Use these links to rapidly review the documentTABLE OF CONTENTS



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

Form 10-K

|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------- | ----------------------------------------------------------------------------------------
|FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
|OR                                         
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-20971

EDGEWATER TECHNOLOGY, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                  |  | 71-0788538(I.R.S. Employer
Identification No.)
|--------------------------------------------------------------------------------------- |  | ----------------------------------------------
|20 Harvard Mill Square
Wakefield, Massachusetts(Address of principal executive offices) |  | 01880(Zip Code)                               

Registrant's
telephone number including area code:(781) 246-3343

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value(Title of class)

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant as required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of
1934. o

The aggregate market value of the voting common stock of the registrant held by non-affiliates of the registrant (assuming for these purposes, but not conceding,
that all executive officers and directors are "affiliates" of the registrant) was approximately $50.9 million as of June 30, 2003.

As
of June 30, 2003, the number of shares outstanding of the registrant's common stock was 11,382,088.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the registrant's annual meeting of stockholders to be held on June 2, 2004 are incorporated by reference into Part III of this
Annual Report on Form 10-K.



---

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Business," "Properties," "Legal Proceedings," "Market for Registrant's Common Stock and Related Stockholder Matters" and "Management
Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report on Form 10-K (this "Form 10-K") constitute
forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements made with
respect to future earnings per share, future revenues, future operating income, future cash flows, potential dividends, potential business combination transactions, competitive and strategic
initiatives, potential stock repurchases, and future liquidity needs. These statements involve known and unknown risks, uncertainties and other factors that may cause results, levels of activity,
growth, performance, earnings per share or achievements to be materially different from any future results, levels of activity, growth, performance, earnings per share or achievements expressed or
implied by such forward-looking statements. Such factors include, among other things, those listed under "BusinessFactors Affecting Finances, Business Prospects and Stock Volatility" and
elsewhere in this Form 10-K.

The
forward-looking statements included in this Form 10-K relate to future events or our future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "believe," "anticipate," "future," "forward," "potential," "estimate," "encourage," "opportunity," "decide," "goal," "objective," "quality,"
"growth," "leader," "could", "expect," "intend," "plan," "expand," "focus," "build," "through," "strategy," "expiration," "provide," "offer," "maximize," "meet," "allow," "allowed," "represent,"
"commitment," "lend," "create," "implement," "result," "seek," "increase," "add," "establish," "pursue," "feel," "work," "perform," "make," "continue," "can," "will," "going," "include," or the
negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on our current plans or assessments which
are believed to be reasonable as of the date of this Form 10-K. Factors that may cause actual results, goals, targets or objectives to differ materially from those contemplated,
projected, forecasted, estimated, anticipated, planned or budgeted in such forward-looking statements include, among others, the following possibilities: (1) inability to execute upon growth
objectives; including growth in entities acquired by our Company; (2) changes in industry trends, such as a decline in the demand for solutions services or delays in industry-wide
IT spending, whether on a temporary or permanent basis and/or delays by customers in initiating new projects or continuing new project milestones; (3) adverse developments and volatility
involving geopolitical or technology market conditions; (4) unanticipated events or the occurrence of fluctuations or variability in the matters identified under "Critical Accounting Policies";
(5) failure of our sales pipeline to be converted to billable work and recorded as revenue; (6) loss of key executives; (7) failure of the middle market and the needs of
middle-market enterprises for business services to develop as anticipated; (8) inability to recruit and retain professionals with the high level of information technology skills and experience
needed to provide our services; (9) expanding outsourcing services to generate additional revenue; (10) any changes in ownership, adverse developments concerning the IRS audit of our
corporate tax returns for the 1998-2000 fiscal years, that would result in a limitation on the use of the net operating loss carry-forward under applicable tax laws, which is referred to
as a net deferred tax asset of approximately $22.2 million as of December 31, 2003, and/or (11) the failure to obtain
remaining predecessor entity tax records that are not in our control and/or successfully resolve remaining outstanding IRS matters relating to our former staffing businesses. In evaluating these
statements, you should specifically consider various factors described above as well as the risks outlined under Item I "BusinessFactors Affecting Finances, Business Prospects and Stock
Volatility." These factors may cause our actual results to differ materially from those contemplated, projected, anticipated, planned or budgeted in any such forward-looking statements.

Although
we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, growth, earnings per
share or achievements. However, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. We are under no duty to update any of the forward-looking
statements after the date of this Form 10-K to conform such statements to actual results.

2

---



EDGEWATER TECHNOLOGY, INC.

Form 10-K
Annual Report
For the Year Ended December 31, 2003

TABLE OF CONTENTS



|         |  |                                                                                                |  | Page
|-------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|PART I  
|Item 1.  |  | Business                                                                                       |  | 4   
|Item 2.  |  | Properties                                                                                     |  | 24  
|Item 3.  |  | Legal Proceedings                                                                              |  | 24  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                            |  | 24  
|PART II 
|Item 5.  |  | Market for Registrant's Common Stock and Related Stockholder Matters                           |  | 25  
|Item 6.  |  | Selected Financial Data                                                                        |  | 27  
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results                        |  | 29  
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 38  
|Item 8.  |  | Financial Statements and Supplementary Data                                                    |  | 39  
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 66  
|Item 9A. |  | Controls and Procedures                                                                        |  | 66  
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                             |  | 67  
|Item 11. |  | Executive Compensation                                                                         |  | 67  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 68  
|Item 13. |  | Certain Relationships and Related Transactions                                                 |  | 68  
|Item 14. |  | Controls and Procedures                                                                        |  | 68  
|PART IV 
|Item 15. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                               |  | 68  
|         |  | OTHER ITEMS                                                                                    |  |     
|         |  | Signatures                                                                                     |  | 78  
|         |  | Power of Attorney                                                                              |  | 78  

3

---



PART I

ITEM 1. BUSINESS

General

Edgewater Technology, Inc. (and subsidiaries are collectively referred to in this Form 10-K as "we", "us", "our", "our Company", "the
Company", "Edgewater Technology" or "Edgewater") is an award-winning consulting firm that specializes in combining strategic consulting, technical knowledge, and industry domain expertise to develop
technology solutions that assist primarily middle-market companies and divisions of Global 2000 companies to align their processes with their purposes. This approach not only promotes increased
efficiency, but also supports increased effectiveness. Our Company, formerly known as StaffMark, Inc., was incorporated in the State of Delaware in 1996. Our Company's business operations are
conducted primarily through two subsidiaries: Edgewater Technology (Delaware), Inc., a Delaware corporation that was incorporated in 1992, acquired by our Company on May 17, 1999, and is
sometimes referred to in this Form 10-K as "Edgewater Technology" and Intelix, Inc., a northern Virginia corporation that was incorporated in 1993, acquired by our Company on
June 2, 2003, and is sometimes referred to in this Form 10-K as "Intelix". Since our Company engages in business activities under one operating segment, which provides
technical consulting, custom software development and integration services, no separate segment disclosure is provided in this Form 10-K.

By
targeting strategic, mission-critical applications, our consultants collaborate with customers to translate business goals into technical strategies. Headquartered in Wakefield,
Massachusetts as of December 31, 2003, our Company employs approximately 156 technical consulting professionals throughout our network of strategically positioned solutions centers.

Although
our Company is not an "Accelerated Filer" under Rule 12b-2 of the Securities Exchange Act of 1934, as amended, our financial information, including the
information in this Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; and any amendments to the above mentioned reports,
may be viewed on the Internet at www.edgewater.com/site/investor_relations/index.html. Copies are also available, without charge, from Edgewater Technology, Investor Relations, 20 Harvard Mill Square,
Wakefield, MA 01880-3209. Alternatively, reports filed with the Securities & Exchange Commission (the "SEC") may be viewed or obtained at the SEC Public Reference Room in
Washington, D.C., or the SEC's Internet site at www.sec.gov.

Overview of the Edgewater Technology Business

Edgewater Technology offers a full spectrum of services and expertise to ensure the success of IT projects of any size and complexity, including:





4

---





In
addition to our ability to provide a full spectrum of services, Edgewater Technology also has the expertise to deliver systems integration services that maximize business results and
performance improvements. We focus not only on deploying new systems, but also extending the longevity of existing

5

---

systems
for an ever-changing marketplace. This proven expertise enables us to bring complex technologies and systems together while minimizing risk, maximizing our clients' technology
investments and delivering customized solutions that address organizations' short and long-term business objectives.

With
more than ten years of operating history, Edgewater Technology focuses on five core values that differentiate us from the competition:



6

---



Our customers are generally middle-market companies that span across a wide variety of industries, including Financial Services (Retail Banking, Portfolio/Asset
Management); Health Care (Managed Care); Higher Education; Insurance; Life Sciences; Real Estate; Retail; Telecommunications; and various Emerging Markets. We derive a significant portion of our
revenues from large projects with a limited number of customers. In 2003, our five largest customers accounted for 81.7% of our revenues. In 2002, our five largest customers accounted for 88.0% of our
revenues. During 2003, we developed relationships and recorded revenues from 13 new customers, as compared to 19 new customers in 2002.

The
following is a partial list of customers who have engaged our services:

|The Affiliated Alan Gray Companies |  | Harvard University                                  
|---------------------------------- |  | ----------------------------------------------------
|American Express                   |  | Lawyers Weekly                                      
|American Student Assistance        |  | Marten Transportation                               
|Americo Life, Inc.                 |  | Massachusetts Educational Financing Authority (MEFA)
|Armed Forces Insurance             |  | Massachusetts Institute of Technology (MIT)         
|art-exchange.com                   |  | Missouri Department of Higher Education             
|Barnstable Mutual Insurance        |  | Merrill Corporation                                 
|Blue Cross/Blue Shield of Arkansas |  | Northeastern University                             
|Capital Advisors                   |  | Oregon Student Assistance Commission                
|CMD                                |  | Priority Telecom                                    
|Champion Exposition Services       |  | Sappi Fine Paper                                    
|Chandler Concrete                  |  | St. Bernard's Regional Medical Center               
|Circles, Inc.                      |  | SunGard Asset Management                            
|Concentra Managed Care             |  | The Synapse Group, Inc.                             
|Cyrk                               |  | T. Rowe Price                                       
|Document Sciences Corporation      |  | TJX Corporation                                     
|DST International                  |  | The United States Postal Service                    
|Employers Association              |  | USAble Life                                         
|Fidelity Investments               |  | Visiting Nurses Association of America (VNAA)       
|Ford Credit                        |  |                                                     

7

---

Significant Customer

The Synapse Group, Inc., a Time Warner company ("Synapse"), is considered a related party as its President and Chief Executive Officer is also a member of
our Board of Directors. Revenues from Synapse amounted to $11.8 million and $12.3 million, for 2003 and 2002, respectively. Accounts receivable balances for Synapse were
$1.9 million as of December 31, 2003 and 2002, respectively, which amounts were on customary business terms. For more information with respect to our significant customers, see "Item
8Financial Statements and Supplementary DataNote 17."

Industry Dynamics

Today's businesses utilize internal and external facing web-based technologies to enhance operations, reduce costs, increase market competitiveness,
improve client productivity and create new revenue opportunities by enhancing their interactions with new and existing customers. Businesses are also using web-based technologies to
increase efficiency in their internal operations through improved communications with suppliers and other business partners. In order to capitalize fully on these new opportunities, businesses need
web-based applications that integrate with their existing application infrastructure and deliver information far more effectively than static or stand-alone Web pages. IT solutions
providers, such as our Company, possess the skills and personnel to help businesses develop strategies and solutions that capitalize on Internet-based opportunities.

IT
consulting companies that provide strategic advice and develop customized software applications can assist their customers to acquire new clients, conduct electronic commerce and
consistently manage client relationships. These solutions can also dramatically improve a company's ability to access, analyze and distribute pertinent information to suppliers, business partners,
employees and clients. While there are numerous benefits that may be gained by utilizing the Internet, the analysis, design and implementation of an effective software solution requires a range of
skills and expertise, which few businesses possess. The successful design of an application requires careful analysis and definition of the strategic implications of the Internet for a business, the
creative possibilities for brand, content and user experience and the technology required to support the solution. The rapid development and launch of information technology further requires
substantial expertise to develop and integrate new business processes with existing capabilities, to design and execute Internet marketing communications plans and to evaluate, select and implement
the appropriate technologies.

A
fluctuating economic environment and the availability of less expensive technical labor has created many challenges for companies in our industry. While IT spending continues to grow
at a modest rate, offshore information technology providers are driving highly competitive market conditions, specifically price sensitivity for technical software development services. Many IT
consulting companies have developed low-cost offshore development centers to react to this industry trend. Our focus, instead, has been on more valued and differentiated service offerings,
including design and
strategy consulting engagements, along with specific industry expertise and technical knowledge. While we are able to provide project management services for offshore development, we believe our
current delivery model and expertise provides additional value to our customers and their continued success.

Market Opportunity

The middle market continues to explore ways to capitalize on opportunities that leverage technology to drive business opportunities. Traditionally underserved by
IT providers and lacking the internal resources to support specific IT initiatives, the middle market is in need of technology systems and development that will support their plans for future growth,
including:



8

---



In
order to stay competitive, middle-market enterprises need to get to market very quickly and often lack internal IT resources. Accordingly, they increasingly demand a single source
provider of strategic consulting and industry domain expertise. Large traditional IT firms that provide these service offerings have primarily focused on large enterprises, such as Global 2000
companies, while ignoring the middle market and its unique needs. Many boutique IT service providers that direct their offerings to the middle market do not offer a comprehensive suite of services.
They also frequently lack the financial resources and employees to take on full service projects or to provide follow-up support and training.

We
believe that Edgewater Technology is uniquely positioned to serve as an effective single-source provider of services to satisfy the needs of the middle market and that neither
traditional IT service providers nor boutique providers currently effectively meet this demand. We can efficiently service the needs of the middle market through the strategic positioning of our
solutions centers in cities in which middle-market enterprises typically reside. By leveraging our solutions centers, we are able to create a virtual development environment that allows for
efficiencies in staff management, while servicing clearly defined markets to leverage vertical and technology expertise to gain competitive advantage.

Our Competitive Advantages

A Spectrum of Services.Our ability to provide strategic consulting services in combination with industry domain expertise
provides Edgewater Technology with a unique competitive advantage. Middle-market enterprises often lack the internal IT resources needed to get to market quickly. Accordingly, they increasingly demand
a single-source provider of IT services including systems integration expertise that focus on their specific needs. Edgewater Technology offers a spectrum of services from providing our clients with
IT strategy, designing the infrastructure to support their business goals, building the application to maintaining the solution in post-deployment and operating the solution at the client
site or within our own facility.

Custom Hosting.Edgewater Technology's ability to offer custom application hosting enables customers to focus their own
resources on other development activities. In addition, it gives customers the time they need to build the knowledge base necessary for running newly established systems.

Regional Solutions Centers.By strategically placing our regional solutions centers in major metropolitan locations, we
believe that Edgewater Technology is able to provide high quality systems integration of technology solutions more rapidly and cost-effectively.

Strategic Alliances.As part of our sales and marketing strategy, we have established strategic working relationships with a
number of organizations, including Affiliated Alan Gray Companies, American Student Assistance, BEA, Document Sciences, IBM, Microsoft, NuGenesis, Optical Image Technology, Oracle, PaperThin, Sun
Microsystems and Symbol Technologies. These alliances generally entail sharing sales leads, joint marketing efforts, making joint client presentations, negotiating discounts on license fees or other
charges and conducting similar activities. Our arrangements with

9

---

many
of these companies are informal and are not the subject of definitive written agreements. For those companies with whom we do have definitive written agreements, those agreements are either
terminable at will by either party or are for terms of one year or less. We believe we have been successful in establishing alliances with a strong group of companies who are either industry leaders
or well-regarded new entrants.

Human Resources.As a service provider, Edgewater Technology's success depends upon our ability to recruit and more
importantly retain talented, experienced professionals. Through a combination of professional support, intellectual challenge, and a strong corporate culture, we believe Edgewater Technology attracts
and retains a particularly strong group of experienced IT professionals.

Delivery Excellence.With such dramatic changes in today's economy, customers are focused more than ever on partnering with
IT solutions providers that can consistently deliver results and quantifiable solutions that provide their organization with measurable benefits and a return on their investment. Edgewater Technology
has a proven record of delivery excellence, which is not only critical to attracting and winning customers, but also retaining them. Our strong delivery focus is built upon more than ten years of
proven methodology and processes and by continually focusing on delivering solutions that work. Our record of delivery excellence is the result of a well-defined business plan,
highly-trained professionals, strong technical and vertical expertise, established implementation and support methodologies and most importantly, effective and continued communication throughout the
entire process. We are technology agnostic, and therefore, we evaluate both packaged and custom alternatives to solve a particular customer's challenges. We formulate recommendations for using
technology that works best for that particular customer's needs. By being committed to successfully delivering solutions, Edgewater Technology has been able to build long-term
relationships of trust with our customers who continue to turn to us for their IT needs, which is demonstrated by our better than 95% repeat business factor.

Business Strategy

Our business strategy is to become a leading provider of both single point and full enterprise scale technology solutions into the middle market. The middle
market is in need of systems that streamline operations and reduce costs, while providing opportunities to increase revenue and market share. Edgewater Technology implements this business strategy
through the key elements described below.

Further penetrate the underserved growing middle market.We plan to further penetrate the middle market by targeting this
segment and supporting the relatively limited IT infrastructure middle-market companies have (as compared to Global 2000 companies). Limited IT infrastructure within middle-market companies
facilitates Edgewater Technology's entry into a full spectrum of services: strategy, design, build, maintain and operate.

Provide delivery and operational excellence.Edgewater Technology's strategy builds upon more than ten years of proven
methodology, process, and delivery excellence. This expertise is being extended into the middle market via a virtual development environment that allows support to any client project from any and all
delivery centers. Edgewater Technology's virtual delivery capability allows us to operate with a highly utilized delivery staff focused by vertical industry experts and strategists.

Aggressively promote the Edgewater Technology brand.The middle market is a large, fragmented and geographically dispersed
market. To leverage our direct selling efforts and reach this market effectively, we believe it is important to build awareness of the Edgewater Technology brand. To promote our brand, we have
expanded our corporate marketing efforts, with the specific objective of targeting senior executives of certain customer accounts that influence the organizations decisions to outsource IT projects.
Our goal is to create national recognition of the Edgewater Technology brand,

10

---

along
with our service offerings, positioning Edgewater Technology as a leading full-service provider of technology solutions that address the specific needs of the middle market.

Expand strategic alliances.The strategic partnerships that Edgewater Technology forms with leading and emerging technology
companies are integral to the way we build our business. We partner with companies whose skill sets provide maximum synergy with Edgewater's broad and evolving service offerings. By leveraging our
individual and collective strengths through strategic working relationships, both organizations can capitalize on key market opportunities. Our partnerships enable us to deliver
high-performance business and technology solutions that evolve from strategy development to solution creation and implementation to ongoing support.

Project Methodology and Technical Specialization

The components of our methodology act as building blocks that are used to construct a project life cycle tailored to the needs of the individual customer's
requirements. Key elements of our methodology that enable us to provide solutions are:



Our
areas of technical specialization for which we deploy this methodology include: (1) architecture strategy (2) web-based solutions; (3) Web services;
(4) data management; (5) transaction processing; and (6) legacy system integration.

Representative Customer Engagements

The following three case studies represent a sampling of the approximately 650 projects that Edgewater Technology has completed over the last ten years. The case
studies highlight high-level strategic and solutions services delivered within particular vertical markets we have served.

Insurance Vertical

The Customer's Challenges.A mid-sized life insurance and annuity carrier employed a completely manual process
for assembling policy documentation from four sets of source documents printed at different times and locations. The insurer constructed a policy assembly unit comprised of seven employees dedicated
to this process. The unit was responsible for compiling the sets of documents, in a

11

---

proper
sequence, including any necessary additional items, such as return mail envelopes, and then mailing the completed package to the insured or annuitant. This time consuming process significantly
impaired the insurer's ability to roll-out new products, negatively impacted customer satisfaction levels, and compromised the sales process.

The Customer's Business Goals and Edgewater Technology's Strategy and Solution Response.Edgewater representatives met with
the insurer's executives to identify key objectives. They were identified as follows:



Considering
these objectives, Edgewater next conducted an analysis of the insurer's policy generation process and determined that an automated solution would not only meet most of the
insurer's immediate business objectives, but would also greatly support the insurer's primary interest of bringing new products to the market faster and would provide a tangible return on their
technology investment.

The Solution.The Edgewater team initially consisted of a business strategist, business analyst, systems architect and
systems developer. This team was quickly aligned with a technology partner and resources from the client's systems and operations areas. The joint project team began the process of analyzing the
disparate systems, which control the new business process, supply insured information and policy values, and document amendments to the policy. Edgewater determined that the following systems would
require interfaces:



From
this review, Edgewater captured the data elements required to produce the policies and used this analysis to design the interfaces necessary for supplying the data to the new policy
automation system.

In
tandem to the interface analysis, the team worked to identify products that the client wished to support with the new policy automation system. Three products were selected for the
primary roll-out, with a phased approach planned for implementing the remaining aspects of the solution. Edgewater worked with the client team to locate the appropriate policy documents,
determine the format and order for producing the policy pages and document the product-based business rules used to control the content for each policy. These business rules needed to include not only
the insurer's requirements, such as the appropriate rider language for policies including Waiver of Premium, but also text mandated by state and federal regulations.

After
compiling the business and technical requirements, Edgewater began the process of adding the data from the components that interact with the policy administration system, the
workflow system, the illustration system, and the correspondence system, to the database for assembly into a printed

12

---

policy.
The application is able to read the policy data and image and merges this data with verbiage according to the rules associated with the product, riders, jurisdiction, etc. The output from the
system is a PDF document ready for printing and delivery to agents via fax, through the existing AWD infrastructure, email or U.S. Mail. The policy automation processing system ensures
error-free, compliant documents with nominal manual intervention.

