BRIGHTSTAR INFORMATION TECHNOLOGY GROUP INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

MARK ONE

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

[ ] 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 0-6920

BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 76-0553110
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)

6601 OWENS DRIVE, SUITE 115
PLEASANTON, CALIFORNIA 94588
(925) 251-0000
(Address, including zip code, area code with phone
number of the registrant's principal executive offices)

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

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE

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

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant at March 21, 2003 based on the $0.02 per share
closing price for the registrant's common stock on The OTC Bulletin Board market
was approximately $224,302. For purposes of this computation, all officers,
directors and 10% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
officers, directors or 10% beneficial owners are, in fact, affiliates of the
registrant.

The number of shares of the registrant's common stock outstanding as of
March 28, 2003 was 15,284,288.

DOCUMENTS INCORPORATED BY REFERENCE

None
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PART I

ITEM 1: BUSINESS

THE COMPANY

BrightStar Information Technology Group, Inc. ("BrightStar" or "the
Company") provides information technology services for its customers. We help
organizations maximize their competitive advantage through the implementation
and /or management of leading edge enterprise level applications, including
enterprise resource planning, customer relationship management, and business
process management by focusing primarily on serving clients in the healthcare
and government markets. BrightStar has approximately 50 employees and
contractors. The Company has its headquarters in the San Francisco Bay Area with
field offices in Dallas, Texas, and Quincy, Massachusetts.

We also offer arrangements for companies to outsource their software
application support and management requirements. Outsourcing lets companies
focus on their core business objectives and gives them a viable alternative to
building the internal team required to implement, maintain and enhance today's
sophisticated business applications. BrightStar is able to provide organizations
with an "Applications Team" that is flexible and agile in terms of expanding and
contracting on demand, both in terms of team size and team skills.

For ENTERPRISE RESOURCE PLANNING ("ERP"), we implement and support SAP and
PeopleSoft applications, covering a complete range of business processes,
including finance, human resources, payroll, procurement and supply chain
planning. Our ERP solutions are tailored to fit the specific needs of individual
organizations, helping them to automate business processes across the enterprise
through the creation of a single data environment that spans departments and job
functions. BrightStar is an 'SAP Services Partner' with SAP, the world's leading
provider of ERP applications. An SAP Services Partner is recognized by SAP as an
independent third party services firm that has the capability of providing
implementation and support services to SAP's customers.

Our CUSTOMER RELATIONSHIP MANAGEMENT ("CRM") practice assists companies in
attaining competitive advantage by improving their visibility into all the
varied contacts made with their customers. We offer implementation and support
services for CRM solutions offered primarily by SAP and PeopleSoft. These
applications enable organizations to optimize their resources and offer superior
service to their customers through the integrated management of traditional, as
well as Web-based, channels for sales, marketing, and customer service.

Our BUSINESS PROCESS MANAGEMENT ("BPM") solutions enable customers to
directly address and improve company-wide business processes. These solutions
involve the identification of process improvements as well as the implementation
of systems that help to automate and monitor process activities and performance
measurement. In this market, BrightStar is planning to provide the consulting
and programming services to develop the process improvement recommendations and
to implement leading-edge BPM software solutions offered by selected BPM
software providers.

Finally, to help companies provide universal access to their information
resources, we also provide training and other consulting services related to
Actuate software. Actuate provides an effective platform for retrieving business
information from corporate databases and delivering it as interactive web pages
and Excel spreadsheets.

To provide our services, we recruit and employ project managers, skilled
senior-level consultants, engineers and other technical personnel with both
business as well as technical expertise. We believe this combination of business
and technical expertise, the breadth and depth of our solution offerings and our
ability to deliver these solutions in both the traditional consulting and
implementation model, as well as the application outsourcing model, are sources
of differentiation for the Company in the market for information technology
services and critical factors in our success.

Since BrightStar's formation as a public company in 1998, BrightStar has
been a quality IT service provider. However, during the course of the last four
years, the Company has made decisions to discontinue certain services and launch
others, based on market conditions and BrightStar's strategy and position in
various markets. BrightStar exited the Controls and Infrastructure Support
businesses in 1999 and 2000, (which in total accounted for revenues of
approximately $24 million for 1999) and also sold its web hosting business in
2001 (which accounted for revenues of approximately $0.1 million for 2000),
because we did not feel these services were core businesses for BrightStar. The
Company also sold its Australian subsidiary in 2000 (which accounted for
revenues

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of approximately $17 million for 2000) to generate needed cash as well as to
focus solely on the domestic US marketplace. On June 28, 2002, BRBA, Inc.
("BRBA"), one of the original roll-up subsidiaries of BrightStar, which was
formerly known as Brian R. Blackmarr and Associates, Inc., filed for liquidation
under Chapter 7 of the bankruptcy code and we no longer control BRBA. All of
these divested operations experienced losses for the Company in the years before
they were sold. From inception to today, BrightStar has emphasized its core ERP
practices in the SAP and PeopleSoft markets, as well as its applications
outsourcing services for key major accounts. Through the restructuring actions
of the last few years, management believes that BrightStar's fixed costs are
sized properly for its current business level, and the Company is well
positioned to focus on IT opportunities in the healthcare and government
sectors, vertical markets in which it possesses strong reference accounts.
BrightStar also continues to explore all tactical and strategic options.

INFORMATION ABOUT OPERATING SEGMENT

We operate in the Information Technology ("IT") Services Business segment.

Among the leading positive factors affecting the demand for IT services is
the transition to packaged software solutions, the emergence of new technologies
and the increased bandwidth and usability of the Internet through the World Wide
Web. These new technologies enable the creation and utilization of more
functional and flexible applications that can increase productivity, reduce
costs and improve customer service. Negative on-going conditions affecting
demand in the Information Technology Services segment include the retrenchment
of venture capital investment in new internet business enterprises, which began
in 2000, the maturity of many packaged-software applications, especially ERP,
and the retrenchment in corporate capital spending that began in 2001.

CUSTOMERS AND MARKETS

Our marketing efforts focus on mid-sized to large organizations who have a
need for high quality consulting services to improve their use of enterprise
applications and access to management information. We have developed expertise
in the healthcare and government vertical markets and are continuing to leverage
this knowledge throughout these sectors. Many of our key relationships have
existed for several years and have involved numerous activities and projects.

BrightStar has two long term and current relationships that represented
approximately 54% of BrightStar's business in 2002. We provide an application
management and development team, as a subcontractor to one of the Blue Cross
Blue Shield ("BCBS") organizations, in support of their contract with the
federal government to maintain the legacy software used to process Medicare Part
A claims in the United States. Our business with BCBS in 2002 represented
approximately 29% of annual revenue. It is expected that BCBS could account for
as much as 65% of the Company's revenue for 2003, based primarily on expected
reductions in revenue from BrightStar's other lines of business. The majority of
the revenue from this client is received under a contract, which may be extended
annually at the option of the client through 2007. BrightStar also provides a
team of SAP consultants to enhance and maintain the ERP application of a
California-based transportation authority that operates bus and light rail
systems. Our business with the transportation authority represented
approximately 25% of annual revenue in 2002. However, as a result of the
scheduled expiration of our contract in mid 2003 and a dramatic cut back of
authorized expenditures for contracted support services, this client may
represent less than 3% of revenue in 2003. BrightStar was recently notified,
that subject to satisfactory documentation, it had been awarded a $0.3 million
three-year contract to provide SAP support services to a regional transit
authority, also based in California. All of our long-term contractual
relationships may be terminated for convenience by our clients without penalty
on relatively short notice.

For 2002, the Company had revenues from three unrelated customers, which
accounted for approximately 29%, 25% and 10%, respectively, of total revenues.
These same three customers accounted for approximately 34%, 9% and 15%,
respectively, of the total outstanding accounts receivable as of December 31,
2002.

For 2001, revenues from three unrelated customers accounted for
approximately 17%, 12% and 10%, respectively, of total revenues. Two of the
customers accounted for approximately 20% and 13%, respectively, of the total
outstanding accounts receivable balance as of December 31, 2001. Another
customer accounted for approximately 14% of the total outstanding accounts
receivable balance as of December 31, 2001.

CONSULTING RESOURCES

Our success depends in large part upon our ability to attract, train,
motivate and retain highly skilled technical employees. Qualified technical
employees are periodically in great demand and could become a limited resource
in the future. We dedicate

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resources to recruiting professionals with IT consulting and industry
experience. None of our employees are subject to a collective bargaining
arrangement. The Company considers its relationships with its employees to be
good.

COMPETITION

Market share in the IT industry was initially concentrated among large
computer manufacturers but the industry has become increasingly competitive and
fragmented. IT services are provided by numerous firms including multinational
accounting firms, systems consulting and implementation firms, software
application vendors, general management consulting firms and data processing
outsourcing companies. By selling consulting resources for today's sophisticated
enterprise applications, BrightStar is competing against a wide variety of
organizations in the market space. These range from certain of the major
accounting firms (such as Deloitte & Touche) to small private and public
companies like BrightStar. In some instances, we also compete directly with
larger public services providers such as BearingPoint (formerly KPMG
Consulting).

BrightStar strives to exercise competitive advantage in the market for IT
services primarily in two ways. First, the Company has excellent customer
references in our target markets. While the major systems integrators have these
references as well, many of our smaller competitors do not. Second, BrightStar
undertakes to provide high quality consultants at cost-effective billing rates,
which the Company can deliver as a result of our low overhead cost structure.
While the small services firms may have BrightStar's low overhead, our larger
competitors usually do not.

DIRECTORS AND EXECUTIVE OFFICERS OF BRIGHTSTAR

The following table and notes thereto identify and set forth information
about the Company's current Directors and two executive officers:

Joseph A. Wagda has been a director of BrightStar since April 2000, Chief
Executive Officer, effective October 2, 2000 and became interim Chief Financial
Officer on November 1, 2002. Mr. Wagda was elected Chairman of the Board of
Directors on March 21, 2001. From 1997, Mr. Wagda has been engaged in a variety
of investment related activities, including serving as President of Altamont
Capital Management, Inc. and in leadership positions with several single-purpose
investment entities. He also is currently a director of Abraxas Petroleum
Corporation (Amex: ABP), a public oil and gas company, and Zierer Visa Service,
Inc., a private company engaged in the international travel services business.
Previously, Mr. Wagda was President and CEO of American Heritage Group, a
modular homebuilder, and a Senior Managing Director and co-founder of the Price
Waterhouse corporate finance practice. He also was with the finance staff of
Chevron Corporation and in the general counsel's office at Ford Motor Company.
Mr. Wagda has a B.S. degree from Fordham College, an M.B.A., with distinction,
from the Johnson School of Management, Cornell University and a J.D., with
honors, from Rutgers Law School. Mr. Wagda also served on active duty as a
regular army officer during the period 1965-70, including tours of duty with
infantry units in Santo Domingo (82d Airborne) and Vietnam (MACV) and engineer
units in Thailand. He attained the rank of major in the Corps of Engineers,
prior to leaving the reserves in 1978.

Paul C. Kosturos joined BrightStar as Corporate Controller, effective July
30, 2001. He was also named Vice President - Finance, Principal Accounting
Officer and Corporate Secretary on November 1, 2002. Before joining BrightStar,
Mr. Kosturos was Vice President, Finance and Operations of Quicknet
Technologies, Inc., a privately held high technology company. Prior to Quicknet,
Mr. Kosturos spent 8 years at the public accounting firm of Bregante + Company,
LLP, where he was an audit and tax principal. Mr.

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Kosturos has a B.S. degree, with emphasis in accounting, from California State
Polytechnic University, Pomona and is also a licensed CPA in California.

W. Barry Zwahlen has been a director with BrightStar since July 2000. Mr.
Zwahlen presently is the Managing Partner of Information Management Associates,
a retained executive search firm, which he founded in 1986. Mr. Zwahlen focuses
his practice on the recruitment of CIO and CTO candidates for technology clients
and the recruitment of executive level information technology consultants for
systems integration professional services firms. Mr. Zwahlen received a B.S. in
mathematics from the University of Pittsburgh and an M.B.A. from the Harvard
Business School. He was on the finance staff of both Ford Motor Company and
Navistar and served for five years as a data communications officer in the
United States Air Force. Prior to forming Information Management Associates, he
served in a similar capacity with KPMG Peat Marwick. Mr. Zwahlen serves on the
Board's Audit Committee and is Chairman of the Compensation Committee.

Jennifer T. Barrett became a director of BrightStar at the closing of our
initial public offering in 1998. Since 1974, she has served in various
capacities with Acxiom Corporation, a leading data processing and related
computer-based services and software products company. She is currently Acxiom's
Chief Privacy Officer. Ms. Barrett serves on the Board's Audit and Compensation
Committees.

Thomas A. Hudgins became a director on April 20, 2001. He cofounded and,
until recently, served as Managing Director of Polaris Group, Inc., a corporate
finance and mergers and acquisitions advisory firm. Prior to forming Polaris he
was cofounder, Executive Vice President and Secretary of BrightStar until
January 1999. From 1967 to 1997, he was Executive Vice President and cofounder
of Delta-X Corp., a leading developer, manufacturer and marketer of software and
electronic automation equipment for the international oil and gas industry. He
is a past president of the Houston Chapter of the American Institute of
Industrial Engineers, a member of the Society of Petroleum Engineers and a
Registered Professional Engineer. Mr. Hudgins received a B.S. in industrial
engineering from Texas Tech University. He also served in the U.S. Army and the
U. S. Army Reserve from 1962 through 1968 and was a member of the 79th ASA (Army
Security Agency). Mr. Hudgins is Chairman of the Board's Audit Committee and has
served as an ad hoc member of the compensation committee.

There is no family relationship between any of the foregoing board members
or between any of such board members and any of the Company's executive
officers. The Company's executive officers serve at the discretion of the Board
of Directors.

RECENT DEVELOPMENTS

On December 16, 2002, the Company entered into an agreement with BFI
Business Finance ("BFI"), a Santa Clara, California-based business credit
company, for a two-year working capital line of credit for $0.75 million, to
replace the credit facility with Comerica Bank, which was due to expire on
December 31, 2002. See Item #7, Management's Discussion and Analysis of
Financial Condition and Results of Operation, for more information regarding
this transaction.

On December 27, 2002, the Company relocated its principal executive offices
to 6601 Owens Drive, Suite 115, Pleasanton, California 94588. See Item #2,
Properties.

During the fourth quarter of 2002, the agreement between the Company and
IvestServe, Inc. to explore a strategic relationship, including a possible
merger after the pursuit of joint marketing efforts and funding to accelerate
the roll out of IvestServe's products, expired by its terms.

Also during the fourth quarter of 2002, the Company and Caaspre
Technologies, LLC, a provider of near-shore IT services sourced in Mexico,
terminated their relationship.

ITEM 2: PROPERTIES

On December 27, 2002, BrightStar moved its principal executive offices to
6601 Owens Drive, Suite 115, Pleasanton, California 94588. The Company's new
sublease on these premises covers approximately 1,600 square feet and expires on
May 9, 2004. The Company may terminate this sublease at anytime upon giving at
least three months written notice of termination; however, the Company is liable
for the initial six months lease payments, totaling $9,600, which were paid in
advance when the lease was signed. The Company's previous lease for its
executive offices at 4900 Hopyard Road, Suite 200, Pleasanton, California, 94588
was set to expire on December 31, 2003. The Company paid a one-time fee of
$20,000 for an early termination fee to cancel the remaining year on the lease.
The Company also surrendered the security deposit on hold with the landlord of
approximately $14,000.

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The Company also operates through leased facilities in:

o Dallas, TX

o Quincy, MA

Substantially all of the Company's services are performed on-site at
customer locations. We may require additional space if our business expands
significantly; however, we also believe that our current infrastructure can
support a substantially larger revenue base due to the nature and location of
our services. We also believe that, if and when needed, we will be able to
obtain additional suitable space.

ITEM 3: LEGAL PROCEEDINGS

The Company is from time to time involved in litigation incidental to its
business. The Company believes that the results of such litigation will not have
a materially adverse effect on the Company's financial condition.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS IN FOURTH QUARTER OF
2002

None.

PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is currently traded on The OTC Bulletin Board
Market under the symbol "BTSR.OB." The following table sets forth for the
quarterly periods indicating the range of high and low sales prices for the
Company's Common Stock for 2002 and 2001.

The Company has never declared nor paid cash dividends on its Common Stock.
The Company's credit facility contains restrictions on the Company's ability to
pay cash dividends. The Company currently intends to retain future earnings, if
any, to fund the development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future.

In January of 2001, we were notified by Nasdaq that we no longer met the net
tangible asset test to maintain our listing on the Nasdaq National Market and
they requested that we take corrective action. In addition, because our stock
had closed below a dollar per share for a substantial period of time, and the
market value of our public float did not meet the minimum requirement, we
received additional notices from Nasdaq that, unless we demonstrated compliance
with these rules, we would receive a written notification that our securities
would be delisted.

