -             -            -     (403,000)    (403,000)
-------------------------------------------------------------------------------------------------
Balance, December 31, 2002        7,167,671        72,000   39,904,000  (37,340,000)   2,636,000
=================================================================================================

</TABLE>

    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       F5
<PAGE>


<TABLE>
<CAPTION>



                              DIGITAL FUSION, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

                                                                   2002          2001
                                                           -------------  ------------
Cash flows from operating activities:
<S>                                                       <C>            <C>
  Net loss                                                $    (403,000) $(11,412,000)
  Adjustments to reconcile net loss to net cash
       used in operating activities:
       Depreciation and amortization                            324,000     4,604,000
       Provision for uncollectible accounts                       1,000        11,000
       Non-cash restructuring                                  (187,000)      459,000
       Impairment of goodwill                                 1,200,000     6,500,000
       Forgiveness of debt                                   (1,585,000)     (977,000)
       Amortization of deferred financing costs                  46,000             -
       Loss on disposal of assets, net                                -        23,000
       Changes in operating assets and liabilities (net
          of effects of purchase acquisitions and
           divestitures):
            Accounts receivable                                 984,000     1,729,000
            Prepaid expenses and other assets                   (18,000)      113,000
            Accounts payable and accrued expenses            (1,427,000)   (1,143,000)
            Deferred revenue                                   (138,000)     (171,000)
            Income taxes                                              -        86,000
            Deposits and other                                   21,000      (311,000)
            Pension obligation                                  156,000       (24,000)
                                                           -------------  ------------
                 Net cash used in operating activities       (1,026,000)     (513,000)
                                                           -------------  ------------

Cash flows from investing activities:
  Capital expenditures - property and equipment                 (23,000)      (28,000)
  Proceeds from assets sold                                           -       550,000
                                                           -------------  ------------
                 Net cash provided by (used in) investing
                  activities                                    (23,000)      522,000
                                                           -------------  ------------

Cash flows from financing activities:
  Repayments of notes payable                                  (365,000)     (216,000)
  Net proceeds from note issued                                 717,000             -
                                                           -------------  ------------
                 Net cash provided by (used in) financing
                  activities                                    352,000      (216,000)
                                                           -------------  ------------

Net decrease in cash and cash equivalents                      (697,000)     (207,000)
Cash and cash equivalents, at beginning of year               1,350,000     1,557,000
                                                           -------------  ------------

Cash and cash equivalents, at end of year                 $     653,000  $  1,350,000
                                                           =============  ============

</TABLE>

    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       F6


<PAGE>


                              DIGITAL FUSION, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

(1) ORGANIZATION, BACKGROUND AND BASIS OF PRESENTATION

Digital Fusion, Inc. (the "Company" or "DFI") and its subsidiaries are an
information technology (IT) consulting company helping its customers make the
most of technology to access business information, enhance the performance of
their human resources, and meet their business needs. Our success is based on a
total approach, providing the people, processes, and technology needed to
translate business needs into sound IT strategies. DFI provides its services to
businesses, 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"). DFI, a Delaware corporation, has its
main administrative office in Tampa, Florida, along with regional offices in New
Jersey, Virginia, Florida and Alabama.

The accompanying financial statements have been prepared on the assumption that
the Company will continue as a going concern. The Company has incurred losses of
$403,000 and $11,412,000 in 2002 and 2001, respectively and cash flow
deficiencies from operations of $1,026,000 and $513,000 in 2002 and 2001,
respectively. These factors raise substantial doubt about the ability of the
Company to continue as a going concern. The ability of the Company to continue
as a going concern is dependent upon restructuring its outstanding debt and
attaining positive cash flow from operations. The financial statements do not
include any adjustments that may result from the outcome of this uncertainty.

The Company believes that, as a result of the actions it has taken during prior
years to restructure and streamline the Company and if it can restructure its
debt outstanding by extending the payment terms and attain positive cash flow
from operations, it currently has sufficient cash to meet its funding
requirements over the next year; however, the Company has experienced negative
cash flows from operations and incurred large net losses in the past.

The Company's current growth has been funded through internally generated and
through a convertible note issued in July 2002. In order for the Company to
support substantial growth, the Company may need to fund this growth through
externally generated funds. The Company is reviewing its options, which include
a line of credit secured by receivables, raise equity or a combination of both.
There can be no assurance as to the availability or terms upon which such
financing and capital might be available.

(2) SIGNIFICANT ACCOUNTING POLICIES

(a) PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly-owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.

(b) REVENUE RECOGNITION

Revenue is recognized as services are provided to customers primarily on a time
and material basis. In the event that there are significant performance
obligations yet to be fulfilled on consulting and design projects, revenue
recognition is deferred until such conditions are removed. A small portion of
DFI's contracts are on a fixed fee basis. Revenues on these contracts are
recognized on a percentage of completion basis. For projects that the customer
has prepaid, but the services have not been performed, deferred revenue is
recorded on the balance sheet.

                                       F7

<PAGE>



(c) STOCK BASED COMPENSATION

The Company accounts for its stock option awards to employees under the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees. Under the
intrinsic value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date or other measurement date over
the amount an employee must pay to acquire the stock. 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 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.

(d) WARRANTS

The fair values ascribed to warrants that are used in connection with financing
arrangements and professional services agreements (see Note 10) are amortized
over the expected life of the underlying debt or the term of the agreement.

(e) INCOME TAXES

The Company accounts for income taxes using the liability method. Deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities.

