<PAGE>
As filed with the Securities and Exchange Commission on August 9, 1999
Registration No. 333-79251
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
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Braun Consulting, Inc.
(Exact name of registrant as specified in its charter)
Delaware 7379 36-3702425
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code Number)
organization)
Gregory A. Ostendorf
General Counsel and Secretary
30 West Monroe, Suite 300 30 West Monroe, Suite 300
Chicago, Illinois 60603 Chicago, Illinois 60603
(312) 984-7000 (312) 984-7000
(Address, including zip code, and (Name, address, including zip code,
telephone number, and telephone number,
including area code, of registrant's including area code, of agent for
principal executive offices) service)
Copies to:
Marcus A. Watts Jeffrey A. Schumacher
Locke Liddell & Sapp LLP Sachnoff & Weaver, Ltd.
3400 Chase Tower 30 South Wacker Drive, Suite 2900
Houston, Texas 77002 Chicago, Illinois 60606
(713) 226-1200 (312) 207-1000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered(1) per Share(2) Offering Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share........... 5,290,000 $9.00 $47,610,000 $13,236
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</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(3) A registration fee of $15,985 was paid in connection with the original
filing on May 25, 1999 and an additional fee of $1,663 was paid in
connection with the filing of Amendment No. 1 on July 1, 1999.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
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Prospectus
, 1999
[BRAUN CONSULTING LOGO]
4,600,000 Shares of Common Stock
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Braun Consulting, Inc.: The Offering:
. We are an Internet . We are offering 4,600,000
professional services shares of our common stock.
provider that delivers
comprehensive business
solutions to our clients.
. The underwriters have an
option to purchase an
additional 690,000 shares
from existing stockholders
to cover over-allotments.
. Braun Consulting, Inc. 30
West Monroe, Suite 300
Chicago, Illinois 60603
(312) 984-7000
. This is our initial public
offering, and no public
market currently exists for
our shares. We anticipate
that the initial public
offering price will be
between $7.00 and $9.00 per
share.
Proposed Symbol & Market:
. BRNC/Nasdaq National Market
. Closing: , 1999.
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<TABLE>
<CAPTION>
Per Share Total
-----------------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to Braun Consulting, Inc.:
</TABLE>
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This investment involves risk. See "Risk Factors" beginning on page 5.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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Donaldson, Lufkin & Jenrette
Salomon Smith Barney
Adams, Harkness & Hill, Inc.
DLJdirect Inc.
<PAGE>
(First fold inside front cover)
[eSolutions logo]
Copy: Braun Consulting is a provider of a new category of professional services
called eSolutions. Our eSolutions integrate strategy, customer information and
the Internet to help clients succeed in electronic commerce, enhance
relationships with customers and increase revenues.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Special Note Regarding Forward-
Looking Statements................. 12
Where You Can Find More Information. 13
Corporate Information............... 13
Use of Proceeds..................... 14
Dividend Policy..................... 14
Capitalization...................... 15
Dilution............................ 16
Selected Consolidated Financial
Data............................... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business.............................................................. 26
Management............................................................ 39
Certain Relationships and Related Transactions........................ 46
Principal Stockholders................................................ 48
Description of Capital Stock.......................................... 49
Shares Eligible for Future Sale....................................... 52
Underwriting.......................................................... 54
Legal Matters......................................................... 57
Experts............................................................... 57
Index to Consolidated Financial Statements............................ F-1
</TABLE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission. You should read this prospectus together
with the additional information described under the heading "Where You Can Find
More Information."
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified by more detailed information appearing in other
sections of this prospectus. The other information is important, so please read
this entire prospectus carefully.
Our Company
Braun Consulting is an Internet professional services provider delivering
comprehensive business solutions to clients. Our service approach combines
strategy, advanced Internet application development skills and information
technology. We identify these comprehensive business solutions as "eSolutions."
Our eSolutions are designed to help clients enable electronic commerce, improve
customer relationships, drive revenue growth and provide a measurable return on
their investments. Through our proprietary project management approach, we
provide services to our Fortune 500 and middle-market clients to help them
achieve competitive advantage in changing markets.
The rapid adoption of the Internet is transforming the business marketplace
and accelerating the shift toward electronic commerce, including both business-
to-business and business-to-consumer applications. According to International
Data Corporation, the demand by businesses for Internet-related professional
services will grow to $78.5 billion by 2003. We help clients identify
opportunities and transform their businesses by combining our skills and
expertise in the following areas:
. creating business and Internet strategies focused on a client's customers
to improve relationships and interactions with a client's most profitable
customers;
. using customer relationship management and data warehousing capabilities
through the Internet to sustain a client's revenue growth and enhance the
profitability of its products and services; and
. developing Internet, intranet and extranet applications that enable a
client's electronic commerce and facilitate the broad and immediate
distribution of information.
Customer relationship management is the process of capitalizing on
information relative to the preferences, buying patterns and other attributes
of our clients' customers. Data warehousing involves the collection and
organization of data from disparate sources and data warehouses make that data
available for reporting and analysis. Customer relationship management and data
warehousing are part of a larger information technology concept known as
business intelligence. Business intelligence is the collection and analysis of
business and customer information through the Internet and from other sources,
which is then used by business managers to make strategic decisions.
By integrating our business intelligence experience with our ability to
develop business strategies and Internet applications for our clients, we are
well positioned to provide comprehensive Internet professional services. Since
1993, we have provided services to more than 200 companies, including Ameren,
Ameritech, Cummins Engine, Eaton, Eli Lilly, Embratel, Motorola, Pharmacia &
Upjohn, Ralston Purina, Thomson Consumer Electronics, TMP Worldwide
(Monster.com owner) and Xerox.
1
<PAGE>
Our Business Strategy
Turbulence and changes in previously established markets, which can result
from innovation, globalization, deregulation or emerging technologies, provide
tremendous opportunities for organizations that are insightful and focused on
their customers. In the new millennium, businesses working to attain
competitive advantage in changing markets will be forced to use Web-based
business approaches and efficient management of business and customer
information. The Internet combined with strategies focused on customers and
business intelligence will enable a new era of business.
We believe clients dependent upon business and customer information and
effective use of the Internet will purchase Internet professional services from
qualified and proven providers. Our services are based on the integration of
the following:
. our Transform methodology, which is our proprietary project management
approach, specifically designed to deliver comprehensive Internet
professional services;
. experience in working with business and customer information, with an
emphasis on customer relationship management applications and data
warehousing;
. development of customer-focused and Internet business strategies; and
. development and integration of Web-based technologies, including
Internet, intranet and extranet applications.
The execution of our business strategy subjects us to risk. For example, we
operate in a competitive industry, and many of the larger competitors in our
industry have greater financial resources, larger client bases and greater
brand or name recognition than us. Further, our net income declined 52.1% to
$783,000 in 1998 compared to $1.6 million in 1997. Our success and growth
depend on our ability to increase our client engagements and to continue
recruiting and retaining qualified professionals to meet client demand. Our
ability to retain our senior management team is crucial to our success. Upon
completion of this offering, our directors, executive officers and their
affiliates will beneficially own, in the aggregate, 72.5% of our outstanding
common stock.
Our Growth Strategy
Our goal is to continue our growth by capitalizing on our position as a
provider of Internet professional services. Our strategies for achieving this
objective include:
. expanding our existing client relationships and maintaining a reputation
for delivering innovative Internet professional services and providing
client satisfaction that helps attract new clients;
. maintaining our culture by attracting qualified professionals and
retaining them with our training curriculum and our focus on leading-edge
technologies, professional development programs, incentive-based
compensation and a balanced lifestyle;
. capitalizing on our infrastructure, which includes an experienced senior
management team, a business development group and our proprietary
Transform Methodology and database; and
. pursuing strategic acquisitions to expand our expertise in new
technologies, gain access to additional talented professionals, expand
our geographic presence and increase our client base.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Braun Consulting common
stock offered.......... 4,600,000 shares
Common stock to be
outstanding after this
offering............... 16,949,466 shares (a)
Use of proceeds......... The net proceeds from this offering are estimated to be
approximately $32.7 million. We will use the net
proceeds for:
. the payment of S corporation distributions of
approximately $6.0 million;
. the retirement of approximately $3.0 million
of existing indebtedness;
. possible strategic acquisitions; and
. working capital and other general corporate purposes.
Proposed Nasdaq National
Market symbol.......... BRNC
</TABLE>
Unless stated otherwise, the information contained in this prospectus (1)
assumes that our common stock will be sold at $8.00 per share, which is the
mid-point of the range set forth on the cover page of this prospectus, (2)
gives effect to the acquisition of Vertex Partners, Inc., which closed on May
4, 1999 and was accounted for using the pooling-of-interests method of
accounting, (3) assumes that the underwriters' over-allotment option is not
exercised and (4) reflects our incorporation in Delaware immediately prior to
the consummation of this offering.
- --------------------
(a) The number of shares of common stock to be outstanding is as of June 30,
1999 and excludes (1) options outstanding as of June 30, 1999 to purchase
2,326,638 shares of common stock at a weighted average exercise price of
$2.84 per share and (2) 1,167,687 shares of common stock reserved as of
June 30, 1999 for issuance upon exercise of options that may be granted in
the future under our stock plans. See "Management--Stock Plans."
3
<PAGE>
Summary Consolidated Financial Data
The following table summarizes the consolidated financial data for our
business. You should read the following summary consolidated financial data
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our Consolidated Financial Statements and the Notes
thereto beginning on page F-1 of this prospectus.
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
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1994 1995 1996 1997 1998(a) 1998 1999
(As Restated)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Total revenues.......... $5,438 $8,435 $11,272 $19,508 $27,862 $12,205 $20,519
Operating income (loss). 534 712 1,697 1,859 748 (379) 1,975
Net income (loss)....... 521 647 1,659 1,635 783 (280) 1,885
Pro forma net income
(loss) (b)............. 296 358 975 1,014 323 (130) 1,048
Pro forma earnings
(loss) per share (c):
Basic.................. $ 0.03 $ (0.01) $ 0.08
Diluted................ 0.02 (0.01) 0.08
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1999
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Pro Forma as
Actual Pro Forma (d) Adjusted (d)(e)
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash...................................... $ 2,269 $ 2,269 $26,023
Total assets.............................. 13,576 13,576 37,330
Total debt................................ 2,970 2,970 --
Stockholders' equity...................... 5,832 (1,366) 31,358
</TABLE>
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(a) See Note 12 of the Notes to the Consolidated Financial Statements for the
year ended December 31, 1998.
(b) For all periods indicated except 1994, we operated as an S corporation and
were not subject to federal and certain state income taxes. In 1994, we
operated as a C corporation. On July 28, 1999, we terminated our status as
an S corporation and became subject to federal and state income taxes. Pro
forma net income (loss) for periods subsequent to 1994 reflects federal and
state income taxes as if we had not elected S corporation status for income
tax purposes. Pro forma net income (loss) for 1994 reflects federal and
state income taxes on a basis consistent with subsequent periods.
(c) Pro forma net income (loss) per share is calculated by dividing pro forma
net income (loss) by the pro forma weighted average number of common shares
outstanding after giving effect to the assumed issuance of shares of common
stock to generate sufficient cash to pay the S corporation distribution
amount of approximately $6.0 million, based on an assumed initial public
offering price of $8.00 per share.
(d) Pro forma reflects the S corporation distribution of approximately $6.0
million to our current stockholders and the recognition of a nonrecurring
tax liability, which would have been $2.1 million had the termination of
our S corporation status occurred as of June 30, 1999.
(e) Pro forma as adjusted reflects the sale of the shares of common stock
offered by this prospectus at an assumed initial public offering price of
$8.00 per share and after deducting the estimated underwriting discounts
and commissions and offering expenses and the application of the estimated
net proceeds from this offering.
4
<PAGE>
RISK FACTORS
Before you invest in our common stock, you should understand that such an
investment involves risk. You should carefully consider these risk factors as
well as all of the other information contained in this prospectus before you
decide to purchase shares of our common stock. If any of the following risks
actually occur, our business, financial condition and operating results could
be adversely affected. In such case, the trading price of our common stock
could decline and you may lose all or part of your investment.
We face risks arising from our business
We must recruit and retain qualified professionals to succeed in our labor-
intensive business
Our future success depends in large part on our ability to recruit and
retain project and engagement managers, strategists, engineers, and other
technical personnel and sales and marketing professionals. Qualified
professionals are in great demand and are likely to remain a limited resource
in the foreseeable future. Competition for qualified professionals is intense,
and the industry turnover rate for them is high. Any inability to recruit and
retain a sufficient number of qualified employees could hinder the growth of
our business. Our retention rate was approximately 88% in 1998 and 1997.
We depend on our senior management team, and the loss of any member may
adversely affect our business
We believe that our success will depend on the continued employment of our
senior management team. This dependence is particularly important to our
business because personal relationships are a critical element of obtaining and
maintaining client engagements. If one or more members of our senior management
team was unable or unwilling to continue in their present positions, such
persons would be difficult to replace and our business could be seriously
harmed. Accordingly, the loss of one or more members of our senior management
team could impact our future revenues. In addition, if any of these key
employees joins a competitor or forms a competing company, some of our clients
might choose to use the services of that competitor or new company instead of
our own. Furthermore, clients or other companies seeking to develop in-house
capabilities may hire away some of our key employees. Employee defections to
clients would not only result in the loss of key employees but could also
result in the loss of a client relationship or a new business opportunity. Any
losses of client relationships could seriously harm our business.
We may not realize benefits from our acquisition of Vertex Partners
We acquired Vertex Partners on May 4, 1999. Vertex Partners is a
professional services provider that designs and implements strategies focused
on its clients' customers. Achieving the expected benefits of the acquisition
will depend in part on the integration of our technology, operations and
personnel in a timely and efficient manner to minimize the risk that the
acquisition will result in the loss of clients or key employees and to minimize
the diversion of the attention of management. Among the challenges involved in
this integration is demonstrating to our clients that the acquisition will not
result in adverse changes in client service standards or business
5
<PAGE>
focus and demonstrating to our personnel that our business cultures are
compatible. There can be no assurance that we can successfully integrate the
business of Vertex Partners or that any of the anticipated benefits will be
realized, and failure to do so could seriously harm our business.
Potential future acquisitions could be difficult to integrate and adversely
affect our operating results
One of our strategies for growth is the acquisition of businesses.
Currently, we do not have any acquisitions pending. We may not be able to find
and consummate acquisitions on terms and conditions reasonably acceptable to
us. The acquisitions we do undertake may involve a number of special risks,
including:
. diversion of management's attention;
. potential failure to retain key acquired personnel;
. assumptions of unanticipated legal liabilities and other problems;
. difficulties integrating systems, operations and cultures; and
. amortization of acquired intangible assets.
Our failure to successfully manage future acquisitions could seriously harm
our operating results.
Our expenses may increase more rapidly than our revenues, and we may incur net
losses
In 1998, our revenues increased 42.8% and the number of our employees and
key executives increased 59.4%. In 1998, our net income decreased 52.1% to
$783,000 from $1.6 million in 1997. If our expenses increase more rapidly than
our revenues, we may incur net losses. In addition, our growth may place a
significant strain on our management and our operating and financial systems,
and our business will be harmed if our management and our systems cannot manage
our growth in a timely manner.
We have relied and expect to continue to rely on a limited number of clients
for a significant portion of our revenues
We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of clients. To the extent that any
significant client uses less of our services or terminates its relationship
with us, our revenues could decline substantially. As a result, the loss of any
significant client could seriously harm our business. In 1998, our ten largest
clients generated approximately 63% of our revenues, with Pharmacia & Upjohn,
Inc. accounting for 18.6% of our revenues. The volume of work that we perform
for a specific client is likely to vary from year to year, and a significant
client in one year may not use our services in a subsequent year.
6
<PAGE>
Our failure to meet client expectations could result in losses and negative
publicity
We create, implement and maintain eSolutions and other applications that are
often critical to our clients' businesses. Any defects or errors in our
eSolutions or other applications or failure to meet clients' expectations could
result in:
. delayed or lost revenues due to adverse client reaction;
. requirements to provide additional services to a client at no
charge;
. negative publicity, which could damage our reputation and adversely
affect our ability to attract or retain clients; and
. claims for substantial damages against us, regardless of our
responsibility for such failure.
While many of our contracts limit our liability for damages that may arise
from negligent acts, errors, mistakes or omissions in rendering services to our
clients, we cannot be sure that these contractual provisions will protect us
from liability for damages in the event we are sued. Furthermore, our general
liability insurance coverage may not continue to be available on reasonable
terms or in sufficient amounts to cover one or more large claims, or the
insurer may disclaim coverage as to any future claim. The successful assertion
of any large claim against us could seriously harm our business. Even if not
successful, such claims could result in significant legal and other costs and
may be a distraction to management.
Our lack of long-term contracts with clients reduces the predictability of our
revenues
Our clients retain us on an engagement-by-engagement basis, rather than
under long-term contracts. Our operating expenses are relatively fixed and
cannot be reduced on short notice to compensate for unanticipated variations in
the number or size of engagements in progress. These factors make it difficult
for us to predict our revenues and operating results. Our failure to accurately
predict our revenues may seriously harm our financial condition and results of
operation because we incur costs based on our expectations of future revenues.
We may be retained to design or implement discrete segments of an eSolution
rather than the comprehensive eSolution. Because large client projects may
involve multiple engagements or stages, there is a risk that a client may
choose not to retain us for additional stages of a project or that the client
will cancel or delay additional planned projects. Such cancellations or delays
could result from factors unrelated to our work product or the progress of the
project, but could be related to general business or financial conditions of
the client. During 1998, three of approximately 400 engagements were canceled
or reduced in scope.
A reduction in or the termination of our services could lead to
underutilization of our employees and could harm our operating results
Our existing clients can generally reduce the scope of or cancel their use
of our services without penalty and with little or no notice. If a client
defers, modifies or cancels an engagement or chooses not to retain us for
additional phases of a project, we must be able to rapidly redeploy our
employees to other engagements in order to minimize underutilization of
employees and the resulting harm to our operating results.
7
<PAGE>
We may lose money on fixed-price contracts
Approximately 26% of our revenues in 1998 were derived from fixed-price
contracts, and we anticipate this percentage to increase in the future. If we
miscalculate the resources or time we need to complete fixed-price engagements,
our operating results could be seriously harmed. The risk that such
miscalculations will occur is high because we work with complex technologies in
compressed time frames.
Special risks presented by international factors could negatively affect our
business
Our international engagements are subject to a variety of risks that could
seriously harm our financial condition and operating results. These risks
include the following:
. the impact of recessions in economies outside the United States;
. unexpected changes in regulatory requirements;
. currency fluctuations;
. reduced protection for intellectual property and proprietary rights
in some countries;
. seasonal reductions in business activity in certain parts of the
world; and
. enforceability and collectability of contract obligations.
We may not be able to protect our confidential information and proprietary
rights
While our employees execute confidentiality agreements, we cannot guarantee
that this will be adequate to deter misappropriation of our confidential
information. In addition, we may not be able to detect unauthorized use of our
intellectual property and take appropriate steps to enforce our rights. If
third parties infringe or misappropriate our copyrights, trademarks or other
proprietary information, our business could be seriously harmed. In addition,
other parties may assert infringement claims against us or claim that we have
violated their intellectual property rights. Such claims, even if not true,
could result in significant legal and other costs and may be a distraction to
management. Our copyright, trademark and proprietary information rights include
our proprietary project management approach which we call our Transform
methodology, our training materials, our name, our business processes, our
personnel information and our business strategies.
The eSolutions market subjects us to risks
Our growth could be impacted by the development of the market for eSolutions
We believe that the market developing for eSolutions is distinct from
traditional information technology and systems integration services markets,
which requires a different set of skills and capabilities. In contrast to
traditional information technology and systems integration services, eSolutions
combine Internet application development skills with business intelligence and
strategy focused on the client's customers. We cannot be certain that a viable
market for eSolutions will emerge or be sustainable. If a viable and
sustainable market for our eSolutions does not develop, our growth could be
negatively affected. Even if an eSolutions market develops, we may not be able
to differentiate our services from those of our competitors. If we do not
differentiate our services, our revenue growth and operating margins may
decline.
8
<PAGE>
Our business will be harmed if the growth of commerce on the Internet is
slower than expected
If commerce on the Internet does not continue to grow, or grows more slowly
than expected, our growth would decline and our business would be harmed. The
widespread acceptance and adoption of the Internet for conducting business is
likely only in the event that the Internet provides businesses with greater
efficiencies and operating improvements.
Competition could result in price reductions, reduced profitability and loss
of market share
Competition in the eSolutions market and its component markets is intense.
If we fail to compete successfully, our business could be seriously harmed.
Our current competitors include, and may in the future include, the following:
. emerging Web consulting firms such as Agency.com, Proxicom,
Razorfish, Scient and Viant, which are focused on Internet-based,
electronic business and digital business solutions;
. systems integrators such as Andersen Consulting, Ernst & Young,
PricewaterhouseCoopers and Sapient;
. strategy and management consulting firms such as Bain, Boston
Consulting Group, Diamond Technology Partners and McKinsey;
. regional specialized information technology firms;
. vendor-based services organizations of companies such as IBM and
Oracle; and
. internal management and information technology departments of
current and future client organizations.
Many of our competitors are larger and have greater financial, technical,
marketing and public relations resources, larger client bases and greater
brand or name recognition than us. As a result, our competitors may be better
able to finance acquisitions or internal growth or respond to technological
changes or client needs.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address client needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.
Year 2000 issues could adversely affect our business
Many of our clients and potential clients have limited information
technology budgets, and a substantial portion of their budgeted expenses
through December 31, 1999, and potentially beyond, are for Year 2000
remediation and compliance projects. As our clients focus on Year 2000 issues,
the amount available to our clients for funding the typical projects we
undertake may be limited, which may result in fewer projects, especially
large-scale, complex projects. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Readiness."