The Company was subsequently transferred from the Nasdaq National Market to
the Nasdaq SmallCap Market effective April 20, 2001, and received a conditional
exception from meeting certain of the Nasdaq SmallCap Market's continued listing
standards. First, the Company, by May 1, 2001, was required to file a proxy
statement that sought shareholder authority to do a reverse stock split.
Secondly, it was required to meet the $1.00 minimum bid price standard for at
least ten consecutive days starting no later than June 28, 2001. Thirdly, it was
required to file a Form 10-Q by May 15, 2001 demonstrating at least $8.0 million
of shareholder equity at March 31, 2001 (in lieu of meeting the $2.0 million net
tangible asset test, which the Company did not meet). Finally, it was required
to be in compliance with all other applicable listing standards by June 28,
2001. The Company met the May 1 and May 15 deadline requirements but declined to
undertake the authorized reverse split required by Nasdaq to help it meet the
minimum-bid-price requirement and retain it's listing on the Nasdaq SmallCap
Market. On July 23, 2001, the Company was transferred to the OTC Bulletin Board
Market.

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As of March 5, 2003, there were 108 stockholders of record of the Company's
Common Stock and a total of 2,255 stockholders, including stockholders who held
their shares in the names of certain financial institutions.

SALES OF UNREGISTERED SECURITIES.

Set forth below is certain information concerning all issuances of
securities by BrightStar within the past three years that were not registered
under the Securities Act.

1. On March 10, 2000, pursuant to an agreement with Strong River
Investments, Inc., and Montrose Investments Ltd. (collectively, the
"Purchasers"), the Company sold to the Purchasers 709,555 shares of the
Company's common stock (the "Shares") for $7.5 million, or $10.57 per share. In
connection with the purchase of the Shares, the Company issued two warrants to
the Purchasers. One warrant had a five-year term during which the Purchasers
could purchase up to 157,500 shares of the Company's common stock at a price of
$12.00 per share. The second warrant covered an adjustable amount of shares of
the Company's common stock. Pursuant to the terms of the adjustable warrants,
the holders thereof elected to fix the number of common shares issuable under
such warrants at 1,525,000 shares in the aggregate. Such shares were issued on
September 29, 2000 at an exercise price of $0.001 per share. The Company also
issued to Wharton Capital Partners Ltd. ("Wharton"), as compensation for
Wharton's services as placement agent in connection with this transaction, a
warrant with a five-year term during which Wharton may purchase up to 45,000
shares of the Company's common stock at a price of $12.00 per share. The
proceeds of this transaction were used for general corporate purposes.

2. On June 23, 2000, the Company issued 668,468 shares of common stock to
the prior owners of Integrated Systems Consulting (ISC) as payment for the
remaining amount due of $2.5 million in connection with the 1999 acquisition of
ISC.

3. On January, 16, 2001, the prior owners of Cogent Technologies LLC
("Cogent") were issued 1,020,000 shares of our common stock in partial
settlement of a claim by them related to the unpaid balance of the purchase
price for the assets and business of Cogent and amounts due under employment
agreements with us.

4. On February 15, 2001, Kevin J. Murphy was issued 100,000 shares of our
common stock in connection with the commencement of his employment with the
Company.

5. On February 15, 2001, certain of our former employees were issued 346,831
shares of our common stock in satisfaction of remaining severance payment
obligations under prior employment agreements with the Company.

6. On February 15, 2001, Unaxis Trading Limited was issued 250,000 shares of
our common stock in settlement of litigation between the Company and certain
affiliates of Unaxis. Pursuant to the settlement agreement (which was agreed
upon in principle, on November 3, 2000), if, prior to a sale of these shares by
Unaxis, the Company had not exercised its right, between January 1, 2002 and
February 1, 2002, to call the shares for $1.60 per share, Unaxis may exercise
its right to put the shares to the Company for a price of $2.00 per share during
the 15 day period commencing on February 1, 2002. During December 2001, the
Company bought the shares back from Unaxis for a $120,000 payment.

7. On May 4, 2001, 257,400 shares of our common stock were issued to the
owners of Cogent, Unaxis and various former employees in satisfaction of our
obligations to pay penalties to them under the terms of various registration
rights agreements.

8. On July 26, 2001, the Company issued and sold approximately $1.1 million
of convertible notes to a group of investors, including members of BrightStar
senior management. The notes are convertible into common stock, at the option of
the investors, at a fixed price of $0.23 per share, subject to anti-dilution
provisions. In addition, the investors received approximately 718,000 warrants,
exercisable at $0.50 per share. The notes are mandatorily convertible, at the
Company's option, into common stock at $0.23 per share, subject to anti-dilution
provisions, if: (i) the market price of the Company's common stock, determined
on a 20-day moving average basis, equals or exceeds $0.50; and (ii) the
investors may lawfully sell all of the common stock issuable upon conversion and
the common stock issuable upon exercise of Warrants held by the investor, either
under an effective registration statement, or under Rule 144; and (iii) at least
$2.3 million of the our past due payables have been restructured. In addition,
70,000 warrants are issuable to Brewer Capital Group, LLC, which acted as
placement agent for the transaction, at an exercise price of $1.00 per share.
The net proceeds of this transaction were used for general corporate purposes.

9. In November 2001, the Company engaged a financial advisor to assist the
Company in obtaining additional long-term financing. As part of the financial
advisor's compensation for this engagement, and in addition to a $25,000
retainer fee paid to the

7

advisor, the Company has agreed to the issuance of warrants to purchase 100,000
shares of the Company's common stock at an exercise price of $0.05 per share.
These warrants will expire in November 2004.

10. On Feb 15, 2002, 1,500,000 shares and 500,000 shares of restricted
common stock were issued to Joseph A. Wagda and Kenneth A. Czaja, respectively,
in connection with their employment with the Company.

11. On August 1, 2002, 20,000 shares of our common stock were issued to a
vendor in full satisfaction of our obligation to pay them for services rendered.

12. On a quarterly basis, starting on October 1, 2001 and continuing on
January 1, 2002, April 1, 2002, July 1, 2002, October 1, 2002 and January 1,
2003, the company issued additional convertible notes of $16,103, $22,345,
$22,792, $23,247, $23,712 and $24,187, respectively, to the same group of
investors as the issuances on July 26, 2001 for payment in kind of interest due
on the original notes and subsequent issuances of notes issued for interest due.
In addition, the investors received in total for all the quarterly issuances
mentioned above approximately 87,000 warrants, exercisable at $0.50 per share.
The notes have the same characteristics as the notes issued on July 26, 2001.

All of the above sales and issuances of securities by the Company were
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof as transactions not involving any public offering. The Company bases
this conclusion on an analysis of the facts in each instance, taking into
account such factors as the number of purchasers, whether each purchaser is an
accredited investor or appears to have such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of the prospective investment, or whether each purchaser is a senior
management employee of the Company or the Company otherwise has a pre-existing
relationship with the purchaser. In no case were any securities offered or sold
by any form of general solicitation or general advertising, nor is the Company
aware of any instance in which the securities were acquired with a view to the
resale or distribution thereof.

ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for BrightStar is derived
from the Company's Financial Statements and notes related thereto. The following
selected consolidated financial data should be read in connection with
BrightStar's Financial Statements and notes related thereto and other financial
information included elsewhere in this Form 10-K report.

BrightStar was organized in July 1997 and completed its initial public
offering ("IPO") on April 16, 1998. Concurrent with the IPO, BrightStar (a)
acquired the outstanding capital stock of BRBA, Integrated Controls, Inc.
("ICON"), Mindworks Professionals Education Group, Inc. ("Mindworks"), Software
Innovators, Inc. ("SII") and Zelo Group, Inc. ("ZELO"), (b) acquired
substantially all the net assets of Software Consulting Services America, LLC
("SCS America") and SCS Unit Trust ("SCS Australia") (BRBA, ICON, Mindworks,
SII, Zelo, SCS America and SCS Australia, are collectively, the "Founding
Companies") and (c) executed a share exchange with BIT Investors, LLC ("BITI")
and senior management of BrightStar for all outstanding common stock of BIT
Group Services, Inc. ("BITG"). BrightStar and the Founding Companies are herein
collectively referred to as the "Company." The acquisitions were accounted for
using the purchase method of accounting, with BRBA being reflected as the
"accounting acquirer."

The 1998 data presented in the following table for the Company is comprised
of (i) the results of operation of BRBA for the year ending December 31, 1998,
(ii) the results of operations of the Founding Companies for the periods
subsequent to their acquisitions and (iii) the results of the operations of
companies acquired by BrightStar after the initial public offering. The 1999 and
subsequent years data represent the consolidated results going forward.

8

Total fully diluted shares consist of the following:

Common stock outstanding as of December 31, 2002 includes 2,000,000
restricted shares issued to the Company's executives in February 2002, related
to their employment (as explained in Item 11, Executive Compensation).

Total fully diluted shares do not include the 255,000 treasury stock shares.
These treasury stock shares are considered issued but not outstanding.

Employee/director stock options as of December 31, 2002 have been repriced
at $0.05 per share except for approximately 394,000 shares that were originally
priced in the range of $0.01 to $6.00 per share. Other common stock warrants
totaling 184,285 shares are exercisable at prices ranging from $0.05 to $6.00
per share.

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

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses BrightStar's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, management evaluates its
estimates and judgments. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be

9

reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in preparation
of its consolidated financial statements.

Revenue recognition -- The Company provides services to customers for fees
that are based on time and materials or occasionally, fixed fee contracts.
Revenue for fixed fee contracts is recognized ratably over the contract term
based on the percentage-of-completion method. Costs incurred to date as a
percentage of total estimated costs are used to determine the percentage of the
contract that has been completed throughout the contract life. Costs reimbursed
by its customers are included in revenue for the periods in which the costs are
incurred.

Goodwill -- Goodwill is the cost in excess of amounts assigned to
identifiable assets acquired less liabilities assumed.

As of January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Intangible Assets". Thus, effective
January 1, 2002, the Company ceased amortizing goodwill recorded in past
business combinations. The implementation of the goodwill impairment test under
SFAS No. 142 requires a two-step approach, which is performed at the reporting
unit level, as defined in SFAS No. 142. Step one identifies potential
impairments by comparing the fair value of the reporting unit to its carrying
amount. Step two, which is only performed if there is a potential impairment,
compares the carrying amount of the reporting unit's goodwill to its implied
value, as defined in SFAS No. 142. If the carrying amount of the reporting
unit's goodwill exceeds the implied fair value of that goodwill, an impairment
loss is recognized for an amount equal to that excess.

SFAS No. 142 also requires the Company to perform an annual impairment test.
The Company has chosen a date of October 1st as its annual testing date.

Up until December 31, 2001, goodwill recorded in conjunction with the
Founding Companies and all other acquisitions in 1998 was being amortized over
40 years on a straight-line basis. Goodwill associated with the acquisition of
ISC was being amortized over 20 years on a straight-line basis. Management
determined the twenty-year life for ISC goodwill based upon the nature of ISC's
SAP software consulting practice, along with the assembled workforce of highly
skilled consultants and the demand for information technology services. The
realizability and period of benefit of goodwill is evaluated periodically to
assess recoverability, and, if warranted, impairment or adjustments to the
period affected are recognized. The Company uses an estimate of the future
undiscounted net cash flows when testing for impairment.

Income taxes -- The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires an asset and liability
approach to accounting for income taxes. The Company provides deferred income
taxes for temporary differences that will result in taxable or deductible
amounts in future years. A valuation allowance is recognized if it is
anticipated that some or all of a deferred tax asset may not be realized. Based
on the Company's net losses for the previous years, the Company has recorded a
valuation allowance for deferred taxes as of December 31, 2002. In the event
that the Company were to determine that it would be able to realize its deferred
tax assets in the future, an asset would be recorded, which in turn would
increase income in the period such determination was made. Income tax
receivables are recognized for the actual amounts refundable.

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in connection with BrightStar's
Consolidated Financial Statements and related notes thereto and other financial
information included elsewhere in the Form 10-K report.

RESULTS OF OPERATIONS

The Company reported net losses of $0.48, $0.21 and $5.94 per basic and
diluted share for the years ended December 31, 2002, 2001 and 2000,
respectively. The results of operations for 2002, 2001 and 2000 reflect the
impact of the following items:

Goodwill

In July of 1996, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin ("SAB") No. 97 relating to business combinations
immediately prior to an initial public offering. SAB No. 97 requires that these
combinations be accounted for

10

using the purchase method of accounting and requires that one of the companies
be designated as the accounting acquirer. Accordingly, for financial statement
purposes, BRBA was designated as the acquiring company because its shareholders,
in the aggregate, acquired more common stock than the former shareholders of any
of the other Founding Companies in conjunction with the acquisitions. The excess
of the aggregate purchase price paid for the Founding Companies other than BRBA
over the fair value of the net assets acquired by BrightStar was recorded as
goodwill. In addition, goodwill of $4.6 million was recorded attributable to the
issuance of 437,681 shares of Common Stock to BITI unit holders. The goodwill
was amortized over a 40-year period through December 31, 2001. Goodwill
associated with the purchase of ISC was being amortized over a 20-year period
through December 31, 2001.

During the third and fourth quarter of 2000, the Company reduced the
carrying value of its remaining goodwill to $12 million. In evaluating goodwill
impairment, the Company segregated enterprise level goodwill from goodwill
attributable to specific assets. Goodwill attributable to specific assets was
written-off in connection with the disposal of the Australian subsidiary's
operations and closure of Cogent Technologies LLC. In total, the specific
write-offs amounted to $24 million, of which $1.4 million and $22.6 million
related to Cogent and Australia, respectively. The remaining goodwill of
approximately $32.4 million was deemed to be enterprise level goodwill as it
related to the remaining U.S. operations, which are operated as a single,
integrated business unit. Enterprise level goodwill was deemed impaired due to
the deterioration in the Company's business, the overall declining market for
information technology services, including project-based ERP and e-commerce
services, and also the reduction in the Company's workforce, backlog, and the
falling market price of its common stock. In considering the methodology to
assess the carrying value of enterprise level goodwill, management evaluated it
using the market value approach and an undiscounted cash flow approach. The
market value approach was deemed preferable based upon the uncertainty of future
cash flows at the time. Under the market value approach, management used the
trading price of the Company's common stock around the December 31, 2000
financial statement date. This analysis yielded a market value for the
enterprise level goodwill of approximately $12 million, (approximately 12
million shares outstanding at $1 per share), resulting in the $18.4 million
impairment charge taken in 2000. Management deemed it unnecessary to reduce the
amortization period for the goodwill based upon the expected long-term need in
the marketplace for the information technology services provided by the Company.

On July 20, 2001 the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001; however, certain provisions of this Statement apply to
goodwill and other intangible assets acquired between July 1, 2001 and the
effective date of SFAS No. 142. As of January 1, 2002, the Company adopted SFAS
No. 142. Thus effective January 1, 2002, the Company ceased amortizing goodwill
recorded in past business combinations.

The goodwill impairment test under SFAS No. 142 requires a two-step
approach, which is performed at the reporting unit level, as defined in SFAS No.
142. Step one identifies potential impairments by comparing the fair value of
the reporting unit to its carrying amount. Step two, which is only performed if
there is a potential impairment, compares the carrying amount of the reporting
unit's goodwill to its implied value, as defined in SFAS No. 142. If the
carrying amount of the reporting unit's goodwill exceeds the implied fair value
of that goodwill, an impairment loss is recognized for an amount equal to that
excess.

The Company completed the first step of the transitional impairment test
required by SFAS No. 142 during the quarter ended June 30, 2002. The Company
consists of a single reporting unit. Therefore, this step required the Company
to assess the fair value of the Company and compare that value to its
shareholders' equity. In determining fair value, the Company considered the
guidance in SFAS No. 142, including the Company's market capitalization, control
premiums, discounted cash flows and other indicators of fair value. Based on
this analysis, goodwill recorded as of January 1, 2002 in the amount of $11.6
million was impaired. The Company then completed step two, impairment test,
pursuant to SFAS No. 142, under which we compared the value of our goodwill
based on the Company's stock price as of December 31, 2001 with the value of the
goodwill. As a result of the impairment test, a goodwill impairment loss of $9.9
million was recognized in the fourth quarter of 2002, which is when the test was
completed, and recorded as of the first quarter of 2002 as a change in
accounting principle.

11

The Company also performed its initial year annual test as of October 1,
2002 as required by SFAS No. 142. After performing this impairment test, it was
determined that there was no additional goodwill impairment loss during the
fourth quarter of 2002. The quoted market price of the Company's stock price as
of October 1, 2002 was used as the fair value to measure impairment.

Discontinued Operations

During the fourth quarter of 1999, the Company discontinued its Training,
Controls, and Infrastructure Support businesses. As a result of the sale of its
controls division in September 2000, the Company recorded a charge of $0.9
million, with the remaining items being settled in the second quarter of 2001.
The Company also discontinued its custom-application business in Lafayette,
Louisiana in the third quarter of 2001. The Company recorded no gain or loss on
the discontinuance of its Texas training business, its infrastructure support
business or its custom-application business. The Company has made necessary
reclassifications to properly reflect the discontinued operations in its
consolidated financial statements. Subsequent to the sale of the Controls
Business, the Company changed the name of Integrated Controls, Inc. to
BrightStar Louisiana, Inc.

Restructuring Charges

In June of 2000, the Company announced that revenue and earnings for the
second quarter and the remainder of the calendar year would be lower than
expected and that the Company was realigning its operations to improve operating
margins by reducing expenses associated with underutilized office space and
personnel.

