10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

or

¨ Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

for the transition period from              to             

Commission file number: 000-20971

EDGEWATER TECHNOLOGY, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	71-0788538
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
200 Harvard Mill Square, Suite 210 Wakefield, MA	01880-3209
(Address of Principal Executive Offices)	(Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule
12b-2 of the Exchange Act (check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

The number of shares of Common Stock of the Registrant, par value $.01 per share, outstanding at July 31, 2012 was 11,329,000.

EDGEWATER TECHNOLOGY, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2012

INDEX

			Page
PART I - FINANCIAL INFORMATION
	Item 1 - Financial Statements
		Unaudited Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011		3
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011		4
		Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June  30, 2012 and 2011		5
		Notes to Unaudited Condensed Consolidated Financial Statements		6
	Item  2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
		Business Overview		15
		Results for the Three and Six Months Ended June  30, 2012, Compared to Results for the Three and Six Months Ended June 30, 2011		19
		Liquidity and Capital Resources		23
		Acquisitions, Earnout Payments and Commitments		24
		Off Balance Sheet Arrangements, Contractual Obligations and Contingent Liabilities and Commitments		25
		Critical Accounting Policies and Estimates		25
		Recent Accounting Pronouncements		25
		Risk Factors		25
		Special Note Regarding Forward-Looking Statements		26
	Item 3 - Quantitative and Qualitative Disclosures About Market Risk			27
	Item 4 - Controls and Procedures
		Evaluation of Disclosure Controls and Procedures		27
		Changes in Controls and Procedures		27
PART II - OTHER INFORMATION
	Item 1    -    Legal Proceedings			27
	Item 1A -    Risk Factors			27
	Item 2    -     Unregistered Sales of Equity Securities and Use of Proceeds			28
	Item 3    -    Defaults upon Senior Securities			28
	Item 4    -    Mine Safety Disclosures			28
	Item 5    -    Other Information			28
	Item 6    -    Exhibits			29
	Signatures			30

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EDGEWATER TECHNOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share Data)

	June 30, 2012			December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	8,893		$	10,333
Accounts receivable, net of allowance of $300		27,737			23,307
Prepaid expenses and other current assets		1,284			763
Total current assets		37,914			34,403
Property and equipment, net		2,220			2,429
Intangible assets, net		1,759			2,079
Goodwill		12,049			12,049
Other assets		226			238
Total assets	$	54,168		$	51,198
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,155		$	1,858
Accrued liabilities		14,921			13,934
Accrued contingent earnout consideration		246			126
Deferred revenue		4,047			1,569
Capital lease obligations, current		—			52
Total current liabilities		20,369			17,539
Accrued contingent earnout consideration		—			105
Other long-term liabilities		1,553			1,841
Total liabilities		21,922			19,485
Stockholders’ equity:
Preferred stock, $.01 par value; 2,000 shares authorized, no shares issued or outstanding		—			—
Common stock, $.01 par value; 48,000 shares authorized, 29,736 shares issued as of June 30, 2012 and December 31, 2011, 11,235 and 11,311 shares outstanding as of June 30, 2012 and December 31, 2011, respectively		297			297
Paid-in capital		213,366			213,282
Treasury stock, at cost, 18,501 and 18,425 shares at June 30, 2012 and December 31, 2011, respectively		(125,237	)		(125,389	)
Accumulated other comprehensive loss		(111	)		(99	)
Retained deficit		(56,069	)		(56,378	)
Total stockholders’ equity		32,246			31,713
Total liabilities and stockholders’ equity	$	54,168		$	51,198

See notes to the unaudited condensed consolidated financial statements.

3

EDGEWATER TECHNOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In Thousands, Except Per Share Data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenue:
Service revenue	$	21,587		$	18,626		$	43,383		$	38,334
Software revenue		3,622			4,746			5,006			6,319
Process royalties		—			2,199			—			2,734
Reimbursable expenses		1,978			1,825			4,079			3,603
Total revenue		27,187			27,396			52,468			50,990
Cost of revenue:
Project and personnel costs		13,052			11,873			26,706			23,997
Software costs		2,697			2,871			3,658			3,965
Reimbursable expenses		1,978			1,825			4,079			3,603
Total cost of revenue		17,727			16,569			34,443			31,565
Gross profit		9,460			10,827			18,025			19,425
Operating expenses:
Selling, general and administrative		8,551			9,443			16,502			16,970
Depreciation and amortization		448			712			890			1,415
Total operating expenses		8,999			10,155			17,392			18,385
Operating income		461			672			633			1,040
Other expense (income), net		196			(25	)		105			(17	)
Income before income taxes		265			697			528			1,057
Tax provision		131			302			219			352
Net income	$	134		$	395		$	309		$	705
Net income per share:
Basic net income per share of common stock	$	0.01		$	0.03		$	0.03		$	0.06
Diluted net income per share of common stock	$	0.01		$	0.03		$	0.03		$	0.06
Shares used in computing basic net income per share of common stock		11,288			12,426			11,319			12,391
Shares used in computing diluted net income per share of common stock		11,836			12,456			11,682			12,402
Comprehensive income:
Net income	$	134		$	395		$	309		$	705
Currency translation adjustments		(3	)		(15	)		(12	)		(19	)
Total comprehensive income	$	131		$	380		$	297		$	686

See notes to the unaudited condensed consolidated financial statements.

4

EDGEWATER TECHNOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	Six Months Ended June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	309		$	705
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		932			1,428
Provision for doubtful accounts		—			(295	)
Stock-based compensation expense		706			609
Fair value adjustment of contingent earnout consideration		15			1,467
Changes in operating accounts:
Accounts receivable		(4,432	)		(2,907	)
Prepaid expenses and other current assets		(509	)		(186	)
Accounts payable and accrued liabilities		(288	)		2,436
Accrued payroll and related liabilities		282			(1,351	)
Deferred revenue and other liabilities		2,477			(226	)
Net cash (used in) provided by operating activities		(508	)		1,680
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of product development costs		(205	)		(43	)
Purchases of property and equipment		(199	)		(389	)
Net cash used in investing activities		(404	)		(432	)
CASH FLOW FROM FINANCING ACTIVITES:
Payments on capital leases		(52	)		(72	)
Purchase of treasury stock		(710	)		—
Proceeds from employee stock plans and stock option exercises		240			233
Net cash (used in) provided by financing activities		(522	)		161
Effects of exchange rates on cash		(6	)		18
Net (decrease) increase in cash and cash equivalents		(1,440	)		1,427
CASH AND CASH EQUIVALENTS, beginning of period		10,333			10,903
CASH AND CASH EQUIVALENTS, end of period	$	8,893		$	12,330
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	278		$	143

See notes to the unaudited condensed consolidated financial statements.

5

EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION:

Edgewater Technology, Inc. (“Edgewater” or the “Company”) is a strategic consulting firm that brings a blend of advisory and product-based consulting services to its customer base. Headquartered in Wakefield, Massachusetts, we work with customers to reduce costs, improve process and increase revenue through the judicious use of technology.

In this Quarterly Report on Form 10-Q (the “Form 10-Q”), we use the terms “Edgewater,” “Edgewater Technology,” “we,” “our Company,” “the Company,” “our” and “us” to refer to Edgewater Technology, Inc. and its wholly-owned subsidiaries, which are described in our 2011 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2012 (the “2011 Form 10-K”).

2. BASIS OF PRESENTATION:

The accompanying unaudited condensed consolidated financial statements have been prepared by Edgewater pursuant to the rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to ensure the information presented is not misleading.

The accompanying unaudited condensed consolidated financial statements reflect all adjustments (which were of a normal, recurring nature) that, in the opinion of management, are necessary to present fairly our financial position, results of operations and cash flows as of and for the interim periods presented. All intercompany transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our 2011 Form 10-K.

The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results to be expected for any future period or the full fiscal year. Our revenue and earnings may fluctuate from quarter-to-quarter based on factors within and outside our control, including variability in demand for information technology professional services, the length of the sales cycle associated with our service offerings, the number, size and scope of our projects and the efficiency with which we utilize our employees. Substantially all of our revenue is generated within North America.

3. REVENUE RECOGNITION:

Our Company recognizes revenue primarily through the provision of consulting services and the resale of third-party, off the shelf software and maintenance.

We recognize revenue by providing consulting services under written service contracts with our customers. The service contracts we enter into generally fall into three specific categories: time and materials, fixed-price and retainer.

When a customer enters into a time and materials, fixed-price or a periodic retainer-based contract, the Company recognizes revenue in accordance with our evaluation of the deliverables in each contract. If the deliverables represent separate units of accounting, the Company then measures and allocates the consideration from the arrangement to the separate units, based on vendor specific objective evidence of the value for each deliverable.

The revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Revenue pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. We routinely evaluate whether revenue and profitability should be recognized in the current period. We estimate the proportional performance on our fixed-price contracts on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If we do not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion of performance, subject to any warranty provisions or other project management assessments as to the status of work performed. This method is used because reasonably dependable estimates of costs and revenue earned can be made, based on historical experience and milestones identified in any particular contract.

6

EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. REVENUE RECOGNITION: (Continued)

Estimates of total project costs are continuously monitored during the term of an engagement. There are situations where the number of hours to complete projects may exceed our original estimate, as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. Accordingly, recorded revenues and costs are subject to revision throughout the life of a project based on current information and historical trends. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified.

If our initial estimates of the resources required or the scope of work to be performed on a fixed-price contract are inaccurate, or we do not manage the project properly within the planned time period, a provision for estimated losses on incomplete projects is made. Any known or probable losses on projects are charged to operations in the period in which such losses are determined. A formal project review process takes place quarterly, although projects are evaluated on an ongoing basis. Management reviews the estimated total direct costs on each contract to determine if the estimated amounts are accurate, and estimates are adjusted as needed in the period revised estimates are made. No losses were recognized on fixed-price contracts during the three or six month periods ended June 30, 2012 or 2011.

We also perform services on a periodic retainer basis under infrastructure service contracts, which include monthly hosting and support services. Revenue under periodic retainer-based contracts is recognized ratably over the contract period, as outlined within the respective contract. In the event additional services are required, above the minimum retained or contracted amount, then such services are billed on a time and materials basis.

Typically, the Company provides warranty services on its fixed-price contracts related to providing customers with the ability to have any “design flaws” remedied and/or have our Company “fix” routine defects. The warranty services, as outlined in the respective contracts, are provided for a specific period of time after a project is complete. The Company values the warranty services based upon historical labor hours incurred for similar services at standard billing rates. Revenue related to the warranty provisions within our fixed-price contracts is recognized as the services are performed or the revenue is earned. The warranty period is typically for a 30-60 day period after the project is complete.

Customer prepayments, even if nonrefundable, are deferred (classified as deferred revenue) and recognized over future periods as services are performed.

Software revenue represents the resale of certain third-party off-the-shelf software and maintenance and is recorded on a gross basis provided we act as a principal in the transaction, which we have determined based upon several factors including, but not limited to, the fact that we have credit risk and we set the price to the end user. In the event we do not meet the requirements to be considered a principal in the software sale transaction and act as an agent, software revenue will be recorded on a net basis.

The majority of the software sold by the Company is delivered electronically. For software that is delivered electronically, we consider delivery to have occurred when the customer either (a) takes possession of the software via a download (that is, when the customer takes possession of the electronic data on its hardware), or (b) has been provided with access codes that allow the customer to take immediate possession of the software on its hardware pursuant to an agreement or purchase order for the software.

The Company enters into multiple element arrangements which typically include software, post-contract support (or maintenance), and consulting services. Consistent with the software described above, maintenance that is in the form of a pass through transaction is recognized upon delivery of the software, as all related warranty and maintenance is performed by the primary software vendor and not the Company. Maintenance fee revenue for the Company’s software products, which is inconsequential in all years presented, is recognized ratably over the term of the arrangements, which are generally for a one-year period. The Company has established vendor specific objective evidence (“VSOE”) with respect to the services provided based on the price charged when the services are sold separately. The Company has established VSOE for maintenance based upon the stated renewal rate.

We consider amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable and collectability is reasonably assured. We establish billing terms at the time at which the project deliverables and milestones are agreed. Our standard payment terms are 30 days from invoice date. Out-of-pocket reimbursable expenses charged to customers are reflected as revenue.

7

EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. REVENUE RECOGNITION: (Continued)

We received royalty revenue in connection with the sale of Microsoft Dynamics AX-related discrete and process manufacturing modules (the “Software Modules”) developed by Fullscope, which were sold to Microsoft in June 2009. Royalty revenues earned were determined as a percentage of net receipts from the periodic sale of license keys and enhancements related to the Software Modules sold by Microsoft. Royalties were recognized as earned in accordance with the contract terms when royalties from licensees could be reasonably estimated and collectability was reasonably assured. The Software Modules contract expired in June 2011, and no revenue is expected to be recognized subsequent to the expiration of this contract.

4. SHARE-BASED COMPENSATION:

Stock-based compensation expense under all of the Company’s share-based plans was $359 thousand and $706 thousand for the three- and six -month periods ended June 30, 2012, respectively. Stock-based compensation expense under all of the Company’s share-based plans was $361 thousand and $609 thousand for the three- and six -month periods ended June 30, 2011, respectively.

Cash received from the employee stock purchase plan (“ESPP”) and stock option exercises were $115 thousand and $240 thousand during the three- and six- month periods ended June 30, 2012, respectively. Cash received from ESPP and stock option exercises were $104 thousand and $233 thousand during the three-and six- month periods ended June 20, 2011, respectively.

As of June 30, 2012, unrecognized compensation expense, net of estimated forfeitures, related to the unvested portion of all share-based compensation arrangements was approximately $2.0 million and is expected to be recognized over a weighted-average period of 1.3 years.

The Company intends to use previously purchased treasury shares for shares issued for options, restricted share awards and ESPP purchases. Shares may also be issued from unissued share reserves.

5. INCOME TAXES:

The Company recorded a tax expense of $131 thousand and $219 thousand for the three-and six- month periods ended June 30, 2012, respectively. The Company recorded a tax expense of $302 thousand and $352 thousand for the three- and six-month periods ended June 30, 2011, respectively. The reported tax expense for the three-and six- month periods ended June 30, 2012, is based upon an effective tax rate of 49.4% and 41.5%, respectively, related to our combined federal and state income tax rates, foreign income tax provisions and the recognition of U.S. deferred tax liabilities for differences between the book and tax basis of goodwill. The reported tax expense for the three- and six-month periods ended June 30, 2011 is based upon an effective tax rate of 43.3% and 33.3%, respectively.

We have deferred tax assets that have arisen primarily as a result of timing differences, net operating loss carryforwards and tax credits. Our ability to realize a deferred tax asset is based on our ability to generate sufficient future taxable income within the applicable carryforward period and subject to any applicable limitations. We assess, on a routine periodic basis, the estimated future realizability of the gross carrying value of our deferred tax assets on a more likely than not basis. Our periodic assessments take into consideration both positive evidence (future profitability projections for example) and negative evidence (recent and historical financial performance for example) as it relates to evaluating the future recoverability of our deferred tax assets.

We have a full valuation allowance against our deferred tax assets at June 30, 2012. The establishment of a full valuation allowance against the gross carrying value of our deferred tax assets does not prohibit or limit the Company’s ability to realize a tax benefit in future periods. All existing deferred tax assets, net operating loss carryforwards and credits will be available, subject to possible statutory limitations, to reduce certain future federal and state income tax obligations.

8

EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. FAIR VALUE MEASUREMENT:

We utilize the following valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

• Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.

A financial asset’s or liability’s classification within the hierarchy is determined based upon the lowest level input that is significant to the fair value measurement.

As of June 30, 2012 and December 31, 2011, the Company’s only financial assets and liabilities required to be measured on a recurring basis were its money market investments and the accrued contingent earnout consideration payable in connection with Company’s acquisition of Meridian Consulting International (“Meridian”), which is more fully described in Note 8.

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities required to be measured on a recurring basis:

	Basis of Fair Value Measurements
	Balance		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Balance at June 30, 2012:
Financial assets:
Money market investment	$	4,084	$	4,084	$	—	$	—
Total financial assets	$	4,084	$	4,084	$	—	$	—
Financial liabilities:
Contingent earnout consideration	$	246	$	—	$	—	$	246
Total financial liabilities	$	246	$	—	$	—	$	246
Balance at December 31, 2011:
Financial assets:
Money market investment	$	4,084	$	4,084	$	—	$	—
Total financial assets	$	4,084	$	4,084	$	—	$	—
Financial liabilities:
Contingent earnout consideration	$	231	$	—	$	—	$	231
Total financial liabilities	$	231	$	—	$	—	$	231

The Company has classified its liability for contingent earnout consideration relating to its acquisition of Meridian within Level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which includes probability weighted cash flows. A description of this acquisition is included within Note 8.

9

EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. FAIR VALUE MEASUREMENT: (Continued)

A reconciliation of the beginning and ending Level 3 net liabilities for the six-month period ended June 30, 2012 is as follows:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	(In Thousands)
Balance at December 31, 2011	$	231
Change in fair value related to Meridian contingent earnout consideration		15
Ending balance at June 30, 2012	$	246

The Company routinely examines actual results in comparison to the performance measurements utilized in the earnout calculation and assesses the carrying value of the contingent earnout consideration. During the three- and six- month periods ended June 30, 2012, the Company increased the estimated accrual of contingent earnout consideration earned by the former Meridian stockholders by $8 thousand and $15 thousand, respectively. During the three- and six-month periods ended June 30, 2011, the Company increased the estimated accrual of contingent earnout consideration earned by the former Meridian stockholders by $57 thousand and $65 thousand, respectively.

During the three- and six- month periods ended June 30, 2011, the Company also increased the estimated accrual of contingent earnout consideration earned by the former Fullscope stockholders by $1.4 million. The Fullscope contingent earnout was settled in the fourth quarter of 2011 and therefore no contingent liability is recorded as of June 30, 2012.

Each of the adjustments, as required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations,” was reported as part of our selling, general and administrative expenses.

No financial instruments were transferred into or out of Level 3 classification during the three- or six-month period ended June 30, 2012.

As of June 30, 2012 and December 31, 2011, the fair values of our other financial instruments, which include cash and cash equivalents, accounts receivable and accounts payable, approximate the carrying amounts of the respective asset and/or liability due to the short-term nature of these financial instruments.

7. GOODWILL AND INTANGIBLE ASSETS:

There has been no change in the Company’s recorded goodwill balance during the three- or six- month periods ended June 30, 2012 or 2011. Our annual goodwill and intangible assets measurement date is December 2.

We amortize our intangible assets that have finite lives using either the straight-line method or based on estimated future cash flows to approximate the pattern in which the economic benefit of the asset will be utilized. Amortization expense was $241 thousand and $482 thousand during the three-and six- month periods ended June 30, 2012, respectively. Amortization expense was $486 thousand and $975 thousand during the three- and six-month periods ended June 30, 2011, respectively. This amortization expense relates to certain non-competition covenants, trade names and customer lists, which expire between 2012 and 2016.

The Company recorded amortization from capitalized internally developed software (reported as part of our software expense) of $25 thousand and $42 thousand during the three-and six- month periods ended June 30, 2012, respectively. The Company recorded amortization from capitalized internally developed software (reported as part of our software expense) of $13 thousand during the three- and six-month periods ended June 30, 2011.

10

EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. GOODWILL AND INTANGIBLE ASSETS: (Continued)

Estimated annual amortization expense (including amortization expense associated with capitalized software costs) for the current year and the following four years ending December 31, is as follows:

	Amortization Expense
	(In Thousands)
2012	$	1,055
2013	$	531
2014	$	378
2015	$	115
2016	$	—

8. BUSINESS COMBINATIONS:

Acquisition of Meridian Consulting International: On May 17, 2010, the Company acquired substantially all of the assets and liabilities of Meridian, pursuant to the terms of an Asset Purchase Agreement (the “Meridian Acquisition”). Headquartered in Chicago, Illinois, Meridian is a specialty solution provider of Oracle’s Hyperion Strategic Finance (“HSF”) product which encompasses strategic planning and forecasting, scenario modeling and mergers and acquisitions analysis. Meridian has delivered its services to organizations across various vertical markets including Energy, Higher Education, Retail and Healthcare. The acquisition of Meridian continues the investment in our Enterprise Performance Management (“EPM”) - related service offerings and aligns with our product-centric service offering model.

In connection with the Meridian Acquisition, the Company entered into an earnout agreement under which the former Meridian stockholders are eligible to receive additional contingent consideration. Contingent earnout consideration to be paid, if any, to the former Meridian stockholders will be based upon the achievement of certain performance measures over three consecutive twelve-month earnout periods, concluding on May 17, 2013. The maximum amount of contingent earnout consideration that the former stockholders of Meridian can earn is capped at $2.7 million.

In May 2011 and May 2012, Meridian completed its first and second twelve-month earnout periods, during which the required performance measurements were not achieved. The former Meridian stockholders did not receive any additional contingent consideration related to the first or second earnout periods. The Company, as of June 30, 2012, has accrued $246 thousand in potential future contingent earnout consideration payable to the former Meridian stockholders related to the completion of the third twelve-month earnout period. As of June 30, 2012, the maximum amount of contingent earnout consideration that the former stockholders of Meridian can earn during the final earnout period is capped at $917 thousand.

9. ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES:

Components of accrued liabilities as of June 30, 2012 and December 31, 2011 consisted of the following:

	June 30, 2012		December 31, 2011
	(In Thousands)
Accrued commissions	$	1,332	$	2,598
Accrued bonuses		1,863		2,562
Accrued vacation		2,316		1,741
Accrued payroll related liabilities		1,152		1,222
Accrued pre-acquisition sales tax liability		1,500		950
Accrued software expense		1,881		312
Other accrued expenses		4,877		4,549
Total	$	14,921	$	13,934

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EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9. ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES: (Continued)

Components of other long-term liabilities as of June 30, 2012 and December 31, 2011 consisted of the following:

	June 30, 2012		December 31, 2011
	(In Thousands)
Long-term portion of lease abandonment accrual	$	1,484	$	1,787
Long-term portion of deferred tax liability		69		54
Total	$	1,553	$	1,841

10. NET INCOME PER SHARE:

A reconciliation of net income and weighted average shares used in computing basic and diluted net income per share is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(In Thousands, Except Per Share Data)
Basic net income per share:
Net income applicable to common shares	$	134	$	395	$	309	$	705
Weighted average common shares outstanding		11,288		12,426		11,319		12,391
Basic net income per share of common stock	$	0.01	$	0.03	$	0.03	$	0.06
Diluted net income per share:
Net income applicable to common shares	$	134	$	395	$	309	$	705
Weighted average common shares outstanding		11,288		12,426		11,319		12,391
Dilutive effects of stock options		548		30		363		11
Weighted average common shares, assuming dilutive effect of stock options		11,836		12,456		11,682		12,402
Diluted net income per share of common stock	$	0.01	$	0.03	$	0.03	$	0.06

Share-based awards, inclusive of all grants made under the Company’s equity plans, for which either the stock option exercise price, or the fair value of the restricted share award, exceeds the average market price over the period, have an anti-dilutive effect on earnings per share, and accordingly, are excluded from the diluted computations for all periods presented. Had such shares been included, shares for the diluted computation would have increased by approximately 813 thousand and 959 thousand in the three- and six- month periods ended June 30, 2012, respectively. The diluted computation would have increased by approximately 3.3 million and 3.6 million in the three- and six-month periods ended June 30, 2011, respectively. As of June 30, 2012 and 2011, there were approximately 3.9 million and 3.8 million share-based awards outstanding, respectively, under the Company’s equity plans.