The
project successfully demonstrated that the insurer can automate the preparation and delivery of the policy documentation from the time the policy is approved by underwriting to the
point that the policy package is printed and prepared for mailing.

Benefits.The solution designed by Edgewater Technology provided many measurable benefits to the insurer. After system
implementation, the new system:



Higher Education Vertical

The Customer's Challenge.A Northeast-based world-renowned institution of higher learning, needed to more effectively
communicate to and build relationships with prospective students in the recruiting process.

The Customer's Business Goals and Edgewater Technology's Strategy Response.During a preliminary strategy session, Edgewater
conducted meetings with the key admissions stakeholders and listed key goals for this solution:



Edgewater Technology's Solution.Edgewater worked closely with key personnel at the institution to study their existing
workflows and business processes in detail, to identify areas for process restructuring and improvement, and to identify key technologies to facilitate the operations of the various departments
supporting the university's admissions functions. Edgewater formulated a technical

13

---

architecture
based on current technologies that are compatible with the vision for the enterprise, and delivered a comprehensive application design for the new system.

In
addition, Edgewater provided a Web vision and strategy for the Admissions Office based on groundbreaking concepts including becoming "purpose-driven" and organizing all functions
around unchanging purposes.

Benefits.The solution designed by Edgewater Technology is scheduled for deployment in the summer of 2004 and will provide
multiple benefits:



Emerging Business

The Customer's Challenge.A leading global publisher of scientific, technical, and industry-specific information products
sought to offer new solutions and services to its customers in the architecture, engineering and construction markets. The company recognized an opportunity to offer unique value to the owners and
managers of both commercial and public buildings, and other large capital assets, meeting their need to establish and maintain the valuation of their properties, and plan the preservation,
maintenance, and repair of those assets. By providing direct access to its own core specialty databases and other knowledge assets, the company could improve their customer's business operations,
facilitating the customer's compliance with relevant regulations, and creating new revenue streams for itself and its complementary solution partners.

The Customer's Business Goals and Edgewater Technology's Strategy Response.Product managers in the client organization
approached Edgewater for assistance in setting the strategic direction for a series of new product offerings, and formulating a program to design and implement the first of these new products. The
initial focus of the product was to provide direct access to an extensive proprietary database of building design elements and construction costs, which has become the industry standard for
construction cost estimation and bid development. The new product could provide critical data and functions to be used by capital asset managers to establish and track the value of properties, and to
plan the preservation, maintenance and repair of those properties.

The
primary goals for the product offering were:



14

---



Edgewater Technology's Solution.Edgewater worked closely with key personnel within the client organization and their initial
complementary solution partners to understand the client's and partner's needs and formulate a solution strategy for meeting those needs. Use cases were developed and reviewed to document the
requirements for the new product and anticipate the usage of the product under actual customer operating conditions. From the requirements a comprehensive product architecture was formulated, with a
robust set of application programming interfaces, and an administrative user interface, to enable consistent access to the data assets and functions.

Prior
to the new product being implemented, the client's customers were required to pursue a much more manual process. The building manager would search through the client's various
hard-copy publications to find the building elements (i.e. window or wall) that corresponded with the particular property, and manually perform the complex calculations needed to valuate
the property. The process was difficult and error prone, as the building manager attempted to consider factors such as construction type, labor types, and geography-specific cost factors. The effort
to assemble a complete and accurate valuation typically required manual quality assurance reviews. And the effort to keep those valuations up-to-date over the life of the asset
was cumbersome.

Edgewater
created an integrated solution that provides direct access to the core database of building elements and construction costs. The programmatic interface enables the client's
complementary solution software partners to gain direct access to the database, and to provide that access through the solution partners own user interface. This offers the dual advantage that the
solution partner can preserve its own product interface to its customer, maintaining its own product identity and branding, while ensuring the most up-to-date and accurate data
through its access to the industry-standard construction cost database.

The
client can now extend the construction cost database to incorporate new building elements and release those elements to the complementary solution partners for use within their own
products. The client can also record the corresponding construction, preservation, maintenance and repair costs for the various building elements, releasing those for access by the complementary
solution partners. The solution partners can then in turn release these new information assets to their own customers, granting access through their own product interface.

Benefits.The solution designed by Edgewater Technology provided multiple benefits.



15

---



Professional Recruitment, Retention and Development

Our success depends in part upon our ability to recruit and retain professionals with the high level of IT skills and experience needed to provide our
sophisticated services. We believe that the combination of professional support, intellectual challenge, corporate culture and compensation we offer will continue to be attractive to these IT
professionals. Our working environment also fosters collaboration, creativity and innovation. We believe that our employees are one of our most valuable assets.

Recruiting.Our recruitment department has traditionally conducted its own direct recruiting efforts and coordinated informal
and search firm referrals. We believe that our business model, which results in an intellectually stimulating work environment, greater opportunities for professional development and a dynamic
corporate culture, enhances our ability to attract and retain top professionals.

Professional Development.We believe that providing our professionals with a wide variety of challenging projects and the
opportunity to demonstrate ability and achieve professional advancement are keys to their retention. We work with our professionals to assist them with their professional development by establishing
career paths. We also believe that the working relationships foster valuable formal and informal mentoring and knowledge sharing.

Culture.Our culture is critically important to hiring and retaining IT professionals. We have a competitive compensation
plan that ties to the achievement of individual performance goals, team goals and more importantly, company financial performance goals.

Employees.As of December 31, 2003, Edgewater Technology employed approximately 191 employees, of which 156 were
billable. The average tenure of our employees is 4.2 years and the average years of experience is approximately 12 years. Our employees are not represented by a collective bargaining
agreement. We believe that our employee relations are strong.

16

---



Marketing, Sales and Strategic Alliances

Marketing.The primary goal of all of our marketing efforts is to generate sales opportunities by increasing Edgewater
Technology's brand awareness and value proposition among the middle market and divisions of Global 2000 organizations. In 2003, our marketing efforts continued to be closely aligned with our vertical
go-to-market strategy. We target primary vertical markets where we have developed core competencies to deliver our services including: Financial Services (Retail Banking,
Portfolio/Asset Management); Insurance; Health Care (Managed Care); Life Sciences; Higher Education; Real Estate; Retail; Telecommunications and various Emerging Markets that comprise of untapped
verticals who are just beginning to leverage the use of technology. We also focus on horizontal service offerings that cross each vertical such as Customer Service, Supply Chain and Web services. To
focus our marketing efforts and to increase the efficiency of our marketing expenditures, we target specific areas of content each quarter for each of our vertical focus areas. Marketing has built
campaigns around each content area, which includes: marketing collateral, Webinars, sell sheets, tradeshow/conference participation, speaking engagements, direct mail and public relations activities.

Sales.We have a "two-pronged" approach for our sales organization. Our sales force is comprised of direct sales
professionals and inside sales professionals. Both work closely with our vertical and service offering directors to identify potential opportunities with each engagement. Using a consultative selling
methodology, target prospects are researched and a pursuit plan is developed for each key account. When contact with a target is established, we utilize our blended sales model, combining consultative
selling with traditional sales methods, which typically consists of a business development manager, a practice leader and a technology consultant. This team approach to selling allows Edgewater
Technology to demonstrate from the initial contact point its expertise in both the specific industry as well as technology. Once the customer has engaged Edgewater Technology, our sales professionals
maintain their relationships with the customer by working collaboratively with our service professionals who are assigned to the customer.

Strategic Alliances.As part of our sales and marketing effort, we have established working relationships with a number of
companies, including: Affiliated Alan Gray Companies, American Student Assistance, BEA, Document Sciences, IBM, Microsoft, NuGenesis, Optical Image Technology, Oracle, Paper Thin, Sun and Symbol
Technologies. These alliances generally entail sharing sales leads, joint marketing efforts, making joint customer presentations, negotiating discounts on license fees or other charges and conducting
similar activities. Our arrangements with many of these companies are informal and are not the subject of definitive written agreements. For those companies with whom we do have definitive
written agreements, those agreements are either terminable at will by either party or are for terms of one year or less. We believe we have been successful in establishing alliances with a strong
group of companies who are either industry leaders or well-regarded new entrants.

Competition

Our service offerings consist of a full spectrum of services and expertise to ensure the success of IT projects of any size and complexity. Our competitors
include IT solutions providers, in-house technical staff of our prospective customers, software product companies with extended service organizations, international outsourcers of IT
development, application hosting firms and Web hosting firms. Traditionally, barriers to entry in the strategy consulting and systems integration markets have been relatively low, thus, competition is
intense. See "Factors Affecting Finances, Business Prospects and Volatility" regarding entities that we compete with for delivery of our various services offerings in different vertical markets.

Strategic Consulting.We believe that the principal competitive factors in the strategy consulting market are quality of
services, technical and strategic expertise and ability to provide services in a timely and cost-effective manner. We believe that we compete successfully in all of these competitive

17

---

factors
because of the strong experience and expertise of our professionals and our focus on key technology solutions. We also believe that our ability to provide consulting services in combination
with systems integration and application hosting and support provides us with a competitive advantage.

Custom Development.In the systems integration market, we believe that the principal competitive factors are the ability to
implement high-quality solutions rapidly and cost-effectively in terms of both implementation and ongoing costs. Through the use of our regional solution centers, we believe
that we are able to provide high-quality systems integration of information-based business solutions on a rapid, cost-effective basis.

Maintenance and Operations.We believe our ability to offer custom application maintenance and operations support is a
distinct competitive advantage. Our customer can take adequate time to gain the knowledge to run the system or concentrate its resources on other development activities.

Intellectual Property

We consider our intellectual property to be a principal asset in a highly competitive industry. We also consider our intellectual property to be an important
factor in building brand recognition for quality service and performance. Therefore, we have secured certain service marks, and continue to seek registration of other service marks, for "Edgewater"
and "Edgewater Technology." We believe we have all rights to trademarks and trade names necessary for the conduct of our business.

We
rely on a combination of trade secret, copyright and trademark laws to protect our proprietary rights. In particular, we require each of our employees to sign an invention and
non-disclosure agreement, which provides that they must maintain the confidentiality of our intellectual property and that any intellectual property that they develop while employed by us
is the property of Edgewater Technology. We have developed detailed tools, processes and methodologies which are used in developing software code, scripts, libraries, data models, applications,
business processes, frameworks and other technology used with our Company and in customer engagements. See also "Factors Affecting Finances, Business Prospects and Stock Volatility."

Potential Future Strategies, Transactions and Changes

Critical to our ability to create long-term stockholder value, the Company will continue to pursue organic growth initiatives and appropriate business
combination alternatives to achieve growth. From time to time, we have engaged and we may continue to engage in preliminary discussions with various persons regarding potential business combination
transactions.

We
believe that our current cash reserves and our anticipated cash flow from our operations will be, taken together, adequate for our working capital needs for at least the next twelve
months. However, our actual experience may differ significantly from our expectation, particularly if we pursue growth through business combination transactions, which we presently believe will be
advantageous to building long-term stockholder value, or if we pursue repurchase or dividend strategies, as described below. In addition, other future events may adversely or materially
affect our business, expenses or prospects and could affect our available cash or the availability or cost of external financial resources.

We
may, in the future, continue to purchase common stock in the open market, in private transactions or otherwise, pursuant to our previously extended stock repurchase program. We may
elect, in the alternative, or in addition to repurchases, to return value to our stockholders through a tender offer or the declaration of a special dividend, if such dividend is prudent relative to
existing cash balances and growth objectives. Any future purchases or dividends by us will depend on many factors, including:



18

---



Factors Affecting Finances, Business Prospects and Stock Volatility

In addition to other information contained in this Form 10-K, the following risk factors should be carefully considered in evaluating Edgewater
Technology and its business because such factors have a significant impact on our business, operating results and financial condition. These risk factors could cause actual results to materially
differ from those projected in any forward-looking statements.

Our success depends on a limited number of significant customers, and our service revenues could be negatively affected by the loss of a major customer or
significant project.We generate a significant portion of our service revenues from a limited number of customers. As a result, if we were to lose a major customer
or large project, our service revenues could be materially and adversely affected. In 2003, our five largest customers accounted for 81.7% of our service revenues. In 2002, our five largest customers
accounted for 88.0% of our service revenues. We perform varying amounts of work for specific customers from year to year. A major customer in one year may not use our services in another year. In
addition, we may derive revenues from a major customer that constitutes a large portion of a particular quarter's total revenues. If we lose any major customers or any of our customers cancel or
significantly reduce a large project's scope, including but not limited to Synapse, our results of operations and financial condition could be materially and adversely affected. Further, if we fail to
collect a large accounts receivable balance, we could be subjected to a material financial expense and decrease in cash flow.

Our lack of long-term customer contracts reduces the predictability of our revenues because these contracts may be canceled on short notice and
without penalty.Our customers generally retain us on a project-by-project basis, rather than under long-term contracts. As a
result, a customer may not engage us for further services once a project is completed. If a significant customer, or a number of customers, terminate, significantly reduce, or modify their contracts
with us, our results of operations would be materially and adversely affected. Consequently, future revenues should not be predicted or anticipated based on the number of customers we have or the
number and size of our existing projects. If a customer were to postpone, modify, or cancel a project, including but not limited to Synapse, we would be required to shift our consultants to other
projects to minimize the impact on our operating results. We cannot assure that we will be successful in efficiently and effectively shifting our consultants to new projects in the event of project
terminations, which could result in reduced service revenues and lower gross margins. If we experience unexpected changes or variability in our revenue, we could experience variations in our quarterly
operating results and our actual results may differ materially from the amounts planned and our operating profitability may be reduced or eliminated.

If we fail to satisfy our customers' expectations, our existing and continuing business could be adversely affected.Our
sales and marketing strategy emphasizes our belief that we have highly referenceable accounts. Therefore, if we fail to satisfy the expectations of our customers, we could damage our reputation and
our ability to retain existing customers and attract new customers. In addition, if we fail to deliver and perform on our engagements, we could be liable to our customers for breach of contract.
Although most of our contracts limit the amount of any damages to the fees we receive, we could still incur substantial cost, negative publicity, and diversion of management resources to defend a
claim, and as a result, our business results could suffer.

We may have lower margins, or lose money, on fixed-price contracts.As part of our strategy, we intend to continue to grow
our business with both time-and-materials contracts and fixed-price contracts. In 2003, fixed-price contracts represented approximately 18.8% of our revenues. We assume greater
financial risk on fixed-price contracts than on time-and-materials engagements, and we cannot assure you that we will be able to successfully price our larger fixed-price
contracts. If we fail to

19

---

estimate
accurately the resources and time required for an engagement, to manage customer expectations effectively or to complete fixed-price engagements within our budget, on time and to our
customers' satisfaction, we could be exposed to cost overruns, potentially leading to lower gross profit margins, or even losses on these engagements.

Competition in the IT services market is intense and, therefore, we may lose projects to, or face pricing pressure from, our competitors or prospective customers'
internal IT departments or international outsourcing firms.The market for IT Solutions providers is highly competitive. In many cases we compete for project work
with the in-house technical staff of our prospective customers, software product companies with extended service organizations and other international IT Solutions firms including offshore
outsourcing firms. In addition, there are many small, boutique IT services firms
who have developed services similar to those offered by us. We believe that competition will continue to be strong and may increase in the future, especially if our competitors continue to reduce
their price for IT services. Such pricing pressure could have a material impact on our revenues and margins and limit our ability to provide competitive services.

Our
target market is rapidly evolving and is subject to continuous technological change. As a result, our competitors may be better positioned to address these developments or may react
more favorably to these changes, which could have a material adverse effect on our business. We compete on the basis of a number of factors, many of which are beyond our control. Existing or future
competitors may develop or offer IT Solutions that provide significant technological, creative, performance, price or other advantages over the services we offer.

The
following is a representative list of competitors in the IT Solutions space:



Many
of these businesses have longer operating histories and significantly greater financial, technical, marketing and managerial resources than we do. There are relatively low barriers
of entry into our business. We have no patented or other proprietary technology that would preclude or inhibit competitors from entering the Solutions market. Therefore, we must rely on the skill of
our personnel and the quality of our customer service. The costs to develop and provide Solution services are low. We expect that we will continue to face additional competition from new entrants into
the market in the future, offshore providers and larger integrators and we are subject to the risk that our employees may leave us and may start competing businesses. Any one or more of these factors
could have a material impact on our business.

Our future business success will depend on the continued development of the IT Services market and the use of the Internet as a means of business communication,
which remains uncertain.Our future success will depend upon our customers' utilizing the Internet as an effective delivery channel to support their businesses.
The Internet has rapidly moved from an e-commerce medium, to a communication channel for sales, service and delivery. Such rapid change has slowed down the development of
e-commerce solutions and in turn, increased the development of customer service and information portals. We cannot predict growth in the use of the Internet or the demand for services to
support continued development of the Internet. In addition, a number of factors effect the viability of

20

---

the
commercial marketplace for the development of technology solutions that assist in the use of the Internet as a delivery channel. Such factors include:



Because we rely on highly trained and experienced personnel to design and build complex systems for our customers, an inability to retain existing employees and
attract new qualified employees would impair our ability to provide our services to existing and new customers.Our future success depends in large part on our
ability to attract new qualified employees and retain existing highly trained and experienced technical consultants, project management consultants, business analysts and sales and marketing
professionals of various experience levels. If we fail to attract and retain our existing employees, we may be unable to complete existing projects or bid for new projects of similar size, which could
adversely affect our revenues. While attracting and retaining experienced employees is critical to our business and growth strategy, maintaining our current employee base may also be particularly
difficult. Even if we are able to grow and expand our employee base the additional resources required to attract new employees and retain existing employees may adversely affect our operating margins.

We depend on our key personnel, and the loss of their services may adversely affect our business.We believe that our success
depends on the continued employment of the senior management team and other key personnel. This dependence is particularly important to our business because personal relationships are a critical
element in obtaining and maintaining customer engagements. If one or more members of the senior management team or other key personnel were unable or unwilling to continue in their present positions,
our business could be seriously harmed. In addition, if any of our key personnel join a competitor or form a competing company, some of our customers might choose to use the services of that
competitor or those of a new company instead of our own. Furthermore, other companies seeking to develop in-house business capabilities may hire away some of our key personnel.

Future business combination transactions or other strategic alternatives could disrupt our ongoing business, distract our management and employees, increase our
expenses and adversely affect our business.We anticipate that a portion of our future growth may be accomplished through one or more business combination
transactions or other strategic alternatives. The success of any such transactions will depend upon, among other things, our ability to integrate acquired personnel, operations, products and
technologies into our organization effectively, to retain and motivate key personnel of acquired businesses and to retain customers of acquired businesses. We cannot assure you that we will be able to
identify suitable opportunities, continue to successfully grow acquired businesses, integrate acquired personnel and operations successfully or utilize our cash or equity securities as acquisition
currency on acceptable terms to complete any such business combination transactions. These difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses
and materially and adversely affect our results of operations. Any such transactions would involve certain other risks, including the assumption of additional liabilities, potentially dilutive
issuances of equity securities and diversion of management's attention from operating activities.

Our comparable publicly-traded peers have experienced extreme volatility in trading prices over the last three-and-one-half
years and the value of our common stock could become highly volatile.As a result of the decline in spending for IT Services, many of our peers and competitors
have experienced extreme volatility in their common stock. As a result, their stock may continue to be highly volatile, and it is possible that our common stock price, whether due to market events
affecting the IT sector or operating results or other factors affecting us specifically, could trade with great volatility. Such

21

---

volatility
could be compounded by our: (i) growth initiatives, the result of which could be largely affected depending upon whether those initiatives are primarily executed through organic
growth, on the one hand, or through business combination transactions with third parties, on the other hand; or (ii) failure to execute targeted growth initiatives.

Volatility of our stock price could result in expensive class action litigation.If our common stock suffers from volatility
like the securities of other technology and consulting companies, we could be subject to securities class action litigation similar to that which has been brought against other companies following
periods of volatility in the market price of their common stock. The process of defending against these types of claims, regardless of their merit, is costly and often creates a considerable
distraction to senior management. Any future litigation could result in substantial additional costs and
could divert our resources and senior management's attention. This could harm our productivity and profitability and potentially adversely affect our stock price.

We may not be able to protect our intellectual property rights, which could adversely affect our business.Our future success
will depend, in part, upon our intellectual property rights and our ability to protect these rights. We do not have any patents or patent applications pending. Existing trade secret and copyright laws
afford us only limited protection. Third parties may attempt to disclose, obtain or use our solutions or technologies. This is particularly true in foreign countries where laws or law enforcement
practices may not protect our proprietary rights as fully as in the United States. Others may independently develop and obtain patents or copyrights for technologies that are similar or superior to
our technologies. If that happens, we may need to license these technologies and we may not be able to obtain licenses on reasonable terms, if at all. If we are unsuccessful in any future intellectual
property litigation we may be forced to do one or more of the following:



Generally,
we develop software applications for specific customer engagements. Issues relating to ownership of and rights to use software applications and frameworks can be complicated.
Also, we may have to pay economic damages in these disputes, which could adversely affect our results of operations and financial condition.

Fluctuations in our quarterly revenues and operating results may lead to reduced prices for our stock.Our quarterly revenues
and operating results can sometimes be volatile. We believe comparisons of prior period operating results cannot be relied upon as indicators of future performance. If our revenues or our operating
results in any future period fall below the expectations of securities analysts and investors, the market price of our securities would likely decline.

Factors
that may cause our quarterly results to fluctuate in the future include the following:



22

---



Some
of these factors are within our control while others are outside of our control.

A sizable portion of our assets are intangible.On December 31, 2003, approximately $13.2 million, or 15.2% of
our total assets were intangible assets. These intangible assets represent amounts attributable to goodwill recorded in connection with our acquisition of Edgewater Technology, effective
April 1, 1999, and our acquisition of Intelix, Inc. on June 2, 2003. In January 2002, we recorded as a change in accounting principle, a non-cash impairment of
goodwill charge of $12.5 million. We recorded an additional non-cash charge of $7.4 million, related to a further impairment in December 2002. See Note 2 and
Note 9 of the consolidated financial statements included elsewhere herein. Any future impairment in the value of such assets could have a material adverse effect on our financial condition
and/or results of operations.

