8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report: January 5, 2010

(Date of Earliest Event Reported: December 31, 2009)

EDGEWATER TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

Delaware	0-20971	71-0788538
(State or other jurisdiction of incorporation)	(Commission File No.)	(IRS Employer Identification No.)

20 Harvard Mill Square

Wakefield, Massachusetts 01880

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2-(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

This Current Report on Form 8-K/A supplies Item 9.01 Financial Statements and Exhibits to the Current Report of Edgewater Technology, Inc. (“Edgewater”) on Form 8-K filed with the Securities and Exchange Commission on January 5, 2010. Attached hereto are the historical financial statements of Fullscope, Inc. (“Fullscope”) and the pro forma financial information required by Item 9.01 of Form 8-K with respect to Edgewater’s acquisition of Fullscope on December 31, 2009.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements of Business Acquired:

Audited financial statements of Fullscope, Inc. for the years ended December 31, 2008 and 2007 and related Independent Auditor’s Report thereon are being filed as Exhibit 99.1 to this Form 8-K/A.

The Unaudited Balance Sheet as of September 30, 2009, the Unaudited Statements of Income and Cash Flows for the nine months ended September 30, 2009 and 2008 and the Notes to Unaudited Consolidated Financial Statements for Fullscope, Inc. are being filed as Exhibit 99.2 to this Form 8-K/A.

(b) Pro Forma Financial Information:

The Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2009, the Unaudited Pro Forma Consolidated Statements of Operations for the nine months ended September 30, 2009, the Unaudited Consolidated Statements of Operations for the year ended December 31, 2008 and the Notes to Unaudited Pro Forma Consolidated Financial Statements are being filed as Exhibit 99.3 to this Form 8-K/A.

(d) Exhibits:

Exhibit 23.1	-	Consent of Independent Auditors
Exhibit 99.1	-	Audited financial statements of Fullscope, Inc. for the years ended December 31, 2008 and 2007 and related Independent Auditor’s Report
Exhibit 99.2	-	The Unaudited Balance Sheet as of September 30, 2009, the Unaudited Statements of Operations and the Unaudited Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 and the Notes to Unaudited Consolidated Financial Statements for Fullscope, Inc.
Exhibit 99.3	-	The Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2009, the Unaudited Pro Forma Consolidated Statements of Operations for the nine months ended September 30, 2009, the Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2008 and the Notes to Unaudited Pro Forma Consolidated Financial Statements

1

SIGNATURES:

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: March 19, 2010

EDGEWATER TECHNOLOGY, INC.
By:	/s/ Timothy R. Oakes
Name:	Timothy R. Oakes
Title	Chief Financial Officer
	(Principal Financial and Accounting Officer)

2

EXHIBIT INDEX

Exhibit Number	Description
Exhibit 23.1	Consent of Independent Auditors
Exhibit 99.1	Audited financial statements of Fullscope, Inc. for the years ended December 31, 2008 and 2007 and related Independent Auditor’s Report
Exhibit 99.2	The Unaudited Balance Sheet as of September 30, 2009, the Unaudited Statements of Operations and the Unaudited Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 and the Notes to Unaudited Consolidated Financial Statements for Fullscope, Inc.
Exhibit 99.3	The Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2009, the Unaudited Pro Forma Consolidated Statements of Operations for the nine months ended September 30, 2009, the Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2008 and the Notes to Unaudited Pro Forma Consolidated Financial Statements

3

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Registration Statement Nos. 333-50912, 333-88313, 333-106325, 333-153740 and 333-153741 of Edgewater Technology, Inc. on Form S-8 of our report dated July 22, 2009 related to the financial statements of Fullscope, Inc. (the “Company”) as of and for the years ended December 31, 2008 and 2007 (which report is unqualified and contains an explanatory paragraph regarding the restatement of the Company’s 2007 financial statements to reflect a correction in the allocation of income between tax jurisdictions) appearing in this Current Report on Form 8-K/A of Edgewater Technology, Inc. dated March 19, 2010.

/s/ HUGHES PITTMAN & GUPTON, LLP

Raleigh, North Carolina

March 19, 2010

EX-99.1

Exhibit 99.1

Item 9.01(a) Financial Statements of Business Acquired – Audited Financial Statements

FULLSCOPE, INC.

AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2008 and 2007

FULLSCOPE, INC. AND SUBSIDIARIES

Table of Contents

December 31, 2008 and 2007

Independent Auditors’ Report	3
Financial Statements
Consolidated Balance Sheets	4
Consolidated Statements of Operations	5
Consolidated Statements of Comprehensive Income	6
Consolidated Statements of Redeemable Convertible Stock and Stockholders’ Deficit	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9

2

Independent Auditors’ Report

The Board of Directors

Fullscope, Inc. and Subsidiaries

Athens, Alabama

We have audited the accompanying consolidated balance sheets of Fullscope, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, comprehensive income, redeemable convertible preferred stock and stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits of the consolidated financial statements provide 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 Fullscope, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the financial statements, the 2007 financial statements have been restated to reflect a correction in allocation of income between tax jurisdictions reflected in the 2007 income tax provision.

July 22, 2009

3

FULLSCOPE, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2008 and 2007

	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	1,246,973		$	1,325,503
Accounts receivable, net		2,999,974			4,353,773
Prepaid expenses and other current assets		221,933			158,091
Total current assets		4,468,880			5,837,367
Property and equipment, net		167,913			233,716
Other assets:
Restricted cash		25,000			25,000
Capitalized software costs, net		2,097,032			1,789,977
Total other assets		2,122,032			1,814,977
Total assets	$	6,758,825		$	7,886,060
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	2,806,455		$	3,382,442
Line of credit		1,755,921			1,462,145
Current maturities of long-term debt		—			281,250
Notes payable, related parties, current		250,000			250,000
Note payable, current		—			4,587
Current portion of capital lease obligations		63,619			75,237
Deferred revenue		982,577			859,570
Total current liabilities		5,858,572			6,315,231
Notes payable, related parties		—			250,000
Accrued expenses		209,233			—
Capital lease obligations		37,985			70,256
Warrant liability		70,888			77,374
Total long-term liabilities		318,106			397,630
Series III redeemable convertible preferred stock, $0.0001 par value, 583,175,210 shares designated, 523,392,296 shares issued and outstanding (liquidation preference of $3,502,629)		3,216,855			2,757,226
Series IV redeemable convertible preferred stock, $0.0001 par value, 273,760,973 shares designated, 193,791,264 shares issued and outstanding (liquidation preference of $1,280,400)		1,280,399			1,174,678
Total redeemable convertible preferred stock		4,497,254			3,931,904
Common stock, $0.0001 par value, 1,992,502,790 shares authorized,
75,495,728 and 18,330,865 shares issued and outstanding		7,549			1,833
Additional paid in capital		24,852,217			25,417,567
Accumulated other comprehensive loss		(734,694	)		(487,963	)
Accumulated loss		(28,040,179	)		(27,690,142	)
Total stockholders’ deficit		(3,915,107	)		(2,758,705	)
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit	$	6,758,825		$	7,886,060

See accompanying notes to consolidated financial statements.

4

FULLSCOPE, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the Years Ended December 31, 2008 and 2007

	2008			2007
Revenue:
License fees and other professional services	$	19,822,736		$	21,602,698
Reimbursable expenses		1,143,967			1,678,425
Total revenues		20,966,703			23,281,123
Cost of revenue:
Project and personnel costs		12,145,791			12,817,027
Software and license costs		840,577			777,986
Reimbursable expenses		1,143,967			1,678,425
Total cost of revenue		14,130,335			15,273,438
Gross profit		6,836,368			8,007,685
Operating expenses:
Selling, general and administrative		5,145,773			4,534,743
Research and development		575,721			645,788
Axapta process		836,130			509,807
Customer relations		203,488			259,595
Depreciation		131,707			118,492
Total operating expenses		6,892,819			6,068,425
Operating (loss) income		(56,451	)		1,939,260
Other expense:
Interest income		20,592			—
Interest expense		(194,436	)		(340,360	)
Other expense, net		(145,532	)		(87,495	)
Loss on foreign currency exchange		(2,583	)		(513	)
Total other expense, net		(321,959	)		(428,368	)
(Loss) income before income taxes		(378,410	)		1,510,892
(Benefit) provision for income taxes		(28,373	)		565,856
Net (loss) income	$	(350,037	)	$	945,036

See accompanying notes to consolidated financial statements.

5

FULLSCOPE, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the Years Ended December 31, 2008 and 2007

	2008			2007
Net (loss) income	$	(350,037	)	$	945,036
Foreign currency translation adjustment		(246,731	)		(73,005	)
Comprehensive (loss) income	$	(596,768	)	$	872,031

See accompanying notes to consolidated financial statements.

6

FULLSCOPE, INC. AND SUBSIDIARIES

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit

For the Years Ended December 31, 2008 and 2007

														Accumulated
							Total							Foreign
	Series III Convertible			Series IV Convertible			Redeemable					Additional		Currency				Total
	Preferred Stock			Preferred Stock			Preferred		Common Stock			Paid-In		Translation		Accumulated		Stockholders
	Shares	Amount		Shares	Amount		Stock		Shares	Amount		Capital		Adjustment		Deficit		Deficit
Balance as of December 31, 2006	523,392,296	$	2,311,583	—		—	$	2,311,583	18,330,865	$	1,833	25,905,668		(414,958	)	(28,635,178	)	(3,142,635	)
Issuance of Series IV convertible preferred stock	—		—	193,791,264	$	1,132,260		1,132,220	—		—	—		—		—		—
Accretion of redeemable preferred stock	—		445,643	—		42,458		488,101	—		—	(488,101	)	—		—		(488,101	)
Foreign currency translation	—		—	—		—		—	—		—	—		(73,005	)	—		(73,005	)
Net income	—		—	—		—		—	—		—	—		—		945,036		945,036
Balance as of December 31, 2007	523,392,296	$	2,757,226	193,791,264	$	1,174,678	$	3,931,904	18,330,865	$	1,833	25,417,567		(487,963	)	(27,690,142	)	(2,758,705	)
Exercise of stock options	—		—	—		—		—	57,164,863		5,716	—		—		—		5,716
Accretion of redeemable preferred stock	—		459,629	—		105,721		565,350	—		—	(565,350	)	—		—		(565,350	)
Foreign currency translation	—		—	—		—		—	—		—	—		(246,731	)	—		(246,731	)
Net loss	—		—	—		—		—	—		—	—		—		(350,037	)	(350,037	)
Balance as of December 31, 2008	523,392,296	$	3,216,855	193,791,264	$	1,280,399	$	4,497,254	75,495,728	$	7,549	24,852,217		(734,694	)	(28,040,179	)	(3,915,107	)

See accompanying notes to consolidated financial statements.

7

FULLSCOPE, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2008 and 2007

	2008			2007
Cash Flows from Operating Activities:
Net (loss) income	$	(350,037	)	$	945,036
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		131,707			118,492
Amortization		840,577			629,426
Amortization of debt discount		—			20,186
Change in warrant liability		(6,486	)		18,530
Interest accrued on convertible stockholder notes payable		—			37,937
Changes in operating accounts:
Accounts receivable, net		1,353,799			(1,958,238	)
Prepaid expenses and other current assets		(63,842	)		12,027
Accounts payable		(202,060	)		499,370
Accrued expenses		(164,694	)		789,388
Deferred revenue		123,007			405,711
Net cash provided by operating activities		1,661,971			1,517,865
Cash Flows from Investing Activities:
Capitalization of software costs		(1,147,632	)		(1,023,308	)
Withdrawal of unrestricted cash		—			741
Purchases of property and equipment		(22,835	)		(18,535	)
Net cash used in investing activities		(1,170,467	)		(1,041,102	)
Cash Flows from Financing Activities:
Repayment of line of credit		(256,224	)		—
Borrowing of line of credit		550,000			350,000
Repayment of long term debt		(531,250	)		(343,750	)
Borrowings under convertible stockholder notes payable		—			500,000
Payment capital lease obligations		(86,958	)		(63,126	)
Repayment on stockholder advances		(4,587	)		(6,489	)
Proceeds from issuance of common stock		5,716			—
Net cash (used in) provided by financing activities		(323,303	)		436,635
Effects of exchange rates on cash		(246,731	)		(73,005	)
Net (decrease) increase in cash and cash equivalents		(78,530	)		840,393
Cash and cash equivalents, beginning of period		1,325,503			485,110
Cash and cash equivalents, end of period	$	1,246,973		$	1,325,503
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	192,733		$	254,449
Cash paid for income taxes	$	386,552		$	—
Supplemental Disclosure of Non-Cash Financing Activities:
Accretion of redeemable preferred stock	$	565,350		$	488,101
Acquisition of property and equipment under capital leases	$	43,069		$	166,792
Conversion of convertible stockholders’ notes payable and accrued interest to Series IV convertible redeemable preferred stock	$	—		$	1,132,220

See accompanying notes to consolidated financial statements.