11. STOCK REPURCHASE PROGRAM:

In December 2007, our Board of Directors (the “Board”) authorized a stock repurchase program for up to $5.0 million of common stock on the open market or through privately negotiated transactions from time-to-time through December 31, 2008 (the “Stock Repurchase Program”). The Board subsequently amended the Stock Repurchase Program, authorizing both

12

EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. STOCK REPURCHASE PROGRAM: (Continued)

an increase to and an extension of the Stock Repurchase Program. The Stock Repurchase Program, as amended, had a maximum purchase value of shares of $8.5 million (the “Purchase Authorization”) and expired on September 23, 2011 (the “Repurchase Period”). On September 9, 2011, the Board approved both a $5.0 million increase to the Purchase Authorization, to $13.5 million, and an extension of the Repurchase Period to September 21, 2012. As of June 30, 2012, there was $3.9 million of remaining Purchase Authorization under the Stock Repurchase Program.

The timing and amount of the purchases will be based upon market conditions, securities law considerations and other factors. The Stock Repurchase Program does not obligate the Company to acquire a specific number of shares in any period and may be modified, suspended, extended or discontinued at any time, without prior notice.

In March 2012, the Board authorized a written trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate the repurchase of its common stock pursuant to the Company's existing stock repurchase authorization (the “10b5-1 Plan”).

The 10b5-1Plan became effective on March 15, 2012 and is scheduled to expire on September 21, 2012, unless terminated earlier in accordance with its terms. Purchases, if any, may not exceed the remaining shares available under the existing repurchase authorization.

The Company repurchased a total of 118 thousand and 187 thousand shares of common stock during the three and six- month periods ended June 30, 2012, respectively, at an aggregate purchase price of $468 thousand and $728 thousand, respectively. The Company did not repurchase any common stock during the three-and six- months ended June 30, 2011.

12. FULLSCOPE EMBEZZLEMENT:

During the second quarter of 2010, the Company discovered embezzlement activities at Fullscope, one of its wholly-owned subsidiaries, which was acquired by the Company in December 2009 (the “Fullscope Embezzlement Issue”). Based upon the results of forensic accounting procedures, we identified that the embezzlement activities occurred for an extended period prior to our acquisition of Fullscope and also during the first and second quarter of 2010. Additionally, based upon the procedures performed, we concluded that the embezzlement activities that occurred during the first and second quarters of 2010 did not have a material impact upon our previously issued financial statements.

We have completed our investigation as it relates to the embezzlement activities that occurred during 2010. In total, we identified approximately $116 thousand of embezzlement during 2010.

The Company incurred approximately $567 thousand and $51 thousand in non-routine operating expenses associated with the Fullscope Embezzlement Issue during the three-month periods ended June 30, 2012 and 2011, respectively. The Company incurred approximately $570 thousand and $114 thousand in such non-routine operating expenses during the six months ended June 30, 2012 and 2011, respectively.

During the second quarter of 2012, the Company increased the previously recorded accrual for pre-acquisition sales and use tax exposure by $550 thousand. As of June 30, 2012, the accrual for pre-acquisition sales and use tax exposure is estimated at $1.5 million. The potential sales and use tax-related liability was created by the methods employed by a former employee of Fullscope to conceal the discovered fraudulent activity. While the Company has accounted for this liability as a period expense, we believe that any amounts actually paid to resolve this issue will be recoverable from an existing, fully funded escrow account which was established in connection with our acquisition of Fullscope. Future amounts recovered, if any, will be recorded by the Company in the period in which the amounts are determined to be probable of recovery from escrow.

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EDGEWATER TECHNOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. FULLSCOPE EMBEZZLEMENT: (Continued)

We incurred a majority of our embezzlement expenses during fiscal 2010 in connection with our identification and investigation of the embezzlement activity. We anticipate that we may continue to incur additional expenses associated with the Fullscope Embezzlement Issue as we intend to aggressively pursue recovery through a claim against the escrow account established in connection with the acquisition of Fullscope, Inc. (“Fullscope Acquisition”). We anticipate that we will be able to recover some, if not all, of the receivable amounts embezzled during 2010, the professional service expenses we have incurred to-date, or will incur in the future, addressing this situation, and any amounts paid to settle any of the identified sales and use tax liability amounts. Amounts recovered, if any, will be recorded during the period in which settlement is determined to be probable.

In connection with the Fullscope Acquisition, an escrow account was established with $1.3 million, or 10% of the initial upfront purchase price consideration. Subsequent to that time, the Company transferred an additional $700 thousand to the escrow account in connection with the release of a pre-acquisition Fullscope escrow account that was established in June 2009 in connection with Fullscope’s sale of Dynamics AX add-on software modules to Microsoft. Further, in the fourth quarter of 2011, the Company funded the escrow account with $2.6 million in settlement of the contingent consideration obligation. As of June 30, 2012, the combined value of the two escrow accounts was approximately $4.6 million. The escrow accounts, as per the merger agreement, were established to ensure the satisfactory resolution of all potential claims during the earnout period. These amounts will remain unsettled until our claim of recovery for the above matters is resolved.

13. SALE OF INTELLECTUAL PROPERTY:

In June 2012, Microsoft Corporation agreed to purchase Edgewater Fullscope’s Process Industries 2 (PI2) software and intellectual property (the “Assets”) for an aggregate of $3.25 million, payable in installments. Also, Microsoft will engage Edgewater Fullscope in additional development and training services during the integration of the software module into Microsoft’s ERP solution for enterprises, Microsoft Dynamics AX. Our future quarterly revenue will be influenced by our recognition of both proceeds related to the IP sale and service revenue generated under the development and training service agreements. We will recognize revenue associated with the Microsoft IP Sale in direct proportion to the actual periodic services performed, as compared to the anticipated development services to be performed over the duration of the agreement. The agreement contains representations, warranties, covenants and indemnities, including an agreement by Edgewater Fullscope not to develop, promote, market or sell any software or technology that has the same or substantially similar, in any material respect, features or functions as the Assets or could replace, be used in lieu of or otherwise compete with such Assets.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the information contained in the Unaudited Condensed Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. See “Risk Factors” and “Special Note Regarding Forward-Looking Statements” included elsewhere herein. We use the terms “we,” “our,” “us,” “Edgewater” and “the Company” in this report to refer to Edgewater Technology, Inc. and its wholly-owned subsidiaries.

Business Overview

Edgewater is a strategic consulting firm that brings a blend of specialty services in the areas of business advisory, analytics, data management and technology to its customer base. We target “C”-level executives, assisting them with transformational projects. Our customer base tends to be in the upper mid-market and selectively in the Global 2000 market, with a primary focus in North America.

Edgewater offers a full spectrum of services and expertise. Our consulting services are consolidated into three major offerings: (1) Business Advisory Services, (2) Product-Based Consulting and (3) Technology Consulting. The diagram that follows illustrates these offerings:

Edgewater has the proven expertise to plan, deliver and manage integration services that improve performance and maximize business results. We focus on deploying new systems and unlocking the value of the existing corporate assets. This proven expertise enables us to bring complex technologies and systems together while minimizing risk, leveraging our customers’ technology investments and delivering tailored solutions.

The following are Edgewater’s service categories with sample services:

• Business advisory services

• Monetize knowledge, new revenue streams from corporate data

• Customer transformation, moving from business-to-business to business-to-customer or the reverse for new revenue opportunities

• Cloud Architecture and On-Ramping strategic services

• Business process rejuvenation with industry best practice and cross pollination

• Specialized operational, due diligence and technology management expertise to mergers and acquisitions, private equity and venture capital

• Strategic advice, costing, estimates to complete, failing or failed programs or project initiatives

• Independent package selection and Request for Information or Proposal process design and implementation

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• Product-based consulting services

• Effect business transformation through the use of packaged software solutions

• Enterprise performance management with Oracle budgeting, planning, consolidation and strategic finance

• Enterprise resource planning with Microsoft Dynamics AX, discrete manufacturing and a specialty of process-based manufacturing

• Customer relationship management with Microsoft CRM

• Industry specific platform and best practice solutions

• Blended solutions; Microsoft CRM/XRM and custom

• Technology consulting services

• Technical architecture and roadmaps

• Technical evaluations and design

• Custom component design and implementation

• Web-centric solutions: internal, external and/or collaborative

• Cloud integration and phasing solutions

• On-going support services

• Infrastructure optimization and redesign, disaster recovery and business continuity specialized design and assistance

In addition to the above services, the Company also provides services in the area of data management and analytics. Examples of such services include the following:

• Enterprise information management services

• Provide for data related matters: master data management, data governance, logical and physical data base design, data warehouse strategies and design

• Provide practical data architectures and roadmaps to support transactional systems, enterprise performance management, through advanced analytics

• Provide forms of data manipulation, transformation and quality services

• Analytics services

• Lead derivation of key financial and operational performance indicators and correlate their measurement, visualization and action for a given organization

• Advise on opportunities for the use of predictive techniques, external data and benchmarks to improve business performance measurement and forecasting

• Advise on the creation and adoption of analytics architectures, roadmaps and supporting organizations

• Advise, design and roadmap analytics-based near real-time to real-time alerting strategies and implementations

Our consultants are expected to travel and to be onsite with the customer to provide the highest level of service and support in all of these endeavors. We work with varying degrees of customer project assistance and will incorporate customer resources for technology transfer or cost optimization purposes. Independent teams and proper project process and delineation provide conflict-free transition points among all key service offerings as well as independent entry points. Leads for offerings are internally driven with assistance from the respective vendors for software product solutions.

Factors Influencing Our Results of Operations

Revenue. The Company derives its service revenue from time and materials-based contracts, fixed-price contracts and retainer-based arrangements. Time and materials-based contracts represented 95.4% and 95.5% of service revenue for the three- and six-month periods ended June 30, 2012, respectively. Time and materials-based contracts represented 95.6% and 94.6% of service revenue for the three- and six-month periods ended June 30, 2011, respectively. Revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Fixed-price contracts represented 1.9% of service revenue for the three- and six-month periods ended June 30, 2012. Fixed-price contracts represented 2.1% and 3.1% of service revenue for the three- and six-month periods ended June 30, 2011, respectively. Revenue pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. Retainer-based contracts represented 2.7% and 2.6% of service revenue during the three-and six- month periods ended June 30, 2012, respectively. Retainer-based contracts represented 2.3% of service revenue during the three- and six- month periods ended June 30, 2011. Revenue under retainer-based contracts is recognized ratably over the contract period, as outlined within the respective contract.

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Estimates of total project costs are continuously monitored during the term of an engagement. There are situations where the number of hours to complete projects may exceed our original estimate, as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. Accordingly, recorded revenues and costs are subject to revision throughout the life of a project based on current information and historical trends. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified.

In connection with our addition of product-based consulting offerings, we anticipate that software revenue will continue to be a significant portion of our revenues. Software revenue is recognized upon delivery, except in the infrequent situation where the Company provides maintenance services, in which case the related maintenance is recognized ratably over the maintenance period. The consulting services we provide are not considered by us to be essential to the functionality of the software. Software revenue is expected to fluctuate between quarters, dependent on our customers’ demand for such third-party off-the-shelf software. Fluctuations in software revenue may have an impact upon our periodic operating performance, including gross margin.

Operating Expenses. The largest portion of our operating expenses consists of cash and non-cash compensation and benefits associated with our project consulting personnel and related expenses. Non-cash compensation includes stock compensation expense arising from restricted stock and option grants to employees. Project personnel expenses also consist of payroll costs and related benefits associated with our professional staff. Other related expenses include travel, subcontracting costs, third-party vendor payments and non-billable expenses associated with the delivery of services to our customers. We consider the relationship between project personnel expenses and service revenue to be an important measure of our operating performance. The relationship between project personnel expenses and service revenue is driven largely by the chargeability of our consultant base, the prices we charge our customers and the non-billable costs associated with securing new customer engagements and developing new service offerings. The remainder of our recurring operating expense is composed of expenses associated with the development of our business and the support of our customer-serving professionals, such as professional development and recruiting, marketing and sales, and management and administrative support. Professional development and recruiting expenses consist primarily of recruiting and training content development and delivery costs. Marketing and sales expenses consist primarily of the costs associated with the development and maintenance of our marketing materials and programs. Management and administrative support expenses consist primarily of the costs associated with operations including finance, information systems, human resources, facilities (including the rent of office space) and other administrative support for project personnel.

We regularly review our fees for services, professional compensation and overhead costs to ensure that our services and compensation are competitive within the industry and that our overhead costs are balanced with our revenue levels. In addition, we monitor the progress of customer projects with customer senior management. We manage the activities of our professionals by closely monitoring engagement schedules and staffing requirements. However, a rapid decline in the demand for the professional services that we provide could result in lower utilization of our professionals than we planned. In addition, because most of our customer engagements are terminable by our customers without penalty, an unanticipated termination of a customer project could require us to maintain underutilized employees. While professional staff levels must be adjusted to reflect active engagements, we must also maintain a sufficient number of consulting professionals to oversee existing customer engagements and to participate in sales activities to secure new customer assignments.

Adjustments to Fair Value of Contingent Consideration. During the three- and six- month periods ended June 30, 2012 and 2011, we have made adjustments to the estimated fair value of certain acquisition-related contingent consideration liabilities. We remeasure the estimated carrying value of contingent consideration each quarter, with any changes (income or expense) in the estimated fair value recorded as an operating expense. Changes in the carrying value of contingent consideration liabilities may fluctuate significantly in future periods depending on changes in estimates, including probabilities associated with achieving the milestones and the period in which we estimate these milestones will be achieved.

Non-Routine Professional Services-Related Expenses. During fiscal 2011 and the first six months of 2012, we incurred certain non-routine professional service-related expenses associated with our identification of embezzlement activities at Fullscope, one of our wholly-owned subsidiaries (the “Fullscope Embezzlement Issue”). We incurred a majority of our embezzlement-related expenses during fiscal 2010 in connection with our identification and investigation of the embezzlement activity.

During the second quarter of 2012, the Company increased the previously recorded accrual for pre-acquisition sales and use tax exposure by $550 thousand. As of June 30, 2012, the adjusted accrual for pre-acquisition sales and use tax exposure is estimated at $1.5 million. The potential sales and use tax-related liability was created by the methods employed by a former employee of Fullscope to conceal the discovered fraudulent activity. While the Company has

17

accounted for this liability as a period expense, we believe that any amounts actually paid to resolve this issue will be recoverable from an existing, fully funded escrow account in the amount of $4.6 million, which was established in connection with our acquisition of Fullscope. Future amounts recovered, if any, will be recorded by the Company in the period in which the amounts are determined to be probable of recovery from escrow.

We anticipate that we may continue to incur additional expenses associated with the Fullscope Embezzlement Issue as we intend to aggressively pursue recovery through all possible avenues, including a claim against the escrow account established in connection with the Fullscope Acquisition. We anticipate that we will be able to recover some, if not all, of the receivable amounts embezzled during 2010, the professional service expenses we have incurred to-date, or will incur in the future, addressing this situation, and any amounts paid to settle any of the identified sales and use tax liability amounts. Amounts recovered, if any, will be recorded during the period in which settlement is determined to be certain.

Company Performance Measurement Systems and Metrics. The Company’s management monitors and assesses its operating performance by evaluating key metrics and indicators on an ongoing basis. For example, we regularly review performance information related to annualized revenue per billable consultant, periodic consultant utilization rates, gross profit margins, average bill rates and billable employee headcount. Edgewater has also developed internal Enterprise Performance Management systems which aid us in measuring our operating performance and consultant utilization rates. The matching of sales opportunities to available skill sets in our consultant base is one of our greatest challenges and therefore, we monitor consultant utilization closely. These metrics, along with other operating and financial performance metrics, are used in evaluating management’s overall performance. These metrics and indicators are discussed in more detail under “Results for the Three and Six Months Ended June 30, 2012, Compared to Results for the Three and Six Months Ended June 30, 2011,” included elsewhere in this Quarterly Report on Form 10-Q.

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Results for the Three and Six Months Ended June 30, 2012, Compared to Results for the Three and Six Months Ended June 30, 2011

The financial information that follows has been rounded in order to simplify its presentation. The amounts and percentages below have been calculated using the detailed financial information contained in the unaudited condensed consolidated financial statements, the notes thereto, and the other financial data included in this Quarterly Report on Form 10-Q.

The following table sets forth the percentage of total revenue of items included in our unaudited condensed consolidated statements of operations:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenue:
Service revenue		79.4	%		68.0	%		82.7	%		75.2	%
Software revenue		13.3	%		17.3	%		9.5	%		12.4	%
Process royalties		—	%		8.0	%		—	%		5.3	%
Reimbursable expenses		7.3	%		6.7	%		7.8	%		7.1	%
Total revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenue:
Project and personnel costs		48.0	%		43.3	%		50.8	%		47.1	%
Software costs		9.9	%		10.5	%		7.0	%		7.8	%
Reimbursable expenses		7.3	%		6.7	%		7.8	%		7.1	%
Total cost of revenue		65.2	%		60.5	%		65.6	%		62.0	%
Gross profit		34.8	%		39.5	%		34.4	%		38.0	%
Operating expenses:
Selling, general and administrative		31.5	%		34.5	%		31.5	%		33.3	%
Depreciation and amortization		1.6	%		2.6	%		1.7	%		2.8	%
Total operating expenses		33.1	%		37.1	%		33.2	%		36.1	%
Operating income		1.7	%		2.4	%		1.2	%		1.9	%
Other expense (income), net		0.7	%		(0.1	)%		0.2	%		(0.1	)%
Income before income taxes		1.0	%		2.5	%		1.0	%		2.0	%
Income tax provision		0.5	%		1.1	%		0.4	%		0.7	%
Net income		0.5	%		1.4	%		0.6	%		1.3	%

Revenue. Total revenue decreased by $(209) thousand, or (0.8)%, to $27.2 million for the three-month period ended June 30, 2012, compared to total revenue of $27.4 million in the three-month period ended June 30, 2011. Total revenue increased by $1.5 million, or 2.9%, to $52.5 million for the six-month period ended June 30, 2012, compared to total revenue of $51.0 million in the six-month period ended June 30, 2011. With respect to the comparative changes in year-over-year total revenue, service revenue increased by $3.0 million, or 15.9%, and $5.0 million, or 13.2%, in the three- and six-month periods ended June 30, 2012, respectively. Software revenue represented a $(1.1) million and $(1.3) million decrease in the year-over-year comparison of the three- and six-month periods ended June 30, 2012, respectively.

Our year-over-year 2012 first and second quarter service revenue growth is entirely organic. Additionally, total revenue during the three- and six- month periods ended June 30, 2012 excludes service revenue and royalty revenue generated under the Fullscope process contracts, which expired in June of 2011.

The year-over-year improvement in 2012 second quarter and year-to-date service revenue is the result of continued growth within our product-based service offerings and, to a lesser extent, increases in our business advisory and support services revenue. The combination of a strong Oracle-based EPM pipeline and an increase in 2011 Microsoft Dynamics-based ERP product sales provided the catalyst for our second quarter service revenue growth on a year-over-year quarterly basis.

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On a sequential quarterly basis, service revenue in the second quarter of 2012 decreased by $(209) thousand, or (1.0)%, compared to the first quarter of 2012. Delays in the signing and starting of new project engagements in each of our service offerings led to a sequential decline in billable consultant utilization during the second quarter of 2012, reducing second quarter service revenue.

We believe the delays in the signing and initiation of new projects is reflective of uncertainty in the marketplace. While some customers are pushing out start dates to the near future, we do not see a significant pullback in spending. We believe the pipeline for our service offerings remains active and we are continuing to drive current opportunities to closure.

Utilization, which is the rate at which we are able to generate revenue from our consultants, increased to 73.2% during the second quarter of 2012 compared to 72.2% during the second quarter of 2011. Our second quarter utilization decreased in comparison to our first quarter of 2012 of 75.4%. The sequential quarterly decrease in utilization was primarily the result of delays in the start of new project engagements, as described above.

Annualized service revenue per billable consultant, as adjusted for utilization, was $362 thousand and $357 thousand during the three- and six- month periods ended June 30, 2012, an increase from our annualized service revenue per billable consultant of $332 thousand and $329 thousand during the comparative 2011 periods. The increase in the annualized service revenue rate is largely attributable to a higher concentration of revenue being generated by our Oracle-based EPM service offerings.

During the three- and six- month periods ended June 30, 2012, software revenue totaled $3.6 million and $5.0 million, or 13.3% and 9.5% of total revenue, respectively, compared to software revenue of $4.7 million and $6.3 million, or 17.3% and 12.4%, in the three- and six- month periods ended June 30, 2011, respectively. Our software revenue is primarily related to our resale of Microsoft Dynamics AX ERP software. We believe that the comparative decrease in 2012 periodic software revenue is the result of extended sales cycles attributable to the hesitancy of customers to launch transformational projects, such as ERP replacement initiatives. We believe this to be directly related to customer concern with respect to uncertainty and instability in the marketplace. Software revenue is expected to fluctuate on a periodic basis dependent upon our customers’ demand for such third-party off-the-shelf software. We anticipate that software revenue will continue to be a significant component of our quarterly and annual revenues in future periods.

Our gross margins related to software revenue have generally been much lower than those achieved on our consulting services. Our ERP-related software revenue, which represents the majority of our 2011, 2012 and anticipated future software revenue, has historically been sold at a higher margin than our Oracle EPM-related software. Because software revenue has become a more significant percentage of our total revenue, periodic fluctuations in the amount of software revenue recognized by the Company may have a material impact upon our gross margins.

In June 2012, Microsoft agreed to purchase Edgewater Fullscope’s Process Industries 2 (PI2) software and intellectual property for an aggregate of $3.25 million, payable in installments (the “Microsoft IP Sale”). Also, Microsoft will engage Edgewater Fullscope in additional development and training services during the integration of the software module into Microsoft’s ERP solution for enterprises, Microsoft Dynamics AX. Our future quarterly revenue will be influenced by our recognition of both proceeds related to the IP sale and service revenue generated under the development and training service agreements. We will recognize revenue associated with the Microsoft IP Sale in direct proportion to the actual periodic services performed, as compared to the anticipated development services to be performed over the duration of the agreement.

During the three- and six-month periods ended June 30, 2011, we recognized $2.3 million and $3.2 million, respectively, in combined service and royalty revenue from Fullscope’s process contracts. As per the terms of the earnout agreement, our obligation ended on June 30, 2011 concurrent with the termination of the service and royalty revenue generated by the process contracts. No revenues have been generated under the process contracts since June 2011, and the Company does not anticipate that any future revenue will be generated under the process contracts.

Generally, we are reimbursed for our out-of-pocket expenses incurred in connection with our customers’ consulting projects. Reimbursed expense revenue increased approximately $153 thousand, to $2.0 million for the three-month period ended June 30, 2012, as compared to $1.8 million in the comparative 2011 quarterly period. Similarly, reimbursed expense revenue increased approximately $476 thousand, to $4.1 million for the six-month period ended June 30, 2012, as compared to $3.6 million in the comparative 2011 year-to-date period. The aggregate amount of reimbursed expenses will fluctuate from period-to-period depending on the number of billable consultants as well the location of our customers, the general fluctuation of travel costs, such as airfare, and the number of our projects that require travel.

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The number of customers the Company served during the six-month period ended June 30, 2012 totaled 326, as compared to 324 customers during the six-month period ended June 30, 2011. During the first six months of 2012, we had 54 new customer engagements, compared to 63 new customer engagements during the first six months of 2011.

Cost of Revenue. Cost of revenue primarily consists of project personnel costs principally related to salaries, payroll taxes, employee benefits, software costs and travel expenses for personnel dedicated to customer projects. These costs represent the most significant expense we incur in providing our services. In total, cost of revenue increased by $1.2 million, or 7.0%, to $17.7 million for the three-month period ended June 30, 2012 compared to $16.6 million in the comparative 2011 quarterly period. Similarly, cost of revenue increased by $2.9 million, or 9.1%, to $34.4 million during the year-to-date period ended June 30, 2012 compared to $31.6 million in the comparative 2011 year-to-date period.