As a result of the realignment, the Company recorded a restructuring charge
of $2.5 million in the second quarter of 2000. Of the total charge,
approximately $1.0 million was reserved for ongoing lease obligations for
facilities that were closed and $0.5 million was recorded to write-down related
fixed assets. The remainder of the charge relates to the severance of
approximately 90 employees, or 15% of the Company's workforce. Approximately
$1.7 million of the charge applied to obligations funded by cash disbursements,
of which approximately $1.0 million was disbursed for severance and $0.3 million
was disbursed for rents during 2000. The remaining charge related to $0.2
million of longer-term severance obligations and related costs and $0.7 million
of rents, net of sublease income to be paid related to leases. During the fourth
quarter of 2000, the Company reduced the restructuring reserve by $0.3 million
as a result of favorable lease settlements.

Restructuring continued during the fourth quarter of 2000 and into 2001. The
Company replaced the entire senior management team and significantly reduced
management overhead. Beginning in the third quarter and continuing into the
fourth quarter of 2001, the Company continued with year-over-year reductions in
selling, general and administrative expenses, which were the result of the
execution of the austerity plan adopted in the third quarter of 2001. The
restructuring included reductions in office space, sales personnel and related
costs, management overhead and discretionary expenses. For the year 2001 the
Company incurred approximately $2 million of additional restructuring costs,
consisting of approximately $0.4 million relating to employee costs for
approximately 30 employees, including severance obligations, and $1.6 million
relating to losses on the write down or disposal of nonessential equipment, the
write-offs of leasehold improvements and office closure expenses (including
accelerated expenses from lease terminations) as a result of actions taken by
the Company to reduce its expense base in response to the general reduction in
our level of business, as well as the specific loss of a significant customer
that filed for bankruptcy.

For 2002, the Company undertook no new restructuring plan but continued with
the restructuring plans from 2001.

Revenue

The Company provides services to its customers for fees that are based on
time and materials or occasionally, fixed fee contracts. Accordingly, revenue is
recognized as consulting services are performed. Unbilled revenue is recorded
for contract services provided for which billing has not been rendered. Costs
reimbursed by its customers are included in revenue for the periods in which the
costs are incurred.

The timing of revenue is difficult to forecast because the Company's sales
cycle can be relatively long and is subject to a number of uncertainties,
including customers' budgetary constraints, the timing of customers' budget
cycles, customers' internal approval processes and general economic conditions.
In addition, as is customary in the industry, the Company's engagements are
generally terminable without a customer penalty. The Company's revenue and
results of operations may fluctuate significantly from quarter to quarter or
year to year because of a number of factors, including, but not limited to,
changes in the demand for IT services, the effect of changes in estimates to
complete fixed fee contracts, the rate of hiring and the productivity of revenue
generating personnel; the

12

availability of qualified IT professionals; the significance of customer
engagements commenced and completed during a quarter; the number of business
days in the quarter; changes in the relative mix of the Company's services;
changes in the pricing of the Company's services; the timing and the rate of
entrance into new geographic or IT specialty markets; departures or temporary
absences of key revenue-generating personnel; the structure and timing of
acquisitions; and general economic factors.

Revenue decreased from $19.5 million to $9.4 million or 52% in 2002 compared
to 2001 and decreased from $61.6 million to $19.5 million or 68% in 2001
compared to 2000 as a result of a number of factors, including primarily a
general reduction in the market demand for ERP and e-commerce consulting
services. The IT services market experienced a surge in demand for ERP services
through the end of 1999 as a result of the need to ensure that mission critical
operations would not be disrupted by time-sensitive functions embedded in
existing software systems, as calendars changed to the year 2000 ("Y2K").
Management believes that Y2K-related spending represented an acceleration of ERP
investment by major companies that otherwise would have been made in the
following years. As a result, the demand for ERP applications appeared to reach
relative maturity by 2000, causing excess capacity in the industry for the
delivery of ERP services. A similar condition was experienced in the custom
application development area, as companies rushed to create web sites, corporate
portals and e-commerce capabilities in the late 1990s and in 2000-01 in order to
communicate with customers, suppliers, employees and other constituents over the
world wide web. Beginning in 2001, the demand for internet-related IT services
fell dramatically as the initial requirement for these services in the
marketplace was largely filled. The general economic down turn, which commenced
around March of 2001 and was exacerbated by the September 11, 2001 terrorist
incident, has also caused many companies to cancel or postpone planned IT
spending, beginning in 2001. As the overall market for IT services delivered by
the company was contracting, our ability to win new business was severely
constrained by new-customer concerns about our deteriorating financial
condition. In addition to these adverse market conditions, the sale of our
Controls business in 2000 (representing $6.1 million of revenues in 2000) and
our Australian operations at the end of 2000 (representing $17 million of
revenues in 2000), the loss of a major long-term customer in 2001 as a result of
its bankruptcy, the discontinuation of our custom application development
business in 2001, a severe cut-back in the need for our services by another
long-term customer in 2002 and strong rate pressures from new and existing
clients in 2002, together have combined to cause a severe contraction of our
revenues beginning in 2000 and continuing through the first quarter of 2003.
Revenue for 2003 is expected to be substantially below the revenue reported in
2002.

Cost of Revenue

Cost of revenue primarily consists of salaries (including non-billable and
training time) and benefits for consultants. The Company generally strives to
maintain its gross profit margins by offsetting increases in salaries and
benefits with increases in billing rates, although this is subject to the market
conditions at the time. In addition, the Company tries to increase or decrease
the number of consultants used by the Company to provide its services, including
third party contractors, as the amount of billable work (and resultant revenue)
changes. In other words, the Company continually strives to minimize the amount
of unbillable consulting resources or bench. As revenues declined over the past
couple of years, the Company reduced its consulting resources accordingly.

Gross profit as a percentage of revenue increased for 2002 from 31% to 33%
compared to 2001. The improvement is attributable to a reduction in non-billable
consultant costs and project mix.

Gross profit as a percentage of revenue for 2001 remained unchanged at 31%
compared to 2000. Even though revenues dropped in 2001 compared to 2000, the
Company's reduction in nonbillable resources throughout 2001 enabled it to
maintain the previous year's gross profit percentage.

Operating Expenses

Selling, general and administrative expenses (SG&A) primarily consist of
costs associated with (i) corporate overhead, (ii) sales and account management,
(iii) telecommunications, (iv) human resources, (v) recruiting and training, and
(vi) other administrative expenses.

SG&A expenses decreased from $6.1 million to $2.9 million or 52% in 2002
compared to 2001 and decreased from $27.4 million to $6.1 million or 78% in 2001
compared to 2000. The decreases were due to the Company's year-over-year
reductions in selling, general and administrative expenses, as a result of the
execution of our turnaround plan, including reductions in office space, sales
personnel and related costs, management overhead and discretionary expenses.

13

Other Income

For the year ended December 31, 2002, the company settled $1.1 million of
corporate legacy liabilities for less than $0.4 million in cash and $10,000 in
common stock, resulting in gains on settlements of $0.8 million. Also during
2002, BRBA filed for liquidation under Chapter 7 of the bankruptcy code, and the
Company no longer controls BRBA. As a result, BRBA's financial position has not
been included in the Company's consolidated results since the bankruptcy date.
This resulted in the Company recording a gain of $1.4 million during the year.
These two gains, along with other miscellaneous gains of approximately $0.2
million, totaling $2.4 million, are included in Other Income for 2002.

For the year ended December 31, 2001, the Company recorded extraordinary
gains, which related to the early extinguishment of balance sheet obligations.
The Company was able to settle corporate legacy liabilities for cash payments
totaling less than $0.3 million, resulting in an extraordinary gain of $1.2
million, including the settlement of the $0.9 million payable to stockholders
and the $0.5 million Prosap obligation. To conform to implementation of SFAS
145, these gains have been reclassified to Other Income for 2001.

MARKET RISK

Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in market prices and rates.

The Company during the 2002 year-end and previous years was potentially
exposed to market risk because of changes in foreign currency exchange rates as
measured against the U.S. dollar and currencies of the Company's former
operations in Australia. Since the A$7.5 million contingent earn-out resulting
from the sale of our Australian subsidiary is denominated in Australian dollars,
the Company's financial position, results of operations, and cash flows were
potentially affected by fluctuations in exchange rates. The Company in 2001 and
2002 realized no market risk associated with the earn-out provision, since the
Company has been informed that it is not entitled to receive any payments under
the earn-out. The Company believes that near-term changes in exchange rates will
have no material impact on future earnings, fair values or cash flows of the
Company.

The Company's debt bears interest at variable rates; therefore, the
Company's results of operations would only be affected by interest rate changes
to the debt outstanding. An immediate 10 percent change in interest rates would
not have a material effect on the Company's results of operations over the next
fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

On December 16, 2002, the Company entered into an agreement with BFI
Business Finance ("BFI"), a Santa Clara, California-based business-credit
company, for a two-year working capital line of credit for $0.75 million, to
replace our existing credit facility with Comerica Bank. Under the BFI
agreement, available borrowings will be up to 85% of accounts receivable, after
reduction for ineligible accounts. The interest rate on outstanding balances
will be at prime plus 4% per annum, plus an additional monthly administrative
fee of 0.50% calculated on the average daily balance outstanding. The minimum
monthly interest and administrative fee charged to the Company will be not less
than $1,000 per month for the first six months, escalating to $2,375 per month
for the next three months and then finally to $3,750 per month for the remaining
term of the agreement.

The Company's liabilities as of December 31, 2002 include $105,000 of
liabilities, which have been reported as legacy liabilities in the financial
statements. Of the $105,000, the Company satisfied $93,000 in the 1st quarter of
2003, leaving only $2,000 to be resolved with one creditor and a $10,000 note
payable due in January 2005.

The Company relies primarily on the timeliness and amount of accounts
receivable collections to fund cash disbursements. As a result of prior losses
and prior negative cash flows, the Company experienced a significant decline in
available liquidity in 2001 and 2002, which had an adverse impact on the ability
of the Company to meet its immediate and future obligations. The Company has
improved its liquidity by securing private placement financing in July 2001, by
generating positive cash flow from operations, by reaching settlement agreements
with virtually all of its legacy creditors, and by replacing its credit facility
with Comerica Bank, which was scheduled to expire on December 31, 2002, with the
BFI facility in December 2002.

On July 26, 2001, the Company completed a private placement through the
issuance of approximately $1.1 million of convertible notes to a group of
investors, including members of BrightStar's then senior management, who
purchased $0.3 million of the notes. The notes will come due on July 26, 2004.
The notes are secured on a junior basis by substantially all of the assets of
the Company

14

and its operating subsidiaries, and are convertible into common stock, at the
option of the investors, at a fixed price of $0.23 per share, subject to
anti-dilution provisions. In addition, the investors received approximately
718,000 warrants, exercisable at $0.50 per share. The notes are mandatorily
convertible, at the Company's option, into common stock at $0.23 per share,
subject to anti-dilution provisions, if; (i) the market price of the Company's
common stock, determined on a 20-day moving average basis, equals or exceeds
$0.50; and (ii) the investor may lawfully sell all of the common stock issuable
upon conversion and the common stock issuable upon exercise of Warrants held by
the investor, either under an effective registration statement, or, under Rule
144; and (iii) at least $2.3 million of past due payables have been
restructured. The notes are entitled to simple interest calculated at a rate per
annum equal to 8%. Interest may be paid at the option of the Company for the
first year from the date of the notes (subsequently extended for another year
during the second quarter of 2002) by issuing additional convertible notes and
warrants with the same terms as above. The Company has elected to pay the
interest due on the notes from inception through December 31, 2002 by issuing
additional notes and warrants. In addition, 70,000 warrants were issued to the
placement agent for the transaction at an exercise price of $1.00 per share.
Total warrants issued to investors were valued at $142,000 under the provisions
of APB No.14 and EITF 00-27, and will be amortized as additional interest
expense over the life of the debt. Amortization expense for the year ended
December 31, 2002 and 2001 amounted to $48,000 and $19,000, respectively.

Under present circumstances, the Company believes that the planned results
from operations when combined with the proceeds from the new BFI credit
facility, will be adequate to fund its operations for at least the next twelve
months.

FORWARD-LOOKING INFORMATION

Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements, other than statements of historical facts,
included in this MD&A regarding the Company's financial position, business
strategy and plans, and objectives of management of the Company for future
operations, are forward-looking statements. These forward-looking statements
rely on a number of assumptions concerning future events and are subject to a
number of uncertainties and other factors, many of which are outside of the
Company's control, that could cause actual results to materially differ from
such statements. While the Company believes that the assumptions concerning
future events are reasonable, it cautions that there are inherent difficulties
in predicting certain important factors, especially the timing and magnitude of
technological advances; the prospects for future acquisitions; the possibility
that a current customer could be acquired or otherwise be affected by a future
event that would diminish their information technology requirements; the
competition in the information technology industry and the impact of such
competition on pricing, revenues and margins; the degree to which business
entities continue to outsource information technology and business processes;
uncertainties surrounding budget reductions or changes in funding priorities or
existing government programs; and the cost of attracting and retaining highly
skilled personnel.

RISK FACTORS

OUR REVENUE IS CURRENTLY HIGHLY CONCENTRATED WITH ONE CUSTOMER AND A SIGNIFICANT
REDUCTION IN THEIR BUSINESS COULD HAVE A MATERIALLY ADVERSE FINANCIAL
CONSEQUENCE.

The Company has a very high concentration of revenues from a single
customer (see Item 1 Customers and Markets). If the customer were to
significantly reduce its level of business with the Company, or change the terms
under which it is willing to do business with the Company or substantially delay
payments due to the Company, the Company's business could be adversely affected
and there can be no assurance that the Company would be able to continue as a
going concern.

15

OUR LIMITED OPERATING HISTORY, INCLUDING THE UNCERTAINTY OF OUR FUTURE
PERFORMANCE AND ABILITY TO MAINTAIN OR IMPROVE OUR FINANCIAL AND OPERATING
SYSTEMS, MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS.

Our Company was organized in July 1997 and we completed our initial public
offering in April 1998. Our limited operating history, which includes the
roll-up of multiple businesses and related financial and operating systems, and
a number of restructuring actions, makes it difficult to evaluate our business.
In addition, beginning in the fourth quarter of 2000, the Company recruited a
completely new executive management team and replaced virtually the entire sales
force. Four senior members of the new management team were separated from the
Company in late 2001 through late 2002 and we dramatically reduced our sales
resources. The limited history of the performance of the remaining management
and sales team, the uncertainty of our future performance and ability to
maintain or improve our financial, sales and operating systems, procedures and
controls increase the risk that the value of our common stock may decline.

WE MAY BE UNABLE TO MAINTAIN OR IMPROVE OUR PROFITABILITY BY INCREASING NET
SALES, EXPANDING THE RANGE OF OUR SERVICES OR ENTERING NEW MARKETS.

There can be no assurance that we will be able to maintain or improve the
profitability and/or expand the net sales of our business or any subsequently
acquired businesses. Various factors, including demand for outsourcing services
and enterprise-level software application implementation services, and our
ability to expand the range of our services and to successfully enter new
markets, may affect our ability to maintain or increase the net sales of our
business or any subsequently acquired businesses. Many of these factors are
beyond the control of our company. In addition, in order to effectively manage
growth, we must expand and improve our operational, financial and other internal
systems and attract, train, motivate and retain qualified employees. In many
cases, we may be required to fund substantial expenditures related to growth and
client acquisition initiatives in advance of potential revenue streams generated
from such initiatives. Expenditures related to our growth and client acquisition
initiatives may negatively affect our operating results, and we may not realize
any incremental revenue from our growth and client acquisition efforts.

FAILURE OF OUR MANAGEMENT TO SUCCESSFULLY MANAGE INTERNAL GROWTH COULD
NEGATIVELY IMPACT OUR ABILITY TO MAINTAIN OR INCREASE OUR REVENUES.

If our management does not effectively handle internal growth or our new
employees do not achieve anticipated performance levels, we may fail to maintain
or increase our revenues.

IF WE ARE UNABLE TO ATTRACT, TRAIN AND RETAIN HIGHLY QUALIFIED PERSONNEL, THE
QUALITY OF OUR SERVICES MAY DECLINE AND WE MAY NOT SUCCESSFULLY EXECUTE OUR
INTERNAL GROWTH STRATEGIES.

BrightStar has not had and does not expect to have in the foreseeable future
the financial resources to retain on our payroll significant consulting
resources that are not regularly billable. However, our success depends in large
part upon our ability to continue to attract, train, motivate and retain highly
skilled and experienced technical employees. Qualified technical employees
periodically are in great demand and may be unavailable in the time frame
required to satisfy our clients' requirements. Other providers of technical
staffing services, systems integrators, providers of outsourcing services,
computer consulting firms and temporary personnel agencies provide intense
competition for IT professionals with the skills and experience required to
perform the services offered by our Company. While consulting resources are
reasonably available currently, competition for these professionals periodically
has been high in recent years, and we expect such competition to resume at some
point in the future. There can be no assurance that we will be able to attract
and retain sufficient numbers of highly skilled technical employees in the
future. The loss of technical personnel or our inability to hire or retain
sufficient technical personnel could impair our ability to secure and complete
client engagements and could harm our business.