The Year 2000 problem may also affect software or code that we develop or
third-party software products that are incorporated into the eSolutions we
create for our clients. Our clients license software directly from third
parties, and we do not guarantee that the software licensed from
9
<PAGE>
these suppliers is Year 2000 compliant. However, any failure on our part to
provide Year 2000 compliant eSolutions to our clients could result in financial
loss, harm to our reputation and liability to others and could seriously harm
our business, financial condition and operating results.
Our business will be negatively affected if we do not keep pace with the
latest technological changes and client preferences
Our market and the leading technologies used by our clients are
characterized by rapid technological change. If we are unable to respond
successfully to these technological developments or do not respond in a timely
or cost-effective way, our business and operating results will be seriously
harmed. We have derived a substantial portion of our revenues from eSolutions
based upon the Internet and other leading information technologies. As a
result, our success will depend, in part, on our ability to offer services that
keep pace with continuing changes in technology, evolving industry standards
and changing client preferences. In addition, we must recruit and retain
professionals who are apprised of technological advances and developments so
that they can fulfill the increasingly sophisticated needs of our clients.
The ownership of our common stock is subject to risks in connection with this
offering
Our quarterly revenues and operating results could be volatile and may cause
our stock price to fluctuate
Our quarterly revenues and operating results may fluctuate significantly in
the future. Our operating results could be volatile and difficult to predict.
As a result, period-to-period comparisons of our operating results may not be a
good indication of our future performance. In addition, operating expenses may
increase in each quarter ending September 30, both on absolute terms and as a
percentage of revenues, due to the potential hiring of large numbers of recent
college graduates each year, which results in increased salary expenses before
such new employees begin to generate substantial revenues.
A significant portion of our operating expenses, such as personnel and
facilities costs, are fixed in the short term. We have hired a large number of
personnel in core support services, including technology infrastructure,
recruiting, business development, finance and administration, in order to
support our anticipated growth. Therefore, any failure to generate revenues
according to our expectations in a particular quarter could result in losses
for the quarter. In addition, our future quarterly operating results may not
meet the expectations of securities analysts or investors, which in turn may
have an adverse effect on the market price of our common stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Our officers and directors own 72.5% of our stock and could control matters
submitted to stockholders
Upon completion of this offering, our directors, executive officers and
their affiliates will beneficially own, in the aggregate, 72.5% of our
outstanding common stock, or 68.5% if the underwriters exercise their over-
allotment option. Steven J. Braun, our President and Chief Executive Officer,
will beneficially own approximately 54.4% of our outstanding common stock, or
53.4% if the underwriters exercise their over-allotment option. As a result,
these stockholders will be able to exercise control over all matters requiring
stockholder approval, including the election of directors
10
<PAGE>
and approval of significant corporate transactions. This concentration of
ownership may also have the effect of delaying or preventing a change in
control of Braun Consulting. See "Principal Stockholders."
We have various mechanisms in place that may prevent a change in control that
a stockholder may consider favorable
Our certificate of incorporation and bylaws may discourage, delay or prevent
a change in control of Braun Consulting that a stockholder may consider
favorable. Our certificate of incorporation and bylaws:
. authorize the issuance of "blank check" preferred stock that could
be issued by our board of directors to increase the number of
outstanding shares and thwart a takeover attempt;
. classify the board of directors with staggered, three-year terms,
which may lengthen the time required to gain control of our board of
directors;
. prohibit cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect
director candidates;
. require super-majority voting to effect amendments to our
certificate of incorporation and bylaws;
. limit who may call special meetings of stockholders;
. prohibit stockholder action by written consent, which requires all
actions to be taken at a meeting of the stockholders;
. establish advance notice requirements for nominating candidates for
election to the board of directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings;
. require that vacancies on the board of directors, including newly-
created directorships, be filled only by a majority of directors
then in office; and
. provide that directors may be removed only for cause and only by the
affirmative vote of at least 66 2/3% of the outstanding shares of
voting stock voting together as a single class.
In addition, Section 203 of the Delaware General Corporation Law may
discourage, delay or prevent a change in control of Braun Consulting by
prohibiting a publicly held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years after
the person becomes an interested stockholder. See "Description of Capital
Stock--Delaware Anti-Takeover Law and Certain Charter Provisions."
Investors will experience immediate and substantial dilution
The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock. As a
result, if we were liquidated for book value immediately following this
offering, each stockholder purchasing in this offering would receive $6.15 less
than the price paid for the common stock.
11
<PAGE>
Shares becoming available for sale could affect our stock price and dilute
your ownership in us
Sales of a substantial number of shares of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
after this offering could cause the market price of our common stock to fall.
Such sales could also impair our ability to raise capital through the sale of
additional equity securities. For a description of the shares of our common
stock that are available for future sale, see "Shares Eligible for Future
Sale."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "anticipate,"
"believe," "estimate," "plan," "intend" and "continue" or similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, contain projections of our future results of
operations or of our financial condition or state other "forward-looking"
information. This prospectus also contains third-party estimates regarding the
size and growth of markets and Internet usage in general.
You should not place undue reliance on these forward-looking statements.
The sections captioned "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as any
cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ
materially from the expectations.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus or to conform
these statements to actual results or to changes in our expectations, except
with respect to material developments related to previously disclosed
information.
12
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock being sold in this
offering. This prospectus constitutes a part of that registration statement.
This prospectus does not contain all the information set forth in the
registration statement and the exhibits and schedules to the registration
statement, because some parts have been omitted in accordance with the rules
and regulations of the Commission. For further information with respect to us
and our common stock being sold in this offering, you should refer to the
registration statement and the exhibits and schedules filed as part of the
registration statement. Statements contained in this prospectus regarding the
contents of any agreement, contract or other document referred to are not
necessarily complete; reference is made in each case to the copy of the
contract or document filed as an exhibit to the registration statement. Each
statement is qualified in all respects by reference to the exhibit. You may
inspect a copy of the registration statement without charge at the Commission's
principal office in Washington, D.C. and obtain copies of all or any part
thereof, upon payment of certain fees, from the Commission's Public Reference
Room at the Commission's principal office, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at the Commission's regional offices in New York, located at 7
World Trade Center, Suite 1300, New York, New York 10048, or in Chicago,
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You
may obtain information regarding the operation of the Public Reference Room by
calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The Commission's World Wide Web address is www.sec.gov.
We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing
unaudited condensed financial information for the first three quarters of each
fiscal year. We intend to furnish such other reports as we may determine or as
may be required by law.
CORPORATE INFORMATION
Braun Consulting, Inc. was incorporated as RNW, Inc. on April 20, 1990. In
May 1993, RNW, Inc. changed its name to Shepro Braun Consulting, Inc., and
subsequently changed its name to Braun Consulting, Inc. We reincorporated in
Delaware on August 3, 1999. References in this prospectus to "Braun
Consulting," "we," "our" and "us" refer to Braun Consulting, Inc., a Delaware
corporation, and its subsidiaries, including Vertex Partners, and predecessors.
Braun Consulting's principal executive offices are located at 30 West Monroe,
Suite 300, Chicago, Illinois, 60603, and our telephone number is (312) 984-
7000. We invite you to visit our Internet site at www.braunconsult.com. The
information contained on our Internet site is not incorporated in this
prospectus.
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 4,600,000 shares of common stock
offered by us will be approximately $32.7 million, assuming an initial public
offering price of $8.00 per share and after deducting the estimated
underwriting discounts and commissions and offering expenses.
The primary purposes of this offering are to obtain additional capital,
create a public market for our common stock and facilitate future access to
public markets. We expect to use the net proceeds from this offering for:
. the payment of S corporation distributions of approximately $6.0 million;
. the retirement of approximately $3.0 million of existing indebtedness;
. possible strategic acquisitions; and
. working capital and other general corporate purposes.
After this offering, the S corporation distributions will be made to our
existing stockholders in an amount that approximates certain taxed but
undistributed earnings through the termination of our status as an S
corporation on July 28, 1999.
We expect to use a portion of the net proceeds to retire approximately $3.0
million of existing indebtedness, which indebtedness was used for working
capital requirements. We have two lines of credit. One line of credit matures
January 31, 2000 and bears interest at the bank's prime rate, which is
currently 8.00%. The other line of credit matures August 31, 1999 and bears
interest at the bank's prime rate, which is currently 8.00%, plus 1%. We expect
to renew these lines of credit upon their expiration.
We actively seek to acquire businesses. We acquired Vertex Partners on
May 4, 1999. We currently have no other understandings, commitments or
agreements to make any additional acquisitions.
Management will have broad discretion in the allocation of the net proceeds
after payment of the S corporation distributions and the retirement of debt.
Pending such uses, the proceeds of this offering will be invested in short-
term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We currently intend to retain our future earnings to finance the operation
and expansion of our business and we do not anticipate paying cash dividends on
our common stock in the foreseeable future. Any future determination as to the
payment of dividends will be at the discretion of our board of directors.
Prior to this offering, we operated as an S corporation and were not subject
to federal and certain state income taxes. As a result, our net income for
federal and state income tax purposes was reported by and taxed directly to our
stockholders. We have made cash distributions to our stockholders in amounts
not exceeding taxes required to be paid on undistributed S corporation
earnings.
14
<PAGE>
CAPITALIZATION
The following table presents our cash position and total capitalization as
of June 30, 1999 (1) on an actual basis, (2) on a pro forma basis to give
effect to the S corporation distribution of approximately $6.0 million to our
current stockholders and a nonrecurring tax liability, which would have been
$2.1 million had the termination of our S corporation status occurred as of
June 30, 1999 and (3) on a pro forma as adjusted basis to reflect the sale of
4,600,000 shares of common stock by us in this offering at an assumed initial
public offering price of $8.00 per share and the application of the net
proceeds in the manner described in "Use of Proceeds." You should read the
following information in connection with our Consolidated Financial Statements
and the Notes thereto beginning on page F-1 of this prospectus.
<TABLE>
<CAPTION>
As of June 30, 1999
-------------------------
Pro
Pro Forma as
Actual Forma Adjusted
(In thousands, except
share and per share
data)
<S> <C> <C> <C>
Cash................................................ $2,269 $ 2,269 $26,023
====== ======= ========
Short-term debt..................................... $2,970 $ 2,970 $ --
====== ======= ========
Long-term debt...................................... -- -- --
Stockholders' equity:
Preferred stock, none (actual); $0.001 par value,
10,000,000 shares authorized; none outstanding
(pro forma and pro forma as adjusted)............ -- -- --
Common stock, no par value (actual); $0.001 par
value (pro forma and pro forma as adjusted);
100,000,000 shares authorized (actual);
50,000,000 shares authorized (pro forma and pro
forma as adjusted); 12,349,466 shares outstanding
(actual and pro forma); 16,949,466 shares
outstanding (pro forma as adjusted)(a)........... $1,578 $ -- $32,170
Distributions paid in excess of capital........... -- (554) --
Unearned deferred compensation.................... (812) (812) (812)
Retained earnings................................. 5,066 -- --
------ ------- --------
Total stockholders' equity...................... 5,832 (1,366) 31,358
------ ------- --------
Total capitalization.......................... $5,832 $(1,366) $31,358
====== ======= ========
</TABLE>
- ---------------------
(a) The number of shares of common stock to be outstanding is as of June 30,
1999 and excludes (1) options outstanding as of June 30, 1999 to purchase
2,326,638 shares of common stock at a weighted average exercise price of
$2.84 per share and (2) 1,167,687 shares of common stock reserved as of
June 30, 1999 for issuance upon exercise of options that may be granted in
the future under our stock plans. See "Management--Stock Plans."
15
<PAGE>
DILUTION
As of June 30, 1999, our net tangible book value was approximately $5.8
million, or approximately $0.47 per share. Net tangible book value per share is
determined by dividing our net tangible book value (total net tangible assets
less total liabilities) by the number of shares of common stock outstanding.
After giving effect to (1) the sale of the shares of common stock offered in
this offering at an assumed initial public offering price of $8.00 per share
and after deducting the estimated underwriting discounts and commissions and
offering expenses, (2) the distribution of approximately $6.0 million to our
current stockholders which approximates certain taxed but undistributed
earnings through the termination of our status as an S corporation on July 28,
1999 and (3) the recognition of a nonrecurring tax liability, which would have
been $2.1 million had the termination of our S corporation status occurred as
of June 30, 1999, our pro forma net tangible book value as of June 30, 1999
would have been $31.3 million, or $1.85 per share. This represents an immediate
increase in net tangible book value of $1.38 per share to our stockholders and
an immediate dilution in net tangible book value of $6.15 per share to new
investors purchasing shares in this offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $8.00
-----
Net tangible book value per share as of June 30, 1999............ $0.47
Increase in net tangible book value per share attributable to new
stockholders.................................................... 1.38
-----
Pro forma net tangible book value per share after this offering.... 1.85
-----
Dilution per share to new stockholders............................. $6.15
=====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid to us by the existing holders
of common stock and by the new stockholders purchasing shares of common stock
offered by us (at an assumed initial public offering price of $8.00 per share),
before deducting the underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 12,349,466 72.9% $ 766,000 2.0% $0.06
New stockholders.......... 4,600,000 27.1 36,800,000 98.0 8.00
---------- ----- ----------- -----
Total................. 16,949,466 100.0% $37,566,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing table excludes (1) options outstanding as of June 30, 1999 to
purchase 2,326,638 shares of common stock at a weighted average exercise price
of $2.84 per share and (2) 1,167,687 shares of common stock reserved as of June
30, 1999 for issuance upon exercise of options that may be granted in the
future under our stock plans. See "Management--Stock Plans."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The balance sheet data as of
December 31, 1997 and 1998 and the statement of income data for the years ended
December 31, 1996, 1997 and 1998 have been derived from the Consolidated
Financial Statements for such years, which have been audited by Deloitte &
Touche LLP, independent auditors. The balance sheet data as of December 31,
1994, 1995 and 1996 and the statement of income data for the years ended
December 31, 1994 and 1995 are derived from the Consolidated Financial
Statements for such years which are unaudited. The balance sheet data as of
June 30, 1999 and the statement of income data for the six months ended June
30, 1998 and 1999 are derived from our unaudited Consolidated Financial
Statements, which management believes include all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation.
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
-------------------------------------------- ----------------
1994 1995 1996 1997 1998(a) 1998 1999
(As Restated)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Revenues:
Consulting services.... $5,148 $8,341 $10,840 $17,444 $26,907 $11,384 $20,062
Product sales.......... 290 94 432 2,064 955 821 457
------ ------ ------- ------- ------- ------- -------
Total revenues....... 5,438 8,435 11,272 19,508 27,862 12,205 20,519
Costs and expenses:
Project personnel and
expenses.............. 3,199 5,092 6,346 10,148 15,879 7,002 10,999
Cost of products sold.. 232 93 470 2,032 884 757 401
Selling and marketing
expenses.............. 265 201 275 1,111 2,303 1,129 1,873
Merger costs........... -- -- -- -- -- -- 170
General and
administrative
expenses.............. 1,208 2,337 2,484 4,345 7,777 3,528 4,849
Stock compensation..... -- -- -- 13 271 168 252
------ ------ ------- ------- ------- ------- -------
Total costs and
expenses............ 4,904 7,723 9,575 17,649 27,114 12,584 18,544
------ ------ ------- ------- ------- ------- -------
Operating income (loss). 534 712 1,697 1,859 748 (379) 1,975
Interest expense-net.... 13 65 39 59 121 57 80
------ ------ ------- ------- ------- ------- -------
Income (loss) from
continuing operations.. 521 647 1,658 1,800 627 (436) 1,895
Income (loss) from
discontinued
operations............. -- -- 1 (84) (101) (101) --
Gain on sale of
discontinued
operations............. -- -- -- -- 254 254 --
------ ------ ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes.................. 521 647 1,659 1,716 780 (283) 1,895
Provision (benefit) for
state income taxes..... -- -- -- 81 (3) (3) 10
------ ------ ------- ------- ------- ------- -------
Net income (loss)....... $ 521 $ 647 $ 1,659 $ 1,635 $ 783 $ (280) $ 1,885
====== ====== ======= ======= ======= ======= =======
Pro forma provision
(benefit) for income
taxes (b).............. $ 225 $ 289 $ 684 $ 702 $ 457 $ (153) $ 847
------ ------ ------- ------- ------- ------- -------
Pro forma net income
(loss) (b)............. $ 296 $ 358 $ 975 $ 1,014 $ 323 $ (130) $ 1,048
====== ====== ======= ======= ======= ======= =======
Pro forma earnings
(loss) per share (c):
Basic.................. $ 0.03 $ (0.01) $ 0.08
Diluted................ 0.02 (0.01) 0.08
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of June 30, 1999
---------------------------------- --------------------
1994 1995 1996 1997 1998 Actual Pro forma(d)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash.................... $ 177 $ 75 $ 121 $ 953 $ 570 $ 2,269 $ 2,269
Total assets............ 1,587 2,567 4,087 7,351 9,845 13,576 13,576
Total debt.............. 311 695 953 1,851 2,745 2,970 2,970
Stockholders' equity.... 1,258 1,452 1,824 2,707 3,627 5,832 (1,366)
</TABLE>
- ---------------------
(a) See Note 12 of the Notes to the Consolidated Financial Statements for the
year ended December 31, 1998.
(b) For all periods indicated except 1994, we operated as an S corporation and
were not subject to federal and certain state income taxes. In 1994, we
operated as a C corporation. On July 28, 1999, we terminated our status as
an S corporation and became subject to federal and state income taxes. Pro
forma net income (loss) for periods subsequent to 1994 reflects federal and
state income taxes as if we had not elected S corporation status for income
tax purposes. Pro forma net income (loss) for 1994 reflects federal and
state income taxes on a basis consistent with subsequent periods.
(c) Pro forma net income (loss) per share is calculated by dividing pro forma
net income (loss) by the pro forma weighted average number of common shares
outstanding after giving effect to the assumed issuance of shares of common
stock to generate sufficient cash to pay the S corporation distribution
amount of approximately $6.0 million, based on an assumed initial public
offering price of $8.00 per share.
(d) Pro forma reflects the S corporation distribution of approximately $6.0
million to our current stockholders and the recognition of a nonrecurring
tax liability, which would have been $2.1 million had the termination of
our S corporation status occurred as of June 30, 1999.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section should be read in conjunction with Braun Consulting's
Consolidated Financial Statements and Notes thereto beginning on page F-1 of
this prospectus. In addition to historical information, this discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions which could cause actual results to differ materially from
management's expectations. Factors that could cause such differences include
those discussed in "Risk Factors."
Overview
We derive substantially all of our revenues from fees for consulting
services, the majority of which are billed on a time-and-materials basis.
Invoices are typically issued bi-weekly to monitor client satisfaction and
manage outstanding accounts receivable balances. Revenues on time-and-materials
contracts are recognized as the services are provided. A percentage of our
projects are billed on a fixed-price basis, which is distinguishable from the
general method of billing on a time-and-materials basis. We recognize revenue
on fixed-price projects as services are performed over the life of the
contract. Losses on contracts, if any, are provided for in full in the period
when determined. Approximately 26% of our revenues in 1998 were derived from
fixed-price contracts, and we anticipate a larger percentage of our revenues to
be derived from fixed-price contracts in the future. Fixed-price contracts are
attractive to clients, and while subject to increased risks, provide
opportunities for increased margins.
We also realize a limited amount of revenue from product sales as a value-
added reseller of software products. We currently resell software products
primarily as an accommodation to clients who prefer to retain a single-source
provider and we anticipate that product sales will continue to decline as a
percentage of revenues.
Braun Consulting's historical revenue growth is attributable to various
factors, including an increase in the size and number of projects for existing
and new clients, including international projects. Existing clients from the
previous fiscal year generated approximately 76% of our revenues in 1998 and
approximately 67% of our revenues in 1997. We have also expanded our geographic
presence by opening offices in Cleveland, Dallas, Denver, Detroit and Grand
Rapids in 1998 and in Indianapolis, Minneapolis and St. Louis in 1997. We
manage our client development efforts through several strategic service groups,
each having specific geographic responsibility and focus. As of June 30, 1999,
we had 303 employees.
Our most significant expense is project personnel and expenses, which
consists primarily of project personnel salaries and benefits, and non-
reimbursed direct expenses incurred to complete projects. We have sought to
manage our costs by adding a variable portion of employee compensation payable
upon the achievement of measurable performance goals.
18
<PAGE>
Braun Consulting's project personnel and expenses as a percentage of
revenues are also related to our consultant utilization. We manage utilization
by monitoring project requirements and timetables. The number of consultants
assigned to a project will vary according to the size, complexity, duration and
demands of the project. Project completions and scheduling delays may result in
periods when consultants are not fully utilized. An unanticipated termination
of a significant project could also cause us to experience lower consultant
utilization, resulting in a higher than expected number of unassigned
consultants. In addition, we do not fully utilize our consulting personnel on
billable projects during the initial months of their employment. During that
time they undergo training and become integrated into our operations.
To sustain our growth and profitability, we have made and continue to make
substantial investments in infrastructure, including senior management and
other experienced administrative personnel, experienced business development
managers and an advanced management reporting system.
Selling and marketing expenses and general and administrative expenses
include the costs of recruiting, continuing education, marketing, facilities,
equipment depreciation, administration, benefits and executive compensation
consisting of salaries, formula bonuses and discretionary bonuses. We continue
to incur increased rent associated with our growth and the opening of new
offices.
Stock compensation expenses consist of non-cash compensation expenses
arising from option grants. We have recorded aggregate unearned stock
compensation totaling $1.1 million in connection with certain stock option
grants from November 1998 through May 5, 1999. This stock compensation expense
will be recognized over a period ending December 31, 2006, which is the end of
the vesting period for the related options.
Subsequent to the issuance of our 1998 financial statements, we determined
that we should revise the fair value of the employee stock options granted
during November and December 1998. This determination was based in part on the
timing between the original valuation and the proposed initial public offering
of our common stock. As a result, the 1998 financial statements have been
restated from amounts previously reported to record $290,000 of unearned
deferred compensation and $78,000 of compensation expense, as of and for the
year ended December 31, 1998, respectively. The effects of the restatement have
been presented in Note 12 of the Notes to the Consolidated Financial
Statements, and have been reflected herein.