The primary drivers of the 2012 year-over-year quarterly increase in cost of revenue, on an absolute dollar basis, were the growth in billable headcount necessary to support our service revenue growth and an increase in fringe-related expenses attributable to the growth in billable headcount. The Company maintained 299 billable consultants (excluding contractors) as of the quarter ended June 30, 2012 compared to 278 billable consultants (excluding contractors) at the end of the comparative prior-year quarter.

We have utilized contractors to support our service delivery needs as a direct result of growth within our product-based service offerings. Contractor expense totaled $975 thousand during the three-month period ended June 30, 2012 compared to $944 thousand during the three-month period ended June 30, 2011. Contractor expense totaled $2.0 million and $1.9 million during the six-month periods ended June 30, 2012 and 2011, respectively.

Project and personnel costs represented 48.0% and 50.8% of total revenue during the three- and six- month periods ended June 20, 2012, respectively, as compared to 43.3% and 47.1% of total revenue during the three- and six- month periods ended June 30, 2011, respectively. The increase in project and personnel costs, as a percentage of total revenue, was driven primarily by the compensation-related costs (salaries and fringe-related expenses) associated with the billable consultant headcount growth in the quarter.

Software costs amounted to $2.7 million and $3.7 million during the three- and six- month periods ended June 30, 2012, respectively. Software costs amounted to $2.9 million and $4.0 million during the three- and six- month periods ended June 30, 2011, respectively. Software costs are expected to fluctuate between quarters depending on our customers’ demand for software. Reimbursable expenses increased to $2.0 million and $4.1 million for the three- and six- month periods ended June 30, 2012, respectively, as compared to $1.8 million and $3.6 million in the comparative quarterly periods of 2011, respectively.

Gross Profit. During the three-month period ended June 30, 2012, total gross profit of $9.5 million decreased compared with total gross profit of $10.8 million in the three-month period ended June 30, 2011. Similarly, during the six-month period ended June 30, 2012, total gross profit of $18.0 million decreased compared to total gross profit of $19.4 million in the six-month period ended June 30, 2011. For purposes of further analysis, we refer to gross profit as a percentage of revenue generally as gross margin.

Total gross margin, as a percentage of total revenue, decreased to 34.8% in the second quarter of 2012 compared to 39.5% in the comparative 2011 quarterly period. Similarly, total gross margin decreased to 34.4% in the six-month period ended June 30, 2012 compared to 38.0% in the comparative 2011 year-to-date period. The comparative year-over-year periodic decreases in total gross margin are directly related to the incremental salary and fringe-related expenses from the growth in our billable consultant headcount, the absence of $2.7 million of Fullscope’s process-related royalty revenue, and the lost gross margin contribution associated with the decrease of $1.3 million in software revenue.

During the first half of 2012, we increased billable consultant headcount by 12 consultants. The increase in billable consultants is reflective of the growth in our service revenue, as well as anticipated work to be performed under the Microsoft IP Sale. Given the time required to train and deploy newly hired consultants, we elected to hire and train consultants in our Oracle-based EPM and Microsoft Dynamics-based ERP service offerings ahead of anticipated demand.

Service revenue gross margins increased to 39.5% in the second quarter of 2012 compared to 36.3% in the comparative 2011 quarterly period. Service revenue gross margin increased to 38.4% in the six-month period ended June 30, 2012

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compared to 37.4% in the comparative 2011 year-to-date period. The increase in service gross margin for the three- and six-month periods ended June 30, 2012 is primarily reflective of the periodic growth in year-over-year service revenue and, to a lesser extent, the slight increase in second quarter 2012 billable consultant utilization rates in conjunction with the overall increase in billable consultant headcount and the year-over-year improvement in our annualized revenue per billable consultant.

We anticipate that our future quarterly gross margins may be influenced by incremental gross margin contributions generated by the IP and the service revenue under the Microsoft IP Sale.

Selling, General and Administrative (“SG&A”) Expenses. As a percentage of revenue, SG&A expenses were 31.5% during the three- and six- month periods ended June 30, 2012 compared to 34.5% and 33.3% in the comparative 2011 quarterly periods. On an absolute dollar-basis, SG&A expenses decreased by $(892) thousand and $(468) thousand, or (9.4)% and (2.8)%, to $8.6 million and $16.5 million in the three- and six- month periods ended June 30, 2012, respectively, compared to SG&A expenses of $9.4 million and $17.0 million in the three- and six- month period ended June 30, 2011, respectively.

The periodic year-over-year decreases in SG&A expense in the comparative three and six month periods of 2012 are in large part driven by the current year absence of the $1.4 million contingent earnout consideration expense recorded in the second quarter of 2011 related to the Fullscope acquisition earnout. The Fullscope earnout was completed during 2011 and therefore no such expense was recorded in the current year. This decrease was partially offset by the second quarter 2012 increase to the pre-acquisition potential sales and use tax accrual of $550 thousand and increases in salary and commission-related expenses in connection with 2012 sales headcount and revenue growth.

We anticipate that we may continue to incur additional expenses associated with the Fullscope Embezzlement Issue as we intend to aggressively pursue recovery through all possible avenues, including a claim against the escrow account established in connection with the Fullscope Acquisition and reimbursement under insurance policies. We may be able to recover some, if not all, of the expenses we incur in addressing this situation. Amounts recovered and/or reimbursed, if any, in connection with this matter will be recorded in the period during which amounts are determined to be probable of recovery from escrow.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $(264) thousand, or (37.1)%, to $448 thousand in the quarter ended June 30, 2012 as compared to $712 thousand in the quarter ended June 30, 2011. Similarly, depreciation and amortization decreased $(525) thousand, or (37.1)%, to $890 thousand in the six-month period ended June 30, 2012 compared to $1.4 million in the comparative 2011 year-to-date period.

Amortization expense was $241 thousand and $482 thousand during the three- and six- month periods ended June 30, 2012, respectively, compared to amortization expense of $486 thousand and $975 thousand in the three- and six- month periods ended June 30, 2011, respectively. The decrease in amortization expense during the first half of 2012 is primarily the result of a reduction in amortization expense associated with the intangible assets identified in connection with the Fullscope Acquisition. The Company recognizes amortization expense over the periods in which it expects to realize the economic benefit. A significant portion of the intangible asset amortization expense related to the Fullscope Acquisition was recorded during 2010 and 2011.

Depreciation expense was $207 thousand and $408 thousand during the three- and six-month periods ended June 30, 2012, respectively, which was consistent with depreciation expense recognized during the comparative quarterly period of 2011.

Operating Income. Operating income for the second quarter of 2012 was $461 thousand, compared to operating income of $672 thousand in the comparative 2011 quarterly period. Similarly, operating income for the six-month period ended June 30, 2012 was $633 thousand compared to an operating income of $1.0 million in the comparative 2011 year-to-date period. The second quarter of 2012 fluctuation in operating results can be attributed to the year-over-year increases in service revenue, the absence of 2011 Fullscope’s process-related royalty revenue, the absence of $1.4 million in expense associated with the second quarter 2011 increase in contingent earnout consideration, the second quarter 2012 $550 thousand increase in the accrual for potential sales and use tax exposure resulting from the Fullscope embezzlement issue, and fringe-related expenses due to the growth in billable consultant headcount. Each of these items is explained in further detail above.

Other Expense (Income), Net. Other expense, net, totaled $196 thousand and $105 thousand during the three-and six- month periods ended June 30, 2012, respectively, while other (income), net, totaled $(25) thousand and $(17) thousand during the comparative 2011 periods. These amounts primarily represent the Company’s periodic foreign currency exchange gains and losses.

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Income Tax Provision. We recorded a provision for income taxes of $131 thousand and $219 thousand during the three- and six- months ended June 30, 2012, respectively. We recorded a provision for income taxes of $302 thousand and $352 thousand during the three and six months ended June 30, 2011, respectively. Our periodic income tax provision amounts are derived based upon an effective income tax rate, inclusive of federal and state income taxes, of 41.5% and 33.3% during the six-month periods ended June 30, 2012 and 2011, respectively.

Reported income tax expense during the comparative 2012 and 2011 quarterly periods also includes expense amounts attributable to unrecognized tax benefits, foreign income taxes, the recognition of U.S. deferred tax liabilities for differences between the book and tax basis of goodwill and interest and penalties.

We have deferred tax assets that have arisen primarily as a result of timing differences, net operating loss carryforwards and tax credits. Our ability to realize a deferred tax asset is based on our ability to generate sufficient future taxable income. We assess, on a routine periodic basis, the estimated future realizability of the gross carrying value of our deferred tax assets on a more likely than not basis. Our periodic assessments take into consideration both positive evidence (future profitability projections for example) and negative evidence (recent and historical financial performance for example) as it relates to evaluating the future recoverability of our deferred tax assets. Based on such evaluations, we have concluded that a full valuation allowance against our deferred tax assets remains appropriate.

The establishment of a full valuation allowance against the gross carrying value of our net deferred tax assets does not prohibit or limit the Company’s ability to realize a tax benefit in future periods. All existing deferred tax assets, net operating loss carryforwards and credits will be available, subject to possible statutory limitations, to reduce certain future federal and state income tax obligations.

The Company considers scheduled reversals of deferred tax liabilities, projected future taxable income, ongoing tax planning strategies and other matters, including the period over which our deferred tax assets will be recoverable, in assessing the need for and the amount of the valuation allowance. In the event that actual results differ from these estimates, or we adjust these estimates in the future periods, further adjustments to our valuation allowance may be recorded, which could materially impact our financial position and net income in the period of the adjustment.

Net Income. We reported net income of $134 thousand and $309 thousand during the three- and six- month periods ended June 30, 2012, respectively, compared to a reported net income of $395 thousand and $705 thousand during the three-and six- month periods ended June 30, 2011, respectively. The current quarterly fluctuation in net income is primarily attributable to the comparative year-over-year changes in total revenue, including the 2012 growth in service revenue, the decrease in comparative software revenue and the absence of 2011 process-related royalty revenues. Additionally, fluctuations in comparative net income are reflective of increased compensation costs related to billable consultant headcount growth, the absence of $1.4 million in expense associated with the second quarter 2011 increase in contingent earnout consideration and the second quarter 2012 $550 thousand increase in the accrual for potential sales and use tax exposure resulting from the Fullscope embezzlement issue. Each of these items is explained in further detail above.

Liquidity and Capital Resources

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

	Six Months Ended June,
	2012			2011
	(In Thousands)
Cash flows (used in) provided by:
Operating activities	$	(508	)	$	1,680
Investing activities		(404	)		(432	)
Financing activities		(522	)		161
Effects of exchange rates on cash		(6	)		18
Net (decrease) increase in cash and cash equivalents	$	(1,440	)	$	1,427

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As of June 30, 2012, we had cash and cash equivalents of $8.9 million, a $1.4 million decrease from the December 31, 2011 balance of $10.3 million. The primary drivers of the decrease in cash during the first half of 2012 are payments related to the Company’s 2011 performance-based bonus programs, 2012 insurance policy premiums, repurchases of the Company’s common stock and to a lesser extent, purchases of property and equipment. Working capital, which is defined as current assets less current liabilities, increased to $17.5 million as of June 30, 2012, compared to $16.9 million as of December 31, 2011.

Historically, we have used our operating cash flows, available cash and periodic sales of our common stock to finance ongoing operations and business combinations. We believe that our cash and cash equivalents will be sufficient to finance our working capital needs for at least the next twelve months. We periodically reassess the adequacy of our liquidity position, taking into consideration current and anticipated operating cash flow, anticipated capital expenditures, and possible business combinations. The pace at which we will either generate or consume cash will be dependent upon future operations and the level of demand for our services on an ongoing basis.

Cash flow from operating activities is driven by collections of fees for our consulting services, reselling of software products and, to a lesser extent (until June 2011), the collection of royalties on software products sold to a third party. Cash used in operations predominantly relates to employee compensation and payments to third party software providers. Accrued payroll and related liabilities fluctuate from period to period based on the timing of our normal payroll cycle and the timing of variable compensation payments. Annual components of our variable compensation plans are paid in the first quarter of the following year, causing fluctuations in cash flow from quarter to quarter.

Accounts payable and accrued expenses are most significantly impacted by the timing of payments required to be made to third party software providers in connection with the resale of software products to our customers. Historically, a significant portion of our software sales have occurred at the end of the second quarter.

Net cash used in operating activities was $(508) thousand for the six-month period ended June 30, 2012, as compared to net cash provided by operating activities of $1.7 million for the six-month period ended June 30, 2011. The primary components of operating cash flows during the first half of 2012 were the non-cash charges of $1.7 million (primarily depreciation, amortization and stock-based compensation expense) and net income of $309 thousand offset by the increase in accounts receivable of $4.4 million. The primary components of cash flows from operations for first half of 2011 were related to the increase in accounts payable and accrued expenses of $2.4 million (primarily related to payments owed to software partners in connection with our end of quarter product revenue deals) and non-cash charges of $3.5 million (primarily related to contingent earnout consideration, depreciation and amortization, change in fair value of contingent earnout consideration, and stock-based compensation expense). These inflows were partially offset by an increase in accounts receivable of $2.9 million and a decrease in accrued payroll and other related liabilities of $1.4 million.

For the six-month period ended June 30, 2012, net cash used in investing activities was $(404) thousand, compared to net cash used in investing activities of $(432) thousand in the six-month period ended June 30, 2011. Cash used in investing activities in the six-month periods ended June 30, 2012 and 2011 included purchases of property and equipment and capitalized software development costs related to software to be used in the Microsoft Dynamics AX environment.

All capital expenditures are discretionary as the Company currently has no long-term commitments for capital expenditures.

Net cash used in financing activities was $(522) thousand in the six-month period ended June 30, 2012, compared to cash provided by financing activities of $161 thousand in the six-month period ended June 30, 2011. The 2012 activities were driven by the repurchase of common stock in the amount of $710 thousand, returning excess cash balances that were not being invested in organic operations or strategic acquisitions to stockholders, partially offset by $240 thousand received from our employees related to our Employee Stock Purchase Plan and stock option exercises. Financing activities in the six-month period ended June 30, 2011 consisted of proceeds received from our Employee Stock Purchase Plan.

Acquisitions, Earnout Payments and Commitments

We have entered into various contingent earnout agreements in connection with the acquisitions we have completed. Earnout periods, related performance measurements and the value of the contingent earnout consideration to be earned are specific to each acquisition. Contingent earnout consideration paid by the Company has historically been paid in either cash or a combination of cash and stock. As of June 30, 2012, the only ongoing earnout period is related to the Meridian Acquisition.

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On May 17, 2010, the Company acquired substantially all of the assets of Meridian Consulting International. As provided for under the related purchase agreement, Meridian’s former stockholders are eligible to receive additional contingent consideration based upon performance-based thresholds, which will be determined, periodically, over a 36-month period from the date of acquisition. The Company increased total purchase price consideration by $1.2 million, which represented our initial fair value estimate of the contingent consideration to be paid to the former stockholders of Meridian. On a routine periodic basis, the Company reassesses the estimated fair value of contingent consideration and records any changes in fair value within selling, general and administrative expense in the period the change occurs. As of June 30, 2012, the Company maintains an accrual of $246 thousand related to the current fair value estimate of the contingent earnout consideration to be earned by the former Meridian stockholders. The maximum amount of contingent earnout consideration that the former stockholders of Meridian can earn during the final earnout period is capped at $917 thousand.

Off Balance Sheet Arrangements

The Company entered into lease financing arrangements (the “Capital Lease Arrangements”) related to certain property and equipment. Payments under the Capital Lease Arrangements were made over a period of 24 to 60 months and had interest rates that ranged between 6.0% and 17.0% per annum on the outstanding principle balances. As of June 30, 2012, the Company has no outstanding obligations under Capital Lease Arrangements. During the three- and six- month periods ended June 30, 2012, the Company made payments of principal and interest totaling $13 thousand and $52 thousand, respectively, under the Capital Lease Arrangements. During the three- and six- month periods ended June 30, 2011, the Company made payments of principal and interest totaling $37 thousand and $72 thousand, respectively, under the Capital Lease Arrangements.

Critical Accounting Policies and Estimates

We prepare our unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions 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 periods presented. We reaffirm the critical accounting policies and estimates as reported in our 2011 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 12, 2012.

Recent Accounting Pronouncements

Accounting Standards Update (“ASU”) 2011-5, “Comprehensive Income” and ASU 2011-12, “Comprehensive Income” require entities to elect the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single, continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 12, 2011. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

ASU 2011-04, “Fair Value Measurements and Disclosures” requires expanded disclosure of certain fair value measurements categorized in Level 3 of the fair value hierarchy. The ASU is effective prospectively for fiscal years, and interim periods within those years beginning after December 12, 2011. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Risk Factors

We operate in a rapidly changing environment that involves certain risks and uncertainties, some of which are beyond our control. You should carefully review and consider the information regarding certain risk factors that could materially affect our business, financial condition or future results set forth under “Part I – Item 1A – Risk Factors” in our Annual Report on Form 10-K, for the period ending December 31, 2011, which was filed with the Securities and Exchange Commission on March 12, 2012 and in this Quarterly Report on Form 10-Q under “Special Note Regarding Forward-Looking Statements.”

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements in this Quarterly Report on Form 10-Q and elsewhere constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties and other factors that may cause results, levels of activity, growth, performance, tax consequences or achievements to be materially different from any future results, levels of activity, growth, performance, tax consequences or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, those listed below, as well as those further set forth under the heading “Risk Factors” in our 2011 Annual Report on Form 10-K as filed with the SEC on March 12, 2012.

The forward-looking statements included in this Form 10-Q and referred to elsewhere are related to future events or our strategies or future financial performance, including statements concerning our 2012 outlook, future revenue and growth, customer spending outlook, general economic trends, IT service demand, future revenue and revenue mix, utilization, new service offerings, significant customers, competitive and strategic initiatives, growth plans, potential stock repurchases, future results, tax consequences and liquidity needs . In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “believe,” “anticipate,” “anticipated,” “expectation,” “continued,” “future,” “forward,” “potential,” “estimate,” “estimated,” “forecast,” “project,” “encourage,” “opportunity,” “goal,” “objective,” “could,” “expect,” “expected,” “intend,” “plan,” “planned,” or the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on our current plans or assessments which are believed to be reasonable as of the date of this Form 10-Q. Factors that may cause actual results, goals, targets or objectives to differ materially from those contemplated, projected, forecasted, estimated, anticipated, planned or budgeted in such forward-looking statements include, among others, the following possibilities: (1) failure to obtain new customers or retain significant existing customers; (2) the loss of one or more key executives and/or employees; (3) changes in industry trends, such as a decline in the demand for Enterprise Resource Planning and Enterprise Performance Management solutions, custom development and system integration services and/or declines in industry-wide information technology spending, whether on a temporary or permanent basis and/or delays by customers in initiating new projects or existing project milestones; (4) inability to execute upon growth objectives, including new services and growth in entities acquired by our Company; (5) adverse developments and volatility involving geopolitical or technology market conditions; (6) unanticipated events or the occurrence of fluctuations or variability in the matters identified under “Critical Accounting Policies”; (7) delays in, or the failure of, our sales pipeline being converted to billable work and recorded as revenue; (8) termination by clients of their contracts with us or inability or unwillingness of clients to pay for our services, which may impact our accounting assumptions; (9) inability to recruit and retain professionals with the high level of information technology skills and experience needed to provide our services; (10) failure to expand outsourcing services to generate additional revenue; (11) any changes in ownership of the Company or otherwise that would result in a limitation of the net operating loss carry forward under applicable tax laws; (12) the failure of the marketplace to embrace advisory and product-based consulting services; and/or (13) failure to make a successful claim against the Fullscope escrow account. In evaluating these statements, you should specifically consider various factors described above as well as the risks outlined under Part I - Item IA “Risk Factors” in our 2011 Annual Report on Form 10-K filed with the SEC on March 12, 2012. These factors may cause our actual results to differ materially from those contemplated, projected, anticipated, planned or budgeted in any such forward-looking statements.

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary financial instruments include investments in money market funds that are sensitive to market risks and interest rates. The investment portfolio is used to preserve our capital until it is required to fund operations, strategic acquisitions or distributions to stockholders. None of our market-risk sensitive instruments are held for trading purposes. We did not purchase derivative financial instruments in the three- and six- month periods ended June 30, 2012 and 2011. Should interest rates on the Company’s investments fluctuate by 10% the impact would not be material to the financial condition, results of operations or cash flows.

The impact of inflation and changing prices has not been material on revenue or income from continuing operations during the three-and six- month periods ended June 30, 2012 and 2011.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, which we have designed to ensure that material information related to the Company, including our consolidated subsidiaries, is properly identified and evaluated on a regular basis and disclosed in accordance with all applicable laws and regulations. The Chairman, President and Chief Executive Officer and the Chief Financial Officer of Edgewater Technology, Inc. (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluations of the Company’s disclosure controls and procedures as of the end of the period covered by this Report, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.

Changes in Controls and Procedures

There were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are sometimes a party to litigation incidental to our business. We are not involved in any active, pending, or (to the best of our knowledge) threatened legal proceedings which would be material to our consolidated financial statements. We maintain insurance in amounts, with coverages and deductibles, which we believe are reasonable. As of the date of the filing of this Quarterly Report on Form 10-Q, our Company is not a party to any existing material litigation matters.

ITEM 1A. RISK FACTORS

This Form 10-Q contains forward-looking statements. As discussed in “Part I - Item 1A - Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011 and herein under “Special Note Regarding Forward-Looking Statements,” investors should be aware of certain risks, uncertainties and assumptions that could affect our actual results and could cause such results to differ materially from those contained in forward-looking statements made by or on behalf of us in our periodic or current reports filed with the Securities and Exchange Commission, in our Annual Report to Shareholders, in our Proxy Statement, in press releases and other written materials and statements made by our officers, directors or employees to third parties. Such statements are based on current expectations only and actual future results may differ materially from those expressed or implied by such forward-looking statements due to certain risks, uncertainties and assumptions.

We encourage you to refer to our Annual Report on Form 10-K to carefully consider these risks, uncertainties and assumptions.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In December 2007, our Board of Directors (the “Board”) authorized a stock repurchase program for up to $5.0 million of common stock on the open market or through privately negotiated transactions from time-to-time through December 31, 2008 (the “Stock Repurchase Program”). The Board subsequently amended the Stock Repurchase Program, authorizing both an increase to and an extension of the Stock Repurchase Program. The Stock Repurchase Program, as amended, had a maximum purchase value of shares of $8.5 million (the “Purchase Authorization”) and expired on September 23, 2011 (the “Repurchase Period”). On September 9, 2011, the Board approved both a $5.0 million increase to the Purchase Authorization, to $13.5 million, and an extension of the Repurchase Period to September 21, 2012.

In March 2012, the Board authorized a written trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate the repurchase of its common stock pursuant to the Company's existing stock repurchase authorization (the “10b5-1 Plan”).

The 10b5-1Plan became effective on March 15, 2012 and is scheduled to expire on September 21, 2012, unless terminated earlier in accordance with its terms. Purchases, if any, may not exceed the remaining shares available under the existing repurchase authorization.

