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TABLE OF CONTENTS

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

Form 10-K

Commission file number: 0-20971

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

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.

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EDGEWATER TECHNOLOGY, INC.

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

TABLE OF CONTENTS

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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:

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Strategy—In a business environment where business is supported by an ever-increasing foundation of enabling technology: customer software, packaged software, networks, and technical infrastructure, Edgewater's strategy approach is more important than ever before. While this technology has been largely responsible for huge productivity gains and innovative new business models, the downside has also grown in terms of managing an ever increasing dependence on technology that is aging faster, becoming more complex, under increasing security scrutiny, and becoming ever more expensive. The choices have increased exponentially so a simple horizontal technology-only view will no longer suffice.

Edgewater's blend of vertical industry experts and technology specialists provides our clients with long and medium term technology strategies that deliver short-term value. This multi- disciplinary approach ensures that strategic plans not only serve the business need, but also are scalable, maintainable, and ultimately deliver the expected return on investment (ROI).

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•

Design—Edgewater Technology believes by placing an emphasis in the design phase, organizations will be able to:



•

Reduce development costs



•

Integrate more effectively into their current IT infrastructure



•

Provide a flexible platform for more effective maintenance

Design is critical in an ever more complex technology environment. In order to expedite the process of building of an application, businesses must evaluate all of their resources—determining what technologies and tools will integrate effectively within their current IT infrastructure. When design is done properly in the beginning, issues are addressed and rectified early which prevents cost overruns when code and systems are developed prematurely.

Within this critical phase, Edgewater's team identifies and documents the detailed design of the solution to be developed. Detailed decisions are made ranging from what technologies and tools will integrate with the client's current IT infrastructure to what creative resources will be required to maintain consistency with the client's current brand.

•

Build—Edgewater Technology focuses on top IT talent and its most effective application to any IT project build. Edgewater's team is multi-disciplinary in terms of technology, methodology, and project management, providing the ultimate in flexibility and risk management. Many choices are available, but Edgewater is simply the best as proven by our better than 95% repeat business factor.

With more choices existing today for the IT project build than any time in the past, it is central to have efficient and cost-effective IT talent, such as Edgewater's team of professionals, available as an option. Today, projects can be built in-house, outsourced off-shore or near-shore, contracted to project companies or ultimately utilize a blend of everything. Often the rush to build can end up being a costly decision, resulting in:

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Inadequate functional design



•

Inadequate technical architecture



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Inability to support the ever-changing needs of the organization.



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Maintain—With more than 150 technical consulting professionals, Edgewater Technology specializes in maintaining applications that require fast enhancement cycles, constant integration in changing environments and specialized quality assurance. The ability to cater to applications that support our customers' businesses, especially applications that are in the early stages of evolution, requires the necessary technology skills and business understanding. We assist our customers with the complete lifecycle of their custom applications. Application maintenance in today's environment can often be challenging and costly. Businesses are faced with uncovering the "hidden" costs of maintaining applications whether it includes testing, integration and/or ongoing support.



•

Operate—Edgewater Technology has the ability to provide clients with customized operations support ranging from remotely managing a customer's assets onsite at their location to facilities management of our customers' assets at Edgewater Technology's networking operating facility. The need for a reliable, scalable and available IT infrastructure is critical to any organization's success.

        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

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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:

(1)

Delivery Excellence—Our enviable delivery history is built upon more than ten years of proven methodology and processes, and by continually delivering solutions that work. Our delivery excellence is a derivative of a well-defined business plan, highly trained professionals, strong technical expertise, and established implementation and support methodologies. Most importantly, we provide effective and continued communication with our customers throughout the entire process. Our delivery history has contributed to our ability to build long-term relationships with our customers.



(2)

Vertical Expertise/Horizontal Service Offerings—We combine vertical-industry knowledge with a broad base of key strategic technologies to serve our customers' technology needs and deliver award-winning tailored strategies and solutions. We bring vertical-industry knowledge together with a broad base of key strategic technologies. Edgewater Technology uses an iterative development methodology, with a focus on quality assurance and project management, to achieve rapid deployment capability and success in assisting organizations move through the barriers of technology transition. The primary vertical markets where we have developed core competencies to deliver our services include: Financial Services (Retail Banking, Portfolio/Asset Management); Health Care (Managed Care); Higher Education; Insurance; Life Sciences; Real Estate; Retail; Telecommunications; and various Emerging Markets that consist of untapped vertical markets which are just beginning to leverage the use of technology. We also focus on service offerings that cross each vertical such as Supply Chain, Customer Service and Web Services.