Prior to this offering, Braun Consulting was treated as an S corporation for
federal income tax purposes under the Internal Revenue Code and for certain
state income tax purposes. As a result, substantially all of the income of
Braun Consulting during this period was taxed directly to our stockholders
rather than to Braun Consulting. The pro forma statement of income data
reflects an adjustment for federal and state income taxes for each of the five
years in the period ended December 31, 1998 and for the six months ended June
30, 1998 and 1999, assuming Braun Consulting had been operating as a C
corporation during such period.
Recent Developments
In May 1999, Braun Consulting acquired Vertex Partners by exchanging 12.3%
of our common stock prior to this offering for all of the common stock of
Vertex Partners. Vertex Partners is a professional services provider that
designs and implements customer-focused strategies for its clients. We
accounted for this transaction using the pooling-of-interests method of
accounting. All prior period financial statements have been restated to include
Vertex Partners' results of operations, financial position and cash flows.
19
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, selected
statement of income data as a percentage of total revenues:
<TABLE>
<CAPTION>
Six Months
Years Ended Ended June
December 31, 30,
------------------- -------------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Revenues:
Consulting services....................... 96.2% 89.4% 96.6% 93.3% 97.8%
Product sales............................. 3.8 10.6 3.4 6.7 2.2
----- ----- ----- ----- -----
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Project personnel and expenses............ 56.3 52.0 56.9 57.3 53.7
Cost of products sold..................... 4.2 10.4 3.2 6.2 2.0
Selling and marketing expenses............ 2.4 5.7 8.3 9.3 9.1
Merger costs.............................. -- -- -- -- 0.8
General and administrative expenses....... 22.0 22.3 27.9 28.9 23.6
Stock compensation........................ -- 0.1 1.0 1.4 1.2
----- ----- ----- ----- -----
Total costs and expenses................. 84.9 90.5 97.3 103.1 90.4
----- ----- ----- ----- -----
Operating income (loss).................... 15.1 9.5 2.7 (3.1) 9.6
Interest expense-net....................... 0.4 0.3 0.4 0.5 0.4
----- ----- ----- ----- -----
Income (loss) from continuing operations... 14.7 9.2 2.3 (3.6) 9.2
Income (loss) from discontinued operations. 0.0 (0.4) (0.4) (0.8) --
Gain on sale of discontinued operations.... -- -- 0.9 2.1 --
----- ----- ----- ----- -----
Income (loss) before provision for income
taxes..................................... 14.7 8.8 2.8 (2.3) 9.2
Provision (benefit) for state income taxes. -- 0.4 (0.0) (0.0) 0.0
----- ----- ----- ----- -----
Net income (loss).......................... 14.7% 8.4% 2.8% (2.3)% 9.2%
===== ===== ===== ===== =====
Pro forma provision (benefit) for income
taxes..................................... 6.1% 3.6% 1.6% (1.3)% 4.1%
----- ----- ----- ----- -----
Pro forma net income (loss)................ 8.6% 5.2% 1.2% (1.0)% 5.1%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Total Revenues. Total revenues increased 68.1% to $20.5 million for the six
months ended June 30, 1999 from $12.2 million for the six months ended June 30,
1998. Consulting services increased 76.2% to $20.1 million for the six months
ended June 30, 1999 from $11.4 million for the six months ended June 30, 1998.
The increase in consulting services primarily reflected increases in the volume
of services provided to existing and new clients. During 1998, we decreased our
focus on product sales, but still sell some products as an accommodation to
clients. As a result, our product sales declined for the six months ended June
30, 1999 compared to the six months ended June 30, 1998.
Project Personnel and Expenses. Project personnel and expenses consist
primarily of salaries and employee benefits for personnel dedicated to client
projects, including non-billable and training time, and non-reimbursed direct
expenses incurred to complete projects. These costs represent the most
significant expense we incur in providing our services. Project personnel and
expenses increased 57.1% to $11.0 million for the six months ended June 30,
1999 from $7.0 million for the six months ended June 30, 1998. The increase in
project personnel and expenses for the six months ended June 30, 1999 was due
primarily to an increase in project personnel to 239 as of June 30, 1999 as
compared to 168 as of June 30, 1998. Project personnel and expenses decreased
as a percentage of consulting services to 54.8% for the six months ended June
30, 1999 from 61.5% for the six months ended June 30, 1998.
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Selling and Marketing Expenses. Selling and marketing expenses consist
primarily of salaries, employee benefits and travel costs of selling and
marketing personnel and promotional costs. Selling and marketing expenses
increased 65.9% to $1.9 million for the six months ended June 30, 1999 from
$1.1 million for the six months ended June 30, 1998. The increase was due
primarily to our decision to expand our selling and marketing group to 20
employees as of June 30, 1999 compared to 13 employees as of June 30, 1998, and
the funding of business development costs to increase our lead generation
activities and broaden our market awareness and customer base. Selling and
marketing expenses decreased as a percentage of consulting services to 9.3% for
the six months ended June 30, 1999 from 9.9% for the six months ended June 30,
1998.
General and Administrative Expenses. General and administrative expenses
consist primarily of costs associated with our executive management, finance
and administrative groups, including personnel devoted to recruiting and
employee retention, training, and occupancy costs, including depreciation,
amortization, office equipment leases, travel and all other branch and
corporate costs. General and administrative expenses increased 37.4% to $4.8
million for the six months ended June 30, 1999 from $3.5 million for the six
months ended June 30, 1998. The increase in general and administrative expenses
for the six months ended June 30, 1999 compared to the six months ended June
30, 1998 was due to the costs associated with the additional employees hired in
the six months ended June 30, 1999. Our total general and administrative
headcount increased to 44 employees as of June 30, 1999 compared to 30
employees as of June 30, 1998. Facilities costs also increased for the six
months ended June 30, 1999 due to new offices opened in Cleveland and Grand
Rapids after June 30, 1998 and expanded offices in Chicago and Indianapolis
after June 30, 1998.
Stock Compensation. Stock compensation expense increased 50.0% from $168,000
for the six months ended June 30, 1998 to $252,000 for the six months ended
June 30, 1999 due to option grants.
Interest Expense-Net. Interest expense, net of interest income, increased
40.4% to $80,000 for the six months ended June 30, 1999 from $57,000 for the
six months ended June 30, 1998. The increase in net interest expense was due
primarily to increased borrowings under our line of credit during the six
months ended June 30, 1999 to support our growth.
Net Income (Loss). Net income increased $2.2 million to $1.9 million for the
six months ended June 30, 1999 from a loss of $280,000 for the six months ended
June 30, 1998. The increase in net income for the six months ended June 30,
1999 was due primarily to increased revenue and decreasing costs as a percent
of revenue.
Pro Forma Provision (Benefit) for Income Taxes. The pro forma provision for
income taxes for the six months ended June 30, 1999 was $847,000 as compared to
a benefit of $153,000 for the six months ended June 30, 1998. The effective tax
rate for the six months ended June 30, 1999 was 44.7% as compared to 54.1% for
the six months ended June 30, 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total Revenues. Total revenues increased 42.8% to $27.9 million in 1998 from
$19.5 million in 1997. Consulting services increased 54.2% to $26.9 million in
1998 from $17.4 million in 1997. The increase in consulting services primarily
reflected increases in the volume of services provided to existing and new
clients. Product sales declined resulting from our increased emphasis on
growing consulting services in the period. In 1998, we decreased our focus on
product sales because product sales margins did not justify the increased
effort.
Project Personnel and Expenses. Project personnel and expenses increased
56.5% to $15.9 million in 1998 from $10.1 million in 1997. Project personnel
and expenses increased as a percentage of consulting services to 59.0% in 1998
from 58.2% in 1997. The increase in project personnel and expenses for 1998 was
due primarily to an increase in project personnel to 207 at December 31, 1998
from 133 at December 31, 1997.
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<PAGE>
Selling and Marketing Expenses. Selling and marketing expenses increased
107.3% to $2.3 million in 1998 from $1.1 million in 1997. Selling and marketing
expenses increased as a percentage of consulting services to 8.6% in 1998 from
6.4% in 1997. The increase was due primarily to our decision to expand the
selling and marketing group to 16 employees at December 31, 1998 from 11
employees at December 31, 1997, and the funding of business development costs
to increase our lead generation activities and broaden our market awareness and
customer base.
General and Administrative Expenses. General and administrative expenses
increased 79.0% to $7.8 million in 1998 from $4.3 million in 1997. General and
administrative expenses increased as a percentage of consulting services to
28.9% in 1998 from 24.9% in 1997. The increase in general and administrative
expenses for 1998 compared to 1997 was due to the costs associated with the
additional employees hired during 1998, including experienced personnel in
Human Resources, Finance, Recruiting, Internal Systems and Executive
Management. Our total general and administrative headcount increased to 40
employees at December 31, 1998 from 21 employees at December 31, 1997.
Facilities costs also increased in 1998 due to new offices opened in Cleveland,
Dallas, Denver, Detroit and Grand Rapids and expanded offices in Chicago,
Indianapolis and Minneapolis.
Stock Compensation. Stock compensation expense increased $258,000 in 1998
due to option grants.
Interest Expense-Net. Interest expense, net of interest income, increased
105.1% to $121,000 in 1998 from $59,000 in 1997. The increase in net interest
expense was due primarily to increased borrowings under our line of credit
during 1998 to support our growth.
Net Income (Loss). Net income decreased 52.1% to $783,000 in 1998 from $1.6
million in 1997. The decrease was due primarily to expenses associated with the
increase in project personnel, selling and marketing personnel and general and
administrative personnel and to additional funding for marketing activities and
new offices, all as described above.
Pro Forma Provision (Benefit) for Income Taxes. The pro forma provision for
income taxes for 1998 was $457,000 as compared to $702,000 for 1997. The
effective tax rate for 1998 was 58.6% as compared to 40.9% for 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Total Revenues. Total revenues increased 73.1% to $19.5 million in 1997 from
$11.3 million in 1996. Consulting services increased 60.9% to $17.4 million in
1997 from $10.8 million in 1996. The increase in consulting services reflected
increases in the volume of services provided to existing and new clients.
Project Personnel and Expenses. Project personnel and expenses increased
59.9% to $10.1 million in 1997 from $6.3 million in 1996. Project personnel and
expenses decreased as a percentage of consulting services to 58.2% in 1997 from
58.5% in 1996. The increase in project personnel and expenses for 1997 was due
primarily to an increase in project personnel to 133 at December 31, 1997 from
81 at December 31, 1996.
Selling and Marketing Expenses. Selling and marketing expenses increased
304.0% to $1.1 million in 1997 from $275,000 in 1996. Selling and marketing
expenses increased as a percentage of consulting services to 6.4% in 1997 from
2.5% in 1996. The increase was due primarily to our decision to expand our
selling and marketing group to 11 employees at December 31, 1997 from four
employees at December 31, 1996.
General and Administrative Expenses. General and administrative expenses
increased 74.9% to $4.3 million in 1997 from $2.5 million in 1996. General and
administrative expenses increased as a percentage of consulting services to
24.9% in 1997 from 22.9% in 1996. The increase in general and administrative
expenses for 1997 compared to 1996 was due primarily to the costs associated
with the additional employees hired during 1997. Our total general and
administrative headcount increased to 21 employees at December 31, 1997 from 16
employees at December 31, 1996. In addition to
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<PAGE>
increases in personnel, general and administrative costs increased due to new
offices opened in Indianapolis, Minneapolis and St. Louis and the leasing of
additional office space in Chicago, and related facility and equipment costs
necessary to support our growth.
Interest Expense-Net. Interest expense, net of interest income, increased
51.3% to $59,000 in 1997 from $39,000 in 1996. The increase in net interest
expense was due primarily to increased drawings under our line of credit during
1997 to support our growth.
Net Income (Loss). Net income decreased 1.4% to $1.6 million in 1997 from
$1.7 million in 1996. The decrease in net income for 1997 compared to 1996 was
due primarily to the increases in revenues and costs outlined above.
Pro Forma Provision (Benefit) for Income Taxes. The pro forma provision for
income taxes for 1997 was $702,000 as compared to $684,000 for 1996. The
effective tax rate for 1997 was 40.9% as compared to 41.2% for 1996.
Quarterly Results of Operations
The following tables set forth unaudited quarterly financial data for the
periods indicated. We obtained this information from unaudited quarterly
consolidated financial statements and, in the opinion of our management, it
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial results for the periods. Results of
operations for any previous quarters do not necessarily indicate results for
any future period.
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1997 1997 1998 1998 1998 1998 1999 1999
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Revenues:
Consulting services.... $4,751 $5,659 $5,666 $5,718 $7,098 $8,425 $ 9,632 $10,430
Product sales.......... 1,027 152 520 301 97 37 400 57
------ ------ ------ ------ ------ ------ ------- -------
Total revenues....... 5,778 5,811 6,186 6,019 7,195 8,462 10,032 10,487
Costs and expenses:
Project personnel and
expenses.............. 2,793 3,035 3,147 3,855 4,139 4,738 5,450 5,549
Cost of products sold.. 1,011 150 480 277 94 33 352 49
Selling and marketing
expenses.............. 290 314 544 585 564 610 797 1,076
Merger costs........... -- -- -- -- -- -- -- 170
General and
administrative
expenses.............. 1,164 1,374 1,650 1,878 1,912 2,337 2,384 2,465
Stock compensation..... -- 13 156 12 12 91 64 188
------ ------ ------ ------ ------ ------ ------- -------
Total costs and
expenses............ 5,258 4,886 5,977 6,607 6,721 7,809 9,047 9,497
------ ------ ------ ------ ------ ------ ------- -------
Operating income (loss). 520 925 209 (588) 474 653 985 990
Interest expense-net.... 8 21 22 35 40 24 42 38
------ ------ ------ ------ ------ ------ ------- -------
Income (loss) from
continuing operations.. 512 904 187 (623) 434 629 943 952
Income (loss) from
discontinued
operations............. (21) (21) (60) 213 -- -- -- --
------ ------ ------ ------ ------ ------ ------- -------
Income (loss) before
provision for income
taxes.................. 491 883 127 (410) 434 629 943 952
Provision (benefit) for
state income taxes..... 9 106 (3) -- -- -- -- 10
------ ------ ------ ------ ------ ------ ------- -------
Net income (loss)....... $ 482 $ 777 $ 130 $ (410) $ 434 $ 629 $ 943 $ 942
====== ====== ====== ====== ====== ====== ======= =======
Pro forma provision
(benefit) for income
taxes.................. $ 201 $ 361 $ 66 $ (219) $ 232 $ 378 $ 398 $ 449
------ ------ ------ ------ ------ ------ ------- -------
Pro forma net income
(loss) ................ $ 290 $ 522 $ 61 $ (191) $ 202 $ 251 $ 545 $ 503
====== ====== ====== ====== ====== ====== ======= =======
<CAPTION>
As a Percentage of
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Consulting services.... 82.2% 97.4% 91.6% 95.0% 98.7% 99.6% 96.0% 99.5%
Product sales.......... 17.8 2.6 8.4 5.0 1.3 0.4 4.0 0.5
------ ------ ------ ------ ------ ------ ------- -------
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Project personnel and
expenses.............. 48.3 52.3 50.8 64.0 57.5 56.0 54.3 52.9
Cost of products sold.. 17.5 2.6 7.8 4.6 1.3 0.4 3.5 0.5
Selling and marketing
expenses.............. 5.0 5.4 8.8 9.7 7.8 7.2 7.9 10.3
Merger costs........... -- -- -- -- -- -- -- 1.6
General and
administrative
expenses.............. 20.2 23.6 26.7 31.2 26.6 27.6 23.8 23.5
Stock compensation..... -- 0.2 2.5 0.2 0.2 1.1 0.7 1.8
------ ------ ------ ------ ------ ------ ------- -------
Total costs and
expenses............ 91.0 84.1 96.6 109.7 93.4 92.3 90.2 90.6
------ ------ ------ ------ ------ ------ ------- -------
Operating income (loss). 9.0 15.9 3.4 (9.7) 6.6 7.7 9.8 9.4
Interest expense-net.... 0.1 0.4 0.4 0.6 0.6 0.3 0.4 0.3
------ ------ ------ ------ ------ ------ ------- -------
Income (loss) from
continuing operations.. 8.9 15.5 3.0 (10.3) 6.0 7.4 9.4 9.1
Income (loss) from
discontinued
operations............. (0.4) (0.3) (0.9) 3.5 -- -- -- --
------ ------ ------ ------ ------ ------ ------- -------
Income (loss) before
provision for income
taxes.................. 8.5 15.2 2.1 (6.8) 6.0 7.4 9.4 9.1
Provision (benefit) for
state income taxes..... 0.2 1.8 (0.0) -- -- -- -- 0.1
------ ------ ------ ------ ------ ------ ------- -------
Net income (loss) ...... 8.3% 13.4% 2.1% (6.8)% 6.0% 7.4% 9.4% 9.0%
====== ====== ====== ====== ====== ====== ======= =======
Pro forma provision
(benefit) for income
taxes.................. 3.5% 6.2% 1.1% (3.6)% 3.2% 4.4% 4.0% 4.3%
------ ------ ------ ------ ------ ------ ------- -------
Pro forma net income
(loss)................. 5.0% 9.0% 1.0% (3.2)% 2.8% 3.0% 5.4% 4.8%
====== ====== ====== ====== ====== ====== ======= =======
</TABLE>
23
<PAGE>
The establishment of new practice areas and the hiring of consultants in
peak hiring periods such as the addition of college recruits, have resulted in
periods of lower consultant utilization and resulting downward pressure on
margins until project volume increases in these areas. In the future, the
establishment of new practice specialties, as well as further geographic
expansion, could from time to time adversely affect utilization. Variations in
consultant utilization would result in quarterly variability of our cost of
services as a percentage of revenues. Our consultants are employed on a full-
time basis, and therefore we will, in the short-term, incur substantially all
of our employee-related costs even during periods of slow utilization. We
believe that period-to-period comparisons of our operating results are not
necessarily meaningful and that you should not rely on these comparisons as
indications of future performance.
Liquidity and Capital Resources
Braun Consulting has primarily funded its operations from cash flow
generated from operations. In addition, we maintain lines of credit providing
for borrowings of up to $3.95 million. The line of credit for $3.0 million is
with LaSalle National Bank, bears interest at the bank's prime rate and expires
on January 31, 2000. The line of credit for $950,000 is with BankBoston N.A.,
bears interest at the bank's prime rate plus 1% and expires on August 31, 1999.
The terms of the lines of credit include financial covenants covering the
relationships of borrowings to accounts receivable and to tangible net worth,
and the relationship of total liabilities to tangible net worth. We expect to
renew each of our lines of credit upon their expiration. As of June 30, 1999,
we had approximately $3.0 million of bank borrowings outstanding under the $3.0
million line of credit and no bank borrowings outstanding under the $950,000
line of credit. Capital expenditures of approximately $843,000 for the six
months ended June 30, 1999 and approximately $1.5 million, $697,000 and
$320,000 for 1998, 1997 and 1996, respectively, were used primarily for
computers, office equipment and leasehold improvements related to our growth.
Inflation did not have a material impact on Braun Consulting's revenues or
income from operations in 1998, 1997 and 1996, or the six months ended June 30,
1999.
As of June 30, 1999, we had cash of $2.3 million, and we believe that the
net proceeds from the sale of the common stock offered hereby, together with
cash provided from operations, borrowings available under the lines of credit
and existing cash will be sufficient to meet working capital and capital
expenditure requirements for at least the next 24 months.
Year 2000 Readiness
On January 1, 2000, many computer systems and software products could fail
or malfunction because they may not be able to distinguish 21st century dates
from 20th century dates. As a result, computer systems and software used by
many companies, including us, our clients and our potential clients, may need
to be upgraded to comply with such "Year 2000" requirements.
We believe that our principal internal systems, including our hardware and
software, are Year 2000 compliant. We have reviewed Year 2000 issues with the
suppliers of our principal internal systems. Our review of our Year 2000
readiness programs, including our assessment of our internal systems as well as
those of third parties with whom we have material interactions, is complete.
24
<PAGE>
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material.
The Year 2000 problem may also affect software or code that we develop or
third-party software products that are incorporated into the eSolutions we
create for our clients. Our clients license software directly from third
parties and we do not guarantee that the software licensed from these suppliers
is Year 2000 compliant. However, any failure on our part to provide Year 2000
compliant eSolutions to our clients could result in financial loss, harm to our
reputation and liability to others and could seriously harm our business.
We do not currently have any information concerning the general Year 2000
compliance status of our clients, nor do we intend to examine our clients for
general Year 2000 compliance. If our clients are not Year 2000 compliant, they
may experience material costs to remedy problems, or they may face litigation
costs. In either case, Year 2000 issues could reduce or eliminate the budgets
that current or potential clients could have for purchases of our services. In
addition, we anticipate that many of our clients may limit eSolutions spending
as they attend to Year 2000 issues. As a result, our business, financial
condition and operating results could be harmed.
The most reasonably likely worst case scenario for Year 2000 problems for us
would be the system failure at a significant client or clients, which
interrupts our project work for an indefinite period of time. The failure of
any significant client to remedy the situation and renew our project work could
negatively impact our operating results.
Our Year 2000 contingency plan to address the most reasonably likely worst
case scenario is to maintain a significant number of projects at the end of
1999 so the potential loss of a significant client has a minimal effect on our
business.
Quantitative and Qualitative Disclosure About Market Risk
We may be exposed to market risk related to changes in interest rates. Our
borrowing arrangements are based on variable rates of varying maturities. We do
not have any agreements to protect us from the risk presented by an increase in
our interest rates. If interest rates were to increase immediately and
uniformly by 10% from levels as of June 30, 1999 from 8.0% to 8.8%, our net
income would decrease by $24,000, which is equal to the product of the 10%
increase in the interest rate multiplied by the approximately $3.0 million of
bank borrowings outstanding.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, which will be
January 1, 2001 for us. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, collectively referred to as derivatives, and for
hedging activities. SFAS No. 133 requires the recognition of all derivatives as
either assets or liabilities in the statement of financial position and the
measurement of those instruments at fair value. We expect that the adoption of
SFAS No. 133 will not have a material impact on our financial position or
results of operations.