The following table provides information with respect to purchases of our common stock during the quarter ended June 30, 2012:

Issuer Purchases of Equity Securities

Period	Total Number  of Shares Purchased		Average Price Paid Per Share		Total Number  of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value of  Shares that May Yet Be Purchased Under the Plans or Programs
April 1 – 30, 2012		24,085	$	4.04		24,085	$	4,230,551
May 1 – 31, 2012		49,694	$	3.97		49,694	$	4,033,252
June 1 – 30, 2012		44,194	$	3.93		44,194	$	3,859,613
Total		117,973	$	3.97		117,973	$	3,859,613

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable as our Company does not have any senior securities issued or outstanding.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

2.1†	Asset Purchase Agreement, dated as of June 29, 2012, between Microsoft Corporation and Fullscope, Inc.*
10.1	Edgewater Technology, Inc. 2012 Omnibus Incentive Plan (the “2012 Plan”) (Incorporated herein by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on June 8, 2012 (File No. 000-20971) (the “Form 8-K”))
10.2	Form of Non-Qualified Stock Option Agreement (Employee) under the 2012 Plan (Incorporated herein by reference to Exhibit 99.3 to the Form 8-K)
10.3	Form of Non-Qualified Stock Option Agreement (Non-Employee Director) under the 2012 Plan (Incorporated herein by reference to Exhibit 99.4 to the Form 8-K)
10.4	Amended and Restated 2000 Stock Option Plan, as amended*
31.1	13a-14 Certification – Chairman, President and Chief Executive Officer*
31.2	13a-14 Certification – Chief Financial Officer*
32	Section 1350 Certification*
101	Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Unaudited Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, (ii) Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2012 and 2011, (iii) Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2012 and 2011 and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.**

†- Confidential treatment requested as to portions of the agreement. Confidential materials omitted and filed separately with the Securities and Exchange Commission. Pursuant to Item 601(b)(2) of Regulation S-K, the Company agrees to furnish supplementally a copy of any omitted schedules to this agreement to the Securities and Exchange Commission upon its request.

*- Filed herewith.

**- Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

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

	EDGEWATER TECHNOLOGY, INC.
Date: August 6, 2012	/s/ SHIRLEY SINGLETON
	Shirley Singleton
	Chairman, President and Chief Executive Officer (Principal Executive Officer)
Date: August 6, 2012	/s/ TIMOTHY R. OAKES
	Timothy R. Oakes
	Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-2.1

Exhibit 2.1

Agreement Number (Microsoft to complete) DealPoint #:                    

Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks [***] denote omissions.

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of June 29, 2012 (the “Effective Date”), is made by and between Microsoft Corporation, a Washington corporation with its main offices located at One Microsoft Way, Redmond, Washington 98052-8300, United States (“Purchaser”) and Fullscope, Inc., a Delaware corporation with its main offices located at 200 Harvard Mill Square, Suite 210, Wakefield, Massachusetts 01880 (“Seller”). Purchaser and Seller are sometimes referred to herein collectively as the “Parties” and individually as a “Party”. Definitions of additional terms used in this Agreement are set forth in the attached Schedule A.

RECITALS

Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, the Acquired Assets, subject to and in accordance with the terms and conditions of this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual promises set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties agree as follows:

1. PURCHASE AND SALE OF ASSETS

1.1 Purchase and Sale of Assets. Upon and subject to the terms and conditions of this Agreement, at the Closing, Seller shall sell, assign, transfer, convey and deliver to Purchaser, and Purchaser shall purchase and acquire from Seller, all rights, titles, and interests in and to the Acquired Assets.

1.2 Purchase Price. As full consideration for the Acquired Assets and the performance of Seller’s obligations under this Agreement, Purchaser shall pay to Seller a purchase price of US$ 3,250,000 (the “Purchase Price”). Purchaser shall pay the Purchase Price to Seller in installments as follows:

(a) [***] within [***];

(b) [***] within [***] after Seller’s delivery of the remediated Software and Documentation and the Remediation Certificate for the Additional Remediation pursuant to Section 3.2.5; and

(c) [***] on [***] provided that Seller is not then in material default hereunder or under any of the Statements of Work, in which event such payment shall be made within ten (10) Business days after Seller cures such default and gives Purchaser written notice of the cure of such default, together with such documentation or other evidence of the cure as Purchaser may reasonably request.

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Purchaser shall pay all installments of the Purchase Price to Seller via wire transfer of immediately available funds to an account designated in writing by Seller on Seller’s letterhead.

1.3 No Assumed Obligations. Purchaser shall not assume or otherwise be responsible for any contract, agreement, debt, liability, obligation or commitment of Seller, whether absolute or contingent, accrued or un-accrued, asserted or unasserted, or otherwise, including any contract, agreement, debt, liability, obligation, or commitment made or incurred by Seller in connection with this Agreement or any of the transactions contemplated in this Agreement.

1.4 Closing.

1.4.1 Subject to the satisfaction or waiver of the conditions described in Section 4, the closing of the purchase and sale of the Acquired Assets under this Agreement (the “Closing”) shall take place on June 29, 2012 or on such other mutually acceptable date as may be agreed upon by the Parties.

1.4.2 At Closing, Seller shall deliver to Purchaser:

(a) the Acquired Assets via file transfer protocol or other means of electronic delivery to a server designated by Purchaser;

(b) the Bill of Sale, duly executed by Seller;

(c) the Copyright Assignment, duly executed by Seller;

(d) the Remediation Certificate for the Initial Remediation, duly executed by Seller;

(e) the Seller Certificate, duly executed by Seller;

(f) the Services Agreement, duly executed by Seller;

(g) the SOWs, duly executed by Seller;

(h) the License Agreement, duly executed by Seller; and

(i) the Guarantee, duly executed by Seller and Edgewater Technology, Inc.

1.4.3 At Closing, Purchaser shall deliver to Seller:

(a) the Services Agreement, duly executed by Purchaser;

(b) the SOWs, duly executed by Purchaser; and

(c) the License Agreement, duly executed by Purchaser.

1.5 Taxes. The Parties are not liable for any of the taxes of the other Party that the other Party is legally obligated to pay and which are incurred or arise in connection with or related to the transactions contemplated under this Agreement, and all such Taxes (including but not limited to net income or gross receipts taxes, withholding taxes, sales and VAT type taxes, and/or property taxes) shall be the financial responsibility of the Party who is obligated by operation of law to pay such tax.

1.6 Effect of Schedules. Notwithstanding anything to the contrary set forth herein or in any Schedule, no Schedule, nor any of the terms or provisions of any Schedule, shall be deemed to amend, modify or waive any term or condition of this Agreement, including, without limitation, any of the representations, warranties, rights, obligations and remedies of either Party under this Agreement, or deemed to affect, enlarge or limit the scope or identity of the Acquired Assets being transferred hereunder. In the event of any inconsistency between the provisions of any Schedule and the provisions of this Agreement, the provisions of this Agreement shall be controlling.

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2. REPRESENTATIONS AND WARRANTIES

2.1 Representations and Warranties of Seller. Seller represents and warrants to Purchaser that, as of the Effective Date and the Closing Date:

2.1.1 Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Seller has all requisite power and authority to enter into this Agreement and consummate the transactions contemplated in this Agreement; and the individual signing on Seller’s behalf has full authority to bind Purchaser to this Agreement.

2.1.2 The execution and delivery by Seller of this Agreement and the performance of Seller’s obligations under this Agreement have been duly and validly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly executed and delivered by Seller and constitutes a valid and binding obligation of Seller enforceable in accordance with its terms, except to the extent that enforceability may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws, now or hereafter in effect, affecting the enforcement of creditors’ rights and remedies generally.

2.1.3 Seller is solvent, is able to pay its debts as they become due and has sufficient capital to carry on its business.

2.1.4 The Acquired Assets were created and developed exclusively by Seller. Only employees or independent contractors of Seller contributed in any way to the creation or development of the Acquired Assets. Seller has secured the written assignments to Seller of such employees’ or independent contactors’ rights in the Acquired Assets. All such agreements with Seller’s employees are in the form of the agreement set forth in the attached Schedule K. 1, and all such agreements of Seller’s independent contractors are in the form of the agreement set forth in the attached Schedule K.2 except as otherwise identified in said schedule.

2.1.5 Except for any End User Licenses granted by Seller to its customers in the ordinary course of business, Seller is the exclusive owner of all rights, titles and interests in and to the Acquired Assets. None of Seller’s Affiliates have any rights in or to the Acquired Assets. Seller has the right and authority to sell, assign, transfer, convey and deliver the Acquired Assets to Purchaser in accordance with this Agreement. There are no rights of any third party which would or might render the sale, assignment, transfer, conveyance or delivery of the Acquired Assets ineffective or unlawful. Seller is not required (by contract, Applicable Law or otherwise) to obtain any consent, approval or other action from any third party (including any governmental permits, registrations and licenses) to sell, assign, transfer, convey and deliver the Acquired Assets to Purchaser in accordance with this Agreement. For the avoidance of doubt, the foregoing sentence does not apply to any consent, approval and other action from any third party (including any governmental permits, registrations and licenses) that (i) Purchaser is required (by contract, Applicable Law or otherwise) to obtain or (ii) that Seller would not otherwise be required to obtain but for the fact that Purchaser, and not any other party, is acquiring the Acquired Assets pursuant to this Agreement.

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2.1.6 Except for any End User Licenses granted by Seller to its customers in the ordinary course of business, the Acquired Assets are free and clear, and shall be sold, assigned, transferred, conveyed and delivered to Purchaser under this Agreement free and clear, of any and all Encumbrances and Claims. Seller has not received notice of any Claim and, to Seller’s Knowledge, no Claim is threatened or anticipated. As of the Effective Date, Seller has granted only one End User License to its 2009 version of the Software, a copy of which has been provided to Purchaser, and no End User License to its 2012 version of the Software.

2.1.7 Seller has taken commercially reasonable steps to protect and preserve all of the Intellectual Property Rights (including the confidentiality of the Trade Secrets). Seller has not delivered a copy of any Acquired Assets to any third party, except for the 2009 version of the Software delivered in the ordinary course of Seller’s business to Seller’s sole customer of such Software subject to an End User License or to Seller’s sole distribution partner subject to a Partner Agreement. As of the Effective Date, Seller has entered into only one Partner Agreement, a copy of which has been provided to Purchaser.

2.1.8 To Seller’s Knowledge, none of the Acquired Assets infringe any patent or trademark of any third party.

2.1.9 None of the Acquired Assets infringe any copyright or misappropriate any trade secret of any third party.

2.1.10 There are no third party materials incorporated in the Acquired Assets, including any patented, copyrighted, trademarked or trade secret materials licensed from any third party or any Affiliate of Seller. None of the Acquired Assets is or ever has been, in part or in whole, governed or otherwise subject to an Excluded License.

2.1.11 Seller does not have any (a) Trademarks registered with the United States Patent and Trademark Office (USPTO) or any other trademark office anywhere in the world that are owned, used or held by Seller solely for use with the Acquired Assets; or (b) Patents or Design Rights in the Acquired Assets that have been filed or are in the process of being filed with the USPTO or any other patent office anywhere in the world.

2.1.12 Seller has not participated in any standards-setting activities that would affect any of the Acquired Assets or restrict the ability of Seller to enforce, license or exclude others from using or licensing any of the Acquired Assets.

2.1.13 The Acquired Assets do not contain any Self-Help Code.

2.1.14 The Transaction Documents and other instruments to be executed and delivered by Seller to Purchaser at Closing shall be valid and binding obligations of Seller, enforceable in accordance with their respective terms, and shall effectively vest in Purchaser good and marketable title to all the Acquired Assets pursuant to and as contemplated by this Agreement.

2.1.15 The Software, Related Assets and Updates shall perform substantially in accordance with the Documentation listed in Schedule C.

2.1.16 The lists of Software, Related Assets and Documentation included on Schedules D, E, and C, respectively, are true, accurate and complete in all material respects.

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2.2 Representations and Warranties of Purchaser. Purchaser represents and warrants to Seller that, as of the Effective Date and the Closing Date:

2.2.1 Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Washington. Purchaser has all requisite power and authority to enter into this Agreement and consummate the transactions contemplated in this Agreement; and the individual signing on Purchaser’s behalf has full authority to bind Purchaser to this Agreement.

2.2.2 The execution and delivery by Purchaser of this Agreement and the performance of Purchaser’s obligations under this Agreement have been duly and validly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser enforceable in accordance with its terms, except to the extent that enforceability may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws, now or hereafter in effect, affecting the enforcement of creditors’ rights and remedies generally.

3. COVENANTS

3.1 Delivery of the Acquired Assets.

3.1.1 Initial Conveyance. Within five (5) Business Days after the Effective Date, Seller shall deliver to Purchaser, via file transfer protocol or other means of electronic delivery to a server designated by Purchaser, any and all Acquired Assets existing as of the Effective Date and remediated pursuant to Section 3.2.2; provided, however, that Seller shall not have any obligation to deliver the code for the 2009 and prior versions of the Software. Within five (5) Business Days after such delivery, Seller shall confirm in writing to Purchaser that all Acquired Assets have been delivered to Purchaser in accordance with this Agreement (“Seller’s Delivery Confirmation”). For the avoidance of doubt, although Seller is not required by this Agreement to deliver the code for the 2009 and prior versions of the Software to Purchaser, all Intellectual Property Rights related to the 2009 and prior versions of the Software are being sold, assigned, transferred and conveyed to Purchaser pursuant to this Agreement. Such transfer shall not be deemed to preclude Seller from using the code and applicable Documentation for the 2009 and prior versions of the Software, and Intellectual Property Rights licensed to Seller under the License Agreement, to the extent necessary for Seller to satisfy any support or similar obligations to any end user or to any partner, reseller, distributor, dealer or sales representative of Seller.

3.1.2 Access. Purchaser shall have a period of five (5) Business Days after receipt of Seller’s Delivery Confirmation to review the Acquired Assets for compliance with Seller’s representations and warranties set forth in Section 2.1 and the other requirements of this Agreement. Seller shall give Purchaser and its counsel, accountants and other authorized representatives access to Seller’s books, records and personnel as Purchaser may reasonably request to confirm Purchaser’s delivery of all of the Acquired Assets to Purchaser and the performance of all of Seller’s other obligations under this Agreement.

3.1.3 Confirmation of Assignment. On or before the Outside Date, Seller shall deliver to Purchaser a Confirmation of Assignment in the form attached as Schedule U.1 duly executed by each of the employees of Seller listed therein and a Confirmation of Assignment in the form attached as Schedule U.2 duly executed by Carol Meeler.

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3.2 Remediation.

3.2.1 Seller hereby certifies that it has delivered the most current version of the Software, in source code form, and Documentation to the Code Reviewer via file transfer protocol or other means of electronic delivery specified by Purchaser.

3.2.2 Seller shall take all corrective action and otherwise remediate the Software and Product Documentation in accordance with the Remediation Plan. Seller shall use its best commercially reasonable efforts to complete remediation of any issues in the Software and Product Documentation designated in the Remediation Plan with: (A) a priority level zero (P0) or priority level one (P1) (“Initial Remediation”) by the Closing Date or such other date agreed upon by the Parties; and (B) a priority level greater than priority level one (P1) in the Remediation Plan (“Additional Remediation”) no later than the Outside Date.

3.2.3 Upon completion of the Initial Remediation, Seller shall deliver to the Code Reviewer, via file transfer protocol or other means of electronic delivery to a server designated by Purchaser, a complete copy of the remediated Software, in source code form, and Product Documentation for verification that Seller has completed the Initial Remediation in accordance with the Remediation Plan. If the Code Reviewer reasonably determines that the Initial Remediation has been completed in accordance with the Remediation Plan, the Code Reviewer shall give the Parties written notice thereof. If the Code Reviewer reasonably determines that the Initial Remediation has not been completed in accordance with the Remediation Plan, then the Code Reviewer shall give the Parties written notice thereof, including a detailed description of the non-compliances and the action(s) required to correct the non-compliances. In such event, Seller shall use its best commercially reasonable efforts to promptly correct the non-compliances as indicated by the Code Reviewer, and resubmit the remediated Software to the Code Reviewer. Unless otherwise agreed upon by the Parties, this process shall be repeated until the Code Reviewer reasonably determines that the Initial Remediation has been completed in accordance with the Remediation Plan. Upon the Code Reviewer’s determination that the Initial Remediation has been completed in accordance with the Remediation Plan, then Seller shall deliver to Purchaser:

(a) a true, correct and complete copy of the remediated Software via file transfer protocol or other means of electronic delivery specified by Purchaser; and

(b) a Remediation Certificate for the Initial Remediation duly executed by Seller.

Purchaser shall be responsible for taking all necessary actions to ensure that the Code Reviewer does not unreasonably withhold or delay its determination that the Initial Remediation has been completed in accordance with the Remediation Plan.

3.2.4 Purchaser shall have a period of five (5) Business Days after receipt of the remediated Software, Documentation and the Remediation Certificate in accordance with Section 3.2.3 to review such remediated Software and Documentation for compliance with the Initial Remediation requirements of the Remediation Plan, Seller’s representations and warranties set forth in Section 2.1 and the other requirements of this Agreement. If Purchaser gives Seller written notice of any non-compliance within such review period, then Seller shall use its best commercially reasonable efforts to promptly correct the non-compliance, and resubmit the corrected Software and/or Documentation to Purchaser. This process shall be repeated until Purchaser accepts the remediated Software and Documentation by giving Seller written notice thereof, which notice shall not be unreasonably withheld or delayed. Further, if

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Purchaser does not give Seller written notice of any non-compliance within five (5) Business Days after receipt of any version of the remediated Software and Documentation under Section 3.2.3 or this Section 3.2.4, then Purchaser shall be deemed to have accepted such version of the Software and Documentation for purposes of this Section 3.2.4. Purchaser shall not unreasonably withhold or delay its acceptance of the Initial Remediation and confirmation that the Initial Remediation has been completed in accordance with the Remediation Plan. For the avoidance of doubt, acceptance under this Section 3.2.4 shall not constitute, or be interpreted or construed as, (a) Purchaser’s acknowledgement or agreement that the Software and/or Documentation is compliant with any of the requirements of this Agreement or (b) a waiver or other relinquishment, to any extent, of any right or remedy of Purchaser under any provision of this Agreement (including Seller’s representations and warranties under Section 2.1), applicable law or otherwise.

3.2.5 Upon completion of the Additional Remediation, Seller shall deliver to Purchaser, via file transfer protocol or other means of electronic delivery to a server designated by Purchaser, a copy of those portions of the Software, in source code form, and Product Documentation that were remediated in the Additional Remediation, for verification that Seller has completed the Additional Remediation in accordance with the Remediation Plan. If Purchaser determines that the Additional Remediation has been completed in accordance with the Remediation Plan, Purchaser shall give Seller written notice thereof. If Purchaser determines that the Additional Remediation has not been completed in accordance with the Remediation Plan, then Purchaser shall give Seller written notice thereof, including a detailed description of the non-compliances and the action(s) required to correct the non-compliances. In such event, Seller shall use its best commercially reasonable efforts to promptly correct the non-compliances as indicated by Purchaser, and resubmit the remediated Software and Product Documentation to Purchaser. Unless otherwise agreed upon by the Parties, this process shall be repeated until Purchaser determines that the Additional Remediation has been completed in accordance with the Remediation Plan. Upon Purchaser’s determination that the Additional Remediation has been completed in accordance with the Remediation Plan, then Seller shall deliver to Purchaser:

(a) a true, correct and complete copy of the remediated portions of the Software and Product Documentation via file transfer protocol or other means of electronic delivery specified by Purchaser; and

(b) a Remediation Certificate for the Additional Remediation duly executed by Seller.

Purchaser shall not unreasonably withhold or delay its determination that the Additional Remediation has been completed in accordance with the Remediation Plan.

3.3 SOWs and Transition Services.

3.3.1 The Parties shall prepare and agree upon the SOWs no later than the Closing Date.

3.3.2 Upon Purchaser’s request, the Parties shall use good faith efforts to prepare and mutually agree upon such additional Statements of Work as Purchaser may reasonably require for the effective, efficient, expeditious and cost-effective transition of the Acquired Assets to Purchaser and/or the further development and/or utilization of the Acquired Assets by

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Purchaser. Neither Party shall have any obligation to agree upon any such additional Statements of Work or any obligation under any Statement of Work proposed by either Party unless and until the Parties have mutually agreed upon terms and conditions acceptable to each Party, executed and delivered the additional Statements of Work in writing.

3.3.3 Unless a fixed sum or other compensation is specified in the applicable Statement of Work, Purchaser shall pay Seller for the Transition Services at the rate of [***] per person, per day spent in performance of the Transition Services, plus previously approved travel and expenses in accordance with Microsoft’s Travel and Expense Policy, up to an aggregate maximum of [***] (including fees, costs and expenses) for all Transition Services. Seller shall invoice Purchaser, and Purchaser shall pay Seller, for the Transition Services in accordance with the invoicing and payment terms of the Services Agreement. Unless the Statement of Work terminates earlier or specifies otherwise (e.g., a fixed sum, additional compensation, and/or required deliverables are specified in the applicable SOW), Seller will stop performing work under the applicable Statement of Work when the maximum number of hours or dollar amount specified therein is reached regardless of the status of the work or any deliverable. Seller shall have no obligation to resume such work until additional funding has been authorized in writing by Purchaser.

3.3.4 Unless another schedule for performance of any Transition Services is set forth in the applicable SOW, Seller shall use commercially reasonable efforts to complete all Transition Services within [***].

3.3.5 Seller shall perform all Transition Services in accordance with the Services Agreement and the applicable SOW.

3.4 Promotion, Marketing, Maintenance and Support of Seller Products.

3.4.1 Purchaser shall give Seller written notice of the Purchaser GA Date at least 60 days prior to such target date.

3.4.2 Seller shall continue to promote, market and sell licenses and services (including extended warranty plans, maintenance plans, support plans, implementation services and other services) for the Software in the ordinary course of Seller’s business in accordance with its past practice, this Section 3.4.2 and the License Agreement until 15 days prior to the Purchaser GA Date, whereupon Seller shall cease all promotion, marketing and selling of licenses and services for the Software (including the Seller Product) by or through Seller (including by Seller’s partners, resellers, distributors, dealers and sales representatives), except as may otherwise be agreed upon by the Parties in writing. Without limitation of the foregoing, Seller shall ensure the termination of any and all rights of any third party (including Seller’s partners, resellers, distributors, dealers and sales representatives) authorized by or through Seller to promote, market or sell licenses or services for any Seller Product or other Software. Seller shall refrain from increased promotion, price changes or discounting of the Seller Products beyond historical averages. Further, Seller shall not (a) promote, market or sell licenses to the 2009 or prior versions of the Software to new end users of such software; or (b) except as otherwise permitted herein, enter into any additional agreement with a third party (e.g., as a partner, reseller, distributor, dealer or sales representative of Seller) for such third party to promote, market or sell licenses, or to sell support services of Seller, for any Seller Product.

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3.4.3 Seller shall continue to provide warranty, maintenance and other support for the 2009 version of the Software and all Seller Products distributed by or through Seller until the later of:

(a) the fulfillment or expiration of Seller’s obligations to provide such support under extended warranty plans, maintenance plans, support plans or other contracts entered into prior to the Effective Date or during the period from the Effective Date until the Purchaser GA Date in accordance with Section 3.4.2; or

(b) the migration of the customer to a Purchaser Product.

3.4.4 Promptly after completion of all outstanding support obligations in accordance with Section 3.4.3, Seller shall, except as provided in this Section 3.4.4, destroy any and all copies of the Software and Seller Products that remain in its possession or under its control (including backup copies). Seller acknowledges that it has no right to use the Software (in any form, remediated or un-remediated, and without regard to whether Seller has incorporated it within, or accessed it from, another product) for any purpose after such destruction. Within five (5) Business Days after such destruction, Seller shall provide Purchaser with a written document, signed by an officer of Seller, certifying such destruction. Notwithstanding the foregoing, Seller may retain one (1) copy of each version of the Software for archival and recordkeeping purposes, subject to the other terms and conditions of this Agreement.