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 operating
losses generated during 2002 and 2001 based on uncertainties concerning its
ability to generate taxable income in future periods. There was no income tax
receivable at December 31, 2002 and 2001. 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.

(f) 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 a major financial institution in the United States. Deposits
with this bank may exceed the amount of FDIC insurance provided on such
deposits. Generally, these deposits may be redeemed upon demand and, therefore,
bear minimal risk.

(g) CONCENTRATIONS OF CREDIT RISK

Financial instruments, which potentially subject the Company to credit risk,
consist primarily of a concentration of unsecured trade accounts receivables. At
December 31, 2002 and 2001, one customer accounted for 23% and 25% of total net
accounts receivable, respectively.

The Company performs ongoing credit evaluations of its customers and generally
does not require collateral on accounts receivable. The Company monitors the
allowance for potential credit losses and adjusts the allowance accordingly.
During the years ended December 31, 2002 and 2001 the Company's allowance for
doubtful accounts was increased by $1,000 and $221,000, respectively and was
decreased by $16,000 and $881,000, respectively, for balances written off.

Cash equivalents at December 31, 2002 and 2001 of $672,000 and $1,203,000
respectively are comprised of money market fund investments and overnight
deposits.

                                       F8

<PAGE>


(h) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are
computed primarily under the straight-line method over the assets estimated
useful lives, generally three years for computer equipment, five years for
office equipment and seven years for furniture and fixtures. Leasehold
improvements are amortized over the term of the related lease, generally three
to five years.

(i) LONG-LIVED ASSETS

On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.  SFAS 144 addresses the financial
accouting and reporting for the impairment of long-lived assets, excluding
goodwill and intangible assets, to be held and used or disposed of.  The
adoption of SFAS 144 did not have an impact on the Company's financial position
or results of operations. 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. See Note 5 below for a
discussion of goodwill impairment. See Notes 3, 4, and 17 for assets written-off
and sold related to the sale of the web hosting and non-dial-up internet access
business unit, the sale of the network services and installation business unit,
closing certain offices and work force reductions.

(j) INTANGIBLE ASSETS

Intangible assets are comprised primarily of goodwill, customer lists and other
intangibles arising from various acquisitions. On January 1, 2002, the Company
adopted the Statement of Financial Accounting Standards ("SFAS") No. 142,
Goodwill and Other Intangible Assets. SFAS 142 addresses financial accounting
and reporting for acquired goodwill and other intangible assets. SFAS 142
requires, among other things, that companies no longer amortize goodwill, but
instead test goodwill for impairment at least annually. The Company tested
goodwill for impairment as of February 2002 and at the end of the year. See
footnote 5 for a discussion of the impairment of goodwill charges. The Company
will continue to test goodwill for impairment at least annually.

(k) PENSION ACCOUNTING

The Company follows SFAS No. 132, Employers' Disclosures about Pensions and
Other Post-retirement Benefits as it relates to a 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.

(l) ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities and
notes payable approximate the instruments' fair values due to the immediate or
short-term maturity of these financial instruments.

(m) LOSS PER SHARE

Basic loss per share has been computed using the weighted average number of
shares of common stock outstanding for the period. The Company's diluted loss
per share includes the effect, if any, of unissued shares under options,
warrants and stock awards computed using the treasury stock method. In all
periods presented, there were no differences between basic and diluted loss per
common share because the assumed exercise of common share equivalents was
antidilutive. The assumed exercise of stock options and warrants, as well as the
issuance of common stock under compensation and acquisition agreements
(aggregating 2,181,860 and 2,512,395 shares at December 31, 2002 and 2001
respectively), could potentially dilute basic earnings per share.

(n) USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
actual results could differ from those estimates. Significant estimates include
management's estimates with respect to the values of accounts receivable
allowance, intangibles, liabilities (including accruals) and fixed assets.

                                       F9

<PAGE>


(o) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 143 Accounting for Asset Retirement
Obligations.  SFAS No. 143 addresses financial accounting and reporting for
retirement obligations associated with tangible long-lived assets, including
(1) the timing of the liability recognition, (2) initial measurement of the
liability, (3) allocation of asset retirement cost to expense, (4) subsequent
measurement of the liability and (5) financial statement disclosures.  SFAS No.
143 requires that an asset retirement cost should be capitalized as part of the
cost of the related long-lived asset and subsequently allocated to expense using
a systematic and rational method.  The adoption of SFAS No. 143 is not expected
to have a material effect on the Company's financial position, results of
operations, or cash flows.

See footnote 2(i) above for a discussion of the Company adopting SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.

On April 1, 2002, the Company adopted SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinded the following pronouncements: SFAS 4, Reporting
Gains and Losses from Extinguishment of Debt; SFAS 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements; and SFAS 44, Accounting for
Intangible Assets of Motor Carriers. In addition, SFAS 145 amends SFAS 13,
Accounting for Leases and makes technical corrections and amendments to various
existing pronouncements. The adoption of SFAS 145 resulted in the Company
classifying the gain on forgiveness of debt as part of income from operations on
the Company's Condensed Consolidated Statements of Operations.

See footnote 2(j) above for a discussion of the Company adopting SFAS 142,
Goodwill and Other Intangible Assets.

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities", which is effective for the Company for exit or
disposal activities that are initiated after December 31, 2002.  This Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit and Activity (including Certain Costs Incurred in a
Restructuring)."  This Statement requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Under Issue 94-3 a liability for an exit cost as defined, was recognized at the
date of an entity's commitment to an exit plan.  The Company will adopt SFAS
146 for all exit or disposal activities that are initiated after December 31,
2002 and does not expect this statement to have a material effect on its
financial statements.