25
<PAGE>
BUSINESS
Overview
Braun Consulting delivers Internet professional services to our clients by
combining strategy, business and customer information and advanced Internet
application development skills. We call these services eSolutions. Since 1993,
we have provided services to more than 200 companies, primarily Fortune 500 and
middle-market clients.
Industry Background
Business and culture are changing due to advancements in the Internet and
the use of information. Access to information is increasing, data sources are
growing exponentially, people are interacting online, and business and customer
information have emerged as a primary resource for competitive advantage.
Organizations in virtually every industry are seeking to improve the ability of
business professionals to make timely, fact-based business decisions.
Industry leaders are increasingly dependent upon business information to
create markets, identify new customers, segment product lines, drive
profitability and retain repeat purchasers. In Post-Capitalist Society,
management expert Peter Drucker predicted the growing importance of knowledge
assets and stated, "Increasingly, there is less and less return on the
traditional resources: labor, land and (money) capital. The main producers of
wealth have become information and knowledge."
The Internet is expanding access to information and transforming the way
business is conducted with customers, partners, suppliers and other businesses.
Large-scale intranet systems within organizations enable new levels of
managing, creating and sharing information. Web-based applications and business
solutions enable electronic commerce, drive new information creation and
increase the need to effectively access, utilize, manage and store business and
customer information. Business-to-business extranet applications connecting
partners and separate companies create new relationships, growth opportunities
and revenue streams.
International Data Corporation expects Internet users worldwide to surpass
500 million by 2003 from approximately 142 million in 1998. Concurrent with the
rapid growth in Internet use, companies are realizing the potential of Web-
based commerce, including both business-to-business and business-to-consumer
applications. International Data Corporation expects Web-based commerce to
exceed $1 trillion worldwide by 2003. This explosive growth is driving demand
by businesses for Web-related services, which International Data Corporation
predicts will grow to $78.5 billion by 2003 from a base of $7.8 billion in
1998.
Organizations spend considerable effort and resources to gather and organize
data. Many have been unable to effectively achieve their goals without the
benefit of customer-focused business strategies using business intelligence and
leading information technologies such as the Internet. By focusing on the
design and development of business strategies, companies can respond to
changing markets and competitive pressures by taking advantage of the
investments they have made in information technology. As companies move beyond
urgent operational issues addressed by basic enterprise resource planning
applications and year 2000 remediation projects, focus is shifting to more
important strategic investments in business intelligence. A June 1998
Information Week survey
26
<PAGE>
of 250 information technology executives indicated that data warehousing, a
core element of business intelligence, is their top post-millennium technology
priority.
Many companies have failed to organize, manage and disseminate business data
in an accessible, intuitive manner. Companies use this information to create
value by better tailoring products and services, identifying business
opportunities and improving operational efficiencies. For instance, in
electronic commerce, companies can use this information to better manage
customer relationships by analyzing past purchases, service history, product
usage and demographics. Consumer product companies and retailers use customer
information to determine which products to promote in specific markets and
channels. Companies engaged in supply chain management use customer and
business information to more efficiently manage product and material order flow
among distribution facilities, multiple plants and suppliers.
The effective allocation and use of information in business strategies
focused on customers depends on an organization's capabilities in business
intelligence, which includes data warehousing, customer relationship management
and applications used to analyze data. Business intelligence solutions are part
of the fundamental infrastructure systems businesses need to succeed in a
competitive marketplace. International Data Corporation projects that data
warehousing spending worldwide will grow to $29.2 billion in 2002 from $11.5
billion in 1997. International Data Corporation also projects that the customer
relationship management market will grow to $9.0 billion in 2002 from
approximately $1.4 billion in 1997 and that global investments in applications
used to analyze data will grow to $3.6 billion in 2002 from only $1.0 billion
in 1997.
Turbulence and changes in previously established markets provide tremendous
opportunities for organizations that are insightful and focused on their
customers. In the new millennium, businesses working to attain competitive
advantage in changing markets will be compelled to use Web-based business
approaches and efficiently manage business and customer information. The
Internet combined with strategies focused on customers and business
intelligence will enable a new era of business.
The Braun Consulting Advantage
We believe clients that are dependent upon business and customer information
and effective use of the Internet will purchase Internet professional services
from qualified and proven providers. Braun Consulting is well positioned to
deliver these services. Our eSolutions are designed to provide a measurable
return on a client's investment by driving its revenue growth. We believe the
following key attributes differentiate us from the competition:
Comprehensive eSolutions Through our Transform Methodology
Our Transform methodology is a proprietary project management process we use
to deliver Internet professional services to clients. Through the Transform
methodology, we deliver solutions that integrate strategy and customer and
business information with the Internet. We provide comprehensive business
solutions through cross-functional project teams to Fortune 500 and middle-
market companies. Our Transform methodology begins with a customer-focused
strategy and, with our full range of business intelligence skill sets,
continues through the implementation of leading technologies including the
Internet. Our methodology is designed to provide completed work to the client
approximately every 90 days.
27
<PAGE>
Business Intelligence
Our founders have been working for more than 15 years advising clients about
technologies and methods that have developed over that time to collect and
analyze business and customer information. Our success has been built upon
services that effectively incorporate customer relationship management, data
warehousing and applications for data analysis. Our business intelligence
services assist our clients in collecting, retrieving, organizing and managing
business and customer information in order to:
. facilitate information sharing;
. analyze information and identify, predict and respond to customer and
market trends; and
. make timely, fact-based business decisions.
Customer-Focused and Internet Business Strategies
We have experience in designing customer-focused strategies that drive
revenue growth. Our objective is to assist clients in recognizing, pursuing and
realizing value from emerging customer and marketplace opportunities, including
the use of the Internet. This approach to business strategy, combined with our
customer relationship management services, can enable clients to more
effectively manage customers as key assets, thereby:
. improving existing customer relationships;
. maximizing revenue per customer; and
. identifying potential new customers.
Internet and Information Technology
Braun Consulting helps its clients develop and integrate Web-based
technologies, including Internet, intranet and extranet applications. We are
also experienced at building the systems that facilitate our clients'
electronic business activities. Our experience with various Internet
technologies allows us to recommend unbiased Internet technology solutions for
our clients. We continue to enhance our skills utilizing our three training and
technology centers located in Chicago, Indianapolis and St. Louis. These
centers are used to provide technology training to both our staff and our
clients.
Growth Strategy
Braun Consulting's objective is to continue our growth by capitalizing on
our position as an Internet professional services provider. Our strategies for
achieving this objective include:
Expanding and Developing our Client Base
Since 1993, we have provided services to more than 200 middle market and
Fortune 500 companies. We believe there is significant potential to expand our
relationships with these companies. We will continue to target new clients in
industries and emerging markets where success requires strategies focused on
customers, business information and Internet capabilities.
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<PAGE>
Recruiting and Retaining Qualified Professionals
Our growth will be fueled by continuously attracting qualified professionals
from industry, other consulting organizations and selected colleges and
universities. Our recruiting model and training curriculum allow us to prepare
recently hired employees to perform services under the guidance of experienced
management. Our training curriculum includes training to understand our
clients' business needs and the technologies to provide solutions for those
needs. Braun Consulting's culture includes a focus on leading edge
technologies, professional development programs, incentive-based compensation
and a balanced lifestyle. We believe our culture has resulted in a manageable
employee turnover rate of approximately 12% in 1998 and 1997.
Capitalizing on our Existing Infrastructure
Braun Consulting has developed the infrastructure to support our future
growth, which includes the following:
. our senior management team averages more than 17 years experience in
providing professional services, including customer-focused strategy
services, financial services and advising clients about technologies
and methods that have developed over time to collect and analyze
business and customer information;
. our team of experienced business development managers focuses on
expanding our business through increased sales and marketing
efforts;
. our management reporting systems enable us to efficiently track and
deploy firm resources; and
. our Transform methodology incorporates a proprietary database that
stores knowledge gained in previous engagements, allowing us to
capture and develop firm-wide best practices in our areas of
expertise.
Pursuing Selected Acquisitions
Braun Consulting has senior management personnel focused on identifying and
evaluating potential acquisitions in order to:
. expand our expertise in new technologies;
. gain access to additional talented professionals;
. expand our geographic presence; and
. increase our client base.
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eSolutions Services
Braun Consulting delivers comprehensive eSolutions which combine our
experience in customer-focused strategy, information collection and analysis
and Web integration.
Customer and Internet Business Strategy
Braun Consulting's customer and Internet business strategy services focus on
helping clients achieve sustainable, profitable growth by recognizing and
realizing value from their customer base, customer trends and the Internet. We
understand that strategy and implementation are inseparable and that
performance improvement for any client is based on insightful assessment,
analysis and hands-on implementation. Our experienced consultants work with
clients' senior management teams in a collaborative approach that is built upon
joint accountability, effective project management and interactive working
relationships. Our strategy services include:
. Customer-Focused Strategy. We help our clients develop growth-
oriented strategies that enable them to more effectively manage
customers as key assets and focus on improving customer
relationships, maximizing revenue per customer and identifying
potential new customers.
. Internet Business Strategy. We help clients design and implement
Internet-driven market approaches designed to drive revenue growth
and improve profitability through electronic commerce, sales force
automation and interactive customer relationships.
Business Intelligence
Our business intelligence services assist our clients in collecting,
organizing, retrieving and managing business and customer information. Using
Web-enabled technologies, this information can be collected and distributed
using the Internet. Our experience in business intelligence services consists
of:
. Data Warehousing. We build and deploy large-scale, complex data
warehouses. Data warehouses collect and organize data from disparate
sources, and make that data available for reporting and analysis.
Effective data warehousing overcomes issues presented by
incompatible databases, geographic separation and incompatible
technologies.
. Customer Relationship Management. We help clients to better
understand their customers' needs through effectively combining data
warehousing and applications for data analysis with new marketing
approaches. Our customer relationship management expertise enables
better assessment of customer value, prospective customer
opportunities and customer preferences for new products and
services.
. Applications for Data Analysis. Our expertise in deploying and
integrating applications for data analysis allows clients to deliver
information to the desktops of managers. The information provided
allows for analyses and decision making relative to such items as
market opportunity identification, customer trends, budgeting and
forecasting, product profitability and financial consolidation.
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Web Integration
Our Web integration services help clients to effectively manage the
interaction between their company and its customers, suppliers and employees.
The Web integration services we provide include:
. Electronic Commerce. Electronic commerce includes both business-to-
business and business-to-consumer applications. Our expertise with
leading business applications helps clients build and deploy systems
that allow online transactions with customers, suppliers and
partners.
. Internet, Intranet and Extranet. We have expertise in building Web-
based applications that span Internet-based interfaces, large-scale
internal intranets that connect departments and divisions within a
company and extranet systems that allow secured electronic access to
proprietary systems for authorized customers and partners. We
provide Web-based solutions using NT and Unix platforms.
. Front Office Automation. We help clients build and implement Web
integration systems that enable the effective information exchange
among geographically dispersed sales representatives, customer
service representatives and customers. We also have expertise in
helping clients effectively capture, store and utilize volumes of
data gathered through large-scale call center solutions.
. Supply Chain Management. Our expertise in supply chain management
applications provides our clients with leading-edge manufacturing
process capabilities that are increasingly tied to customer
relationship management programs.
. Core and Extended Enterprise Applications. We bring Web integration
expertise and insights to enterprise resource planning projects and
offer experience in extending the functionality through data
warehousing, reporting interfaces and customer relationship
management. We help clients achieve greater returns on their
significant enterprise applications investments.
Transform Methodology
Braun Consulting delivers Internet professional services for clients through
the effective use of our proprietary project management approach, Transform
methodology. Our approach is designed to provide completed work approximately
every 90 days. We believe our methodology creates selling advantages when
competing for work with other consulting firms.
Our approach capitalizes on both the client assurances associated with
fixed-price work and the flexibility inherent in ongoing billable
relationships. Transform's continuous 90-day review process enables controlled
growth of the overall project through the addition of mutually identified and
agreed upon incremental phases of work.
Our Transform methodology is designed to assure that the clients' strategic
business objectives are achieved, particularly when we engage in large-scale
projects. Our approach requires us to work closely with clients to achieve the
desired business objectives. Our methodology includes:
Scope. We identify and work with clients to deliver a clear definition of
the objectives for the project. We create an overall project plan, which
includes business objectives, duties, desired results,
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timeline and resource allocation. Management approvals and project checkpoints
are defined as part of the project plan. The emphasis of the planning stage is
on establishing objectives and timetables.
Strategy. Through tailored customer and competitive analyses, we work with
clients to agree upon the goals of the project. We emphasize the development
and alignment of customer-focused, Internet, general business and information
technology strategies. When appropriate, a prototype solution is developed for
the client's review.
Design. Business and technology specifications identified in the strategy
phase drive the project design. In designing a multi-phase solution, we define
business processes, Internet applications and information technology needs. Our
approach allows for continuous review for each successive phase. Our approach
allows us to work on multiple ongoing projects for a single client at the same
time.
Build. We construct and integrate components of Internet applications and
information technology systems. These components are implemented over 90-day
intervals and are continuously reviewed for quality assurance.
Integration. Our integration approach addresses both organizational and
systems needs. Key activities in this stage often include changes in business
processes, system conversions, training and documentation. This phase also
includes quality assurance and client review.
Support. During the support stage, Braun Consulting continues to provide
assistance to clients. These services may include business process change,
information technology and Internet application support. Our support services
foster ongoing client relationships that can lead to additional project work.
Another key element of our support services is the technical training of client
personnel on the use of our solutions. Our services also include customized
training, classroom instruction, manuals and documentation.
Representative eSolutions
Intranet-driven Products and Services
Challenge: Increase Fortune 100 client's effectiveness in sales and
marketing through the use of an intranet.
eSolution: Braun Consulting worked with a Fortune 100 manufacturer of
electronics equipment to rethink how to more effectively market an expansive
collection of product and service offerings. Working with the client, we built
and deployed a Web-based solution that effectively integrated dispersed
business locations and hundreds of product and service offerings. We utilized
database technology for efficient information storage and leading server
products to manage and distribute information. Our approach included using the
latest in browser technology to deploy a Web-based application across dozens of
office locations. Our eSolution made the complex system user-friendly. The
system is now able to calculate product and service offering charges and
improve inventory management.
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Results: The client is now better equipped to compete in highly competitive
markets and improve customer satisfaction by identifying and tailoring product
and service offerings that best meet customers' needs. Through intranet-based
access to information, this Fortune 100 client is capitalizing on business and
customer information to more effectively target and deliver hundreds of
products and services. Taking advantage of its new business capability, the
client is now able to better focus on increasing revenues and profits by
optimizing its pricing strategies.
Targeting Customers and Improving Sales Effectiveness through the Web
Challenge: Empower pharmaceuticals marketing managers with intranet access
to key information that optimizes the market potential of an innovative product
from a global healthcare provider.
eSolution: Braun Consulting developed and implemented new customer ranking
and sales force strategies for this client. The multi-phase project was
designed to drive revenue growth through improved management of customer
information. We approached the situation by first assessing the quality and
quantity of customer information available to sales and marketing management.
Our consultants assessed opportunities for sales potential based on customer
behaviors. We then designed a database tool that was distributed through an
intranet to improve sorting and ranking of targeted customers. Through improved
Web access to customer information, our client was able to align its sales
force with high-potential customers.
Results: The client is able to perform real-time customer evaluations made
possible by Web access to critical information. Our tools provide the ability
to develop new and improved target lists for selling and marketing across
international regions. The client can get closer to the right customers and
improve returns on sales force investments in multiple countries.
Improving Information Access to Increase Sales
Challenge: Drive revenues and productivity through Web access to sales
information for a manufacturer of commercial and consumer equipment.
eSolution: Braun Consulting worked with the client to improve access to
business and customer information through data warehousing and Web-based
reporting technologies. Through multiple project phases, we replicated existing
reports and developed interfaces to new order management systems which
integrated data resources from multiple systems. We developed data models and
data extraction methods that connected with the client's information system.
Our approach created a cohesive database containing information from three
business-critical functions and balanced the design requirements of several
incompatible data sources. We created more than one hundred reports to capture
and disseminate through the Web the information contained in the client's new
data warehouse.
Results: The improved access to information through Web-based reporting is
leading to increased productivity and sales. The client's executive and sales
management teams now have access to user-friendly information derived from an
expandable data warehouse that is designed to provide valuable customer
analyses.
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Developing a New Customer and Market Approach in Telecommunications
Challenge: Navigate a deregulating telecommunications environment, migrate
to Web-based information access, build closer relationships with target
customers and bring innovative new products and services to market.
eSolution: Braun Consulting is working with a telecommunications provider to
introduce customer relationship management strategies, build critical business
intelligence capabilities and enhance information technology systems. In the
first phase of the project, we conducted an extensive interview process with
the leadership team that identified needs in marketing strategy, organizational
structure, business processes, data management and systems requirements. From
this phase we delivered an executive report that outlined recommendations for
strategy and development of a marketing database that will be accessible
through the Internet and intranet when complete.
Results: Now in the second phase of working with the telecommunications
provider, we are designing and implementing a new marketing system that is
defining the organization and business processes necessary to compete in the
deregulating environment. To empower business capabilities that are customer-
focused and Web-enabled, we are building a data warehouse that is rapidly
approaching one terabyte, or one trillion bytes, of data and is expected to
grow to three terabytes of data within the next 12 months. Working together
with the client, our comprehensive business solution will integrate customer
information from one of the largest Web-enabled data warehouses in the client's
marketplace.
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Clients
We work with Fortune 500 and middle market companies across a wide variety
of industries, including telecommunications, healthcare, financial services,
manufacturing and consumer packaged goods. In 1998, our ten largest clients
generated approximately 63% of our revenues, with Pharmacia & Upjohn, Inc.
accounting for 18.6% of our revenues. The services provided to this client were
divided among a number of divisions and subsidiaries in multiple client
locations. Most of our large clients have retained us for multiple projects on
an ongoing basis. Existing clients from the previous fiscal year generated
approximately 76% of our revenues in 1998 and approximately 67% of our revenues
in 1997. The volume of work performed for specific clients is likely to vary
from year to year, and a significant client in one year may not use our
services in a subsequent year. Since the beginning of 1997, our clients have
included:
Telecommunications Manufacturing Financial Services
Ameritech Cummins Engine Blue Cross/Blue
Embratel Eaton Shield
Media One Honeywell Chase
Qwest Motorola CNA Insurance
Coregis
Steelcase
Healthcare Thomson Consumer Electronics Employers
American Home Products Trane Reinsurance
Clinical Reference Laboratory Kemper Insurance
Ty Inc.
Eli Lilly Xerox MasterCard
Pharmacia & Upjohn
Rhone-Poulenc Other
Ameren
Consumer Packaged Goods BP Amoco
Quaker Oats TMP Worldwide
Ralston Purina (Monster.com owner)
S.C. Johnson
Sales and Marketing
Braun Consulting has made significant investments in sales and marketing
initiatives, and believes strongly that these business functions will be
important to our future growth and success. We have a dedicated team of
experienced business development managers who are focused on securing new
opportunities and maximizing client satisfaction.
Our marketing team is engaged in a strategic initiative to develop brand and
image recognition. We have invested in our corporate identity and continue to
engage in activities designed to build awareness. For example, current programs
include promotional material and brochures, Webpage
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development, lead generation and executive seminars, market research and trade
shows. We utilize public relations, online marketing efforts and industry
events to brand Braun Consulting as an Internet professional services provider.
In addition, we participate in speaking, publishing and presentation
opportunities to generate awareness in our target markets and among our target
clients.
Culture, People and Recruiting
Braun Consulting's employees and culture are the cornerstone of our success.
Through our balanced work philosophy and our aggressive recruiting efforts, we
have been able to attract and retain qualified professionals.
Culture
Our demanding, engaging and rewarding environment is combined with a culture
that also supports family time, community service and outside personal
interests. We strive to achieve a balanced approach to work and personal life
and believe that this component of our culture is significant to recruiting and
retaining quality professionals. We attribute our manageable turnover rate to
our quality professional opportunities and the strong balance between work and
personal life that is a fundamental component of our culture.
People
We employ professionals from industry, consulting organizations and
selective colleges and universities. Our people at all levels understand the
importance of quality work and client satisfaction. Working in teams,
consultants are rewarded for contributions and accountability. Our compensation
program offers every full-time employee incentive-based opportunities to
participate in our stock option plans.
We contribute to the success of our people through ongoing professional
development and training. New employees typically receive professional training
and attend a team orientation. New hires who are recent graduates receive four
weeks of training in our culture, business, specific technologies and our
Transform methodology. We offer computer-based training through the Internet to
enhance our ongoing education commitment to employees.
As of June 30, 1999, we had 303 employees. Of these, 239 were project
personnel, 20 were selling and marketing personnel, and 44 were general and
administrative personnel. None of our employees are represented by a labor
union, and we consider our employee relations to be good.
Recruiting
To support continued growth, we have built a recruiting organization. To
recruit quality people, we use full-time recruiters, external recruiting
resources, the Internet, employee referrals and campus recruiting events. Our
campus recruiting program has earned brand name recognition among students on
campuses of leading educational institutions.
Diversity in experience is one of our strengths. Approximately 60% of our
new hires are experienced professionals and approximately 40% are recent
college and university graduates. Our new hires include industry managers,
consulting leaders, technology specialists, CPAs and graduates with Ph.D.,
M.B.A., liberal arts and engineering degrees.
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Operations
Braun Consulting is continuously enhancing operational infrastructure to
support and sustain our growth. Our management team focuses on business
operations through key proprietary internal systems and reporting capabilities
that have been developed in several areas, including:
Business Development/Sales Pipeline. Opportunities are monitored by business
development managers and practice leaders. Reviewed weekly, opportunities are
discussed by client, line of service, total revenues, likelihood of selling a
project, date of closing an agreement and work start date.