3.5 Communication Plan. The Parties shall use good faith efforts to prepare and agree upon a plan for communication of the purchase and sale of the Acquired Assets under this Agreement, the discontinuation of all versions of the Software, the launch of the Purchaser Product and the transition of the Software from the Seller to the Purchaser (including any communications with the public, Seller’s customers, partners, resellers, distributors, dealers and sales representatives and Governmental Entities). The communication plan shall include any filing by Seller or its Affiliates with the Securities and Exchange Commission (the “SEC”) or other Governmental Entity and any press release or other public announcement agreed to in writing by the Parties. However, the foregoing shall not be deemed to prohibit, restrict or limit in any fashion any filing by Seller or its Affiliates with, or disclosure to, the SEC or any other Governmental Entity which is required by Applicable Law. In the event of any filing or disclosure required by Applicable Law, the Party required to file or disclose shall give the other Party reasonable advance notice thereof, unless not otherwise legally permitted, and, to the extent permitted by Applicable Law and reasonably requested by such other Party, seek confidential treatment and/or other protection of the Confidential Information of such other Party.

3.6 Seller Resources. Seller shall provide and maintain sufficient personnel, equipment, finances, supervision, administration, facilities and other resources to perform all of the services to be performed by it under the SOWs and its other obligations under Sections 3.2, 3.3, 3.4 and 3.5 in a timely manner in accordance with all of the requirements of the applicable SOW and the Services Agreement. Seller shall ensure that all personnel who perform any Transition Services are properly qualified and experienced to perform the tasks assigned to them.

3.7 Non-competition. During the period beginning on the Effective Date and ending on [***], Seller shall not, directly or indirectly (e.g., through ownership of any interest in any other entity), develop, promote, market, or sell any software or technology that has the same or substantially similar, in any material respect, features or functions as the Acquired Assets or that could replace, be used in

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lieu of or otherwise compete with the Acquired Assets. Neither the foregoing nor any other term or condition of this Agreement shall in any manner be deemed to prohibit, restrict or limit the Seller or any of its Affiliates from promoting, marketing, selling, maintaining, supporting, or providing any services for, any third party software or technology regardless of whether the same may be similar to, or competitive with, the Acquired Assets or any other software or product of Purchaser.

3.8 Seller Conduct of Business during the Pre-Closing Period. During the period between the Effective Date and the Closing Date:

3.8.1 Seller shall: (A) consult with Purchaser on an ongoing basis regarding any business activities that would or are likely to impair the value or use of the Acquired Assets; and (B) use commercially reasonable efforts to preserve relationships with customers, suppliers, distributors and others having business dealings regarding the Acquired Assets.

3.8.2 Seller shall not:

(a) incur, assume, or guarantee any Encumbrance on any of the Acquired Assets;

(b) assign, transfer, dispose of, or license any of the Acquired Assets, except as provided for under Section 3.4 in connection with the continuing promotion, marketing, maintenance and support of Seller Products and the continuing maintenance and support of the 2009 version of the Software;

(c) adopt a plan of complete or partial liquidation, dissolution, merger, split, consolidation, restructuring, recapitalization, or other reorganization; or

(d) Knowingly take any action that would or is reasonably likely to (i) make any representation or warranty of Seller contained in this Agreement inaccurate, (ii) result in any of the conditions in Section 4 not being satisfied, or (iii) impair the ability of Seller to consummate the transactions contemplated in this Agreement.

3.8.3 To the extent permitted by Applicable Law without requiring any filing with any Governmental Entity or any public disclosure of the same, Seller shall promptly notify Purchaser of any event or occurrence that results, or could reasonably be expected to result, individually or in the aggregate, in any material adverse effect on the Acquired Assets, or that would materially impair the ability of Seller to consummate any of the transactions contemplated in this Agreement.

3.9 Trademarks. Seller may use the Trademarks solely in connection with the activities permitted under Section 3.4.2 or in connection with Seller’s fulfillment of its obligations to its end users or partners. Seller shall not use the Trademarks in connection with the Purchaser Product or any other software, service or technology that Seller develops, promotes, markets or sells at any time after the Effective Date. Notwithstanding the foregoing, or anything else to the contrary contained in this Agreement or any of the schedules hereto, Seller may use the terms “Process Industries” and/or “Chemical Accelerator”, or any derivations thereof, so long as the same does not in any manner reference the Software or the Purchaser Product or attempt to use such terms for an add-on, follow-on, update or version of the Software or the Purchaser Product.

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3.10 Fulfillment of Conditions.

3.10.1 Seller shall use commercially reasonable efforts to effect the transactions contemplated in this Agreement and to fulfill or cause to be fulfilled the conditions in Section 4.1 prior to the Closing Date.

3.10.2 Purchaser shall use commercially reasonable efforts to effect the transactions contemplated in this Agreement and to fulfill or cause to be fulfilled the conditions in Section 4.2 prior to the Closing Date.

3.11 Survival. The covenants set forth in Sections 3.2.5, 3.3, 3.4, 3.5, 3.6, 3.7 and 3.9 shall survive Closing. All other covenants under this Section 3 shall terminate upon the Closing Date.

4. CONDITIONS PRECEDENT TO CLOSING

4.1 Conditions Precedent to Purchaser’s Obligations. The obligations of Purchaser to consummate the Closing are subject to satisfaction, or Purchaser’s written waiver at or before the Closing Date, of each of the following conditions:

4.1.1 There shall not have been any action taken, or any statute, law, ordinance, rule, regulation, injunction, judgment, order or decree, entered, enacted, enforced, promulgated, issued or deemed applicable to the transactions contemplated in this Agreement by any Governmental Entity, and there shall not be pending any Claim by any Governmental Entity against either Party, that is likely to (a) render Purchaser unable to pay, or Seller unable to accept payment, for some or all of the Acquired Assets, (b) impose material limitations on the ability of Purchaser effectively to exercise full rights of ownership of the Acquired Assets, (c) compel Purchaser or its Affiliates to dispose of or hold separate any portion of the Acquired Assets, or (d) oblige Seller or Purchaser to pay material damages in connection with the transactions contemplated in this Agreement.

4.1.2 No statute, rule, regulation, executive order, decree or injunction shall have been enacted, entered, promulgated or enforced by any Governmental Entity that enjoins or prohibits the transactions contemplated in this Agreement.

4.1.3 All representations and warranties made by Seller in this Agreement were true and are true as of the Effective Date and Closing Date, respectively.

4.1.4 Seller shall have performed in all material respects all agreements and covenants required to be performed by Seller under this Agreement.

4.1.5 Purchaser shall have received, or Seller shall have tendered, delivery of all of the items and documents to be delivered by Seller pursuant to Section 1.4.2.

4.2 Conditions Precedent to Seller’s Obligations. The obligations of Seller to consummate the Closing are subject to satisfaction, or Seller’s written waiver at or before the Closing, of each of the following conditions:

4.2.1 There shall not have been any action taken, or any statute, law, ordinance, rule, regulation, injunction, judgment, order or decree, entered, enacted, enforced, promulgated, issued or deemed applicable to the transactions contemplated in this Agreement by any Governmental Entity, and there shall not be pending any Claim by any Governmental Entity against either Party, that is likely to (a) render Purchaser unable to pay, or Seller unable to accept payment, for some or all of the Acquired Assets, (b) impose material limitations on the

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ability of Purchaser effectively to exercise full rights of ownership of the Acquired Assets, (c) compel Purchaser or its Affiliates to dispose of or hold separate any portion of the Acquired Assets, or (d) oblige Seller or Purchaser to pay material damages in connection with the transactions contemplated in this Agreement.

4.2.2 No statute, rule, regulation, executive order, decree or injunction shall have been enacted, entered, promulgated or enforced by any Governmental Entity that enjoins or prohibits the transactions contemplated in this Agreement.

4.2.3 Seller shall have received, or Purchaser shall have tendered, delivery of all of the items to be delivered by Purchaser pursuant to Section 1.4.3.

5. INDEMNIFICATION

5.1 Seller’s Indemnity. Seller shall defend, indemnify and hold harmless Purchaser Indemnitees from and against any and all Claims made by any third party (together with reasonable attorney fees, court costs and other legal expenses) arising out of or in connection with (a) any breach of any representation or warranty of Seller set forth in this Agreement or any of the Transaction Documents, (b) any inaccuracy in any certificate or other document delivered by Seller under this Agreement, (c) the failure, partial or total, of Seller to perform any agreement or covenant required to be performed by Seller under this Agreement, (d) any allegations that the use of any of the Acquired Assets infringes, misappropriates or violates any patents, copyrights, trademarks, trade secrets or other intellectual property rights of any third party or (e) any promotion, marketing, sales, licensing, or provision of services (including extended warranty plans, maintenance plans, support plans, implementation services and other services) to any third party (other than Purchaser) by Seller or any of its Affiliates of the 2009 or prior versions of the Software or the Seller Product (including any Claim arising out of any representation, warranty or contract made by Seller or any of its Affiliates to any third party (other than Purchaser) with respect to the foregoing).

5.2 Purchaser’s Indemnity. Purchaser shall defend, indemnify and hold harmless Seller Indemnitees from and against any and all Claims made by any third party (together with reasonable attorney fees, court costs and other legal expenses) arising out of or in connection with (a) any breach of any representation or warranty of Purchaser set forth in this Agreement or any of the Transaction Documents, (b) any inaccuracy in any certificate or other document delivered by Purchaser under this Agreement, (c) the failure, partial or total, of Purchaser to perform any agreement or covenant required to be performed by Purchaser under this Agreement, or (d) any development, promotion, marketing, sales, licensing, support or other activities of Purchaser or any of its Affiliates with respect to any Purchaser Product (including any Claim arising out of any representation, warranty or contract made by Purchaser or any of its Affiliates with respect to any Purchaser Product), except to the extent the same are to be indemnified by Seller pursuant to Section 5.1.

5.3 Procedure. In the event of a Claim, the Indemnitee shall: (a) give the Indemnitor written notice of the Claim promptly after such Indemnitee receives notice thereof along with sufficient information for the Indemnitor to identify the Claim; (b) permit the Indemnitor to defend the Claim and cooperate with the Indemnitor in connection with the defense and settlement of the Claim; (c) not settle or compromise the Claim without the prior written consent of the Indemnitor, which consent shall not be unreasonably withheld. The Indemnitor shall not settle or compromise any Claim without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld, unless such settlement or compromise provides for a full and complete release of the Indemnitee, imposes no monetary or non-monetary obligation upon the Indemnitee and does not have any other adverse effect on any interests of the Indemnitee. The Parties shall cooperate and use commercially reasonable efforts to mitigate any losses or Claims which are subject to indemnification under this Section 5.

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5.4 Limitations.

5.4.1 In no event shall Seller be liable to the Purchaser for indemnification under Section 5.1 in excess of [***] (the “Seller Cap”) with respect to: [***].

5.4.2 In no event shall either Party be liable to the other for the defense, indemnification or hold harmless of any Claims under Section 5.1 or 5.2, as the case may be, unless and until the aggregate amount of such Claims exceeds [***] (the “Basket”), in which case, for the avoidance of doubt, the Party shall be required to indemnify, defend and hold harmless for only those Claims in excess of the Basket.

5.4.3 For purposes of clarity, no payments of the Purchase Price hereunder shall be deemed as payment under the Services Agreement or any SOW.

5.5 Survival. Seller’s representations and warranties set forth in [***] shall survive the Closing and shall remain in full force and effect until, and shall terminate on, [***]. Seller’s representations and warranties set forth in [***] shall survive the Closing and shall remain in full force and effect until, and shall terminate on, [***]. All other representations and warranties under this Agreement shall survive for [***]. No Party shall be entitled to an indemnification claim under Section 5.1 or Section 5.2 above with respect to any representation, warranty or covenant if such Party has failed to deliver notice of such claim for indemnification on or before the date upon which such representation, warranty or covenant terminates hereunder.

6. TERMINATION

6.1 Termination. This Agreement may be terminated and the transactions contemplated in this Agreement abandoned at any time before Closing:

(a) by written agreement of the Parties;

(b) by either Party giving the other Party written notice of termination in the event that there has been a breach by the other Party of any representation, warranty, covenant or agreement contained in this Agreement that results in any of the conditions to the non-breaching Party’s obligations to consummate the Closing not being capable of being met by the Outside Date; or

(c) by either Party giving the other Party written notice of termination in the event that Closing has not occurred before the Outside Date.

Notwithstanding anything to the contrary contained herein, in no event shall either Party be entitled to terminate this Agreement or rescind the transaction contemplated herein after the Closing. There will be no refund of any payment of the Purchase Price once the payment release requirements under Section 1.2 of this Agreement have been met. For the avoidance of doubt, any payment required under Section 5 or any other provision of this Agreement does not constitute a refund of the Purchase Price. The parties understand, acknowledge and agree that, notwithstanding anything to the contrary contained herein, no payments hereunder, including, without limitation, any payments of the Purchase Price, shall be deemed to be payments by Purchaser under the Services Agreement or be counted in determining the cap on Seller’s liability under the Services Agreement.

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6.2 Effect of Termination. In the event of termination of this Agreement in accordance with Section 6.1:

(a) Sections 5, 6.2, and 7 and Schedule A shall survive;

(b) neither Party shall be released or relieved from any liability arising from the intentional breach by such Party of any of its representations, warranties, covenants or agreements as set forth in this Agreement;

(c) the Non-Disclosure Agreement shall remain in full force and effect in accordance with their respective terms; and

(d) except as provided in this Section 6.2, this Agreement shall have no further effect, and neither Party shall have any liability or obligation under this Agreement or on account of the termination of this Agreement.

7. GENERAL PROVISIONS

7.1 Confidentiality. The Non-Disclosure Agreement shall be applicable to all Confidential Information exchanged in connection with this Agreement and the transactions contemplated in this Agreement. Upon Closing, all information relating to the Acquired Assets shall become Confidential Information of Purchaser and cease to be Confidential Information of Seller.

7.2 Publicity. Neither Party shall issue any press release or make any other public disclosure or communication regarding this Agreement, without the other Party’s prior written consent. However, neither Party shall unreasonably withhold its consent to any press release or other public disclosure or communication (a) of Seller’s sale and Purchaser’s purchase of the Acquired Assets without any disclosure of any of the other material terms of this Agreement (including the price for the Acquired Assets) or (b) in accordance with any communication plan agreed upon by the Parties pursuant to Section 3.5. Neither the foregoing, nor any other term or condition of this Agreement, shall be deemed to in any manner prohibit, restrict or limit in any fashion any filing by either Party or its Affiliates with, or disclosure to, the SEC or any other Governmental Entity which is required by Applicable Law. In the event of any filing or disclosure required by Applicable Law, the Party required to file or disclose shall give the other Party reasonable advance notice thereof, unless otherwise not legally permitted, and, to the extent permitted by Applicable Law and reasonably requested by such other Party, seek confidential treatment and/or other protection of the Confidential Information of such other Party.

7.3 Interpretation. As used in this Agreement, the terms “include,” “includes” and “including” shall be deemed in each case to be followed by the words “without limitation.” The Parties and their attorneys have negotiated this Agreement and the language in this Agreement shall not be construed for or against either Party as drafter. The headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. A reference to a section or schedule means a section in, or schedule to, this Agreement unless otherwise explicitly set forth.

7.4 Governing Law; Forum Selection. This Agreement shall be governed and interpreted in accordance with the laws of the State of Washington without regard to principles of conflict of laws. Both Parties consent and submit to the exclusive jurisdiction of the courts (State and Federal) located in King County in the State of Washington in connection with any controversy arising under this Agreement or its subject matter. The Parties waive any objection they may have in any such action based on lack of personal jurisdiction, improper venue or inconvenient forum. Any decision or ruling of said exclusive jurisdiction of the courts (State and Federal) located in King County in the State of Washington may be enforced in any court of competent jurisdiction. Nothing in this Section 7.4 shall prevent Purchaser from seeking preliminary injunctive relief from a court of competent jurisdiction.

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7.5 No Joint Venture. Nothing in this Agreement shall be deemed or construed as creating a joint venture or partnership between the Parties. Neither Party is by virtue of this Agreement authorized as an agent, employee, or legal representative of any other Party. Neither Party shall have the power to control the activities and operations of the other Party and their status is, and at all times shall continue to be, that of independent contractors with respect to each other. Neither Party shall have any power or authority to bind or commit the other Party. Neither Party shall hold itself out as having any authority or relationship in contravention of this Section 7.5.

7.6 Notices. Except as specifically set out in this Agreement, all notices shall be (a) in writing (including by electronic or physical mail) and sent to the contact(s) and location(s) specified below, and (b) deemed given on the day received by the addressee.

if to Purchaser, to:	if to Seller, to:
Microsoft Corporation           One Microsoft Way           Redmond, WA 98052           Attention:           Office of General Counsel           Facsimile No.:    (425) 936-7329           Email:	c/o Edgewater Technology, Inc. 200 Harvard Mill Square, Suite 210 Wakefield, Massachusetts 01880 Attention: Contract Administration Facsimile No.: (781) 246 – 5903 Email:
With a copy, which shall not constitute notice, to:           Microsoft Corporation           One Microsoft Way           Redmond, WA 98052           Attention:           President, MBS           Facsimile No.:    (425) 936-7329           Email:	With a copy, which shall not constitute notice, to: Edgewater Technology, Inc., As Guarantor 200 Harvard Mill Square, Suite 210 Wakefield, Massachusetts 01880 Attention: Contract Administration Facsimile No.: (781) 246 – 5903 Email:
	And to: Hinckley, Allen & Snyder LLP 28 State Street Boston, MA 02109 Attention: ((Aaron A. Gilman, Esq. Facsimile No.: (617) 378-4325 Email:

Either Party may change its address for notices hereunder by giving the other Party notice thereof in accordance with this Section 7.6; provided that only Edgewater Technology, Inc. may change its address for copies of notices to Seller hereunder and then only by notice to each of the Parties in accordance with this Section 7.6.

7.7 Successors and Assigns. This Agreement shall not be assigned by either Party (whether by operation of law or otherwise) without the prior written consent of the other Party. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.

7.8 Specific Performance. The Parties acknowledge and agree that any material breach of the terms of this Agreement would give rise to irreparable harm for which money damages would not be an adequate remedy, and accordingly the Parties agree that, in addition to any other remedies, each shall be entitled to enforce the terms of this Agreement by a decree of specific performance without the necessity of proving the inadequacy of money damages as a remedy.

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7.9 Waiver. Failure by either Party to enforce any provision of this Agreement shall not constitute, or be interpreted or construed to be, a waiver of future enforcement of that or any other provision, and no waiver shall be effective unless made in writing and signed by an authorized representative of the waiving Party.

7.10 Amendment. Except as may otherwise be provided in this Agreement, any provision of this Agreement may be amended or modified by the Parties, but only if such amendment or modification is in writing and signed on behalf of each Party.

7.11 Counterparts. This Agreement may be executed (a) in one or more partially or fully executed counterparts, each of which shall be deemed an original and shall bind the signatory, but all of which together shall constitute the same instrument, and (b) by facsimile. The execution and delivery of a Signature Page — Asset Purchase Agreement, in the form annexed to this Agreement, by any Party who shall have been furnished the final form of this Agreement shall constitute the execution and delivery of this Agreement by such Party.

7.12 Entire Agreement. This Agreement, together with the Schedules to this Agreement, the Non-Disclosure Agreement, and other documents referred to in this Agreement, constitute the entire agreement between the Parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both written and oral, between the Parties with respect to the subject matter of this Agreement. This Agreement is not intended to confer upon any third party any rights or remedies under this Agreement.

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SIGNATURE PAGE—ASSET PURCHASE AGREEMENT

IN WITNESS WHEREOF, Seller and Purchaser have caused their respective duly authorized officers to sign this Agreement on their behalf, all as of the Effective Date.

PURCHASER:
Microsoft Corporation
/s/ Kirill Tatarinov
By:	Kirill Tatarinov
Its:	President, MBS
SELLER:
Fullscope, Inc.
/s/ Shirley Singleton
By:	Shirley Singleton, President

Asset Purchase Agreement

Microsoft and Fullscope Confidential Information

LIST OF SCHEDULES†

The following schedules (including any appendices referenced therein) are attached to the Asset Purchase Agreement, with an effective date of June 29, 2012 (the “Agreement”), between Microsoft Corporation (“Purchaser”) and Fullscope, Inc. (“Seller”) and are hereby incorporated into the Agreement.

SCHEDULE	NAME
A	Definitions
B	Non-Disclosure Agreement
C	Documentation
D	Software
E	Related Assets
F	Bill of Sale
G	Copyrights
H	Copyright Assignment
I	SOWs •    I.1: Development SOW •    I.2: Training Sow
J	Seller’s Standard End User License
K	Seller’s Standard Employee and Independent Consultant Agreement Form •    K.1: Employee Confidential and Non-Disclosure Agreement •    K.2: Independent Consultant Agreement
L	Seller’s Standard Partner Agreement
M	Excluded Assets
N	Guarantee
O	Trademarks
P	License Agreement
Q	Remediation Certificate •    Q.1: Remediation Certificate for Initial Remediation •    Q.2: Remediation Certificate for Additional Remediation
R	Remediation Plan
S	Seller Certificate
T	Services Agreement
U	Confirmation of Assignment •    U.1: Seller’s Employees •    U.2: Seller’s Independent Contractors

† Pursuant to Item 601(b)(2) of Regulation S-K, Edgewater Technology, Inc. has omitted all of the Schedules noted in the List of Schedules (other than Schedule A). Edgewater Technology, Inc. hereby agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.

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SCHEDULE A

Definitions

This Schedule A is a part of that certain Asset Purchase Agreement (the “Agreement”) between Microsoft Corporation (“Purchaser”) and Fullscope, Inc. (“Seller”).

“Acquired Assets” means (a) the Software, (b) Related Assets, (c) the Documentation identified in Schedule C, (d) Updates, and (e) Intellectual Property Rights.

“Additional Remediation” has the meaning set forth in Section 3.2.2.

“Affiliate” means with respect to a Party, any legal entity that owns, is owned by, or is commonly owned with a Party. “Own” means having more than fifty percent (50%) ownership or the right to direct the management of the entity.

“Applicable Law” means any international, national, federal, state or local law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, judgment, order or other similar requirement enacted, adopted, promulgated or applied by a Governmental Entity that is binding upon or applicable to Seller, as amended unless expressly specified otherwise.

“Basket” has the meaning given to it in Section 5.4.2.

“Bill of Sale” means a bill of sale in the form attached as Schedule F.

“Business Day” means any day other than a Saturday, a Sunday, or a day on which banking institutions in the United States are permitted or obligated by law to be closed for regular banking business.

“Claim” means any action, claim, lawsuit, demand, suit, inquiry, hearing, investigation, notice of a violation or non-compliance, litigation, proceeding, arbitration, appeals or other dispute, whether civil, criminal, administrative or otherwise.

“Closing” means the closing of the purchase and sale of the Acquired Assets described in Section 1.4.

“Closing Date” means the date of the Closing described in Section 1.4.

“Code Reviewer” means Leonard, Street and Deinard, P.A.

“Confidential Information” has the same meaning as that term is used in the Non-Disclosure Agreement.

“Copyright Assignment” means an assignment of the Copyrights in the form attached as Schedule H.

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“Development SOW” means a Statement of Work for Seller’s performance of the software development services in accordance with the requirements set forth in the attached as Schedule I.1.

“Documentation” means all documentation in whatever form (whether in draft, final, work-in-progress, or published) and in whatever format (whether printed, magnetic, optical, electronic or other format) owned, created, published or otherwise made available by Seller for the Software, Related Assets and Updates that describes the functional, design, test cases, training, marketing, operational and/or performance capabilities of the Software, Related Assets, Updates or any derivative work thereof. “Documentation” includes designs, specifications, source code, content, white papers, knowledge base articles, known incidents and resolutions, support history, sales materials, marketing materials, training material, Product Documentation, cascading style sheets (.css files), documentation build scripts, translation glossary, terminology list, translation memory database, courseware, e-learning or self-paced offerings, trainer notes, case studies, workshop content, on-demand content, video, podcasts, website content, and user, operating and installation manuals or guides relating to and necessary for the effective adoption, configuration, use operation or Translation of the Software, Related Assets and Updates.

“Effective Date” has the meaning set forth in the preamble.