Anti-takeover provisions in our charter documents, Our stockholder rights plan and/or Delaware Law could prevent or delay a change in control of our
company.Our Board of Directors can issue preferred stock in one or more series without stockholder action. The existence of this "blank-check" preferred stock
provision could render more difficult or discourage an attempt to obtain control by means of a tender offer, merger, proxy contest or otherwise. In addition, our Company has a stockholder rights plan,
commonly referred to as a "poison pill", that may discourage an attempt to obtain control by means of a tender offer, merger, proxy contest or otherwise. If a person acquires 20% or more of our
outstanding shares of common stock, except for certain institutional stockholders, who may acquire up to 25% of our outstanding shares of common stock, then rights under this plan would be triggered,
which would significantly dilute the voting rights of any such acquiring person. Certain provisions of the Delaware General Corporation Law may also discourage someone from acquiring or merging with
us.

If clients view offshore development as a viable alternative to our service offerings, our pricing, revenue, margins and profitability may be negatively
affected.A recent trend has developed whereas international IT service firms have been founded in countries such as India, which have well-educated
and technically-trained workforces available at wage rates that are substantially lower than U.S. wage rates. While traditionally we have not competed with offshore development, presently this form of
software development is experiencing rapid and increasing acceptance in the market. To counteract this trend, we are focusing toward more valued and differentiated service offerings, including design
and strategy consulting engagements, which are more difficult for offshore development firms to replicate. If we are unable to continually evolve our service offerings, or the rate of acceptance of
offshore development advances even faster than we expect, then our pricing and revenue could be adversely affected.

Related to the company's former staffing businesses, which were sold in 2000 & 2001, we have received and may continue to receive IRS related tax
assessments, which may require the payment of certain taxes,

23

---

interest and penalties and if such payments were material, they could adversely affect our financial condition and/or results of operations.The Company has
received various tax notices and assessments from the IRS related to its former staffing businesses, which were sold in 2000 and 2001. During the fourth quarter of 2003, certain notices related to
civil penalties related to the untimely filing of tax information were assessed against our company. While we continue to pursue alternatives to resolve the outstanding assessments, it is possible the
company could receive additional assessments in the future and/or the Company may be required to pay the outstanding assessments. Accordingly, if we are required to pay one or more of these
assessments it could have a material adverse effect on our financial condition and/or results of operations.

We may not generate enough income this year or in future years to maintain the current net carrying value of our Deferred Tax
Asset.We have a deferred tax asset of $22.2 million, net of applicable valuation allowance as of December 31, 2003. If we are unable to generate
enough income this year or in future years, the valuation allowance regarding our deferred tax asset may have to be revised upward, which would reduce the carrying value of this asset on our balance
sheet under generally accepted accounting principles. An increase in the valuation allowance and a reduction in the carrying value of this asset would increase our provision for income taxes, reduce
our total assets and depending on the amount of any such change or changes, could otherwise have a material adverse effect on our results of operations and/or our stockholders' equity and financial
position.

ITEM 2. PROPERTIES

We lease 30,004 square feet of office space for our principal executive offices currently located at 20 Harvard Mill Square, Wakefield, Massachusetts 01880. The
lease for our corporate headquarters was extended for a 10 year period on December 31, 2003 and this lease expires on December 31, 2013. We
also have office facilities in New Hampshire, Arkansas, and Virginia. Our corporate offices and solution center offices are all leased properties. We do not own any real estate. During 2001, we
relocated our principal corporate offices from 302 East Millsap Road, Fayetteville, Arkansas 72703 to the Wakefield address listed above. The Fayetteville, Arkansas location is a leased property,
which we sublet the premises to a third party on July 1, 2002 until June 30, 2007. This Fayetteville, Arkansas lease expires on June 30, 2009.

ITEM 3. LEGAL PROCEEDINGS

We are sometimes a party to litigation incidental to our business. We maintain insurance in amounts, with coverages and deductibles that we believe are
reasonable. As of the date of the filing of this Form 10-K, our Company is not a party to any existing material litigation matters.

We
have received and may continue to receive various tax notices and assessments from the IRS related to our former staffing businesses, which were sold in 2000 and 2001, and related
civil penalties concerning the purported untimely filing of tax information. Between the filing of our quarterly report on Form 10-Q for the quarter ended September 30, 2003
and March of 2004, we have been successful in obtaining abatements of certain IRS notices. We continue to dispute additional IRS assessments presently approximating a range of $0.8 million to
$1.6 million, and we recorded in 2003 a reserve of $1.0 million concerning the low end of such estimate, plus related professional fees. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes 4 and 15 of the consolidated financial statements included elsewhere in this Form10-K.

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

No matters were submitted to a vote of security holders during the fourth quarter of 2003.

24

---



PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Stock Price Information

Our common stock, which has a par value of $0.01 per share, trades on the Nasdaq National Market under the symbol "EDGW." On March 19, 2004, there were
approximately 2,104 holders of record of our common stock and 11.4 million shares of our common stock were outstanding. The number of record holders indicated above does not reflect persons or
entities who hold their shares of stock in nominee or "street" name through various bankers or brokerage firms. Based on our company's solicitations of proxies in May 2003, we estimate that
there are approximately 8,250 holders of our Company's common stock. The following table sets forth the range of high and low trading prices for our common stock as reported by the Nasdaq National
Market for each quarter in 2002 and 2003 and the first quarter of 2004 through March 19, 2004.

High

LowFISCAL 2002First Quarter

$
4.450

$
3.490Second Quarter


4.350


3.548Third Quarter


4.800


3.829Fourth Quarter


4.720


3.990FISCAL 2003First Quarter

$
4.590

$
3.680Second Quarter


4.850


3.770Third Quarter


5.770


4.370Fourth Quarter


5.600


4.560FISCAL 2004First Quarter
(through March 19, 2004)

$
8.500

$
4.650


Other Stockholder Matters

We have not paid dividends in the past and intend to retain earnings to finance the expansion and operations of our business. Subject to the items discussed in
"Item IBusinessPotential Future Strategies, Transactions and Changes," we do
not anticipate paying any cash dividends with regard to cash generated through our normal operations in the foreseeable future. The trading price of our common stock is subject to wide fluctuations in
response to quarterly variations in operating results, announcements of acquisitions, performance by our competitors, and other market events or factors. In addition, the stock market has, from time
to time, experienced price and volume fluctuations, which have particularly affected the market price of many professional service companies and which often have been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely affect the market price of our common stock.

In
September 2002, our Board of Directors reauthorized a stock purchase program for up to $20.0 million of common stock through December 31, 2003, which was extended
through February, 2005. The repurchase program may be further shortened or extended by the Board of Directors. Under this program, the repurchases have been and may be made from time to time on the
open market at prevailing market prices or in negotiated transactions off the market. As part of the most recently authorized stock repurchase program, effective February 14, 2003, our company
entered into a SEC Rule 10b5-1 purchase program with a broker that allows purchases of our common stock through

25

---

traditional
blackout periods. The Rule 10b5-1 repurchase program, like the overall stock repurchase program, will extend through February, 2005, unless earlier terminated by us or
the broker. From the inception of our stock repurchase program in 2000 for up to $30.0 million of our common stock and through March 18, 2004, we repurchased 2.3 million shares of
our common stock for an aggregate purchase price of approximately $11.9 million.

The
following table presents the aggregate quarterly repurchases under this program during 2000 and through March 18, 2004 with the aggregate amount of shares purchased each
quarter and with the high and low prices for shares repurchased each quarter.

Shares

High

LowFISCAL 2000Third Quarter

943,000

$
7.000

$
5.812Fourth Quarter







FISCAL 2001First Quarter

542,900

$
4.250

$
3.944Second Quarter

276,600


4.150


3.514Third Quarter

80,300


3.583


3.000Fourth Quarter

22,700


3.923


3.090FISCAL 2002First Quarter







Second Quarter







Third Quarter

102,678

$
4.500

$
3.777Fourth Quarter

47,512


4.511


4.000FISCAL 2003First Quarter

70,932

$
4.196

$
3.730Second Quarter

167,277


4.750


3.850Third Quarter

15,640


4.750


4.570Fourth Quarter

50,346


5.130


4.659FISCAL 2004First Quarter
(through March 19, 2004)










On
December 21, 2000, we commenced an issuer tender offer, which expired on January 23, 2001, and effective January 31, 2001, we acquired 16.25 million shares
of our common stock at a price of $8.00 per share (the "Tender Offer Price") for aggregate consideration of $130.0 million, excluding fees and expenses, and common stock subject to certain
vested in-the-money stock options for aggregate consideration of $0.2 million (the "Tender Offer").

On
August 7, 2003, the Company initiated a voluntary odd-lot program, where smaller stockholders were offered a means of selling their shares. This program was
initiated as part of an overall effort to reduce the administrative costs associated with carrying stockholders who own less than 100 shares of the Company's common stock. Under the
odd-lot program, stockholders could sell their shares, through a third-party administrator, on the open market at an average closing price for the prior ten day period. Under this program,
which expired October 31, 2003, the Company repurchased 10,877 shares for $0.06 million.

26

---



ITEM 6. SELECTED FINANCIAL DATA

The 2003, 2002, 2001 and 2000 selected consolidated financial data presented below has been derived from our audited consolidated financial statements. Our former
operating businesses, consisting of the StaffMark commercial staffing division, Robert Walters, Strategic Legal, IntelliMark and ClinForce are presented as discontinued operations. The 1999 selected
financial data presents the period April 1, 1999 (date of acquisition of Edgewater Technology) through December 31, 1999. The 1999 selected financial data has been derived from the
Company's audited consolidated financial statements not included elsewhere herein. We believe that this information should be read in conjunction with our audited consolidated financial statements and
accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K.

|                                                                                                           |                                                                                                                                | Period ended December 31, |       
|---------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | ------------------------- | ------
|
|
|Consolidated Statement of Operations Data:                                                                 |                                                                                                                                |                           |       
|Service revenues                                                                                           |                                                                                                                                | $                         | 25,054
|Cost of services                                                                                           |                                                                                                                                |                           | 13,540
|                                                                                                           |                                                                                                                                |                           |       
|                                                                                                           |                                                                                                                                | Gross profit              |       
|Operating expenses:                                                                                        |                                                                                                                                |                           |       
|                                                                                                           | Selling, general and administrative (1)                                                                                        |                           |       
|                                                                                                           | Depreciation and amortization                                                                                                  |                           |       
|                                                                                                           | Impairment of goodwill (2)                                                                                                     |                           |       
|                                                                                                           | Restructuring (3)                                                                                                              |                           |       
|                                                                                                           |                                                                                                                                |                           |       
|                                                                                                           |                                                                                                                                | Total operating expenses  |       
|                                                                                                           |                                                                                                                                |                           |       
|                                                                                                           |                                                                                                                                | Operating income (loss)   |       
|Interest income and other, net                                                                             |                                                                                                                                |                           | 455   
|                                                                                                           |                                                                                                                                |                           |       
|Income (loss) before taxes, discontinued operations, extraordinary item and change in accounting principle |                                                                                                                                |                           | 941   
|Tax (benefit) provision                                                                                    |                                                                                                                                |                           | (1,053
|                                                                                                           |                                                                                                                                |                           |       
|                                                                                                           | Income (loss) from continuing operations before discontinued operations, extraordinary item and change in accounting principle |                           |       
|Discontinued operations:                                                                                   |                                                                                                                                |                           |       
|                                                                                                           | Loss from operations of discontinued divisions, net of applicable taxes                                                        |                           |       
|                                                                                                           | Gain on sale of divisions, net of applicable taxes                                                                             |                           |       
|                                                                                                           |                                                                                                                                |                           |       
|Income (loss) before extraordinary item and change in accounting principle                                 |                                                                                                                                |                           | 974   
|Extraordinary item, net of applicable taxes                                                                |                                                                                                                                |                           |      
|Change in accounting principle                                                                             |                                                                                                                                |                           |      
|                                                                                                           |                                                                                                                                |                           |       
|                                                                                                           | Net income (loss)                                                                                                              |                           | $     
|                                                                                                           |                                                                                                                                |                           |       
|Basic income (loss) per share                                                                              |                                                                                                                                |                           |       
|                                                                                                           | Continuing operations                                                                                                          |                           | $     
|                                                                                                           | Discontinued operations                                                                                                        |                           |       
|                                                                                                           | Extraordinary item                                                                                                             |                           |       
|                                                                                                           | Change in accounting principle                                                                                                 |                           |       
|                                                                                                           |                                                                                                                                |                           |       
|                                                                                                           | Net income (loss)                                                                                                              |                           | $     
|                                                                                                           |                                                                                                                                |                           |       
|                                                                                                           | Weighted average shares, basic                                                                                                 |                           |       
|                                                                                                           |                                                                                                                                |                           |       
|Diluted income (loss) per share                                                                            |                                                                                                                                |                           |       
|                                                                                                           | Continuing operations                                                                                                          |                           | $     
|                                                                                                           | Discontinued operations                                                                                                        |                           |       
|                                                                                                           | Extraordinary item                                                                                                             |                           |       
|                                                                                                           | Change in accounting principle                                                                                                 |                           |       
|                                                                                                           |                                                                                                                                |                           |       
|                                                                                                           | Net income (loss)                                                                                                              |                           | $     
|                                                                                                           |                                                                                                                                |                           |       
|                                                                                                           | Weighted average shares, diluted                                                                                               |                           |       
|                                                                                                           |                                                                                                                                |                           |       

Refer to footnotes on following page.

27

---

---

|                                   |                                             | As of December 31,
|---------------------------------- | ------------------------------------------- | ------------------
|
|
|Consolidated Balance Sheet Data:   |                                             |                   
|                                   | Cash equivalents and short-term investments |                   
|                                   | Goodwill and intangibles                    |                   
|                                   | Deferred tax asset                          |                   
|                                   | Other assets                                |                   
|                                   |                                             |                   
|                                   | Total assets                                |                   
|                                   |                                             |                   
|                                   | Total liabilities                           |                   
|                                   | Stockholders' equity                        |                   
|                                   |                                             |                   
|                                   | Total liabilities and stockholders' equity  |                   
|                                   |                                             |                   
|Outstanding Shares of Common Stock |                                             |                   

28

---



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

The following discussion should be read in conjunction with the "Selected Financial Data," and audited consolidated financial statements and the related notes
thereto under "Financial Statements and Supplementary Data" in this Form 10-K.

Overview

Edgewater Technology is an award-winning consulting firm that specializes in combining strategic consulting, technical knowledge, and industry domain expertise to
develop technology solutions that assist primarily middle-market companies and divisions of Global 2000 companies to align their processes with their purposes. This approach not only promotes
increased efficiency, but also supports increased effectiveness. Targeting strategic, mission-critical applications, our consultants collaborate with customers to translate business goals into
technical strategies. Headquartered in Wakefield, Massachusetts as of December 31, 2003, our Company employs approximately 156 technical consulting professionals throughout our network of
strategically positioned solutions centers.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These
accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions, upon which we rely, are reasonable based upon
information available to us at the time that they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial
statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions and actual
results, our financial statements may be affected. The accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the
following:



In
many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas
in which management's judgment in selecting among available alternatives would not produce a materially different result. Senior management has reviewed these critical accounting policies and related
disclosures with our Audit Committee. See notes to consolidated financial statements included elsewhere herein, which contain additional information regarding our accounting policies and other
disclosures required by GAAP. We have identified the policies listed below as critical to our business operations and the understanding of our results of operations.

Revenue Recognition.Our revenues are derived from fees for services generated on a
project-by-project basis. A majority of the Company's contracts are billed on a time and materials basis. Time and materials contracts represented 70.9%, 77.2% and 73.5% of
revenues for years ended December 31, 2003, 2002, and 2001, respectively. Revenues related to time and materials contracts are generally recognized based on the number of hours worked by our
consultants at agreed upon rates. Revenues under time and materials contracts are generally recognized in the period in which the services are performed. We also perform level support services on a
fixed-fee basis. Fixed-fee services represented 10.3%, 17.2%, and 14.7% for the years ended December 31, 2003, 2002, and 2001, respectively.

29

---

Revenue
pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. Over the course of a fixed-price contract, we routinely evaluate whether
revenue and profitability should be recognized in the current period. To measure the performance and our ability to recognize revenue and profitability on fixed-price contracts, we compare actual
direct costs incurred to the total estimated direct costs and determine the percentage of the contract that is complete. This percentage is multiplied by the estimated total contract value to
determine the amount of net revenue recognized, subject to any warranty provisions and other holdbacks on revenue. Any warranty provisions included in fixed-price contracts are accounted for as a
holdback of revenue until such provisions are satisfied. A formal project review process takes place monthly although most projects are evaluated on an ongoing basis. Management reviews the estimated
total direct costs on each contract to
determine if the estimated amounts are reasonable, and estimates are adjusted as needed. Fixed-price contracts represented 18.8%, 5.6%, and 11.8% for the years ended December 31, 2003, 2002 and
2001, respectively.

Revenues
and earnings may fluctuate from year to year based on the number, size and scope of projects in which we are engaged, the contractual terms and degree of completion of such
projects, any delays incurred in connection with a project, employee utilization rates, the adequacy of provisions for losses, the use of estimates of resources required to complete ongoing projects,
general economic conditions and other factors. Certain significant estimates include estimates used for fixed-price contracts and the allowance for doubtful accounts. These items are frequently
monitored and analyzed by management for changes in facts and circumstances, which could affect our estimates. Reimbursement of "out-of-pocket" expenses charged to customers
are reflected as revenue.

Accounting for Income Taxes.As part of the process of preparing our consolidated financial statements, significant judgment
is required in determining our provision for income taxes, the carrying value of deferred tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets. We have
recorded a $14.1 million valuation allowance against our net deferred tax assets as December 31, 2003 and 2002, respectively, due to potential uncertainty related to our ability to
utilize some of our deferred tax assets, primarily consisting of certain net operating losses carried forward and foreign tax credits, before they expire. We consider scheduled reversals of deferred
tax liabilities, projected future taxable income, ongoing tax planning strategies and other matters, including the period over which our deferred tax assets will be recoverable in assessing the need
for and the amount of the valuation allowance. In the event that actual results differ from these estimates or we adjust these estimates in future periods, adjustments to the deferred tax assets may
be recorded, which could materially impact our financial position and net income (loss) in the period. The net deferred tax asset was $22.2 million as of December 31, 2003, which amount
management believes will be realized.

Valuation of Long-Lived and Intangible Assets.We assess the impairment of identifiable intangibles,
long-lived assets and related goodwill annually through the use of a third party appraiser, and whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors we consider important, which could trigger an impairment review include: 1) significant negative industry or economic trends, 2) significant operating
underperformance relative to expected historical or projected future results, 3) significant decline in our stock price or the stock price of our industry peers and/or 4) a decline in
our market capitalization relative to our net book value. Our judgments regarding the existence of impairment indicators are based upon legal factors, market conditions and operational performance.
Our Company adopted SFAS No. 142 in 2002 and in accordance therewith, recorded as a change in accounting principle, a non-cash impairment charge of $12.5 million upon
adoption on January 1, 2002. On December 2, 2002, our selected annual measurement date, our Company recorded an additional non-cash charge of $7.4 million due to a
further impairment of goodwill. As further described in Note3 to the consolidated financial statements included elsewhere herein, the Company acquired Intelix on June 2, 2003 and
recorded $1.4 million in goodwill and $0.5 million in identifiable intangibles, which are being amortized over 4-8 years.

30

---

Results for the Year Ended December 31, 2003 Compared to Results for the Year Ended December 31, 2002

Service Revenues.Service revenues increased 34.2% to $25.1 million in 2003 compared to $18.7 million in 2002.
This revenue increase reflects additional revenue of $2.3 million due to the acquisition of Intelix since June 2, 2003, combined with organic growth attained from engaging new customers
and retaining follow-on business from existing customers during 2003. The company organically grew 22.0% in revenue in 2003 over 2002. For the years ended December 31, 2003 and
2002, two customers each, contributed more than 10% of revenues. For the years ended December 31, 2003 and 2002, our five largest customers, including the related party, represented 81.7% and
88.0% of our revenues in the aggregate, respectively. See Note 14 and Note 17 of the consolidated financial statements included elsewhere herein.

Cost of Services.Project personnel costs consist principally of salaries, payroll taxes, employee benefits and travel
expenses for personnel dedicated to customer projects. These costs represent the most significant expense we incur in providing our services. Project personnel costs increased 13.7% to
$13.5 million in 2003 compared to $11.9 million in 2002. This increase is primarily the result of the net effect of the increase in billable consultants from 119 at December 31,
2002 to 156 at December 31, 2003, in large part a result of the acquisition of Intelix, which added 29 billable consultants.

Gross Profit.Gross profit increased 70.3% to $11.5 million in 2003 compared to $6.8 million in 2002. The
increase in gross profit directly relates to the increase in billable hours and revenues combined with higher utilization during 2003, in addition to gross profit related to the Intelix acquisition of
$0.5 million for the period since the acquisition on June 2, 2003. Average utilization rates were 78.7% for 2003 compared to 67.0% in 2002. Gross profit margin for 2003 was 46.0%
compared to 36.2% for 2002.

Selling, General and Administrative Expense ("SG&A").SG&A increased 14.1% to $10.1 million in 2003 compared to
$8.8 million in 2002. SG&A as a percentage of revenue was 40.2% and 47.3% for 2003 and 2002, respectively. This increase in absolute dollars is directly related to accruals for
performance-based bonuses and additional costs assumed as the result of the Intelix acquisition, offset by reduced facilities and operating expenses in 2003 in an effort to streamline operations and
costs.

Depreciation and Amortization Expense.Depreciation and amortization expense decreased $0.1 million to
$0.9 million in 2003 compared to $1.0 million in 2002. This decrease reflects tighter spending controls on purchases of new fixed assets and a relative reduction in depreciation as older
assets fully depreciate, offset by slightly higher depreciation and amortization due to the Intelix acquisition.