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

Our revenue and results of operations will fluctuate significantly from
quarter to quarter, or year to year, because of a number of factors which may
lead to reduced prices for our common stock, including but not limited to:

o the utilization of billable consultants;

16

o changes in the demand for IT services;

o the rate of hiring and the productivity of revenue-generating
personnel;

o the availability of qualified IT professionals;

o the significance of client engagements commenced and completed
during a quarter;

o the ability to complete fixed fee engagements, if any, in a timely
and profitable manner;

o the decision of our clients to retain us for expanded or ongoing
services;

o the number of business days in a quarter;

o changes in the relative mix of our services;

o changes in the pricing of our services;

o the timing and rate of entrance into new geographic or vertical
industry markets;

o departures or temporary absences of key revenue-generating
personnel;

o the structure and timing of acquisitions; and

o general economic factors.

The timing of revenue is difficult to forecast because our sales cycle for
some of our services can be relatively long and is subject to a number of
uncertainties, including clients' budgetary constraints, the timing of clients'
budget cycles, clients' internal approval processes and general economic
conditions. In addition, as is customary in the industry, our engagements
generally are terminable without client penalty. An unanticipated termination of
a major project could result in a higher than expected number of unassigned
persons or higher severance expenses as a result of the termination of the
under-utilized employees. Due to all of the foregoing factors, we believe
period-to-period comparisons of our revenue and operating results should not be
relied on as indicators of future performance, and the results of any quarterly
period may not be indicative of results to be expected for a full year.

ANY ACQUISITIONS WE MAKE COULD RESULT IN DIFFICULTIES IN SUCCESSFULLY MANAGING
OUR BUSINESS AND CONSEQUENTLY HARM OUR FINANCIAL CONDITION.

As an integral part of our business strategy, we may seek to expand by
acquiring additional information technology related businesses or unrelated
lines of business. We cannot accurately predict the timing, size and success of
our acquisition efforts and the associated capital commitments. We expect to
face competition for acquisition candidates, which may limit the number of
acquisition opportunities available to us and may lead to higher acquisition
prices. There can be no assurance that we will be able to identify, acquire or
profitably manage additional businesses or successfully integrate acquired
businesses, if any, into our Company, without substantial costs, delays or other
operational or financial difficulties. In addition, acquisitions involve a
number of other risks, including:

o failure of the acquired businesses to achieve expected results;

o diversion of management's attention and resources to acquisitions;

o failure to retain key customers or personnel of the acquired
businesses; and

o risks associated with unanticipated events, liabilities or
contingencies.

Client dissatisfaction or performance problems at a single acquired firm
could negatively affect the reputation of our Company. The inability to acquire
businesses on reasonable terms or successfully integrate and manage acquired
companies, or the occurrence of

17

performance problems at acquired companies could result in dilution, unfavorable
accounting charges and difficulties in successfully managing our business.

OUR INABILITY TO OBTAIN CAPITAL, USE INTERNALLY GENERATED CASH OR DEBT, OR USE
SHARES OF OUR COMMON STOCK TO FINANCE FUTURE ACQUISITIONS COULD IMPAIR THE
GROWTH AND EXPANSION OF OUR BUSINESS.

Reliance on internally generated cash or debt to complete acquisitions could
substantially limit our operational and financial flexibility. The extent to
which we will be able or willing to use shares of our common stock to consummate
acquisitions will depend on our market value from time to time and the
willingness of potential sellers to accept it as full or partial payment. Using
shares of our common stock for this purpose also may result in significant
dilution to then existing stockholders. To the extent that we are unable to use
our common stock to make future acquisitions, our ability to grow through
acquisitions may be limited by the extent to which we are able to raise capital
for this purpose through debt or additional equity financings. No assurance can
be given that we will be able to obtain the necessary capital to finance a
successful acquisition program or our other cash needs. If we are unable to
obtain additional capital on acceptable terms, we may be required to reduce the
scope of expansion. In addition to requiring funding for acquisitions, we may
need additional funds to implement our internal growth and operating strategies
or to finance other aspects of our operations. Our failure to (i) obtain
additional capital on acceptable terms, (ii) to use internally generated cash or
debt to complete acquisitions because it significantly limits our operational or
financial flexibility, or (iii) to use shares of our common stock to make future
acquisitions may hinder our ability to actively pursue our acquisition program.

BECAUSE THE IT SERVICES MARKET IS HIGHLY COMPETITIVE AND HAS LOW BARRIERS TO
ENTRY, WE MAY LOSE MARKET SHARE TO LARGER COMPANIES THAT ARE BETTER EQUIPPED TO
WEATHER A DETERIORATION IN MARKET CONDITIONS DUE TO INCREASED COMPETITION.

The market for IT services is highly competitive and fragmented, is subject
to rapid change and has low barriers to entry. We compete for potential clients
with systems consulting and implementation firms, multinational accounting
firms, software application firms, service groups of computer equipment
companies, facilities management companies, general management consulting firms,
programming companies and technical personnel and data processing outsourcing
companies. Many of these competitors have significantly greater financial,
technical and marketing resources and greater name recognition than our Company.
In addition, we compete with our clients' internal management information
systems departments. We believe the principal competitive factors in the IT
services industry include:

o responsiveness to client needs;

o availability of technical personnel;

o speed of applications development;

o quality of service;

o price;

o project management capabilities;

o technical expertise; and

o ability to provide a wide variety of IT services.

We believe that our ability to compete also depends in part on a number of
factors outside of our control, including:

o the ability of our competitors to hire, retain and motivate
qualified technical personnel;

o the ownership by competitors of software used by potential clients;

o the development of software that would reduce or eliminate the need
for certain of our services;

18

o the price at which others offer comparable services; and

o the extent of our competitors' responsiveness to client needs.

It is possible that competition in the IT services industry could increase
in the future, partly due to low barriers to entry. Increased competition could
result in price reductions, reduced margins or loss of market share for us and
greater competition for qualified technical personnel. There can be no assurance
that we will be able to compete successfully against current and future
competitors. If we are unable to compete effectively, or if competition among IT
services companies results in a deterioration of market conditions for IT
services companies, we could lose market share to our competitors.

OUR FAILURE TO MEET A CLIENT'S EXPECTATIONS IN THE PERFORMANCE OF OUR SERVICES,
AND THE RISKS AND LIABILITIES ASSOCIATED WITH PLACING OUR EMPLOYEES AND
CONSULTANTS IN THE WORKPLACES OF OTHERS COULD GIVE RISE TO NUMEROUS CLAIMS
AGAINST US.

Many of our engagements involve projects that are critical to the operations
of our clients' businesses and provide benefits that may be difficult to
quantify. Our failure or inability to meet a client's expectations in the
performance of our services could result in a material adverse change to the
client's operations and therefore could give rise to claims against us or damage
our reputation. In addition, we are exposed to various risks and liabilities
associated with placing our employees and consultants in the workplaces of
others, including possible claims of errors and omissions, misuse of client
proprietary information, misappropriation of funds, discrimination and
harassment, theft of client property, other criminal activity or torts and other
claims. Our Company has experienced a number of material claims of these types
and there can be no assurance that we will not experience such claims in the
future.

In addition, a small percentage of our projects are billed on a fixed-fee
basis. While very small at present, as a result of competitive factors or other
reasons, we could increase the number and size of projects billed on a fixed-fee
basis. Our failure to estimate accurately the resources and related expenses
required for a fixed-fee project, or failure to complete contractual obligations
in a manner consistent with the project plan upon which a fixed-fee contract is
based, could give rise to additional claims.

OUR FAILURE TO KEEP PACE WITH THE RAPID TECHNOLOGICAL CHANGES IN THE INFORMATION
TECHNOLOGY INDUSTRY OR NEW INDUSTRY STANDARDS MAY RENDER OUR SERVICE OFFERINGS
OBSOLETE.

Our success will depend in part on our ability to enhance our existing
service offerings, to develop and introduce new service offerings and to train
our consultants in order to keep pace with continuing changes in IT, evolving
industry standards and changing client preferences. There can be no assurance
that we will be successful in addressing these issues or that, even if these
issues are addressed, we will be successful in the marketplace. In addition,
products or technologies developed by others may render our services
noncompetitive or obsolete. Our failure to address these issues successfully
could cause our revenues to decrease and impede our growth.

OUR FAILURE TO RETAIN ANY OF OUR KEY MANAGEMENT PERSONNEL, TO HIRE COMPARABLE
REPLACEMENTS OR TO ENFORCE NON-COMPETE AGREEMENTS AGAINST FORMER MANAGEMENT
MEMBERS COULD HARM THE IMPLEMENTATION OF OUR GROWTH STRATEGIES.

Our success will depend on the continuing efforts of our executive officers
and will likely depend on the senior management of any significant businesses we
acquire in the future. Each of our employment agreements with certain of our
present and former senior management and other key personnel provides that the
employee will not compete with us during the term of the agreement and following
the termination of the agreement for a specified term (ranging from one to three
years). In most states, however, a covenant not to compete will be enforced only
to the extent it is necessary to protect a legitimate business interest of the
party seeking enforcement, does not unreasonably restrain the party against whom
enforcement is sought and is not contrary to the public interest. This
determination is made based on all the facts and circumstances of the specific
case at the time enforcement is sought. Thus, there can be no assurance that a
court will enforce such a covenant in a given situation. Failure to retain any
of our key management personnel and to attract and retain qualified replacements
could harm the implementation of our growth strategies.

19

OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW CONTAIN ANTI-TAKEOVER
PROVISIONS THAT COULD DETER TAKEOVER ATTEMPTS, EVEN IF A TRANSACTION WOULD BE
BENEFICIAL TO OUR STOCKHOLDERS.

Our certificate of incorporation, as amended, and provisions of Delaware law,
could make it difficult for a third party to acquire us, even though an
acquisition might be beneficial to our stockholders. Our certificate of
incorporation authorizes our board of directors to issue, without stockholder
approval, one or more series of preferred stock having such preferences, powers
and relative, participating, optional and other rights (including preferences
over the common stock with respect to dividends, distributions and voting
rights) as our board of directors may determine. The issuance of this
"blank-check" preferred stock could render more difficult or discourage an
attempt to obtain control of our Company by means of a tender offer, merger,
proxy contest or otherwise. In addition, our certificate of incorporation
contains a prohibition of stockholder action without a meeting by less than
unanimous written consent. This provision may also have the effect of inhibiting
or delaying a change in control of our Company.

INFLATION

Due to the relatively low levels of inflation experienced in the last three
years, inflation did not have a significant effect on the results of operations
of any of the Founding Companies or BrightStar in those periods.

UNCERTAINTIES

Nature of Projects

Periodically, the Company enters into contracts which are billed on a fixed
fee basis. The Company's failure to estimate accurately the resources and
related expenses required for a fixed fee project or failure to complete
contractual obligations in a manner consistent with the project plan upon which
the fixed fee contract is based could have a material adverse effect on the
Company.

Many of the Company's engagements involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be difficult
to quantify. The Company's failure or inability to meet a client's expectations
in the performance of its services could result in a material adverse change to
the client's operations and therefore could give rise to claims against the
Company or damage the Company's reputation. In addition, the Company is exposed
to various risks and liabilities associated with placing its employees and
consultants in the workplaces of others, including possible claims of errors and
omissions, misuse of client proprietary information, misappropriation of funds,
discrimination and harassment, theft of client property, other criminal activity
or torts and other claims. While BrightStar has no outstanding claims of this
type at this time, there can be no assurance that the Company will not
experience such claims in the future. If claims are successfully brought against
the Company as a result of the Company's performance on a project, or if the
Company's reputation is damaged, there could be a material adverse effect on the
Company. Additionally, the Company could experience adverse effects resulting
from the integration of acquired companies.

Restructuring

We have undergone significant managerial and operational changes in
connection with our past corporate restructurings. Although we believe the
restructurings will provide long-term benefits, there can be no assurance that
these efforts will be successful. In addition, although the Company believes it
has recognized substantially all of the costs of the restructuring, additional
costs may be incurred as the restructuring continues.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in market prices and rates. The Company in the year ended 2002 and
previous years was exposed to market risk because of competitive pressures on
our billing rates. Changes in foreign currency exchange rates as measured
against the U.S. dollar and currencies of the Company's subsidiaries and prior
operations in Australia were associated only with the contingent realization of
an earn-out provision associated with the sale in 2000 of our Australian
subsidiary. The Company in 2001 and 2002 realized no market risk associated with
the earn-out provision, since the Company has been informed that it is not
entitled to receive any payments under the earn-out.

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The Company's credit facility with BFI bears interest at variable rates;
therefore, the Company's results of operations would only be affected by
interest rate changes to the bank debt outstanding. An immediate 10 percent
change in interest rates would not have a material effect on the Company's
results of operations over the next fiscal year.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements are included as an exhibit as
described in Item 15.

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

The Company filed a current report on Form 8-K on November 15, 2002, which
announced a change in the Company's certifying accountants.

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

For information with respect to Directors and Executive Officers, see Part
I of this Annual Report on Form 10-K.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and executive officers, and holders of more
than 10% of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Such
officers, directors and 10% stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.

Based on its review of such forms that it received, or written
representations from reporting persons that no other Forms 5 were required for
such persons, the Company believes that, during fiscal 2002, all Section 16(a)
filing requirements were satisfied on a timely basis, except for Mr. Wagda and
Mr. Czaja whose statements of changes in beneficial ownership (reflecting the
receipt of convertible securities in lieu of interest on previously-reported
convertible securities) were due on October 3, 2002, but were filed in January
2003.

ITEM 11: EXECUTIVE COMPENSATION

The following table contains information concerning compensation earned by
the Chief Executive Officer and our Vice President - Finance and Principal
Accounting Officer of Brightstar as of the end of 2002, and our former Chief
Financial Officer and former Senior Vice President of Operations, each of whom
would have been among our most highly compensated executive officers as of the
end of fiscal 2002 had they continued to serve as an executive officer through
the end of the year.

21

SUMMARY COMPENSATION TABLE

(1) For the year ended December 31, 2001, Mr. Wagda and Mr. Czaja were awarded
bonuses of $45,000 and $15,000 respectively. On February 15, 2002, the
compensation committee voted to issue fully-vested stock outside the
Company's 1997 and 2000 Long-Term Incentive Plans ("the Plans") to Mr. Wagda
and Mr. Czaja of 750,000 and 250,000 shares, respectively, upon Mr. Wagda
and Mr. Czaja's election to receive said shares in full satisfaction of
their cash bonuses awarded in 2001. Mr. Wagda and Mr. Czaja subsequently
elected to receive 750,000 and 250,000 shares of the Company's common stock,
respectively, effective February 15, 2002, as full payment of their bonuses
for fiscal 2001.

(2) On February 15, 2002, the compensation committee voted to take actions that
resulted in restricted stock awards to Mr. Wagda and Mr. Czaja of 750,000
and 250,000 shares, respectively. In return for the granting of these
shares, all stock options previously granted to Mr. Wagda and Mr. Czaja
totaling 780,060 and 500,000 shares (including 300,000 option shares granted
to Mr. Czaja on February 12, 2002), respectively, were cancelled. The
restricted stock grants were issued inside the Plans and vest monthly over a
2-year period.

(3) Included in Mr. Wagda's and Mr. Czaja's other compensation for 2002 are
$36,750 and $12,250, respectively, which represents the value of the
restricted stock grants on February 15, 2002, which were reported as income
during 2002.

(4) Mr. Czaja's and Mr. Krause's employment with the Company terminated on
October 31 and May 31, 2002, respectively. Mr. Czaja's 500,000 shares of
restricted stock and Mr. Krause's 100,000 options from 2001 were fully
vested upon their separation from the Company.

(5) Mr. Wagda was awarded as a bonus for 2002, an additional month of paid
vacation. The cash value of the award is included in the chart based on his
salary at the time of the award.

(6) Mr. Wagda, Mr. Czaja, Mr. Kosturos and Mr. Krause are the Named Executive
Officers of the Company (the "Named Executive Officers").

STOCK OPTIONS

The following table contains information concerning the grant of stock
options and restricted stock awards to each of our named executive officers
included in the Summary Compensation Table during 2002 (inside and outside the
Plans).

22

STOCK OPTION GRANTS IN 2002 FISCAL YEAR

(1) Based on Black-Scholes model and assumes a risk free interest rate of
2%, price volatility of 123% and a dividend yield of 0%.

(2) On February 15, 2002, the compensation committee voted to take actions
that resulted in restricted stock awards to Mr. Wagda and Mr. Czaja of
750,000 and 250,000 shares, respectively. In return for the granting of
these shares, all stock options previously granted to Mr. Wagda and Mr.
Czaja totaling 780,060 and 500,000 shares (including 300,000 option
shares granted to Mr. Czaja on February 12, 2002), respectively, were
cancelled. The restricted stock grants were issued inside the Plans and
vest monthly over a 2-year period. These stock awards are not included
in the chart above.

(3) Upon the separation of Mr. Czaja in October 2002, the remaining unvested
portion of Mr. Czaja's stock award shares, totaling 166,667, were
fully-vested by the Board of Directors, with certain conditions.