“Encumbrance” means any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, equity interest, trust, equitable interest, claim, preference, right of possession, lease, tenancy, license, encroachment, covenant, infringement, interference, order, proxy, option, right of first refusal, right of first offer, right of last offer, preemptive right, community property interest, legend, defect, impediment, exception, reservation, limitation, impairment, imperfection of title, condition, adverse claim, or restriction of any kind whatsoever on the use of any property, other than End User Licenses to third party customers sold in the ordinary course of business. “Encumbrance” includes any lien for Taxes.

“End User License” means a non-exclusive license to use the Software pursuant to Seller’s standard end user license agreement, a copy of which is attached as Schedule J.

“Excluded Assets” means third party software tools used in development of the Software and listed in the attached Schedule M.

“Excluded License” means any license that requires, as a condition of use, modification and/or distribution of software subject to such license, that such software or other software combined and/or distributed with such software be (a) disclosed or distributed in source code form, (b) licensed for the purpose of making derivative works, or (c) redistributed at no charge.

“Generally Available” or “GA” means the edition or version of any software that is made generally commercially available, in any form or media (including diskette, CD-ROM, tapes, download via technologies such as the internet or file transfer protocols, new or hereafter existing), to a Party’s general customer base through its normal channels as a commercial or production version (i.e., not alpha, beta or other pre-release versions).

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“Governmental Entity” means any court, administrative agency or commission, or other governmental authority or instrumentality, whether domestic or foreign, having jurisdiction over Purchaser or Seller.

“Guarantee” means a guarantee in the form attached as Schedule N.

“Indemnitee” means any Purchaser Indemnitee or Seller Indemnitee, as the case may be.

“Indemnitor” means Purchaser or Seller, as the case may be.

“Initial Remediation” has the meaning set forth in Section 3.2.2.

“Intellectual Property Rights” means any and all intellectual property rights, whether registered or not, owned, used or held by Seller for use in or relating to any and all versions of the Acquired Assets, including:

(a) any patent rights including issued patents, pending patent applications and patents that may be issued from any pending patent applications (including divisional, reissues, renewals, re-examinations, continuations, continuations-in-part and extensions) (the “Patents”);

(b) all mask works and copyrights, including any copyright registrations and applications therefor, and all other rights corresponding thereto (including moral rights), including those listed and described in the attached Schedule G (the “Copyrights”);

(c) industrial designs and design patents and similar rights(the “Design Rights”); and

(d) technical know-how, proprietary information and trade secrets with respect to the Software (the “Trade Secrets”),

provided, however, that the Intellectual Property Rights do not include any of Seller’s Trademarks.

“Knowledge” or other derivations of “Know” means, in the case of Seller, the actual knowledge of any executive officers of Seller or any of the following individuals Reddy Beeram and Kevin Brock.

“License Agreement” means a license agreement in the form attached as Schedule P.

“Localization” or any derivative of “Localize” means any modification to, addition to and/or adaptation of any Software to enable or include certain features and/or functionality in the Software to conform to applicable tax, accounting, financial or statutory reporting requirements (including, without limitation, versions and updates of the Software, user assistance tools and/or end user documentation).

“Non-Disclosure Agreement” means the Non-Disclosure Agreement by and between the Parties dated June 15, 2007, a copy of which is attached as Schedule B.

“Outside Date” means the later of July 30, 2012 or such other date as may be specified by Purchaser in writing prior to the then-current Outside Date. For the avoidance of doubt, Purchaser and Seller may, by mutual agreement in writing, extend the Outside Date from time to time by one or more notices specifying a later Outside Date.

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“Partner Agreement” means Seller’s standard partner agreement, a copy of which is attached as Schedule L.

“Product Documentation” means any user interface strings and error message strings for the Software and any Documentation for end users, IT professionals or developers, including, without limitation, help files and technical documents.

“Purchase Price” has the meaning specified in Section 1.2.

“Purchaser Indemnitee(s)” means Purchaser and any of Purchaser’s Affiliates, directors, officers, employees, agents, shareholders and subcontractors.

“Purchaser Product” means any edition or version of the Software that Purchaser makes Generally Available under its trademarks and/or brands.

“Purchaser GA Date” means the target GA date specified by Purchaser for the initial Purchaser Product.

“Related Assets” means all (a) build-scripts, test-suites, test harnesses, test cases, test automations, internally developed tools in whatever form (whether under development, work-in-progress, prototype, prerelease, final or other version) used for development of the Software, (b) call logs, bug lists, databases and other data collections related to the Software; and (c) derivative works and other items related to the Software; provided, however, that the Related Assets do not include any Excluded Assets. “Related Assets” includes the assets listed and described in the attached Schedule E.

“Remediation Certificate” means a certificate as to the fulfillment of the requirements of the Remediation Plan signed by the Chief Executive Officer or the Chief Technology Officer of Seller. Remediation Certificate includes the Remediation Certificate for the Initial Remediation attached as Schedule Q.1 and the Remediation Certificate for the Additional Remediation substantially in the form attached as Schedule Q.2.

“Remediation Plan” means the remediation plan attached hereto as Schedule R.

“Self-Help Code” means any virus, malware, Trojan horse, back door, time bomb, drop-dead device, or other routine, code, algorithm, software, hardware component or other mechanism designed to (a) disable, erase, alter or harm any Purchaser product, the code of any third party, or any other product or any computer system, program, database, data, hardware or communications system, automatically with the passage of time, or under the control of, or through some affirmative action by a person, or (b) access any computer system, program, database, data, hardware or communications system of Purchaser or any Purchaser Affiliate, or of any end user.

“Seller Cap” has the meaning set forth in Section 5.4.1.

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“Seller Certificate” means an executed officer’s certificate from Seller substantially in the form attached as Schedule S, dated as of the Closing Date, certifying (a) that the resolutions authorizing and approving the execution of this Agreement and the consummation of the transactions contemplated in this Agreement, as attached to the certificate, were duly adopted by Seller’s board of directors and that such resolutions remain in full force and effect, and (b) that all Acquired Assets remain in the possession of Seller immediately before Closing, have not been sold or otherwise transferred, have not been subject to any material damage, destruction, or loss since the date hereof, and are available for transfer to Purchaser as of Closing.

“Seller Indemnitee(s)” means Seller and any of Seller’s Affiliates, directors, officers, employees, agents, shareholders and subcontractors.

“Seller Product” means Seller’s 2012 GA version of the Software made available under Seller’s trademark or brand.

“Seller’s Delivery Confirmation” has the meaning set forth in Section 3.1.1.

“Services Agreement” means a services agreement substantially in the form attached as Schedule T.

“Software” means all current and prior versions of the software created for, published or otherwise made available by or on behalf of Seller, known as Process Industries 2 and made available under any of Seller’s Trademarks (a) in whatever form (whether Generally Available or currently under development in alpha, beta, test or other pre-released versions), (b) in whatever format (i.e., source code, object code, libraries, .xpo files, .dll files, model files, system architecture configurations and any other format), and (c) in any and all languages (including English), derivative works, and any and all Localizations and Translations of the Software. “Software” includes the functional software components listed and described in Schedule D.

“Statement of Work” means a document that refers expressly to the Services Agreement, is executed by a duly authorized representative of each Party, and describes any Transition Service to be performed by a Party or the Parties.

“SOWs” means collectively the Development SOW and the Training SOW to be executed and delivered pursuant to Section 3.3.1 as agreed upon by the Parties prior to the Closing Date, each of which shall be in the form set forth in the attached as Schedule I.1 and Schedule I.2 respectively.

“Trademarks” means those trademarks, trade dress, trade names and business names listed and described in the attached Schedule O.

“Training SOW” means a SOW for Seller’s performance of sales and marketing services in accordance with the requirements set forth in the attached as Schedule I.2.

“Transaction Documents” means the Bill of Sale, Copyright Assignment, the Services Agreement, the SOWs, the License Agreement and the Guarantee.

“Transition Services” means services performed or to be performed under the SOWs.

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“Translation” means the interpretation of the meaning of text in one language and the production in another language of the equivalent text that communicates the same meaning taking into account a number of factors including, without limitation, context, rules of grammar, writing conventions, expressions, accommodation for script directionality, double-byte characters, length of words and phrases, idioms and the like, without changing the functionality or features of the item to be translated.

“Updates” means all enhancements, modifications, improvements, updates, upgrades, hot fixes, bug fixes, service packs and any other derivative works of the Software, Related Assets or Documentation owned, created, published or otherwise made available by Seller as of the Closing Date, pursuant to Section 3 or as may be developed under any of the SOWs.

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EX-10.4

EDGEWATER TECHNOLOGY, INC.

AMENDED AND RESTATED 2000 STOCK OPTION PLAN, AS AMENDED

SECTION 1. PURPOSE. The Plan (i) authorizes the Committee to provide to Employees and Consultants of the Corporation and its Subsidiaries, who are in a position to contribute materially to the long-term success of the Corporation, with grants of options to acquire common stock, par value $.01 per share, of the Corporation, and (ii) provides for the automatic grant of options to Non-Employee Directors of the Corporation, in accordance with the terms specified herein. The Corporation believes that this incentive program will cause those persons to increase their interest in the Corporation’s welfare, and aid in attracting and retaining Employees, Consultants and Directors of outstanding ability.

SECTION 2. DEFINITIONS. Unless the context clearly indicates otherwise, the following terms, when used in this Plan, shall have the meanings set forth in this Section:

(a) “Board” shall mean the Board of Directors of the Corporation.

(b) “Cause” shall mean, except to the extent specified otherwise by the Committee, a finding of the Committee that the Grantee (i) has breached his or her employment or service contract with the Corporation or its Subsidiaries, (ii) has engaged in disloyalty to the Corporation or its Subsidiaries, including, without limitation, fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of his or her employment or service, (iii) has disclosed trade secrets or confidential information of the Corporation or its Subsidiaries to persons not entitled to receive such information, (iv) has breached any noncompetition or nonsolicitation agreement between the Corporation or its Subsidiaries and the Grantee, or (v) has engaged in such other behavior detrimental to the interests of the Corporation or its Subsidiaries as the Committee determines.

(c) A “Change in Control” shall be deemed to have occurred if:

(i) any person, other than the Corporation or an employee benefit plan of the Corporation, acquires, directly or indirectly, the beneficial ownership of any voting security of the Corporation and immediately after such acquisition such person is, directly or indirectly, the beneficial owner of voting securities representing 50% or more of the total voting power of the then-outstanding voting securities of the Corporation;

(ii) the individuals (A) who, as of the adoption of this Plan, constitute the Board (the “Original Directors”) or (B) who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the Original Directors then still in office (such directors becoming “Additional Original Directors” immediately following their election) or (C) who are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the Original Directors and Additional Original Directors then still in office (such

directors also becoming “Additional Original Directors” immediately following their election), cease for any reason to constitute a majority of the members of the Board;

(iii) the stockholders of the Corporation shall approve a merger, consolidation, recapitalization, or reorganization of the Corporation, a reverse stock split of outstanding voting securities, or consummation of any such transaction if stockholder approval is not sought or obtained, other than any such transaction which would result in at least 75% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction being beneficially owned by at least 75% of the holders of outstanding voting securities of the Corporation immediately prior to the transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction; or

(iv) the stockholders of the Corporation shall approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or a substantial portion of the Corporation’s assets (i.e. 50% or more of the total assets of the Corporation).

(d) “Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time.

(e) “Committee” shall mean the Board, or any committee of two or more Directors that may be designated by the Board to administer the Plan. The Committee may be comprised of “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act.

(f) “Consultant” shall mean (i) any person who is engaged to perform bona fide services for the Corporation or its Subsidiaries, other than as an Employee or Director, where the services are not in connection with the offer and sale of securities in a capital-raising transaction and the consultant does not directly or indirectly promote or maintain a market for the Corporation’s securities, or (ii) any person who has agreed to become a consultant within the meaning of clause (i).

(g) “Corporation” shall mean Edgewater Technology, Inc., a Delaware corporation.

(h) “Director” shall mean any member of the Board.

(i) “Employee” shall mean (i) any employee of the Corporation or its Subsidiaries (including Directors who are otherwise employed by the Corporation or its Subsidiaries), or (ii) any person who has agreed to become an employee within the meaning of clause (i).

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(j) “Exchange Act” shall mean the Securities Exchange Act of 1934 as it may be amended from time to time.

(k) “Fair Market Value” of the Stock on a given date shall be based upon: (i) if the Stock is listed on a national securities exchange or quoted in an interdealer quotation system, the last sales price or, if unavailable, the average of the closing bid and asked prices per share of the Stock on such date (or, if there was no trading or quotation in the Stock on such date, on the next preceding date on which there was trading or quotation) as provided by one of such organizations; or (ii) if the Stock is not listed on a national securities exchange or quoted in an interdealer quotation system, as determined by the Committee in good faith in its sole discretion.

(l) “Grant” shall mean a grant of an Option.

(m) “Grantee” shall mean a person granted an Option under the Plan.

(n) “1933 Act” shall mean the Securities Act of 1933, as amended.

(o) “Non-Employee Director” shall mean a Director of the Corporation who is not an Employee, and who was not an Employee at any time during the prior one year period.

(p) “Officer” shall mean an officer of the Corporation with the meaning of Rule 16a-(1)(f) under the Exchange Act.

(q) “Option” shall mean an option granted pursuant to Sections 6 and 7 of the Plan to purchase shares of Stock that is not an incentive stock option as described in Code Section 422.

(r) “Plan” shall mean this Edgewater Technology, Inc. Amended and Restated 2000 Stock Option Plan as set forth herein and as amended from time to time.

(s) “Stock” shall mean shares of the common stock par value $.01 per share of the Corporation.

(t) “Stock Option Agreement” shall mean a written agreement between the Corporation and the Grantee, or a certificate accepted by the Grantee, evidencing the grant of an Option hereunder and containing such terms and conditions, not inconsistent with the Plan, as the Committee shall approve.

(u) “Subsidiary” shall mean (i) any company (whether a corporation, partnership, joint venture or other entity) in which the Corporation owns, directly or indirectly, a majority of the shares of capital stock or other equity interest, or (ii) any entity which the Committee reasonably expects to become a subsidiary within the meaning of clause (i).

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SECTION 3. SHARES OF STOCK SUBJECT TO THE PLAN.

(a) Subject to adjustment as described in Section 10, the total amount of Stock that may be subject to Grants, determined immediately after the grant, shall not exceed four million (4,000,000) shares of Stock.

(b) All Employees and Non-Employee Directors (subject as to Non-Employee Directors to the limitations in Section 7) are eligible to receive Grants under the Plan. Notwithstanding the foregoing: (i) the aggregate number of Grants under the Plan to Officers and Directors shall be less than fifty percent (50%) of the total number of Grants to all persons under the Plan; and (ii) the aggregate of number of shares of Stock underlying Grants to Officers and Directors under the Plan shall be less than fifty percent (50%) of the total number of shares of Stock underlying Grants to all persons under the Plan, as determined in each of (i) and (ii) from the date of the amendment and restatement of the Plan to extend eligibility to Officers and Directors to the date of the third anniversary of such amendment and restatement (and to the date of each anniversary thereafter); provided, however, that there shall be excluded from the numerator and denominator of such calculations, (A) with respect to the item (i) test above, the number of Grants to Officers not previously employed by the Corporation pursuant to a Grant of Options as an inducement essential to such individuals entering into employment contracts with the Corporation; and (B) with respect to the item (ii) test above, Grants of Options for shares of Stock issued to Officers not previously employed by the Corporation pursuant to a Grant of Options as an inducement essential to such individuals entering into employment contracts with the Corporation.

(c) For purposes of the foregoing limits, shares subject to Grants shall not be deemed delivered if such grants are forfeited, expire or otherwise terminate without delivery of shares to the Grantee. Any shares of Stock delivered pursuant to a Grant may consist, in whole or in part, of authorized and unissued shares or treasury shares.

SECTION 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee. Subject to the express provisions of the Plan, the Committee shall have the authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of Stock Option Agreements thereunder and to make all other determinations necessary or advisable for the administration of the Plan. Any controversy or claim arising out of or related to this Plan or the grants thereunder shall be determined unilaterally by, and at the sole discretion of, the Committee. Any action of the Committee with respect to the Plan shall be final, conclusive, and binding on all persons, including the Corporation, Subsidiaries of the Corporation, Grantees and any person claiming any rights under the Plan from or through any Grantee and stockholders. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Corporation or any Subsidiary the authority, subject to such terms as the Committee shall determine, to perform administrative functions to the extent permitted under Rule 16b-3, if applicable, and other applicable law.

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SECTION 5. TYPES OF OPTIONS. Options granted under the Plan shall be options to purchase shares of the Stock that are not incentive stock options as described in Code Section 422.

SECTION 6. GRANT OF OPTIONS TO EMPLOYEES AND CONSULTANTS.

(a) Employees and Consultants of the Corporation and its Subsidiaries shall be eligible to receive Options under the Plan.

(b) The exercise price per share of Stock subject to an Option shall be determined by the Committee and specified in the Stock Option Agreement. The exercise price may be equal to, greater than, or less than shall be at least the Fair Market Value of a share of Stock on the date the Option is granted. In no case shall the exercise price be less than the par value of a share of Stock.

(c) The term of each Option granted to an Employee or Consultant shall be determined by the Committee and specified in a Stock Option Agreement, provided that no Option shall be exercisable more than ten years from the date such Option is granted.

(d) The Committee shall determine and designate from time to time Employees or Consultants who are to be granted Options, and shall specify in the Stock Option Agreement the nature of each Option granted and the number of shares of Stock subject to each such Option.

(e) The Committee shall determine whether any Option granted to an Employee or Consultant shall become exercisable in one or more installments and specify the installment dates in the Stock Option Agreement. The Committee may also specify in the Stock Option Agreement such other provisions, not inconsistent with the terms of this Plan, as it may deem desirable. The Committee shall determine the extent to which Options shall become exercisable upon a Change in Control, unless otherwise specified in the Stock Option Agreement.

(f) The Committee may, at any time, grant new or additional Options to any eligible Employee or Consultant who has previously received Options under this Plan, or options under other plans, whether such prior Options or other options are still outstanding, have been exercised previously in whole or in part, or have been canceled. The Subject to Section 6(b), the exercise price of such new or additional Options may be established by the Committee without regard to such previously granted Options or other options.

(g) The Committee may provide that Options granted to persons who may be non-exempt employees under the Fair Labor Standards Act of 1938, as amended, shall have an exercise price not less than 85% of the Fair Market Value of the Stock on the date of grant, and may not be exercisable for at least six months after the date of grant (except that such Options may become exercisable, as determined by the Committee, upon the Grantee’s death, disability or retirement, or upon a Change in Control or other circumstances permitted by applicable regulations).

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SECTION 7. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS.

(a) Non-Employee Directors of the Corporation shall be eligible to receive Options under the Plan only pursuant to the provisions of this Section 7. Each Non-Employee Director shall receive upon his or her first election to the Board, without the exercise of the discretion of any person, an Option under the Plan relating to the purchase of 20,000 shares of Stock (an “Initial Grant”). On the day of each annual meeting of stockholders, each person who is a continuing Non-Employee Director (excluding any newly-elected Non-Employee Director entitled to receive an Initial Grant) shall receive, without the exercise of the discretion of any person, an Option under the Plan relating to the purchase of 10,000 shares of Stock; and in addition to the foregoing, each such Non-Employee Director who is also the chairman of a committee of the Board shall receive an additional Option under the Plan relating to the purchase of 5,000 shares of Stock. In the event that there are not sufficient shares available under this Plan to allow for the grant to each Non-Employee Director of an Option for the number of shares provided herein, each Non-Employee Director shall receive an Option for his pro rata share of the total number of shares of Stock available under the Plan.

(b) The exercise price of each share of Stock subject to an Option granted to a Non-Employee Director shall equal the Fair Market Value of a share of Stock on the date such Option is granted.

(c) Each initial election Option granted to a Non-Employee Director shall become exercisable in three equal installments on the date of grant and on each of the first two anniversaries of the date of grant, and shall have a term of five years from the date of grant. Notwithstanding the exercise period of any initial election Option granted to a Non-Employee Director, all such Options shall immediately become exercisable upon a Change in Control. Each annual election and annual board committee appointment Option granted to a Non-Employee Director shall be immediately exercisable upon the date of grant.

(d) This Section 7 shall be effective after the earlier of: (i) May 1, 2002, or (ii) the date the Corporation receives notification from The Nasdaq Stock Market, Inc. that amendments to the Plan to provide option grants to Non-Employee Directors do not require the approval of the stockholders of the Corporation.

SECTION 8. EXERCISE OF OPTIONS.

(a) Unless otherwise determined by the Committee, in the event that a Grantee is a “covered employee” as described in Code Section 162(m)(3), an Option shall not be exercisable by such Grantee in any taxable year to the extent that the exercise of such Option would cause the Grantee’s total compensation to exceed the limits for deductible compensation under Code Section 162(m) for the taxable year. However, in no event may the Grantee be prohibited from exercising the Option by reason of this Section 8(a) later than nine years from the date such Option is granted.

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(b) Except as provided pursuant to Section 9, no Option shall be exercised unless at the time of such exercise the Grantee is then: (A) an Employee (determined with reference to Section 2(i)(i) only); or (B) a Consultant (determined with reference to Section 2(f)(i) only) of the Corporation or a Subsidiary (determined with reference to Section 2(u)(i) only).

(c) Except as provided in Section 9, no Option granted to a Non-Employee Director shall be exercised unless at the time of such exercise the Grantee is then a Non-Employee Director.

(d) A Grantee or other permitted holder shall exercise an Option by delivery of written notice to the Corporation setting forth the number of shares with respect to which the Option is to be exercised, together with cash, certified check, bank draft, wire transfer, or postal or express money order payable to the order of the Corporation for an amount equal to the Option price of such shares and any income tax which may be required to be withheld as determined by the Committee pursuant to Section 12. The Committee may, in its sole discretion, permit a Grantee to pay all or a portion of the exercise price by delivery of Stock held by the Grantee longer than six months or other property (including notes or other contractual obligations of Grantees to make payment on a deferred basis to the extent permitted by applicable law), or payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board.

(e) Notwithstanding the foregoing, an Option shall become exercisable in accordance with such terms and conditions as may be determined by the Committee and specified in the Stock Option Agreement.

SECTION 9. EXERCISE OF OPTIONS UPON TERMINATION.

(a) Unless otherwise determined by the Committee, upon termination of a Grantee’s employment with the Corporation and its Subsidiaries for any reason other than Cause, death, disability or retirement, such Grantee may exercise any Options during the three-month period following such termination of employment, but only to the extent such Option was exercisable immediately prior to such termination of employment.

(b) Unless otherwise determined by the Committee, upon termination of a Grantee’s employment with the Corporation and its Subsidiaries on account of death or disability, such Grantee may exercise any Option during the one year period following such termination of employment, but only to the extent such Option was exercisable immediately prior to such termination of employment.

(c) Unless otherwise determined by the Committee, upon termination of a Grantee’s employment with the Corporation and its Subsidiaries on account of retirement

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after attainment of age 65, such Grantee may exercise any Option in accordance with the original Option term following such termination of employment, but only to the extent such Option was exercisable immediately prior to such termination of employment.

(d) If the Committee determines that such termination is for Cause, all Options held by the Grantee shall immediately terminate. In addition, all Options granted on the basis of clause (ii) of Section 2(f), Section 2(i) or Section 2(u) shall immediately terminate if the Committee determines, in its sole discretion, that the Consultant, Employee, or Subsidiary, as the case may be, will not become a Consultant, Employee or Subsidiary within the meaning of clause (i) of such Sections.

(e) Unless otherwise determined by the Committee and specified in the Stock Option Agreement, in no event shall any Option be exercisable for more than the maximum number of shares that the Grantee was entitled to purchase at the date of termination of the relationship with the Corporation and its Subsidiaries. In no event shall any Option be exercisable later than the date of expiration of the Option term.