The FASB issued SFAS 148, "Accounting for Stock-Based Compensation-Transition
and Disclosure", which is effective for the Company as of January 1, 2003. This
Statement amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results.  Management continues to
evaluate the impact that adoption of SFAS 148 will have on its consolidated
financial statements.


(3) SALES OF BUSINESS UNITS

During April 2001, the Company sold its web hosting and non-dial-up internet
access business unit to Veraciti, Inc. for $200,000 cash and $60,000 worth of
services to complete certain customer projects. In addition, Veraciti assumed
certain lease obligations of the Company related to the web hosting and
non-dial-up internet access business and subleased 4,000 square feet of the
Cedar Knolls office space through lease termination. The Company recorded a
$211,000 loss related to this sale. Veraciti is owned by Frank Altieri, a former
member of the DFI Board of Directors.

During July 2001, the Company sold its network services and installation
business unit to Spectrum Solutions, Inc. ("Spectrum") for $350,000 and Spectrum
assumed certain lease obligations of the Company related to this network
services and installation business unit. The Company recorded a $188,000 gain
related to this sale.

(4) PROPERTY AND EQUIPMENT

    Major classes of property and equipment, net, consist of the
following at December 31, 2002 and 2001:

                                        2002          2001
                                  -----------   -----------

Computer
 equipment                       $   837,000   $ 1,231,000
Office equipment, fixtures and
 vehicles                             92,000        88,000
                                  -----------   -----------

                                     929,000     1,319,000
Less: accumulated depreciation      (744,000)     (824,000)
                                  -----------   -----------

                                 $   185,000   $   495,000
                                  ===========   ===========

    Depreciation expense for the years ended December 31, 2002 and
2001 amounted to $324,000 and $828,000, respectively. Included in the
2001 depreciation is a write-off of $184,000 of fixed assets related
to certain computer and software assets that are no longer in use by
the Company.


                                      F10

<PAGE>




    (5) INTANGIBLE ASSETS

Intangible assets, net, are comprised of the following at December 31, 2002 and
2001:

                                          2002          2001
                                    -----------   -----------

Goodwill                           $10,767,000   $10,767,000
Less: accumulated amortization
 including impairment charge        (7,420,000)   (6,220,000)
                                    -----------   -----------

                                   $ 3,347,000   $ 4,547,000
                                    ===========   ===========

The Company recorded amortization of $3,776,000 for the year ended 2001. The
Company adopted SFAS 142 during 2002 as discussed in Note 1 above. In accordance
with SFAS 142, the Company discontinued amortization of goodwill as of January
1, 2002.

During the fourth quarter of 2002 and 2001, the Company recorded an impairment
of goodwill charge of $1.2 million and $6.5 million, respectively associated
with prior years acquisitions. The United States is currently in a recession and
most companies are reducing their expenses including reducing technology
projects, this has resulted in companies reducing its hiring of outside
consultants and putting special projects on hold. This has had an impact on the
Company's business and forecasts, which in turn impacted the quoted market value
of the Company and of the Company's goodwill recorded. The value of the
remaining $3.3 million of goodwill on our balance sheet as of December 31, 2002
was determined by the quoted market price of DFI at yearend. We will continue to
review the goodwill balance during 2003 to determine if any further write-downs
are needed.

The impact of the adoption of SFAS No. 142 for the years ended December 31, 2002
and 2001 are summarized as follows:


                                                      Year ended December 31,
                                                    ---------------------------
                                                            2002          2001
                                                    ------------- -------------

Reported net loss                                  $    (403,000)$ (11,412,000)
Add back:  Goodwill amortization                               -     3,776,000
                                                    ------------- -------------
Adjusted net income (loss)                              (403,000)   (7,636,000)
                                                    ============= =============

Basic and diluted earnings (loss) per share
    Reported earnings (loss) per share             $       (0.06)$       (1.64)
    Goodwill amortization                                      -          0.54
                                                    ------------- -------------
    Adjusted earnings (loss) per share             $       (0.06)$       (1.10)
                                                    ============= =============

Basic and diluted weighted average common shares
 outstanding                                           7,164,000     6,965,000
                                                    ============= =============

(6) CURRENT LIABILITIES

The following is a recap of the other current liabilities outstanding at
December 31 2002 and 2001:

                                             2002               2001

    Interest payable                       $122,000          $177,000
    Other                                   309,000           453,000
                                           --------          --------
                                           $431,000          $630,000
                                           ========          ========


                                      F11

<PAGE>


(7) LEGACY LIABILITIES

As a result of significant restructuring, closing of unprofitable offices and
selling certain business divisions during 2000 and the first half of fiscal year
2001, the Company accumulated unpaid liabilities not associated with current
operations. These creditor liabilities included terminated equipment leases,
property leases and telecommunication contracts as well as certain professional
fees. Through productive negotiations with these creditors, $3.9 million of
these liabilities have been settled and paid as of December 31, 2002. This
resulted in a forgiveness of debt gains of $1,585,000 and $977,000 during 2002
and 2001, respectively.