8

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 1: DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Fullscope, Inc. (“Fullscope” or the “Company”) was incorporated July 14, 1999 in the state of Delaware. In February 2002, the Company acquired RedKlay Web Solutions, Inc., a company engaged in the business of developing, marketing, distributing, licensing, maintaining and supporting customer-driven collaborative commerce software and service solutions to middle-market manufacturing and distribution companies. After acquisition, the Company integrated the two operations, and offers uniform products and services to middle-market manufacturers under the name Fullscope. Fullscope Canada operations include a Canadian subsidiary, Fullscope Software Solutions Canada, Inc., which is engaged in the same line of business. In 2008, Fullscope changed the name of its Canadian Subsidiary from RedKlay Web Solutions Canada, Inc. to Fullscope Software Solutions Canada, Inc. (“Fullscope Canada”).

Fullscope specializes in helping mid-market manufacturers with revenues of less than $1 billion balance customer service and operational performance objectives. Fullscope solutions and services improve operational efficiency by integrating sales, production, inventory, quality control, distribution and customer service; increasing speed and flexibility of manufacturing operations; and providing real-time insight into production processes and costs.

The Company is an authorized Microsoft Business Solutions Dynamics AX Partner in North America.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, from the date of acquisition. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentrations

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts receivable.

9

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 1: DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

As of December 31, 2008 and 2007, one customer accounted for 10% and 13% of gross revenues and as of December 31, 2007 two customers accounted for 22% of gross revenue. As of December 31, 2008, one customer accounted for 11% of accounts receivable. As of December 31, 2007, two customers accounted for 22% and one customer accounted for 11% of accounts receivable. The Company licenses product for resale primarily from Microsoft. During the years ended December 31, 2008 and 2007, Microsoft accounted for 39% and 31% of purchases. As of December 31, 2008 and 2007, Microsoft accounted for 73% of accounts payable.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains cash accounts with banks, which are in excess of insured limits. The Company does not believe the risk of loss is significant.

Accounts Receivable

Accounts receivable are presented net of an allowance for doubtful accounts of approximately $283,000 and $154,000 as of December 31, 2008 and 2007.

The Company grants credit for its products and services to its customers without requiring collateral or third party guarantees. The Company monitors customers’ payment history and establishes reserves for management’s estimate of bad debts and sales allowances. The bad debt allowance is shown as a reduction of accounts receivable on the balance sheet and an increase in general and administrative expense on the statement of operations. Allowance for sales returns are shown as reductions of accounts receivable on the balance sheet and reductions of revenue on the statement of operations. In the opinion of management, the allowances are adequate as of December 31, 2008 and 2007. Actual results could differ from the estimates that were used.

Restricted Cash

Restricted cash consists of a bank certificate of deposit required as collateral by the Company’s vendor agreement with Microsoft.

10

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 1: DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Property and Equipment

Property and equipment is primarily comprised of furniture and computer equipment which are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Property and equipment includes certain equipment under capital leases. These items are depreciated over the shorter of the lease period or the estimated useful life of the equipment.

Expenses for repair and maintenance are charged to operations as incurred. Upon retirement or sale, the cost of the disposed assets and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operations.

Capitalized Software Costs

The Company accounts for software development costs related to software products sold to customers in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86, Accounting for the Costs of Software to be Sold, Leased, or Otherwise Marketed (“SFAS No. 86”), which requires capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. Software development costs consist primarily of compensation and related benefits, consulting fees and other operating costs associated with the software development department. Capitalized software costs are amortized over the period of expected benefit, which is typically two to four years, at a rate based on the higher of the straight-line or expected revenue methods. The Company has capitalized software costs of $3,808,206 and $2,660,574, less accumulated amortization of $1,711,174 and $870,597, as of December 31, 2008 and 2007.

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, notes payable, capital leases and preferred stock warrants. The carrying amounts of cash and cash equivalents, account receivable, and accounts payable approximate their fair values due to the short-term nature of such instruments. The carrying amounts of borrowings under the Company’s debt facilities approximate their fair values as of December 31, 2008 and 2007, based on the determination that the stated rates on such debt are consistent with current interest rates for similar borrowing arrangements available to the Company. The carrying amounts of preferred stock warrant liabilities are revalued and adjusted at the end of each reporting period to reflect their fair value using the Black-Scholes valuation model.

11

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 1: DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition and Deferred Revenues

The Company follows the provisions of AICPA Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by AICPA SOP 98-9, Modification of SOP 97-2 Software Revenue Recognition with Respect to Certain Transactions, and Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB 104, Revenue Recognition.

The Company generates revenues by charging license, subscription and maintenance fees for the use of its technology and reselling products, primarily from Microsoft. The Company also offers professional services related to these solutions for activities such as project implementation and training.

Total subscription fees are recognized ratably over the term of the agreement. Revenues from the sale of software licenses and custom development and implementation services under fixed-fee contracts are recognized using the percentage-of-completion method over the term of the development and implementation services. Losses expected to be incurred on custom development and implementation services contracts in process, for which the fee is fixed, are charged to income in the period in which the estimated losses are initially identified.

Revenues from the sale of standardized versions of software are recognized upon customer acceptance. Revenues from implementation services are recognized concurrently with the effort and costs incurred by the Company, at billable rates specified in the terms of the contract.

The Company sells maintenance contracts to provide updates and standard enhancements to its software products and also sells third party maintenance contracts for standardized versions of the software. Maintenance fee revenue for the Company’s software products is recognized ratably over the term of the arrangements, generally one year. Maintenance fee revenues for third party maintenance contracts are recognized upon customer acceptance. Deferred revenue of $482,577 and $859,570 as of December 31, 2008 and 2007 consist primarily of prepaid maintenance fees and implementation services which are deferred until the services have been delivered. Deferred revenue of $500,000 and $0 as of December 31, 2008 and 2007 related to an option payment received from Microsoft to purchase certain software (see Note 14).

12

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 1: DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Reimbursable Out-of-Pocket Expenses

The Company pays on behalf of its customers travel and other out-of-pocket costs for which the Company is reimbursed at cost, without mark-up or profit. In accordance with Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force (“EITF”)Rule No. 01-14, Income Statement Characterization of Reimbursement Received for “Out-of-Pocket” Expenses Incurred (“EITF 01-14”), out-of-pocket costs are included in cost of revenue while the reimbursements received are reported as revenues in the statements of operations. Reimbursements included in cost of revenue were $1,143,967 and $1,678,425 as of December 31, 2008 and 2007.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense was approximately $160,000 and $181,000 in 2008 and 2007.

Preferred Stock Warrant Liability

Effective January 1, 2006, the Company adopted the provisions of FASB Staff Position (“FSP”) No. 150-5, Issuer’s Accounting under Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares that are Redeemable (“FSP 150-5”), an Interpretation of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Pursuant to FSP 150-5, freestanding warrants for shares that are either puttable or warrants for shares that are redeemable are classified as liabilities on the balance sheet at fair value. At the end of each reporting period, changes in fair value during the period are recorded as a component of other income or expense.

Stock-Based Compensation

Employees – Effective January 1, 2006, the Company adopted Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS 123R”) which requires all share-based compensation to employees, including the grant of employee stock options, to be recognized in the income statement based on its fair value. The Company adopted SFAS 123R using the prospective method. Under this method, the provisions for SFAS 123R apply to all awards granted or modified after January 1, 2006. Awards outstanding at the adoption date continue to be accounted for using the accounting principles originally applied to the award. The expense associated with share-based compensation is recognized on a straight-line basis over the service period of each award.

13

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 1: DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Non-employees – Share-based compensation granted to non-employees is accounted for in accordance with SFAS 123R and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, which requires that compensation be recorded each reporting period for changes in the fair value of the Company’s stock until the measurement date. The measurement date is generally considered to be the date when all services have been rendered or the date that options are fully vested.

All options were fully vested in 2006, for the periods ended December 31, 2008 and 2007, there was no share-based compensation.

Comprehensive Income

SFAS 130, Reporting Comprehensive Income, requires the Company to display an amount representing the total comprehensive income for the period in the financial statement, which is displayed with the same prominence as other financial statements. The Company has reported its foreign currency translation as a component of comprehensive income.

Fair Value Measurements

In 2006, the FASB issued No. 157, Fair Value Measurements (“SFAS 157”). The guidance within SFAS 157 includes a definition of fair value, established a framework for measuring fair value in generally accepted accounting principles, and expands disclosure requirements in financials statements that incorporate fair value measurements. In accordance with FSP 157-2, the Company has elected to defer implementation of SFAS 157 as it relates to non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statement on a non-recurring basis until January 1, 2009. The measurement and disclosure provisions within SFAS 157 were adopted for financial assets and liabilities the year ending December 31, 2008.

The Company’s financial assets and liabilities carried at fair value have been classified, for disclosure purposes, based on a hierarchy defined by SFAS No. 157. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset’s or a liability’s classification is based on the lowest level input that is significant to its measurement.

14

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 1: DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

For the years ending December 31, 2008 and 2007, the Company used the fair value of common stock to determine the value of warrants to purchase convertible redeemable preferred stock issued in connection with debt financing and recorded a warrant liability. The fair value of the warrants was determined using the Black-Scholes pricing model and assumptions that management believes market participants would use to determine a current transaction price. This valuation technique involves management’s estimates and judgment based on unobservable inputs and is classified in Level 3.

The following table summarizes the changes in fair value of the warrant liabilities classified in Level 3. Gains reported in this table include changes fair in value that are attributable to unobservable inputs.

Beginning balance as of December 31, 2007:	$	77,374
Total gains or losses (realized/unrealized)
Change in warrant liability (included in other expense)		(6,486	)
Ending balance as of December 31, 2008	$	70,888
The amount of total loss for the period attributable to the change in unrealized losses relating to liability still held at the reporting date	$	(6,486	)

Income Taxes

The Company accounts for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes (“SFAS 109”). Under SFAS 109, the liability method is used in accounting for income taxes and deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax carryforwards at enacted statutory tax rates in effect for the years in which the differences are expected to reverse.

The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

15

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 1: DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (concluded)

On December 30, 2008, the FASB Staff issued FASB Staff Position FIN 48-3, Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises. Accordingly, the Company has elected to defer implementation of the provisions of FIN 48 until its fiscal year beginning after December 15, 2008.

Since the provisions of FIN 48 have not been implemented in accounting for uncertain tax positions, the Company continues to utilize its prior policy of accounting for these positions, following the guidance in SFAS No. 5, Accounting for Contingencies.

Restatement

The Company amended their 2007 tax returns to correct the allocation of income between tax jurisdictions and adjusted the income tax expense and payable. The restated accounts as of December 31, 2007 and for the year then ended are as follows:

Account	December 31, 2007, as Reported			December 31, 2007 Balance, Restated		Change
Accrued expenses	$	2,244,249		2,187,705		56,544
Accumulated deficit		(27,746,686	)	(27,690,142	)	(56,544	)
Provisions for income taxes		(622,400	)	(565,856	)	(56,544	)
Net income		888,492		945,036		56,544

NOTE 2: LIQUIDITY

The accompanying consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company had stockholders’ deficit and working capital deficit of $3,915,107 and $1,389,692 as of December 31, 2008. Subsequent to year-end, the Company closed a deal with Microsoft for $7.5M (See Note 14). The Company believes cash and cash equivalents are sufficient to satisfy requirements through 2009.

16

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 3: PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of December 31:

	Estimated Useful Lives (in years)	2008		2007
Furniture and equipment	5	$	1,139,072	1,082,460
Computer software and equipment	3		149,431	143,623
Total costs			1,288,503	1,226,083
Less accumulated depreciation and amortization			1,120,590	992,367
Property and equipment, net		$	167,913	233,716

Depreciation expense for the years ended December 31, 2008 and 2007 was $131,707 and $118,492.