(f) Subject to the provisions of Section 6(e), the sale of any Subsidiary shall be treated as a termination of employment with respect to any Grantee employed by such Subsidiary.

(g) Subject to the foregoing, in the event of death, Options may be exercised by a Grantee’s legal representative. Options transferred pursuant to Section 14 may also be exercised by a permitted holder.

SECTION 10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event any dividend or other distribution (whether in the form of cash, Stock, or other property), recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event affects the Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Grantees under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and kind of shares of Stock deemed to be available thereafter for Grants, (ii) the number and kind of shares of Stock that may be delivered or deliverable in respect of outstanding Grants, and (iii) the exercise price. If deemed appropriate, the Committee may make provision for a cash payment with respect to any conditions of, and the criteria included in, Grants (including, without limitation, cash payments in exchange for Grants or substitution of Grants using stock of a successor or other entity) in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding sentence) affecting the Corporation or any Subsidiary or the financial statements of the Corporation or any Subsidiary, or in response to changes in applicable laws, regulations, or accounting principles.

SECTION 11. RESTRICTIONS ON ISSUING SHARES. The Corporation shall not be obligated to deliver Stock upon the exercise or settlement of any Grant or take other actions under the Plan until the Corporation shall have determined that applicable federal and state laws, rules, and regulations have been complied with and such approvals of any regulatory or

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governmental agency have been obtained and contractual obligations to which the Grant may be subject have been satisfied. The Corporation, in its discretion, may postpone the issuance or delivery of Stock under any Grant until completion of such stock exchange listing or registration or qualification of such Stock or other required action under any federal or state law, rule, or regulation as the Corporation may consider appropriate, and may require any Grantee to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Stock under the Plan.

SECTION 12. TAX WITHHOLDING. To the extent required by applicable federal, state, local or foreign law, a Grantee shall make arrangements satisfactory to the Corporation for the satisfaction of any withholding tax obligations that arise by reason of an Option exercise or any sale of shares. The Corporation shall not be required to issue shares until such obligations are satisfied. The Committee may permit these obligations to be satisfied by having the Corporation withhold the minimum applicable amounts from a portion of the shares of the Stock that otherwise would be issued to the Grantee, or to the extent permitted, by tendering shares previously acquired.

SECTION 13. DEFERRAL OF RECEIPT OF STOCK. Effective upon the amendment of the Corporation’s deferred compensation plan to expressly permit deferrals under this Section 13, a Grantee may, pursuant to the terms of such plan, as amended, defer receipt of Stock that would otherwise be delivered to such Grantee upon the exercise or settlement of any Option.

SECTION 14. TRANSFERABILITY.

(a) Except as provided below, no Grant shall be subject to anticipation, sale, assignment, pledge, encumbrance, charge or transfer except by will or the laws of descent and distribution, and an Option shall be exercisable during the Grantee’s lifetime only by the Grantee.

(b) Notwithstanding the foregoing, the Committee may provide, in a Stock Option Agreement, that the Grantee may transfer Options to family members or other persons or entities according to such terms as the Committee may determine; provided that the Grantee receives no consideration for the transfer of the Option and the transferred Option shall continue to be subject to the same terms and conditions as were applicable to the Option immediately before the transfer.

SECTION 15. NON-COMPETITION. If the Grantee breaches any non-competition agreement in effect with the Corporation or its Subsidiaries, all of the Grantee’s outstanding Grants shall immediately terminate, and the Corporation may require that the Grantee pay to the Corporation or its Subsidiaries (in Stock or cash) an amount equal to any gain arising from the exercise of Options during the forfeiture period. The forfeiture period is the period beginning on the date that is six months before the Grantee’s termination of employment or service with the Corporation and its Subsidiaries and ending upon the termination of such non-competition agreement. The gain to be reimbursed is the amount by which the Fair Market Value of the Stock on the date of the Committee’s determination (or the date of any earlier sale or other disposition of the Stock covered by the Option, if greater) exceeds the exercise price of the Option.

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SECTION 16. GENERAL PROVISIONS.

(a) Each Grant shall be evidenced by a Grant instrument. The terms and provisions of such instruments may vary among Grantees and among different Grants granted to the same Grantee.

(b) A Grant in any year shall not give the Grantee any right to similar grants in future years, any right to continue such Grantee’s employment relationship with the Corporation or its Subsidiaries, or, until such unrestricted share certificates are issued, any rights as a stockholder of the Corporation. All Grantees shall remain subject to discharge to the same extent as if the Plan were not in effect.

(c) No Grantee, and no beneficiary or other persons claiming under or through the Grantee shall have any right, title or interest by reason of any Grant to any particular assets of the Corporation or its Subsidiaries, or any shares of Stock allocated or reserved for the purposes of the Plan or subject to any Grant except as set forth herein. The Corporation shall not be required to establish any fund or make any other segregation of assets to assure the payment of any Grant.

(d) The issuance of shares of Stock to Grantees, their legal representatives or other permitted holders shall be subject to any applicable taxes and other laws or regulations of the United States or of any state having jurisdiction thereof.

SECTION 17. AMENDMENT OR TERMINATION. The Board may, at any time, alter, amend, suspend, discontinue or terminate this Plan; provided, however, that no such action shall materially impair the rights of Grantees to Grants previously granted hereunder and, provided further, however, that any shareholder approval necessary or desirable in order to comply with other applicable law or regulation shall be obtained in the manner required therein. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue, or terminate, any Grant theretofore granted and any Agreement relating thereto; provided, however, that, without the consent of an affected Grantee, no such action may materially impair the rights of such Grantee under such Grant. Upon termination of the Plan the Committee may (i) require that Grantees surrender their outstanding Options in exchange for a payment by the Corporation, in cash or Stock as determined by the Committee, in an amount equal to the amount by which the then Fair Market Value of the shares of Stock subject to the Grantee’s unexercised vested Options exceeds the exercise price of such Options or (ii) after giving Grantees an opportunity to exercise their unexercised vested Options, terminate any or all outstanding Options at such time as the Committee deems appropriate.

SECTION 18. EFFECTIVE DATE OF PLAN. This amended and restated Plan is effective upon the earlier of: (i) the date the Corporation receives notification from The Nasdaq Stock Market, Inc. that amendments to the Plan to provide option grants to Non-Employee Directors do not require the approval of the stockholders of the Corporation, or (ii) its approval by the stockholders of the Corporation. This Plan shall continue in effect until terminated by the Board. This Plan was originally adopted by the Board on August 31, 2000.

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This Plan, prior to its amendment and restatement in February 2002, was originally adopted by the Board on August 31, 2000, which original adoption did not require stockholder approval.

This Plan, as amended and restated, was approved by the Board on February 27, 2002, which approval became effective on March 20, 2002, which was the date of The Nasdaq Stock Market, Inc. Letter. The approval of this Plan by the Board, as amended and restated, did not require stockholder approval.

Section 7 of the Plan was amended by the Board on May 22, 2002, which amendment did not require stockholder approval.

Section 6 of the Plan was amended by the Board on April 16, 2012, which amendment did not require stockholder approval.

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EX-31.1

Exhibit 31.1

13a-14 CERTIFICATION

I, Shirley Singleton, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Edgewater Technology, Inc. (the “Company”);

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

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

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: August 6, 2012	/s/ SHIRLEY SINGLETON
	Shirley Singleton
	Chairman, President and Chief Executive Officer (Principal Executive Officer)

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EX-31.2

Exhibit 31.2

13a-14 CERTIFICATION

I, Timothy R. Oakes, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Edgewater Technology, Inc. (the “Company”);

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

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

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: August 6, 2012	/s/ TIMOTHY R. OAKES
	Timothy R. Oakes
	Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-32

Exhibit 32

1350 CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Shirley Singleton, the Chairman, President and Chief Executive Officer of Edgewater Technology, Inc. (the “Company”), and Timothy R. Oakes, the Chief Financial Officer of the Company, each hereby certifies that, to the best of her or his knowledge:

The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2012, to which this Certification is attached as Exhibit 32 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2012	/s/ SHIRLEY SINGLETON
	Shirley Singleton
	Chairman, President and Chief Executive Officer (Principal Executive Officer)
Date: August 6, 2012	/s/ TIMOTHY R. OAKES
	Timothy R. Oakes
	Chief Financial Officer (Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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XML

Accrued Liabilities and Other Long Term Liabilities (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Components of other long term liabilities
Long term portion of lease abandonment accrual	$ 1,484	$ 1,787
Long term portion of deferred tax liability	69	54
Total	$ 1,553	$ 1,841

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Income Taxes (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Income Taxes (Textual) [Abstract]
Tax expense	$ 131	$ 302	$ 219	$ 352
Effective tax rate	49.40%	43.30%	41.50%	33.30%

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Full Scope Embezzlement (Details Textual) (USD $)	3 Months Ended			6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2009
Full Scope Embezzlement (Textual) [Abstract]
Embezzlement Activities						$ 116,000
Incurred non-routine operating expenses	567,000		51,000	570,000	114,000
Increased accrual for pre-acquisition sales and use tax exposure	550,000
Accrual for pre-acquisition sales and use tax exposure estimated	1,500,000			1,500,000
Fullscope Acquisition, an escrow account was established							1,300,000
Initial upfront purchase price escrow account							10.00%
Pre-acquisition Fullscope escrow account							700,000
Escrow account with in settlement of the contingent consideration obligation		2,600,000
Combined value of two escrow accounts	$ 4,600,000			$ 4,600,000

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Share-Based Compensation

6 Months Ended

Jun. 30, 2012

Share-Based Compensation [Abstract]

SHARE-BASED COMPENSATION

4. SHARE-BASED COMPENSATION:

Stock-based compensation expense under all of the Company’s share-based plans was $359 thousand and $706 thousand for the three- and six -month periods ended June 30, 2012, respectively. Stock-based compensation expense under all of the Company’s share-based plans was $361 thousand and $609 thousand for the three- and six -month periods ended June 30, 2011, respectively.

Cash received from the employee stock purchase plan (“ESPP”) and stock option exercises were $115 thousand and $240 thousand during the three- and six- month periods ended June 30, 2012, respectively. Cash received from ESPP and stock option exercises were $104 thousand and $233 thousand during the three-and six- month periods ended June 20, 2011, respectively.

As of June 30, 2012, unrecognized compensation expense, net of estimated forfeitures, related to the unvested portion of all share-based compensation arrangements was approximately $2.0 million and is expected to be recognized over a weighted-average period of 1.3 years.

The Company intends to use previously purchased treasury shares for shares issued for options, restricted share awards and ESPP purchases. Shares may also be issued from unissued share reserves.

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Goodwill and Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Estimated annual amortization expense
2012	$ 1,055
2013	531
2014	378
2015	115
2016

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Fair Value Measurement (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Fair Value Measurement (Textual) [Abstract]
Contingent consideration liability outstanding	$ 0		$ 0
Financial instruments transferred into or out of Level 3 classification	0		0
Meridian Stockholder [Member]
Fair Value Measurement (Textual) [Abstract]
Increase in estimated accrual of contingent earnout consideration	8	57	15	65
Full Scope Stockholder [Member]
Fair Value Measurement (Textual) [Abstract]
Increase in estimated accrual of contingent earnout consideration		$ 1,400		$ 1,400

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Goodwill and Intangible Assets (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Goodwill and Intangible Assets (Textual) [Abstract]
Change in Company's recorded goodwill
Amortization expense	241	486	482	975
Amortization from capitalized internally developed software	$ 25	$ 13	$ 42	$ 13

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Business Combinations (Details Textual) (USD $) In Thousands, unless otherwise specified	1 Months Ended
	May 31, 2012	May 31, 2011	Jun. 30, 2012
Business Combinations (Textual) [Abstract]
Subsidiary completed its first and second earnout period	12 months	12 months
Maximum amount of contingent earnout consideration			$ 2,700
Third Twelve Month Earnout Period [Member]
Business Combinations (Textual) [Abstract]
Maximum amount of contingent earnout consideration			917
Accrued potential future contingent earnout			$ 246

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Revenue Recognition

6 Months Ended

Jun. 30, 2012

Revenue Recognition [Abstract]

REVENUE RECOGNITION

3. REVENUE RECOGNITION:

Our Company recognizes revenue primarily through the provision of consulting services and the resale of third-party, off the shelf software and maintenance.

We recognize revenue by providing consulting services under written service contracts with our customers. The service contracts we enter into generally fall into three specific categories: time and materials, fixed-price and retainer.

When a customer enters into a time and materials, fixed-price or a periodic retainer-based contract, the Company recognizes revenue in accordance with our evaluation of the deliverables in each contract. If the deliverables represent separate units of accounting, the Company then measures and allocates the consideration from the arrangement to the separate units, based on vendor specific objective evidence of the value for each deliverable.

The revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Revenue pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. We routinely evaluate whether revenue and profitability should be recognized in the current period. We estimate the proportional performance on our fixed-price contracts on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If we do not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion of performance, subject to any warranty provisions or other project management assessments as to the status of work performed. This method is used because reasonably dependable estimates of costs and revenue earned can be made, based on historical experience and milestones identified in any particular contract.

Estimates of total project costs are continuously monitored during the term of an engagement. There are situations where the number of hours to complete projects may exceed our original estimate, as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. Accordingly, recorded revenues and costs are subject to revision throughout the life of a project based on current information and historical trends. Such revisions may result in increases or decreases to revenue and income and are reflected in the consolidated financial statements in the periods in which they are first identified.

If our initial estimates of the resources required or the scope of work to be performed on a fixed-price contract are inaccurate, or we do not manage the project properly within the planned time period, a provision for estimated losses on incomplete projects is made. Any known or probable losses on projects are charged to operations in the period in which such losses are determined. A formal project review process takes place quarterly, although projects are evaluated on an ongoing basis. Management reviews the estimated total direct costs on each contract to determine if the estimated amounts are accurate, and estimates are adjusted as needed in the period revised estimates are made. No losses were recognized on fixed-price contracts during the three or six month periods ended June 30, 2012 or 2011.

We also perform services on a periodic retainer basis under infrastructure service contracts, which include monthly hosting and support services. Revenue under periodic retainer-based contracts is recognized ratably over the contract period, as outlined within the respective contract. In the event additional services are required, above the minimum retained or contracted amount, then such services are billed on a time and materials basis.

Typically, the Company provides warranty services on its fixed-price contracts related to providing customers with the ability to have any “design flaws” remedied and/or have our Company “fix” routine defects. The warranty services, as outlined in the respective contracts, are provided for a specific period of time after a project is complete. The Company values the warranty services based upon historical labor hours incurred for similar services at standard billing rates. Revenue related to the warranty provisions within our fixed-price contracts is recognized as the services are performed or the revenue is earned. The warranty period is typically for a 30-60 day period after the project is complete.

Customer prepayments, even if nonrefundable, are deferred (classified as deferred revenue) and recognized over future periods as services are performed.

Software revenue represents the resale of certain third-party off-the-shelf software and maintenance and is recorded on a gross basis provided we act as a principal in the transaction, which we have determined based upon several factors including, but not limited to, the fact that we have credit risk and we set the price to the end user. In the event we do not meet the requirements to be considered a principal in the software sale transaction and act as an agent, software revenue will be recorded on a net basis.

The majority of the software sold by the Company is delivered electronically. For software that is delivered electronically, we consider delivery to have occurred when the customer either (a) takes possession of the software via a download (that is, when the customer takes possession of the electronic data on its hardware), or (b) has been provided with access codes that allow the customer to take immediate possession of the software on its hardware pursuant to an agreement or purchase order for the software.

The Company enters into multiple element arrangements which typically include software, post-contract support (or maintenance), and consulting services. Consistent with the software described above, maintenance that is in the form of a pass through transaction is recognized upon delivery of the software, as all related warranty and maintenance is performed by the primary software vendor and not the Company. Maintenance fee revenue for the Company’s software products, which is inconsequential in all years presented, is recognized ratably over the term of the arrangements, which are generally for a one-year period. The Company has established vendor specific objective evidence (“VSOE”) with respect to the services provided based on the price charged when the services are sold separately. The Company has established VSOE for maintenance based upon the stated renewal rate.

We consider amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable and collectability is reasonably assured. We establish billing terms at the time at which the project deliverables and milestones are agreed. Our standard payment terms are 30 days from invoice date. Out-of-pocket reimbursable expenses charged to customers are reflected as revenue.

We received royalty revenue in connection with the sale of Microsoft Dynamics AX-related discrete and process manufacturing modules (the “Software Modules”) developed by Fullscope, which were sold to Microsoft in June 2009. Royalty revenues earned were determined as a percentage of net receipts from the periodic sale of license keys and enhancements related to the Software Modules sold by Microsoft. Royalties were recognized as earned in accordance with the contract terms when royalties from licensees could be reasonably estimated and collectability was reasonably assured. The Software Modules contract expired in June 2011, and no revenue is expected to be recognized subsequent to the expiration of this contract.

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Accrued Liabilities and Other Long Term Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Components of Accrued Liabilities
Accrued commissions	$ 1,332	$ 2,598
Accrued bonuses	1,863	2,562
Accrued vacation	2,316	1,741
Accrued payroll related liabilities	1,152	1,222
Accrued pre-acquisition sales tax liability	1,500	950
Accrued software expense	1,881	312
Other accrued expenses	4,877	4,549
Total	$ 14,921	$ 13,934

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Unaudited Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 8,893	$ 10,333
Accounts receivable, net of allowance of $300	27,737	23,307
Prepaid expenses and other current assets	1,284	763
Total current assets	37,914	34,403
Property and equipment, net	2,220	2,429
Intangible assets, net	1,759	2,079
Goodwill	12,049	12,049
Other assets	226	238
Total assets	54,168	51,198
Current liabilities:
Accounts payable	1,155	1,858
Accrued liabilities	14,921	13,934
Accrued contingent earnout consideration	246	126
Deferred revenue	4,047	1,569
Capital lease obligations, current		52
Total current liabilities	20,369	17,539
Accrued contingent earnout consideration		105
Other long-term liabilities	1,553	1,841
Total liabilities	21,922	19,485
Stockholders' equity:
Preferred stock, $.01 par value; 2,000 shares authorized, no shares issued or outstanding
Common stock, $.01 par value; 48,000 shares authorized, 29,736 shares issued as of June 30, 2012 and December 31, 2011, 11,235 and 11,311 shares outstanding as of June 30, 2012 and December 31, 2011, respectively	297	297
Paid-in capital	213,366	213,282
Treasury stock, at cost, 18,501 and 18,425 shares at June 30, 2012 and December 31, 2011, respectively	(125,237)	(125,389)
Accumulated other comprehensive loss	(111)	(99)
Retained deficit	(56,069)	(56,378)
Total stockholders' equity	32,246	31,713
Total liabilities and stockholders' equity	$ 54,168	$ 51,198

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Organization

6 Months Ended

Jun. 30, 2012

Organization [Abstract]

ORGANIZATION

1. ORGANIZATION:

Edgewater Technology, Inc. (“Edgewater” or the “Company”) is a strategic consulting firm that brings a blend of advisory and product-based consulting services to its customer base. Headquartered in Wakefield, Massachusetts, we work with customers to reduce costs, improve process and increase revenue through the judicious use of technology.

In this Quarterly Report on Form 10-Q (the “Form 10-Q”), we use the terms “Edgewater,” “Edgewater Technology,” “we,” “our Company,” “the Company,” “our” and “us” to refer to Edgewater Technology, Inc. and its wholly-owned subsidiaries, which are described in our 2011 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2012 (the “2011 Form 10-K”).

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Net Income Per Share (Details Textual)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Earnings Per Share (Textual) [Abstract]
Diluted computation increased	813,000	3,300,000	959,000	3,600,000
Share-based awards outstanding	3,900,000	3,800,000	3,900,000	3,800,000

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Net Income Per Share (Tables)

6 Months Ended

Jun. 30, 2012

Net income per share [Abstract]

A reconciliation of net income and weighted average shares used in computing basic and diluted net income per share

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(In Thousands, Except Per Share Data)
Basic net income per share:
Net income applicable to common shares	$	134	$	395	$	309	$	705
Weighted average common shares outstanding		11,288		12,426		11,319		12,391
Basic net income per share of common stock	$	0.01	$	0.03	$	0.03	$	0.06
Diluted net income per share:
Net income applicable to common shares	$	134	$	395	$	309	$	705
Weighted average common shares outstanding		11,288		12,426		11,319		12,391
Dilutive effects of stock options		548		30		363		11
Weighted average common shares, assuming dilutive effect of stock options		11,836		12,456		11,682		12,402
Diluted net income per share of common stock	$	0.01	$	0.03	$	0.03	$	0.06

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Stock Repurchase Program (Details Textual) (USD $) Share data in Thousands, unless otherwise specified	1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	Dec. 31, 2007	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Dec. 31, 2008	Sep. 09, 2011
Stock Repurchase Program (Textual) [Abstract]
Stock Repurchase Program	$ 5,000,000			$ 3,900,000		$ 13,500,000	$ 8,500,000
Additional authorized amount stock repurchase program								5,000,000
Repurchase of shares common stock		118	0	187	0
Aggregate purchase price common stock Shares		$ 468,000		$ 710,000

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Share-Based Compensation (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Share-Based Compensation (Textual) [Abstract]
Stock-based compensation expense under share based plans	$ 359,000	$ 361,000	$ 706,000	$ 609,000
Cash received from employee stock purchase plan	115,000	104,000	240,000	233,000
Unrecognized compensation expense related to unvested portion of all share-based compensation	$ 2,000,000		$ 2,000,000
Expected weighted average recognition period for unrecognized compensation expense			1 year 3 months 18 days

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Basis of Presentation

6 Months Ended

Jun. 30, 2012

Basis of Presentation [Abstract]

BASIS OF PRESENTATION

2. BASIS OF PRESENTATION:

The accompanying unaudited condensed consolidated financial statements have been prepared by Edgewater pursuant to the rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to ensure the information presented is not misleading.

The accompanying unaudited condensed consolidated financial statements reflect all adjustments (which were of a normal, recurring nature) that, in the opinion of management, are necessary to present fairly our financial position, results of operations and cash flows as of and for the interim periods presented. All intercompany transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our 2011 Form 10-K.

The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results to be expected for any future period or the full fiscal year. Our revenue and earnings may fluctuate from quarter-to-quarter based on factors within and outside our control, including variability in demand for information technology professional services, the length of the sales cycle associated with our service offerings, the number, size and scope of our projects and the efficiency with which we utilize our employees. Substantially all of our revenue is generated within North America.

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Unaudited Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Statement Of Financial Position [Abstract]
Accounts receivable, allowance	$ 300	$ 300
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,000	2,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	48,000	48,000
Common stock, shares issued	29,736	29,736
Common stock, shares outstanding	11,235	11,311
Treasury stock, shares	18,501	18,425

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Full Scope Embezzlement

6 Months Ended

Jun. 30, 2012

Full Scope Embezzlement [Abstract]

FULLSCOPE EMBEZZLEMENT

12. FULLSCOPE EMBEZZLEMENT:

During the second quarter of 2010, the Company discovered embezzlement activities at Fullscope, one of its wholly-owned subsidiaries, which was acquired by the Company in December 2009 (the “Fullscope Embezzlement Issue”). Based upon the results of forensic accounting procedures, we identified that the embezzlement activities occurred for an extended period prior to our acquisition of Fullscope and also during the first and second quarter of 2010. Additionally, based upon the procedures performed, we concluded that the embezzlement activities that occurred during the first and second quarters of 2010 did not have a material impact upon our previously issued financial statements.

We have completed our investigation as it relates to the embezzlement activities that occurred during 2010. In total, we identified approximately $116 thousand of embezzlement during 2010.