Forecast Report. Resources management is reviewed for optimal staffing,
revenue forecasting and demand-based allocation of available consultants. Our
forecasts are based on 90-day projections derived from signed client
agreements. The forecast report covers projected billable hours by practice,
average billing rates, utilization and comparison to planned budget. Practice
leaders, finance personnel, human resources and senior management review
reports semi-monthly.
Time & Expense Reports and Billing. Time and expense reports are generally
available online within 12 hours of semi-monthly period closing. This system
allows for timely revenue information and detailed management reporting. The
system allows invoicing of clients within two days of period closing.
Flash Report. Performance is monitored by practice area in semi-monthly,
month-to-date and year-to-date reports. Flash reports compare actual results to
budget and contain information on revenues generated, hours worked, total
headcount, new hires, utilization rates and average billing rates.
Hiring Pipeline Report. Budgeted hiring is tracked by practice area and the
various stages of individual candidates. Individuals in process are tracked
through resume review, interview process, offer status and acceptance or
rejection of employment. The hiring pipeline report is designed to optimize
resources and is integrated with the business development and forecast reports.
Competition
Competition in the Internet professional services marketplace is strong. Our
current and anticipated competitors include:
. emerging Web consulting firms such as Agency.com, Proxicom,
Razorfish, Scient and Viant, which are focused on Internet-based,
electronic business and digital business solutions;
. systems integrators such as Andersen Consulting, Ernst & Young,
PricewaterhouseCoopers and Sapient;
. strategy and management consulting firms such as Bain, Boston
Consulting Group, Diamond Technology Partners and McKinsey;
. regional specialized information technology firms;
. vendor-based services organizations of companies such as IBM and
Oracle; and
. internal management and information technology departments of current
and future client organizations.
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The market for our services is subject to rapid technological change and
increased competition from large existing players, new entrants and internal
information technology groups. We believe the principal competitive factors in
our market include Internet expertise and talent, client references, integrated
strategy, business intelligence and data warehousing capabilities, quality,
executive management, consulting skills, pricing and speed of service delivery,
and industry-specific knowledge. We believe the market will continue to offer
significant opportunity for multiple players. We believe we compete favorably
with respect to these factors. See "Risk Factors--The eSolutions market
subjects us to risks."
Facilities
Our headquarters are located in Chicago, Illinois. Our principal
administrative, finance, sales and marketing operations are located in Chicago,
Illinois and Boston, Massachusetts. Our facilities in Chicago are located in
approximately 17,200 square feet of leased office space and our facilities in
Boston are located in approximately 19,600 square feet of leased office space.
We also serve clients out of our leased office space in Cleveland, Ohio;
Dallas, Texas; Denver, Colorado; Detroit, Michigan; Grand Rapids, Michigan;
Indianapolis, Indiana; Minneapolis, Minnesota; and St. Louis, Missouri. We
expect that we will need additional space as we expand our business and believe
that we will be able to obtain suitable space as needed.
Legal Proceedings
Braun Consulting is not involved in any material legal proceedings.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth the names, ages and positions of our
directors and executive officers as of June 30, 1999:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Steven J. Braun......... 39 President, Chief Executive Officer and Chairman
of the Board of Directors
Thomas J. Duvall........ 49 Chief Operating Officer, Executive Vice President and Director
John C. Burke........... 61 Chief Financial Officer and Treasurer
Michael J. Evanisko..... 49 Executive Vice President and Director
James M. Kalustian...... 38 Executive Vice President and Director
Stephen J. Miller....... 48 Executive Vice President and Director
Paul J. Bascobert....... 35 Senior Vice President
David R. Fenner......... 41 Senior Vice President
Curt S. Sellke.......... 40 Senior Vice President
Gregory A. Ostendorf.... 44 General Counsel and Secretary
</TABLE>
Steven J. Braun. Mr. Braun founded Braun Consulting in 1990 and has served
as President, Chief Executive Officer and Chairman of the Board of Directors
since our inception. Mr. Braun began his entrepreneurial activities in 1985
when he co-founded Shepro-Braun Consulting, a professional services practice
dedicated to business and information technology solutions. Mr. Braun joined
Price Waterhouse LLP in 1982 as a consultant after he earned an A.B. from
Harvard College.
Thomas J. Duvall. Mr. Duvall has served as Chief Operating Officer, an
Executive Vice President and a director since November 1998. Prior to joining
us, Mr. Duvall was a Management Consulting Partner at PricewaterhouseCoopers
LLP where he was responsible for the Chicago office consulting practice and for
PricewaterhouseCoopers LLP's nationwide Chemical Industry consulting practice.
Mr. Duvall spent more than 23 years at PricewaterhouseCoopers LLP, including
the last 12 years as a Partner of the firm. Mr. Duvall has a B.S. from Indiana
Central College and an M.B.A. from State University of New York at Buffalo.
John C. Burke. Mr. Burke has served as Chief Financial Officer and Treasurer
since May 1996. Prior to joining us, Mr. Burke was with the public accounting
firm of Grant Thornton LLP for 30 years. Mr. Burke served as a member of senior
management of Grant Thornton LLP for 20 years and held the positions of
Chairman of the firm and Chicago Area Managing Partner. Mr. Burke is a C.P.A.
and has a B.S. from the University of Notre Dame.
Michael J. Evanisko. Mr. Evanisko has served as an Executive Vice President
and a director since May 1999. Mr. Evanisko was a founder and President of
Vertex Partners. Prior to co-founding Vertex Partners in 1994, Mr. Evanisko was
a founder and Vice President in Corporate Decisions, Inc., a strategic
consulting firm, from 1983 to 1993. Mr. Evanisko was a consultant and manager
at Bain & Co. from 1980 to 1983. In addition to his consulting career, Mr.
Evanisko served as Chairman of Digitrace Care Services, Inc. from 1990 to 1996
and Elensys, Inc. from 1993 to present. Mr. Evanisko also serves as President
of The Partnership for Organ Donation, Inc. Mr. Evanisko has a B.A. and an
M.P.A. from Pennsylvania State University and an M.A. and an M.Phil. from Yale
University.
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<PAGE>
James M. Kalustian. Mr. Kalustian has served as an Executive Vice President
and a director since May 1999. Mr. Kalustian was a founder and Vice President
of Vertex Partners. Prior to co-founding Vertex Partners in 1994, Mr. Kalustian
was a Manager at Corporate Decisions, Inc. from 1989 to 1994. Mr. Kalustian
served in various marketing positions from 1982 to 1989 for Raytheon Company,
W.R. Grace & Co. and Canada Dry. Mr. Kalustian has an A.B. from Harvard College
and an M.B.A. from Northwestern University.
Stephen J. Miller. Mr. Miller has served as an Executive Vice President and
a director since May 1999. Mr. Miller was a founding member of Braun Consulting
and has been part of the senior management team since 1993. Mr. Miller has
worked in the information technology consulting marketplace for the past 20
years, specializing in database management and business intelligence. Mr.
Miller has a B.A. from The Johns Hopkins University and an M.S. from the
University of Illinois.
Paul J. Bascobert. Mr. Bascobert has served as a Senior Vice President since
May 1999. Mr. Bascobert was a Vice President and founding member of Vertex
Partners. Prior to joining Vertex Partners in 1994, Mr. Bascobert was with
Corporate Decisions, Inc. from 1992 to 1994. Mr. Bascobert held the position of
systems engineer for General Motors and Whirlpool Corporation from 1982 to
1990. Mr. Bascobert has a B.S.E.E. from Kettering University and an M.B.A. from
the University of Pennsylvania.
David R. Fenner. Mr. Fenner is a Senior Vice President and has been with us
since November 1994. Mr. Fenner has 15 years of information systems experience.
Prior to joining us, Mr. Fenner was employed by Oracle Corporation from 1990 to
1994 and American Management Systems from 1986 to 1990. Mr. Fenner has a B.A.
from Pace University and an M.B.A. from the University of Chicago.
Curt S. Sellke. Mr. Sellke is a Senior Vice President and has been with us
since May 1994. Prior to joining us, Mr. Sellke was the District Manager for
Professional Services at Sybase from 1991 to 1994. Mr. Sellke has 19 years of
information systems experience and has worked in a similar capacity for Oracle
Corporation, Bricker & Associates, The Whitewater Group and Baxter Healthcare.
Mr. Sellke has a B.B. from Western Illinois University and an M.S. in Computer
Science from DePaul University.
Gregory A. Ostendorf. Mr. Ostendorf has served as General Counsel since
August 1996 and Secretary since October 1996. Prior to joining us, Mr.
Ostendorf was a partner in the law firm of Cage, Hill & Niehaus from 1988 to
1996. Mr. Ostendorf has a B.S. from Western Kentucky University and a J.D. from
Indiana University.
Except for Messrs. Duvall, Evanisko, Kalustian and Bascobert, each of whom
has an employment agreement, our executive officers are appointed annually by,
and serve at the discretion of, the board of directors. Mr. Ostendorf is the
brother-in-law of Mr. Braun. There are no other family relationships between
any of our directors or executive officers. See "--Employment Agreements."
Board of Directors
After the closing of this offering, we will appoint four independent
directors and will establish an audit committee and a compensation committee.
After the closing of this offering, our board will consist of nine directors
divided into three classes, denominated Class I, Class II and
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Class III. Members of each class hold office for three-year terms which are
staggered. At each annual meeting of our stockholders starting with the
meeting in 2000, the successors to the directors whose terms expire at that
meeting will be elected to serve for a three-year period following their
election or until a successor has been duly elected and qualified. Three
directors to be appointed after the closing of this offering will serve as
Class I directors whose terms expire at the 2000 annual meeting of
stockholders. Messrs. Duvall and Kalustian are Class II directors whose terms
expire at the 2001 annual meeting of stockholders. One director to be
appointed after this offering will also serve as a Class II director. Messrs.
Braun, Miller and Evanisko are Class III directors whose terms expire at the
2002 annual meeting of stockholders. The expiration of a director's term is
subject in all cases to the election and qualification of his successor or his
earlier death, removal or resignation. Each of Messrs. Duvall, Evanisko and
Kalustian have employment agreements providing for their nomination as our
directors. See "--Employment Agreements."
Committees of the Board of Directors
We will have an audit committee and a compensation committee. Each
committee will be composed entirely of independent directors. The audit
committee will recommend the annual appointment of our auditors, with whom the
audit committee will review the scope of audit and non-audit assignments and
related fees, accounting principles used in financial reporting, internal
auditing procedures and the adequacy of our internal control procedures. The
compensation committee will make recommendations to the board regarding
compensation for our executive officers. The compensation committee will also
administer the 1998 Employee Long-Term Stock Investment Plan, the 1998
Executive Long-Term Stock Investment Plan and the 1995 Director Stock Option
Plan.
Compensation of Directors
Directors who are also our employees receive no additional compensation for
their services as directors. Directors who are not our employees will receive
a $1,000 fee for attendance in person at meetings of the board or committees
of the board and will be reimbursed for travel expenses and other out-of-
pocket costs incurred in connection with their attendance at such meetings. We
intend to include stock options for non-employee directors as an additional
component of compensation pursuant to the 1999 Independent Director Long Term
Stock Investment Plan. Directors who are our employees are eligible to
participate in our 1998 Employee Long-Term Stock Investment Plan, 1998
Executive Long-Term Stock Investment Plan and 1995 Director Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
During 1998, Mr. Braun and his wife served as the members of the
compensation committee. Mr. Braun will serve as the sole member of the
compensation committee until this offering is completed. Two directors to be
appointed after this offering will serve as the members of the compensation
committee. Neither of these two directors will have at any time been officers
or employees of Braun Consulting.
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Executive Compensation
The following table sets forth certain summary information concerning the
compensation earned during 1998 by our President and Chief Executive Officer
and the four other most highly compensated officers. We use the term "named
executive officers" to refer to these people in this prospectus. The table
excludes certain perquisites and other personal benefits received by a named
executive officer that do not exceed the lesser of $50,000 or 10% of any such
officer's salary and bonus disclosed in the table.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
---------------- ------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options Compensation(a)
<S> <C> <C> <C> <C>
Steven J. Braun.................. $333,333 $65,000 -- $2,000
President and Chief Executive
Officer
John C. Burke.................... 200,000 24,000 41,000 2,083
Chief Financial Officer and
Treasurer
Stephen J. Miller................ 200,000 69,244 -- 2,083
Executive Vice President
David R. Fenner.................. 150,000 40,500 -- 1,406
Senior Vice President
Curt S. Sellke................... 125,000 41,500 -- 1,302
Senior Vice President
</TABLE>
- ---------------------
(a) Represents 401(k) matching contributions by us.
The following table sets forth information on grants of stock options during
1998 to the named executive officers.
Option Grants in 1998
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Individual Grants Assumed Annual
-------------------------------------------------- Rates of Stock
Number of Price
Securities Percent of Appreciation
Underlying Total Options for Option
Options Granted to Term(b)
Granted in Employees in Exercise Price Expiration --------------
Name 1998 1998 (per share)(a) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Steven J. Braun......... -- -- -- -- -- --
John C. Burke........... 30,000 3.3% $0.90 3/2003 $7,460 $16,484
11,000 1.1 3.00 9/2003 9,117 20,147
Stephen J. Miller....... -- -- -- -- -- --
David R. Fenner......... -- -- -- -- -- --
Curt S. Sellke.......... -- -- -- -- -- --
</TABLE>
- ---------------------
(a) The exercise price equals the fair market value of the common stock as of
the grant date as determined by the board of directors.
(b) The potential realizable value is calculated based on the term of the
option at the time of grant (5 years). Assumed stock price appreciation of
5% and 10% is based on the fair value at the time of the grant.
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<PAGE>
The following table sets forth information with respect to exercises of
options by the named executive officers during 1998 pursuant to the 1998
Employee Long-Term Stock Investment Plan, the 1998 Executive Long-Term Stock
Investment Plan and the 1995 Director Stock Option Plan, and information with
respect to unexercised options to purchase common stock held by them at
December 31, 1998.
Aggregated Option Exercises in 1998 and Year-End 1998 Option Values
<TABLE>
<CAPTION>
Number Number of Securities
of Underlying Unexercised Value of Unexercised
Shares Options Held at In-the-Money Options at
Acquired December 31, 1998 December 31, 1998(a)
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Steven J. Braun......... -- -- -- -- -- --
John C. Burke........... -- -- 7,500 133,500 $22,125 $455,725
Stephen J. Miller....... 582,564 $495,179 -- -- -- --
David R. Fenner......... 97,094 82,530 -- 155,350 -- 590,330
Curt S. Sellke.......... 194,188 165,060 -- 145,641 -- 553,436
</TABLE>
- ---------------------
(a) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated based on the fair
market value at December 31, 1998 of $3.85 per share.
Employment Agreements
Braun Consulting has entered into employment agreements with Messrs. Duvall,
Evanisko, Kalustian and Bascobert. Mr. Duvall's agreement has a five-year term,
expiring on October 31, 2003. Each of the agreements for Messrs. Evanisko,
Kalustian and Bascobert has a three-year term, expiring on April 30, 2002.
Pursuant to their employment agreements, Mr. Duvall serves as Chief
Operating Officer and Executive Vice President, Messrs. Evanisko and Kalustian
serve as Executive Vice Presidents and Mr. Bascobert serves as Senior Vice
President. In addition, the agreements for Messrs. Duvall, Evanisko and
Kalustian provide for their nomination as our directors.
As of June 30, 1999, pursuant to their employment agreements, the base
salary for Mr. Duvall was $315,000, for Mr. Evanisko was $300,000, for Mr.
Kalustian was $250,000 and for Mr. Bascobert was $225,000. Each of their base
salaries increase annually by the greater of five percent or the consumer price
index. Each of them is eligible to receive an annual bonus targeted to be 20%
of their respective base salaries. In addition, Mr. Duvall is entitled to
receive a quarterly bonus of $15,000, increasing each year by the greater of
five percent or the consumer price index.
Pursuant to their respective employment agreements and subject to vesting
schedules, each of Messrs. Evanisko, Kalustian and Bascobert was granted an
option to purchase shares of common stock under the 1998 Employee Long-Term
Stock Investment Plan, and Mr. Duvall was granted an option to purchase shares
of common stock under the 1998 Executive Long-Term Stock Investment Plan. See
"--Stock Plans."
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<PAGE>
Braun Consulting can terminate any of the employment agreements (1) for
cause, (2) on the executive's death or (3) on the executive's permanent
disability. All of the agreements define cause as the executive's material
gross negligence or willful misconduct, final conviction of a felony,
involvement in a conflict of interest or material breach of the material
provisions of the agreements. In addition, the agreements with Messrs.
Evanisko, Kalustian and Bascobert define cause to include the executive's
knowing violations of Braun Consulting's policies or standards of conduct.
Braun Consulting also can terminate the agreements with Messrs. Evanisko,
Kalustian and Bascobert without cause on 60 days prior written notice. Each of
Messrs. Evanisko, Kalustian and Bascobert can terminate his agreement for good
reason or on 60 days prior written notice. Their agreements define good reason
as a material breach of the agreements by Braun Consulting or a material change
in the location of employment, the executive's reporting relationship or the
nature or scope of the executive's duties. Either Braun Consulting or Mr.
Duvall can terminate his agreement for any reason on 90 days prior written
notice.
Under the agreements with Messrs. Evanisko, Kalustian and Bascobert, in the
case of an involuntary termination, the executive continues to receive his base
salary for one to two years depending on the remaining term under his agreement
and how long he has worked for us. However, if the involuntary termination
occurs after a change of control of Braun Consulting, the executive shall
receive his base salary for the remainder of the term.
Under the agreements for Messrs. Evanisko, Kalustian and Bascobert, in the
event of a termination of employment by us or by the executive for good reason,
75% of the unvested portion of the executive's options vest immediately, and
any remaining unexercised options terminate on the date of termination of
employment. In the event of a termination of employment on any other terms, the
unexercised portion of the options terminates on the date of the termination of
employment.
Under Mr. Duvall's agreement, if he is terminated for cause, the unvested
portion of his options terminates on the date of the termination of his
employment. If he is terminated other than for cause, or in the event of a
change of control, a portion of his unvested options vests immediately. Within
90 days of a change of control or his termination for cause, Mr. Duvall may
elect to sell to us a portion or all of the shares of common stock acquired
upon exercise of his options, at a price equal to $6.00 per share, payable in
annual installments not to exceed $480,000 per installment. In the event of an
involuntary termination, Mr. Duvall may elect to have a portion or all of his
vested but unexercised options terminated and receive "special severance
compensation" equal to the number of shares subject to the terminated options,
multiplied by $3.00. This amount is payable to Mr. Duvall in annual
installments not to exceed $240,000 per installment.
All of the agreements define involuntary termination as the termination of
employment by Braun Consulting, prior to the expiration of the term and on the
required prior written notice, for any reason other than for cause, the
executive's death or permanent disability. The agreements also state that a
change of control occurs when (1) Braun Consulting merges with another entity
and is not the surviving entity, sells all or substantially all of its assets
or is dissolved, (2) a person other than Steven J. Braun or his family becomes
the beneficial owner of at least 51% of the voting stock of Braun Consulting or
(3) the members of the board of directors of Braun Consulting on the date that
Braun Consulting becomes a public company, or those new directors approved by
the vote of at least 80% of such incumbent directors, cease to constitute at
least a majority of the board.
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The agreements for Messrs. Evanisko, Kalustian and Bascobert contain
standard provisions regarding confidentiality, non-solicitation, non-
competition and Braun Consulting's ownership of works of authorship prepared in
the scope of the executive's employment with us. Braun Consulting and Mr.
Duvall have entered into a separate agreement containing similar
confidentiality, non-solicitation, non-competition and ownership provisions.
Stock Plans
1998 Employee Long-Term Stock Investment Plan
The Employee Plan provides for the grant of incentive stock options and non-
qualified stock options to purchase common stock. All our employees and persons
with written consulting agreements with Braun Consulting are eligible to
participate in the Employee Plan. The purpose of the Employee Plan is to
provide participants an opportunity to own common stock and to advance our
interests by providing an additional incentive by increasing proprietary
interest in our success.
The maximum number of shares of common stock for which options may be
granted under the Employee Plan is the greater of (a) 2,000,000 or (b) 20% of
the number of issued and outstanding shares of common stock. The price of any
stock purchased pursuant to an option may not be less than the fair market
value of the stock. Options are exercisable for ten years after the grant date,
and options may not be exercised until at least two months from the grant date.
Options granted under the Employee Plan generally are not transferable by the
optionee and terminate upon severance of employment.
As of June 30, 1999, there are options outstanding under the Employee Plan
to purchase 1,702,667 shares of common stock at a weighted average price of
$3.07 per share, of which 316,388 are currently exercisable. We anticipate
granting additional options for up to approximately 525,000 shares of common
stock under the Employee Plan prior to this offering. These options will have
an exercise price approximately equal to the offering price and will vest over
a period of four years.
1998 Executive Long-Term Stock Investment Plan
The Executive Plan, which is also administered by the compensation
committee, provides for the grant of incentive stock options and non-qualified
stock options to purchase common stock, and is substantially the same as the
Employee Plan, except as described below. The maximum number of shares of
common stock for which options may be granted under the Executive Plan is
600,000. Options granted under the Executive Plan terminate 30 days after the
severance of employment.
As of June 30, 1999, there are options outstanding under the Executive Plan
to purchase 456,877 shares of common stock at a weighted average price of $3.00
per share, of which 79,168 are currently exercisable.
1995 Director Stock Option Plan
The Director Plan, which is also administered by the compensation committee,
provides for the grant of options to purchase common stock to all practice area
directors that are our employees. The purpose of the Director Plan is to induce
certain practice area directors to remain employed by us and to encourage
practice area directors to secure or increase their ownership in us, thereby
promoting continuity of management and increased incentive and personal
interest in us by those responsible for securing our continued growth and
success.
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<PAGE>
The maximum number of shares of common stock for which options may be
granted under the Director Plan is 2,047,550. Options are not exercisable after
eight years after the date they are granted. Options granted under the Director
Plan generally are not transferable and terminate upon severance of employment.