NOTE 4: ACCRUED EXPENSES

Accrued expenses are comprised of the following as of December 31:

	2008		2007
Sales and other tax	$	394,026	738,425
Customer settlement		625,000	125,000
Commissions and bonuses		327,663	360,754
Compensation		337,136	321,341
Vendor expenses		195,269	522,434
Vacation		89,293	105,729
Payroll taxes		24,762	14,022
Deferred rent		29,882	—
Total		2,023,031	2,187,705
Less long-term portion		209,233	—
Current portion	$	1,813,778	2,187,705

17

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 5: LINE OF CREDIT

The Company maintained a bank line of credit with a limit of $1,750,000 through March 2008 when it was increased to $2,250,000 and extended through May 2009. Interest accrues at the Wall Street Journal prime rate plus 2.5% (5.75% as of December 31, 2008) with a balance due of $1,755,921 as of December 31, 2008. In May 2009, the line was extended through May 2010 with an interest rate of the LIBOR base rate plus 4%. Advances under this line of credit are based on 80% of eligible accounts receivable and 65% of eligible foreign accounts receivable. The line of credit is secured by the assets of the Company. The Company must maintain certain covenants which include the provision of financial reports and the maintenance of certain financial ratios. The Company has not complied with certain reporting and financial covenants as of December 31, 2008. In March 2009, the bank agreed to waive all violations through December 31, 2008 and revised the financial covenants. The Company was in compliance with the revised covenants as of March 2009 and June 2009.

NOTE 6: LONG-TERM DEBT

In December 2004, the Company entered into a $1,000,000 promissory note with a bank payable in December 2005. Interest is payable on a monthly basis at the Wall Street Journal prime rate plus 2.0% (5.25% as of December 31, 2008) and equal principal payments of $31,250 from January 2006 through the maturity date which was extended to December 2008. The note is secured by the assets of the Company. The note was paid in full as of June 2008.

In conjunction with the note, the Company granted the bank a warrant to purchase 14,426,059 shares of Series III preferred stock with an exercise price of $0.003. The estimated fair value of the warrant according to the Black-Scholes pricing model was $39,229, which was recorded as a warrant liability and debt discount, of which $13,076 was amortized as interest expense in 2008 and 2007. As of December 31, 2008, the debt discount had been fully amortized. The warrants liability was revalued to $70,888 to reflect the fair market value of the warrants as of December 31, 2008.

18

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 7: LEASE OBLIGATIONS AND COMMITMENT

The Company leases its office space under the terms of two operating leases. The Company also leases office space on a monthly basis at a rate of $1,101. The Company leases equipment under several capital leases. Future minimum lease payments required under the operating and capital leases for each of the years ending December 31, are as follows:

	Operating Leases		Capital Leases
2009	$	126,281	72,282
2010		130,069	25,589
2011		133,972	14,495
2012		79,501	2,416
Total minimum lease payments	$	469,823	114,782
Less amount representing interest at 6.0-15.0%			13,178
Present value of net minimum lease payments			101,604
Less current maturities			63,619
Long-term obligation under capital leases			37,985

Included in accrued expenses as of December 31, 2008 is $29,882 of deferred rent on the office space located in Alpharetta, Georgia.

The cost and accumulated amortization of equipment under the capital leases are the following as of December 31:

	2008		2007
Cost	$	322,381	272,258
Less accumulated amortization		201,002	117,738
Total	$	121,379	154,520

Rent expense related to non-cancelable operating leases for the years ended December 31, 2008 and 2007 was approximately $182,000 and $171,000.

19

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 8: STOCKHOLDERS’ EQUITY

Capital Structure

Authorized Shares – The Company is authorized to issue up to 1,992,502,790 shares of $0.0001 par value common stock and 856,936,183 shares of $0.0001 par value preferred stock, of which 583,175,210 have been designated as Series III redeemable preferred stock (“Series III”) and 273,760,973 have been designated as Series IV redeemable preferred stock (“Series IV”).

Common Stock

As of December 31, 2007, the Company had outstanding 18,330,865 shares of $0.0001 par value common stock.

On January 23, 2008, one board member exercised 57,164,863 options for $5,716.

Stockholders’ Agreement – A stockholders’ agreement restricts the transfer of common stock, details provisions covering the election of directors and officers, and covers certain other matters related to the rights of the stockholders.

Redeemable Convertible Preferred Stock

As of December 31, 2008 and 2007, the Company had outstanding 523,392,296 shares of Series III.

On August 9, 2007, the Company converted $934,889 in outstanding stockholder notes payable and $197,331 in accrued interest into 193,791,264 shares of Series IV at $0.0058425 per share.

Liquidation Rights – Upon any liquidation, dissolution or winding up of the Company, the holders of the outstanding shares of Series III shall be entitled to receive in preference to the holders of common stock and holders of any class of stock ranking junior to the Series III of the Company, an amount per share equal to two times the invested amount plus all accrued but unpaid dividends on each share of preferred stock; provided, however, that with respect to any liquidation, dissolution or winding up of the Company, that values the Company in excess of $10,000,000, the liquidation preference shall be automatically increased to an amount per share equal to four times the invested amount plus all accrued but unpaid dividends on each share of preferred stock. Such amounts shall be paid to each holder in cash, unless agreed to otherwise by such holder.

The holders of the outstanding shares of Series IV shall be entitled to receive in preference to the holders of common stock and the holders of any other class or Series of stock of the Company, an amount per share equal to the invested amount plus all accrued but unpaid dividends on each share of preferred stock.

Upon the completion of the liquidation distribution, the holders of preferred stock shall automatically be converted into common stock at the then effective conversion rate and the remaining assets of the Company available for distribution to stockholders shall be distributed among the holders of preferred stock (as converted) and common stock pro rata based on the number of shares of common stock held by each.

20

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 8: STOCKHOLDERS’ EQUITY (continued)

Voting Rights – The holder of each share of preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which such share of preferred stock would be convertible.

At any such time and for so long as any shares of preferred stock are outstanding, the number of directors of the Company shall be seven directors, to be elected as follows:

a. four directors shall be elected by the holders of preferred stock; and

b. three directors shall be elected by the holders of a majority-in-interest of the common stock.

So long as at least 25% of preferred stock are then outstanding, except where the vote or written consent of the holder of a greater number of shares is required by law or by another provision of the certificate of incorporation, without first obtaining the affirmative vote or written consent of the holders of at least a majority, the Company shall not:

a. amend or repeal any provision of, or add any provision to, the Company’s certificate of incorporation or bylaws, or file any certificate of designations, preferences, limitations and relative rights of any series of preferred stock, if such action would alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of preferred stock;

b. create or authorize the creation or increase the authorized amount of any additional class or series of shares of stock, unless the same ranks junior to preferred stock as to dividends, redemption and the distribution of assets on the liquidation, dissolution or winding up of the Company; or create or authorize any obligation or security convertible into shares of any class or series of stock unless such class or series of stock ranks junior to preferred stock as to dividends, redemption and the distribution of assets on the liquidation, dissolution or winding up of the Company; regardless of whether any such creation, authorization or increase shall be by means of amendment to the certificate of incorporation, or by merger, consolidation or otherwise;

c. increase or decrease the authorized number of shares of preferred stock;

d. enter into any agreement or understanding with respect to a capital transaction;

e. voluntarily or involuntarily liquidate, dissolve or wind up the Company or its business;

f. enter into any transaction or series of transactions (including without limitation by merger, consolidation or otherwise) which directly or indirectly effects an amendment of the Company’s certificate of incorporation or certificate of designation;

g. pay any dividends with respect to any shares of common stock or any equity securities of the Company junior to the preferred stock;

21

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 8: STOCKHOLDERS’ EQUITY (continued)

h. purchase, redeem or otherwise acquire for value any shares of any class of its capital stock or cause or permit any employee stock ownership plan, including any employee stock ownership plan as defined in Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended, to purchase shares of any class of its capital stock except for repurchases of shares from former employees upon termination of employment pursuant to the terms of such former employees’ stock purchase agreements providing for such repurchases at the original issuance prices for such shares and except for redemption of the preferred stock;

i. adopt or amend a stock option plan or employee stock ownership plan;

j. make any capital expenditure, acquisitions or investments in excess of $300,000;

k. license, sell or dispose of any asset or investment other than in the ordinary course of business with either a book value or fair market value in excess of $300,000;

l. change the nature of its business; or

m. amend the provisions pertaining to majority approval.

Conversion – Each share of preferred stock shall be convertible, at the option of the holder at any time after the date of issuance and without payment of additional consideration, into such number of common shares as is determined by dividing the consideration received by the Company for the purchase of each share by the conversion price in effect at the time of conversion. The conversion price shall initially be the amount of consideration received for each share. The conversion price is subject to adjustment for subdivisions, dividends, combinations, reclassifications, merger, sale, etc. Any unpaid or declared but unpaid dividends on the shares of preferred stock may also be converted into common stock.

Dividend Rights – The holders of the preferred stock shall be entitled to receive, out of funds legally available for the declaration of dividends, preferential cumulative dividends in a per share amount equal to 9% of the invested amount per share per annum on each share of preferred stock, which dividends shall accrue and shall be payable only upon conversion, liquidation or redemption. Such dividends shall commence to accrue on the shares of preferred stock, compound annually and be cumulative from and after the original date of issuance, whether or not the Board of Directors declares dividends. Such dividends shall be calculated on the basis of a 365-day year and shall be paid pro rata among the holders of the preferred stock.

22

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 8: STOCKHOLDERS’ EQUITY (concluded)

The dividend rate specified above shall be equitably adjusted for any combinations, consolidations, recapitalizations, stock splits, stock dividends and the like. In addition, the holders of shares of preferred stock shall be entitled to receive, out of the assets legally available therefore, dividends that are declared and paid with respect to the common stock (treating each share of preferred stock as being equal to the number of shares of common stock (including fractions of a share) into which each share of preferred stock is then convertible). No dividends may be paid with respect to the common stock of the Company until all dividends declared or accrued on all outstanding shares of the preferred stock have been set apart and paid. The Company shall be under no obligation to pay such dividends unless so declared by the Board of Directors. No dividends have been declared as of December 31, 2008. The cumulative dividends for the Series III were $600,146 and $430,766 as of December 31, 2008 and 2007. The cumulative dividends for the Series IV were $148,179 and $42,458 as of December 31, 2008 and 2007. The cumulative dividends have been included in the accretion.

Redemption – At any time after December 21, 2009 for the Series III and August 2012 for the Series IV and following the approval of a majority, each holder of preferred stock may elect to cause a redemption of all the shares of preferred stock held by such holder (an “Electing Holder”). The Company shall redeem all of the then outstanding shares of preferred stock held by the Electing Holder by paying to such Electing Holder in cash an amount per share equal to the greater of: (a) the liquidation preference or (b) the fair market value of each such share.

The “Fair Market Value” of a share of preferred stock shall mean the value jointly determined by the Company and the Electing Holders. In the opinion of management, the fair market value of the preferred stock was approximately $0.006 as of December 31, 2008.

Preemptive Rights – The holders of preferred stock shall have the right of first refusal to purchase any new securities (as defined in this Section (6)) that the Company may, from time to time, propose to sell and issue.

Diluted Shares Calculation

The following reflects the potential dilution of common stock as of December 31, 2008:

	Shares	Percent
Common stock	75,495,728	7.9	%
Common stock options:
Granted	80,537,712	8.4	%
Reserved for stock options	27,697,905	2.9	%
Common stock warrants outstanding	33,439,899	3.5	%
Preferred stock warrants outstanding	21,639,089	2.3	%
Series III redeemable convertible preferred stock	523,392,296	54.7	%
Series IV redeemable convertible preferred stock	193,791,264	20.3	%
Total	955,993,893	100.0	%

23

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 9: COMMON STOCK OPTIONS AND WARRANTS

Stock Incentive Plan

In 2000, the Company adopted the Incentive Program (the “Plan”) for key employees. A total of 168,470,078 shares of common stock have been reserved for issuance under the Plan. In addition, Fullscope Canada adopted an Incentive Program, reserving 1,800,000 shares of common stock for issuance. Under the two plans, a combined total of 170,270,078 shares of common stock are available for issuance of which 27,697,905 shares are available for future grants as of December 31, 2008. Eligible plan participants include employees, directors, and consultants. The Plan permits the granting of incentive stock options and nonqualified stock options. The terms of the stock option grants are determined by the Company’s Board of Directors. The Company’s stock options vest based on terms in the stock option agreements and generally vest over 12 months and have a term of ten years.