The diagram below illustrates our vertical and horizontal service offerings:



(3)

Technology Excellence—We extend our services through proven key strategic technologies and through the focus of vertical business practices to build scalable custom solutions providing a solid return on the investment (ROI) and thereby competitive advantage to our customers. Our team of professionals has the technology expertise, coupled with vertical knowledge, to

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offer comprehensive strategies and solutions. Our established partnerships with industry leaders enable us to deliver market-leading insights and innovative solutions that meet our customers' diverse business needs quickly. Our areas of technical expertise include: web-based solutions; architectural strategy; Web services; data management; transaction processing and legacy systems integration.

(4)

Middle-Market Focus—We are well positioned to serve the technology needs of the middle market through our solutions centers based where middle-market enterprises typically reside. The middle market is defined as companies and/or subsidiaries of Global 2000 corporations with $50 million to $1 billion in revenue. 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 technology and gain competitive advantage.



(5)

Strong Operational Metrics—Since our inception in 1992, Edgewater Technology's original management team has built an organization that is defined by a record of operational excellence, using electronic processes and systems to manage our consulting resources, company utilization and gross margin.

Customers

        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:

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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:

•

The need to develop a comprehensive strategic understanding of how technology can enhance the business model;

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•

The need to implement and stay abreast of new and rapidly changing technologies frequently without the benefit of a substantial internal IT staff;



•

Significant integration and interoperability issues caused by the patchwork of legacy systems that businesses often implement without a focused IT strategy;



•

Greater budgetary constraints than large enterprises. Typically middle-market companies do not have large research and development budgets, which makes it essential that the deployment of new Internet systems directly correlate to key business benefits;



•

The need to maintain significant technological infrastructure and to support applications 24 hours a day, seven days a week.

        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

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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,

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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:

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Strategic IT Assessment and Planning—Working with customer management to identify how IT can be used as a strategic advantage.



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Development of the Business Case—Identifying key metrics used in establishing the Economic Value Added.



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Project Planning—Defining detailed plans and identifying standards and constraints.



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Workflow and Technical Analysis—Reviewing user actions, documentation and data flow.



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Proof of Concept—Including sessions to determine how the system will "look and feel."



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Architectural Definition—Specifying technical requirements, data design, and defining acceptance criteria.



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Drill Down—Confirming "look and feel" and "high-risk" areas of the design.



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Build & Test—Creating software to meet requirements, quality assurance and integration testing.



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Deployment—Custom acceptance testing, including training, installation and transition to maintenance.



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Knowledge Transfer—Training and documentation required for successful rollout and support.



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Support—Maintaining the system software and hardware if necessary or requested.

        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

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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:

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Leverage an automated process across different product lines in order to support growth strategies;



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Maintain lead on competition;



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Minimize human resource requirements to achieve growth;



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Consolidate diverse systems & processes resulting from acquisitions;



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Deliver new products to marketplace in a shorter time;



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Reduce policy application turnaround time.

        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:

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Workflow engine (AWD)



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Policy administration system



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Illustration system—used to illustrate future policy values



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Correspondence system—used to document amendments to the policies

        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

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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:

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Reduces the time and resources associated with producing a policy package;



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Decreases the costs to initially print materials and reprint materials due to errors;



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Improves the quality, accuracy and compliance of the insurer's policy documents, by automating the policy production process;



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Eliminates reliance upon manual intervention;



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Provides a quicker time to market for new product roll out cycle by re-utilizing policy text elements and documented business rules;



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Enables agents to receive policy information in an electronic format, which will also reduce mailing costs;



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Minimizes liability exposure for non-compliance with state and federal regulations.

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:

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Enhance institution's image to potential students and their parents;



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Provide for personalized recruiting that allows institution to develop a relationship over time with desirable targets;



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Expand the ability to initiate targeted recruiting efforts;



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Provide a solution tailored to institution's unique requirements and that can be easily updated as admissions needs evolve;



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Generate reporting on key metrics;



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Offer efficient data exchange within the institute and appropriate external organizations.

        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

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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:

•

A new portal framework that provides a clear, consistent and integrated environment for all users. All of the information sources, user-executable functions, and tools (collectively "services") will be accessed through this portal;



•

Efficient processing of greater numbers of applications without adding staff;



•

New ways to effectively target specific groups of desirable prospects, including underrepresented minorities, academic superstars, and other special designations;



•

'Digital Dashboards' that capture key metrics on recruiting programs and activities and enable near-real time adjustment of resources based on results;



•

Personalized delivery of information about the institution to prospects that will result in building relationships with them while communicating the true nature of the Institute;



•

Compliant with existing institution's technology standards and practices, the new system is scalable, extensible, flexible and secure and designed for reuse in other functional areas and departments.

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:

•

Provide a common programmatic interface to the construction cost database, enabling individual complementary solution partners to tailor their offerings to their own customer base;



•

Extend the content of the construction cost database, enabling customer-specific building design elements and costs to be added, classified and managed along with industry-standard assets;

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•

Improve access to the contents of the construction cost database, including preservation, maintenance and repair costs for various building types, construction methods, labor types and geography-specific cost factors;



•

Provide a common user interface and a reliable process and infrastructure for updating, reviewing and releasing various structural revisions to building elements and their costs, allowing greater accuracy in building cost estimates and valuations;



•

Deliver a technology platform on which to build future products and services for these and other customers.