As of June 30, 1999, there are options outstanding under the Director Plan
to purchase 167,094 shares of common stock at a weighted average price of $0.05
per share, of which none are currently exercisable.
1999 Independent Director Long Term Stock Investment Plan
The Independent Director Plan, which is administered by the board of
directors, provides for the grant of options to purchase common stock to all of
our directors who are not and have never been our employees and who do not
receive compensation from us other than as a director. The purpose of the
Independent Director Plan is to provide our independent directors additional
compensation for their services as directors and incentive, through options to
acquire our common stock, to increase the value of our common stock.
The maximum number of shares of common stock for which options may be
granted under the Independent Director Plan is 100,000. The price of any stock
purchased pursuant to an option may not be less than the fair market value of
the stock. Options granted under the Independent Director Plan generally are
not transferrable. No options have been granted under the Independent Director
Plan.
Limitations of Liability and Indemnification of Directors and Officers
To the extent permitted by Delaware General Corporation Law, we have
included in our certificate of incorporation a provision to eliminate the
personal liability of directors for monetary damages due to their breach or
alleged breach of their fiduciary duties. Our charter does not, however,
provide for indemnification for liability due to a director's breach of his or
her duty of loyalty to us or our stockholders, for acts involving bad faith or
intentional misconduct or violations of law, or for any transaction from which
the director received an improper personal benefit. In addition, our bylaws
require us to indemnify our officers and directors under certain circumstances,
and we are required to advance to our officers and directors certain of their
expenses incurred in connection with the proceeding against them. We intend to
obtain directors' and officers' liability insurance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Registration Rights Agreement
Braun Consulting is a party to a registration rights agreement with Messrs.
Evanisko, Kalustian and Bascobert, who are collectively referred to as the
Holders. Under the terms of the registration rights agreement, the Holders are
entitled to piggyback registration rights with respect to the shares of
common stock owned by them. Each time we propose to register any of our
securities under the Securities Act, whether for our own account or for other
stockholders, the Holders are entitled to have their shares of common stock
registered by us as well, unless we are registering our
46
<PAGE>
securities on Form S-4 or Form S-8. The registration rights agreement provides
a limitation on the number of shares of common stock that may be sold by
Messrs. Evanisko, Kalustian and Bascobert in this offering. These registration
rights are subject to conditions and limitations, including the right of
underwriters of an offering to limit the number of shares included in the
registration. We must pay expenses related to the registration and distribution
of its shares of common stock held by the Holders under the registration rights
agreement.
Stockholders Agreement
Mr. Braun and Mr. Miller are parties to an agreement providing that if Mr.
Braun sells any of his shares of our common stock to a third party during the
term of the agreement, then Mr. Miller has the option to sell the same
percentage of his shares to the same purchaser for the same price per share and
on the same terms as Mr. Braun's sale. In addition, the agreement permits Mr.
Miller to participate on the same terms as Mr. Braun in any sale of our common
stock registered under the Securities Act. The agreement terminates upon the
termination of Mr. Miller's employment with us.
Other Transactions
In November 1998, Braun Consulting made an unsecured loan to Mr. Miller in
the amount of $29,128, with interest accruing at an annual interest rate of
7.75%, in connection with the exercise of stock options. The note matures upon
the earlier of December 31, 1999 or completion of this offering. In January
1999, Braun Consulting made an unsecured, interest-free loan to Mr. Miller in
the amount of $180,594 to fund the withholding of taxes due in connection with
the exercise of stock options. This loan matures upon the earlier of January 4,
2004 or completion of this offering. Mr. Miller anticipates using a portion of
the proceeds from his sale of shares of our common stock in this offering to
repay the notes.
In January 1999, Braun Consulting made an unsecured loan to Mr. Sellke in
the amount of $67,800 to fund the withholding of taxes due in connection with
the exercise of stock options. In April 1999, Braun Consulting made an
unsecured loan to Mr. Sellke in the amount of $65,595, to fund the withholding
of taxes due in connection with the exercise of stock options. The loans bear
interest at 8.0%, are payable on demand and mature on December 31, 1999. Mr.
Sellke anticipates using a portion of the proceeds from his sale of shares of
our common stock in this offering to repay the notes.
In January 1999, Braun Consulting made an unsecured loan to Mr. Fenner in
the amount of $36,855 to fund the withholding of taxes due in connection with
the exercise of stock options. In April 1999, Braun Consulting made an
unsecured loan to Mr. Fenner in the amount of $227,736 to fund the withholding
of taxes due in connection with the exercise of stock options. The loans bear
interest at 8.0%, are payable on demand and mature on December 31, 1999. Mr.
Fenner anticipates using a portion of the proceeds from his sale of shares of
our common stock in this offering to repay the notes.
In December 1995, we executed seven different promissory notes in favor of
Mr. Braun in the aggregate amount of $485,516 and a line of credit note in the
amount of $150,000. All of the notes were demand notes with a maturity of
December 31, 1998, bearing interest at 10.0%, and were repaid by that time. In
December 1998, we executed a short-term demand note in favor of Mr. Braun in
the amount of $150,000 at an interest rate of 8.0%. This note was repaid in
January 1999.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of June 30, 1999 and immediately following
this offering by (1) each person who beneficially owns 5% or more of a class of
capital stock, (2) each of our directors, (3) each of the named executive
officers and (4) all of our directors and executive officers as a group.
Unless otherwise noted (1) each of the persons listed below has sole voting
and investment power with respect to the shares beneficially owned by him as
set forth opposite his name and (2) the address for each of the persons listed
below is: c/o Braun Consulting, Inc., 30 West Monroe, Suite 300, Chicago,
Illinois 60603.
<TABLE>
<CAPTION>
Percentage
Ownership
Shares of -----------------
Common Stock Prior After
Beneficially to the the
Name Owned(a)(b)(c) Offering Offering
<S> <C> <C> <C>
Steven J. Braun(d)............................ 9,213,975 74.2% 54.4%
Thomas J. Duvall(e)........................... 66,666 * *
John C. Burke(f).............................. 48,630 * *
Michael J. Evanisko(g)........................ 705,701 5.7 4.2
James M. Kalustian(h)......................... 504,063 4.1 3.0
Stephen J. Miller............................. 978,864 7.9 5.8
David R. Fenner............................... 252,444 2.0 1.2
Curt S. Sellke(i)............................. 291,282 2.3 1.7
All executive officers and directors as a
group (10 persons)........................... 12,411,540 99.2 72.5
</TABLE>
- ---------------------
* Represents less than one percent of the total.
(a) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities, subject to community property
laws, where applicable.
(b) The calculations in this table of the percentage of outstanding shares are
based on 12,349,466 shares of our common stock outstanding as of June 30,
1999 and 16,949,466 shares outstanding immediately following the completion
of this offering and assumes no exercise of the underwriters' over-
allotment option. Shares of our common stock subject to options that are
presently exercisable or exercisable within 60 days of June 30, 1999 are
deemed to be outstanding and beneficially owned by the person holding such
options for the purpose of computing the percentage of ownership of such
person but are not treated as outstanding for the purpose of computing the
percentage of any other person.
(c)Assumes no exercise of the underwriters' over-allotment option to purchase
up to an aggregate of 690,000 shares of common stock from the following
existing stockholders: Steven J. Braun (170,700 shares), Michael J. Evanisko
(100,000 shares), James M. Kalustian (80,000 shares), Stephen J. Miller
(200,000 shares), David R. Fenner (50,000 shares), Curt S. Sellke (79,300
shares) and Paul J. Bascobert (10,000 shares). If the underwriters' over-
allotment option is exercised in full, upon completion of this offering
Messrs. Braun, Evanisko, Miller, Fenner, Sellke, Kalustian and Bascobert
would beneficially own 9,043,275 shares, 605,701 shares, 778,864 shares,
202,444 shares, 211,982 shares, 424,063 shares and 323,785 shares of common
stock, respectively, representing 53.4%, 3.6%, 4.6%, 1.2%, 1.2%, 2.5% and
1.9% of the outstanding common stock, respectively.
(d) Includes an aggregate of 40,000 shares subject to a voting trust, of which
Steven J. Braun serves as trustee, and an aggregate of 233,330 shares held
in trust for Mr. Braun's children.
(e) Includes 66,666 shares of common stock issuable upon exercise of
outstanding stock options that will become exercisable within 60 days of
June 30, 1999.
(f) Includes 3,630 shares of common stock issuable upon exercise of outstanding
stock options that will become exercisable within 60 days of June 30, 1999.
(g) Includes 20,000 shares held in trust for Mr. Evanisko's children and 15,300
shares of common stock issuable upon exercise of outstanding stock options
that will become exercisable within 60 days of June 30, 1999.
(h) Includes 10,919 shares of common stock issuable upon exercise of
outstanding stock options that will become exercisable within 60 days of
June 30, 1999.
(i) Includes 48,547 shares of common stock issuable upon exercise of
outstanding stock options that will become exercisable within 60 days of
June 30, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
This summary contains a description of all of the material terms of our
capital stock. However, it does not describe every term of the capital stock
contained in our certificate of incorporation. We refer you to the provisions
of Delaware corporate law and our certificate of incorporation and bylaws,
which you can access through EDGAR at www.sec.gov/edgarhp.htm.
Authorized and Outstanding Capital Stock
Our certificate of incorporation authorizes us to issue 50,000,000 shares of
common stock, $0.001 par value per share, and 10,000,000 shares of preferred
stock, $0.001 par value per share. The preferred stock is issuable in series.
There will be 12,433,390 shares of Braun Consulting common stock outstanding
immediately prior to consummation of this offering, held of record by 46
stockholders, and there will be no shares of preferred stock outstanding.
Common Stock
Voting Rights. Holders of our common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. The holders of
common stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a result, minority stockholders will not be able
to elect directors on the basis of their votes alone.
Dividend Rights. Subject to preferences that may be applicable to any then
outstanding shares of preferred stock, holders of common stock are entitled to
receive ratably such dividends as may be declared by the board out of funds
legally available therefor. See "Dividend Policy."
Liquidation Rights. In the event of our liquidation, dissolution or winding
up, holders of the common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding preferred stock. Holders of common stock have no preemptive,
conversion or other rights to subscribe for additional securities of Braun
Consulting. No redemption or sinking fund provisions apply to the common stock.
All outstanding shares of common stock are, and all shares of common stock to
be outstanding upon completion of the offering will be, validly issued, fully
paid and nonassessable.
Preferred Stock
Our board has the authority, without further action by the stockholders, to
issue up to 10,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series. The issuance of
preferred stock could adversely affect the voting power of holders of our
common stock and could decrease the likelihood that such holders
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<PAGE>
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring or preventing a change of control of Braun
Consulting. Accordingly, the issuance of shares of preferred stock may
discourage offers for our common stock or may otherwise adversely affect the
market price of our common stock. We have no present plan to issue any shares
of preferred stock.
Registration Rights
Braun Consulting is a party to a registration rights agreement with Messrs.
Evanisko, Kalustian and Bascobert. Under the terms of the registration rights
agreement, the Holders are entitled to piggyback registration rights with
respect to the shares of common stock owned by them. See "Certain Relationships
and Related Transactions--Registration Rights Agreement."
Stockholders Agreement
Mr. Braun and Mr. Miller are parties to an agreement providing that if Mr.
Braun sells any of his shares of common stock to a third party during the term
of the agreement, then Mr. Miller has the option to sell the same percentage of
his shares to the same purchaser on the same terms as Mr. Braun's sale. In
addition, the agreement provides Mr. Miller with certain registration rights.
See "Certain Relationships and Related Transactions--Stockholders Agreement."
Delaware Anti-Takeover Law and Certain Charter Provisions
Delaware Anti-Takeover Statute. We are subject to the provisions of Section
203 of the Delaware General Corporation Law, an anti-takeover law. Subject to
certain exceptions, the statute prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
. prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
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For purposes of Section 203, a "business combination" includes a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior to
the date of determination whether the person is an "interested stockholder,"
did own) 15% or more of the corporation's voting stock. Section 203 could
prohibit or delay mergers or other changes in control with respect to Braun
Consulting and, accordingly, may discourage attempts to acquire us. See "Risk
Factors--We have various mechanisms in place that may prevent a change in
control that a stockholder may consider favorable."
Certificate of Incorporation. Our certificate of incorporation contains the
following provisions which are intended to enhance the likelihood of continuity
and stability in the composition of the board and in the policies formulated by
the board and to discourage certain types of transactions that may involve an
actual or threatened change of control of Braun Consulting. These provisions
provide:
. for the authorization of the board to issue, without further action by
the stockholders, up to 10,000,000 shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and
restrictions thereof;
. that any action required or permitted to be taken by our stockholders
must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing;
. that special meetings of our stockholders may be called only by the
Chairman of the Board of Directors, the Chief Executive Officer, the
President or the board;
. for the division of the board into three classes, with each class serving
for a staggered term of three years;
. that vacancies on the board, including newly created directorships, can
be filled only by a majority of the directors then in office;
. that our directors may be removed only for cause and only by the
affirmative vote of holders of at least 66 2/3% of the outstanding shares
of voting stock, voting together as a single class;
. that cumulative voting is expressly prohibited;
. that certain provisions of the certificate of incorporation may be
amended only by a vote of 66 2/3% of the stockholders entitled to vote;
and
. that stockholders wishing to nominate directors and propose other
business to be conducted at stockholder meetings must meet certain
advance notice requirements.
These provisions are designed to reduce our vulnerability to an unsolicited
proposal for a takeover that does not contemplate the acquisition of all of our
outstanding shares, or an unsolicited proposal for the restructuring or sale of
all or part of Braun Consulting. Such provisions, however, could discourage
potential acquisition proposals and could delay or prevent a change of control
of Braun Consulting. Such provisions may also have the effect of preventing
changes in our management. See "Risk Factors--We have various mechanisms in
place that may prevent a change in control that a stockholder may consider
favorable."
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is LaSalle National
Bank, and its address is 135 South LaSalle Street, Chicago, Illinois 60603.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, no public market for our common stock has existed.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and impair our ability to
raise equity capital in the future.
Upon completion of the offering and assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding stock
options, an aggregate of 17,033,390 shares of our common stock will be
outstanding. All of the shares sold in this offering will be freely
transferable without restriction or limitation under the Securities Act of 1933
unless purchased by our "affiliates," as defined in Rule 144 under the
Securities Act. The remaining 12,433,390 shares are "restricted shares" within
the meaning of Rule 144 under the Securities Act, and are subject to
restrictions under the Securities Act and the lock-up agreements described
below.
Our directors, executive officers, stockholders and some option holders have
agreed not to sell, offer for sale, or otherwise dispose of any of our common
stock for a period of 180 days from the date of this prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
In addition, during the 180-day period, we have agreed not to file any
registration statement with respect to our common stock or any securities
convertible into or exercisable or exchangeable for our common stock without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned shares of common
stock for at least one year would be entitled to sell within any three-month
period the number of shares of common stock that does not exceed the greater
of:
. 1% of the number of then outstanding shares; or
. the average weekly reported trading volume during the four calendar
weeks preceding the filing of a notice on Form 144 with respect to
that sale.
Sales under Rule 144 are also subject to certain notice and manner of sale
requirements and to the availability of current public information about us and
must be made in unsolicited brokers' transactions or to a market maker. A
person who is not our "affiliate" under the Securities Act during the three
months preceding a sale and who has beneficially owned shares for at least two
years is entitled to sell such shares under Rule 144 without regard to the
volume, notice, information and manner of sale provisions. Our affiliates must
comply with the restrictions and requirements of Rule 144 when transferring
restricted shares even after the two-year holding period has expired and must
comply with the restrictions and requirements of Rule 144 other than the one-
year holding period in order to sell unrestricted shares. Rule 144 allows
persons to include the holding period of the transferor under certain
circumstances.
Any of our employees, officers, directors or consultants who purchased or
were awarded shares or options to purchase shares prior to this offering are
generally entitled to rely on the resale
52
<PAGE>
provisions of Rule 701 under the Securities Act, which permit affiliates and
non-affiliates to sell such shares without having to comply with the holding
period restrictions of Rule 144, in each case commencing 90 days after the date
of this prospectus. In addition, non-affiliates may sell such shares without
complying with the public information, volume and notice provisions of Rule
144. Rule 701 is available for holders as to all 1,707,042 shares issued
pursuant to the exercise of options granted prior to this offering.
Messrs. Evanisko, Kalustian and Bascobert have certain rights to register in
the future under the Securities Act the shares of our common stock owned by
them. See "Certain Relationships and Related Transactions--Registration Rights
Agreement."
After 180 days after the offering, we intend to file a registration
statement on Form S-8 to register all of the shares of common stock reserved
for issuance pursuant to the 1998 Employee Long-Term Stock Investment Plan, the
1998 Executive Long-Term Stock Investment Plan, the 1995 Director Stock Option
Plan and the 1999 Independent Director Long Term Stock Investment Plan.
Accordingly, shares issued upon exercise of such options will be freely
tradeable by holders who are not our affiliates and, subject to the volume and
other limitations of Rule 144, by holders who are affiliates.
53
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
dated , 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc.,
Adams, Harkness & Hill, Inc. and DLJdirect Inc., have severally agreed to
purchase from us the number of shares of common stock set forth opposite its
name below.
<TABLE>
<CAPTION>
Number of
Underwriters: Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..................
Salomon Smith Barney Inc.............................................
Adams, Harkness & Hill, Inc..........................................
DLJdirect Inc........................................................
---------
Total............................................................. 4,600,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase common stock depend on the satisfaction of the conditions contained in
the underwriting agreement, and that if any of the shares of common stock are
purchased by the underwriters under the underwriting agreement, then all of the
shares of common stock which the underwriters have agreed to purchase under the
underwriting agreement must be purchased. The conditions contained in the
underwriting agreement include the requirement that the representations and
warranties made by us to the underwriters are true, that there is no material
change in the financial markets and that we deliver to the underwriters
customary closing documents.
The underwriters initially propose to offer some of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page of this prospectus, and some of the shares to dealers at the
initial public offering price less a concession not in excess of $ per
share. The underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share on sales to other dealers. After the initial
offering of the common stock to the public, the representatives may change the
public offering price and concessions. The underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
As used in this section, underwriters are securities broker/dealers that are
parties to the underwriting agreement and will have a contractual commitment to
purchase shares of our common stock from us, and the representatives are the
four firms acting on behalf of the underwriters. Broker/dealers are firms
registered under applicable securities laws to sell securities to the public.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. The underwriting discount was determined through
discussion with our management and by reference to the underwriters'
54
<PAGE>
experience with transactions of this type and companies in similar industries.
This information is presented assuming either no exercise or full exercise by
the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
Per Without With
share Option Option
<S> <C> <C> <C>
Public offering price................................ $ $ $
Underwriting discount................................
Proceeds before expenses to Braun Consulting.........
</TABLE>
The underwriting discount is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us for each share of
common stock multiplied by the total number of shares in this offering. We
anticipate that the underwriting fee will be approximately 7% of the aggregate
gross proceeds of this offering, or approximately $2,576,000.
The expenses of this offering, exclusive of the underwriting discount, are
estimated at $1,000,000 and are payable by us. The principal components of the
offering expenses payable by us will include the fees and expenses of our
accountants and attorneys, the fees of our registrar and transfer agent, the
cost of printing this prospectus, The Nasdaq Stock Market listing fees and
filing fees paid to the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc.
An electronic prospectus is available on the Web site maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a representative of the underwriters. Other than the prospectus
in electronic format, the information on such Web site relating to our offering
is not part of this prospectus and has not been approved or endorsed by us or
any underwriter, and should not be relied on by prospective investors.
Donaldson, Lufkin & Jenrette Securities Corporation and DLJdirect Inc. have
an oral agreement by which DLJdirect Inc. has agreed to compensate Donaldson,
Lufkin & Jenrette Securities Corporation for providing to DLJdirect Inc.
allocations in this offering and other offerings in which Donaldson, Lufkin &
Jenrette Securities Corporation serves as lead manager or co-manager and in
which DLJdirect Inc. participates as an underwriter or a member of a selling
group. The amount of compensation is equal to 10% of the selling concessions
received by DLJdirect Inc.
Some of our existing stockholders have granted to the underwriters an
option, exercisable for 30 days after the date of this prospectus, to purchase
up to 690,000 additional shares of common stock at the initial public offering
price less the underwriting discounts and commissions. The underwriters may
exercise such option solely to cover over-allotments, if any, made in
connection with this offering. To the extent the underwriters exercise this
option, each underwriter will be obligated, subject to certain conditions, to
purchase a number of additional shares approximately proportionate to that
underwriter's percentage underwriting commitment indicated in the first table
in this section.
55
<PAGE>
We, together with our existing stockholders who have granted the
underwriters an option, have agreed to indemnify the underwriters against
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of the representations and warranties contained in the
underwriting agreement, and to contribute to payments that the underwriters may
be required to make for these liabilities.
We and our executive officers, directors, stockholders and some of the
option holders have agreed that, subject to some exceptions, for a period of
180 days from the date of this prospectus, they will not, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation:
. offer, pledge, sell, contract to sell, sell or purchase any
option or contract to purchase or sell, as applicable, any
shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock;
. grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of
common stock or any securities convertible into or exercisable
or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers all or a
portion of the economic consequences associated with the
ownership of any common stock.
Prior to this offering, no public market has existed for our common stock.
We will negotiate the initial public offering price for our common stock with
the representatives, but the price may not reflect the market price for our
common stock after the offering. Among the principal factors that we and the
representatives will consider in determining the initial public offering price
will be:
. the information included in this prospectus and otherwise
available to the representatives;
. the history of and prospects for our industry;
. our past and present operations, including our past and present
earnings and current financial position, the ability of our
management and our prospects for future earnings; and
. the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies and market
conditions for initial public offerings.
We are applying to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "BRNC."