The following summarizes the stock option balances as of December 31, 2008:

	Available For Grant	Options Outstanding		Weighted Average Exercise Price
Balance as of January 1, 2007	27,697,905	137,702,575		$	0.0069
Granted	—	—			—
Forfeited	—	—			—
Exercised	—	—			—
Balance as of December 31, 2007	27,697,905	137,702,575			0.0069
Granted	—	—			—
Forfeited	—	—			—
Exercised	—	(57,164,863	)		.0001
Balance as of December 31, 2008	27,697,905	80,537,712		$	0.012

The following summarizes certain information about stock options vested and expected to vest as of December 31, 2008:

	Number of Options	Weighted-Average Remaining Contractual Life (In Years)	Weighted-Average Exercise Price
Outstanding	80,537,712	6.89	$	0.01
Exercisable	80,537,712	6.89		0.01

24

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 9: COMMON STOCK OPTIONS AND WARRANTS (concluded)

Selected information regarding stock options as of December 31, 2008 follows:

Exercise Price		Options Outstanding	Weighted-Average Remaining Life	Options Exercisable
$	0.0001	80,030,806	6.92	80,030,806
	1.3500	290,239	1.89	290,239
	2.5000	216,667	3.13	216,667
		80,537,712		80,537,712

As of December 31, 2008, there was no unrecognized compensation cost related to nonvested share-based compensation arrangements.

Warrant

A summary of warrants outstanding as of December 31, 2008 is as follows:

Warrants		Exercise Price	Expiration Date
Common stock warrants outstanding	2,903,538	0.0001	January – December 2011
Common stock warrants issues to related parties (see Note 11)	30,536,361	0.0001	December 24, 2011
Series III preferred stock warrants issued to related parties (see Note 11)	7,213,030	0.003	December 24, 2011
Series III preferred stock warrant issued to bank (see Note 6)	14,426,059	0.003	December 24, 2011
	55,078,988

25

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 10: INCOME TAXES

The components of income tax expense (benefit) attributable to income before income taxes for the years ended December 31, 2008 and 2007 consisted of the following:

	2008			2007
Current:
Federal	$	—		437,500
State		(28,400	)	128,300
Total	$	(28,400	)	565,800

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 2008 and 2007 are as follows:

	2008			2007
Current deferred tax assets:
Accrued expenses	$	237,300		148,100
Other assets		107,900		57,300
Valuation allowance		(345,200	)	(205,400	)
Net deferred tax assets, current		—		—
Noncurrent deferred tax assets:
Net operating loss carryforwards – U.S.		4,674,400		4,847,700
Net operating loss carryforwards – Canada		1,668,800		1,540,400
Research and development tax credits		141,800		108,900
Research and development expenses – Canada		36,300		26,500
Intangible assets		—		182,400
Other		456,700		218,600
Total deferred tax assets, noncurrent		6,978,000		6,924,500
Valuation allowance for deferred tax assets		(6,218,700	)	(6,337,600	)
Deferred tax assets, noncurrent		759,300		586,900
Noncurrent deferred tax liabilities:
Property and equipment		43,100		30,900
Capitalized software development costs		716,200		556,000
Net deferred tax liabilities, noncurrent		759,300		586,900
Net deferred tax liability	$	—		—

26

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 10: INCOME TAXES (concluded)

Income tax is computed at the statutory federal income tax rate of 34% and reconciled to the provision (benefit) for income taxes as follows:

	2008					2007
	Amount			% of Pretax Earnings		Amount		% of Pretax Earnings
Expected income tax expense	$	(129,100	)	(34	)%	420,700		34	%
State taxes net of federal benefit		2,800		1	%	69,500		6	%
Nondeductible expenses		48,400		13	%	57,400		4	%
Research and development tax credit		(84,300	)	(22	)%	(71,900	)	(6	)%
Change in valuation allowance		20,900		5	%	(323,700	)	(26	)%
Expiration of Canadian net operating losses		33,400		9	%	460,000		37	%
Other, including effect of tax rate brackets		79,600		21	%	(46,200	)	(4	)%
Provision for income taxes	$	(28,400	)	(6	)%	565,800		45	%

The Company has established a valuation allowance against its deferred tax asset due to the uncertainty surrounding the realization of such asset.

The Tax Reform Act of 1986 contains provisions which limit the ability to utilize the net operating loss carryforwards in the case of certain events including significant changes in ownership interests. If the Company’s net operating loss carryforwards are limited and the Company has taxable income which exceeds the permissible yearly net operating loss carryforwards, the Company would incur a federal income tax liability even though net operating loss carryforwards would be available in future years. The Company has calculated a limitation on its net operating losses and research and development credits prior to December 2004 due to this provision.

27

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 11: RELATED PARTY TRANSACTIONS

Notes Payable

In December 2004, the Company entered into promissory notes with three stockholders amounting to $300,600, $157,500, and $41,900 for a total of $500,000. The notes are payable in monthly interest installments of $3,006, $1,575, and $419 (interest at a rate of 1% per month) and the principal and interest payments from June 2008 through the maturity date of June 2009. As of December 31, 2008 the balances outstanding on the notes was $150,300, $78,750 and $20,950. Interest expense under these notes of $0 and $1,151 were accrued as of December 31, 2008 and 2007. Interest expense of $53,655 and $60,000 was recognized in 2008 and 2007.

In conjunction with these notes, the Company granted warrants to purchase 18,358,460 shares, 9,618,954 shares, and 2,558,947 shares of common stock. The estimated fair value of the warrants according to the Black-Scholes pricing model was $2,995, which was recorded as debt discount and fully amortized as interest expense as of December 31, 2007. Both the fair value and exercise price were $0.0001 per share.

Also in conjunction with these notes, the Company granted warrants to purchase 4,336,474 shares, 2,272,104 shares, and 604,452 shares of Series III preferred stock with an exercise price of $0.003. The estimated fair value of the warrants according to the Black-Scholes pricing model was $19,615 which was recorded as a warrant liability and debt discount, which was fully amortized as interest expense as of December 31, 2007. In 2007 the fair value of the warrants increased to $0.006 and an additional $6,177 was recorded as warrant liability. The warrant liability was reduced $6,486 to $70,888 to reflect the fair value of warrants as of December 31, 2008.

Rent

The Company rents office space in Alabama and Quebec, Canada from stockholders (see Note 7). In 2008 and 2007, $48,000 was paid to stockholders for annual rent expense.

Consulting Fees

As of December 31, 2008 and 2007, accrued expenses included $0 and $4,255 payable to both a stockholder and a Board member for consulting fees. In 2008 and 2007, $230,545 and $230,545 was paid for consulting fees to related parties and an additional $0 and $17,000 was included in accounts payable and $33,000 and $130,000 in accrued expenses as of December 31, 2008 and 2007.

28

FULLSCOPE, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008 and 2007

NOTE 12: EMPLOYEE BENEFIT PLANS

The Company maintains a qualified 401(k) Retirement Plan (the “Plan”). All full-time employees of the United States parent company are eligible to participate and participants may contribute up to IRS limitations. The Company will contribute 1.0% of an employee’s salary as long as the employee is contributing at least 1.0% into the Plan. The Company made contributions of $43,228 and $31,005 related to the Plan in 2008 and 2007.

The Company also maintains a Registered Retirement Savings Plan (“RRSP”) for all full-time employees of its Canadian subsidiary. The Company will contribute 50% for every employee dollar deferred up to 4%, to a maximum of $3,000 per year for those employees enrolled in the Plan. The individual maximum which can be contributed to the RRSP is $18,000. The Company made contributions of approximately $14,031 and $10,600 related to the Plan in 2008 and 2007.

NOTE 13: CONTINGENCY

Litigation Settlement

In March 2008, the Company received a demand letter from a customer seeking a refund with respect to payments made by the customer in connection with software and services provided by the Company. The customer alleges that the Company failed to deliver a fully functional, maintainable and extensible working software system pursuant to a contract between the two parties. In January 2009, a settlement was reached and the Company is required to pay the plaintiff $350,000 within 20 days of the settlement and then 36 equal payments of $7,639. The Company’s insurance will cover $150,000 of the expenses and is included in accounts receivable as of December 31, 2008. As of December 31, 2008, management has accrued $625,000 for the settlement.

NOTE 14: SUBSEQUENT EVENTS

In July 2008, the Company entered an agreement with Microsoft for a one-year option to purchase certain software for $7,500,000. The Company received a $500,000 nonrefundable option payment which will be applied to the final purchase price. On June 25, 2009, the Company entered into an asset purchase agreement for a total purchase price of $7,500,000 of which $6,300,000 was paid when the product was delivered and accepted by Microsoft. The balance of $700,000 shall be held in escrow accruing interest until one year after the purchase date.

On May 31, 2009, the line of credit was renewed with a limit of $2,250,000 with a maturity date of May 31, 2010. The interest rate is LIBOR base rate plus 4%.

29

EX-99.2

Exhibit 99.2

Item 9.01(a) Financial Statements of Business Acquired – Unaudited Consolidated Financial Statements

FULLSCOPE, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED SEPTEMBER 30, 2009 and 2008

CONTENTS

	Page
Consolidated Balance Sheet	2
Consolidated Statements of Operations	3
Consolidated Statements of Cash Flows	4
Notes to Consolidated Financial Statements	5

FULLSCOPE, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEET

(Amounts in Thousands, Except Share Data)

	September 30, 2009			December 31, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	7,304		$	1,247
Restricted cash		701			—
Accounts receivable, net		3,970			3,000
Prepaid expenses and other current assets		156			222
Total current assets		12,131			4,469
Property and equipment, net		174			168
Restricted cash		—			25
Capitalized software costs, net		41			2,097
Other assets		24			—
Total assets	$	12,370		$	6,759
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	5,228		$	2,806
Line of credit		1,724			1,756
Notes payable, related parties, current		125			250
Current portion of capital lease obligations		60			64
Deferred revenue		878			983
Total current liabilities		8,015			5,859
Accrued expenses		—			209
Other liabilities		130			—
Capital lease obligations		—			38
Warrant liability		71			71
Total liabilities		8,216			6,177
Series III redeemable convertible preferred stock, $0.0001 par value, 583,175,210 shares designated, 523,392,296 shares issued and outstanding (liquidation preference of $3,574,000)		3,574			3,217
Series IV redeemable convertible preferred stock, $0.0001 par value, 273,760,973 shares designated, 193,791,264 shares issued and outstanding (liquidation preference of $1,367,000)		1,367			1,280
Total redeemable convertible preferred stock		4,941			4,497
Common stock, $0.0001 par value, 1,992,502,790 shares authorized, 75,495,728 shares issued and outstanding		8			8
Additional paid in capital		24,409			24,852
Accumulated other comprehensive loss		(606	)		(735	)
Accumulated deficit		(24,598	)		(28,040	)
Total stockholders’ deficit		(787	)		(3,915	)
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit	$	12,370		$	6,759

See accompanying notes to unaudited consolidated financial statements.

2

FULLSCOPE, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Thousands)

	For the Nine Months Ended
	September 30,			September 30,
	2009			2008
Revenue:
Service revenue	$	9,541		$	7,090
Software and license revenue		7,706			8,486
Asset sale (Note 10)		6,800			263
Reimbursable expenses		1,113			859
Total revenues		25,160			16,698
Cost of revenue:
Project and personnel costs		5,243			5,047
Software and license costs		4,465			4,728
Amortization of software development costs		616			548
Asset sale		1,897			—
Reimbursable expenses		1,113			859
Total cost of revenue		13,343			11,182
Gross profit		11,826			5,516
Operating expenses:
Selling, general and administrative		4,743			3,808
Research and development		584			473
Axapta process		562			661
Customer relations		153			146
Depreciation		98			92
Total operating expenses		6,140			5,180
Operating income		5,686			336
Other expense:
Interest expense, net		(67	)		(143	)
Other expense, net		—			5
Loss on foreign currency exchange		(14	)		(41	)
Total other expense, net		(81	)		(179	)
Income before income taxes		5,605			157
Provision for income taxes		2,138			60
Net income	$	3,467		$	97

See accompanying notes to unaudited consolidated financial statements.