(8) BORROWINGS

At December 31, 2002 and 2001, the Company's outstanding borrowings were
comprised of the following:



                                         2002       2001
                                    ----------  ---------

PowerCerv Note                     $  135,000  $ 462,000
Digital Shareholders' Note            497,000    480,000
Laurus Note                           693,000          -
                                    ----------  ---------

                                    1,325,000    942,000
Less: current portion                (808,000)  (233,000)
                                    ----------  ---------

Total-long term borrowings         $  517,000  $ 709,000
                                    ==========  =========

(a) POWERCERV NOTE

In connection with the acquisition of digital fusion, inc. (Digital), a Florida
company, the Company assumed Digital's $827,500 secured note to PowerCerv
Corporation. The assets of Digital secure this note. The note bears interest at
a 4.56% annual rate with quarterly principal and interest payments due through
2003. Interest expense on this note totaled $12,000 and $29,000 during 2002 and
2001, respectively. See Note 13 (b) for related party discussion.

(b) DIGITAL SHAREHOLDERS' NOTE

In conjunction with the Digital acquisition, the Company entered into unsecured
promissory notes with the former Digital shareholders totaling $500,000. These
notes bear interest at 6% and are payable at maturity. The interest rate was
below the market rate and a discount of $46,000 was recorded to be amortized to
interest expense over the period of the notes and results in an effective
interest rate of 9%. Interest expense on these notes totaled $34,000 and $47,000
during 2002 and 2001, respectively.

On November 12, 2002, the Company renegotiated the terms of notes due to certain
former Digital shareholders totaling $440,000. Effective March 2, 2003, the
interest rate increased from 6% to 8%, and the accrued interest was converted
into principal in the amended notes. The maturity date was extended from March
1, 2003 to March 1, 2005. These renegotiated notes and related accrued interest
are classified as long-term liabilities on the December 31, 2002 balance sheet.

(c) LAURUS NOTE

On July 26, 2002, the Company closed on an $800,000, 10% convertible note
collateralized by the Company's accounts receivable. After ninety days, the
Company pays principal and interest on a monthly basis. This note matures on
January 25, 2004. At the noteholder's election, this note can be converted into
DFI common stock at $0.922 a share after the DFI common stock price is at or
above $1.15 a share for ten consecutive days. Additionally, a five-year warrant
to purchase 75,000 shares of DFI common stock at $1.15 per share was issued and
resulted in additional equity of $12,000 being recorded for the fair market
value of these warrants. The Company paid a management fee of $48,000 to the
noteholder, which will be amortized to interest expense over the 18-month life
of the note. Interest expense on this note totaled $34,000 during 2002 and the
company amortized $46,000 related to debt refinancing costs recorded during
2002.


                                      F12

<PAGE>



(d) DEBT MATURITIES

At December 31, 2001, aggregate required principal payments of long-term debt
are as follows:


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

         2003              $    808,000
         2004                   517,000
                            ------------
         Total             $  1,325,000
                            ============

(9) BENEFIT PLANS

    (a) DEFINED BENEFIT PLAN

     Certain employees from a company we acquired who met certain requirements
     of age and length of service are covered by the Company's sponsored
     non-qualified, non-contributory defined benefit pension plan. The benefits
     become fully vested upon the employees' retirement. 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, 2002 and 2001 for this plan includes the following components:


                                               2002        2001
                                           ---------   ---------
Components of net periodic pension cost:
   Service cost                           $       -   $       -
   Interest cost                             41,000      60,000
   Actual return on plan assets             115,000     (18,000)
   Recognized net actuarial (gain) loss    (167,000)    (61,000)
                                           ---------   ---------
Net periodic pension cost (income)        $ (11,000)  $ (19,000)
                                           =========   =========


     The following provides a reconciliation of benefit obligations, plan
     assets, the funded status of the plan and the amounts recorded in the
     Decemb er 31, 2002 and 2001 Company's balance sheets:

                                                 2002          2001
                                           -----------   -----------
Changes in benefit obligation:
   Benefit obligation, beginning of year  $   717,000   $   555,000
   Service cost                                     -             -
   Interest cost                               41,000        60,000
   Actuarial loss                                   -       102,000
                                           -----------   -----------
Benefit obligation, end of year               758,000       717,000
                                           -----------   -----------

Changes in plan assets:
   Fair value of plan assets, beginning
    of year                                   593,000       575,000
   Actual return on plan assets              (115,000)       18,000
   Employer contribution                            -             -
                                           -----------   -----------
   Fair value of plan assets, end of
    year                                      478,000       593,000
                                           -----------   -----------

   Unfunded status                           (280,000)     (124,000)
   Unrecognized prior service cost           (181,000)     (198,000)
   Unrecognized net actuarial loss            181,000       198,000
                                           -----------   -----------

   Accrued benefit cost                   $  (280,000)  $  (124,000)
                                           ===========   ===========

    Assumptions used in these actuarial valuations at December 31,
2002 and 2001 were:

                                               2002            2001
                                        ------------   -------------

Discount rate                                  5.50%           5.50%
Expected long-term rate of return              8.00%           8.00%

                                      F13

<PAGE>



     (b) 401(K) PLAN

     The Company sponsored a defined contribution benefit plan covering the DFI
     employees and a second plan that covered the Digital employees. Currently,
     eligible employees are allowed to contribute annually up to the maximum
     annual contribution allowed for 401(k) plans. In the DFI plan, Company
     contributions are at the sole discretion of management. There were no
     contributions for the years ended December 31, 2001. Effective August 2001,
     the DFI Plan was merged with the digital fusion, inc. 401(k) Plan (the
     Company's subsidiary plan) into the restated Digital Fusion 401(k) Plan
     (Restated Plan). In the Digital plan and the Restated Plan, the Company
     matched 30% of participant contributions to a maximum matching amount of 6%
     of participant base compensation which totaled $56,000 for each of the
     years ended December 31, 2002 and 2001, respectively. Effective August 1,
     2002, the Board of Directors of DFI suspended the matching contribution due
     to the Company not being cash flow positive.