Other than in the United States, no action has been taken by us, the selling
stockholders or the underwriters that would permit a public offering of the
shares of common stock included in this offering in any jurisdiction where
action for that purpose is required. The shares included in this offering may
not be offered or sold, directly or indirectly, nor may this prospectus or any
other offering material or advertisements in connection with the offer and sale
of any shares of common stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons who receive this prospectus
are advised to inform themselves about and to observe any restrictions relating
to this offering and the distribution of this prospectus. This prospectus is
not an offer to sell or a solicitation of an offer to buy any shares of common
stock in any jurisdiction where that would not be permitted or legal.
56
<PAGE>
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. The underwriters may bid for and purchase
our shares of common stock in the open market to cover such syndicate short
positions or to stabilize the price of our common stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
and selected dealers if they repurchase previously distributed common stock in
syndicate covering transactions, in stabilizing transactions or otherwise, or
if Donaldson, Lufkin & Jenrette Securities Corporation receives a report which
indicates that the clients of such syndicate members have "flipped" our common
stock. These activities may stabilize or maintain the market price of the
common stock above independent market levels. The underwriters are not required
to engage in these activities and may end any of these activities at any time.
At our request, the underwriters have reserved up to 350,000 shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to business associates of Braun
Consulting, including clients, consultants and other business professionals
with whom we have a preexisting relationship, at the initial public offering
price set forth on the cover page of this prospectus. These persons must commit
to purchase no later than the close of business on the day following the date
of this prospectus. The number of shares available for sale to the general
public will be reduced to the extent these persons purchase the reserved
shares.
LEGAL MATTERS
The validity of the issuance of the common stock offered by this prospectus
will be passed upon for Braun Consulting by Locke Liddell & Sapp LLP, Houston,
Texas. The underwriters have been represented by Sachnoff & Weaver, Ltd.,
Chicago, Illinois.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report (which expresses an unqualified opinion and
includes an explanatory paragraph relating to the restatement described in Note
12) appearing herein, and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
57
<PAGE>
BRAUN CONSULTING, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Financial Statements as of June 30, 1999 and for the Six Months Ended
June 30, 1998 and 1999 (Unaudited):
Consolidated Balance Sheets............................................ F-2
Consolidated Statements of Income...................................... F-3
Consolidated Statements of Stockholders' Equity........................ F-4
Consolidated Statements of Cash Flows.................................. F-5
Notes to Consolidated Financial Statements............................. F-6
Financial Statements as of December 31, 1997 and 1998 and for Each of the
Three Years in the Period Ended December 31, 1998:
Independent Auditors' Report........................................... F-8
Consolidated Balance Sheets............................................ F-9
Consolidated Statements of Income...................................... F-10
Consolidated Statements of Stockholders' Equity........................ F-11
Consolidated Statements of Cash Flows.................................. F-12
Notes to Consolidated Financial Statements............................. F-13
</TABLE>
F-1
<PAGE>
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
As of As of Pro Forma
December 31, June As of
1998 30, June 30,
(As Restated) 1999 1999
(In thousands, except
share data)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash........................................ $ 570 $ 2,269 $ 2,269
Accounts receivable (net of allowance of $90
in 1998 and $139 in 1999).................. 6,548 7,696 7,696
Accounts receivable--employees.............. 357 699 699
Receivable from Wincite--current portion.... 114 114 114
Prepaid expenses and other current assets... 251 402 402
------ ------- -------
Total current assets...................... 7,840 11,180 11,180
Receivable from Wincite....................... 95 -- --
Equipment, furniture and software--net........ 1,831 2,342 2,342
Intangibles (net of accumulated amortization
of $71 in 1998 and $96 in 1999).............. 79 54 54
------ ------- -------
Total assets.............................. $9,845 $13,576 $13,576
====== ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Notes payable............................... $2,745 $ 2,970 $ 2,970
Accounts payable............................ 1,124 1,209 1,209
Accrued compensation........................ 871 1,071 1,071
Other accrued liabilities................... 206 451 451
Unearned revenue............................ 270 1,141 1,141
Distribution payable to stockholders........ 1,002 902 6,000
Deferred income taxes....................... -- -- 2,100
------ ------- -------
Total current liabilities................. 6,218 7,744 14,942
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; authorized,
100,000,000 shares; issued and outstanding,
11,964,002 in 1998 and 12,349,466 in 1999.. 804 1,578 --
Distribution in excess of capital........... -- -- (554)
Notes receivable from stockholders.......... (38) -- --
Unearned deferred compensation.............. (320) (812) (812)
Retained earnings........................... 3,181 5,066 --
------ ------- -------
Total stockholders' equity................ 3,627 5,832 (1,366)
------ ------- -------
Total liabilities and stockholders'
equity................................... $9,845 $13,576 $13,576
====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June
30,
------------------------
1998 1999
(In thousands, except
share and per share
data)
<S> <C> <C>
Revenues:
Consulting services.................................. $ 11,384 $ 20,062
Product sales........................................ 821 457
----------- -----------
Total revenues..................................... 12,205 20,519
Costs and expenses:
Project personnel and expenses....................... 7,002 10,999
Cost of products sold................................ 757 401
Selling and marketing expenses....................... 1,129 1,873
Merger costs......................................... -- 170
General and administrative expenses.................. 3,528 4,849
Stock compensation................................... 168 252
----------- -----------
Total costs and expenses........................... 12,584 18,544
----------- -----------
Operating income (loss)................................ (379) 1,975
Interest expense--net.................................. 57 80
----------- -----------
Income (loss) from continuing operations............... (436) 1,895
Loss from discontinued operations...................... (101) --
Gain on sale of discontinued operations ............... 254 --
----------- -----------
Income (loss) before provision for income taxes........ (283) 1,895
Provision (benefit) for state income taxes............. (3) 10
----------- -----------
Net income (loss)...................................... $ (280) $ 1,885
=========== ===========
Pro forma (Note 3)
Income (loss) before provision for income taxes...... $ (283) $ 1,895
Pro forma provision (benefit) for income taxes....... (153) 847
----------- -----------
Pro forma net income (loss).......................... $ (130) $ 1,048
=========== ===========
Earnings (loss) per share--basic:
Continuing operations................................ $ (0.04) $ 0.15
Discontinued operations.............................. 0.01 --
Pro forma net income (loss) (Note 3) ................ (0.01) 0.08
Earnings (loss) per share--diluted:
Continuing operations................................ $ (0.03) $ 0.15
Discontinued operations.............................. 0.01 --
Pro forma net income (loss) (Note 3)................. (0.01) 0.08
Weighted average shares:
Basic................................................ 11,426,148 12,245,088
Diluted.............................................. 12,639,554 12,973,835
Pro forma weighted average shares (Note 3):
Basic................................................ 12,269,566 13,088,506
Diluted.............................................. 13,482,972 13,817,253
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Notes
Receivable Unearned
Common From Deferred Retained
Shares Stock Stockholder Compensation Earnings Total
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1999................... 11,964,002 $ 804 $(38) $(320) $3,181 $3,627
Exercise of stock
options.............. 385,464 30 -- -- -- 30
Issuance of stock
options.............. -- 744 -- (744) -- --
Amortization of
deferred compensation
expense.............. -- -- -- 252 -- 252
Collection of notes
receivable from
stockholders......... -- -- 38 -- -- 38
Net income............ -- -- -- -- 1,885 1,885
---------- ------ ---- ----- ------ ------
BALANCE, JUNE 30, 1999.. 12,349,466 $1,578 $ -- $(812) $5,066 $5,832
========== ====== ==== ===== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June
30,
--------------
1998 1999
(In
thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $(280) $ 1,885
Net gain from discontinued operations, net of provision
(benefit) for state income taxes............................ (153) --
----- -------
Income from continuing operations, net of provision (benefit)
for state income taxes...................................... (433) 1,885
Adjustments to reconcile income from continuing operations,
net of provision (benefit) for state income taxes, to net
cash flows from operating activities:
Compensation expense related to stock options.............. 168 252
Deferred state income taxes................................ -- (8)
Depreciation and amortization.............................. 294 357
Changes in assets and liabilities:
Accounts receivable...................................... (576) (1,357)
Prepaid expenses and other current assets................ (189) (151)
Accounts payable......................................... 274 85
Accrued liabilities...................................... (229) 453
Unearned revenue......................................... 75 871
----- -------
Net cash flows from continuing operations................ (616) 2,387
Net cash flows from discontinued operations.............. 25 --
----- -------
Net cash flows from operating activities............... (591) 2,387
Cash flows from investing activities:
Purchases of equipment, furniture and software............... (675) (843)
Proceeds from sale of discontinued operations................ 138 --
----- -------
Net cash flows from investing activities............... (537) (843)
Cash flows from financing activities:
Borrowings................................................... 718 1,165
Repayment of debt............................................ (360) (940)
Exercise of stock options.................................... -- 30
Distributions paid to stockholders........................... (76) (100)
----- -------
Net cash flows from financing activities............... 282 155
----- -------
Net increase (decrease) in cash................................ (846) 1,699
Cash, January 1................................................ 953 570
----- -------
Cash, June 30.................................................. $ 107 $ 2,269
===== =======
Supplemental disclosure of cash flow information:
Interest paid................................................ $ 57 $ 83
===== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BRAUN CONSULTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1998 and 1999
(In thousands, except for share and per share data)
(Unaudited)
1. BASIS OF PRESENTATION
General--The accompanying unaudited consolidated financial statements have
been prepared from the records of Braun Consulting, Inc. (the "Company"), and
in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the Company's
financial position at June 30, 1999 and its interim results of operations and
cash flows for the six months ended June 30, 1998 and 1999. The balance sheet
as of December 31, 1998, presented herein, has been derived from the audited
financial statements of the Company for the year then ended.
Accounting policies followed by the Company are described in Note 1 to the
audited consolidated financial statements for the year ended December 31, 1998.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted for purposes of the consolidated interim
financial statements. The consolidated interim financial statements should be
read in conjunction with the audited consolidated financial statements,
including the notes thereto, for the year ended December 31, 1998.
The results of operations for the periods presented herein are not
necessarily indicative of the results to be expected for the full year.
2. ACQUISITION
Pursuant to a Stock Purchase Agreement dated May 4, 1999 by and among the
Company, Vertex Partners, Inc. ("Vertex") and the stockholders of Vertex, the
Company acquired all of the outstanding stock of Vertex in exchange for
1,512,373 shares of the Company's common stock. The Company accounted for the
acquisition as a pooling-of-interests and the accompanying unaudited financial
statements for the six months ended June 30, 1998 and 1999 have been restated
to include the Vertex information.
Selected financial data of Braun Consulting, Inc. and Vertex prior to their
merger and on a combined basis were as follows:
<TABLE>
<CAPTION>
Braun
Consulting Vertex Combined
<S> <C> <C> <C>
Six months ended June 30, 1998
Revenues................................... $10,068 $2,137 $12,205
Income (loss) from continuing operations... 509 (945) (436)
Net income (loss).......................... 662 (942) (280)
Six months ended June 30, 1999
Revenues................................... $15,236 $5,283 $20,519
Income from continuing operations.......... 1,096 799 1,895
Net income................................. 1,096 789 1,885
</TABLE>
F-6
<PAGE>
3. PRO FORMA INFORMATION
The objective of the pro forma information is to show what the significant
effects on the historical information might have been had the Company not been
treated as an S Corporation for tax purposes.
Income taxes--The pro forma information presented on the consolidated
statements of income reflects a provision for income taxes at an effective rate
of 54.1% and 44.7% for the six months ended June 30, 1998 and 1999,
respectively.
Pro forma Balance Sheet Information
Distributions--The Company intends to make an S corporation distribution in
the amount of $6,000 to stockholders which approximates certain taxed but
undistributed earnings through the termination date of the Company's status as
an S corporation.
Deferred income taxes--The Company will record a deferred income tax
liability upon termination of the Company's S corporation status. The pro forma
adjustments reflect this deferred tax liability of $2,100 as of June 30, 1999.
Pro forma net income (loss) per share--Pro forma net income (loss) per share
is calculated by dividing pro forma net income (loss) by the pro forma weighted
average number of common shares outstanding after giving effect to the assumed
issuance of shares of common stock to generate sufficient cash to pay the S
corporation distribution amount of approximately $6,000, based on an assumed
initial public offering price of $8.00 per share.
4. EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average number of
common shares outstanding. Diluted earnings per share is computed based on the
weighted average number of dilutive potential common shares outstanding. The
following summarizes the effects of dilutive securities for the periods in
arriving at diluted earnings per share:
<TABLE>
<CAPTION>
Six Months Ended June
30,
---------------------
1998 1999
<S> <C> <C>
Weighted average common shares--basic............... 11,426,148 12,245,088
Impact of dilutive securities:
Options........................................... 1,213,406 728,747
---------- ----------
Weighted average common shares--diluted............. 12,639,554 12,973,835
========== ==========
</TABLE>
5. RESTATEMENT
Subsequent to the issuance of the Company's 1998 financial statements, the
Company's management determined that it should revise the fair value of certain
employee stock options granted during 1998. This determination was based in
part on the timing between the original valuation and the proposed initial
public offering of the Company's common stock. As a result, the 1998 financial
statements have been restated from amounts previously reported to record
$290,000 of unearned deferred compensation and $78,000 of compensation expense,
as of and for the year ended December 31, 1998, respectively.
6. SUBSEQUENT EVENT
On July 28, 1999, the Company terminated its status as an S corporation to
become a C corporation. The Company also declared S corporation distributions,
which approximate certain taxed but undistributed earnings through July 28,
1999.
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Braun Consulting, Inc.:
We have audited the accompanying consolidated balance sheets of Braun
Consulting, Inc. and subsidiaries (the "Company") as of December 31, 1997 and
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Braun Consulting, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
As discussed in Note 12, the accompanying 1998 consolidated financial
statements have been restated.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
May 4, 1999 (July 16, 1999 as to Note 12)
F-8
<PAGE>
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
-------------------------
1997 1998
(As Restated)
(In thousands, except
share data)
ASSETS
<S> <C> <C>
Current assets:
Cash............................................... $ 953 $ 570
Accounts receivable (net of allowance of $50 in
1997 and $90 in 1998)............................. 5,099 6,548
Accounts receivable--employees..................... 13 357
Receivable from Wincite--current portion (Note 3).. -- 114
Prepaid expenses and other current assets.......... 78 251
Net assets of company held for disposition (Note
3)................................................ 208 --
---------- ----------
Total current assets............................. 6,351 7,840
Receivable from Wincite (Note 3)..................... -- 95
Equipment, furniture and software--net (Note 4)...... 871 1,831
Intangibles (net of accumulated amortization of $21
in 1997 and $71 in 1998)............................ 129 79
---------- ----------
Total assets..................................... $ 7,351 $ 9,845
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable (Note 5)............................. $ 1,851 $ 2,745
Accounts payable................................... 587 1,124
Accrued compensation............................... 936 871
Other accrued liabilities.......................... 255 206
Unearned revenue................................... 114 270
Distributions payable to stockholders.............. 901 1,002
---------- ----------
Total current liabilities........................ 4,644 6,218
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock, no par value; authorized, 100,000,000
shares; issued and outstanding, 10,843,584 shares
in 1997 and 11,964,002 shares in 1998............. 132 804
Notes receivable from stockholders................. -- (38)
Unearned deferred compensation (Note 9)............ -- (320)
Retained earnings.................................. 2,575 3,181
---------- ----------
Total stockholders' equity....................... 2,707 3,627
---------- ----------
Total liabilities and stockholders' equity....... $ 7,351 $ 9,845
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1997 1998
(As Restated)
(In thousands, except share
and per share data)
<S> <C> <C> <C>
Revenues:
Consulting services....................... $10,840 $17,444 $26,907
Product sales............................. 432 2,064 955
------- ------- -------
Total revenues.......................... 11,272 19,508 27,862
Costs and expenses:
Project personnel and expenses............ 6,346 10,148 15,879
Cost of products sold..................... 470 2,032 884
Selling and marketing expenses............ 275 1,111 2,303
General and administrative expenses....... 2,484 4,345 7,777
Stock compensation........................ -- 13 271
------- ------- -------
Total costs and expenses................ 9,575 17,649 27,114
------- ------- -------
Operating income............................ 1,697 1,859 748
Interest expense--net....................... 39 59 121
------- ------- -------
Income from continuing operations........... 1,658 1,800 627
Income (loss) from discontinued operations
(Note 3)................................... 1 (84) (101)
Gain on sale of discontinued operations
(Note 3)................................... -- -- 254
------- ------- -------
Income before provision for income taxes.... 1,659 1,716 780
Provision (benefit) for state income taxes.. -- 81 (3)
------- ------- -------
Net income.................................. $ 1,659 $ 1,635 $ 783
======= ======= =======
Pro forma (Unaudited--Note 2):
Income before provision for income taxes.. $ 1,659 $ 1,716 $ 780
Pro forma provision for income taxes...... 684 702 457
------- ------- -------
Pro forma net income...................... $ 975 $ 1,014 $ 323
======= ======= =======
Earnings (loss) per share--basic:
Continuing operations..................... $ 0.15 $ 0.17 $ 0.05
Discontinued operations................... -- (0.01) 0.01
Pro forma net income (Unaudited--Note 2).. 0.03
Earnings (loss) per share--diluted:
Continuing operations..................... $ 0.14 $ 0.15 $ 0.05
Discontinued operations................... -- (0.01) 0.01
Pro forma net income (Unaudited--Note 2).. 0.02
Weighted average shares:
<CAPTION>
Basic..................................... 10,831,397 10,843,584 11,572,451
Diluted................................... 11,741,455 12,077,775 12,570,533
<S> <C> <C> <C>
Pro forma weighted average shares
(Unaudited--Note 2):
<CAPTION>
Basic..................................... 12,415,869
Diluted................................... 13,413,951
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes
Receivable Unearned
Common from Deferred Retained
Shares Stock Stockholders Compensation Earnings Total
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1996................... 10,249,580 $ 99 -- -- $1,353 $1,452
Exercise of stock
options.............. 594,004 33 -- -- -- 33
Distributions to
stockholders
declared............. -- -- -- -- (1,320) (1,320)
Net income............ -- -- -- -- 1,659 1,659
---------- ------- ----- ----- ------- -------
BALANCE, DECEMBER 31,
1996................... 10,843,584 132 -- -- 1,692 1,824
Distributions to
stockholders
declared............. -- -- -- -- (752) (752)
Net income............ -- -- -- -- 1,635 1,635
---------- ------- ----- ----- ------- -------
BALANCE, DECEMBER 31,
1997................... 10,843,584 132 -- -- 2,575 2,707
Exercise of stock
options.............. 1,120,418 81 $ (38) -- -- 43
Issuance of stock
options (as
restated)............ -- 591 -- $(320) -- 271
Distributions to
stockholders
declared............. -- -- -- -- (177) (177)
Net income (as
restated)............ -- -- -- -- 783 783
---------- ------- ----- ----- ------- -------
BALANCE, DECEMBER 31,
1998 (as restated)..... 11,964,002 $ 804 $ (38) $(320) $ 3,181 $ 3,627
========== ======= ===== ===== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
BRAUN CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1996 1997 1998
(As Restated)
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 1,659 $ 1,635 $ 783
Net (gain) loss from discontinued operations,
net of provision (benefit) for state income
taxes....................................... (1) 84 (153)
------- ------- -------
Income from continuing operations, net of
provision (benefit) for state income taxes.. 1,658 1,719 630
Adjustments to reconcile income from
continuing operations, net of provision
(benefit) for state income taxes, to net
cash flows from operating activities:
Compensation expense related to stock
options................................... -- -- 271
Deferred state income taxes................ -- (66) 8
Depreciation and amortization.............. 264 325 593
Changes in assets and liabilities:
Accounts receivable...................... (1,250) (1,905) (1,793)
Prepaid expenses and other current
assets.................................. (68) 21 (173)
Accounts payable......................... (23) 303 537
Accrued liabilities...................... 91 936 (122)
Unearned revenue......................... 104 10 156
------- ------- -------
Net cash flows from continuing
operations............................ 776 1,343 107
Net cash flows from discontinued
operations............................ (21) (111) 14
------- ------- -------
Net cash flows from operating
activities............................ 755 1,232 121
Cash flows from investing activities:
Purchases of equipment and furniture and
capitalized software costs.................. (320) (697) (1,503)
Acquisition of intangibles................... -- (150) --
Proceeds from sale of discontinued
operations.................................. -- -- 138
------- ------- -------
Net cash flows from investing
activities............................ (320) (847) (1,365)
Cash flows from financing activities:
Borrowings................................... 401 1,300 1,843
Repayments of debt........................... (143) (401) (949)
Exercise of stock options.................... 33 -- 43
Distributions paid to stockholders........... (718) (452) (76)
------- ------- -------
Net cash flows from financing
activities............................ (427) 447 861
------- ------- -------
Net increase (decrease) in cash................ 8 832 (383)
Cash, January 1................................ 113 121 953
------- ------- -------
Cash, December 31.............................. $ 121 $ 953 $ 570
======= ======= =======
Supplemental disclosure of cash flow
information:
Interest paid................................ $ 22 $ 100 $ 140
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
BRAUN CONSULTING, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Years Ended December 31, 1996, 1997 and 1998
(In thousands, except for share and per share data)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business--Braun Consulting, Inc. (the "Company" or "Braun
Consulting") delivers eSolutions by combining strategy, business intelligence
and advanced Internet application development skills.
Principles of Consolidation--The accompanying consolidated financial
statements of Braun Consulting include the accounts of its wholly owned
subsidiaries, Vertex Partners, Inc. ("Vertex") and BTG Ltd. and its majority
owned limited liability company, Wincite Systems LLC (see Note 3). The Company
acquired all of the outstanding common stock of Vertex on May 4, 1999 in a
transaction accounted for as a pooling-of-interests. The accompanying
consolidated financial statements for the years ended December 31, 1996, 1997
and 1998 have been restated to include the Vertex information (see Note 11).
All significant intercompany balances have been eliminated.
Management's Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and 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. Actual results could differ from those estimates.
Equipment, Furniture and Software--Equipment and furniture are stated at
cost less accumulated depreciation. Depreciation is provided over the estimated
useful lives of the related assets using the double-declining balance method.