3

FULLSCOPE, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

	For the Nine Months Ended
	September 30,			September 30,
	2009			2008
Cash Flows from Operating Activities:
Net income	$	3,467		$	97
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		98			92
Amortization		616			548
Deferred income taxes		—			587
Gain on asset sale		(5,103	)		—
Changes in operating accounts:
Accounts receivable, net		(970	)		1,657
Prepaid expenses, other current assets and other assets		42			(429	)
Accounts payable and accrued expenses		2,320			(137	)
Deferred revenue		(105	)		(87	)
Net cash provided by operating activities		365			2,328
Cash Flows from Investing Activities:
Proceeds from asset sale		7,000			—
Capitalization of software costs		(457	)		(1,031	)
Changes in unrestricted cash		(676	)		—
Purchases of property and equipment		(58	)		(6	)
Net cash provided by (used in) investing activities		5,809			(1,037	)
Cash Flows from Financing Activities:
Repayment of note payable		—			(5	)
Borrowings against line of credit		—			380
Repayments of line of credit		(32	)		(261	)
Repayments of long term debt		—			(281	)
Payment capital lease obligations		(88	)		(65	)
Repayment on stockholder advances		(125	)		(125	)
Net cash used in financing activities		(245	)		(357	)
Effects of exchange rates on cash		128			(233	)
Net increase (decrease) in cash and cash equivalents		6,057			701
Cash and cash equivalents, beginning of period		1,247			1,326
Cash and cash equivalents, end of period	$	7,304		$	2,027
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	84		$	159
Cash paid for income taxes	$	174		$	308
Supplemental Disclosure of Non-Cash Financing Activities:
Accretion of redeemable preferred stock	$	444		$	424
Acquisition of property and equipment under capital leases	$	45		$	19
Unrecognized tax benefits	$	25		$	—

See accompanying notes to unaudited consolidated financial statements.

4

FULLSCOPE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Fullscope, Inc. (“Fullscope” or the “Company”) was incorporated July 14, 1999 in the state of Delaware. In February 2002, the Company acquired RedKlay Web Solutions, Inc., a company engaged in the business of developing, marketing, distributing, licensing, maintaining and supporting customer-driven collaborative commerce software and service solutions to middle-market manufacturing and distribution companies. After acquisition, the Company integrated the two operations, and offers uniform products and services to middle-market manufacturers under the name Fullscope. Fullscope Canada operations include a Canadian subsidiary, Fullscope Software Solutions Canada, Inc., which is engaged in the same line of business. In 2008, Fullscope changed the name of its Canadian Subsidiary from RedKlay Web Solutions Canada, Inc. to Fullscope Software Solutions Canada, Inc. (“Fullscope Canada”).

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. These financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, which are considered necessary for fair presentation, have been included. For further information, you should refer to the audited financial statements and accompanying notes included in this Current Report on Form 8-K/A.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of Presentation – The unaudited consolidated financial statements include the accounts of Fullscope and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

As discussed in Note 11 of the notes to unaudited consolidated financial statements, on December 31, 2009, all of the outstanding stock of the Company was acquired by Edgewater Technology, Inc. (“Edgewater”).

Use of Estimates – The unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. These accounting principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. These estimates, judgments and assumptions used in preparing the accompanying consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements. Although the Company regularly assesses these estimates, judgments and assumptions used in preparing these consolidated financial statements, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.

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

Restricted Cash – As of September 30, 2009, the restricted cash represents an escrow deposit made in connection with Fullscope’s sale of certain intellectual property in June 2009 and is scheduled to be released in June 2010. See Note 10 of the notes to unaudited consolidated financial statements included elsewhere herein. As of December 31, 2009, the restricted cash balance was comprised of a bank certificate of deposit required as collateral by the Company’s vendor agreement with Microsoft Corporation (“Microsoft”). The escrow deposits are invested in interest-bearing accounts at federally insured banks.

Accounts Receivable and Allowance for Doubtful Accounts – Accounts receivable are presented net of an allowance for doubtful accounts of approximately $196 thousand and $283 thousand as of September 30, 2009 and December 31, 2008, respectively.

5

FULLSCOPE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company maintains an allowance for doubtful accounts related to its accounts receivable that have been deemed to have a high risk of collectability. Management reviews its accounts receivable balances on a monthly basis to determine if any receivables are potentially uncollectible. Management further analyzes historical collection trends and changes in its customer payment patterns, customer concentration and credit worthiness when evaluating the adequacy of its allowance for doubtful accounts. The Company includes any accounts receivable balances that are deemed to be potentially uncollectible, along with a general reserve, in its overall allowance for doubtful accounts. Based on the information available, management believes the allowance for doubtful accounts is adequate, however future write-offs could exceed the recorded allowance.

Property and Equipment – Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, which range from three to ten years. Equipment held under capital leases is amortized utilizing the straight-line method over the lesser of the estimated useful life of the asset or the term of the lease. See Note 4 and Note 9 of the notes to unaudited consolidated financial statements included elsewhere herein. Additions that extend the lives of the assets are capitalized, while repairs and maintenance costs are expensed as incurred.

Capitalized Software Costs – The Company accounts for software development costs related to software products sold to customers in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 985-20, “Costs of Software to Be Sold, Leased, or Marketed.” The Company begins to capitalize development costs when a product’s technological feasibility has been established and ends when a product is available for general release to customers. Software development costs consist primarily of compensation and related benefits, consulting fees and other operating costs associated with the software development department. Capitalized software costs are amortized over the period of expected benefit, which is typically two to four years, at a rate based on the higher of the straight-line or expected revenue methods. The Company had capitalized software costs of $506 thousand and $3.8 million, less accumulated amortization of $465 thousand and $1.7 million, as of September 30, 2009 and December 31, 2008, respectively.

Fair Value of Financial Instruments – Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, notes payable and preferred stock warrants. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values due to the short-term nature of such instruments. The carrying amounts of borrowings under the Company’s debt facilities approximate their fair values as of September 30, 2009 and December 31, 2008, based on the determination that the stated rates on such debt are consistent with current interest rates for similar borrowing arrangements available to the Company. The carrying amounts of preferred stock warrant liabilities are revalued and adjusted at the end of each reporting period to reflect their fair value using the Black-Scholes valuation model.

Revenue Recognition and Deferred Revenues – The Company generates revenues by charging license, subscription and maintenance fees for the use of its technology and reselling products, primarily from Microsoft. The Company also offers professional services related to these solutions for activities such as project implementation and training.

Total subscription fees are recognized ratably over the term of the agreement. Revenues from the sale of software licenses and custom development and implementation services under fixed-fee contracts are recognized using the percentage-of-completion method over the term of the development and implementation services. Losses expected to be incurred on custom development and implementation services contracts in process, for which the fee is fixed, are charged to income in the period in which the estimated losses are initially identified.

Revenues from the sale of standardized versions of software are recognized upon customer acceptance. Revenues from implementation services are recognized concurrently with the effort and costs incurred by the Company, at billable rates specified in the terms of the contract.

6

FULLSCOPE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company sells maintenance contracts to provide updates and standard enhancements to its software products and also sells third party maintenance contracts for standardized versions of the software. Maintenance fee revenue for the Company’s software products is recognized ratably over the term of the arrangements, generally one year. Maintenance fee revenues for third party maintenance contracts are recognized upon customer acceptance. Deferred revenue as of September 30, 2009 and December 31, 2008 included $178 thousand and $483 thousand of prepaid maintenance fees and implementation services, which are deferred until the services have been delivered. Additionally, as of September 30, 2009 and December 31, 2008, the Company is reporting deferred revenue of $700 thousand and $500 thousand, respectively, related to an asset purchase agreement with Microsoft to purchase certain software. See Note 10 of the notes to unaudited consolidated financial statements included elsewhere herein.

Out-of-pocket reimbursable expenses charged to customers are reflected as revenue.

Cost of Revenue – Cost of revenue primarily consists of project personnel costs principally related to salaries, payroll taxes, employee benefits and travel expenses for personnel dedicated to customer projects. Cost of revenue also includes costs of purchased software and reimbursable customer expenses. These costs represent the most significant expense incurred in providing services to the Company’s client base.

Provision for Taxes – In determining our current income tax provision, we assess temporary differences resulting from different treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in our consolidated balance sheets. We evaluate the realizability of our deferred tax assets and assess the need for a valuation allowance on an ongoing basis. In evaluating our deferred tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of our deferred tax assets depends upon generating sufficient future taxable income during the periods in which our temporary differences either become deductible or expire. This assessment requires significant judgment. However, recovery is dependent on achieving such projections and failure to do so would result in an increase in the valuation allowance in a future period.

Any future changes in the valuation allowance could result in additional income tax expense (benefit) and reduce or increase stockholders’ equity, and such changes could have a significant impact upon our earnings in the future.

Being a non-public entity, the Company adopted the provisions of ASC Topic 740, “Income Taxes,” specific to the recognition of unrecognized tax benefits, interest and penalties effective January 1, 2009. We established a $25 thousand liability for unrecognized income tax benefits, penalties and interest at the time of our adoption. The establishment of the liability was recorded as an adjustment to retained deficit and was not recorded as current year income tax expense. No amounts were accrued as of December 31, 2008 related to unrecognized tax benefits, penalties and interest.

We do not expect our unrecognized tax benefits to change significantly over the next twelve months. Income tax reserves are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not realized following resolution of any potential contingencies present related to the tax benefit.

Concentrations of Credit Risk – Financial instruments that potentially subject the Company to significant concentration of market or credit risk consist principally of cash equivalent instruments and accounts receivable. The Company places its cash balances with reputable financial institutions. At September 30, 2009, the Company had cash balances at a financial institution in excess of federally insured limits; however, management does not believe that the Company is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. Trade receivables potentially subject the Company to credit risk. The Company extends credit to its customers based upon an evaluation of the customer’s financial condition and credit history and generally does not require collateral.

Comprehensive Income (Loss) – Comprehensive income consists of periodic net income (loss) and gains (losses) related to foreign currency translations.

7

FULLSCOPE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Preferred Stock Warrant Liability – The Company classifies its freestanding warrants, which are redeemable and have characteristics of both liabilities and equity as a liability in the accompanying balance sheet as of September 30, 2009 and December 31, 2008. The warrant liability is reported at fair value. Periodic changes in the fair value of the warrants are recorded as a component of other income or expense.

Fair Value Measurements – The Company’s financial assets and liabilities carried at fair value have been classified, for disclosure purposes, based on a hierarchy defined by ASC Topic 820, “Fair Value Measurements and Disclosures.” The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset’s or a liability’s classification is based on the lowest level input that is significant to its measurement.

As of September 30, 2009 and December 31, 2008, the Company used the fair value of common stock to determine the value of warrants to purchase convertible redeemable preferred stock issued in connection with debt financing and recorded a warrant liability. The fair value of the warrants was determined using the Black-Scholes pricing model and assumptions that management believes market participants would use to determine a current transaction price. This valuation technique involves management’s estimates and judgment based on unobservable inputs and is classified in Level 3. No changes to the fair value of the warrants were recorded by the Company during the nine-month period ended September 30, 2009.

Share-based Compensation – We recognize as compensation expense the total fair value of share-based awards, over the requisite employee service period (generally the vesting period of the grant). We have used and expect to continue to use the Black-Scholes option-pricing model to compute the estimated fair value of stock-based awards on the date of grant. The Black-Scholes option pricing model includes assumptions regarding dividend yields, expected volatility, expected option term and risk-free interest rates. We estimate expected volatility based upon historical volatility. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.

The assumptions used in computing the fair value of stock-based awards reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. As a result, if other assumptions or estimates had been used, the stock-based compensation expense, if any, that was recorded could have been materially different. Furthermore, if different assumptions are used in future periods, stock-based compensation expense could be materially impacted in the future.

All of the Company’s issued and outstanding share-based awards were fully vested in 2006. There was no share-based compensation expense recorded by the Company during the nine-month periods ended September 30, 2009 and 2008. As of September 30, 2009, there was no unrecognized compensation cost related to nonvested share-based compensation arrangements.

Foreign Currency Translation – The financial statements for the Company’s non-U.S. operations are translated to U.S. dollars at current exchange rates. For assets and liabilities, the year-end rate is used. For revenues, expenses, gains and losses, the average rate for the period is used. Unrealized currency adjustments in our financial statements are accumulated in equity as a component of accumulated other comprehensive income (loss).

Recently Issued Accounting Pronouncements – Accounting Standards Update (“ASU”) 2009-13, “Multiple-Deliverable Revenue Arrangements” amends ASC Subtopic 650-25, “Revenue Recognition—Multiple-Element Arrangements” to eliminate the requirement that all undelivered elements have vendor-specific objective evidence (“VSOE”) or third-party evidence (“TPE”) before an entity can recognize the portion of an overall arrangement fee that is attributable to items that already have been delivered. In the absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. The overall arrangement fee will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. Additionally, the new guidance will require entities to disclose more information about their multiple-element revenue arrangements. This ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and early adoption is permitted. The Company does not believe that the adoption of this ASU will have a material impact on its consolidated financial statements.