(10) STOCKHOLDERS' EQUITY

    (a) CAPITAL STOCK

     During the 2001 Annual Shareholders meeting, the shareholders approved
     increasing the number of authorized shares to 17,000,000. The Company's
     Board of Directors designated 1,000,000 of the authorized shares as "blank
     check" preferred stock and 16,000,000 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.

    (b) WARRANTS

     At December 31, 2002, 991,510 shares of common stock were reserved for the
     exercise of stock warrants comprised of the following:


                           Initial IPO Underwriter's
                            Warrants                       31,760
                           1999 Private Placement         166,680
                           2000 Private Placement         183,070
                           Investment advisory firms      285,000
                           Legacy Liability Settlement    250,000
                           Debt financing                  75,000
                                                        ---------
                               Total                      991,510
                                                        =========

     In connection with the Company's initial public offering, we registered
     120,000 shares of common stock underlying warrants, which were sold to the
     underwriter ("Underwriter Warrants") of which 31,760 remain unexercised.
     These warrants are exercisable for a four-year period commencing on May 14,
     1999 at a price of $8.10 per share.

                                      F14

<PAGE>


     In October 1999, the Company entered into a consulting agreement with an
     investment advisory firm in which the Company agreed to issue: (a)
     four-year warrants to purchase 50,000 shares of Common Stock at an exercise
     price of $10.25 per share and (b) four-year warrants to purchase 50,000
     shares of Common Stock at an exercise price of $11.25 per share upon the
     closing of certain mergers or acquisitions to be identified. The exercise
     prices were at least the fair market value of the Company's common stock at
     the date of the agreement. In the event that the requisite services are
     rendered and the warrants are issued, the Company will realize a non-cash
     charge to operations for the fair value of these warrants. The period(s)
     that such charge will be recognized over will be determined based upon the
     nature of the merger or acquisition involved. The fair value of these
     warrants was recorded as purchase price of the related acquisitions. On
     January 12, 2000, the Company entered into an additional consulting
     agreement with this same firm in which the Company agreed to issue
     four-year warrants to purchase 50,000 shares of Common Stock at an exercise
     price of $12.50 per share upon the closing of certain mergers or
     acquisitions to be identified. The fair value of these warrants was charged
     to expense as consulting fees in 2000.

     In connection with the 1999 private placement, the Company issued five-year
     redeemable warrants to purchase 166,680 shares of its common stock at an
     exercise price of $12.50 per share.

     In connection with the 2000 private placement, the Company issued
     three-year redeemable warrants to purchase 171,125 shares of its common
     stock at an exercise price of $13.75 per share. In addition, on May 11,
     2000 the Company issued a three-year warrant to purchase 11,945 shares of
     its common stock at an exercise price of $13.75 per share to LaSalle St.
     Securities, LLC in consideration for their services as placement agent for
     the private placement, the fair value of which was reflected as a reduction
     to the proceeds of the private placement.

     The Chief Operating Officer of Tekbanc Limited joined The Company's Board
     of Directors during April 2000 and, in that capacity, received three-year
     warrants to purchase 60,000 shares of common stock at $13.75 per share.

     On June 15, 2000, the Company entered into a consulting agreement with
     Tekbanc in which we agreed to issue Tekbanc three-year warrants to purchase
     75,000 shares of its common stock at an exercise price of $7.00 in exchange
     for mergers and acquisitions, marketing, business development and financial
     advisory services. These warrants vested ratably over a six-month period
     ending December 15, 2000. The fair value of these warrants was charged to
     expense during 2000.

     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 July 26, 2002, the Company closed on an $800,000 convertible note. In
     conjunction with this financing, the Company issued a five-year warrant to
     purchase 75,000 shares of the Company's common stock at $1.15 per share.
     The Company recorded these warrants at fair market value, recording
     additional equity of $12,000.

    (d) SHARES ISSUED FOR ACQUISITIONS

     The Company issued 3,235 and 59,305 shares of reserved common stock during
     2002 and 2001, respectively in connection with the resolution of
     contingencies in prior acquisitions.

     The acquisition liability account was reduced by $71,000 and $874,000
     during 2002 and 2001, respectively, for the issuance of certain reserve
     shares related to acquisitions the Company made in prior years.

    (e) SETTLEMENT

     On June 15, 2001, the Company reached a settlement agreement with certain
     shareholders resolving a contractual dispute with such shareholders. During
     June 2001, the Company issued 350,002 shares of common stock to these
     shareholders to effect that resolution.


                                      F15

<PAGE>


    (f) STOCK AWARDS

     The Company issued 32,500 shares of restricted stock to an officer during
     2000. These shares were fully vested in conjunction with the termination
     agreement of the former officer. During 2001, the termination agreement was
     amended and these 32,500 shares were rescinded.

    (g) DELISTING NOTICE FROM NASDAQ

     On October 28, 2002, the Company was notified by The Nasdaq Stock Market,
     Inc. that its common stock has failed to maintain a minimum bid price of
     $1.00 over the last 30 consecutive trading days as required by The Nasdaq
     SmallCap Market listing requirements. The letter states that the Company
     will have 180-days or until April 28, 2003 to regain compliance by
     maintaining a minimum closing bid price of $1.00 per share for 10
     consecutive trading days.