        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.

•

Improved access to critical data—using the new product, complementary solution partners and their end-user customers have access to critical, industry-standard data for estimating and managing the valuation of their core capital assets; eliminates need to access hard-copy publications;



•

Consistent programmatic interface—the new product provides a single, consistent application programming interface, enabling complementary software solution partners to gain access to the core services and functions needed to retrieve and manipulate the cost estimation data;



•

Increased accuracy—core data is managed in a single location, and is available as soon as its released by the client;

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•

More efficient product distribution—using the standard process and infrastructure for reviewing and releasing data updates, new building elements and costs can be distributed through the complementary solution partner channel to the customer end-users in a more reliable and more efficient manner;



•

New revenue opportunities for the client—complementary solution partners and customer end-users are now consuming an asset for which the client can charge, based either on a subscription or per-usage basis;



•

An extensible platform—the database and technology interfaces provide a platform for extending the current data assets, offering new information sources and services and new product functions through a common infrastructure.

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.

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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

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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:

•

The market price of our common stock at that time;



•

Our business strategy;

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•

Our business and financial position; and



•

General economic and market conditions.

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

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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:

•

Systems integrators: Accenture, EDS, IBM Global Services, Inforte, Keane Consulting, LogicaCMG, Sapient, SBI and Company and Tier Technologies;



•

Offshore software development firms: Aztec Software, Cognizant Technology Solutions, Infosys, Indus, Satyam, Tata, and Wipro;



•

Management consulting firms: Bain & Company, Booz-Allen & Hamilton, Boston Consulting Group, and McKinsey & Company; and



•

Computer hardware, software and service vendors: Compaq, Hewlett-Packard, IBM, Oracle and SAP.

        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

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

•

The lack of success, or business failures experienced, with emerging or developing Internet-based businesses or distribution methodologies;



•

Insufficient availability of telecommunications services providing Internet infrastructure and support services;



•

Adverse publicity and consumer concern about the security of Internet-based transactions.

        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

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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:

•

Cease selling or using technology or services that incorporate the challenged intellectual property;



•

Obtain a license, which may not be available on reasonable terms or at all, to use the relevant technology;



•

Configure services to avoid infringement; and



•

Refund license fees or other payments that we have previously received.

        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:

•

Variability in market demand for IT consulting services;



•

Length of the sales cycle associated with our service offerings;



•

Unanticipated variations in the size, budget, number or progress toward completion of our engagements;



•

Unanticipated termination of a major engagement, a customer's decision not to proceed with an engagement we anticipated or the completion or delay during a quarter of several major customer engagements;

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•

Efficiency with which we utilize our employees, or utilization, including our ability to transition employees from completed engagements to new engagements;



•

Our ability to manage our operating costs, a large portion of which are fixed in advance of any particular quarter;



•

Changes in pricing policies by us or our competitors;



•

Seasonality and cyclicality, including the effects of lower utilization rates during periods with disproportionately high holiday and vacation usage experience;



•

Timing and cost of new office expansions;



•

The timing of customer year-end periods and the impact of spending relative to such year-end periods;



•

Our ability to manage future growth;



•

Costs of attracting, retaining and training skilled personnel.

        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,

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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.

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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.

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

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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.

        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.

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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.

Refer to footnotes on following page.

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(1)

Selling, general & administrative expenses ("SG&A") included corporate costs of $0.4 million, $3.1 million and $5.0 million for 2001, 2000 and 1999, respectively, that were not directly related to our current operating business unit. These costs were incurred in historical periods based on a larger public company and a different corporate structure and are not necessarily indicative of corporate costs that will be necessary to operate our current operating business unit as a stand-alone public company. The results for 1999 include the post-acquisition results of operations for our current operating segment, after April 1, 1999.

(2)

The Company adopted Statement of Financial Accounting Standards ("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, the selected annual measurement date, the Company 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.

(3)

As a result of a workforce reduction on February 28, 2002, the Company recorded approximately $349,000 of restructuring charges related to associated severance costs. See Note 5 of the consolidated financial statements included elsewhere herein.

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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:

•

Revenue Recognition;



•

Accounting for Income Taxes; and



•

Valuation of Long-Lived and Intangible Assets.

        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.

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        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.

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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.

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        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.

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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.

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        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.

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Liquidity and Capital Resources

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

        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.

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        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.

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        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):

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

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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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(a)

Consolidated Financial Statements:

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

(b)

Not Covered by Above Report:

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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

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        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

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EDGEWATER TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Data)

See notes to consolidated financial statements.

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EDGEWATER TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)

See notes to consolidated financial statements.

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EDGEWATER TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)