8

FULLSCOPE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

ASU 2009-05, “Fair Value Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair Value” allows entities determining the fair value of a liability to use the perspective of an investor that holds the related obligation as an asset. The ASU is effective for interim and annual periods beginning after August 27, 2009, and applies to all fair-value measurements of liabilities required by GAAP. The Company does not believe that the adoption of this ASU will have a material impact on its consolidated financial statements.

In July 2009, FASB issued Statements of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles,” which is codified in the ASC under Topic 105, “Generally Accepted Accounting Principles” (“ASC Topic 105”). ASC Topic 105 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with Generally Accepted Accounting Principles in the United States. ASC Topic 105 was effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted the provisions of ASC Topic 105 during the third quarter of 2009.

In May 2009, FASB issued SFAS No. 165, “Subsequent Events,” which is now codified in ASC Topic 855, “Subsequent Events” (“ASC Topic 855”). ASC Topic 855 defines the subsequent events or transactions period, circumstances under which such events or transactions should be recognized, and disclosures regarding subsequent events or transactions. ASC Topic 855 is effective for interim or annual periods ending after June 15, 2009. The Company has adopted the provisions of ASC Topic 855 as of June 30, 2009. Although our adoption did not materially impact our financial condition, results of operations, or cash flows, the Company is now required to provide additional disclosures, which are included in Note 2 “–Basis of Presentation” of the notes to unaudited consolidated financial statements.

In April 2009, FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” which is now codified in the ASC under Topic 825, “Financial Instruments” (“ASC Topic 825”). This standard extends the disclosure requirements concerning the fair value of financial instruments to interim financial statements of publicly traded companies. This guidance is effective for interim or annual financial periods ending after June 15, 2009, and as such, became effective for the Company in the quarter ended June 30, 2009. Although our adoption did not materially impact our financial condition, results of operations, or cash flows, the Company is now required to provide additional disclosures, which are included in Note 2 “– Fair Value Measurements” of the notes to the unaudited consolidated financial statements.

3. LIQUIDITY

The accompanying unaudited consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company is reporting both a stockholders’ deficit and working capital deficit of $787 thousand and $4.1 million as of September 30, 2009, respectively. The Company believes cash and cash equivalents are sufficient to fund its short-term operating and liquidity requirements over the next twelve months.

On December 31, 2009, the outstanding stock of the Company was acquired by Edgewater Technology, Inc. See Note 11 of the notes to unaudited consolidated financial statements included elsewhere herein.

9

FULLSCOPE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

4. PROPERTY & EQUIPMENT

Property and equipment consisted of the following:

	Estimated Useful Lives (In Years)	September 30, 2009		December 31, 2008
		(In Thousands)
Furniture and equipment	5	$	1,245	$	1,139
Computer software and equipment	3		152		150
Total costs			1,397		1,289
Less: Accumulated depreciation and amortization			1,223		1,121
Property and equipment, net		$	174	$	168

Depreciation expense for the nine-month period ended September 30, 2009 and 2008 was $98 thousand and $92 thousand, respectively.

The above table of property and equipment includes assets under capital leases as listed below.

	September 30, 2009		December 31, 2008
	(In Thousands)
Computer software and equipment	$	367	$	322
Less: Accumulated depreciation and amortization		279		201
Property and equipment, net	$	88	$	121

5. LINE OF CREDIT

In May 2009, the Company entered into an agreement to extend its line of credit (the “New Line of Credit”). The New Line of Credit has a borrowing limit of $2.3 million and a maturity date of May 31, 2010. Interest on the New Line of Credit accrues at the prime rate listed in the Wall Street Journal, plus 4.0% (9.0% as of September 30, 2009). The Company had a balance due under the New Line of Credit of $1.7 million as of September 30, 2009. Prior to May 2009, the Company maintained a line of credit with a borrowing limit of $1.8 million and a maturity date of May 31, 2009 (the “Old Line of Credit”). Interest on the Old Line of Credit accrued at the prime rate listed in the Wall Street Journal, plus 2.5% (5.75% as of December 31, 2008). The Company had a balance due under the New Line of Credit of $1.8 million as of December 31, 2008. Advances under the line of credit agreements are based on 80% of eligible accounts receivable balances and 65% of eligible foreign accounts receivable balances. The line of credit is secured by the assets of the Company. The Company must maintain certain covenants which include the provision of financial reports and the maintenance of certain financial ratios. The Company has not complied with certain reporting and financial covenants as of December 31, 2008. In March 2009, the bank agreed to waive all violations through December 31, 2008 and revised the financial covenants. The Company was in compliance with the revised covenants as of September 30, 2009.

As described more fully in Note 11, on December 31, 2009, the Company’s outstanding stock was acquired by Edgewater Technology, Inc. Prior to the completion of the acquisition, the Company, on December 31, 2009 paid down all outstanding principal and interest amounts under the New Line of Credit.

10

FULLSCOPE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

6. STOCKHOLDERS EQUITY

Capital Structure

Authorized Shares – The Company is authorized to issue up to 1,992,502,790 shares of $0.0001 par value common stock and 856,936,183 shares of $0.0001 par value preferred stock, of which 583,175,210 have been designated as Series III redeemable preferred stock (“Series III”) and 273,760,973 have been designated as Series IV redeemable preferred stock (“Series IV”).

Common Stock

Stockholders’ Agreement – A stockholders’ agreement restricts the transfer of common stock, details provisions covering the election of directors and officers, and covers certain other matters related to the rights of the stockholders.

Redeemable Convertible Preferred Stock

As of September 30, 2009 and December 31, 2008, the Company had outstanding 523,392,296 and 193,791,264 shares of Series III and Series IV, respectively.

Liquidation Rights – Upon any liquidation, dissolution or winding up of the Company, the holders of the outstanding shares of Series III shall be entitled to receive in preference to the holders of common stock and holders of any class of stock ranking junior to the Series III of the Company, an amount per share equal to two times the invested amount plus all accrued but unpaid dividends on each share of preferred stock; provided, however, that with respect to any liquidation, dissolution or winding up of the Company, that values the Company in excess of $10.0 million, the liquidation preference shall be automatically increased to an amount per share equal to four times the invested amount plus all accrued but unpaid dividends on each share of preferred stock. Such amounts shall be paid to each holder in cash, unless agreed to otherwise by such holder.

The holders of the outstanding shares of Series IV shall be entitled to receive in preference to the holders of common stock and the holders of any other class or Series of stock of the Company, an amount per share equal to the invested amount plus all accrued but unpaid dividends on each share of preferred stock.

Upon the completion of the liquidation distribution, the holders of preferred stock shall automatically be converted into common stock at the then effective conversion rate and the remaining assets of the Company available for distribution to stockholders shall be distributed among the holders of preferred stock (as converted) and common stock pro rata based on the number of shares of common stock held by each.

Voting Rights – The holder of each share of preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which such share of preferred stock would be convertible.

At any such time and for so long as any shares of preferred stock are outstanding, the number of directors of the Company shall be seven directors, to be elected as follows:

a. four directors shall be elected by the holders of preferred stock; and

b. three directors shall be elected by the holders of a majority-in-interest of the common stock.

So long as at least 25% of preferred stock are then outstanding, except where the vote or written consent of the holder of a greater number of shares is required by law or by another provision of the certificate of incorporation, without first obtaining the affirmative vote or written consent of the holders of at least a majority, the Company shall not:

a. amend or repeal any provision of, or add any provision to, the Company’s certificate of incorporation or bylaws, or file any certificate of designations, preferences, limitations and relative rights of any series of preferred stock, if such action would alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of preferred stock;

11

FULLSCOPE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

6. STOCKHOLDERS EQUITY (Continued)

b. create or authorize the creation or increase the authorized amount of any additional class or series of shares of stock, unless the same ranks junior to preferred stock as to dividends, redemption and the distribution of assets on the liquidation, dissolution or winding up of the Company; or create or authorize any obligation or security convertible into shares of any class or series of stock unless such class or series of stock ranks junior to preferred stock as to dividends, redemption and the distribution of assets on the liquidation, dissolution or winding up of the Company; regardless of whether any such creation, authorization or increase shall be by means of amendment to the certificate of incorporation, or by merger, consolidation or otherwise;

c. increase or decrease the authorized number of shares of preferred stock;

d. enter into any agreement or understanding with respect to a capital transaction;

e. voluntarily or involuntarily liquidate, dissolve or wind up the Company or its business;

f. enter into any transaction or series of transactions (including without limitation by merger, consolidation or otherwise) which directly or indirectly effects an amendment of the Company’s certificate of incorporation or certificate of designation;

g. pay any dividends with respect to any shares of common stock or any equity securities of the Company junior to the preferred stock;

h. purchase, redeem or otherwise acquire for value any shares of any class of its capital stock or cause or permit any employee stock ownership plan, including any employee stock ownership plan as defined in Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended, to purchase shares of any class of its capital stock except for repurchases of shares from former employees upon termination of employment pursuant to the terms of such former employees’ stock purchase agreements providing for such repurchases at the original issuance prices for such shares and except for redemption of the preferred stock;

i. adopt or amend a stock option plan or employee stock ownership plan;

j. make any capital expenditure, acquisitions or investments in excess of $300 thousand;

k. license, sell or dispose of any asset or investment other than in the ordinary course of business with either a book value or fair market value in excess of $300 thousand;

l. change the nature of its business; or

m. amend the provisions pertaining to majority approval.

Conversion – Each share of preferred stock shall be convertible, at the option of the holder at any time after the date of issuance and without payment of additional consideration, into such number of common shares as is determined by dividing the consideration received by the Company for the purchase of each share by the conversion price in effect at the time of conversion. The conversion price shall initially be the amount of consideration received for each share. The conversion price is subject to adjustment for subdivisions, dividends, combinations, reclassifications, merger, sale, etc. Any unpaid or declared but unpaid dividends on the shares of preferred stock may also be converted into common stock.

Dividend Rights – The holders of the preferred stock shall be entitled to receive, out of funds legally available for the declaration of dividends, preferential cumulative dividends in a per share amount equal to 9% of the invested amount per share per annum on each share of preferred stock, which dividends shall accrue and shall be payable only upon conversion, liquidation or redemption. Such dividends shall commence to accrue on the shares of preferred stock, compound annually and be cumulative from and after the original date of issuance, whether or not the Board of Directors declares dividends. Such dividends shall be calculated on the basis of a 365-day year and shall be paid pro rata among the holders of the preferred stock.

12

FULLSCOPE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

6. STOCKHOLDERS EQUITY (Continued)

The dividend rate specified above shall be equitably adjusted for any combinations, consolidations, recapitalizations, stock splits, stock dividends and the like. In addition, the holders of shares of preferred stock shall be entitled to receive, out of the assets legally available therefore, dividends that are declared and paid with respect to the common stock (treating each share of preferred stock as being equal to the number of shares of common stock (including fractions of a share) into which each share of preferred stock is then convertible). No dividends may be paid with respect to the common stock of the Company until all dividends declared or accrued on all outstanding shares of the preferred stock have been set apart and paid. The Company shall be under no obligation to pay such dividends unless so declared by the Board of Directors. No dividends have been declared as of September 30, 2009. The cumulative dividends for the Series III were $740 thousand and $600 thousand as of September 30, 2009 and December 31, 2008, respectively. The cumulative dividends for the Series IV were $235 thousand and $148 thousand as of September 30, 2009 and December 31, 2008, respectively. The cumulative dividends have been included in the accretion.

Redemption – At any time after December 21, 2009 for the Series III and August 2012 for the Series IV and following the approval of a majority, each holder of preferred stock may elect to cause a redemption of all the shares of preferred stock held by such holder (an “Electing Holder”). The Company shall redeem all of the then outstanding shares of preferred stock held by the Electing Holder by paying to such Electing Holder in cash an amount per share equal to the greater of: (a) the liquidation preference or (b) the fair market value of each such share. The “Fair Market Value” of a share of preferred stock shall mean the value jointly determined by the Company and the Electing Holders. In the opinion of management, the fair market value of the preferred stock was approximately $0.006 as of September 30, 2009 and December 31, 2008.

Preemptive Rights – The holders of preferred stock shall have the right of first refusal to purchase any new securities (as defined in this Section (6)) that the Company may, from time to time, propose to sell and issue.