Impairment of Goodwill.As discussed in Note 2 to the consolidated financial statements included elsewhere herein, we
adopted SFAS No. 142 on January 1, 2002 and in accordance therewith, recorded as a change in accounting principle a non-cash charge of $12.5 million relating to an
impairment of recorded goodwill. On December 2, 2002, our selected annual measurement date, we recorded an additional non-cash charge of $7.4 million, relating to a further
impairment of goodwill. Our net unamortized goodwill as of December 31, 2003 and December 31, 2002 was $12.3 million and $10.8 million, respectively.

Restructuring.In February 2002, we implemented a workforce reduction to better align our consultant base to our
expected revenues. The Company reduced headcount by nineteen percent (19%), or approximately 38 positions, which resulted in a restructuring charge of approximately $349,000, which consisted primarily
of severance and similar employee payroll related termination expenses. All amounts were paid as of December 31, 2002.

31

---

Operating Income (Loss).Operating income increased $11.3 million to $0.5 million in 2003 compared to an
operating loss of ($10.8) million in 2002. This increase is due to higher utilization and a corresponding increase in revenue, combined with the effects of the restructuring and the impairment of
goodwill in 2002 as described above.

Interest Income (Expense), Net.We earned net interest income of $0.5 million in 2003, as compared to net interest
income of $0.8 million in 2002. This decrease is due the reduction in overall market interest yields for investment grade securities during the past twelve months and also due to the slightly
lower average cash balances as a result of the acquisition of Intelix, common stock repurchases and discontinued operations payments.

Provision for Income Taxes.We recorded a tax benefit of $1.1 million for 2003, which represents a tax provision of
$0.3 million based on an estimated effective rate of 40.0% on operating income, which includes state and federal income tax rates, offset by a refund receivable related to the 2002 net
operating tax loss carryback of $1.4 million, for which benefit had not been previously recorded. The effective tax rate for 2002 was zero, primarily due to net operating losses for which a
benefit was not provided. We have recorded a valuation allowance against a portion of our net deferred assets of approximately $14.1 million as of December 31, 2003 due to uncertainties
related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating losses carried forward and foreign tax credits, before they expire.

Income (Loss) from Continuing Operations.Income from continuing operations increased $12.1 million, to
$2.0 million in 2003 compared to a loss of ($10.1) million in 2002. This increase was primarily a result of higher operating profitability and the carryback tax claim, and the absence in 2003
of the goodwill impairment charge and restructuring charge which were recorded in 2002.

Discontinued Operations.We have received and may continue to receive various tax notices and assessments from the IRS
related to our former staffing businesses, which were sold in 2000 and 2001, and related civil penalties concerning the purported untimely filing of tax information. Between the filing of our
quarterly report on Form 10-Q for the quarter ended September 30, 2003 and March of 2004, we have been successful in obtaining abatements of certain IRS notices. We continue
to dispute additional unresolved IRS assessments, presently approximating a range of $0.8 million to $1.6 million. We recorded in 2003 a reserve of $1.0 million representing the
low end of such estimate, plus related professional fees. See Notes 4 and 15 of the consolidated financial statements included elsewhere herein.

In
2002, we recorded a $950,000 charge to discontinued operations relating to a litigation settlement with the purchaser of/successor to our commercial staffing business, which was sold
in 2000 for approximately $196.0 million. See Note 15 of the consolidated financial statements included elsewhere herein.

Change in Accounting Principle.As discussed above, we adopted SFAS No. 142 on January 1, 2002 and, in
accordance therewith, recorded as a change in accounting principle a non-cash charge of $12.5 million relating to an impairment of recorded goodwill. See Note 2 of the
consolidated financial statements included elsewhere herein.

Net Income (Loss).We recognized a net income of $1.0 million in 2003 compared to a net loss of ($23.5) million in
2002. The net income increased substantially in 2003 due to additional operating income in 2003 offset by goodwill impairment charges taken in 2002.

32

---

Results for the Year Ended December 31, 2002 Compared to Results for the Year Ended December 31, 2001

Service Revenues.Revenues decreased $7.9 million, or 29.8%, to $18.7 million for 2002 compared to
$26.6 million in 2001. Revenues decreased primarily due to an economic slowdown that has affected spending for information technology services. Revenues from a related party amounted to
$12.3 million in 2002, compared to $10.6 million in 2001. For the year ended December 31, 2002, one additional customer contributed more than 10% of revenues. For the year ended
December 31, 2002 and 2001, our three largest customers, including the related party, represented 82.9% and 57.3% of our revenues in the aggregate, respectively. See Note 14 and
Note 17 of the consolidated financial statements included elsewhere herein.

Cost of Services.Cost of services consists of project personnel salaries, payroll taxes, employee benefits and travel
expenses for personnel dedicated to customer projects. These costs represent the most significant expense we incur in providing our services. Project personnel costs decreased $3.8 million, or
24.3%, to $11.9 million for 2002 compared to $15.7 million for 2001 due to a reduction in headcount. Headcount for project personnel was reduced from 157 at December 31, 2001 to
119 at December 31, 2002. Utilization is a function of our ability to utilize our billable professionals and generate revenues. Our utilization rates for 2002 and 2001 amounted to 67.0% and
72.2%, respectively.

Gross Profit.Gross profit for 2002 decreased $4.0 million, or 37.6%, to $6.8 million compared to
$10.8 million for 2001. The decrease in gross profit directly relates to the decrease in revenues and utilization during the period, which is discussed above. Gross profit margin for 2002 was
36.2% compared to 40.8% for 2001. The decrease in gross profit was due primarily to the decrease in revenues and utilization discussed above.

Selling, General and Administrative Expense ("SG&A").SG&A decreased $1.7 million, or 16.3%, to $8.8 million
for 2002 compared to $10.5 million for 2001. SG&A as a percentage of revenue was 47.3% and 39.7% for 2002 and 2001, respectively, and this percentage increase is attributable to lower revenue
levels during the relevant 2002 period referenced above. SG&A costs decreased primarily as a result of
lower payroll and bonus expense of $0.9 million, a decrease in bad debt expense of $0.4 million, a reduction in recruiting expense of $0.3 million, and other expenses of
$0.1 million.

Depreciation and Amortization Expense.Depreciation and amortization expense decreased $4.5 million to
$1.0 million for 2002 compared to $5.5 million for 2001. This decrease is a direct result of the implementation of SFAS No. 142, in which goodwill is determined to have an
indefinite life and is no longer amortized. Accordingly, as of January 1, 2002, we discontinued amortizing goodwill. Our goodwill amortization expense for 2001 amounted to $4.3 million.

Impairment of Goodwill.As discussed above, we adopted SFAS No. 142 on January 1, 2002 and in accordance
therewith, recorded as a change in accounting principle a non-cash charge of $12.5 million relating to an impairment of recorded goodwill. On December 2, 2002, our selected
annual measurement date, we recorded an additional non-cash charge of $7.4 million, relating to a further impairment of goodwill. See Note 2 of the consolidated financial
statements included elsewhere herein. Our net unamortized goodwill as of December 31, 2002 and December 31, 2001 was $10.8 million and $30.7 million, respectively.

Restructuring.In February 2002, we implemented a workforce reduction to better align our consultant base to our
expected revenues. The Company reduced headcount by nineteen percent (19%), or approximately 38 positions, which resulted in a restructuring charge of approximately $349,000, which consisted primarily
of severance and similar employee payroll related termination expenses. All amounts were paid as of December 31, 2002.

33

---

Interest Income and Other, Net.We earned net interest income of $0.8 million for 2002, as compared to net interest
income of $2.1 million for 2001. This decrease is due primarily to the decrease in interest rates, and a slightly lower average cash balance during 2002.

Tax Provision.There was no income tax provision in 2002 primarily as a result of the net loss and management's assumptions
on the recorded valuation allowance relating to our net deferred tax assets. The tax provision for 2001 represents certain state taxes. For all other jurisdictions, the estimated effective tax rate
for 2002 and 2001 was 0% and 19.2%, respectively. We have recorded a valuation allowance against a portion of our net deferred tax assets of approximately $15.7 million and
$15.3 million, respectively, as of December 31, 2002 and 2001 due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net
operating losses carried forward and foreign tax credits, before they expire.

Loss from Continuing Operations.Net loss from continuing operations increased $6.4 million, to ($10.1) million in
2002 compared to ($3.7) million in 2001. This increase was primarily a result of the restructuring of $349,000 and the non-cash charge of $7.4 million relating to further goodwill
impairment, partially offset by a decrease in SG&A and other factors described above. Loss from continuing operations as a percentage of revenue, was (53.9%) for 2002 and (13.8%) for 2001.

Discontinued Operations.In 2002, we recorded a $950,000 charge relating to a settlement with the Stephens Group, a component
of discontinued operations. On February 11, 2003, we executed a definitive mutual Settlement and Release Agreement with the Stephens Group to terminate, dismiss and retain intact the Company's
favorable summary judgment ruling with respect to the litigation matter in Delaware Superior Court. The parties agreed that the existence of the settlement agreement and all of its terms, including
any payment, were not evidence of any wrongdoing or liability related to the sale of the Company's commercial staffing business in June 2000. The Company paid the $950,000 in
February 2003. See Note 15 of the consolidated financial statements included elsewhere herein.

Extraordinary Item.In 2001, the Company recorded $27,000 of costs associated with the Wakefield tragedy, as an extraordinary
item in the financial statements. No such costs were accrued in 2002. See Note 6 of the consolidated financial statements included elsewhere herein.

Change in Accounting Principle.As discussed above, we adopted SFAS No. 142 on January 1, 2002 and, in
accordance therewith, recorded as a change in accounting principle a non-cash charge of $12.5 million relating to an impairment of recorded goodwill. See Note 2 of the
consolidated financial statements included elsewhere herein.

Net (Loss) Income.We recognized a net loss of ($23.5) million for 2002 compared to a net income of $1.9 million for
2001. The net loss increased substantially in 2002 due to the adoption of SFAS No. 142, which required our goodwill to be revalued, resulting in total impairment charges of $19.9 million
for 2002. Net income for 2001 included a gain on the sale of our staffing-related division, ClinForce, of $6.5 million and a net loss from operations of this discontinued division of ($0.9)
million.

34

---

Liquidity and Capital Resources

The following table summarizes our cash flow activities for the periods indicated:

|                                              |                                   | Years ended December 31 |       
|--------------------------------------------- | --------------------------------- | ----------------------- | ------
|
|
|Cash flows provided by (used in):             |                                   |                         |       
|                                              | Operating activities              |                         | $     
|                                              | Investing activities              |                         |       
|                                              | Financing activities              |                         |       
|                                              | Discontinued operating activities |                         |       
|                                              | Extraordinary item                |                         |       
|                                              |                                   |                         |       
|Total cash (used in) provided during the year |                                   | $                       | (1,278
|                                              |                                   |                         |       

As
of December 31, 2003, we had cash, cash equivalents and short-term investments of $44.3 million, a $2.5 million or 5.4% decrease from the
December 31, 2002 balance of $46.8 million. The decrease in cash, cash equivalents and short-term investments primarily reflects Edgewater's net cash used for the acquisition
of Intelix of $1.9 million, combined with stock repurchases of $1.4 million.

Our
primary historical sources of funds are from operations and the proceeds from equity offerings and sales of businesses. Our principal historical uses of cash have been to fund
working capital requirements and capital expenditures. We generally pay our employees bi-weekly for their services, while receiving payments from customers 30 to 60 days from the
date of the invoice.

Net
cash provided by (used in) operating activities was $2.6 million, ($0.1) million, and $19.2 million for 2003, 2002, and 2001, respectively. The net cash provided by
operating activities for the periods presented primarily reflects the net income and the positive effects of our operations.

Net
cash (used in) provided by investing activities was ($0.9) million, ($6.5) million, and $22.0 million for 2003, 2002, and 2001, respectively. Cash (used in) investing
activities in 2003 was primarily attributable to the purchase of Intelix, Inc. on June 2, 2003 offset by redemptions of short-term investments. In 2002, cash (used in)
investing activities was primarily related to the purchases of short-term investments. In 2001, cash provided by investing activities was primarily attributable to the proceeds from the
sale of our staffing-related divisions offset by cash paid for additional contingent consideration for acquisitions completed during prior periods and purchases of short-term investments.
As of December 31, 2003 we have no long-term commitments for capital expenditures and all capital expenditures are discretionary.

Net
cash (used in) provided by financing activities was ($1.3) million, ($0.8) million, and ($134.7) million for 2003, 2002, and 2001, respectively. Cash used in financing activities in
2003 and 2002 was primarily attributable to the repurchase of stock and payments on borrowings, net of proceeds from our employee stock purchase program. Cash used in 2001 was primarily related to
repurchases of stock, including the Tender Offer in January 2001, when we repurchased 16.25 million shares for aggregate consideration of $130.0 million, excluding fees and
expenses.

Net
cash (used in) discontinued operations was ($1.7) million, ($3.6) million, and ($11.5) million for 2003, 2002, and 2001, respectively. These cash disbursements related to the
Company's decision to undergo a comprehensive program to refocus future growth initiatives on our systems integration and consulting business and to this effect, commit to divestures of each of our
staffing businesses. See Note 4 of the consolidated financial statements included elsewhere herein.

Net
cash (used in) extraordinary item was ($0.1) million and ($0.4) million during 2002 and 2001, respectively. See Note 6 of the consolidated financial statements included
elsewhere herein.

35

---

As
a result of the above, and as a result of cash flows from discontinued operations, our combined cash and cash equivalents decreased $1.3 million, $11.0 million and
$105.5 million in 2003, 2002 and 2001, respectively. The aggregate cash and cash equivalents and short-term investments were $44.3 million, $46.8 million, and
$51.5 million, as of December 31, 2003, 2002, and 2001, respectively.

In
September 2002, our Board of Directors reauthorized a stock purchase program for up to $20.0 million of common stock through December 31, 2003, which was extended
through February 2005. The repurchase program may be shortened or extended by the Board of Directors. Under this program, the repurchases have been and may be made from time to time on the open
market at prevailing market prices or in negotiated transactions off the market. As part of the most recently authorized stock repurchase program, effective February 14, 2003, our company
entered into a SEC Rule 10b5-1 purchase program with a broker that allows purchases of our common stock through traditional blackout periods. The Rule 10b5-1
repurchase program, like the overall stock repurchase program, will extend through February, 2005, unless earlier terminated by us or the broker. From the inception of our stock repurchase program in
2000 for up to $30 million of our common stock and through March 18, 2004, we repurchased 2.3 million shares of our common stock for an aggregate purchase price of approximately
$11.9 million.

In
January 2001, the Company closed the Tender Offer and acquired 16.25 million shares of our common stock at the Tender Offer Price for aggregate consideration of
$130.0 million, excluding fees and expenses, and common stock subject to certain vested in-the-money stock options for aggregate consideration of $0.2 million.

On
August 7, 2003, the Company initiated a voluntary odd-lot program, where smaller stockholders were offered a means of selling their shares. This program was
initiated as part of an overall effort to reduce the administrative costs associated with carrying stockholders who own less than 100 shares of the Company's common stock. Under the
odd-lot program, stockholders could sell their shares, through a third-party administrator, on the open market at an average closing price for the prior ten day period. Under this program,
which expired October 31, 2003, the Company repurchased 10,877 shares for $0.06 million.

We
believe that our cash flows from operations and available cash will provide sufficient liquidity for our existing operations for the foreseeable future. We periodically reassess the
adequacy of our liquidity position, taking into consideration current and anticipated operating cash flow, anticipated capital expenditures, business combinations, possible stockholder distributions
and public or private offerings of debt or equity securities. The pace at which we will either generate or consume cash will be dependent upon future operations and the level of demand for our
services on an ongoing basis. See "Item 1Business, Potential Future Strategies, Transactions and Changes."

Off Balance Sheet Arrangements, Contractual Obligations and Contingent Liabilities and Commitments

We lease office space under operating lease arrangements through 2013. Rent expense, including amounts paid to related parties for discontinued operations, was
approximately $1.1 million, $1.2 million, and $1.3 million for the years ended December 31, 2003, 2002, and 2001, respectively. The Company entered into a sublease
agreement on July 1, 2002 with a third party to occupy our former corporate headquarters in Fayetteville, Arkansas. The sublease commenced on July 15, 2002 and will end on
June 30, 2007. Under the sublease agreement, the sub-tenant shall pay base rent to Edgewater in the amount of $0.2 million for the years 2003, 2004, 2005 and 2006, and will
pay $0.1 million in 2007.

36

---

Annual
future minimum payments required under operating leases that have an initial or remaining lease term in excess of one year are as follows (these amounts do not include expected
sublease payments of approximately $0.2 million per year through June 30, 2007):

Fiscal Years Ending December 31,

Lease
Obligations
(In thousands)2004

$
1,1492005


1,0372006


8812007


7262008


726Thereafter


2,748$
7,267


Recently Issued Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements" (FIN 46). FIN 46 establishes accounting guidance for consolidation of variable interest entities that function to support the activities of
the primary beneficiary. FIN 46 applies to any business enterprise, both public and private, that has a controlling interest, contractual relationship or other business relationship with a variable
interest entity. The Company does not have any investments in or contractual relationships or other business relationships with any variable interest entity and therefore the adoption did not have any
impact on the Company's consolidated financial position or results of operations.

In
April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (SFAS 149). This statement is intended to
result in more consistent reporting of contracts as either freestanding derivative instruments subject to SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133) in its entirety, or as hybrid instruments with debt host contracts and embedded derivative features. In addition, SFAS 149 clarifies the definition of a derivative by
providing guidance on the meaning of initial net investments related to derivatives. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. Adoption of
SFAS 149 did not have a material effect on the Company's consolidated financial position, results of operations or cash flows.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" (SFAS 150).
SFAS 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and
equity. SFAS 150 represents a significant change in practice in the accounting for a number of financial instruments, including mandatorily redeemable equity instruments and certain equity
derivatives that frequently are used in connection with share repurchase programs. The Company does not use such instruments in its share repurchase program. SFAS 150 is effective for all
financial instruments created or modified after May 31, 2003. Adoption of SFAS 150 did not have a material effect on the Company's consolidated financial position, results of operations
or cash flows.

On
December 17, 2003, the Staff of the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition, which
supersedes SAB 101, Revenue Recognition in Financial Statements. SAB 104's primary purpose is to rescind the accounting guidance contained in SAB 101 related to multiple-element revenue
arrangements that was superseded as a result of the issuance of EITF Issue No. 00-21, Accounting for Revenue Arrangements with Multiple

37

---

Deliverables.
Additionally, SAB 104 rescinds the SEC's related Revenue Recognition in Financial Statements Frequently Asked Questions and Answers issued with SAB 101 that had been
codified in SEC Topic 13, Revenue Recognition. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of
SAB 101 remain largely unchanged by the issuance of SAB 104, which was effective upon issuance. We adopted the provisions of SAB 104 in the fourth quarter of 2003. Our
adoption of SAB 104 did not have a material effect on our financial position or results of operations.

Related Party Transactions

The Synapse Group, Inc. ("Synapse"), one of our significant customers discussed in Notes 14 and 17 to the consolidated financial statements included
elsewhere herein, is considered a related party as its President and Chief Executive Officer is also a member of our Board of Directors. Revenues from Synapse amounted to $11.8 million,
$12.3 million, and $10.6 million, respectively, for 2003, 2002, and 2001. Payments received from Synapse for 2003, 2002, and 2001 amounted to $11.8 million, $12.4 million,
and $10.2 million, respectively. Outstanding accounts receivable for Synapse were $1.9 million and $1.9 million, as of December 31, 2003 and 2002, respectively, which
balances were within the Company's normal business terms. See Note 14 of the consolidated financial statements included elsewhere herein.

Our
Company entered into a lease agreement in 1999, which was modified in June 2000, with a stockholder who is a former officer and director, to lease certain parcels of land and
buildings in Fayetteville, Arkansas for its former corporate headquarters that were included in our Company's discontinued operations. Rent payments related to these facilities totaled approximately
$0.2 million for each the years ended December 31, 2003, 2002, and 2001, respectively. Future related party lease obligations relate to this lease agreement. As our Company's corporate
headquarters moved to Wakefield, Massachusetts during 2001, the Company subleased the Fayetteville facility to a third party in 2002. See Note 16 of the consolidated financial statements
included elsewhere herein.

Included
in the "Certain Transactions" section of our 2004 Proxy Statement for our June 2, 2004 Annual Stockholders' Meeting are additional related party transactions. Our Proxy
Statement will be filed with the SEC on or before April 30, 2004.

Other Tax Matters

During the second quarter of 2002, our Company was notified by the Internal Revenue Service (the "IRS") that it would be auditing our consolidated income tax
returns for the 1998, 1999 and 2000 fiscal years. Our Company has responded to various IRS information requests by delivering documents and answering questions. For the period of the fiscal years
covered by the audit, we owned staffing-related businesses, which were sold during the 2000 and 2001 fiscal years. The results of the IRS audit could have an impact on our deferred tax asset, however,
as of the date of the filing of this Form 10-K, we do not believe any such impact would be material to our financial position.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary financial instruments include investments in money market funds, short-term municipal bonds, commercial paper and U.S. government
securities that are sensitive to market risks and interest rates. The investment portfolio is used to preserve our capital until it is required to fund operations, strategic acquisitions or
distributions to stockholders. None of our market-risk sensitive instruments are held for trading purposes. We did not purchase derivative financial instruments in 2003 and 2002. Should
interest rates on the Company's investments fluctuate by 10% the impact would not be material to the financial condition, results of operations or cash flows.

For
the last three years, the impact of inflation and changing prices has not been material on revenues or income (loss) from continuing operations.

38

---



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The
following consolidated financial statements are included in this Form 10-K:

PageIndependent Auditors' Report

40Report of Independent Public Accountants

41Consolidated Balance Sheets at December 31, 2003 and 2002

42Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002, and 2001

43Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2003, 2002, and 2001

44Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001

45Notes to Consolidated Financial Statements

46


Unaudited Supplementary Quarterly Financial Information

65


39

---



INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Edgewater Technology, Inc.