(4) According to Mr. Krause's separation agreement, Mr. Krause had until
December 31, 2002 to exercise his vested options. Mr. Krause did not
exercise his options as of December 31, 2002 and therefore all options
granted to him were cancelled.

AGGREGATED OPTION EXERCISES IN 2002 AND YEAR-END OPTION VALUES

The following table sets forth information for each of our named executive
officers included in the Summary Compensation Table with respect to options to
purchase our Common stock held as of December 31, 2002.

- ----------

(1) No stock appreciation rights (SARs) were outstanding during 2002.

(2) The closing price of our common stock at December 31, 2002 was $0.01 per
share.

(3) A February 15, 2002 award of 750,000 restricted shares of common stock
to Mr. Wagda, which was awarded in exchange for the cancellation of
780,060 previously granted stock options held by Mr. Wagda, and a
February 15, 2002 award of 250,000 restricted shares of common stock to
Mr. Czaja, which was awarded in exchange for the cancellation of 500,000
previously granted stock options held by Mr. Czaja, are not reflected in
this chart.

(4) Mr. Kosturos's unexercised options as of December 31, 2002, were not in
the money and therefore no value has been assigned.

23

COMPENSATION OF DIRECTORS

Directors who do not perform service substantially full-time to the Company
receive a quarterly retainer of $4,000 and a fee for each Board or committee
meeting of $1,000, or $500 for each committee meeting held the same day as a
Board meeting. The Company reimburses directors for their reasonable
out-of-pocket expenses with respect to board meetings and other BrightStar
business.

Directors who are not officers of BrightStar also participate in the 1997
and 2000 Plans. Under the 1997 and 2000 Plans, options to purchase 10,000 shares
of our common stock are automatically granted to each non-employee director on
the date such director is for the first time elected or appointed to the Board
of Directors. Thereafter, each such director is automatically granted options to
purchase 10,000 shares on the date of each annual stockholders meeting provided
that such options shall be reduced by that portion of the prior twelve-month
period in which a director was not a director of the Company. The exercise price
for all non-employee director options granted under the 1997 and 2000 Plans is
100% of the fair market value of the shares as of the grant date. All such
options are immediately exercisable and expire no later than ten years after the
date of grant, unless sooner exercised. All outstanding director options as of
February 12, 2002 were repriced to $0.05 per share (see Item #6: Selected
Consolidated Financial Data).

EMPLOYMENT AGREEMENTS

Mr. Wagda entered into a two-year employment contract with the Company on
February 15, 2002. The terms of the agreement include annual salary compensation
of $300,000 beginning May 1, 2002 and $350,000 beginning May 1, 2003, the
immediate vesting of stock awards upon a qualifying termination or a change of
control and 12 months severance pay in the event of a qualifying termination.
Mr. Wagda also received 750,000 restricted shares of common stock effective
February 15, 2002, which vest monthly over a 2-year period. In return for the
stock award, all stock options previously granted, totaling 780,060, were
cancelled. The agreement also calls for a bonus of up to 200% of base salary.
For the year ended December 31, 2002, Mr. Wagda was given as a bonus an
additional month of paid vacation, having an approximate value of $25,000. For
2003, the bonus will be based on the achievement of agreed-upon performance
goals. Mr. Wagda may also be awarded restricted stock or stock options as
incentive compensation in the future at the discretion of the Board of
Directors. Mr. Wagda is eligible to participate in all of the Company's employee
benefit plans.

Mr. Czaja entered into an employment agreement with the Company in April
2001. Mr. Czaja's agreement provided for a base salary of $175,000. Effective
May 1, 2002, Mr. Czaja's annual salary was increased to $200,000. Mr. Czaja also
received 250,000 restricted shares of common stock effective February 15, 2002,
which vest monthly over a 2-year period. In return for the stock award, all
stock options previously granted totaling 500,000 (including 300,000 option
shares granted on February 12, 2002), were cancelled. Mr. Czaja also was
eligible to receive a bonus of up to a total of 50% of his base salary based
upon the achievement of certain operating results of the Company. Mr. Czaja's
employment was terminable without cause upon six month's notice and Mr. Czaja
was entitled to six months severance if terminated upon a change of control. Mr.
Czaja separated from the Company on October 31, 2002. Upon the separation of Mr.
Czaja, the remaining unvested portion of Mr. Czaja's shares, totaling 166,667,
were fully-vested by the Board of Directors, with certain conditions.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 2002, non-employee directors Ms. Barrett and Mr. Zwahlen served as
members of the Compensation Committee. None of the Compensation Committee
members or Named Executive Officers have any relationship that must be disclosed
under this caption.

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

Notwithstanding any statement to the contrary in any of our previous or
future filings with the SEC, the following report shall not be incorporated by
reference into any such filings.

Compensation Philosophy. In developing our executive compensation policies,
the Compensation Committee has two principal objectives: (1) attracting,
rewarding and retaining officers who possess outstanding talent, and (2)
motivating officers to achieve BrightStar performance consistent with
stockholder objectives. Accordingly, the Committee adopted the following
policies:

o BrightStar will pay compensation that is competitive with the
practices of other leading technology companies in the same or
similar businesses;

24

o A significant portion of the officers' compensation will depend upon
the achievement of challenging performance goals for BrightStar and
our various business units and officers; and

o BrightStar will align the interests of its officers with those of
our stockholders - therefore, stock-based compensation will
constitute a significant portion of compensation.

Total Annual Compensation. Each officer's target total annual compensation
(that is, salary plus bonus) is determined by the Committee upon review of all
applicable factors.

Bonuses. Pursuant to their employment agreements, Mr. Wagda is eligible to
receive a bonus of up to 200% of base salary based upon the achievement of
agreed-upon performance goals. The actual bonus (that is, the percentage of the
target bonus) that any officer (other than the Named Executive Officers, as
defined below) actually receives depends on the achievement of both corporate
and individual objectives and financial performance goals. Typical business unit
objectives include, for example, revenue and profitablility objectives.

Stock-Based Compensation. The Committee strongly believes that stock-based
compensation (options and/or restricted stock) motivates the officers to
maximize stockholder value and to remain with BrightStar despite a very
competitive marketplace. Generally, all BrightStar stock options and shares of
restricted stock have a per share exercise or purchase price approximating the
fair market value of our stock as of the grant date, except for certain
identified re-pricing actions. The number of options or shares of restricted
stock granted to each officer and related vesting schedule are determined based
on the officer's position at BrightStar, his or her individual performance, the
number of options or restricted shares the executive already holds and other
factors, including an estimate of the potential value of the options or
restricted shares.

In fiscal 2002, the Committee made these determinations for the Named
Executive Officers and other senior officers. For all other grants, the Chief
Executive Officer (Mr. Wagda) made these determinations, in consultation with
the Committee.

Compensation of Chief Executive Officer. The Committee believes the Chief
Executive Officer's compensation should be tied directly to the performance of
BrightStar and in line with stockholder objectives. As a result, Mr. Wagda's
compensation includes a significant restricted stock and/or stock option
component.

Tax Deductibility of Executive Compensation. Under section 162(m) of the
Internal Revenue Code, BrightStar generally receives a federal income tax
deduction for compensation paid to any of its Named Executive Officers only if
the compensation is less than $1 million during any fiscal year or is
"performance-based" under section 162(m). Our management-incentive plans permit
the Company to pay compensation that is "performance-based" and thus is fully
tax-deductible by BrightStar. The Committee currently intends to continue
seeking a tax deduction for all of our executive compensation, to the extent
consistent with the best interests of BrightStar.

COMPANY STOCK PERFORMANCE

The following graph sets forth a comparison of the cumulative total share
owner return on the Company's Common Shares for the period beginning April 17,
1998, the date Common Shares began trading on the Nasdaq National Market, and
ending December 31, 2002, the last trading day in fiscal 2002, as compared with
the cumulative total return of the S&P 500 Index and a Peer Group Index. The
Peer Group consists of the Nasdaq Computer & Data Processing Index. This graph
assumes an investment of $100 on April 17, 1998 in each of Common Shares, the
S&P 500 Index and the Peer Group Index, and assumes reinvestment of dividends,
if any. The Company was subsequently transferred to the OTC Bulletin Board on
July 23, 2001 (see Item #5: Market for Registrant's Common Equity and Related
Stock Matters). The stock price performance shown on the graph below is not
necessarily indicative of future stock price performance.

25

(CHART)

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

The following table sets forth certain information with respect to all of
the Company's Equity Compensation Plans at December 31, 2002:

(1) This total includes 2,000,000 shares of restricted common stock that are
already included in total outstanding shares as of December 31, 2002.

26

As of December 31, 2002, equity compensation plans not approved by security
holders consist of 40,000 options with an exercise price of $1.00 per share to
the son of Mr. Wagda, the Company's CEO, who worked as an independent contractor
for the Company on special projects during the fourth quarter of 2000 and the
first quarter of 2001. His compensation consisted of cash payments of $18,600
for 2001 and the 40,000 options. Also included is stock issued in lieu of the
cash bonuses awarded in 2001 to Mr. Wagda and Mr. Czaja. On February 15, 2002,
the compensation committee of the Board of Directors voted to issue fully-vested
stock outside the Plans to Mr. Wagda and Mr. Czaja of 750,000 and 250,000
shares, respectively, in full satisfaction of cash bonuses awarded for 2001.

The following table contains certain information regarding beneficial
ownership of our common stock as of March 15, 2003 by (i) persons known to us to
be the beneficial owner of more than 5% of our common stock, and their
respective addresses (ii) each of our current directors, (iii) the Chief
Executive Officer and each of our other executive officers, and (iv) all
directors and executive officers as a group.

- ----------

(1) Represents shares held directly and indirectly and with sole voting and
investment power, except as noted, or with voting and investment power
shared with a spouse.

(2) Includes immediately exercisable options to purchase 160,000 shares of
common stock, for Ms. Barrett, Mr. Zwahlen and Mr. Hudgins.

(3) Includes options that will be exercisable immediately or within 60 days
to purchase 4,167 shares of common stock for Mr. Kosturos. It includes
convertible common stock of 721,656, 47,752 and 119,378 for Messrs.
Wagda, Czaja and Krause, respectively. It also includes common stock
warrants in conjunction with the convertible notes of 108,250, 7,164 and
17,907 for Messrs. Wagda, Czaja and Krause, respectively.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company was obligated to pay Altamont Capital Management, Inc.
("Altamont"), a company wholly owned by Joseph A. Wagda and his spouse, $101,130
for services performed by Mr. Wagda as a consultant to the Company prior to Mr.
Wagda joining the Company as Chief Executive Officer. This debt was satisfied in
July 2001 by converting it into a convertible note payable, as part of the
Company's private placement offering completed on July 26, 2001.

27

As part of the private placement completed on July 26, 2001 members of
senior management, including Messrs Wagda, Czaja and Krause participated in the
offering. Notes held by Messrs. Wagda, Czaja, Krause and Altamont totaled
approximately $186,000.

ITEM 14: CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Our chief executive
officer and our principal accounting officer, after evaluating the effectiveness
of the company's "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date
(the "Evaluation Date") within 90 days before the filing date of this annual
report, have concluded that as of the Evaluation Date, our disclosure controls
and procedures were adequate and designed to ensure that material information
relating to us and our consolidated subsidiaries would be made known to them by
others within those entities.

(b) Changes in internal controls. There were no significant changes in our
internal controls or to our knowledge, in other factors that could significantly
affect our disclosure controls and procedures subsequent to the Evaluation Date.

PART IV

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

1. Consolidated Financial Statements

The following financial statements and notes thereto, and related
Independent Auditors Report, are filed as part of this Form 10-K as follows:

Independent Auditors' Reports

Consolidated Balance Sheets at December 31, 2002 and 2001.

Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000.

Consolidated Statement of Stockholders' Equity for the Years Ended December 31, 2002, 2001 and 2000.

Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000.

Notes to Consolidated Financial Statements.

2. Financial Statement Schedule

The following financial statement schedule of the Company and the related
Independent Auditors Report are filed as part of this Form 10-K.

[X] Schedule II -- Valuation And Qualifying Accounts

All other financial statement schedules have been omitted because such
schedules are not required or the information required has been presented in the
aforementioned financial statements.

3. Exhibits

The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this Annual Report on Form 10-K.

(b) Reports on Form 8-K

The Company filed a current report on Form 8-K on November 15, 2002,
which announced a change in the Company's certifying accountants.

28

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form 10-K and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Pleasanton, State of California, on the 28th day of March 2003.

BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.

By: /s/ Joseph A. Wagda
------------------------------------------
Joseph A. Wagda
Chief Executive Officer
(Principal Executive Officer)

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on March 28, 2003:

29

I, Joseph A. Wagda, certify that:

1. I have reviewed this annual report on Form 10-K of BrightStar
Information Technology Group, Inc.;

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

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

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

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

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

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

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

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

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

6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: March 28, 2003
BY: /s/ Joseph A. Wagda
----------------------------
Joseph A. Wagda
Chairman and Chief Executive Officer

30

I, Paul C. Kosturos, certify that:

1. I have reviewed this annual report on Form 10-K of BrightStar
Information Technology Group, Inc.;

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

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

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

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

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

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

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

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

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

6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date: March 28, 2003
BY: /s/ Paul C. Kosturos
----------------------------
Paul C. Kosturos
Principal Accounting Officer and Secretary

31

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
BrightStar Information Technology Group, Inc.

We have audited the accompanying consolidated balance sheet of BrightStar
Information Technology Group, Inc as of December 31, 2002, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BrightStar
Information Technology Group, Inc. as of December 31, 2002, and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with accounting principals generally accepted in the United States of
America.

/s/ STONEFIELD JOSEPHSON, INC.

Walnut Creek, California
January 29, 2003

32

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
BrightStar Information Technology Group, Inc.

We have audited the accompanying consolidated balance sheet of BrightStar
Information Technology Group, Inc., a Delaware corporation, as of December 31,
2001, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BrightStar
Information Technology Group, Inc. as of December 31, 2001 and the consolidated
results of its operations and its consolidated cash flows for each of the two
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's recurring losses from
operations and resulting continued dependence on external sources of financing,
the availability of which is uncertain, raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ GRANT THORNTON LLP

San Jose, California
February 15, 2002

33

BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

See notes to consolidated financial statements.

34

BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

See notes to consolidated financial statements

35

BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

See notes to consolidated financial statements

36

BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

See notes to consolidated financial statements

37

BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

See notes to consolidated financial statements

38

BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation -- BrightStar Information Technology Group, Inc., (the
"Company" or "BrightStar") is a provider of application outsourcing and system
integration services.

Principles of consolidation - The consolidated financial statements for the
years ended December 31, 2002, 2001 and 2000 include the accounts of the Company
and its wholly-owned subsidiaries. On June 28, 2002 one of the Companies
subsidiaries, BRBA, Inc. ("BRBA") (formerly Brian R. Blackmarr & Associates,
Inc.) filed for liquidation under Chapter 7 of the bankruptcy code and the
Company no longer controls BRBA. As a result, BRBA's financial position has not
been included in the Company's consolidated results since the bankruptcy filing
date. All significant inter-company accounts and transactions are eliminated in
the consolidation.

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

Property and equipment -- Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over their estimated useful lives
ranging from three to ten years. Leasehold improvements are amortized over the
shorter of the lease term or the assets' useful life. Expenditures for repairs
and maintenance that do not improve or extend the life of assets are expensed as
incurred.

Goodwill -- Goodwill is the cost in excess of amounts assigned to
identifiable assets acquired less liabilities assumed.

As of January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Intangible Assets". Thus, effective
January 1, 2002, the Company ceased amortizing goodwill recorded in past
business combinations. The implementation of the goodwill impairment test under
SFAS No. 142 requires a two-step approach, which is performed at the reporting
unit level, as defined in SFAS No. 142. Step one identifies potential
impairments by comparing the fair value of the reporting unit to its carrying
amount. Step two, which is only performed if there is a potential impairment,
compares the carrying amount of the reporting unit's goodwill to its implied
value, as defined in SFAS No. 142. If the carrying amount of the reporting
unit's goodwill exceeds the implied fair value of that goodwill, an impairment
loss is recognized for an amount equal to that excess.

SFAS No. 142 also requires the Company to perform an annual impairment test.
The Company has chosen a date of October 1st as its annual testing date.

Up until December 31, 2001, goodwill recorded in conjunction with the
Founding Companies (Companies acquired concurrently with the closing of
BrightStar's initial public offering) and all other acquisitions in 1998 was
being amortized over 40 years on a straight-line basis. Goodwill associated with
the acquisition of ISC in 1999 was being amortized over 20 years on a
straight-line basis. Management determined the twenty-year life for Integrated
Systems Consulting ("ISC") goodwill based upon the nature of ISC's SAP software
consulting practice, along with the assembled workforce of highly skilled
consultants and the demand for information technology services. The
realizability and period of benefit of goodwill is evaluated periodically to
assess recoverability, and, if warranted, impairment or adjustments to the
period affected is recognized. Total amortization of goodwill from continuing
operations for 2002, 2001 and 2000 amounted to $0, $352 and $1,376,
respectively. See the "Recent pronouncements" paragraph in Note (1) for the
treatment of goodwill for the years beginning on January 1, 2002; also see Note
(5).