The Company incurred approximately $567 thousand and $51 thousand in non-routine operating expenses associated with the Fullscope Embezzlement Issue during the three-month periods ended June 30, 2012 and 2011, respectively. The Company incurred approximately $570 thousand and $114 thousand in such non-routine operating expenses during the six months ended June 30, 2012 and 2011, respectively.

During the second quarter of 2012, the Company increased the previously recorded accrual for pre-acquisition sales and use tax exposure by $550 thousand. As of June 30, 2012, the accrual for pre-acquisition sales and use tax exposure is estimated at $1.5 million. The potential sales and use tax-related liability was created by the methods employed by a former employee of Fullscope to conceal the discovered fraudulent activity. While the Company has accounted for this liability as a period expense, we believe that any amounts actually paid to resolve this issue will be recoverable from an existing, fully funded escrow account which was established in connection with our acquisition of Fullscope. Future amounts recovered, if any, will be recorded by the Company in the period in which the amounts are determined to be probable of recovery from escrow.

We incurred a majority of our embezzlement expenses during fiscal 2010 in connection with our identification and investigation of the embezzlement activity. We anticipate that we may continue to incur additional expenses associated with the Fullscope Embezzlement Issue as we intend to aggressively pursue recovery through a claim against the escrow account established in connection with the acquisition of Fullscope, Inc. (“Fullscope Acquisition”). We anticipate that we will be able to recover some, if not all, of the receivable amounts embezzled during 2010, the professional service expenses we have incurred to-date, or will incur in the future, addressing this situation, and any amounts paid to settle any of the identified sales and use tax liability amounts. Amounts recovered, if any, will be recorded during the period in which settlement is determined to be probable.

In connection with the Fullscope Acquisition, an escrow account was established with $1.3 million, or 10% of the initial upfront purchase price consideration. Subsequent to that time, the Company transferred an additional $700 thousand to the escrow account in connection with the release of a pre-acquisition Fullscope escrow account that was established in June 2009 in connection with Fullscope’s sale of Dynamics AX add-on software modules to Microsoft. Further, in the fourth quarter of 2011, the Company funded the escrow account with $2.6 million in settlement of the contingent consideration obligation. As of June 30, 2012, the combined value of the two escrow accounts was approximately $4.6 million. The escrow accounts, as per the merger agreement, were established to ensure the satisfactory resolution of all potential claims during the earnout period. These amounts will remain unsettled until our claim of recovery for the above matters is resolved.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Jul. 31, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	EDGEWATER TECHNOLOGY INC/DE/
Entity Central Index Key	0001017968
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock Shares Outstanding		11,329,000

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Sale of Intellectual Property

6 Months Ended

Jun. 30, 2012

Sale of Intellectual Property [Abstract]

Sale of Intellectual Property

13. SALE OF INTELLECTUAL PROPERTY:

In June 2012, Microsoft Corporation agreed to purchase Edgewater Fullscope’s Process Industries 2 (PI2) software and intellectual property (the “Assets”) for an aggregate of $3.25 million, payable in installments. Also, Microsoft will engage Edgewater Fullscope in additional development and training services during the integration of the software module into Microsoft’s ERP solution for enterprises, Microsoft Dynamics AX. Our future quarterly revenue will be influenced by our recognition of both proceeds related to the IP sale and service revenue generated under the development and training service agreements. We will recognize revenue associated with the Microsoft IP Sale in direct proportion to the actual periodic services performed, as compared to the anticipated development services to be performed over the duration of the agreement. The agreement contains representations, warranties, covenants and indemnities, including an agreement by Edgewater Fullscope not to develop, promote, market or sell any software or technology that has the same or substantially similar, in any material respect, features or functions as the Assets or could replace, be used in lieu of or otherwise compete with such Assets.

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Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Revenue:
Service revenue	$ 21,587	$ 18,626	$ 43,383	$ 38,334
Software revenue	3,622	4,746	5,006	6,319
Process royalties		2,199		2,734
Reimbursable expenses	1,978	1,825	4,079	3,603
Total revenue	27,187	27,396	52,468	50,990
Cost of revenue:
Project and personnel costs	13,052	11,873	26,706	23,997
Software costs	2,697	2,871	3,658	3,965
Reimbursable expenses	1,978	1,825	4,079	3,603
Total cost of revenue	17,727	16,569	34,443	31,565
Gross profit	9,460	10,827	18,025	19,425
Operating expenses:
Selling, general and administrative	8,551	9,443	16,502	16,970
Depreciation and amortization	448	712	890	1,415
Total operating expenses	8,999	10,155	17,392	18,385
Operating income	461	672	633	1,040
Other expense (income), net	196	(25)	105	(17)
Income before income taxes	265	697	528	1,057
Tax provision	131	302	219	352
Net income	134	395	309	705
Net income per share:
Basic net income per share of common stock	$ 0.01	$ 0.03	$ 0.03	$ 0.06
Diluted net income per share of common stock	$ 0.01	$ 0.03	$ 0.03	$ 0.06
Shares used in computing basic net income per share of common stock	11,288	12,426	11,319	12,391
Shares used in computing diluted net income per share of common stock	11,836	12,456	11,682	12,402
Comprehensive income:
Net income	134	395	309	705
Currency translation adjustments	(3)	(15)	(12)	(19)
Total comprehensive income	$ 131	$ 380	$ 297	$ 686

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Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2012

Goodwill And Intangible Assets [Abstract]

GOODWILL AND INTANGIBLE ASSETS

7. GOODWILL AND INTANGIBLE ASSETS:

There has been no change in the Company’s recorded goodwill balance during the three- or six- month periods ended June 30, 2012 or 2011. Our annual goodwill and intangible assets measurement date is December 2.

We amortize our intangible assets that have finite lives using either the straight-line method or based on estimated future cash flows to approximate the pattern in which the economic benefit of the asset will be utilized. Amortization expense was $241 thousand and $482 thousand during the three-and six- month periods ended June 30, 2012, respectively. Amortization expense was $486 thousand and $975 thousand during the three- and six-month periods ended June 30, 2011, respectively. This amortization expense relates to certain non-competition covenants, trade names and customer lists, which expire between 2012 and 2016.

The Company recorded amortization from capitalized internally developed software (reported as part of our software expense) of $25 thousand and $42 thousand during the three-and six- month periods ended June 30, 2012, respectively. The Company recorded amortization from capitalized internally developed software (reported as part of our software expense) of $13 thousand during the three- and six-month periods ended June 30, 2011.

Estimated annual amortization expense (including amortization expense associated with capitalized software costs) for the current year and the following four years ending December 31, is as follows:

	Amortization Expense
	(In Thousands)
2012	$	1,055
2013	$	531
2014	$	378
2015	$	115
2016	$	—

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Fair Value Measurement

6 Months Ended

Jun. 30, 2012

Fair Value Measurement [Abstract]

FAIR VALUE MEASUREMENT

6. FAIR VALUE MEASUREMENT:

We utilize the following valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

• Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.

A financial asset’s or liability’s classification within the hierarchy is determined based upon the lowest level input that is significant to the fair value measurement.

As of June 30, 2012 and December 31, 2011, the Company’s only financial assets and liabilities required to be measured on a recurring basis were its money market investments and the accrued contingent earnout consideration payable in connection with Company’s acquisition of Meridian Consulting International (“Meridian”), which is more fully described in Note 8.

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities required to be measured on a recurring basis:

	Basis of Fair Value Measurements
	Balance		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Balance at June 30, 2012:
Financial assets:
Money market investment	$	4,084	$	4,084	$	—	$	—
Total financial assets	$	4,084	$	4,084	$	—	$	—
Financial liabilities:
Contingent earnout consideration	$	246	$	—	$	—	$	246
Total financial liabilities	$	246	$	—	$	—	$	246
Balance at December 31, 2011:
Financial assets:
Money market investment	$	4,084	$	4,084	$	—	$	—
Total financial assets	$	4,084	$	4,084	$	—	$	—
Financial liabilities:
Contingent earnout consideration	$	231	$	—	$	—	$	231
Total financial liabilities	$	231	$	—	$	—	$	231

The Company has classified its liability for contingent earnout consideration relating to its acquisition of Meridian within Level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which includes probability weighted cash flows. A description of this acquisition is included within Note 8.

A reconciliation of the beginning and ending Level 3 net liabilities for the six-month period ended June 30, 2012 is as follows:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	(In Thousands)
Balance at December 31, 2011	$	231
Change in fair value related to Meridian contingent earnout consideration		15
Ending balance at June 30, 2012	$	246

The Company routinely examines actual results in comparison to the performance measurements utilized in the earnout calculation and assesses the carrying value of the contingent earnout consideration. During the three- and six- month periods ended June 30, 2012, the Company increased the estimated accrual of contingent earnout consideration earned by the former Meridian stockholders by $8 thousand and $15 thousand, respectively. During the three- and six-month periods ended June 30, 2011, the Company increased the estimated accrual of contingent earnout consideration earned by the former Meridian stockholders by $57 thousand and $65 thousand, respectively.

During the three- and six- month periods ended June 30, 2011, the Company also increased the estimated accrual of contingent earnout consideration earned by the former Fullscope stockholders by $1.4 million. The Fullscope contingent earnout was settled in the fourth quarter of 2011 and therefore no contingent liability is recorded as of June 30, 2012.

Each of the adjustments, as required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations,” was reported as part of our selling, general and administrative expenses.

No financial instruments were transferred into or out of Level 3 classification during the three- or six-month period ended June 30, 2012.

As of June 30, 2012 and December 31, 2011, the fair values of our other financial instruments, which include cash and cash equivalents, accounts receivable and accounts payable, approximate the carrying amounts of the respective asset and/or liability due to the short-term nature of these financial instruments.

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Revenue Recognition (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Revenue Recognition (Textual) [Abstract]
Losses were recognized on fixed-price contracts	$ 0	$ 0	$ 0	$ 0
Standard Payment Terms from Invoice Date			30 days
Minimum [Member]
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Warranty Period Range			30 days
Maximum [Member]
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Warranty Period Range			60 days

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Fair Value Measurement (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value Measurement [Abstract]

Company's fair value hierarchy for its financial assets and liabilities

	Basis of Fair Value Measurements
	Balance		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Balance at June 30, 2012:
Financial assets:
Money market investment	$	4,084	$	4,084	$	—	$	—
Total financial assets	$	4,084	$	4,084	$	—	$	—
Financial liabilities:
Contingent earnout consideration	$	246	$	—	$	—	$	246
Total financial liabilities	$	246	$	—	$	—	$	246
Balance at December 31, 2011:
Financial assets:
Money market investment	$	4,084	$	4,084	$	—	$	—
Total financial assets	$	4,084	$	4,084	$	—	$	—
Financial liabilities:
Contingent earnout consideration	$	231	$	—	$	—	$	231
Total financial liabilities	$	231	$	—	$	—	$	231

Reconciliation of the beginning and ending Level 3 net liabilities

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	(In Thousands)
Balance at December 31, 2011	$	231
Change in fair value related to Meridian contingent earnout consideration		15
Ending balance at June 30, 2012	$	246

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Net Income Per Share

6 Months Ended

Jun. 30, 2012

Net income per share [Abstract]

NET INCOME PER SHARE

10. NET INCOME PER SHARE:

A reconciliation of net income and weighted average shares used in computing basic and diluted net income per share is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(In Thousands, Except Per Share Data)
Basic net income per share:
Net income applicable to common shares	$	134	$	395	$	309	$	705
Weighted average common shares outstanding		11,288		12,426		11,319		12,391
Basic net income per share of common stock	$	0.01	$	0.03	$	0.03	$	0.06
Diluted net income per share:
Net income applicable to common shares	$	134	$	395	$	309	$	705
Weighted average common shares outstanding		11,288		12,426		11,319		12,391
Dilutive effects of stock options		548		30		363		11
Weighted average common shares, assuming dilutive effect of stock options		11,836		12,456		11,682		12,402
Diluted net income per share of common stock	$	0.01	$	0.03	$	0.03	$	0.06

Share-based awards, inclusive of all grants made under the Company’s equity plans, for which either the stock option exercise price, or the fair value of the restricted share award, exceeds the average market price over the period, have an anti-dilutive effect on earnings per share, and accordingly, are excluded from the diluted computations for all periods presented. Had such shares been included, shares for the diluted computation would have increased by approximately 813 thousand and 959 thousand in the three- and six- month periods ended June 30, 2012, respectively. The diluted computation would have increased by approximately 3.3 million and 3.6 million in the three- and six-month periods ended June 30, 2011, respectively. As of June 30, 2012 and 2011, there were approximately 3.9 million and 3.8 million share-based awards outstanding, respectively, under the Company’s equity plans.

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Business Combinations

6 Months Ended

Jun. 30, 2012

Business Combinations [Abstract]

BUSINESS COMBINATIONS

8. BUSINESS COMBINATIONS:

Acquisition of Meridian Consulting International: On May 17, 2010, the Company acquired substantially all of the assets and liabilities of Meridian, pursuant to the terms of an Asset Purchase Agreement (the “Meridian Acquisition”). Headquartered in Chicago, Illinois, Meridian is a specialty solution provider of Oracle’s Hyperion Strategic Finance (“HSF”) product which encompasses strategic planning and forecasting, scenario modeling and mergers and acquisitions analysis. Meridian has delivered its services to organizations across various vertical markets including Energy, Higher Education, Retail and Healthcare. The acquisition of Meridian continues the investment in our Enterprise Performance Management (“EPM”) - related service offerings and aligns with our product-centric service offering model.

In connection with the Meridian Acquisition, the Company entered into an earnout agreement under which the former Meridian stockholders are eligible to receive additional contingent consideration. Contingent earnout consideration to be paid, if any, to the former Meridian stockholders will be based upon the achievement of certain performance measures over three consecutive twelve-month earnout periods, concluding on May 17, 2013. The maximum amount of contingent earnout consideration that the former stockholders of Meridian can earn is capped at $2.7 million.

In May 2011 and May 2012, Meridian completed its first and second twelve-month earnout periods, during which the required performance measurements were not achieved. The former Meridian stockholders did not receive any additional contingent consideration related to the first or second earnout periods. The Company, as of June 30, 2012, has accrued $246 thousand in potential future contingent earnout consideration payable to the former Meridian stockholders related to the completion of the third twelve-month earnout period. As of June 30, 2012, the maximum amount of contingent earnout consideration that the former stockholders of Meridian can earn during the final earnout period is capped at $917 thousand.

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Accrued Liabilities and Other Long Term Liabilities

6 Months Ended

Jun. 30, 2012

Accrued Liabilities and Other Long Term Liabilities [Abstract]

ACCRUED LIABILITIES AND OTHER LONG TERM LIABILITIES

9. ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES:

Components of accrued liabilities as of June 30, 2012 and December 31, 2011 consisted of the following:

	June 30, 2012		December 31, 2011
	(In Thousands)
Accrued commissions	$	1,332	$	2,598
Accrued bonuses		1,863		2,562
Accrued vacation		2,316		1,741
Accrued payroll related liabilities		1,152		1,222
Accrued pre-acquisition sales tax liability		1,500		950
Accrued software expense		1,881		312
Other accrued expenses		4,877		4,549
Total	$	14,921	$	13,934

Components of other long-term liabilities as of June 30, 2012 and December 31, 2011 consisted of the following:

	June 30, 2012		December 31, 2011
	(In Thousands)
Long-term portion of lease abandonment accrual	$	1,484	$	1,787
Long-term portion of deferred tax liability		69		54
Total	$	1,553	$	1,841

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Stock Repurchase Program

6 Months Ended

Jun. 30, 2012

Stock Repurchase Program [Abstract]

STOCK REPURCHASE PROGRAM

11. STOCK REPURCHASE PROGRAM:

In December 2007, our Board of Directors (the “Board”) authorized a stock repurchase program for up to $5.0 million of common stock on the open market or through privately negotiated transactions from time-to-time through December 31, 2008 (the “Stock Repurchase Program”). The Board subsequently amended the Stock Repurchase Program, authorizing both an increase to and an extension of the Stock Repurchase Program. The Stock Repurchase Program, as amended, had a maximum purchase value of shares of $8.5 million (the “Purchase Authorization”) and expired on September 23, 2011 (the “Repurchase Period”). On September 9, 2011, the Board approved both a $5.0 million increase to the Purchase Authorization, to $13.5 million, and an extension of the Repurchase Period to September 21, 2012. As of June 30, 2012, there was $3.9 million of remaining Purchase Authorization under the Stock Repurchase Program.

The timing and amount of the purchases will be based upon market conditions, securities law considerations and other factors. The Stock Repurchase Program does not obligate the Company to acquire a specific number of shares in any period and may be modified, suspended, extended or discontinued at any time, without prior notice.

In March 2012, the Board authorized a written trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934 to facilitate the repurchase of its common stock pursuant to the Company's existing stock repurchase authorization (the “10b5-1 Plan”).

The 10b5-1Plan became effective on March 15, 2012 and is scheduled to expire on September 21, 2012, unless terminated earlier in accordance with its terms. Purchases, if any, may not exceed the remaining shares available under the existing repurchase authorization.

The Company repurchased a total of 118 thousand and 187 thousand shares of common stock during the three and six- month periods ended June 30, 2012, respectively, at an aggregate purchase price of $468 thousand and $728 thousand, respectively. The Company did not repurchase any common stock during the three-and six- months ended June 30, 2011.

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Net Income Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Basic net income per share:
Net income applicable to common shares	$ 134	$ 395	$ 309	$ 705
Weighted average common shares outstanding	11,288	12,426	11,319	12,391
Basic net income per share of common stock	$ 0.01	$ 0.03	$ 0.03	$ 0.06
Diluted net income per share:
Net income applicable to common shares	$ 134	$ 395	$ 309	$ 705
Weighted average common shares outstanding	11,288	12,426	11,319	12,391
Weighted average common shares, assuming dilutive effect of stock options	11,836	12,456	11,682	12,402
Diluted net income per share of common stock	$ 0.01	$ 0.03	$ 0.03	$ 0.06
Stock Option [Member]
Diluted net income per share:
Dilutive effects of stock options	548	30	363	11

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Accrued Liabilities and Other Long Term Liabilities (Tables)

6 Months Ended

Jun. 30, 2012

Accrued Liabilities and Other Long Term Liabilities [Abstract]

Components of accrued liabilities

	June 30, 2012		December 31, 2011
	(In Thousands)
Accrued commissions	$	1,332	$	2,598
Accrued bonuses		1,863		2,562
Accrued vacation		2,316		1,741
Accrued payroll related liabilities		1,152		1,222
Accrued pre-acquisition sales tax liability		1,500		950
Accrued software expense		1,881		312
Other accrued expenses		4,877		4,549
Total	$	14,921	$	13,934

Components of other long term liabilities

	June 30, 2012		December 31, 2011
	(In Thousands)
Long-term portion of lease abandonment accrual	$	1,484	$	1,787
Long-term portion of deferred tax liability		69		54
Total	$	1,553	$	1,841

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Fair Value Measurement (Details) (Recurring [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Financial assets:
Total financial assets	$ 4,084	$ 4,084
Financial liabilities:
Total financial liabilities	246	231
Money market investment [Member]
Financial assets:
Total financial assets	4,084	4,084
Contingent earnout consideration [Member]
Financial liabilities:
Total financial liabilities	246	231
Quoted Prices in Active Markets for Identical Items (Level 1) [Member]
Financial assets:
Total financial assets	4,084	4,084
Financial liabilities:
Total financial liabilities
Quoted Prices in Active Markets for Identical Items (Level 1) [Member] | Money market investment [Member]
Financial assets:
Total financial assets	4,084	4,084
Quoted Prices in Active Markets for Identical Items (Level 1) [Member] | Contingent earnout consideration [Member]
Financial liabilities:
Total financial liabilities
Significant Other Observable Inputs (Level 2) [Member]
Financial assets:
Total financial assets
Financial liabilities:
Total financial liabilities
Significant Other Observable Inputs (Level 2) [Member] | Money market investment [Member]
Financial assets:
Total financial assets
Significant Other Observable Inputs (Level 2) [Member] | Contingent earnout consideration [Member]
Financial liabilities:
Total financial liabilities
Significant Unobservable Inputs (Level 3) [Member]
Financial assets:
Total financial assets
Financial liabilities:
Total financial liabilities	246	231
Significant Unobservable Inputs (Level 3) [Member] | Money market investment [Member]
Financial assets:
Total financial assets
Significant Unobservable Inputs (Level 3) [Member] | Contingent earnout consideration [Member]
Financial liabilities:
Total financial liabilities	$ 246	$ 231

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Unaudited Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 309	$ 705
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Depreciation and amortization	932	1,428
Provision for doubtful accounts		(295)
Stock-based compensation expense	706	609
Fair value adjustment of contingent earnout consideration	15	1,467
Changes in operating accounts:
Accounts receivable	(4,432)	(2,907)
Prepaid expenses and other current assets	(509)	(186)
Accounts payable and accrued liabilities	(288)	2,436
Accrued payroll and related liabilities	282	(1,351)
Deferred revenue and other liabilities	2,477	(226)
Net cash (used in) provided by operating activities	(508)	1,680
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of product development costs	(205)	(43)
Purchases of property and equipment	(199)	(389)
Net cash used in investing activities	(404)	(432)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on capital leases	(52)	(72)
Purchase of treasury stock	(710)
Proceeds from employee stock plans and stock option exercises	240	233
Net cash (used in) provided by financing activities	(522)	161
Effects of exchange rates on cash	(6)	18
Net (decrease) increase in cash and cash equivalents	(1,440)	1,427
CASH AND CASH EQUIVALENTS, beginning of period	10,333	10,903
CASH AND CASH EQUIVALENTS, end of period	8,893	12,330
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes	$ 278	$ 143

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Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes [Abstract]

INCOME TAXES

5. INCOME TAXES:

The Company recorded a tax expense of $131 thousand and $219 thousand for the three-and six- month periods ended June 30, 2012, respectively. The Company recorded a tax expense of $302 thousand and $352 thousand for the three- and six-month periods ended June 30, 2011, respectively. The reported tax expense for the three-and six- month periods ended June 30, 2012, is based upon an effective tax rate of 49.4% and 41.5%, respectively, related to our combined federal and state income tax rates, foreign income tax provisions and the recognition of U.S. deferred tax liabilities for differences between the book and tax basis of goodwill. The reported tax expense for the three- and six-month periods ended June 30, 2011 is based upon an effective tax rate of 43.3% and 33.3%, respectively.

We have deferred tax assets that have arisen primarily as a result of timing differences, net operating loss carryforwards and tax credits. Our ability to realize a deferred tax asset is based on our ability to generate sufficient future taxable income within the applicable carryforward period and subject to any applicable limitations. We assess, on a routine periodic basis, the estimated future realizability of the gross carrying value of our deferred tax assets on a more likely than not basis. Our periodic assessments take into consideration both positive evidence (future profitability projections for example) and negative evidence (recent and historical financial performance for example) as it relates to evaluating the future recoverability of our deferred tax assets.

We have a full valuation allowance against our deferred tax assets at June 30, 2012. The establishment of a full valuation allowance against the gross carrying value of our deferred tax assets does not prohibit or limit the Company’s ability to realize a tax benefit in future periods. All existing deferred tax assets, net operating loss carryforwards and credits will be available, subject to possible statutory limitations, to reduce certain future federal and state income tax obligations.

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Fair Value Measurement (Details 1) (Contingent earnout consideration [Member], USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Contingent earnout consideration [Member]
Reconciliation of the beginning and ending Level 3 net liabilities
Balance at December 31, 2011	$ 231
Change in fair value related to Meridian contingent earnout consideration	15
Ending balance at June 30, 2012	$ 246

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Sale of Intellectual Property (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2012
Sale of Intellectual Property [Abstract]
Sale of software and intellectual property	$ 3.25

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2012

Goodwill And Intangible Assets [Abstract]

Estimated annual amortization expense

	Amortization Expense
	(In Thousands)
2012	$	1,055
2013	$	531
2014	$	378
2015	$	115
2016	$	—