We
have audited the accompanying consolidated balance sheets of Edgewater Technology, Inc. and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the
related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Edgewater Technology, Inc. and subsidiaries as of December 31, 2001
and for the year then ended, before the reclassification and inclusion of the disclosures discussed in Note 9 to the financial statements, were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated January 29, 2002.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Edgewater Technology, Inc. and
subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the two year period then ended, in conformity with accounting principles generally
accepted in the United States of America.

As
discussed above, the consolidated financial statements for the year ended December 31, 2001, were audited by other auditors who have ceased operations. As described in
Note 9, these consolidated financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets("SFAS 142"), which was adopted by the Company as of January 1, 2002. Our audit procedures with
respect to the disclosures in Note 9 with respect to 2001 included (1) comparing the previously reported income (loss) before
extraordinary item and net income (loss) to the previously issued consolidated financial statements and the adjustments to reported income (loss) before extraordinary item and net income (loss)
representing amortization expense recognized in those periods related to goodwill that is no longer being amortized as a result of initially applying SFAS 142 to the Company's underlying
analysis obtained from management, and (2) testing the mathematical accuracy of the reconciliation of adjusted income (loss) before extraordinary item and net income (loss) to reported income
(loss) before extraordinary item and net loss and the related income (loss) per share amounts. In our opinion, the disclosures for 2001 in Note 9 are appropriate. However, we were not engaged
to audit, review, or apply any procedures to the 2001 consolidated financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any
other form of assurance on the 2001 consolidated financial statements taken as a whole.

/s/
Deloitte & Touche LLP

Boston,
Massachusetts
March 30, 2004

40

---

This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Edgewater Technology, Inc.'s filing of an Annual Report on
Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this Form 10-K. See
Exhibit 23.2 to this Form 10-K for further discussion. The consolidated balance sheets as of December 31, 2001 and 2000 and the consolidated statements of operations,
stockholders' equity and cash flows for the year ended December 31, 2000 referred to in this report have not been included in the accompanying financial statements.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Edgewater Technology, Inc.:

We
have audited the accompanying consolidated balance sheets of Edgewater Technology, Inc. (the "Company", a Delaware corporation) and subsidiaries as of December 31, 2001
and 2000, and the
related consolidated statements of operations, stockholders' equity and cash flows for each of the three years ended December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Edgewater Technology, Inc. and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

/s/
Arthur Andersen LLP

Boston,
Massachusetts
January 29, 2002

41

---



EDGEWATER TECHNOLOGY, INC.        CONSOLIDATED BALANCE SHEETS  (In Thousands, Except Per Share Data)

|                                        |                                                                                                                                                                               | December 31,                               |       
|--------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------
|
|ASSETS                                  |                                                                                                                                                                              
|Current assets:                         |                                                                                                                                                                               |                                            |       
|                                        | Cash and cash equivalents                                                                                                                                                     |                                            | $     
|                                        | Short-term investments                                                                                                                                                        |                                            |       
|                                        | Accounts receivable, net (including related party amounts of $1,853 and $1,900 at December 31, 2003 and 2002, respectively)                                                   |                                            |       
|                                        | Deferred income taxes, net                                                                                                                                                    |                                            |       
|                                        | Income tax refund receivable                                                                                                                                                  |                                            |       
|                                        | Prepaid expenses and other current assets                                                                                                                                     |                                            |       
|                                        |                                                                                                                                                                               |                                            |       
|                                        |                                                                                                                                                                               | Total current assets                       |       
|Property and equipment, net             |                                                                                                                                                                               |                                            | 1,309 
|Intangible assets, net                  |                                                                                                                                                                               |                                            | 13,135
|Deferred income taxes, net              |                                                                                                                                                                               |                                            | 21,628
|Other assets                            |                                                                                                                                                                               |                                            | 45    
|                                        |                                                                                                                                                                               |                                            |       
|                                        |                                                                                                                                                                               | Total assets                               |       
|                                        |                                                                                                                                                                               |                                            |       
|LIABILITIES AND STOCKHOLDERS' EQUITY    |                                                                                                                                                                              
|Current liabilities:                    |                                                                                                                                                                               |                                            |       
|                                        | Accounts payable and accrued liabilities                                                                                                                                      |                                            | $     
|                                        | Accruals related to discontinued operations                                                                                                                                   |                                            |       
|                                        | Current portion of capital lease obligations                                                                                                                                  |                                            |       
|                                        | Accrued payroll and related liabilities                                                                                                                                       |                                            |       
|                                        | Other liabilities                                                                                                                                                             |                                            |       
|                                        | Litigation settlement                                                                                                                                                         |                                            |       
|                                        |                                                                                                                                                                               |                                            |       
|                                        |                                                                                                                                                                               | Total current liabilities                  |       
|Commitments and contingencies (Note 15) |                                                                                                                                                                               |                                            |       
|Stockholders' equity:                   |                                                                                                                                                                               |                                            |       
|                                        | Preferred stock, $0.01 par value; 2,000 shares authorized, no shares issued or outstanding                                                                                    |                                            |       
|                                        | Common stock, $0.01 par value; 48,000 shares authorized, 29,736 and 29,596 shares issued, 11,366 and 11,485 shares outstanding as of December 31, 2003 and 2002, respectively |                                            |       
|                                        | Paid-in capital                                                                                                                                                               |                                            |       
|                                        | Treasury stock, at cost, 18,370 and 18,111 shares at December 31, 2003 and 2002, respectively                                                                                 |                                            |       
|                                        | Deferred stock-based compensation                                                                                                                                             |                                            |       
|                                        | Retained earnings                                                                                                                                                             |                                            |       
|                                        |                                                                                                                                                                               |                                            |       
|                                        |                                                                                                                                                                               | Total stockholders' equity                 |       
|                                        |                                                                                                                                                                               |                                            |       
|                                        |                                                                                                                                                                               | Total liabilities and stockholders' equity |       
|                                        |                                                                                                                                                                               |                                            |       

See
notes to consolidated financial statements.

42

---



EDGEWATER TECHNOLOGY, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS  (In Thousands, Except Per Share Data)

|                                                                                                                         |                                                                                                                                | Years Ended December 31, |       
|------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | ------
|
|Service revenues (including related party amounts of $11,766, $12,300, and $10,600 in 2003, 2002 and 2001, respectively) |                                                                                                                                | $                        | 25,054
|Cost of services                                                                                                         |                                                                                                                                |                          | 13,540
|                                                                                                                         |                                                                                                                                |                          |       
|                                                                                                                         |                                                                                                                                | Gross profit             |       
|Operating expenses:                                                                                                      |                                                                                                                                |                          |       
|                                                                                                                         | Selling, general and administrative                                                                                            |                          |       
|                                                                                                                         | Depreciation and amortization                                                                                                  |                          |       
|                                                                                                                         | Impairment of goodwill                                                                                                         |                          |       
|                                                                                                                         | Restructuring                                                                                                                  |                          |       
|                                                                                                                         |                                                                                                                                |                          |       
|                                                                                                                         |                                                                                                                                | Total operating expenses |       
|                                                                                                                         |                                                                                                                                |                          |       
|                                                                                                                         |                                                                                                                                | Operating income (loss)  |       
|Interest income and other, net                                                                                           |                                                                                                                                |                          | 455   
|                                                                                                                         |                                                                                                                                |                          |       
|Income (loss) before taxes, discontinued operations, extraordinary item and change in accounting principle               |                                                                                                                                |                          | 941   
|Tax (benefit) provision                                                                                                  |                                                                                                                                |                          | (1,053
|                                                                                                                         |                                                                                                                                |                          |       
|                                                                                                                         | Income (loss) from continuing operations before discontinued operations, extraordinary item and change in accounting principle |                          |       
|Discontinued operations:                                                                                                 |                                                                                                                                |                          |       
|                                                                                                                         | Loss from operations of discontinued divisions, net of applicable taxes                                                        |                          |       
|                                                                                                                         | Gain on sale of divisions, net of applicable taxes                                                                             |                          |       
|                                                                                                                         |                                                                                                                                |                          |       
|Income (loss) before extraordinary item and change in accounting principle                                               |                                                                                                                                |                          | 974   
|Extraordinary item, net of applicable taxes                                                                              |                                                                                                                                |                          |      
|Change in accounting principle                                                                                           |                                                                                                                                |                          |      
|                                                                                                                         |                                                                                                                                |                          |       
|                                                                                                                         | Net income (loss)                                                                                                              |                          | $     
|                                                                                                                         |                                                                                                                                |                          |       
|Basic income (loss) per share                                                                                            |                                                                                                                                |                          |       
|                                                                                                                         | Continuing operations                                                                                                          |                          | $     
|                                                                                                                         | Discontinued operations                                                                                                        |                          |       
|                                                                                                                         | Change in accounting principle                                                                                                 |                          |       
|                                                                                                                         |                                                                                                                                |                          |       
|                                                                                                                         | Net income (loss)                                                                                                              |                          | $     
|                                                                                                                         |                                                                                                                                |                          |       
|                                                                                                                         | Weighted average shares, basic                                                                                                 |                          |       
|                                                                                                                         |                                                                                                                                |                          |       
|Diluted income (loss) per share                                                                                          |                                                                                                                                |                          |       
|                                                                                                                         | Continuing operations                                                                                                          |                          | $     
|                                                                                                                         | Discontinued operations                                                                                                        |                          |       
|                                                                                                                         | Change in accounting principle                                                                                                 |                          |       
|                                                                                                                         |                                                                                                                                |                          |       
|                                                                                                                         | Net income (loss)                                                                                                              |                          | $     
|                                                                                                                         |                                                                                                                                |                          |       
|                                                                                                                         | Weighted average shares, diluted                                                                                               |                          |       
|                                                                                                                         |                                                                                                                                |                          |       

See notes to consolidated financial statements.

43

---



EDGEWATER TECHNOLOGY, INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  (In Thousands)

|                           |                                                          | Common Stock |         |   |     |   |   |         |      |   |          |          |  
|-------------------------- | -------------------------------------------------------- | ------------ | ------- | - | --- | - | - | ------- | ---- | - | -------- | -------- | -
|
|
|BALANCE, January 1, 2001   |                                                          | 28,693       |         | $ | 296 |   | $ | 217,838 |      | $ | (6,158   | )        | $
|                           | Issuance of common stock related to employee stock plans |              | 74      |   |     |  |   |         | (507 | ) |          | 767      |  
|                           | Repurchase of common stock                               |              | (923    | ) |     |  |   |         |     |   |          | (3,718   | )
|                           | Tender Offer                                             |              | (16,250 | ) |     |  |   |         | 107  |   |          | (130,807 | )
|                           | Net Income                                               |              |        |   |     |  |   |         |     |   |          |         |  
|                           |                                                          |              |         |   |     |   |   |         |      |   |          |          |  
|BALANCE, December 31, 2001 |                                                          | 11,594       |         |   | 296 |   |   | 217,438 |      |   | (139,916 | )        |  
|                           | Issuance of common stock related to employee stock plans |              | 37      |   |     |  |   |         | (127 | ) |          | 244      |  
|                           | Stock option exercise                                    |              | 4       |   |     |  |   |         | (9   | ) |          | 24       |  
|                           | Repurchase of common stock                               |              | (150    | ) |     |  |   |         |     |   |          | (628     | )
|                           | Net Loss                                                 |              |        |   |     |  |   |         |     |   |          |         |  
|                           |                                                          |              |         |   |     |   |   |         |      |   |          |          |  
|BALANCE, December 31, 2002 |                                                          | 11,485       |         |   | 296 |   |   | 217,302 |      |   | (140,276 | )        |  
|                           | Issuance of common stock related to employee stock plans |              | 24      |   |     |  |   |         | (65  | ) |          | 153      |  
|                           | Stock option exercise                                    |              | 32      |   |     |  |   |         | (80  | ) |          | 208      |  
|                           | Restricted stock-awards                                  |              | 140     |   |     | 1 |   |         |      |   |          |          |  
|                           | Repurchase of common stock                               |              | (315    | ) |     |  |   |         |     |   |          | (1,409   | )
|                           | Deferred stock-based compensation                        |              |        |   |     |  |   |         | 668  |   |          |         |  
|                           | Net Income                                               |              |        |   |     |  |   |         |     |   |          |         |  
|                           |                                                          |              |         |   |     |   |   |         |      |   |          |          |  
|BALANCE, December 31, 2003 |                                                          | 11,366       |         | $ | 297 |   | $ | 217,825 |      | $ | (141,324 | )        | $
|                           |                                                          |              |         |   |     |   |   |         |      |   |          |          |  

See notes to consolidated financial statements.

44

---



EDGEWATER TECHNOLOGY, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS  (In Thousands)

|                                                     |                                                               | Years Ended December 31,                                                                           |                                                             
|---------------------------------------------------- | ------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                               |                                                                                                    |                                                             
|                                                     | Net income (loss)                                             |                                                                                                    | $                                                           
|                                                     | Loss from operations of discontinued divisions                |                                                                                                    |                                                             
|                                                     | Gain on sale of division                                      |                                                                                                    |                                                             
|                                                     | Change in accounting principle                                |                                                                                                    |                                                             
|                                                     | Extraordinary item, net of applicable taxes                   |                                                                                                    |                                                             
|                                                     |                                                               |                                                                                                    |                                                             
|                                                     |                                                               | Net income (loss) from continuing operations                                                       |                                                             
|                                                     |                                                               | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                             
|                                                     |                                                               |                                                                                                    | Depreciation and amortization                               
|                                                     |                                                               |                                                                                                    | Impairment of goodwill                                      
|                                                     |                                                               |                                                                                                    | Provision for bad debts                                     
|                                                     |                                                               |                                                                                                    | Deferred income taxes                                       
|                                                     |                                                               |                                                                                                    | Amortization of deferred stock-based compensation           
|                                                     |                                                               |                                                                                                    | Change in operating accounts, net of effect of dispositions:
|                                                     |                                                               |                                                                                                    |                                                             
|                                                     |                                                               |                                                                                                    |                                                             
|                                                     |                                                               |                                                                                                    |                                                             
|                                                     |                                                               |                                                                                                    |                                                             
|                                                     |                                                               |                                                                                                    |                                                             
|                                                     |                                                               |                                                                                                    |                                                             
|                                                     |                                                               |                                                                                                    |                                                             
|                                                     |                                                               |                                                                                                    |                                                             
|Net cash provided by (used in) operating activities  |                                                               |                                                                                                    | 2,633                                                       
|                                                     |                                                               |                                                                                                    |                                                             
|Net cash (used in) extraordinary item                |                                                               |                                                                                                    |                                                            
|                                                     |                                                               |                                                                                                    |                                                             
|Net cash (used in) discontinued operating activities |                                                               |                                                                                                    | (1,745                                                      
|                                                     |                                                               |                                                                                                    |                                                             
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                               |                                                                                                    |                                                             
|                                                     | Proceeds from sale of businesses                              |                                                                                                    |                                                             
|                                                     | Redemptions of short-term investments                         |                                                                                                    |                                                             
|                                                     | Purchases of short-term investments                           |                                                                                                    |                                                             
|                                                     | Purchases of businesses, net of cash acquired                 |                                                                                                    |                                                             
|                                                     | Purchases of property and equipment                           |                                                                                                    |                                                             
|                                                     |                                                               |                                                                                                    |                                                             
|Net cash (used in) provided by investing activities  |                                                               |                                                                                                    | (914                                                        
|                                                     |                                                               |                                                                                                    |                                                             
|Net cash (used in) discontinued investing activities |                                                               |                                                                                                    |                                                            
|                                                     |                                                               |                                                                                                    |                                                             
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                               |                                                                                                    |                                                             
|                                                     | Payments on borrowings                                        |                                                                                                    |                                                             
|                                                     | Proceeds from employee stock plans and stock option exercises |                                                                                                    |                                                             
|                                                     | Tender offer                                                  |                                                                                                    |                                                             
|                                                     | Repurchases of common stock                                   |                                                                                                    |                                                             
|                                                     |                                                               |                                                                                                    |                                                             
|Net cash (used in) financing activities              |                                                               |                                                                                                    | (1,252                                                      
|                                                     |                                                               |                                                                                                    |                                                             
|Net (decrease) in cash and cash equivalents          |                                                               |                                                                                                    | (1,278                                                      
|CASH AND CASH EQUIVALENTS, beginning of year         |                                                               |                                                                                                    | 29,159                                                      
|                                                     |                                                               |                                                                                                    |                                                             
|CASH AND CASH EQUIVALENTS, end of year               |                                                               | $                                                                                                  | 27,881                                                      
|                                                     |                                                               |                                                                                                    |                                                             
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:   |                                                               |                                                                                                    |                                                             
|Interest paid                                        |                                                               | $                                                                                                  | 2                                                           
|                                                     |                                                               |                                                                                                    |                                                             
|Borrowings on capital lease                          |                                                               | $                                                                                                  |                                                            
|                                                     |                                                               |                                                                                                    |                                                             
|Income taxes paid, net of refunds                    |                                                               | $                                                                                                  |                                                            
|                                                     |                                                               |                                                                                                    |                                                             
|Cash receipts from related parties                   |                                                               | $                                                                                                  | 11,842                                                      
|                                                     |                                                               |                                                                                                    |                                                             
|Cash paid to related parties                         |                                                               | $                                                                                                  | 223                                                         
|                                                     |                                                               |                                                                                                    |                                                             

See notes to consolidated financial statements.

45

---



EDGEWATER TECHNOLOGY, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION AND NATURE OF BUSINESS:

Edgewater Technology is an award-winning consulting firm that specializes in combining strategic consulting, technical knowledge, and industry domain expertise to
develop technology solutions that assist primarily middle-market companies and divisions of Global 2000 companies to align their processes with their purposes. This approach not only promotes
increased efficiency, but also supports increased effectiveness. Targeting strategic, mission-critical applications, our consultants collaborate with customers to translate business goals into
technical strategies. Headquartered in Wakefield, Massachusetts as of December 31, 2003, our Company employs approximately 156 technical consulting professionals throughout our network of
strategically positioned solutions centers.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in
the accompanying consolidated financial statements and notes.

Principles of Consolidation

The consolidated financial statements include the accounts of Edgewater and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in
consolidation.

Use of Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. These accounting
principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues and expenses during the reporting period. These estimates, judgments and assumptions used in preparing the accompanying
consolidated financial statements are based upon management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Although the Company regularly assesses
these estimates, judgments and assumptions used in preparing these consolidated financial statements, actual results could differ from those estimates. Changes in estimates are recorded in the period
in which they become known. Significant assets and liabilities with reported amounts based on estimates include deferred income tax assets, intangible assets, and other liabilities including matters
involving historical payroll tax assessments included in discontinued operations.

Cash and Cash Equivalents

All highly liquid investments with remaining maturities of three months or less at the date of purchase are considered cash equivalents. Cash and cash equivalent
balances consist of deposits, investments in money market funds and repurchase agreements with large U.S. commercial banks.

Short-Term Investments

Our short-term investments have maturity dates of one year or less when acquired and are classified as held-to-maturity
securities, which are recorded at amortized cost and consist of marketable instruments, which include but are not limited to government obligations, including agencies and commercial paper. All
short-term investments that have original maturities greater than three months

46

---

but
less than one year at the date of purchase are considered short-term investments. As of December 31, 2003 and December 31, 2002, we had $14.3 million and
$12.3 million in commercial paper, respectively, and $2.1 million and $5.3 million, in government obligations, including agencies, respectively, and amortized cost approximated
fair value.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, which range from three to ten years (or life of lease, if less). Equipment held under capital leases is amortized utilizing the
straight-line method over the lesser of the estimated useful life of the asset or the term of the lease. Additions that extend the lives of the assets are capitalized, while repairs and
maintenance costs are expensed as incurred.

Impairment of Long-Lived Assets

We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not
be recoverable. Impairment is generally assessed by a comparison of cash flows expected to be generated by an asset to its carrying value, with the exception that after January 1, 2002 goodwill
impairment is assessed by use of a fair value model (see "Intangible Assets"). If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds its fair value.

Intangible Assets

Intangible assets consist primarily of goodwill, customer relationships and amounts paid pursuant to non-compete agreements. Non-compete
agreements are amortized using the straight-line method over the life of the respective agreements. Customer relationships are amortized using the straight-line method over the
estimated remaining life of 7.6 years.

In
June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
Under this statement, goodwill, as well as other intangibles determined to have an indefinite life, are no longer amortized; however, these assets will be reviewed for impairment on an annual basis.
Other identifiable intangible assets will continue to be amortized over their estimated useful lives. This Statement became effective January 1, 2002 and as a result, beginning
January 1, 2002, we ceased amortizing goodwill.

On
January 1, 2002, the Company adopted SFAS No. 142, which requires that goodwill be tested for impairment at the reporting unit level at adoption and at least annually
thereafter, utilizing the "fair
value" methodology. The Company evaluates the fair value of its reporting unit utilizing various valuation techniques. During the first quarter of 2002, as a result of declining industry stock prices,
the Company recognized a transitional impairment loss of $12.5 million as the cumulative effect of a change in accounting principle.

Goodwill
must be tested for impairment on an annual basis and between annual tests in certain circumstances. The Company performed its annual impairment test on December 2, 2003
and 2002, our selected annual measurement date. We recorded a non-cash impairment charge of $7.4 million in the fourth quarter of 2002, primarily as a result of the decline in
industry stock prices for our peer group

47

---

and
lower revenues and operating margins for our Company at that time. As of December, 2003, after receiving an independent third-party valuation appraisal, it was determined that there was no further
impairment. Our net unamortized goodwill as of December 31, 2003 and 2002, was $12.3 million and $10.8 million, respectively. The increase from the prior year was the result of a
current year acquisition. The Company acquired Intelix on June 2, 2003 and recorded, subject to adjustment, $1.4 million in goodwill and $0.5 million in identifiable intangibles,
which are being amortized over 4 to 8 years and is further described in Note 9.