Income taxes -- The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires an asset and liability
approach to accounting for income taxes. The Company provides deferred income
taxes for temporary differences that will result in taxable or deductible
amounts in future years. A valuation allowance is recognized if it is
anticipated that some or all of a deferred tax asset may not be realized. Based
on the Company's net losses for the previous years, the Company has recorded a
valuation allowance for deferred taxes as of December 31, 2002 and 2001. In the
event that the Company were to

39

determine that it would be able to realize its deferred tax assets in the
future, an asset would be recorded, which in turn would increase income in the
period such determination was made. Income tax receivables are recognized for
the actual amounts refundable.

Revenue recognition -- The Company provides services to customers for fees
that are based on time and materials or occasionally, fixed fee contracts.
Accordingly, revenue is recognized as consulting services are performed.
Unbilled revenue is recorded for contract services provided for which billing
has not been rendered. Deferred revenue primarily represents the excess of
amounts billed over contract amounts earned. Costs reimbursed by its customers
are included in revenue for the periods in which the costs are incurred.

Concentration of credit risk -- Concentration of credit risk is limited to
trade receivables and is subject to the financial conditions of major clients.
The Company does not require collateral or other security to support client's
receivables. The Company conducts periodic reviews of its clients' financial
condition and customer payment practices to minimize collection risk on trade
receivables.

Earnings per share (EPS) -- Basic EPS is calculated using income available
to common stockholders divided by the weighted average number of common shares
outstanding during the year. Diluted EPS is computed using the weighted average
number of common shares and potentially dilutive securities outstanding during
the period. Potentially dilutive securities include incremental common shares
issuable upon the exercise of stock options, warrants and conversion of notes
payable. Potentially dilutive securities, consisting of 5,257,977 shares
issuable upon conversion of notes, 972,994 shares issuable upon exercise of
warrants, and 1,809,201 shares issuable upon exercise of stock options as of
December 31, 2002, are excluded from the computation as their effect is
anti-dilutive. Treasury shares of 255,000 at December 31, 2002 and 2001 have
also been excluded from the computation from the date of reacquisition.
Potentially dilutive securities totaling 8,074,965 and 1,101,637 at December 31,
2001 and 2000, respectively, are excluded from their respective computations, as
their effect is antidilutive.

Stock based compensation -- The Company applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", in its accounting
for stock options issued to employees and board members. No compensation expense
is recognized for stock options issued to employees under the Company's stock
option plans when the option price for grants equals or exceeds the quoted
market price of the Company's Common Shares at the date of grant. The Company
has adopted the disclosure-only provisions of SFAS No. 123 with respect to
options issued to employees. Compensation expense associated with stock options
and warrants issued to non-employees is recognized in accordance with SFAS No.
123.

Options that are modified are treated as variable awards and accounted for
under Financial Accounting Standards Board Interpretation ("FIN") No. 44. The
Company records any increase of the fair market value of the underlying stock at
the end of each quarter over the repriced stock option price as compensation
expense in the appropriate quarter.

Fair value of financial instruments -- The carrying amounts of certain
financial instruments, including cash, accounts receivable, accounts payable,
and accrued expenses approximate fair value due to the short-term nature of
these items. The fair value is not readily determinable for the bank credit
facility, convertible notes payable and legacy liabilities because of the past
due nature of the legacy liabilities and the lack of comparable credit
facilities readily available to the Company. As of December 31, 2002 and 2001,
respectively, the bank credit facility and convertible notes payable were
collectively carried at $1,086 and $1,367 and the legacy liabilities were
carried at $105 and $2,802.

Recent pronouncements -- In December 2002, the Financial Accounting
Standards Board ("FASB") issued Statement No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure", which amends FASB Statement No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of Statement
148 are effective for fiscal years ending after December 15, 2002, with earlier
application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The adoption of this
statement did not have a material impact on the Company's financial position or
results of operations as the Company has not elected to change to the fair value
based method of accounting for stock-based employee compensation.

In May 2002, the FASB issued SFAS No.145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. Early
adoption of the provisions of this Statement related to the rescission of
Statement 4 is encouraged. The major provision of this Statement is that under

40

Statement 4, all gains and losses from extinguishments of debt were required to
be aggregated and, if material, classified as an extraordinary item, net of
related income tax effect. Therefore, since SFAS No. 145 eliminates Statement
No. 4, extraordinary gains and losses will no longer be reported. The Company
has decided on early adoption and will apply SFAS No. 145 for the year ended
December 31, 2002 and reclassify any extraordinary gains in previous years as
required by the Statement.

In July 2001, FASB issued SFAS No. 141, "Business Combinations", SFAS No.
142, "Goodwill and Intangible Assets". SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001; however, certain provisions of this
Statement apply to goodwill and other intangible assets acquired between July 1,
2001 and the effective date of SFAS No. 142. Major provisions of these
statements and their effective dates for the Company are as follows:

- All business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interest method of
accounting is prohibited, except for transactions initiated before
July 1, 2001.

- Goodwill, as well as intangible assets with indefinite lives,
acquired after June 30, 2001 will not be amortized. Effective
January 1, 2002, all previously recognized goodwill and intangible
assets with indefinite lives will no longer be subject to
amortization.

- Effective January 1, 2002, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and whenever
there is an impairment indicator.

As of January 1, 2002, the Company adopted SFAS No. 142. Thus, effective
January 1, 2002, the Company ceased amortizing goodwill recorded in past
business combinations. The implementation of SFAS No. 142 consists of a two-step
process. See Note (5).

Other recently issued accounting pronouncements are not relevant to the
Company's business.

Restatement of prior year financial statements -- As a result of a $643
understatement of income tax refunds receivable, the Company has restated its
December 31, 2000 consolidated financial statements. The adjustment increases
income tax receivable and reduces income tax expense and accumulated deficit at
December 31, 2000. The receivable results from the Company's ability to carry
back net operating losses to years where income taxes were paid, primarily 1998
and 1999.

The Company has also restated the December 31, 2000 financial statements for
the write-off of the cumulative translation adjustment of $118. The cumulative
translation adjustment, previously reported in the stockholders' equity section
as of December 31, 2000, reflected the unrealized adjustments resulting from
translating the financial statements of the Australian subsidiary. The
adjustment increases the loss on disposal of the Australian operations.

The net effect of these restatements was a $525 decrease to the consolidated
net loss for the year ended December 31, 2000.

Reclassifications -- Certain reclassifications have been made to conform the
prior years' financial statement amounts to the current year classifications.

(2) DISCONTINUED OPERATIONS

Controls Business

The Company sold its Controls Business, which was a component of Integrated
Controls, Inc., in September 2000. In 2000, the Company recorded a charge of
$900 associated with the sale. In 2001, the Company recorded a net gain of $17
associated with the settling of accounts receivable balances remaining from
2000. Subsequent to the sale of the Controls Business, the Company changed the
name of Integrated Controls, Inc. to BrightStar Louisiana, Inc.

41

Summary operating results and financial data for the discontinued operations
for 2002, 2001 and 2000 are as follows:

In conjunction with the sale of training business, which was completed in
December 1999, the Company sold Mindworks Professional Education Group, Inc.
("Mindworks") back to the original owners. As part of that sale, the Company has
two outstanding notes (Note A & B) with Mindworks for a total of $270. Note A is
for $120, requires monthly interest payments of $1 and is in default as of
December 1, 2002 as to interest and principal. Note B is for $150 and is due and
payable in December 1, 2004. Both notes carry an interest rate of 10.25%. The
Company received $8 in 2002 relating to interest payments due under Note A and
recorded them as interest revenue. The Company is subordinated to a senior
secured lender and may not take action to collect on the defaults until the
senior lender has been paid in full. Therefore, the Company has recorded an
allowance to offset these notes until the Company can determine if these notes
are collectible.

(3) BUSINESS RESTRUCTURING

In June 2000, the Company announced that revenue and earnings for the second
quarter and the remainder of the calendar year would be lower than expected and
that the Company was realigning its operations to improve operating margins by
reducing expenses associated with underutilized office space and personnel.

As a result of the realignment, the Company recorded a restructuring charge
of $2,525 in the second quarter of 2000. Of the total charge, approximately
$1,000 was reserved for ongoing lease obligations for facilities that were
closed and $500 was recorded to write-down related fixed assets. The remainder
of the charge related to the severance of approximately 90 employees, or 15% of
the Company's workforce. Approximately $1,700 of the charge applied to
obligations funded by cash disbursements, of which approximately $1,000 was
disbursed for severance and $300 was disbursed for rents during 2000. The
remaining charge related to longer-term severance obligations and related costs
amounting to $200, and $700 of rents, net of sublease income, to be paid related
to leases, which expire through April 2003. During the fourth quarter of 2000,
the Company reduced the restructuring reserve by $288 resulting from favorable
lease settlements.

Restructuring continued during the fourth quarter of 2000 and into 2001. The
Company replaced the entire senior management team and significantly reduced
management overhead. Beginning in the third quarter and continuing into the
fourth quarter of 2001, the Company continued with year-over-year reductions in
selling, general and administrative expenses, which were the result of the
execution of the austerity plan adopted in the third quarter of 2001. The
restructuring included reductions in office space, sales personnel and related
costs, management overhead and discretionary expenses. For the year 2001, the
Company incurred approximately $2,011 of additional restructuring costs,
(consisting of approximately $448 relating to employee costs for approximately
30 employees, including severance obligations, and $1,563 relating to losses on
the write-down or disposal of nonessential equipment, the write-offs of
leasehold improvements and office closures expenses, including accelerated
expenses from lease terminations) as a result of actions taken by the Company to
reduce its expense base in response to the general reduction in business levels,
as well as the specific loss of a significant customer that filed for
bankruptcy.

For 2002, the Company undertook no new restructuring plans but continued
with the restructuring plans from 2001.

The activity and ending balances for the restructuring reserve accrual
consist of the following as of December 31:

42

The categories of the remaining restructuring reserve accrual consist of the
following as of December 31:

The amounts listed above are included in the following accounts to conform
to the current year presentation as of December 31:

Restructuring amounts charged to earnings consist of the following for the
years ended December 31:

Also, as part of the Company's restructuring plan, on December 13, 2000, the
Company completed the sale of the active business operations of its indirect
Australian subsidiary, BrightStar Information Technology, Ltd. ("BrightStar
Australia"), for A$10,000 (US $5,500). Of the total purchase price, A$2,500 (US
$1,400) was paid by December 31, 2000, with the remainder due upon completion of
a contingent earn-out for the twelve month period ended December 31, 2001. The
sale of the company resulted in no material gain or loss. No consideration from
the earn-out provision was recorded as part of the original sale or subsequently
recorded as additional consideration as no earn-out was ever paid. In
anticipation of this sale, the Company recorded a $22,600 charge to write down
Australian goodwill in the third quarter of 2000. All other assets of BrightStar
Australia were written off the books when its operations were sold in the fourth
quarter of 2000.

(4) PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

During the fourth quarter of 2001, the Company incurred a loss on the
disposal of fixed assets of approximately $740 relating to the closures of
office space and the subsequent write-off of leasehold improvements and the
selling of non-essential computer equipment and furniture. This loss is before
proceeds of $9 received from the sale of the equipment. The loss on the
disposals was a result of the restructuring plan and therefore is included in
the restructuring costs recorded in the fourth quarter of 2001 (see Note (3)).

(5) GOODWILL

Goodwill consists of the cost in excess of amounts assigned to identifiable
assets acquired, less liabilities assumed. The realizability and period of
benefit of goodwill is evaluated periodically to assess recoverability, and, if
warranted, impairment or adjustments to the period benefited are recognized.

During the third and fourth quarter of 2000, the Company reduced the
carrying value of its remaining goodwill to $12,000. In evaluating goodwill
impairment, the Company segregated enterprise level goodwill from goodwill
attributable to specific assets.

43

Goodwill attributable to specific assets was written-off in connection with the
disposal of the Australian subsidiary's operations and closure of Cogent
Technologies LLC. In total, the specific write-offs amounted to $24,000, of
which $1,400 and $22,600 related to Cogent and Australia, respectively. The
remaining goodwill of approximately $32,400 was deemed to be enterprise level
goodwill as it related to the remaining U.S. operations, which are operated as a
single, integrated business unit. Enterprise level goodwill was deemed impaired
due to the deterioration in the Company's business, the overall declining market
for information technology services, including project-based ERP and e-commerce
services, and also the reduction in the Company's workforce, backlog, and its
falling common stock share market price. In considering the methodology to
assess the carrying value of enterprise level goodwill, management evaluated it
using the market value approach and an undiscounted cash flow approach. The
market value approach was deemed preferable based upon the uncertainty of future
cash flows at the time. Under the market value approach, management used the
trading price of the Company's common stock around the December 31, 2000
financial statement date. This analysis yielded a market value for the
enterprise level goodwill of approximately $12,000, (approximately 12 million
shares outstanding at $1 per share), resulting in the $18,400 impairment charge
taken in 2000. Management deemed it unnecessary to reduce the amortization
period for the goodwill based upon the expected long-term need in the
marketplace for the information technology services provided by the Company.

As of January 1, 2002, the Company adopted SFAS No. 142. Thus effective
January 1, 2002, the Company ceased amortizing goodwill recorded in past
business combinations.

The implementation of the goodwill impairment test under SFAS No. 142
requires a two-step approach, which is performed at the reporting unit level, as
defined in SFAS No. 142. Step one identifies potential impairments by comparing
the fair value of the reporting unit to its carrying amount. Step two, which is
only performed if there is a potential impairment, compares the carrying amount
of the reporting unit's goodwill to its implied value, as defined in SFAS No.
142. If the carrying amount of the reporting unit's goodwill exceeds the implied
fair value of that goodwill, an impairment loss is recognized for an amount
equal to that excess.

The Company completed the first step of the transitional impairment test
required by SFAS No. 142 during the quarter ended June 30, 2002. The Company
consists of a single reporting unit. Therefore, this step required the Company
to assess the fair value of the Company and compare that value to its
shareholders' equity. In determining fair value, the Company considered the
guidance in SFAS No. 142, including the Company's market capitalization, control
premiums, discounted cash flows and other indicators of fair value. Based on
this analysis, goodwill recorded as of January 1, 2002 in the amount of $11,648
was impaired. The Company then completed step two, impairment test, pursuant to
SFAS No. 142, under which we compared the value of our goodwill based on the
Company's stock price as of December 31, 2001 with the value of the goodwill. As
a result of the impairment test, a goodwill impairment loss of $9,900 was
recognized in the fourth quarter of 2002, which is when the test was completed,
and recorded as of the first quarter of 2002 as a change in accounting
principle.

The Company also performed its initial year annual test as of October 1,
2002 as required by SFAS No. 142. After performing this impairment test, it was
determined that there was no additional goodwill impairment loss to be recorded
in the fourth quarter of 2002. The quoted market price of the Company's stock
price as of October 1, 2002 was used as the fair value to measure the
impairment.

During 2002, as part of the Company's implementation of SFAS No. 142, the
Company also wrote off $45 related to an intangible asset. The reduction was
also included in the change in accounting principle amount.

The following is the Company's disclosure of what reported net earnings and
earnings per share would have been in all periods presented, exclusive of
amortization expenses (including any related tax effects) recognized in those
periods related to goodwill, intangible assets that are no longer being
amortized and changes to amortization periods for intangible assets that will
continue to be amortized.

44

The changes in the carrying amount of goodwill, net of accumulated
amortization for the year ended December 31, 2002, are as follows:

(6) CREDIT FACILITY

Effective March 29, 1999, the Company established a $15,000 credit facility
(the "Credit Facility") with Comerica Bank. Under the terms of the agreement,
the Credit Facility would be used for working capital needs, including issuance
of letters of credit, and for general corporate purposes.

The Credit Facility was secured by liens on substantially of all the
Company's assets (including accounts receivable) and a pledge of all of the
outstanding capital stock of the Company's domestic operating subsidiaries. The
Credit Facility also required that the Company comply with various loan
covenants, including (i) maintenance of certain financial ratios, (ii)
restrictions on additional indebtedness and (iii) restrictions on liens,
guarantees and payments of dividends.

The Credit Facility expired on March 31, 2001. Upon expiration of the Credit
Facility, Comerica Bank agreed to continue lending to the Company under the
terms of a $3,000 Demand Note, secured by liens on substantially all the
Company's assets (including accounts receivable) and a pledge of all of the
outstanding capital stock of the Company's domestic operating subsidiaries. The
Demand Note carried interest at the Bank's prime rate (4.75% at December 31,
2001), plus 4%. Available borrowings under the Demand Note were reduced monthly
by 2% of eligible accounts receivable. On July 26, 2001, the Demand Note was
converted to a term note having a maturity of January 25, 2002. Comerica also
adjusted the covenants pertaining to the line of credit to consist of only one
covenant: at all times the Company must maintain an effective net worth of not
less than $9,000. Effective net worth is defined as the borrower's net worth
defined by GAAP plus the principal amount of the subordinate debt outstanding.
As of December 31, 2001, the Company was in compliance with the bank's covenant
requirements. Since there was an outstanding balance on the line as of January
25, 2002, Comerica declared the Company to be in default under the terms of the
agreement. However, Comerica subsequently agreed to forebear on any actions to
collect the outstanding balances and to allow the Company to borrow under the
loan until June 30, 2002, which was subsequently extended to September 30, 2002
and then again until December 31, 2002, subject to certain conditions. Under the
extended arrangement that started on January 25, 2002, available borrowings
began at 60% of accounts receivable, after reduction for ineligible accounts,
with subsequent reductions of 2% each month starting in May 2002. Available
borrowings were further limited to a maximum of $500 effective October 1, 2002;
$400 effective November 1, 2002 and $300 effective December 1, 2002. On December
18, 2002, the Company and Comerica terminated the agreement.