    (h) STOCK OPTION PLAN

     The Company maintains three qualified stock option plans. Under the terms
     of these plans, the Company has reserved 1,369,000 shares of common stock
     for future grants. The Company also granted 66,000 and 380,000 of
     nonqualified stock options during 2002 and 2001, respectively. These were
     granted to Board of Directors as part of their compensation for being on
     the Company's BOD's, and certain management to retain key personnel during
     this restructuring and refocusing the Company's strategic vision on being
     an IT consulting services firm, stream-line on-going operations and sell or
     shut down unprofitable units.

     Under the Company's Stock Option Plans, the Company may grant incentive
     stock options to certain officers, employees and directors. The options
     expire five or ten years from the date of grant. Accelerated vesting occurs
     following a change in control of the Company and under certain other
     conditions. At December 31, 2002, the Company could grant an aggregate of
     587,950 shares under these plans.

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


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

$0.29 to $0.29     350,000         8.50 $   0.29      260,278  $      0.29
$0.40 to $0.55     519,000         8.97     0.41      300,813         0.41
$0.65 to $1.19     289,700         8.19     0.92      220,520         0.93
$5.78 to $8.13     180,400         7.07     6.10      164,885         6.13
$9.97 to $10.49    462,750         7.16    10.46      446,187        10.46
$17.19 to $22.00    25,500         6.37    20.32       25,500        20.32
                -----------                       ------------

                 1,827,350         8.08 $   3.85    1,418,183  $      4.65
                ===========                       ============


                                      F16

<PAGE>


     Transactions under various qualified and non-qualified option plans for
     2001 and 2002 are summarized as follows:


                                                               Weighted
                                                               Average
                                                               Exercise
                                           Options              price
                                         -----------          ----------

Outstanding at January 1, 2001            1,371,280          $    10.47
Granted                                   1,092,858                0.58
Exercised                                         -                   -
Canceled                                   (621,488)              11.41
                                         -----------

Outstanding at December 31, 2001          1,842,650                3.93
Granted                                      99,750                0.71
Exercised                                      (500)               0.40
Canceled                                   (114,550)               2.15
                                         -----------

Outstanding at December 31, 2002          1,827,350          $     3.85
                                         ===========

Options exercisable at December 31, 2002  1,418,183          $     4.65
                                         ===========

Options available for grant at December
 31, 2002                                   587,950
                                         ===========


     Under the accounting provisions of SFAS 123, the Company's 2002 and 2001
     pro forma net loss and loss per share would have been:

                                                 2002           2001
                                           -----------   ------------

 Net loss                                 $(1,453,000)  $(12,520,000)
 Net loss per share; basic and diluted    $     (0.20)  $      (1.80)


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

                                            2002         2001
                                         --------   ----------

 Dividend yield                                0%           0%
 Expected volatility                          60%          63%
 Risk-free interest rate                    4.52%        5.05%
 Expected life - years                        10           10
 Weighted average fair value of options
  granted                                  $0.51        $0.35


                                      F17

    (11) TAXES

     Benefits for federal and state income taxes consist of the following as of
     December 31, 2002 and 2001:


                                                  2002          2001
                                            -----------   -----------
Current:
Federal                                    $         -   $         -
State                                                -             -
                                            -----------   -----------
                                                     -             -
Deferred:
Federal                                              -             -
State                                                -             -
                                            -----------   -----------
                                                     -             -
                                            -----------   -----------

Total income tax benefit                   $         -   $         -
                                            ===========   ===========


     Deferred tax assets (liabilities) arise from the following temporary
     differences and are classified as follows as of December 31, 2002 and 2001:


                                                   2002           2001
                                            ------------   ------------

Deferred Tax Asset, Current:
Accounts receivables                       $    130,000   $    136,000
Other, net                                            -              -
Valuation allowance                            (130,000)      (136,000)
                                            ------------   ------------
                                           $          -    $         -
                                            ============    ===========

Deferred Tax Asset (Liabilities), Non-
 Current:
Intangible assets                          $    (72,000)  $     35,000
Property and equipment                         (165,000)      (101,000)
Tax benefit of state income tax net
     operating loss carryforwards             1,536,000      1,485,000
Tax benefit of federal income tax, net
     operating loss carryforwards             8,013,000      7,729,000
Change in tax status of Spencer                       -              -
Valuation allowance                          (9,312,000)    (9,148,000)
                                            ------------   ------------
                                           $          -   $          -
                                            ============   ============


     Differences between the federal benefit computed at a statutory rate and
     the Company's effective tax rate and provision are as follows as of
     December 31, 2002 and 2001:


                                                   2002           2001
                                            ------------   ------------

Statutory benefit                          $   (137,000)  $ (3,880,000)
State tax benefit, net of federal effect        (24,000)      (678,000)
Amortization of non-deductible goodwill               -      1,470,000
Write-off of non-deductible goodwill                  -      2,596,000
Non-deductible expenses                           3,000         43,000
Increase in deferred income tax valuation
 allowance                                      158,000        449,000
                                            ------------   ------------

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

                                      F18

<PAGE>



     The Company has not recognized an income tax benefit for its operating
     losses generated during 2001 and 2002 based on uncertainties concerning its
     ability to generate taxable income in future periods. The tax benefit for
     2001 and 2002 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, 2002, the Company had available federal and state net
     operating loss carryforwards of approximately $24 million and $25 million
     respectively, which begin expiring in 2019 and 2006, respectively.