Revenue Recognition

A majority of the Company's contracts are billed on a time and materials basis. Time and materials contracts represented 70.9%, 77.2% and 73.5% of revenues for
the years ended December 31, 2003, 2002 and 2001, respectively. Revenue under time and materials contracts is generally recognized as services are rendered and performed at contractually agreed
upon rates. We also perform level support services on a fixed-fee basis. Fixed-fee services represented 10.3%, 17.2%, and 14.7% for the years ended December 31, 2003,
2002, and 2001, respectively.

Revenue
pursuant to fixed-price contracts is generally recognized under the proportional performance method of accounting. Over the course of a fixed-price contract, we routinely
evaluate whether revenue and profitability should be recognized in the current period. To measure the performance and our ability to recognize revenue and profitability on fixed-price contracts, we
compare actual direct costs incurred to the total estimated direct costs and determine the percentage of the contract that is complete. This percentage is multiplied by the estimated total contract
value to determine the amount of net revenue recognized, subject to any warranty provisions and other holdbacks on revenue. Any warranty provisions included in fixed-price contracts are accounted for
as a holdback of revenue until such provisions are satisfied. A formal project review process takes place quarterly, although most projects are evaluated on an ongoing basis. Management reviews the
estimated total direct costs on each contract to determine if the estimated amounts are reasonable, and estimates are adjusted as needed. Fixed-price contracts represented 18.8%, 5.6%, and 11.8% for
the years ended December 31, 2003, 2002 and 2001, respectively.

Revenues
and earnings may fluctuate from quarter to quarter based on the number, size and scope of projects in which we are engaged, the contractual terms and degree of completion of
such projects, any delays incurred in connection with a project, employee utilization rates, the adequacy of provisions for losses, the use of estimates of resources required to complete ongoing
projects, general economic conditions and other factors. Certain significant estimates include estimates used for fixed-price contracts and the allowance for doubtful accounts. These items are
frequently monitored and analyzed by management for changes in facts and circumstances, which could affect our estimates. Reimbursement of "out-of-pocket" expenses charged to
customers is reflected as revenue.

For
the years ended December 31, 2003, 2002 and 2001, two customers, two customers and one customer, respectively, including Synapse (a related partySee
Note 14), each contributed more than 10% of revenues. For the years ended December 31, 2003, 2002 and 2001, our five largest customers represented 81.7%, 88.0%, and 70.7% of our revenues
in the aggregate, respectively.

For the Year Ended December 31,2003

2002

2001RevenuesSynapse (related partyNote 14)

47.3
%
66.6
%
40.1
%Customer A

21.0
%
13.3
%

%


48

---

Cost of Services

Our cost of services are comprised primarily of project personnel costs, including direct salaries, payroll taxes, employee benefits and travel expenses for
personnel dedicated to customer projects. These costs represent the most significant expense we incur in providing our services.

Interest Income and Other, Net

Interest income and other, net was $0.5 million, $0.8 million, and $2.1 million, for the years ended December 31, 2003, 2002, and
2001, respectively. The following table represents the components of interest income and other, net.

Year Ended December 31,2003

2002

2001(In thousands)Interest income

$
457

$
805

$
2,132Interest expense


(2
)

(28
)

(75
)Other, net








33Interest income and other, net

$
455

$
777

$
2,090


Provision for Taxes

Deferred taxes are provided for differences in the bases of our assets and liabilities for book and tax purposes and for loss and credit carryforwards based on
enacted rates expected to be in effect when these items reverse. A valuation allowance is provided to the extent tax assets are not likely to be recovered. We have recorded a valuation allowance
against our net deferred tax assets of approximately $14.1 million as of December 31, 2003 and 2002, respectively. This valuation allowance was established due to uncertainties related
to the Company's ability to utilize some of its deferred tax assets, primarily consisting of certain net operating losses carried forward and foreign tax credits, before they expire. The Company
considers scheduled reversals of deferred tax liabilities, projected future taxable income, ongoing tax planning strategies and other matters, including the period over which our deferred tax assets
will be recoverable, in assessing the need for and the amount of the valuation allowance. In the event that actual results differ from these estimates or we adjust these estimates in future periods,
an adjustment to the valuation allowance may be recorded, which could materially impact our financial position and net income (loss) in the period of the adjustment. In addition, as a result of a
change in the Internal Revenue Code, our 2002 tax loss will be carried back to 1997, resulting in a refund of previously paid taxes of $1.4 million. This amount was recorded as a benefit in the
fourth quarter of 2003. See Note 10.

Earnings (Loss) Per Share

Basic earnings (loss) per share reflect the weighted-average number of common shares outstanding during each period. Diluted earnings (loss) per share reflect the
impact, when dilutive, of the exercise of options using the treasury stock method.

49

---

Fair Value of Financial Instruments

Edgewater's financial instruments include cash and cash-equivalents, short-term investments, accounts receivable and payable, and debt
obligations. The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair value due to the relatively short-term nature of the
accounts. Management believes that the short-term investments and debt obligations have interest rates which approximate prevailing market rates for instruments with similar
characteristics and, accordingly, that the carrying value for these instruments are reasonable estimates of fair value.

Comprehensive Income (Loss)

There are no elements of comprehensive income (loss) other than net income (loss).

Stock Options

The Company records stock-based compensation awards issued to employees and directors using the intrinsic value method and stock-based compensation awards issued
to non-employees using the fair value method of accounting. Stock-based compensation expense, if any, is recognized on awards of restricted shares or grants of stock options issued to
employees and directors if the purchase price or exercise price, as applicable, is less than the market price of the underlying stock on the measurement date, generally the date of grant. The
differences between accounting for stock-based compensation under the intrinsic value method and the fair value method are shown below, with the fair value estimated on the grant date or award issue
date as applicable. The assumptions used are described in Note 12.

Year Ended December 31,2003

2002

2001(In Thousands, Except Per Share Data)Net income (loss)As reported

$
974

$
(23,459
)
$
1,905Add: Stock-based compensation expense included in reported net income, net of tax


39





Deduct: Stock-based compensation expense determined under fair value based method for all awards, net of tax


(1,310
)

(2,078
)

(48
)Pro forma

$
(297
)
$
(25,537
)
$
1,857Basic and diluted earnings (loss) per shareAs reportedbasic

$
0.09

$
(2.03
)
$
0.15As reporteddiluted

$
0.08

$
(2.03
)
$
0.15Pro formabasic

$
(0.03
)
$
(2.21
)
$
0.14Pro formadiluted

$
(0.03
)
$
(2.21
)
$
0.14


50

---

Segment Information

The Company engages in business activities under one operating segment, which combines strategic consulting, technical knowledge, and industry domain expertise to
develop custom technology solutions.

Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements" (FIN 46). FIN 46 establishes accounting guidance for consolidation of variable interest entities that function to support the activities of
the primary beneficiary. FIN 46 applies to any business enterprise, both public and private, that has a controlling interest, contractual relationship or other business relationship with a variable
interest entity. The Company does not have any investments in or contractual relationships or
other business relationships with any variable interest entity and therefore the adoption did not have any impact on the Company's consolidated financial position or results of operations.

In
April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (SFAS 149). This statement is intended to
result in more consistent reporting of contracts as either freestanding derivative instruments subject to SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133) in its entirety, or as hybrid instruments with debt host contracts and embedded derivative features. In addition, SFAS 149 clarifies the definition of a derivative by
providing guidance on the meaning of initial net investments related to derivatives. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. Adoption of
SFAS 149 did not have a material effect on the Company's consolidated financial position, results of operations or cash flows.

In
May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" (SFAS 150).
SFAS 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and
equity. SFAS 150 represents a significant change in practice in the accounting for a number of financial instruments, including mandatorily redeemable equity instruments and certain equity
derivatives that frequently are used in connection with share repurchase programs. The Company does not use such instruments in its share repurchase program. SFAS 150 is effective for all
financial instruments created or modified after May 31, 2003. Adoption of SFAS 150 did not have a material effect on the Company's consolidated financial position, results of operations
or cash flows.

On
December 17, 2003, the Staff of the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition, which
supersedes SAB 101, Revenue Recognition in Financial Statements. SAB 104's primary purpose is to rescind the accounting guidance contained in SAB 101 related to multiple-element
revenue arrangements that was superseded as a result of the issuance of EITF Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. Additionally,
SAB 104 rescinds the SEC's related Revenue Recognition in Financial Statements Frequently Asked Questions and Answers issued with SAB 101 that had been codified in SEC Topic 13,
Revenue Recognition. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely
unchanged by the

51

---

issuance
of SAB 104, which was effective upon issuance. We adopted the provisions of SAB 104 in the fourth quarter of 2003. Our adoption of SAB 104 did not have a material
effect on our financial position or results of operations.

3.    BUSINESS COMBINATION:

On June 2, 2003, the Company acquired all of the outstanding common stock of Intelix, Inc. ("Intelix"), a provider of systems integration and custom
software development services located in Fairfax, Virginia. The results of Intelix's operations have been included in the Company's accompanying consolidated statement of operations since the
acquisition date. Revenue generated by Intelix subsequent to the acquisition, during the year ended December 31, 2003 was $2.1 million. The acquisition was made to enhance Edgewater's
geographical presence and will provide additional vertical expertise in the telecommunications and real estate industries. The aggregate purchase price was $2.7 million, including cash paid to
the Intelix stockholders of $0.9 million, assumed liabilities with an estimated fair value in the amount of $1.5 million, and direct costs incurred of $0.3 million.

The
stockholders of Intelix were eligible for an additional cash payment in the first quarter of 2004, based upon a formula applied to earnings of the Intelix business for the
twelve-month period ended December 31, 2003. No earnout was achieved during 2003 and therefore no payments were made under the earnout.

Related
to the purchase of Intelix, the Company recorded $1.4 million in goodwill and $0.5 million in identifiable intangible assets, all in accordance with SFAS
No. 141. The identifiable intangible assets were determined by a third party appraiser and are being amortized on the straight-line basis over their estimated useful lives (4 to
8 years). The goodwill is an indefinite lived asset in accordance with SFAS No. 142 and is subject to periodic review for impairment. This goodwill is not deductible for tax purposes.

4.    DISCONTINUED OPERATIONS:

During the first quarter of 1999, market values for publicly-traded staffing companies began to decline. At that time, the Company (Edgewater
Technology, Inc. and its subsidiaries, formerly StaffMark, Inc.) was engaged in the temporary and permanent placement and staffing services businesses. For many staffing companies, this
downward trend subsequently continued or deteriorated further and was compounded by a Year 2000-related slowdown in demand for IT staffing. These circumstances contributed to depressed
market valuations for publicly-traded staffing entities.

In
response to these developments, the Company began to explore, during the second half of 1999, strategic alternatives for each of its staffing business platforms in an effort to
maximize stockholder value. After evaluating our traditional businesses, our systems integration and consulting business and our debt levels, management and the Board of Directors decided to undergo a
comprehensive program to refocus future growth initiatives on our systems integration and consulting business, Edgewater Delaware, and to effect the following divestitures of each of our staffing
businesses.

The
following disposition transactions and other matters are complete:



52

---



As
a result of the completion of the transactions described above, the operating results for Staffmark, Robert Walters, Strategic Legal, IntelliMark and ClinForce have been included in
discontinued operations in the accompanying consolidated financial statements. Revenues from discontinued operations were $7.7 million for 2001. Operating (loss) from discontinued operations
for

53

---

2003
was ($1.0) million, which did not have any tax effect. Operating (loss) income, from discontinued operations was ($1.0) million and $1.6 million and for 2002 and 2001, respectively, which
amounts were tax effected. The Company provided an accrual for certain tax assessments and professional fees related to discontinued businesses in 2003. The Company settled a lawsuit related to a
business previously recorded as a discontinued operation and accrued $950,000 toward the settlement in 2002. See Note 15. Included in the loss from operations of discontinued divisions for the
year ended December 31, 2001 are the operating results of ClinForce through the date of disposal and changes to the estimated liabilities related to discontinued operations as of
December 31, 2000.

Related
to the above transactions, the Company has received certain payroll tax assessments related to our former staffing businesses, which were sold in 2000 and 2001, and related civil
penalties concerning the purported untimely filing of tax information. Between the filing of our quarterly report on Form 10-Q for the quarter ended September 30, 2003 and
March of 2004, we have been successful in obtaining abatements of certain IRS notices. We continue to dispute additional unresolved IRS assessments, presently approximating a range of
$0.8 million to $1.6. We recorded in 2003 a reserve of $1.0 million representing the low end of such estimate, plus related professional fees.

5.    RESTRUCTURING:

In February 2002, due to the economic climate that postponed or delayed spending for information technology services, Edgewater announced that it was
undertaking cost-cutting measures by realigning its workforce. Edgewater reduced its overall headcount by 38 employees, or 19% of its total workforce. The Company recorded a restructuring
charge in the first quarter of 2002 of $349,000, which consisted primarily of severance and similar employee termination expenses. As of December 31, 2002, all accrued restructuring amounts
were paid.

6.    EXTRAORDINARY ITEM:

On December 26, 2000, a tragedy occurred at our Wakefield, Massachusetts office, where seven employees were murdered. We incurred expenses totaling
approximately $1.0 million, for items such as legal fees, charitable foundation costs, family and employee counselors, and property and facility expenses. These costs are presented as an
extraordinary item, net of insurance proceeds and the applicable tax effect, in the accompanying consolidated statements of operations. For the year ended December 31, 2001, amounts recorded as
extraordinary item represent additional accruals, net of insurance proceeds, and the applicable income tax effect.

54

---



7.    ACCOUNTS RECEIVABLE:

Included in accounts receivable are unbilled amounts totaling approximately $1.6 million and $1.3 million at December 31, 2003 and 2002,
respectively, which relate to services performed during the year and billed in the subsequent period. Edgewater maintains allowances for potential losses which management believes are adequate to
absorb any possible losses to be incurred in realizing the amounts recorded in the accompanying consolidated financial statements.

The
following are the changes in the allowance for doubtful accounts:

Year Ended December 31,2003

2002

2001(In Thousands)Balance at beginning of year

$
136

$
481

$
35Provisions for bad debts


101


178


548Charge-offs, net of recoveries


(17
)

(523
)

(102
)Balance at end of year

$
220

$
136

$
481


8.    PROPERTY AND EQUIPMENT:

Components of property and equipment consisted of the following as of December 31:

2003

2002(In Thousands)Furniture, fixtures and equipment

$
1,090

$
1,098Computer equipment and software


1,826


1,628Leasehold improvements


1,267


1,1984,183


3,924Less accumulated depreciation and amortization


2,874


2,318$
1,309

$
1,606


Depreciation
expense related to property and equipment for the years ended December 31, 2003, 2002 and 2001 totaled approximately $0.6 million, $0.7 million, and
$0.8 million, respectively. All capital leases were repaid during 2003, as such there was no equipment under capital leases at December 31, 2003. As of December 31, 2002, cost of
equipment under capital leases was $0.8 million, and related accumulated depreciation was $0.7 million, respectively.

55

---

9.    INTANGIBLE ASSETS:

Intangible assets consisted of the following as of December 31:

2003

2002(In Thousands)Goodwill

$
21,358

$
19,987Other intangibles


2,160


1,63023,518


21,617Less accumulated amortization


10,383


10,003$
13,135

$
11,614


Our
goodwill balance increased approximately $1.4 million from $20.0 million in 2002 due to the current year acquisition of Intelix, Inc. The Company acquired
Intelix on June 2, 2003 and recorded, subject to
adjustment, $1.4 million in goodwill and $0.5 million in identifiable intangibles, which are being amortized over 4-8 years and is further described in Note 2.
Amortization expense related to intangible assets for the years ended December 31, 2003, 2002 and 2001 totaled approximately $0.4 million, $0.3 million, and $4.6 million,
respectively. In accordance with SFAS No. 142, the Company ceased amortizing goodwill effective January 1, 2002. Goodwill amortization was $4.3 million for 2001 and other
intangible amortization was $0.3 million.

10.    INCOME TAXES:

The provision for income taxes consisted of the following for the years ended December 31:

2003

2002

2001(In Thousands)Current tax expense (benefit):Federal

$
(1,541
)
$


$
4,175State


(27
)




300Foreign








(1,568
)




4,475Deferred tax expense (benefit):Federal


414


355


(157
)State


101


(753
)

(25
)Change in valuation allowance





398


Foreign








515





(182
)Income tax (benefit) provision


(1,053
)




4,293Amounts attributable to discontinued operations








3,700Income tax provision from continuing operations

$
(1,053
)
$


$
593


56

---

The
components of deferred income tax assets and liabilities as of December 31, 2003 and 2002 were as follows:

2003

2002(In Thousands)Deferred income tax assets:Net operating loss carryforward and credits

$
35,873

$
35,737Nondeductible reserves and accruals


547


1,292Depreciation and amortization


100


78Total deferred income tax assets


36,520


37,107Deferred income tax liabilitiesOther


(292
)

(105
)Total deferred income tax liabilities


(292
)

(105
)Valuation allowance


(14,053
)

(14,118
)Deferred income tax, net

$
22,175

$
22,884


Components
of the net deferred tax assets (liabilities) reported in the accompanying consolidated balance sheets were as follows as of December 31, 2003 and 2002:

2003

2002Current

Long-term

Current

Long-term(In Thousands)Assets

$
547

$
21,920

$
1,228

$
21,757Liabilities





(292
)

(101
)

$
547

$
21,628

$
1,127

$
21,757


As
of December 31, 2003, Edgewater has net operating loss carryforwards for federal income tax purposes of approximately $61.7 million and tax credits of approximately
$5.0 million, which expire through 2021. In addition, Edgewater has various net operating loss carryforwards for state income tax purposes, which expire through 2013. The Internal Revenue Code
contains provisions that limit the net operating loss and tax credit carryforwards available to be used in any given year in the event of certain circumstances, including significant changes in
ownership interests.

Due
to the uncertainty surrounding the realization and timing of the deferred tax assets, Edgewater has a valuation allowance of approximately $14.1 million as of
December 31, 2003 and 2002, respectively, which reduces the net assets to amounts management believes are more likely than not to be realized. Management regularly evaluates the realizability
of the deferred tax assets and may adjust the valuation allowance based on such analysis in the future. The valuation allowance decreased by approximately $0.07 million in 2003 and increased by
approximately $0.4 million in 2002 primarily due to management's estimates of the Company's ability to realize certain recorded deferred tax assets.

The
differences in income taxes determined by applying the statutory federal tax rate of 34% to income from continuing operations before income taxes and the amounts recorded in the
accompanying

57

---

consolidated
statements of operations for the years ended December 31, 2003, 2002 and 2001 result from the following:

|                                     |                                                                                               | 2003                                                        |        | 2002 |        | 2001 |     
|------------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------ | ---- | ------ | ---- | ----
|
|
|Income tax benefit at statutory rate |                                                                                               | $                                                           | 303    |      | 34.0   | %    | $   
|                                     | Add (deduct):                                                                                 |                                                             |        |      |        |      |     
|                                     |                                                                                               | State income taxes, net of federal tax benefit              |        |      | 73     |      | 6.0 
|                                     |                                                                                               | Net operating loss carryback claim                          |        |      | (1,430 | )    | (152
|                                     |                                                                                               | Non-deductible goodwill impairment charges and amortization |        |      |       |      |    
|                                     | Provision of valuation allowance against currently generated net operating loss carryforwards |                                                             |        |     |        |     |     
|                                     | Other, net                                                                                    |                                                             |        | 1    |        |     |     
|                                     |                                                                                               |                                                             |        |      |        |      |     
|                                     |                                                                                               | $                                                           | (1,053 | )    | (112   | )%   | $   
|                                     |                                                                                               |                                                             |        |      |        |      |     

11.    EMPLOYEE BENEFIT PLANS:

The Company has a 401(k) tax deferred savings plan that is available to all employees who satisfy certain minimum hour requirements each year (the "Plan"). The
Company matches thirty percent (30%) of each participant's annual contribution under the Plan, up to six percent (6%) of each participant's annual base salary. Contributions by Edgewater to the plan
were approximately $0.2 million, $0.2 million, and $0.2 million for the years ended December 31, 2003, 2002 and 2001, respectively.

58

---



12.    COMMON STOCK, STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN:

Common Stock

The Company's stockholders had authorized 48 million and 200 million shares of common stock available for issuance as of December 31, 2003
and 2002, respectively, and had 2 million and 10 million shares of preferred stock for issuance as of December 31, 2003 and 2002, respectively. In January 2001, the Company
completed a tender offer in which the Company repurchased 16.25 million shares of its common stock at $8.00 per share for aggregate consideration of $130 million, excluding fees and
expenses. The repurchase of options resulted in a $0.2 million compensation charge in January 2001.

Stockholder Rights Plan

The Company has a stockholder rights plan, commonly referred to as a "poison pill", that may discourage an attempt to obtain control by means of a tender offer,
merger, proxy contest or otherwise. Under this plan, our Board of Directors can issue preferred stock in one or more series without stockholder action. If a person acquires 20% or more of our
outstanding shares of common stock, except for certain institutional stockholders, who may acquire up to 25% of our outstanding shares of common stock, then rights under this plan would be triggered,
which would significantly dilute the voting rights of any such acquiring person. Certain provisions of the General Corporation Law of Delaware may also discourage someone from acquiring or merging
with us. No preferred stock has been issued as of December 31, 2003.

2003 Equity Incentive Plan

In May 2003, the Company's Board of Directors approved the "Edgewater Technology, Inc. 2003 Equity Incentive Plan" (the "2003 Plan") for the purpose
of attracting and retaining employees and providing a vehicle to increase management's equity ownership in the Company. The 2003 Plan provides for restricted share awards and grants of nonqualified
stock options in the aggregate of up to 500,000 shares of the Company's common stock. In May 2003, the Company's Compensation Committee authorized restricted share awards to certain executives
of the Company under the 2003 Plan aggregating 140,000 shares of the Company's common stock (the "Restricted Share Awards"). The aggregate deferred compensation expense associated with the Restricted
Share Awards is approximately $0.7 million, which compensation expense amount is being amortized straight-line over the vesting term (five years). Compensation expense relating to
the Restricted Share Awards during the year ended December 31, 2003 amounted to $0.1 million.