On December 16, 2002, the Company entered into an agreement with BFI
Business Finance ("BFI"), a Santa Clara, California-based business-credit
company, for a two-year working capital line of credit for $750, to replace the
recently extended credit facility with Comerica Bank, which was scheduled to
expire on December 31, 2002. Under the BFI agreement, available borrowings will
be up to 85% of accounts receivable, after reduction for ineligible accounts,
similar to our Comerica arrangement. The interest rate on outstanding balances
will be at prime plus 4% per annum, plus a monthly administrative fee of 0.50%
per month calculated on the average daily balance outstanding. The minimum
monthly interest and administrative fee charged to the Company will be not less
than $1 per month for the first six months, escalating to $2 per month for the
next three months and then finally to $4 per month for the remaining term of the
agreement.

(7) ACCRUED SALARIES AND OTHER EXPENSES

Accrued salaries and other expenses consist of the following:

45

(8) CORPORATE LEGACY LIABILITIES

Corporate Legacy Liabilities consist of obligations that were incurred
principally in years prior to 2001. During 2001 the Company entered into
settlement agreements or issued notes in satisfaction of certain of these
payables pursuant to a restructuring plan offered to substantially all of its
creditors.

The notes are unsecured, accrue interest at 6.5% per annum, and are due on
January 3, 2005. In the chart below, these notes are considered to be long-term
liabilities. In addition, 70% of the amount due legacy liability creditors who
entered into settlement agreements and elected to receive such a promissory note
under certain conditions is also classified as a long-term liability. All other
amounts due legacy liability creditors, including 30% of the amount due those
legacy liability creditors who elected to receive promissory notes under certain
conditions, are classified as short-term liabilities.

During 2002, the Company was able to decrease total legacy liabilities by
$1,230. The company settled $1,179 for $393 in cash and $10 in common stock in
2002, resulting in gains on settlements of $823. These gains on settlements are
recorded on the statement of operations as Other Income (See note (11)). Of the
remaining $105 as of December 31, 2002, $53 reflected amounts due under a
settlement agreement entered into in December 2002, which was paid in January
2003 and resulted in a gain of $123 being recognized in 2002.

Corporate legacy liabilities are classified as long-term or short-term
obligations below, depending on which option under the restructuring plan the
creditor accepted and consisted of the following as of December 31;

(9) LEGACY LIABILITIES OF INSOLVENT SUBSIDIARY

Legacy liabilities of insolvent subsidiary relate to amounts owed by BRBA.
BRBA became insolvent and ceased operations in the fourth quarter of 2001. All
of BRBA's assets were collateral for obligations owed to Comerica under the
Company's credit facility.

On June 28, 2002 BRBA filed for liquidation under Chapter 7 of the
bankruptcy code, and the Company no longer controls BRBA. As a result, BRBA's
financial position has not been included in the Company's consolidated results
since the bankruptcy filing date. This resulted in the Company recording a gain
of $1,467 during the year ended December 31, 2002, which is included in Other
Income on the Statement of Operations, representing the elimination of the net
liabilities of BRBA at the filing date. On September 3, 2002 the Chapter 7
trustee filed a no-asset report and application to close the BRBA bankruptcy
case.

Legacy liabilities of insolvent subsidiary consist of the following as of
December 31:

As of December 31, 2001, the Office of the Comptroller of Public Accounts in
the state of Texas was auditing BRBA for potential sales tax liability for the
years ending 1997 through 2000. The Comptroller's office filed a preliminary
audit report in December 2001 claiming that approximately $7,000, including
approximately $2,000 in penalties and interest, was due from BRBA for potential
sales tax liability for the years ending 1997 through 2000. The tax assessment
was, in effect, based on all of the subsidiary's revenues. As of December 31,
2001, based on all available information, management estimated that the actual
net BRBA sales tax liability was

46

approximately $600. In the second quarter of 2002 the Company and the Office of
the Comptroller of Public Accounts agreed that the liability was $600 and that
it was solely the responsibility of BRBA.

(10) CONVERTIBLE NOTES PAYABLE, NET

Convertible notes payable, net consists of the following as of December 31:

On July 26, 2001, the Company completed a private placement through the
issuance of approximately $1,100 of convertible notes, (Series 1 Convertible
Subordinated Promissory Notes) to a group of investors, including members of
BrightStar's senior management. Related party notes from current senior
management totals $166. The notes are secured on a junior basis by substantially
all of the assets of the Company and its operating subsidiaries, and are
convertible into common stock, at the option of the investors, at a fixed price
of $0.23 per share, subject to anti-dilution provisions. In addition, the
investors received approximately 718,000 warrants, exercisable at $0.50 per
share. The notes are mandatorily convertible, at the Company's option, into
common stock at $0.23 per share, subject to anti-dilution provisions, if: (i)
the market price of the Company's common stock, determined on a 20-day moving
average basis, equals or exceeds $0.50; and (ii) the investor may lawfully sell
all of the common stock issuable upon conversion and the common stock issuable
upon exercise of Warrants held by the investor, either under an effective
registration statement, or under Rule 144; and (iii) at least $2,300 of legacy
liabilities have been restructured. The notes are entitled to simple interest
calculated at a rate per annum equal to 8%. Interest may be paid at the option
of the Company for the first year from the date of the notes (subsequently
extended for another year during the second quarter of 2002) by issuing
additional convertible notes and warrants with the same terms as above. The
Company has elected to pay the interest due on the notes from inception through
December 31, 2002 by issuing additional notes and warrants. The Company has
issued a total of $108 new convertible notes and 70,581 additional warrants to
satisfy these interest payments. In addition, 70,000 warrants were issued to the
placement agent for the transaction at an exercise price of $1.00 per share.
Total warrants issued to investors were valued at $142 under the provisions of
APB No.14 and EITF 00-27, and will be amortized as additional interest expense
over the life of the debt. Amortization expense for the year ended December 31,
2002 and 2001 amounted to $48 and $19, respectively.

(11) SETTLEMENTS OF LEGACY LIABILITIES AND OTHER INCOME

Settlements of legacy liabilities and other income consisted of the
following for the years ended December 31:

For the year ended December 31, 2002, see Note (8) for a discussion on
the gain of $823 reported as settlement of legacy liabilities and see Note (9)
for the gain of $1,467 reported as legacy liabilities of insolvent subsidiary.

For the year ended December 31, 2001, the Company recorded
extraordinary gains that relate to the early extinguishment of debts. The
Company was able to settle legacy liabilities for cash payments totaling $255,
resulting in a extraordinary gain of $1,157, including the settlement of the
$900 stockholders payable and the $500 Prosap obligation. To conform with
implementation of SFAS 145, these extraordinary gains were reclassified to
Settlements of legacy liabilities and other Income for 2001.

(12) STOCKHOLDERS' EQUITY

Capital Stock

For the year ended December 31, 2001, authorized capital shares of the
Company totaled 38,000,000 shares, which consisted of 3,000,000 shares of
preferred stock and 35,000,000 shares of common stock. Rights, preferences and
other terms of the preferred

47

stock will be determined by the board of directors at the time of issuance. No
preferred stock was outstanding at December 31, 2001.

On June 18, 2002 at the Annual Meeting of Stockholders, the
stockholders approved an amendment to the Company's Certificate of Incorporation
to (i) increase the number of shares of all classes of stock that the Company is
authorized to issue from 38,000,000 to 75,000,000 and (ii) to designate all
37,000,000 of the additional authorized shares as Common Stock.

On June 21, 2001 at the Annual Meeting of Stockholders, the
stockholders authorized the Board of Directors, at its discretion, to effect a
reverse stock split of up to 20 shares for 1 share of the Company's common
stock. As of March 28, 2003, the reverse stock split, which is subject to
approval by the convertible note holders, had not been authorized by the Board
of Directors.

Common Stock Warrants, Stock Options and Stock Awards

Stock Options -- During 1998 and 2000, the 1997 and 2000 Long-Term
Incentive Plans (the "Plans") were established, which provide for the issuance
of incentive and non-qualified stock options, restricted stock awards, stock
appreciation rights or performance stock awards. As of December 31, 2001, the
total number of shares that could be issued under the Plans was 4,000,000
shares, of which only 3,930,000 shares could be granted for incentive stock
options and 70,000 for nonqualified stock options. On June 28, 2002 at the
Annual Meeting of Stockholders, the stockholders approved an amendment of the
Company's 2000 Long-Term Incentive Plan to increase the number of shares
issuable thereunder by 2,000,000. Therefore, as of December 31, 2002, the total
number of shares that may be issued under the Plans is 6,000,000, of which
5,930,000 shares may be granted for incentive stock options and 70,000 for
nonqualified stock options. Options and restricted stock awards, which
constitute the only issuance under the incentive plans as of December 31, 2002,
have been generally granted at or above the fair value of the Company's common
stock on the date of grant. The Company also granted restricted common stock to
individuals during the year that are considered grants outside of the Plans. The
Plans do not allow the granting of stock options to independent consultants and
therefore any such grants are considered outside of the Plans. The Plans also
previously limited the amount of stock options granted to any one individual in
any one year to 200,000 shares. This limit was increased to 1,000,000 shares at
the Annual Meeting of Stockholders on June 18, 2002. Any grants of stock options
over the 1,000,000 share limit to any individual are considered grants outside
of the Plans as well. The following table summarizes the Plans' stock option and
stock award activity:

(a) 3,461,301, 227,900 and 120,000 options and restricted stock awards are
outstanding at $0.01 - $0.10, $0.30 - $1.00 and $6.00, respectively

(b) 2,871,483, 227,900 and 120,000 options and restricted stock awards are
outstanding at $0.01 - $0.10, $0.30 - $1.00 and $6.00, respectively

As of December 31, 2001, grants outside the Plans consist of 40,000
options with an exercise price of $1.00 per share to the son of Mr. Wagda, the
Company's CEO, who worked as an independent contractor for the Company on
special projects during the fourth quarter of 2000 and the first quarter of
2001. His compensation consisted of cash payments of $19 for 2001 and the 40,000
options. The remaining options of 580,060 belong to Mr. Wagda, as part of his
compensation package. All of Mr. Wagda's options were cancelled in connection
with the restricted stock issuance made to him in February 2002.

As of December 31, 2002, grants outside the Plans also include stock
issued in lieu of the cash bonuses awarded in 2001 to Mr. Wagda and Mr. Czaja.
On February 15, 2002, the compensation committee of the Board of Directors voted
to issue fully-vested stock

48

outside the Plans to Mr. Wagda and Mr. Czaja of 750,000 and 250,000 shares,
respectively, in full satisfaction of cash bonuses awarded for 2001.

On February 12, 2002, the compensation committee of the board of
directors voted to take actions that resulted in the repricing of approximately
900,000 existing stock options to active participants under the Company's
long-term incentive plans to a new exercise price of $0.05 per share, which was
determined to be the fair market value by the Board of Directors based upon the
prior 20-day average closing price. The market close price on February 12, 2002
was $0.07. Since the market closing price was greater than the exercise price of
the newly granted options, the difference of $0.02 per share, approximately $17,
was recorded as unearned compensation and will be recognized over the remaining
vesting period of the repriced options. These repriced stock options are
accounted for as variable awards, and accordingly, the Company will record any
increase of the fair market value of the underlying stock over the market
closing price of $0.07 on the day of the repricing as compensation expense in
the appropriate quarter. For the year ended December 31, 2002, no compensation
expense has been recorded since the closing price at the end of each of the four
quarters of 2002 was lower than $0.07.

The Company also awarded on February 12, 2002 approximately 910,000 new
options with respect to active participants under the Company's long-term
incentive plans. The exercise price of all affected options was $0.05 per share,
which was the fair market value as determined by the Board of Directors based
upon the prior 20-day average closing price. The market closing price on
February 12, 2002 was $0.07. Since the market closing price was greater than the
exercise price of the newly granted options, the Company recorded compensation
expense of $18, which will be amortized monthly over 3 years, the vesting period
of the grants. The unamortized portion is recorded as unearned compensation on
the balance sheet as of December 31, 2002. For the year ended December 31, 2002,
the Company recorded a total of $13 as an expense for the repricing and granting
of new stock options.

Also on February 15, 2002, the compensation committee voted to take
actions that resulted in restricted stock awards to Mr. Wagda, the Company's
Chief Executive Officer, and Mr. Czaja, the Company's Chief Financial Officer,
of 750,000 and 250,000 shares, respectively. In return for granting of these
shares, the stock options previously granted to Mr. Wagda and Mr. Czaja totaling
780,060 and 500,000 options (including 300,000 options granted to Mr. Czaja on
February 12, 2002), respectively, were cancelled. The restricted stock grants
were issued inside the Plans and vest monthly over a 2-year period. The Company
recorded compensation expense of $60, which is being amortized monthly over 2
years. For the year ended December 31, 2002, the Company recorded a total
compensation expense of $34 for restricted stock grants.

On November 5, 2002, the Board of Directors approved the vesting of the
remaining 166,667 unvested shares of Mr. Czaja's restricted stock award, subject
to certain conditions. During the fourth quarter ending December 31, 2002, the
Company recorded an additional compensation expense of $10 for this transaction.

Pro forma disclosures required under SFAS No. 123 are presented below.
The pro forma compensation cost may not be representative of that expected in
future years.

Compensation cost for 2002, 2001 and 2000 was calculated in accordance
with the binomial model, using the following weighted average assumptions: (i)
expected volatility of 123%, 114% and 192%; (ii) expected dividend yield of 0%
in all three years; (iii) expected option term of 10 years in all three years;
(iv) risk-free rates of return of 1.74%, 5.50% and 6.00%; and (v) expected
forfeiture rates of 40%, 38% and 11%, respectively.

Recent Sales of Unregistered Securities.

Set forth below is certain information concerning all issuances of
securities by BrightStar within the past three years that were not registered
under the Securities Act.

49

1. On March 10, 2000, pursuant to an agreement with Strong River
Investments, Inc., and Montrose Investments Ltd. (collectively, the
"Purchasers"), the Company sold to the Purchasers 709,555 shares of the
Company's common stock (the "Shares") for $7,500, or $10.57 per share. In
connection with the purchase of the Shares, the Company issued two warrants to
the Purchasers. One warrant had a five-year term during which the Purchasers
could purchase up to 157,500 shares of the Company's common stock at a price of
$12.00 per share. The second warrant covered an adjustable amount of shares of
the Company's common stock. Pursuant to the terms of the adjustable warrants,
the holders thereof elected to fix the number of common shares issuable under
such warrants at 1,525,000 shares in the aggregate. Such shares were issued on
September 29, 2000, at an exercise price of $0.001 per share. The Company also
issued to Wharton Capital Partners Ltd. ("Wharton"), as compensation for
Wharton's services as placement agent in connection with this transaction, a
warrant with a five-year term during which Wharton may purchase up to 45,000
shares of the Company's common stock at a price of $12.00 per share.

2. On June 23, 2000, the Company issued 668,468 shares of common stock
to the prior owners of ISC as payment for the remaining amount of $2,500 due in
connection with the 1999 acquisition of ISC.

3. On January 16, 2001, the prior owners of Cogent Technologies LLC
("Cogent") were issued 1,020,000 shares of our common stock in partial
settlement of a claim by them related to the unpaid balance of the purchase
price for the assets and business of Cogent and amounts due under employment
agreements with us.

4. On February 15, 2001, Kevin J. Murphy was issued 100,000 shares of
our common stock in connection with the commencement of his employment with the
Company.

5. On February 15, 2001, certain of our former employees were issued
346,831 shares of our common stock in satisfaction of remaining severance
payment obligations under prior employment agreements with the Company.

6. On February 15, 2001, Unaxis Trading Limited ("Unaxis") was issued
250,000 shares of our common stock in settlement of litigation between the
Company and certain affiliates of Unaxis. Pursuant to the settlement agreement
(which was agreed upon in principle, on November 3, 2000), if, prior to a sale
of these shares by Unaxis, the Company had not exercised its right to call the
shares for $1.60 per share, Unaxis may exercise its right to put the shares to
the Company for a price of $2.00 per share during the 15 day period commencing
on February 1, 2002. During December 2001, the Company purchased the shares back
from Unaxis for a $120 payment.

7. On May 4, 2001, 257,400 shares of our common stock were issued to
the owners of Cogent, Unaxis and various former employees in satisfaction of our
obligations to pay penalties to them under the terms of various registration
rights agreements.