    (12) COMMITMENTS AND CONTINGENCIES

    (a) OPERATING LEASES

     The Company leases facilities and equipment under operating leases and
     subleases expiring through December 2005. Some of the leases have renewal
     options and most contain provisions for passing through certain incremental
     costs. At December 31, 2002 future net minimum annual rental payments under
     non-cancelable leases are as follows:


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

         2003              79,000
         2004              58,000
         2005               7,000
         2006                   -
         2007                   -
                      ------------
    Total            $    144,000
                      ============


     Total rental and lease expense for the years ended December 31, 2002 and
     2001 was approximately $312,000 and $697,000, respectively.

     (b) EMPLOYMENT AGREEMENTS

     The Company has entered into employment and consulting contracts with a
     certain officer, which provides for minimum annual salaries to be paid over
     specified terms. Future commitments for such payments are as follows:


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

         2003              29,000
                       ===========

    (c) LITIGATION

     The Company is involved in certain legal actions arising from the cessation
     of certain business operations and in the ordinary course of business. The
     Company is defending these proceedings. While it is not feasible to predict
     or determine the outcome of these matters, the Company does not anticipate
     that any of these matters or these matters in the aggregate will have a
     material adverse effect on the Company's business or its consolidated
     financial position or results of operations.

(13) RELATED PARTY TRANSACTIONS

    (a) OTHER TRANSACTIONS

     See Note 3 for a discussion of the sale of the web hosting business to
     Veraciti, Inc. Veraciti, Inc is owned by Frank Altieri who was a former DFI
     board of director.

    (b) CONSULTING AGREEMENT

     On October 9, 2001, the Company entered into a consulting services
     agreement with PowerCerv to provide PowerCerv with the right to license the
     derivative works created from its web-based iCRM product for $27,500. This
     was paid to the Company during 2001. Roy E. Crippen, III, the Company's
     Chief Executive Officer and President, is a member of the Board of
     Directors of PowerCerv.

     During 2002, the Company provided $27,500 of consulting services to
     PowerCerv. The Company offset its note owed to PowerCerv by $27,500 for
     these consulting services provided to PowerCerv.

     During 2000, the Company entered into a consulting services agreement with
     PowerCerv. During 2001, the Company offset its note owed to PowerCerv by
     $150,000 for certain consulting services PowerCerv had engaged DFI to
     perform relating to this agreement.

    (c) DFI ACQUISITION

     In conjunction with the Digital acquisition, the Company entered into
     unsecured promissory notes with the former Digital shareholders as
     described in footnote 8 (b). Roy E. Crippen, III, the Company's Chief
     Executive Officer and President, was a former Digital shareholder and is
     connection with this transaction is owed $298,000 of principal and
     interest.

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

(14) CASH FLOW INFORMATION

     During 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, reducing the balance sheet account
     accrued liabilities on sale of discontinued operations.

     On July 26, 2002, the Company closed on an $800,000 convertible note. In
     conjunction with this financing, the Company issued a five-year warrant to
     purchase 75,000 shares of the Company's common stock at $1.15 per share.
     The Company recorded these warrants at fair market value, recording
     additional equity of $12,000. The Company also recorded $83,000 additional
     deferred financing costs related to legal fees and other fees that were
     netted against the debt proceeds given to the Company in conjunction with
     this convertible note.

     During 2002, the Company provided $27,500 of consulting services to
     PowerCerv. The Company offset its note owed to PowerCerv by $27,500 for
     these consulting services provided to PowerCerv.

     During 2001, the Company offset its note owed to PowerCerv by $150,000 for
     certain consulting services PowerCerv engaged DFI to perform.

     As disclosed in Note 10 (e), during 2001, the Company issued 350,002 shares
     of common stock to resolve a contractual dispute.

     During 2002 and 2001, the Company reduced its acquisition liability account
     by $71,000 and $874,000, respectively for the issuance of shares of common
     stock that were reserved for various acquisitions as discussed in Note
     10(d).

     During 2000, the Company issued 32,500 shares of common stock valued at
     $309,000 to a former officer as part of his termination compensation. See
     Note 10(f). The termination agreement was amended during 2001 and these
     shares were rescinded.

                                      F19

<PAGE>



(15) MAJOR CUSTOMERS OF THE COMPANY

     One customer accounted for 24% and 18% of the Company's revenues for the
     years ended December 31, 2002 and 2001, respectively.

(16) SEVERANCE AND RESTRUCTURING EXPENSES

     During April 2001, the Company took additional cost and restructuring steps
     to become profitable. It closed its Detroit facility and reduced its sales
     and general and administrative management headcount by 21 employees. As a
     result, the Company recognized a severance and restructuring expense of
     $518,000 in April 2001. This is comprised of $339,000 relating to the
     closing of the office, $62,000 relating to severance, benefits and
     entitlements and $117,000 of other costs. $50,000 remains accrued on the
     balance sheet at December 31, 2002.

(17) FORGIVENESS OF DEBT

     During 2002, the Company reached settlement agreements on some debts
     associated with offices that were closed, business units that were sold and
     services not used, which resulted in forgiveness of debt of $1,585,000.
     After the settlements of these debts, the Company reduced its Severance and
     Restructuring liability by $271,000 for the year 2002, based upon its
     current estimates of its remaining liabilities associated with its 2001
     restructurings.

     During the third and fourth quarter of 2001, the Company reached settlement
     agreements on some debts associated with offices that were closed, business
     units that were sold, merger that didn't happen and services not used,
     which resulted in forgiveness of debt of $977,000.