7. WARRANTS

A summary of warrants outstanding as of September 30, 2009 and December 31, 2008 is as follows:

Warrants		Exercise Price		Expiration Date
Common stock warrants outstanding	2,903,538	$	0.0001	January – December 2011
Common stock warrants issues to related parties (see Note 8)	30,536,361	$	0.0001	December 24, 2011
Series III preferred stock warrants issued to related parties (see Note 8)	7,213,030	$	0.003	December 24, 2011
Series III preferred stock warrant issued to bank	14,426,059	$	0.003	December 24, 2011
Total Warrants	55,078,988

In December 2004, the Company entered into a $1.0 million promissory note with a bank payable in December 2005. In conjunction with the note, the Company granted the bank a warrant to purchase 14,426,059 shares of Series III preferred stock with an exercise price of $0.003 (the “Bank Warrants”). The estimated fair value of the Bank Warrants according to the Black-Scholes pricing model was $39 thousand, which was recorded as a warrant liability and debt discount. As of December 31, 2008, the debt discount had been fully amortized. The Bank Warrants liability, subsequent to its periodic revaluation, was $47 thousand as of September 30, 2009 and December 31, 2008, reflecting the fair market value of the Bank Warrants.

13

FULLSCOPE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

8. RELATED-PARTY TRANSACTIONS

Notes Payable – In December 2004, the Company entered into promissory notes with three stockholders at an aggregate value of $500 thousand (the “Stockholder Notes”). Interest accrues at a rate of 1% per month on outstanding principal balances and is payable monthly. The maturity date for the notes, inclusive of outstanding principal and unpaid interest, was originally set to mature after thirty-six months. The maturity date was subsequently extended to June 2009 and then, during 2009, it was further extended to December 31, 2009. As of September 30, 2009 and December 31, 2008 the aggregate outstanding balances on the Stockholder Notes was $125 thousand and $250 thousand, respectively. Interest expense of $21 thousand and $44 thousand was recognized during the nine-month periods ended September 30, 2009 and 2008, respectively in connection with the Stockholder Notes.

In conjunction with the Stockholder Notes, the Company granted warrants to purchase an aggregate of 30,536,361 shares of common stock. The estimated fair value of the warrants according to the Black-Scholes pricing model was $3 thousand, which was recorded as debt discount and fully amortized as interest expense as of December 31, 2007. Both the fair value and exercise price of the warrants was $0.0001 per share.

In addition to the issuance of warrants to purchase the Company’s common stock, the Company also granted the stockholders warrants to purchase an aggregate of 7,213,030 shares of Series III preferred stock with an exercise price of $0.003. The estimated fair value of the warrants according to the Black-Scholes pricing model was $20 thousand, which was recorded as a warrant liability and debt discount. As of December 31, 2007, the debt discount had been fully amortized. The warrants liability in connection with the Stockholder Notes was valued $24 thousand as of September 30, 2009 and December 31, 2008, respectively, reflecting the periodic fair market value of the warrants.

Rent –The Company rents office space in Athens, Alabama and Quebec, Canada from stockholders. The Company made rent payments to stockholders totaling $53 thousand during each of the nine-month periods ended September 30, 2009 and 2008, respectively to stockholders.

9. COMMITMENTS AND CONTINGENCIES

Commitments. We have lease financing arrangements (the “Capital Lease Arrangements”) related to certain property and equipment, as further described in Note 4. Payments under the Capital Lease Arrangements are to be made over a period of 24 to 60 months and have interest rates that range between 6.0% and 17.0% per annum on the outstanding principal balances. As of September 30, 2009 and December 31, 2008, outstanding obligations under the Capital Lease Arrangements totaled $60 thousand and $102 thousand, respectively. During the nine-month periods ended September 30, 2009 and 2008, the Company made payments of principal and interest totaling $87 thousand and $69 thousand, respectively, under the Capital Lease Arrangements.

Contingencies. We are sometimes a party to litigation incidental to our business. We believe that these routine legal proceedings will not have a material adverse effect on our financial position. We maintain insurance amounts with coverages and deductibles that we believe are reasonable. However, there can be no assurance that such coverages will continue to be available on reasonable terms or will be available in sufficient amounts to cover possible claims that may arise in the future, or that our insurers will not disclaim coverage as to any future claim. The successful assertion of one or more claims against the Company that exceed available insurance coverages or changes in the Company’s insurance policies, including premium increases or the imposition of a large deductible or co-insurance requirements, would have a material adverse effect on the Company’s business, results of operations and financial condition.

14

FULLSCOPE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

9. COMMITMENTS AND CONTINGENCIES (Continued)

Settlement. In March 2008, the Company received a demand letter from a customer seeking a refund with respect to payments made by the customer in connection with software and services provided by the Company. The customer alleged that the Company failed to deliver a fully functional, maintainable and extensible working software system pursuant to a contract between the two parties. In January 2009, a settlement was reached under which the Company is required to pay the plaintiff $625 thousand. Of this amount $350 thousand is due within twenty days of the settlement and the residual balance is to be paid in thirty-six equal, monthly installments. The Company’s insurance covered $150 thousand of the settlement and is included in accounts receivable as of December 31, 2008. As of September 30, 2009 and December 31, 2008, the Company has an accrual of $222 thousand and $625 thousand related to the settlement.

Unrecognized Tax Benefits. In connection with its adoption of the unrecognized tax benefits provisions of ASC Topic 740 as of January 1, 2009, the Company had approximately $25 thousand of unrecognized tax benefits, penalties and interest expense related to uncertain tax positions as of September 30, 2009. The establishment of the liability, in accordance with the provisions of ASC Topic 740, was recorded as an adjustment to retained deficit and was not recorded as current year income tax expense. No amounts were accrued as of December 31, 2008 related to unrecognized tax benefits, penalties and interest.

10. MICROSOFT ASSET SALE

In July 2008, the Company entered an agreement with Microsoft for a one-year option to purchase certain software for $7.5 million. The Company received a $500 thousand nonrefundable option payment to be applied, if the option was exercised by Microsoft, towards the final purchase price. On June 25, 2009, Microsoft exercised its option to purchase the software and the Company entered into an asset purchase agreement. The Company received $6.3 million when the product was delivered to and accepted by Microsoft. The remaining balance of $700 thousand is to be held in escrow, accruing interest, until one year after the purchase date. This amount is reported in the Company’s September 30, 2009 balance sheet as restricted cash.

11. SUBSEQUENT EVENT

On December 31, 2009, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Purchase Agreement”) with Edgewater Technology, Inc., under which Edgewater acquired all of the outstanding stock of the Company. The Company received $14.4 million in initial purchase price consideration at closing, which consisted of a payment of $12.5 million in purchase price consideration, plus $1.9 million in additional cash consideration attributable to the Company delivering net working capital in excess of agreed upon levels established in the Purchase Agreement.

In addition to the Purchase Agreement, the stockholders of the Company also entered into an earnout agreement under which the Company’s stockholders will be eligible to receive additional contingent consideration. Contingent earnout consideration to be paid, if any, to the Company’s stockholders will be based upon the generation of positive, after-tax income, which will be determined, periodically, over an eighteen-month period from the date of acquisition and concluding on June 30, 2011. There is no limit with respect to the amounts that can be earned by the Company’s stockholders under the terms of the earnout agreement.

15

EX-99.3

Exhibit 99.3

Item 9.01(b) Unaudited Pro Forma Consolidated Financial Information.

EDGEWATER TECHNOLOGY, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

On December 31, 2009, Edgewater Technology, Inc. (“Edgewater”), pursuant to the terms of an Agreement and Plan of Merger and Reorganization (the “Purchase Agreement”) acquired all of the outstanding stock of Fullscope, Inc. (“Fullscope”) (the “Acquisition”). The Acquisition was recorded using the purchase method of accounting and, accordingly, the purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their initially estimated fair values on the date of the Acquisition.

The Company initially estimated total allocable purchase price consideration to be $15.6 million on the date of the Acquisition. The initial purchase price estimate is comprised of $14.4 million in cash paid at closing increased by $1.2 million representing our initial fair value estimate of additional contingent earnout consideration that may earned by the former Fullscope stockholders, as described in more detail below. The cash paid at closing consisted of the $12.5 million purchase price plus $1.9 million in additional cash consideration attributable to Fullscope delivering net working capital in excess of agreed upon levels established in the Purchase Agreement. Fullscope’s excess net working capital adjustment was primarily generated by Fullscope’s $3.5 million cash on hand at closing. Adjusting for the cash acquired, Edgewater paid $10.9 million in net cash at closing.

An earnout agreement was entered into in connection with the Acquisition under which the former Fullscope stockholders are eligible to receive additional contingent consideration. Contingent earnout consideration to be paid, if any, to the former Fullscope stockholders will be based upon the generation of positive, after-tax income, which will be determined, periodically, over an eighteen-month period from the date of acquisition and concluding on June 30, 2011. The Company increased total purchase price consideration described above by $1.2 million, which represented our initial fair value estimate of the contingent consideration to be paid under the earnout agreement. Additionally, there is no limit with respect to the amounts that can be earned by the former Fullscope stockholders under the terms of the earnout agreement.

The following unaudited pro forma consolidated financial information was derived from the historical consolidated financial statements of Edgewater and Fullscope. The following unaudited pro forma consolidated balance sheet as of September 30, 2009, is presented as if the Acquisition had occurred on September 30, 2009. The unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2009 are presented as if the acquisition had occurred on January 1, 2009.

The unaudited pro forma consolidated financial statements reflect pro forma adjustments that are based upon available information and certain assumptions that management believes are reasonable. The unaudited pro forma consolidated financial statements do not reflect any operating efficiencies and/or cost savings that Edgewater may achieve, or any additional expenses that it may incur, with respect to the consolidated companies. The unaudited pro forma consolidated financial statements do not purport to represent Edgewater’s results of operations or financial position that would have resulted had the transactions, to which pro forma effects are given, been consummated as of the date or for the periods indicated.

The Acquisition has been accounted for in accordance with ASC Topic 805, “Business Combinations” (“ASC Topic 805”). Accordingly, the total purchase price has been allocated on a preliminary basis to assets acquired, liabilities assumed, identified intangible assets and goodwill based upon their estimated fair values as of the date of the Acquisition. These allocations reflect various preliminary estimates that were available at the time of the preparation of this Current Report on Form 8-K/A, and are subject to change during the measurement period (generally one year from the acquisition date) as valuations are finalized.

There were no material differences between the accounting policies of Edgewater and Fullscope. Certain historical amounts of Fullscope have been reclassified to conform to the pro forma presentation. No adjustments were necessary to eliminate intercompany transactions and balances in the unaudited pro forma consolidated statements, as there were no transactions or balances between Edgewater and Fullscope.

The unaudited pro forma consolidated financial statements and accompanying notes should be read in conjunction with the historical audited financial statements of Edgewater contained in its 2008 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (“SEC”) on March 14, 2009, its September 30, 2009 Quarterly Report on Form 10-Q, as filed with the SEC on November 6, 2009 and the historical audited financial statements of Fullscope contained herein.

1

EDGEWATER TECHNOLOGY, INC.

UNAUDITIED PRO FORMA CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2009

(Amounts in Thousands)

	Edgewater Historical			Fullscope Historical			Pro Forma Adjustments				Edgewater Pro Forma
ASSETS
Current assets:
Cash and cash equivalents	$	11,268		$	7,304		$	(7,462	)	(c);(d)	$	11,110
Restricted cash		—			701			—				701
Marketable securities		12,360			—			(8,870	)	(c)		3,490
Accounts receivable, net		8,696			3,970			—				12,666
Deferred income taxes, net		942			—			—				942
Prepaid expenses and other current assets		1,708			156			—				1,864
Total current assets		34,974			12,131			(16,332	)			30,773
Property and equipment, net		3,318			174			—				3,492
Capitalized software costs, net		—			41			—				41
Goodwill		130			—			8,698		(e);(f);(g)		8,828
Intangible assets, net		2,193			—			4,500		(e)		6,693
Deferred income taxes, net		22,825			—			(1,800	)	(g)		21,025
Other assets		96			24			—				120
Total assets	$	63,536		$	12,370		$	(4,934	)		$	70,972
LIABILITIES, REDEEMEABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	2,955		$	1,835		$	1,813		(f);(h)	$	6,603
Accrued payroll and related liabilities		2,590			1,326			—				3,916
Accrued income taxes payable		—			2,067			—				2,067
Line of credit		—			1,724			(1,724	)	(b)		—
Related party notes payable		—			125			(125	)	(b)		—
Deferred revenue and other liabilities		885			878			—				1,763
Capital lease obligations, current		224			60			(60	)	(b)		224
Total current liabilities		6,654			8,015			(96	)			14,573
Other liabilities		—			130			—				130
Capital lease obligations		250			—			—				250
Warrant liability		—			71			(71	)	(a)		—
Total liabilities		6,904			8,216			(167	)			14,953
Series III redeemable convertible preferred stock		—			3,574			(3574	)	(a)		—
Series IV redeemable convertible preferred stock		—			1,367			(1,367	)	(a)		—
Total redeemable convertible preferred stock		—			4,941			(4,941	)			—
Stockholders’ equity:
Common stock		297			8			(8	)	(a)		297
Paid-in capital		213,477			24,409			(24,409	)	(a)		213,477
Treasury stock		(125,850	)		—			—				(125,850	)
Other cumulative loss		—			(606	)		606		(a)		—
Retained deficit		(31,292	)		(24,598	)		23,985		(a);(h)		(31,905	)
Total stockholders’ equity		56,632			(787	)		174				56,019
Total liabilities, redeemable convertible preferred stock and stockholders’ equity	$	63,536		$	12,370		$	(4,933	)		$	70,972

See the accompanying notes to unaudited pro forma consolidated financial statements.