Stock Options

In October 1999, the Company's Board of Directors amended the Company's 1996 Stock Option Plan (the "1996 Plan") to increase the maximum number of shares
of the Company's common stock that may be issued under the 1996 Plan from 12% to 15% of the total number of shares of the Company's common stock outstanding. Options granted under the 1996 Plan
generally become 33% vested after one year and then vest 33% in each of the next two years or become 40% vested after two years and then vest 20% in each of the next three years. Under the 1996 Plan,
the exercise price of the option equals the market value of the Company's common stock on the date of the grant, and the maximum term for each option is 10 years.

In
February 2000, the Company adopted a subsidiary stock option plan (the "Subsidiary Plan") for employees and consultants of Edgewater Delaware. The purpose of the Subsidiary
Plan was to aid

59

---

Edgewater
Technology in attracting and retaining employees. The total amount of subsidiary common stock for which stock options could be granted under the Subsidiary Plan could not exceed
5.0 million shares of subsidiary common stock. In August 2000, the Subsidiary Plan was terminated and options for 2.9 million shares of the Company's subsidiary stock that had
been granted under this Subsidiary Plan were exchanged into options for 1.8 million shares of the Company's common stock under a newly created parent company stock option plan, currently
entitled the "Edgewater Technology, Inc., Amended and Restated 2000 Stock Option Plan" (the "2000 Plan") and into options for 1.1 million shares under the 1996 Plan, for an aggregate of
2.9 million shares underlying options. The fair market value of the subsidiary's stock did not change for the period of granting of the options to the exchange date. The Subsidiary Plan had no
other activity other than the granting of the aforementioned options for 2.9 million shares of the subsidiary common stock and there were no exercises or forfeitures of options between grant
and conversion in August, 2000. Grants of stock options under the 2000 Plan may not exceed 4.0 million shares of the Company's common stock. As a result of this exchange, the Company recorded a
one-time compensation charge of $0.2 million. In 2002, the Company amended the 2000 Plan to include grants of stock options to directors and officers.

A
summary of stock option activity under the 1996 Plan, 2000 Plan and 2003 Plan is as follows:

Shares Under Option

Weighted Average Price Per ShareOutstanding, January 1, 2001

5,645,646

$
8.89Granted

60,917


4.51Exercised

(80,824
)

5.51Forfeited

(2,175,146
)

12.20Outstanding, December 31, 2001

3,450,593


6.78Granted

991,170


3.83Exercised

(3,667
)

4.00Forfeited

(609,586
)

6.14Outstanding, December 31, 2002

3,828,510


6.09Granted

905,900


3.76Exercised

(32,119
)

4.01Forfeited

(181,769
)

5.73Outstanding, December 31, 2003

4,520,522

$
5.77


Options
exercisable were approximately 3.2 million, 2.2 million and 1.4 million as of December 31, 2003, 2002 and 2001, respectively. The weighted average
exercise price of these options was $6.46, $6.97

60

---

and
$7.69 per share as of December 31, 2003, 2002 and 2001, respectively. The following is a summary of stock options outstanding and exercisable as of December 31, 2003:

Options Outstanding

Options ExercisableNumber of
Options
Outstanding

Range of
Exercise
Prices

Weighted
Average
Remaining
Life in
Years

Weighted
Average
Exercise
Price
Per Share

Number of
Options
Exercisable

Weighted
Average
Exercise
Price
Per Share1,702,361

$
3.72$5.07

8.6

$
4.04

434,953

$
4.002,471,994


5.146.25

6.6


6.10

2,407,977


6.13179,200


6.878.63

3.4


8.00

179,160


8.0081,600


9.8112.90

3.8


11.26

76,400


11.3666,327


16.0018.84

3.7


17.48

66,327


17.4819,040


30.4633.61

4.4


31.81

19,040


31.814,520,522




7.1

$
5.77

3,183,857

$
6.46


On
March 16, 2001, 1.5 million options outstanding under the 1996 Plan vested 100% upon the closing of the ClinForce Transaction as this constituted a "change in control"
as defined in the 1996 Plan. Former employees of the Company's commercial segment and IntelliMark division held approximately 1.4 million of these outstanding options, which terminated on
April 16, 2001, which was 30 days following the ClinForce Transaction. Former employees of ClinForce held approximately 0.1 million of these outstanding options, which terminated
on June 14, 2001, which was 90 days following the ClinForce Transaction.

As
discussed in Note 2, the Company has elected to account for its stock options using the intrinsic method. Accordingly, compensation expense, if any, is recognized on awards of
restricted shares or grants of stock options issued to employees and directors if the purchase price or exercise price, as applicable, is less than the market price of the underlying stock on the
measurement date, generally the date of grant. Pursuant to the requirements of SFAS No. 123, Note 2 includes disclosures to reflect the Company's pro forma net (loss) income for the
years ended December 31, 2003, 2002 and 2001, as if the fair value method of accounting prescribed by SFAS No. 123 had been used. In preparing the pro forma disclosures, the fair value
was estimated on the grant date using the Black-Scholes option-pricing model. These fair value calculations were based on the following assumptions:

For the Year Ended December 31,2003

2002

2001Weighted average risk-free interest rate

3.25
%
2.82
%
4.40
%Dividend yield

0
%
0
%
0
%Weighted average expected life

5 years

4 years

5 yearsExpected volatility

68
%
74
%
75
%


Using
these assumptions, the fair value of the stock options granted during the years ended December 31, 2003, 2002 and 2001 was approximately $2.5 million,
$2.0 million and $0.2 million, respectively. The weighted average fair value per share of options granted during 2003, 2002 and 2001 was $2.40, $2.06, and $2.94. Had compensation expense
been determined consistent with SFAS No. 123,

61

---

utilizing
the assumptions above and recognizing this expense over the vesting period, net (loss) income would have been different. See Note 2.

Employee Stock Purchase Plan

The Company has an employee stock purchase plan entitled the Edgewater Technology, Inc. 1999 Employee Stock Purchase Plan (the "1999 ESPP") that allows for
employee stock purchases of the Company's common stock at the lower of 85% of the stock price as of the first or last trading day of each quarter. Purchases under the 1999 ESPP are limited to 10% of
the respective employee's annual compensation. The 1999 ESPP authorizes purchases for up to 700,000 shares of the Company's common stock and continues in effect until October 1, 2009 or until
earlier terminated. As of December 31, 2002, there were 366,100, shares of common stock remaining for purchase under the ESPP. During fiscal 2003, 2002 and 2001, we issued 23,537, 37,561 and
73,156 shares, respectively, under the 1999 ESPP.

13.    EARNINGS PER SHARE:

Stock options for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on earnings per share, and
accordingly, are excluded from the diluted computations for the 2003 and 2002 periods presented. Had such shares been included, shares for the
diluted computation would have increased by approximately 2.8 million and 0.1 million for the year ended December 31, 2003 and 2002, respectively.

14.    RELATED PARTY TRANSACTIONS:

Synapse, one of our significant customers, is considered a related party as its President and Chief Executive Officer is also a member of the Company's Board of
Directors. Revenues, receivables and payments received from Synapse are disclosed in the accompanying consolidated financial statements, which balances were within the Company's normal business terms.

In
1999, the Company entered into a lease agreement with a stockholder, who was a former officer and director of the Company, to lease certain parcels of land and buildings in
Fayetteville, Arkansas for its former corporate headquarters. Rent payments related to these facilities totaled approximately $0.2 million, $0.2 million and $0.2 million for the
years ended December 31, 2003, 2002 and 2001, respectively. Future related party lease obligations relate to this lease agreement. The Company's corporate headquarters moved to Wakefield,
Massachusetts during 2001, and the Company subleased the Fayetteville facility to a third party in 2002.

15.    COMMITMENTS AND CONTINGENCIES:

We are sometimes a party to litigation incidental to our business. We believe that these routine legal proceedings will not have a material adverse effect on our
financial position. We maintain insurance in amounts with coverages and deductibles that we believe are reasonable.

On
February 11, 2003, our Company entered into a mutual Settlement and Release Agreement with the Stephens Group, Inc., Staffmark Investment, LLC, a majority-owned
subsidiary of Stephens Group, Inc. and its subsidiaries (collectively, the "Stephens Group"), to terminate, dismiss and retain

62

---

intact
our Company's favorable summary judgment ruling with respect to a litigation matter in Delaware Superior Court. In addition to the mutual releases, the mutual Settlement and Release Agreement
required our Company to pay $950,000 to the Stephens Group. The parties agreed that the existence of the settlement agreement and all of its terms, including any payment, were not evidence of any
wrongdoing or liability related to the sale of our Company's commercial staffing business in June 2000. The settlement amount of $950,000 was charged to discontinued operations in the 2002
statement of operations and such amount was subsequently paid in February 2003.

During
the second quarter of 2002, our Company was notified by the Internal Revenue Service (the "IRS") that it would be auditing our consolidated income tax returns for the 1998, 1999
and 2000 fiscal years. Our Company has responded to various IRS information requests by delivering documents and answering questions. For the period of the fiscal years covered by the audit, we owned
staffing-related businesses, which were sold during the 2000 and 2001 fiscal years. The results of the IRS audit could have an impact on our deferred tax asset, however as of the date of the filing of
this Form 10-K, we do not believe any such impact would be material to our financial position.

We
have received and may continue to receive various tax notices and assessments from the IRS related to our former staffing businesses, which were sold in 2000 and 2001, and related
civil penalties concerning the purported untimely filing of tax information. Between the filing of our quarterly report on Form 10-Q for the quarter ended September 30, 2003
and March of 2004, we have been successful in obtaining abatements of certain IRS notices. We continue to dispute additional unresolved IRS assessments presently approximating a range of
$0.8 million to $1.6 million. We recorded in 2003 a reserve of $1.0 million representing the low end of such estimate, plus related professional fees. See also Note 4.

16.    LEASE COMMITMENTS:

Edgewater leases office space and certain equipment under operating leases through 2013. As discussed in Note 14, certain of these facilities are leased
from related parties. Annual future minimum payments required under operating leases, excluding sublease rentals, that have an initial or remaining lease term in excess of one year are as follows:

Fiscal Years

Amount(In thousands)2004

$
1,1492005


1,0372006


8812007


7262008


726Thereafter


2,748$
7,267


Rent
payments, including amounts paid to related parties for discontinued operations, was approximately $1.1 million, $1.2 million and $1.3 million
for the years ended December 31, 2003, 2002 and 2001, respectively. The Company entered into a sublease agreement on July 1, 2002 with a third party to occupy our Fayetteville office
facility. The sublease commenced on July 15, 2002 and will end on June 30, 2007. Under the sublease agreement, the sub-tenant shall pay base rent to Edgewater in the amounts
of $0.2 million for the years 2003, 2004, 2005 and 2006 and will pay $0.1 million in 2007.

The
Company also had capital leases which expired in 2003.

63

---

17.    SIGNIFICANT CUSTOMERS:

The following table summarizes the revenue and accounts receivable from customers in excess of 10% of reported amounts for the periods presented.

For the Year Ended December 31,2003

2002

2001RevenuesSynapse (related partyNote 14)

47.3
%
66.6
%
40.1
%Customer A

21.0
%
13.3
%

%


December 31,2003

2002Accounts ReceivableSynapse (related partyNote 14)

53.2
%
73.8
%Customer B

10.3
%
10.1
%


64

---



Unaudited Supplementary Quarterly Financial Information
(In Thousands, Except Per Share Data)

The net (loss) income and earnings per share amounts below include results from discontinued operations.

|                                                                  |  | 2003
|----------------------------------------------------------------- |  | ----
|
|Service revenues                                                  |  | $   
|Gross profit                                                      |  |     
|Income before discontinued operations                             |  |     
|Net income                                                        |  |     
|Basic and diluted income per share before discontinued operations |  | $   
|Basic and diluted income per share                                |  | $   

|                                                                                |  | 2002 |        
|------------------------------------------------------------------------------- |  | ---- | -------
|
|Service revenues                                                                |  | $    | 4,582  
|Gross profit                                                                    |  |      | 1,177  
|Income before discontinued operations                                           |  |      | (1,459 
|Income (loss) before change in accounting principle                             |  |      | (1,459 
|Net income (loss)                                                               |  |      | (13,910
|Basic and diluted income (loss) per share before change in accounting principle |  | ($   | 0.12   
|Basic and diluted income (loss) per share                                       |  | ($   | 1.20   

---

65

---

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

None.

ITEM 9a.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

General.As of December 31, 2003 (the "Evaluation Date"), the Company evaluated the effectiveness of our "disclosure
controls and procedures" ("Disclosure Controls") and the Company's "internal controls and procedures for financial reporting" ("Internal Controls"). This evaluation (the "Controls Evaluation") was
carried out by the Company's disclosure controls and procedures committee under the supervision and with the participation of management, including our President and Chief Executive Officer ("the
CEO") and Chief Financial Officer ("the CFO"). Rules adopted by the SEC require that in this section of this report, that the Company present the conclusions of the CEO and the CFO about the
effectiveness of our Disclosure Controls and Internal Controls as of the Evaluation Date.

CEO and CFO Certifications.Appearing as exhibits 31.1 and 31.2 to this Annual Report there are two separate forms of
"Certifications" of the CEO and the CFO. These Certifications are required under Rule 13a-14(a) of the Exchange Act (the "13a-14 Certifications"). This section of this
report, which you are currently reading, is the information concerning the Controls Evaluation referred to in the 13a-14 Certifications and this information should be read in conjunction
with the 13a-14 Certifications for a more complete understanding of the topics presented. In addition to the 13a-14 Certifications, a certification of the CEO and the CFO under
18 USC § 1350 is included as Exhibit 32 of this Annual Report. The 1350 Certification requires the CEO and the CFO to certify to the best of their knowledge that this Quarterly
Report complies with Section 13(a) or 15(d) of the Exchange Act (as defined below) and that such Annual Report fairly presents, in all material respects, the financial condition of the Company
at the end of the period covered by this Annual Report. You are referenced to this certification for more information regarding the 1350 Certification.

Disclosure Controls and Internal Controls.Disclosure Controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), such as this report, is recorded, processed,
summarized and reported within the time periods specified in the SEC rules. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated
to our management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosure. Internal Controls are procedures which are designed with the objective of
providing reasonable assurance that: (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions
are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles. However, any control system, no matter how
well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Scope of the Controls Evaluation.The CEO's and the CFO's evaluation of our Disclosure Controls and our Internal Controls
included a review of the controls' objectives and design, the controls' implementation by the Company and the effect of the controls on the information generated for use in this report. This type of
evaluation will be done on a quarterly basis so that the conclusions concerning controls effectiveness can be reported in our Quarterly and Annual Reports. Our Internal Controls are also evaluated on
an ongoing basis by other personnel in our finance and accounting department.

66

---

Among
other matters, the Company sought in our evaluation to determine whether there were any "significant deficiencies" or "material weaknesses" in our Internal Controls, or whether the
Company had identified any acts of fraud involving personnel who have a significant role in our Internal Controls. This information was important both for the Controls Evaluation generally and because
the 13a-14 Certifications require that the CEO and the CFO disclose that information to our Board's Audit Committee and to our independent auditors. In the professional auditing
literature, "significant deficiencies" are control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in the financial
statements. A "material weakness" is defined in the auditing literature as a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk
that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employees in the normal
course of performing their assigned functions.

Changes in Internal Controls.There were no significant changes in our Internal Controls or in other factors that could
significantly affect these controls subsequent to the date of the Evaluation Date, nor were there any significant deficiencies or material weaknesses in our Internal Controls. Accordingly, no
corrective actions were required or undertaken.

Conclusions.Based on the Controls Evaluation, as described above, the CEO and the CFO have concluded that as of the
Evaluation Date, the Company's Disclosure Controls and Internal Controls were adequate, effective and designed to ensure that material information relating to the Company and our consolidated
subsidiaries was made known to them by others within those entities, particularly during the period when the Company's periodic reports are being prepared.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by Part III of Form 10-K is omitted from this report because we will file a definitive proxy statement in
accordance with Regulation 14A of the SEC's rules on or before April 30, 2004.



ITEM 11.    EXECUTIVE COMPENSATION

The information called for by Item 11 of Form 10-K for management remuneration involving Item 402 of Regulation S-K is
incorporated herein by reference to the material under the caption "Compensation of Outside Directors and the Named Executive Officers" in our proxy statement for our Annual Meeting of Stockholders to
be held on June 2, 2004.

67

---

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

The information called for by Item 12 of Form 10-K involving Item 201 (d) of Regulation S-K and Item 403 of
Regulation S-K for the securities authorized under equity compensation plans and security ownership of certain beneficial owners and management, respectively, is incorporated herein
by reference to the material under the caption "Compensation of Outside Directors and the Named Executive OfficersEquity Compensation Plans" and "Stock OwnershipBeneficial
Ownership of Certain Stockholders, Directors and Executive Officers", respectively, in our proxy statement for our Annual Meeting of Stockholders to be held on June 2, 2004.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by Item 13 of Form 10-K involving Item 404 of Regulation S-K is incorporated herein by reference
to the material under the caption "Certain Transactions" in our proxy statement for our Annual Meeting of Stockholders to be held on June 2, 2004.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information in the 2004 Proxy Statement set forth under the captions "Audit and Non-Audit Fees" and "Policy on Audit Committee
Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Auditor" is incorporated herein by reference.

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



68

---







EXHIBIT INDEX

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Membership Interest Purchase Agreement dated as of January 9, 1998, by and among the Company, Elihu Gordis, Jay Horowitz, Eugene Greene and Kristin Vickery (Incorporated by reference from Exhibit 2.1 to the Company's
Report on Form 8-K filed with the SEC on January 23, 1998 and as amended by Form 8-K/A as filed with the SEC on March 16, 1998).                                                                          
|2.2            |  | Asset Purchase Agreement dated as of June 5, 1998, by and among the Company, Staffmark Acquisition Corporation Twenty-Four, Staffmark Acquisition Corporation Twenty-Five, Progressive Resources, Inc., Progressive Personnel Resources,
 Inc. Strategic Computer Resources, LLC and Progressive Personnel Resources of New Jersey, Inc. (Incorporated by reference to the Company's Form 8-K filed with the SEC on June 19, 1998).
|2.3            |  | Merger Agreement dated as of August 18, 1998, by and among the Company, PFS&C Services International Holding Company, Inc. and Robert Walters plc (Incorporated by reference to the Company's Definitive Proxy Statement filed with the
SEC on September 25, 1998).                                                                                                                                                                
|2.4            |  | Purchase Agreement dated as of May 16, 2000, by and between the Company and Stephens Group, Inc. (Incorporated by reference from Exhibit 2.1 to the Company's Form 8-K filed with the SEC on July 14, 2000).                                                                                                                                                                                                                       
|2.5            |  | Sponsorship and Underwriting Agreement dated as of July 6, 2000, by and among Credit Suisse First Boston (Europe) Limited, West LB Panmure Limited, Charthouse Securities Limited, RW Holding CV, FAIT LLC, Robert Walters plc and the
Directors of Robert Walters plc (Incorporated by reference from Exhibit 2.1 to the Company's Form 8-K filed with the SEC on July 26, 2000).                                                 
|2.6            |  | Deed of Guarantee dated as of July 6, 2000, by and among the Company, Credit Suisse First Boston (Europe) Limited, Charthouse Securities Limited, Robert Walters plc and the Directors of Robert Walters plc (Incorporated by reference from
Exhibit 2.2 to the Company's Form 8-K filed with the SEC on July 26, 2000).                                                                                                           
|2.7            |  | Stock Purchase Agreement dated as of November 16, 2000, by and between the Company and IM Acquisition, Inc. (Incorporated by reference from Exhibit 2.1 to the Company's Form 8-K filed with the SEC on December 1, 2000).                                                                                                                                                                                                         
|2.8            |  | Stock Purchase Agreement dated as of December 15, 2000, by and between the Company and Cross Country TravCorps, Inc. (Incorporated by reference from Appendix A to the Company's Definitive Proxy Statement (DEFM 14A) filed with the SEC
on February 6, 2001).                                                                                                                                                                    
|3.1            |  | Certificate of Incorporation of the Company (Incorporated by reference from Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File No. 333-07513)).                                                                                                                                                                                                                                                                 
|3.2            |  | Certificate of Amendment of the Certificate of Incorporation (Incorporated by reference from Exhibit 3.2 to the Company's Registration Statement on Form S-1 (File No. 333-07513)).                                                                                                                                                                                                                                                
|3.3            |  | Certificate of Amendment of the Certificate of Incorporation dated May 8, 1998 (Incorporated by reference from Exhibit 3.3 to the Company's Form 10-K filed with the SEC on March 16, 1999).                                                                                                                                                                                                                                       
|3.4            |  | Amended and Restated By-Laws of the Company, as amended to date (Incorporated by reference from Exhibit 3.3 to the Company's Registration Statement on Form S-1 (File No. 333-07513)).                                                                                                                                                                                                                                             
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    