     The adoption of SFAS 145 resulted in the Company classifying the gain on
     forgiveness of debt as income from operations instead of an extraordinary
     gain on the Company's Condensed Consolidated Statements of Operations.
     Prior periods have been reclassified to conform to the adoption of SFAS
     145. This reclassification had no effect on net income for any period.

(18) RECLASS OF INCOME STATEMENT ACCOUNTS

     To conform to the presentation in 2002, revenues and cost of goods sold
     were increased for 2001 in the consolidated income statement to include
     travel and entertainment expenses billed to customers. This
     reclassification had no effect on net income for any period.

(19) SUBSEQUENT EVENT

     During February, the Board of Directors approved moving the Company's
     headquarters to Huntsville, Alabama from Tampa, Florida by April 30, 2003.


                                      F21

<PAGE>


                                                                 EXHIBIT 10.10

                                 Amendment No. 2
                                       to
                                Master Agreement
                                     between
                          Aetna Life Insurance Company
                                       and
                              Digital Fusion, Inc.

This Amendment (the "Amendment") to the Master Agreement dated October 23rd,
1997 between Digital Fusion, Inc. ("Supplier") and Aetna Life Insurance Company
("Aetna") is made as of this 20th day of December 2002. The following amendments
are incorporated into and made a part of the Agreement. All sections and
paragraphs of the Agreement not hereby amended shall remain in full force and
effect. In case of a conflict, the terms of this Amendment will control and
prevail over those contained in the Agreement.

NOW, THEREFORE, in consideration of the mutual promises contained herein, the
parties agree to amend the Agreement as follows:

The language in Exhibit I YEAR 2003 in Schedule No. 6 is hereby deleted in its
entirety and replaced with the following:


<TABLE>
<CAPTION>

                                                                     Site       Project
    Rates       Level I     Level II     Level III      Temps      Management   Management
-------------------------------------------------------------------------------------------
<S>            <C>          <C>          <C>              <C>        <C>          <C>
Annual         $64,896.00   $86,528.00   $97,344.00       NA      $101,670.40  $146,794.75
-------------------------------------------------------------------------------------------
Monthly         $5,408.00    $7,210.67    $8,112.00       NA        $8,472.53   $12,232.90
-------------------------------------------------------------------------------------------
Hourly             $31.20       $41.60       $46.80       $56.16       $48.88       $70.57
-------------------------------------------------------------------------------------------
Overtime           $46.80       $62.40       $70.20       $84.24       $73.32      $105.86
-------------------------------------------------------------------------------------------
Retainer          NA          None         None        $5,667.00     None         None
-------------------------------------------------------------------------------------------
Expenses          Yes         None         None          Yes        Travel       Travel
-------------------------------------------------------------------------------------------

</TABLE>


    IN WITNESS WHEREOF, THIS AMENDMENT IS EXECUTED BY THE DULY
AUTHORIZED REPRESENTATIVES OF THE PARTIES.

 DIGITAL FUSION INC.                          AETNA LIFE INSURANCE COMPANY

 /s/ Roy E. Crippen                           /s/ Brian M. Dudzik
-------------------                           -------------------
 Signature                                    Signature

 Roy E. Crippen                               Brian M. Dudzik
 -------------------                          -------------------
 Print Name                                   Print Name

 CEO                                          Commodity Specialist
 -------------------                          -------------------
 Title                                        Title

 1/9/03                                       1-06-03
 -------------------                          -------------------
 Date                                         Date


<PAGE>


                                                          EXHIBIT 21.1

                              DIGITAL FUSION, INC.

                              LIST OF SUBSIDIARIES

    The following is a list of all of the subsidiaries of Digital
Fusion, Inc. and the jurisdictions of incorporation of such
subsidiaries. All of the listed subsidiaries do business under their
names presented below:

    1. Digital Fusion Solutions, Inc. (formerly digital fusion, inc.)
       Florida (state of incorporation)


<PAGE>


                                                          EXHIBIT 23.1

                             CONSENT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

Digital Fusion, Inc.
Tampa, Florida

We hereby consent to the incorporation by reference in the Registration
Statements of Digital Fusion, Inc. on Form S-3 (SEC file No.333-44232, No.
333-80155, No. 333-93595, No. 333-100052) and Registration Statement of Digital
Fusion, Inc. on Form S-8 (No. 333-44378) and of our report dated March 21, 2003,
relating to the consolidated financial statements of Digital Fusion, Inc.
appearing in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2002.

Pender Newkirk & Company
Tampa, Florida
March 21, 2003


<PAGE>


EXHIBIT 99.1

                WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER

                       Pursuant to 18 U.S.C. Section 1350

    Solely for the purposes of complying with 18 U.S.C. ss.1350, I,
the undersigned President and Chief Executive Officer of Digital
Fusion, Inc. (the "Company"), hereby certify, based on my knowledge,
that the Annual Report on Form 10-KSB of the Company for the year
ended December 31, 2002 (the "Report") fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934
and that information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.

    Date: March 31, 2003                        By: /s/ Roy E. Crippen, III
                                                    -----------------------
                                                    Roy E. Crippen, III

EXHIBIT 99.2

                WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER

                       Pursuant to 18 U.S.C. Section 1350

    Solely for the purposes of complying with 18 U.S.C. ss.1350, I,
the undersigned Chief Financial Officer of Digital Fusion, Inc. (the
"Company"), hereby certify, based on my knowledge, that the Annual
Report on Form 10-KSB of the Company for the year ended December 31,
2002 (the "Report") fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934 and that information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.

 Date: March 31, 2003                             By: /s/Karen L. Surplus
                                                      -------------------
                                                      Karen L. Surplus