8. On July 26, 2001, the Company issued and sold approximately $1,100
of convertible notes to a group of investors, including members of BrightStar
senior management. The notes are convertible into common stock, at the option of
the investors, at a fixed price of $0.23 per share, subject to anti-dilution
provisions. In addition, the investors received approximately 718,000 warrants,
exercisable at $0.50 per share. The notes are mandatorily convertible, at the
Company's option, into common stock at $0.23 per share, subject to anti-dilution
provisions, if: (i) the market price of the Company's common stock, determined
on a 20-day moving average basis, equals or exceeds $0.50; and (ii) the
investors may lawfully sell all of the common stock issuable upon conversion and
the common stock issuable upon exercise of Warrants held by the investor, either
under an effective registration statement, or under Rule 144; and (iii) at least
$2,300 of the past due payables have been restructured. In addition, 70,000
warrants were issued to Brewer Capital Group, LLC, which acted as placement
agent for the transaction, at an exercise price of $1.00 per share. The net
proceeds of this transaction were used for general corporate purposes.

9. In November 2001, the Company engaged a financial advisor to assist
the Company in obtaining additional long-term financing. As part of the
financial advisor's compensation for this engagement, and in addition to a $25
retainer fee paid to the advisor, the Company has agreed to the issuance of
warrants to purchase 100,000 shares of the Company's common stock at an exercise
price of $0.05 per share. These warrants will expire in November 2004.

10. On February 15, 2002, 1,500,000 shares and 500,000 shares of
restricted common stock were issued to Joseph A. Wagda and Kenneth A. Czaja,
respectively, in connection with their employment with the Company.

11. On August 1, 2002, 20,000 shares of our common stock were issued to
a vendor in full satisfaction of our obligation to pay them for services
rendered.

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12. On a quarterly basis, starting on October 1, 2001 and continuing on
January 1, 2002, April 1, 2002, July 1, 2002, October 1, 2002 and January 1,
2003, the Company issued additional convertible notes of $16, $22, $23, $23, $24
and $24, respectively, to the same group of investors as the issuances of July
26, 2001 for payment in kind of interest due on the original issuance of notes
and subsequent issuances of notes as payment in kind for interest due. In
addition, the investors received in total for all the quarterly issuances
mentioned above approximately 87,000 warrants, exercisable at $0.50 per share.
The notes carry the same characteristics as the notes issued on July 26, 2001.

(13) INCOME TAXES

The components of income (loss) before income taxes from continuing
operations and the related income taxes provided for the years ended December
31, are presented below:

The Company's deferred tax assets, at an effective tax rate of 38.5%,
are reflected below as of December 31:

At December 31, 2002, the Company has a net operating loss carryforward
("NOL") of approximately $12,700 for federal income tax purposes, which will
expire in years 2018 through 2022. This NOL does not include approximately
$6,400 of NOL's associated with BRBA, which because of its bankruptcy filing,
were eliminated in 2002. Utilization of the federal NOL's and credits may be
subject to a substantial annual limitation in the future if there were a "change
in ownership" as defined by the Internal Revenue Code of 1986. Such a change in
ownership would likely result in the expiration of the great majority of the
NOL's before utilization.

The table below reconciles the expected U.S. federal statutory tax to
the recorded income tax as of December 31:

51

(14) EMPLOYEE BENEFIT PLANS

The Company has a 401(k) plan that covers substantially all of its U.S.
employees. The Company may provide matching contributions of up to 6% of the
employee's base salary. Employees would vest in Company contributions evenly
over five years from their date of employment. Employer matching and profit
sharing contributions are discretionary, and, to date, no matching or profit
sharing contributions have been made.

(15) LITIGATION

The Company is from time to time involved in litigation incidental to
its business. The Company believes that the results of such litigation will not
have a materially adverse effect on the Company's financial condition.

(16) COMMITMENTS AND CONTINGENCIES

The Company leases office space and computer and office equipment under
various operating lease agreements that expire at various dates through December
2006. Minimum future commitments under these agreements for the years ending
December 31 are: 2003, $47; 2004, $19; 2005, $8; and 2006, $0.

Rent expense was $223, $1,444, and $2,464 during the periods ended
December 31, 2002, 2001, and 2000, respectively.

Employment Agreements --Mr. Wagda entered into a two-year employment
contract with the Company on February 15, 2002. The terms of the agreement
include annual salary compensation of $300 beginning May 1, 2002 and $350
beginning May 1, 2003, the immediate vesting of stock awards upon a qualifying
termination or a change of control and 12 months severance pay in the event of a
qualifying termination. Mr. Wagda also received 750,000 restricted shares of
common stock effective February 15, 2002, which vest monthly over a 2-year
period. In return for the stock award, all stock options previously granted,
totaling 780,060, were cancelled. The agreement also calls for a bonus of up to
200% of base salary. For the year ended December 31, 2002 Mr. Wagda was given as
a bonus an additional month of paid vacation, having an approximate value of
$25. For 2003, the bonus will be based on the achievement of agreed-upon
performance goals. Mr. Wagda may also be awarded restricted stock or stock
options as incentive compensation in the future at the discretion of the Board
of Directors. Mr. Wagda is eligible to participate in all of the Company's
employee benefit plans.

Mr. Czaja entered into an employment agreement with the Company in
April 2001. Mr. Czaja's agreement provided for a base salary of $175. Effective
May 1, 2002, Mr. Czaja's annual salary was increased to $200. Mr. Czaja also
received 250,000 restricted shares of common stock effective February 15, 2002,
which vest monthly over a 2-year period. In return for the stock award, all
stock options previously granted totaling 500,000 (including 300,000 option
shares granted on February 12, 2002), were cancelled. Mr. Czaja also was
eligible to receive a bonus of up to a total of 50% of his base salary based
upon the achievement of certain operating results of the Company. Mr. Czaja's
employment was terminable without cause upon six month's notice and Mr. Czaja
was entitled to six months severance if terminated upon a change of control. Mr.
Czaja separated from the Company on October 31, 2002. Upon the separation of Mr.
Czaja in October 2002, the remaining unvested portion of Mr. Czaja's shares,
totaling 166,667, were fully-vested by the Board of Directors, with certain
conditions.

(17) SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION

For 2002, the Company had revenues from three unrelated customers,
which accounted for approximately 29%, 25% and 10%, respectively, of total
revenues. These same three customers accounted for approximately 34%, 9% and
15%, respectively, of the total outstanding accounts receivable as of December
31, 2002.

For 2001, revenues from three unrelated customers accounted for
approximately 17%, 12% and 10%, respectively, of total revenues. Two of the
customers accounted for approximately 20% and 13%, respectively, of the total
outstanding accounts receivable balance as of December 31, 2001. Another
customer accounted for approximately 14% of the total outstanding accounts
receivable balance as of December 31, 2001.

The Company did not have any customer, individually or considered as a
group under common ownership that accounted for 10% of revenues or accounts
receivable as of or for the year ended December 31, 2000.

The Company operates in a single segment as a provider of IT services.
From April 16, 1998, until the sale of the Company's

52

Australian operations in December 2000, the Company operated in primarily two
geographic regions. Prior to April 16, 1998 and subsequent to December 2000, the
Company primarily operated in the United States. Specific information related to
the Company's geographic areas are found in the following table for the years
ended December 31:

(18) QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)

Quarterly consolidated results of operations consist of the following
as of December 31;

As a result of the Company implementing SFAS No. 142 and performing the
impairment test as SFAS No. 142 requires, a goodwill impairment loss of $9,900
was recognized in the fourth quarter of 2002, which is when the test was
completed, and recorded as of the first quarter of 2002 as a change in
accounting principle. Also as part of SFAS No. 142 and included in the change in
accounting principle amount, the Company wrote off $45 related to an intangible
asset.

53

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE II

To the Board of Directors
BrightStar Information Technology Group, Inc.

In connection with our audit of the consolidated financial statements of
BrightStar Information Technology Group, Inc., referred to in our report dated
February 7, 2003, which is included in the annual report on Form 10-K, we have
also audited Schedule II for the year ended December 31, 2002. In our opinion,
this schedule presents fairly, in all material respects, the information
required to be set forth therein.

/s/ Stonefield Josephson, Inc.
- -------------------------------
Walnut Creek, California
February 7, 2003

54

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE II

To the Board of Directors and Stockholders
BrightStar Information Technology Group, Inc.

In connection with our audit of the consolidated financial statements
of BrightStar Information Technology Group, Inc., referred to in our report
dated February 15, 2002 which is included in the annual report on Form 10-K, we
have also audited Schedule II for the years ended December 31, 2001, and 2000.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.

/s/ Grant Thornton LLP

San Jose, California
February 15, 2002

55

INDEX TO EXHIBITS

These Exhibits are numbered in accordance with the Exhibit Table of
Item 601 of Regulation S-K:

(a) The following documents are filed as part of this report:

10.2 -- Agreement and Plan of Exchange by and
among BrightStar and the holders of the
outstanding capital stock of Brian R.
Blackmarr and Associates, Inc. (Incorporated
by reference from Exhibit 10.2 to
BrightStar's Registration Statement on Form
S-1 filed December 24, 1997 (File No.
333-43209)).

10.3 -- Agreement and Plan of Exchange by and
among BrightStar and the holders of the
outstanding capital stock of Integrated
Controls, Inc. (Incorporated by reference
from Exhibit 10.3 to BrightStar's
Registration Statement on Form S-1 filed
December 24, 1997 (File No. 333-43209)).

10.4 -- Agreement and Plan of Exchange by and
among BrightStar and the holders of the
outstanding capital stock of Mindworks
Professional Education Group, Inc.
(Incorporated by reference from Exhibit 10.4
to BrightStar's Registration Statement on
Form S-1 filed December 24, 1997 (File No.
333-43209)).

10.5 -- Agreement and Plan of Exchange by and
among BrightStar, Software Consulting
Services America, LLC and the holders of the
outstanding ownership interests of Software
Consulting Services America, LLC
(Incorporated by reference from Exhibit 10.5
to BrightStar's Registration Statement on
Form S-1 filed December 24, 1997 (File No.
333-43209)).

10.6 -- Agreement and Plan of Exchange by and
among BrightStar and Software Consulting
Services Pty. Ltd., in its capacity as
Trustee of the Software Consulting Services
Unit Trust and the holders of all of the
outstanding ownership interests in the
Software Consultants Unit Trust
(Incorporated by reference from Exhibit 10.6
to BrightStar's Registration Statement on
Form S-1 filed December 24, 1997 (File No.
333-43209)).

10.7 -- Agreement and Plan of Exchange by and
among BrightStar and the holders of the
outstanding capital stock of Software
Innovators, Inc. (Incorporated by reference
from Exhibit 10.7 to BrightStar's
Registration Statement on Form S-1 filed
December 24, 1997 (File No. 333-43209)).

10.8 -- Agreement and Plan of Exchange by and
among BrightStar and the holder of the
outstanding capital stock of Zelo Group,
Inc., and Joel Rayden (Incorporated by
reference from Exhibit 10.8 to BrightStar's
Registration Statement on Form S-1 filed
December 24, 1997 (File No. 333-43209)).

10.9 -- Form of Employment Agreement between
BrightStar and Marshall G. Webb, Thomas A.
Hudgins and Daniel M. Cofall (Incorporated
by reference from Exhibit 10.9 to Amendment
No. 1 to BrightStar's Registration Statement
on Form S-1 filed February 27, 1998 (File
No. 333-43209)).*

10.10* -- Employment Agreement between Software
Consulting Services America, Inc., and
Michael A. Ober.

10.11* -- Office Lease dated November 11, 1998,
between Principal Life Insurance Company and
BrightStar.

10.12* -- Employment Agreement dated January 31,
1999, between BrightStar and Donald Rowley.

10.13 -- Employment Agreement between Brian R.
Blackmarr and Associates, Inc. and Brian R.
Blackmarr (Incorporated by reference from
Exhibit 10.10 to Amendment No. 1 to
BrightStar's Registration Statement on Form
S-1 filed February 27, 1998 (File No.
333-43209)).

10.14 -- Letter Agreement dated August 14, 1997,
between BITG and McFarland, Grossman and
Company, Inc., and amended as of March 17,
1998 (Incorporated by reference from Exhibit
10.11 to Amendment No. 2 to BrightStar's
Registration Statement on Form S-1 filed
March 24, 1998 (File No. 333-43209)).

10.15 -- Letter Agreement dated September 26,
1997, between BITG and Brewer-Gruenert
Capital Advisors, LLC, and amended as of
December 15, 1997 (Incorporated by reference
from Exhibit 10.12 to BrightStar's
Registration Statement on Form S-1 filed
December 24, 1997 (File No. 333-43209)).

10.16 -- Loan Agreement dated October 16, 1997,
between BITI and BITG (Incorporated by
reference from Exhibit 10.13 to Amendment
No. 1 to BrightStar's Registration Statement
on Form S-1 filed February 27, 1998 (File
No. 333-43209)).

10.17* -- Stock Repurchase Agreement between
BrightStar and Marshall G. Webb, Daniel M.
Cofall, and Thomas A. Hudgins.

10.18* -- Agreement Regarding Repurchase of Stock
by and among BrightStar, George M. Siegel,
Marshall G. Webb, Thomas A. Hudgins, Daniel
M. Cofall, Mark D. Diggs, Michael A. Sooley,
Michael B. Miller, and Tarrant Hancock.

10.19* -- Amendment to Agreement and Plan of
Exchange dated as of June 5, 1998, and
BrightStar and the holder of the outstanding
capital stock of Zelo Group, Inc., and Joel
Rayden.

10.20* -- Deed of Variation dated as of April 17,
1998, by and among BrightStar and Software
Consulting Services Pty. Ltd., and Kentcom
Pty. Ltd., Salvatore Fazio, Pepper Tree Pty.
Ltd., Christopher Richard Banks, Cedarman
Pty. Ltd, Stephen Donald Caswell, Quicktrend
Pty. Ltd., Desmond John Lock, Kullamurra
Pty. Ltd., Robert Stephen Langford, KPMG
Information Solutions Pty. Ltd., and Data
Collection Systems Integration Pty. Ltd.

10.21* -- Asset Purchase Agreement dated as of June
30, 1998, among BrightStar, Cogent
Acquisition Corp., Cogent Technologies, LLC
and the holders of all the outstanding
membership interest of Cogent Technologies,
LLC.

10.22* -- Asset Purchase Agreement dated as of
August 31, 1998, among BrightStar, Software
Consulting Services America, Inc., TBQ
Associates, Inc., and the holders of all the
outstanding capital stock of TBQ Associates,
Inc.

10.23 -- Stock Purchase Agreement dated as of
September 30, 1998, among BrightStar,
BrightStar Group International, Inc., and
the holders of the outstanding capital stock
of PROSAP AG (Incorporated by reference from
Exhibit 2.1 to the Current Report on Form
8-K of BrightStar dated November 10, 1998.

10.24* -- Factoring Agreement and Security
Agreement dated January 22, 1999, among
Metro Factors, Inc., dba Metro Financial
Services, Inc., Brian R. Blackmarr and
Associates, Inc., Software Consulting
Services America, Inc., Software Innovators,
Inc., and Integrated Controls, Inc.

10.25* -- Guaranty dated January 22, 1999, by
BrightStar for the benefit of Metro Factors,
Inc., dba Metro Financial Services, Inc.

10.26* -- Severance Agreement and Release effective
November 20, 1998, between BrightStar and
Thomas A. Hudgins.

10.27* -- Severance Agreement and Release effective
January 31, 1999, between BrightStar and
Daniel M. Cofall.

10.28* -- Severance Agreement and Release effective
January 31, 1999, between BrightStar and
Marshall G. Webb.

10.29* -- Revolving Credit Agreement dated March
29,1999, between BrightStar and Comerica
Bank.

10.30* -- Form of subsidiaries guaranty dated March
29,1999, between BrightStar subsidiaries and
Comerica Bank.

10.31* -- Security Agreement (Negotiable
collateral) dated March 29,1999, between
BrightStar and Comerica Bank.

10.32* -- Security Agreement (all assets) dated
March 29, 1999, between BrightStar and
Comerica Bank.

10.33* -- $15,000,000 Revolving Note dated March
29, 1999, from BrightStar to Comerica Bank

10.34* -- Asset Purchase Agreement Among BrightStar
Information Technology Group, Inc., Software
Consulting Services America, Inc.,
Integrated Systems Consulting, LLC and the
individuals owning all of the membership
interests of Integrated Systems Consulting,
LLC dated as of April 1, 1999.

10.35* -- Securities Purchase Agreement among
BrightStar Information Technology Group,
Inc., Strong River Investments, Inc., and
Montrose Investments LTD.

10.36 -- Employment Agreement between BrightStar
Information Technology Group, Inc. and
Kenneth A. Czaja

10.37 -- Employment Agreement between BrightStar
Information Technology Group, Inc. and
Joseph A. Wagda

10.38 -- $750,000 Line of Credit dated December
16, 2002, from BrightStar and BFI Business
Finance.

10.39 -- Office Lease dated December 19, 2002
between Olympic Funding and BrightStar.

16.1* -- Letter from Grant Thornton LLP to the
Securities and Exchange Commission.

21.1* -- List of Subsidiaries of the Company.

23.1 -- Consent of Stonefield Josephson, Inc.

23.2 -- Consent of Grant Thornton LLP.

99.1 -- Certification of Principal Officers to
SEC. 1350

* Exhibits have been previously filed.