69

---

|4.1   |  | Form of certificate evidencing ownership of common stock of the Company (Incorporated by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File No. 333-07513)).                                                                                        
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2   |  | Article Four of the Certificate of Incorporation of the Company (included in Exhibit 3.1).                                                                                                                                                                                            
|10.1  |  | StaffMark, Inc. 1996 Stock Option Plan (Incorporated by reference from Exhibit 10.1 to the Company's Registration Statement on Form S-1 (File No. 333-07513)), which has been amended and restated and is currently in the form of
Exhibit 10.48.                                     
|10.2  |  | Form of Director Indemnification Agreement between the Company and each of its directors and executive officers (Incorporated by reference from Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File No. 333-07513)
).                                              
|10.3  |  | Employment Agreement between the Company and Terry C. Bellora (Incorporated by reference from Exhibit 10.4 to the Company's Registration Statement on Form S-1 (File No. 333-07513)), which has been terminated, or expired.                                                          
|10.5  |  | Employment Agreement among the Company, Brewer Personnel Services, Inc. and Jerry T. Brewer. (Incorporated by reference from Exhibit 10.5 to the Company's Registration Statement on Form S-1 (File No. 333-15059)), which has been
terminated or expired.                            
|10.6  |  | Employment Agreement among the Company, Prostaff and Steven E. Schulte. (Incorporated by reference from Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No. 333-15059)), which has been terminated or
expired.                                                 
|10.7  |  | Employment Agreement among the Company, Maxwell Staffing, Inc. and John H. Maxwell, Jr. (Incorporated by reference from Exhibit 10.7 to the Company's Registration Statement on Form S-1 (File No. 333-15059)), which has been
terminated or expired.                                 
|10.8  |  | Employment Agreement among the Company, Maxwell Staffing, Inc. and Mary Sue Maxwell. (Incorporated by reference from Exhibit 10.8 to the Company's Registration Statement on Form S-1 (File No. 333-15059)), which has been terminated
or expired.                                    
|10.9  |  | Employment Agreement among the Company, HRA, Inc. and W. David Bartholomew. (Incorporated by reference from Exhibit 10.9 to the Company's Registration Statement on Form S-1 (File No. 333-15059)), which has been assumed by another
entity.                                         
|10.10 |  | Employment Agreement among the Company, HRA, Inc. and Ted Feldman. (Incorporated by reference from Exhibit 10.10 to the Company's Registration Statement on Form S-1 (File No. 333-15059)), which has been terminated or expired.                                                     
|10.11 |  | Employment Agreement among the Company, First Choice Temporary Staffing, Inc. and William T. Gregory. (Incorporated by reference from Exhibit 10.11 to the Company's Registration Statement on Form S-1 (File No. 333-15059)),
which has been terminated or expired.                  
|10.12 |  | Employment Agreement among the Company, The Blethen Group, Inc. and Janice Blethen. (Incorporated by reference from Exhibit 10.12 to the Company's Registration Statement on Form S-1 (File No. 333-15059)), which has been terminated or
expired.                                    
|10.13 |  | Employment Agreement by and between the Company and Gordon Y. Allison dated June 23, 1997 (Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, filed with the SEC on
July 28, 1997), which has been terminated or expired.
|      |  |                                                                                                                                                                                                                                                                                       

70

---

|10.14 |  | Credit Agreement dated October 4, 1996, in the amount of $50,000,000 by and between the Registrant, the lenders named therein (the "Lenders") and Mercantile Bank of St. Louis National Association ("Mercantile"), as Agent on behalf of the Lenders
(the "Credit Agreement"). (Incorporated by reference from Exhibit 10.13 to the Company's Registration Statement on Form S-1 (File No. 333-15059)), which has been terminated.                                                     
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15 |  | First Amendment to the Credit Agreement dated December 18, 1996 among the Registrant and the Lenders named therein (Incorporated by reference from the Company's Annual Report on Form 10-K filed with the SEC on March 17, 1997, as amended by
Form 10-K/A filed with the SEC on March 24, 1997), which has been terminated.                                                                                                                                                           
|10.16 |  | Second Amendment to the Credit Agreement dated May 30, 1997 by and among the Company and the Lenders named therein and Mercantile, as agent on behalf of the Lenders. (Incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, filed with the SEC on July 28, 1997), which has been terminated.                                                                                                                                 
|10.17 |  | The Company's 1997 Employee Stock Purchase Plan adopted May 2, 1997 (Incorporated by reference from the Company's Registration Statement on Form S-8 (File No. 333-29689)), which has been terminated by approval and adoption of the Edgewater
Technology, Inc. 1999 Employee Stock Purchase Plan referenced in Exhibit 10.52.                                                                                                                                                         
|10.18 |  | Lock-Up and Registration Rights Agreement dated September 20, 1996 by and among the Company, Jerry T. Brewer, Clete T. Brewer, Chad J. Brewer, Donald A. Marr, Jr., Robert H. Janes III, John C. Becker, Betty Becker, Donna F. Vassil,
 Janice Blethen and Capstone Partners, L.L.C. (Incorporated by reference from the Company's Annual Report on Form 10-K filed with the SEC on March 17, 1997, as amended by Form 10-K/A filed with the SEC on March 24, 1997),
which has expired.
|10.19 |  | Lease Agreement among Brewer Personnel Services, Inc. and Brewer Investments L.P. for the Staffmark Corporate offices located at 302 East Millsap Road, City of Fayetteville, County of Washington, State of Arkansas. (Incorporated by reference
from the Company's Annual Report on Form 10-K filed with the SEC on March 17, 1997, as amended by Form 10-K/A filed with the SEC on March 24, 1997), which has been superceded by the Lease Agreement in
Exhibit 10.31.               
|10.20 |  | Lease Agreement among Maxwell Staffing, Inc. and Maxwell Properties, L.L.C. for the Company's offices located at 8221 East 63rd Place, Tulsa, Oklahoma. (Incorporated by reference from the Company's Annual Report on Form 10-K
filed with the SEC on March 17, 1997, as amended by Form 10-K/A filed with the SEC on March 24, 1997), which has been terminated.                                                                                                                      
|10.21 |  | Lease Agreement among Maxwell/Healthcare, Inc. and Maxwell Properties L.L.C. for the Company's offices located at 8211-8213 East 65th Street, Tulsa, Oklahoma. (Incorporated by reference from the Company's Annual Report on Form 10-K
filed with the SEC on March 17, 1997, as amended by Form 10-K/A filed with the SEC on March 24, 1997), which has been terminated.                                                                                                               
|10.22 |  | Amended and Restated Credit Agreement dated March 9, 1998, by and among the Company, the lenders named therein (the "Lenders") and Mercantile Bank National Association ("Mercantile"), as agent on behalf of the Lenders. (Incorporated by reference from
Exhibit 10.22 from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, as filed with the SEC on May 7, 1998), which has been terminated.                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

71

---

|10.23 |  | First Amendment to the Amended and Restated Credit Agreement dated March 16, 1998, by and among the Company, the Lenders and Mercantile, as agent on behalf of the Lenders. (Incorporated by reference from Exhibit 10.23 from the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998, as filed with the SEC on May 7, 1998), which has been terminated.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.24 |  | The Company's Amended and Restated 1996 Stock Option Plan. (Incorporated by reference from Exhibit 10.24 from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, as filed with the SEC on May 7, 1998),
which is represented in its current form under Exhibit 10.48.                                                                              
|10.25 |  | The Company's 1997 Employee Stock Purchase Plan, as amended. (Incorporated by reference from Exhibit 10.25 from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, as filed with the SEC on May 7,
1998), which was terminated by the Edgewater Technology, Inc. 1999 Employee Stock Purchase Plan, which is currently referenced in Exhibit 10.52.
|10.26 |  | The Company's Stock Election Plan for Non-Employee Directors. (Incorporated by reference from Exhibit 10.26 from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, as filed with the SEC on May 7, 1998),
which has been terminated.                                                                                                              
|10.27 |  | The Company's Non-Qualified 401(K) Plan. (Incorporated by reference from Exhibit 10.27 from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, as filed with the SEC on May 7, 1998).(1)                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                                                   

---



|10.28 |  | Second Amended and Restated Credit Agreement dated August 20, 1998 by and among the Company, the lenders named therein (the "Lenders"), Mercantile, as administrative agent on behalf of the Lenders and the First National Bank of Chicago, as
syndication agent on behalf of the Lenders (Incorporated by reference from Exhibit 10.28 of the Company's Quarterly Report on Form 10-Q filed for the quarter ended September 30, 1998, filed with the SEC on November 13, 1998), which has
been terminated.                                                                                                                                                                                                                          
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.29 |  | Third Amended and Restated Credit Agreement dated January 20, 1999 by and among StaffMark, Inc., Robert Walters plc, Robert Walters Tristar pty ltd., the lenders named therein (the "Lenders"), The First National Bank of Chicago, as syndication
agent on behalf of Lenders, Mercantile Bank National Association, as administrative agent on behalf of Lenders, Bank of America National Trust and Saving Association, Credit Lyonnais New York Branch, Fleet National Bank and First Union National Bank,
as co-agents on behalf of the Lenders (Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, filed with the SEC on May 13, 1999), which has been terminated.
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

72

---

|10.30 |  | First Amendment to Third Amended and Restated Credit Agreement dated May 6, 1999, by and among StaffMark, Inc., Robert Walters plc, Robert Walters Tristar pty ltd., the lenders named therein (the "Lenders"), The First National Bank of Chicago, as
syndication agent on behalf of the Lenders, Mercantile Bank National Association, as administrative agent on behalf of the Lenders, and Bank of America National Trust and Savings Association, Credit Lyonnais New York Branch, Fleet National Bank and
First Union National Bank, as co-agents on behalf of the Lenders (Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, filed with the SEC on August 13, 1999), which has been
terminated.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.31 |  | Lease Agreement by and between the Company and Brewer Investments II LC dated June 2, 1999 and effective as of July 1, 1999, for StaffMark, Inc.'s corporate headquarters located at 302 East Millsap and 234 East Millsap in
Fayetteville, Arkansas (Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, filed with the SEC on August 13, 1999), which has terminated as reflected in the Termination
Agreement included as Exhibit 10.53.                                                                                                                                                                                                                                                             
|10.32 |  | Employment Agreement between the Company and Stephen R. Bova dated as of August 18, 1999 (Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, filed with the SEC on
November 12, 1999), which has been terminated or expired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.33 |  | First Amendment to Employment Agreement dated as of September 17, 1999, between the Company and Clete T. Brewer, amending that certain Employment Agreement dated as of October 1, 1996, by and among the Company, Brewer Personnel Services,
 Inc. and Clete T. Brewer, which original agreement is incorporated by reference from Exhibit 10.4 to the Company's Registration Statement on Form S-1 (File No. 333-15059) (Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, filed with the SEC on November 12, 1999), which has been terminated or expired.                                                                                                                                     
|10.34 |  | First Amendment to Employment Agreement dated as of September 17, 1999, between the Company and Terry C. Bellora, amending that certain Employment Agreement dated as of August 20, 1996, by and among the Company and Terry C. Bellora, which
original agreement is incorporated by reference from Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File No. 333-15059) (Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, filed with the SEC on November 12, 1999), which has been terminated or expired.                                                                                                                                                                     
|10.35 |  | First Amendment to Employment Agreement dated as of September 17, 1999, between the Company and David Bartholomew, amending that certain Employment Agreement dated as of October 1, 1996, by and among the Company, HRA, Inc. n/k/a
Staffmark, Inc.Nashville and David Bartholomew, which original agreement is incorporated by reference from Exhibit 10.8 to the Company's Registration Statement on Form S-1 (File No. 333-15059) (Incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, filed with the SEC on November 12, 1999), which has been terminated or expired.                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

73

---

|10.36 |  | First Amendment to Employment Agreement dated as of September 17, 1999, between the Company and Gordon Y. Allison, amending that certain Employment Agreement dated as of June 23, 1997, by and between the Company and Gordon Y. Allison,
which original agreement is incorporated by reference from Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 1997, filed with the Commission on July 28, 1997 (Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, filed with the SEC on November 12, 1999), which has been terminated or expired.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.37 |  | The Company's 1999 Employee Stock Purchase Plan filed with the SEC on October 1, 1999 (Incorporated by reference from Exhibit 4.6 to the Company's Form S-8 (File No. 333-88313)), which has been amended and in its current state is
represented by Exhibit 10.52.                                                                                                                                                                                                                                                                                                                                                                
|10.38 |  | The Company's Amended and Restated 1996 Stock Option Plan filed with the SEC on October 1, 1999 (Incorporated by reference from Exhibit 4.7 to the Company's Form S-8 (File No. 333-88313)), which has been amended and in its current
state is represented by Exhibit 10.48.                                                                                                                                                                                                                                                                                                                                                      
|10.39 |  | The Company's 1999 U.K. Sharesave Plan filed with the SEC on December 22, 1999 (Incorporated by reference from Exhibit 4.6 to the Company's Form S-8 (File No. 333-93325)), which has been terminated.                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.40 |  | The Company's Amended and Restated 1996 Stock Option Plan (Incorporated by reference from Exhibit 10.37 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, filed with the SEC on November 14,
2000), which has been amended and its current state is represented by Exhibit 10.48.                                                                                                                                                                                                                                                                                                           
|10.41 |  | The Company's 2000 Employee Stock Option Plan filed with the SEC on November 30, 2000 (Incorporated by reference from Exhibit 4.8 to the Company's Form S-8 (File No. 333-50912)), which has been amended and restated and in its current
state is represented by Exhibit 10.49.                                                                                                                                                                                                                                                                                                                                                   
|10.42 |  | Second Amendment to Employment Agreement dated as of December 1, 2000, between the Company and Terry C. Bellora, which original agreement is incorporated by reference from Exhibit 10.3 to the Company's Registration Statement on
Form S-1 (File No. 333-15059), and which First Amendment is incorporated by reference from Exhibit 10.34 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 filed with the SEC on
November 12, 1999, which has been terminated or expired.                                                                                                                
|10.43 |  | Second Amendment to Employment Agreement dated as of December 1, 2000, between the Company and Clete T. Brewer, which original agreement is incorporated by reference from Exhibit 10.4 to the Company's Registration Statement on Form S-1
(File No. 333-15059), and which First Amendment is incorporated by reference from Exhibit 10.33 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 filed with the SEC on November 12, 1999, which has
been terminated or expired.                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

74

---

|10.44 |  | Second Amendment to Employment Agreement dated as of December 1, 2000, between the Company and Gordon Y. Allison, which original agreement is incorporated by reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, filed with the SEC on July 28, 1997 and which First Amendment is incorporated by reference from Exhibit 10.36 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 filed with the SEC on November 12, 1999, which has been terminated or expired.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.45 |  | Employment Agreement dated as of April 14, 2000, by and between Shirley Singleton and Edgewater Technology (Delaware), Inc., which original agreement is incorporated by reference from Exhibit 10.45 to the Company's Form 10-Q for the quarter
ended June 30, 2001 filed with the SEC on July 27, 2001, which has been terminated or expired.                                                                                                                                                                                                                   
|10.46 |  | Employment Agreement dated as of April 14, 2000, by and between Dave Clancey and Edgewater Technology (Delaware), Inc., which original agreement is incorporated by reference from Exhibit 10.46 to the Company's Form 10-Q for the quarter
ended June 30, 2001 filed with the SEC on July 27, 2001, which agreement has been terminated or expired.                                                                                                                                                                                                              
|10.47 |  | Employment Agreement dated as of July 31, 2000, by and between David Gallo and Edgewater Technology (Delaware), Inc., which original agreement is incorporated by reference from Exhibit 10.47 to the Company's Form 10-K for the year ended
December 31, 2001 filed with the SEC on March 27, 2002, which has been terminated or expired.                                                                                                                                                                                                                        
|10.48 |  | Edgewater Technology, Inc. Amended and Restated 1996 Stock Option Plan, most recently amended, effective March 20, 2002 (Incorporated by reference from Exhibit 10.48 to the Company's Form 10-K for the year ended December 31,2001,
filed with the SEC on March 27, 2002).(1)                                                                                                                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

---

|10.49 |  | Edgewater Technology, Inc. Amended and Restated 2000 Stock Option Plan, amended and restated effective March 20, 2002. (Incorporated by reference from Exhibit 10.49 to the Company's Form 10-K for the year ended December 31, 2001,
filed with the SEC on March 27, 2002) which has been amended and in its current state is reflected in Exhibit 10.51.(1)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.50 |  | Employment Agreement dated as of July 19, 2002, by and between Kevin Rhodes and the Company, which is incorporated by reference from Exhibit 10.50 to the Company's Form 10-Q for the quarter ended June 30, 2002, filed with the SEC on
August 14, 2002, which has been terminated or expired.                                                              
|10.51 |  | Edgewater Technology, Inc. Amended and Restated 2000 Stock Option Plan, as most recently amended on May 22, 2002. (Incorporated by reference from Exhibit 4.9 to Post Effective Amendment No. 1 to Form S-8, File No. 333-50912 filed
with the SEC on May 30, 2002).(1)                                                                                      
|10.52 |  | Edgewater Technology, Inc. Amended and Restated 1999 Employee Stock Purchase Plan, as amended on May 22, 2002. (Incorporated by reference from Exhibit 4.9 to Post Effective Amendment No. 1 to Form S-8, File No. 333-88313 filed with the
SEC on May 30, 2002).(1)                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                              

75

---

|10.53 |  | Termination Agreement by and between Brewer Investments II, LLC and the Company effective as of June 28, 2000, terminating the Lease Agreement for the 234 E. Millsap Road and 302 E. Millsap Road premises in Fayetteville,
Arkansas and referenced as Exhibit 10.31. (Incorporated by reference from Exhibit 10.53 to the Company's Form 10-K for the year ended December 31, 2002, filed with the SEC on March 28, 2003).                                              
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.54 |  | Lease Agreement by and between the Company and Brewer Investments II, LLC dated June 28, 2000 and effective as of July 1, 2000 for Edgewater Technology, Inc.'s former corporate headquarters at 302 E. Millsap Rd., Fayetteville,
 Arkansas. (Incorporated by reference from Exhibit 10.54 to the Company's Form 10-K for the year ended December 31, 2002, filed with the SEC on March 28, 2003).                                                                       
|10.55 |  | Sublease Agreement dated as of July 1, 2002 by and between the Company and Tyson Foods, Inc. for the sublease of the property at 302 E. Millsap Rd., in Fayetteville, Arkansas. (Incorporated by reference from Exhibit 10.55 to the
Company's Form 10-K for the year ended December 31, 2002, filed with the SEC on March 28, 2003).                                                                                                                                     
|10.56 |  | Edgewater Technology, Inc. 2003 Equity Incentive Plan, incorporated by reference to Exhibit 4.10 of Form S-8, 333-106325 filed with the SEC on June 20, 2003. (Incorporated by reference from Exhibit 10.56 to the Company's
Form 10-Q for the quarter ended June 30, 2003 filed with the SEC on August 14, 2003).(1)                                                                                                                                                     
|10.57 |  | Employment Agreement by and among the Company, Edgewater Technology (Delaware), Inc. ("Edgewater Delaware") and Shirley Singleton dated as of June 12, 2003, which supercedes and terminates that certain employment agreement dated as of
April 14, 2000 by and between Edgewater Delaware and Shirley Singleton. (Incorporated by reference from Exhibit 10.57 to the Company's Form 10-Q for the quarter ended June 30, 2003 filed with the SEC on August 14,
2003).(1)
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

---

|10.58 |  | Employment Agreement by and among the Company, Edgewater Delaware and Dave Clancey dated as of June 12, 2003, which supercedes and terminates that certain employment agreement dated as of April 14, 2000 by and between Edgewater Delaware and
Dave Clancey. (Incorporated by reference from Exhibit 10.58 to the Company's Form 10-Q for the quarter ended June 30, 2003 filed with the SEC on August 14, 2003).(1)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.59 |  | Employment Agreement by and among the Company, Edgewater Delaware and Dave Gallo dated as of June 12, 2003, which supercedes and terminates that certain employment agreement dated as of July 31, 2000 by and between Edgewater Delaware and
Dave Gallo. (Incorporated by reference from Exhibit 10.59 to the Company's Form 10-Q for the quarter ended June 30, 2003 filed with the SEC on August 14, 2003).(1)     
|10.60 |  | Employment Agreement by and among the Company, Edgewater Delaware and Kevin Rhodes dated as of May 22, 2003, which supercedes and terminated that certain employment agreement dated as of July 19, 2002 by and between the Company and Kevin
Rhodes. (Incorporated by reference from Exhibit 10.60 to the Company's Form 10-Q for the quarter ended June 30, 2003 filed with the SEC on August 14, 2003).(1)         
|16.1  |  | Letter from Arthur Andersen LLP to the SEC dated June 28, 2002 regarding a change in the Company's independent accountants. (Incorporated by reference from Exhibit 16.1 to the Company's Form 8-K filed with the SEC on June 28,
2002).                                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                       

76

---

|21.1 |  | Subsidiaries of Edgewater Technology, Inc. as of December 31, 2003.*
|---- |  | --------------------------------------------------------------------
|23.1 |  | Consent of Deloitte & Touche LLP.*                                  
|23.2 |  | Notice regarding Consent of Arthur Andersen LLP.*                   
|24.1 |  | Power of Attorney (See Signature Page).*                            
|31.1 |  | 13a-14 CertificationPresident and Chief Executive Officer*         
|31.2 |  | 13a-14 CertificationChief Financial Officer*                       
|32   |  | Section 1350 Certification*                                         

---

77

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Wakefield, State of Massachusetts, on March 30, 2004.

| |  | EDGEWATER TECHNOLOGY, INC.
| |  | --------------------------
| |  | By:                       

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below appoints jointly and severally, Shirley Singleton and Kevin R. Rhodes and each
one of them, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report
on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the SEC, hereby ratifying and confirming all that each said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

|Name                                  |  | Title                                                                            |  | Date          
|------------------------------------- |  | -------------------------------------------------------------------------------- |  | --------------
|                                      |  |                                                                                  |  |               
|/s/SHIRLEY SINGLETONShirley Singleton |  | President, Chief Executive Officer and Director                                  |  | March 30, 2004
|/s/KEVIN R. RHODESKevin R. Rhodes     |  | Chief Financial Officer & Treasurer (Principal Financial and Accounting Officer) |  | March 30, 2004
|/s/WILLIAM J. LYNCHWilliam J. Lynch   |  | Non-Executive Chairman and Director                                              |  | March 30, 2004
|/s/CLETE T. BREWERClete T. Brewer     |  | Director                                                                         |  | March 30, 2004
|/s/MICHAEL R. LOEBMichael R. Loeb     |  | Director                                                                         |  | March 30, 2004
|/s/BOB L. MARTINBob L. Martin         |  | Director                                                                         |  | March 30, 2004
|/s/WAYNE WILSONWayne Wilson           |  | Director                                                                         |  | March 30, 2004

78

---