2

EDGEWATER TECHNOLOGY, INC.

UNAUDITIED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

(In Thousands, Except Per Share Data)

	Edgewater Historical			Fullscope Historical			Pro Forma Adjustments				Edgewater Pro Forma
Revenue:
Service revenue	$	35,421		$	9,541		$	—			$	44,962
Software and license revenue		617			7,706			—				8,323
Asset sale		—			6,800			—				6,800
Reimbursable expenses		2,656			1,113			—				3,769
Total revenue		38,694			25,160			—				63,854
Cost of revenue:
Project and personnel costs		23,600			5,243			—				28,843
Software and license costs		464			4,465			—				4,929
Amortization of capitalized software		—			616			—				616
Asset sale costs		—			1,897			—				1,897
Reimbursable expenses		2,656			1,113			—				3,769
Total cost of revenue		26,720			13,334			—				40,054
Gross profit		11,974			11,826			—				23,800
Operating expenses:
Selling, general and administrative		13,536			4,743			—				18,279
Research and development		—			584			—				584
AXAPTA Process		—			562			—				562
Customer relations		—			153			—				153
Depreciation and amortization		2,092			98			943		(i)		3,133
Total operating expenses		15,628			6,140			943				22,711
Operating (loss) income		(3,654	)		5,686			(943	)			1,089
Other income (expense):
Interest income (expense), net		105			(67	)		(54	)	(j)		(16	)
Loss on foreign currency exchange		—			(14	)		—				(14	)
Total other income (expense)		105			(81	)		(54	)			(30	)
(Loss) income before taxes		(3,549	)		5,605			(997	)			1,059
Income tax (benefit) provision		(1,568	)		2,138			(7	)	(k)		563
Net (loss) income	$	(1,981	)	$	3,467		$	(990	)		$	496
Basic (loss) income per share:
Net (loss) income	$	(0.16	)								$	0.04
Weighted average shares, basic		12,072										12,072
Diluted (loss) income per share:
Net (loss) income	$	(0.16	)								$	0.04
Weighted average shares, diluted		12,072										12,081

See the accompanying notes to unaudited pro forma consolidated financial statements.

3

EDGEWATER TECHNOLOGY, INC.

UNAUDITIED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2008

(In Thousands, Except Per Share Data)

	Edgewater Historical			Fullscope Historical			Pro Forma Adjustments				Edgewater Pro Forma
Revenue:
Service revenue	$	68,125		$	9,004		$	—			$	77,129
Software and license revenue		1,132			10,819			—				11,951
Reimbursable expenses		4,486			1,144			—				5,630
Total revenue		73,743			20,967			—				94,710
Cost of revenue:
Project and personnel costs		39,608			5,878			—				45,486
Software and license costs		861			5,767			—				6,628
Amortization of capitalized software		—			841			—				841
Reimbursable expenses		4,486			1,144			—				5,630
Total cost of revenue		44,955			13,630			—				55,585
Gross profit		28,788			7,337			—				36,125
Operating expenses:
Selling, general and administrative		23,232			5,646			613		(h)		29,491
Research and development		—			576			—				576
AXAPTA Process		—			836			—				836
Customer relations		—			203			—				203
Depreciation and amortization		3,771			132			2,206		(i)		6,109
Impairment charges		48,594			—			—				48,594
Total operating expenses		75,597			7,393			2,230				85,809
Operating (loss) income		(46,809	)		(56	)		(2,230	)			(49,684	)
Other income (expense):
Interest income (expense), net		503			(173	)		(72	)	(j)		258
Loss on foreign currency exchange		—			(3	)		—				(3	)
Other expense, net		—			(146	)		—				(146	)
Total other income (expense)		503			(322	)		(72	)			109
(Loss) income before taxes		(46,306	)		(378	)		(2,891	)			(49,575	)
Income tax provision (benefit)		712			(28	)		(422	)	(k)		261
Net (loss) income	$	(47,018	)	$	(350	)	$	(2,469	)		$	(49,837	)
Basic (loss) income per share:
Net (loss) income	$	(3.66	)								$	(3.88	)
Weighted average shares, basic		12,861										12,861
Diluted (loss) income per share:
Net (loss) income	$	(3.66	)								$	(3.88	)
Weighted average shares, diluted		12,861										12,861

See the accompanying notes to unaudited pro forma consolidated financial statements.

4

EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

1. BASIS OF PRO FORMA PRESENTATION

The unaudited pro forma condensed consolidated financial information was prepared based on the historical financial statements of Edgewater and Fullscope. Certain reclassifications have been made to conform Fullscope’s historical results to Edgewater’s presentation.

The Acquisition has been accounted for in accordance with ASC Topic 805, which Edgewater adopted on January 1, 2009 and uses the fair value concepts defined in ASC Topic 820, “Fair Value Measurements.” This requires, among other things, that most assets acquired and liabilities assumed in an acquisition be recognized at their fair values as of the acquisition date. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additionally, fair value estimates are required to reflect the assumptions market participants would use in pricing an asset or liability based on the best information available.

Many of these fair value measurements can be highly subjective and it is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.

Under the acquisition method of accounting, the assets acquired and liabilities assumed were recorded as of the completion of the Acquisition, primarily at their respective fair values and added to those of Edgewater.

Acquisition-related transaction costs (i.e., advisory, legal, valuation and other professional fees) are not included as a component of consideration transferred, but are accounted for as expenses in the periods in which the costs are incurred. Total acquisition-related transaction costs incurred by Edgewater during the year ended December 31, 2009 totaled $613 thousand and are reflected in the unaudited pro forma consolidated balance sheets as of September 30, 2009 and in the pro forma consolidated statements of operations for the year ended December 31, 2008.

2. ACCOUNTING POLICIES

Edgewater reviewed both Edgewater’s and Fullscope’s accounting policies and did not identify any significant differences. As a result, the unaudited pro forma condensed consolidated financial statements do not assume any differences in accounting policies.

3. FAIR VALUE ESTIMATES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED

The consideration and components of Edgewater’s initial fair value allocation of the purchase price consideration paid in cash at closing consisted of the following, under the assumption the acquisition of Fullscope was consummated on September 30, 2009:

	(In Thousands)
Purchase price consideration:
Cash paid for outstanding stock	$	12,500
Cash paid for excess net working capital		1,923
Total purchase price	$	14,423
Fair value allocation of purchase price:
Cash acquired	$	5,395
Net fair value of accounts receivable		3,970
Net fair value of other liabilities assumed		(5,140	)
Acquired intangible assets		4,500
Goodwill (not deductible for tax purposes)		5,698
Total purchase price	$	14,423

Substantially all of these amounts are subject to subsequent adjustment as the Company obtains additional information during the measurement period (generally one year from the date of acquisition). The reported fair value of the accounts receivable is net of an estimate of uncollectible accounts of $100 thousand. Any subsequent adjustments to the initial fair value estimates occurring during the measurement period will result in an adjustment to the carrying value of goodwill.

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EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

3. FAIR VALUE ESTIMATES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED (Continued)

An earnout agreement was entered into in connection with the Acquisition under which the former Fullscope stockholders are eligible to receive additional contingent consideration. Contingent earnout consideration to be paid, if any, to the former Fullscope stockholders will be based upon the generation of positive, after-tax income, which will be determined, periodically, over an eighteen-month period from the date of acquisition and concluding on June 30, 2011 (the “Earnout Agreement”). The Company increased total purchase price consideration described above by $1.2 million, which represented our initial fair value estimate of the contingent consideration to be paid under the Earnout Agreement. There is no limit with respect to the amounts that can be earned by the former Fullscope stockholders under the terms of the Earnout Agreement.

In connection with the Acquisition, the Company recorded a $1.8 million deferred tax liability, which served to reduce the carrying value of the Company’s net deferred tax assets. The Acquisition was a stock purchase, and accordingly, the Company does not have a tax basis in the associated identified intangible assets. The establishment of the deferred tax liability resulted in an increase to the Company’s goodwill asset, which is reflected in the unaudited consolidated pro forma financial statements.

For the purposes of preparing the unaudited pro forma consolidated financial statements, the preliminary estimate of identified intangible assets acquired of $4.5 million and their estimated useful lives is presented as if the acquisition had occurred on January 1, 2009:

	Fair value		Useful life
	(In Thousands)		(In years)
Customer relationships	$	2,100	6
Microsoft Asset Purchase Agreement		1,400	1.5
Trade name		500	5
Non-compete agreements		500	5
Total intangible asset value	$	4,500

Our initial fair value estimates related to the various identified intangible assets were determined under various valuation approaches including the Income Approach, Relief-from-Royalty Method, Discounted Cash Flow Method, Lost Profits Method and Avoided Cost Method. These valuation methods require management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multiyear period, as well as determine the weighted average cost of capital to be used as a discount rate.

We amortize our intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed.

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EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

4. PRO FORMA ADJUSTMENTS

The following adjustments were applied to Edgewater’s historical financial statements and those of Fullscope to arrive at the pro forma consolidated financial information:

a. To record the elimination of Fullscope’s historical stockholder deficit, redeemable convertible preferred stock and related warrant liability amounts.

	Balance as of September 30, 2009
	(In Thousands)
Warrant liability	$	71
Series III Redeemable convertible preferred stock		3,574
Series IV Redeemable convertible preferred stock		1,367
Stockholders deficit		787
Total	$	5,799

b. To record the elimination of debt-related liabilities which were paid off by Fullscope prior to close and were not assumed as part of the Acquisition.

	Balance as of September 30, 2009
	(In Thousands)
Line of credit	$	1,724
Related party notes payable		125
Capital lease obligations, current		60
Debt-related liabilities not assumed	$	1,909

c. To record an $8.9 million cash transfer out of funds from the marketable securities account to cash and cash equivalents in order to fund upfront cash consideration to be paid at closing.

d. To record the initial cash payment of $14.4 million in upfront purchase price consideration for all of the outstanding stock of Fullscope.

e. To record the initial fair value estimates of identified intangible assets and residual goodwill.

f. To establish $1.2 million liability in connection with Edgewater’s initial fair value estimate of contingent earnout consideration to be paid to the former stockholders of Fullscope in accordance with the terms of the Earnout Agreement. This adjustment resulted in an increase in goodwill.

g. To record the establishment of $1.8 million deferred tax liability as a result of Edgewater having no tax basis in the recorded value of the identified intangible assets. This adjustment resulted in an increase to goodwill.

h. To accrue $613 thousand in acquisition-related transaction costs which are no longer capitalizable under ASC Topic 805 and must now be expensed as period costs.

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EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

4. PRO FORMA ADJUSTMENTS (Continued)

i. To record amortization expense associated with the identified intangible assets. The recorded amortization expense assumes that the amortization of intangible assets started on January 1, 2008. The pro forma amortization expenses for each of the periods presented is as follows:

	For the Nine Months Ended September 30, 2009		For the Year Year Ended December 31, 2008
	(In Thousands)
Amortization expense	$	943	$	2,206

j. To reduce Edgewater’s interest income by $54 thousand and $72 thousand during the nine months ended September 30, 2009 and the year ended December 31, 2008, respectively. The reduction in interest income is a result of the $14.4 million paid in upfront cash consideration at closing, at an assumed yield of 0.5%.

k. To record a nine-month and twelve-month pro forma tax provision adjustment reflecting Edgewater’s 38.4% and 42.4% effective income tax rates, respectively in connection with Fullscope’s operating results, the net effect of the periodic pro forma adjustments described in (h) through (j) above, adjusted for the non-deductible tax treatment of the intangible asset amortization.

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