Leasehold improvements are depreciated over the lives of the leases. Software
is stated at cost less accumulated amortization. The estimated useful lives
are:
<TABLE>
<S> <C>
Computer and office equipment................................... 3-5 years
Office furniture................................................ 7 years
Software........................................................ 3 years
</TABLE>
In March 1998, the Financial Accounting Standards Board issued Statement of
Position
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on applying
generally accepted accounting principles in addressing whether and under what
conditions the costs of internal-use software should be capitalized. The
Company adopted SOP 98-1 in 1998. During 1998, the Company capitalized $155
related to the implementation of computer software obtained for internal use.
These costs primarily include licensing fees and internal labor costs of
employees directly associated with the implementation project.
Intangibles--Intangible assets comprise an acquired client list being
amortized over a period of three years.
F-13
<PAGE>
Long-Lived Assets--The Company periodically assesses the recoverability of
its long-lived assets based on its expectations of future profitability and
undiscounted cash flow of the related operations. These factors, along with
management's plans with respect to the operations, are considered in assessing
the recoverability of long-lived assets. If the Company determines, based on
such measures, that the carrying amount is impaired, the long-lived assets will
be written down to their recoverable value with a corresponding charge to
earnings. Recoverable value is calculated as the amount of estimated future
cash flows (discounted at a rate commensurate with the risk involved) for the
remaining amortization period. During the periods presented no such impairment
was incurred.
Revenue Recognition--The Company maintains agreements with consulting
clients that establish service fees on both a time-and-materials basis and on a
fixed-price basis. Revenue is recognized as services are performed. Out-of-
pocket expenses included in project personnel and expenses are net of client
expense reimbursements in the accompanying consolidated statements of income.
Losses on contracts, if any, are provided for in full in the period when
determined. Revenue from sales of software is recognized upon delivery of the
product.
Income Taxes--The Company, with the consent of its stockholders, has elected
to be taxed as an S corporation for federal and most states' income tax
reporting purposes, which provides that taxable income or loss of the Company
is generally passed through to the individual stockholders. Accordingly, no
provision for such income taxes has been recorded in the accompanying financial
statements. The Company has elected to be taxed as a C corporation in the state
of Massachusetts. Accordingly, taxes are provided for income attributable to
the Company's operations in this state. As of December 31, 1997 and 1998, the
Company had a net deferred tax liability of $66 and $58, respectively, included
in accrued liabilities on the accompanying balance sheets. Deferred taxes
relate primarily to the timing of cash receipts and cash payments as the
Company is a cash basis tax-payer in the state of Massachusetts.
Earnings Per Share--Basic earnings per share is computed based on the
weighted average number of common shares outstanding. Diluted earnings per
share is computed based on the weighted average number of dilutive potential
common shares outstanding. The following summarizes the effects of dilutive
securities for the periods in arriving at diluted earnings per share:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Weighted average common
shares--basic.......... 10,831,397 10,843,584 11,572,451
Impact of dilutive
securities:
Options................. 910,058 1,234,191 998,082
---------- ---------- ----------
Weighted average common
shares--diluted........ 11,741,455 12,077,775 12,570,533
========== ========== ==========
</TABLE>
Recent Accounting Pronouncement--In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000 (January 1, 2001 for the Company). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. SFAS No. 133 requires
the recognition of all derivatives as either assets or liabilities in the
statement of financial position and the measurement of those instruments at
fair value. The Company expects that the adoption of SFAS No. 133 will not have
a material impact on its financial position or its results of operations.
F-14
<PAGE>
2. PRO FORMA INFORMATION (UNAUDITED)
Since 1995, the Company has been treated as an S corporation for federal and
certain state income tax purposes. The objective of the pro forma financial
information is to show what the significant effects on the historical financial
information might have been had the Company not have been treated as an S
corporation for income tax purposes since that time. The following pro forma
adjustments have been made.
Pro Forma Income Statement Information
Income taxes--The pro forma information presented on the statements of
income reflect a provision for income taxes at an effective rate of 41.2%,
40.9%, and 58.6% for the years ended December 31, 1996, 1997 and 1998,
respectively.
Pro forma net income (loss) per share--Pro forma net income (loss) per share
is calculated by dividing pro forma net income (loss) by the pro forma weighted
average number of common shares outstanding after giving effect to the assumed
issuance of shares of common stock to generate sufficient cash to pay the S
corporation distribution amount of approximately $6.0 million, based on an
assumed initial offering price of $8.00 per share.
3. DISCONTINUED OPERATIONS
On May 28, 1998, the Company sold its interest in Wincite Systems LLC
("Wincite") to the minority owner. The consolidated financial statements and
related notes reflect Wincite as a discontinued operation. The revenues from
this operation, after intercompany eliminations, amounted to approximately $877
and $674 for the years ended December 31, 1996 and 1997, respectively, and $164
for the period January 1, 1998 through May 28, 1998. The assets and liabilities
of this operation, consisting primarily of customer accounts receivable,
property and equipment, and notes payable, are classified as net assets of
company held for disposition, net of the related minority interest, as of
December 31, 1997.
In connection with the sale of Wincite, Braun Consulting is to receive two
equal annual principal payments in the amount of $95 beginning May 31, 1999.
4. EQUIPMENT, FURNITURE AND SOFTWARE
Equipment, furniture and software, and the related accumulated depreciation
and amortization consist of the following:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Computer and office equipment............................. $1,376 $2,023
Office furniture.......................................... 285 784
Software.................................................. 138 369
Leasehold improvements.................................... 10 36
------ ------
1,809 3,212
Accumulated depreciation and amortization................. (938) (1,381)
------ ------
Total................................................. $ 871 $1,831
====== ======
</TABLE>
F-15
<PAGE>
5. NOTES PAYABLE
Notes payable at December 31, 1997 and 1998 are payable within one year and
consist of the following:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Notes payable--bank........................................ $1,500 $2,595
Notes payable--stockholders................................ 351 150
------ ------
Total.................................................. $1,851 $2,745
====== ======
</TABLE>
The Company entered into a revolving line of credit agreement in the amount
of $3,000 on December 31, 1998 with a maturity date of January 31, 2000. The
line of credit was $1,500 as of December 31, 1997. The line bears interest at
the bank's prime rate (7.75% at December 31, 1998). The agreement requires the
Company to maintain certain covenants. As of December 31, 1998, the Company
obtained a waiver from its lender related to the Company's violation of certain
covenants. The line of credit is secured by all of the Company's accounts. The
amount drawn on the line was $1,000 and $2,445 as of December 31, 1997 and
1998, respectively.
A subsidiary of the Company maintains a revolving line of credit agreement
in the amount of $950. The line bears interest at the bank's prime rate (7.75%
at December 31, 1998) plus one percentage point and is payable upon lender's
demand. The line is secured by substantially all of the assets of the
subsidiary. The amount drawn on the line was $500 and $150 as of December 31,
1997 and 1998, respectively.
Notes payable to the stockholders consist of advances from the principal
stockholders. Terms of the 1997 notes with an outstanding principal balance of
$212 as of December 31, 1997 include a provision for monthly payments plus
interest at a fixed rate of 10%. There were no stated terms for the 1997 notes
with an outstanding principal balance of $139. The 1997 notes were repaid by
the Company during 1998. Terms of the 1998 notes include a provision for
monthly payments plus interest at a fixed rate of 8%. The 1998 note was repaid
by the Company in January 1999.
The carrying amount of the notes payable approximates fair value because the
floating interest rates reflect market rates.
6. COMMON STOCK
Effective December 21, 1997, the Company declared a 6,605-for-1 stock split.
All stock and rights to purchase stock amounts included within the financial
statements have been adjusted to reflect the effects of the stock split.
7. LEASES
The Company leases office facilities under operating lease agreements
through 2005. In addition, the Company also leases equipment and accessories
under an operating lease agreement expiring in 2002.
F-16
<PAGE>
Future minimum lease payments anticipated under these agreements are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Facilities Equipment
<S> <C> <C>
1999................................................ $1,217 $ 43
2000................................................ 1,312 43
2001................................................ 1,337 43
2002................................................ 963 22
2003................................................ 828 --
Thereafter.......................................... 1,414 --
------ ----
Total........................................... $7,071 $151
====== ====
</TABLE>
Rent expense for facilities and equipment was $340, $516 and $876 for the
years ended December 31, 1996, 1997 and 1998, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company sponsors two 401(k) plans which cover substantially all of its
employees. Annual contributions under the plans are on an employer matching
basis of 20% or 25%, depending on the plans, of the participant's "eligible
contribution," as defined. A participant's "eligible contribution" is equal to
the amount of the participant's elective deferrals for the plan year which does
not exceed 5% of compensation. During the years ended December 31, 1996, 1997
and 1998, the Company expensed $44, $86 and $144, respectively, related to the
plans.
9. STOCK OPTION COMPENSATION PLANS
Vertex Plan--In 1994, the Company initiated a Stock Option Compensation Plan
(the "1994 Plan"). Under the 1994 Plan, certain employees were given the right
to acquire shares of common stock. The number of shares, exercise price of
shares and vesting conditions were determined by the directors. No compensation
expense was recognized in 1996 and 1997. In 1998, the Company granted options
to certain employees and the option exercise price per share was less than the
fair market value at the date of grant, thus creating unearned deferred
compensation. The difference between the fair market value and the option price
was recorded as unearned deferred compensation and is being charged to
operations over the vesting periods of the options. In 1998, $193 was charged
to operations.
Braun Consulting 1995 Plan--In 1995, the Company adopted a Stock Option
Compensation Plan (the "1995 Plan"). Under the 1995 Plan, certain employees
were given the right to acquire shares of common stock. The number of shares,
exercise price of shares, and vesting conditions were determined by the
directors at the grant date. All shares have a fair value and exercise price of
$.05. Under the terms of certain of the option grants, the Company subsidized
the exercise price and, accordingly, recognized compensation expense of $13 in
1997 related to these subsidies. All compensation expense related to these
subsidies was recognized prior to December 31, 1997. Therefore, no compensation
expense was recognized in 1998.
Braun Consulting 1998 Plans--The Company adopted the 1998 Employee Long-Term
Stock Investment Plan and the 1998 Executive Long-Term Stock Investment Plan in
1998 (the "1998 Plans"). Under the 1998 Plans, certain employees and executives
were given the right to acquire
F-17
<PAGE>
shares of common stock. The number of shares, exercise price of shares and
vesting conditions were determined by the directors. The exercise price of
432,241 shares issued under the 1998 Plans was less than the fair value at the
date of grant, creating unearned deferred compensation. The difference between
the fair market value and the option price was recorded as unearned deferred
compensation and is being charged to operations over the vesting periods of the
options. In 1998, $78 was charged to operations. The shares available for
future grants at December 31, 1998 was 1,742,475.
The following summarizes changes in stock options under the 1998 Plans for
the years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------------- ------------------------ --------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year...... 1,955,623 $0.05 1,461,619 $0.05 1,461,619 $0.05
Shares granted.......... 100,000 0.05 -- -- 1,773,716 1.79
Options exercised....... (594,004) 0.06 -- -- (1,120,418) 0.07
Shares forfeited........ -- -- -- -- (265,166) 0.51
---------- --------- ----------
Options outstanding, end
of year................ 1,461,619 0.05 1,461,619 0.05 1,849,751 1.64
========== ========= ==========
Options exercisable, end
of year................ 388,376 0.05 388,376 0.05 140,208 1.61
========== ========= ==========
Weighted average fair
value of options
granted during the
year................... $ .05 $ -- $ 2.15
========== ========= ==========
</TABLE>
Additional information for options outstanding and options exercisable under
the plans at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Remaining
Contractual
Exercise Outstanding Life in Exercisable
Price Shares Years Shares
<S> <C> <C> <C>
$0.05 400,991 1.35 --
0.20 197,258 1.21 --
0.90 370,500 4.20 92,625
3.00 881,002 6.82 47,583
--------- -------
1,849,751 140,208
========= =======
</TABLE>
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued and is effective for
financial statements for fiscal years beginning after December 15, 1995. As
permitted by SFAS No. 123, the Company will continue to measure the Plans' cost
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Had compensation cost for the Company's Plans been
determined consistent with the fair value method prescribed by SFAS No. 123,
the impact on the Company's net income and earnings per share would have been
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Net income:
As reported......................................... $1,659 $1,635 $783
Pro forma........................................... 1,651 1,628 663
Earnings per share--basic (Unaudited):
Pro forma as reported............................... 0.09 0.09 0.03
Pro forma SFAS 123.................................. 0.09 0.09 0.02
Earnings per share--diluted (Unaudited):
Pro forma as reported............................... 0.08 0.08 0.02
Pro forma SFAS 123.................................. 0.08 0.08 0.02
</TABLE>
F-18
<PAGE>
The effects of applying SFAS No. 123 in this pro forma disclosure may not be
indicative of effects on reported net income for future years.
For pro forma note purposes, the fair value of each option granted is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1996 1997 1998
<S> <C> <C> <C>
1994 Plan:
Expected future dividend yield........................ 0.0% 0.0% 0.0%
Risk-free interest rate............................... 7.9% 7.9% 6.4%
Expected life (months)................................ 60 60 40
1995 and 1998 Plans:
Expected future dividend yield........................ 0.0% 0.0% 0.0%
Risk-free interest rate............................... 7.9% 7.9% 5.8%
Expected life (months)................................ 55 55 72
</TABLE>
As the Company's stock is not publicly traded, the effects of volatility
have been ignored given the uncertainty of future stock prices.
10. SEGMENT REPORTING AND SIGNIFICANT CLIENTS
The Company engages in business activities in one operating segment which
provides integrated management consulting services with advanced Internet
application development skills. Senior management is provided information about
the revenues generated in key client industries and service areas. The
resources needed to deliver the Company's services are not separately reported
by industry or service area. The Company's services are delivered to clients
primarily in the United States and the Company's assets are located in the
United States.
Four customers accounted for 18.7%, 15.9%, 11.7% and 10.1%, respectively of
total revenues in 1996. One customer accounted for 19.0% of total revenues in
1997. One customer accounted for 18.6% of total revenues in 1998. This summary
involves five different clients.
F-19
<PAGE>
11. SUBSEQUENT EVENTS
Acquisition
Pursuant to a Stock Purchase Agreement dated May 4, 1999 by and among the
Company, Vertex Partners, Inc ("Vertex") and the stockholders of Vertex, the
Company acquired all of the outstanding stock of Vertex in exchange for
1,512,373 shares of the Company's common stock. The Company accounted for the
acquisition as a pooling-of-interests and the accompanying audited financial
statements and related notes as of December 31, 1997 and 1998 and for the years
ended December 31, 1996, 1997 and 1998 have been restated to include the Vertex
information.
<TABLE>
<CAPTION>
Braun
Consulting Vertex Combined
<S> <C> <C> <C>
Year ended December 31, 1996
Revenues........................................... $ 6,229 $5,043 $11,272
Income from continuing operations.................. 529 1,129 1,658
Net income......................................... 530 1,129 1,659
Year ended December 31, 1997
Revenues........................................... $13,432 $6,076 $19,508
Income from continuing operations.................. 1,179 621 1,800
Net income......................................... 1,095 540 1,635
Year ended December 31, 1998
Revenues........................................... $20,977 $6,885 $27,862
Income from continuing operations.................. 557 70 627
Net income......................................... 710 73 783
</TABLE>
Tax Status (Unaudited)
On July 28, 1999, the Company terminated its status as an S corporation to
become a C corporation. The Company also declared S corporation distributions,
which approximate certain taxed but undistributed earnings through July 28,
1999.
12. RESTATEMENT
Subsequent to the issuance of the Company's 1998 financial statements, the
Company's management determined that it should revise the fair value of certain
employee stock options granted during 1998. This determination was based in
part on the timing between the original valuation and the proposed initial
public offering of the Company's common stock. As a result, the 1998 financial
statements have been restated from amounts previously reported to record
$290,000 of unearned deferred compensation and $78,000 of compensation expense,
as of and for the year ended December 31, 1998, respectively.
A summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
As of and for the
Year Ended December
31, 1998
-------------------
As
Previously As
Reported Restated
<S> <C> <C>
Balance Sheet Data:
Common Stock.............................................. $ 436 $ 804
Unearned deferred compensation............................ (30) (320)
Retained earnings......................................... 3,259 3,181
Statement of Operations Data:
Income from continuing operations......................... 705 627
Net income................................................ 861 783
Pro forma net income...................................... 401 323
Earnings per share continuing operations:
Basic..................................................... $ 0.06 $ 0.05
Diluted................................................... $ 0.06 $ 0.05
</TABLE>
F-20
<PAGE>
Intranet eSolution
A Fortune 100 manufacturer of electronics equipment selected Braun
Consulting to build and deploy an intranet system designed to improve business
across dozens of offices. Our eSolution enhanced the client's ability to manage
hundreds of diverse products and services that are priced and sold through
separate and dispersed locations. To meet business needs, we masked complicated
processes requiring advanced technology and made the system easy to use for
business professionals. The client now has the ability to increase revenues and
profits through more flexible pricing and better management of products and
services.
Web-based Targeting
A global pharmaceuticals leader chose Braun Consulting to help its marketing
and sales departments be more successful in identifying physicians and other
customers representing the strongest selling opportunities. Our eSolution
included new customer and sales force strategies, and gave the client's
marketing managers Web-based access to more detailed customer information. The
client is now able to conduct real-time customer evaluations through detailed
sorting and ranking of key customer information. By getting closer to the best
customers, the pharmaceuticals firm gained market share and realized greater
returns from investing in an international sales force.
New World Telecommunications
Braun Consulting is working with a telecommunications provider to maintain a
leadership position in a changing and deregulating marketplace. Based upon
advanced customer relationship management, strategies and information
technology systems, our eSolution is helping the client make changes in
marketing, business processes and information management. To help the client
compete with better customer information, we are building a proprietary data
warehouse and creating access to other large information sources.
[Braun Consulting logo]
<PAGE>
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, 1999
[BRAUN CONSULTING LOGO]
4,600,000 Shares of Common Stock
-------------------
PROSPECTUS
-------------------
Donaldson, Lufkin & Jenrette
Salomon Smith Barney
Adams, Harkness & Hill, Inc.
DLJdirect Inc.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make any representation as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Braun
Consulting have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with issuance
and distribution of the securities being registered, all of which shall be paid
by Braun Consulting. All of such amounts (except the Securities and Exchange
Commission Registration Fee, the NASD Filing Fee and the Nasdaq National Market
Listing Fee) are estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $ 17,648
NASD Filing Fee............................................... 6,848
Nasdaq National Market Listing Fee............................ 95,000
Printing Expenses............................................. 275,000
Legal Fees and Expenses....................................... 350,000
Accounting Fees and Expenses.................................. 350,000
Blue Sky Fees and Expenses.................................... 5,000
Transfer Agent and Registrar Fees and Expenses................ 10,000
Travel and Miscellaneous Expenses............................. 390,504
----------
Total..................................................... $1,500,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Delaware General Corporation Law
Section 145(a) of the Delaware General Corporation Law ("DGCL") provides
that any person made a party to any action by reason of the fact that he is or
was a director, officer, employee or agent of Braun Consulting may and, in
certain cases, must be indemnified by Braun Consulting against, in the case of
a non-derivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorneys' fees) incurred by him as a result of
such action, and in the case of a derivative action, against expenses
(including attorneys' fees), if in either type of action he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of Braun Consulting. This indemnification does not apply, in a
derivative action, to matters as to which it is adjudged that the director,
officer, employee or agent is liable to Braun Consulting, unless upon court
order it is determined that, despite such adjudication of liability, but in
view of all the circumstances of the case, he is fairly and reasonably entitled
to indemnity for expenses, and, in a non-derivative action, to any criminal
proceeding in which such person had reasonable cause to believe his conduct was
unlawful.
Certificate of Incorporation
The certificate of incorporation of Braun Consulting provides that a
director of Braun Consulting shall not be personally liable to Braun Consulting
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (1) for any breach of the director's duty of
loyalty to Braun Consulting or its stockholders, (2) for acts or omissions not
in
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<PAGE>
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the DGCL or (4) for any transaction from which
the director derived an improper personal benefit. Additionally, the
certificate of incorporation provides that Braun Consulting will indemnify its
officers and directors to the fullest extent permitted by the DGCL. However, if
the DGCL is amended to authorize the further elimination or limitation of the
liability of directors, then the liability of a director of Braun Consulting,
in addition to the limitation on personal liability described above, shall be
limited to the fullest extent permitted by the amended DGCL. Further, any
repeal or modification of such provision of the certificate of incorporation by
the stockholders of Braun Consulting shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of
Braun Consulting existing at the time of such repeal or modification.
Bylaws
Braun Consulting's Bylaws generally provide for indemnification of officers,
directors, employees and agents of Braun Consulting and persons serving at the
request of Braun Consulting in such capacities for other business organizations
against certain losses, costs, liabilities, and expenses incurred by reason of
their positions with Braun Consulting or such other business organizations. In
the case of non-derivative actions, Braun Consulting will indemnify such
persons against expenses, including attorney's fees, judgments, fines and
amounts paid in settlement incurred by such person as long as they acted in
good faith and in a manner they believed to be in or not opposed to the best
interests of Braun Consulting. In the case of derivative actions, Braun
Consulting will indemnify such persons against expenses, including attorneys'
fees, incurred by them as long as they acted in good faith and in a manner they
believed to be in or not opposed to the best interests of Braun Consulting.
Braun Consulting also has policies insuring its officers and directors and
certain officers and directors of its wholly owned subsidiaries against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act of 1933, as amended.
Underwriting Agreement
The underwriting agreement will provide for the indemnification of the
directors and officers of Braun Consulting in certain circumstances.
Insurance
Braun Consulting intends to maintain a policy of liability insurance to
insure its officers and directors and certain directors and officers of its
wholly owned subsidiaries against losses resulting from certain acts committed
by them in their capacities as officers and directors of Braun Consulting or
its subsidiaries.
Item 15. Recent Sales of Unregistered Securities.
Since January 1, 1996, Braun Consulting has sold and issued the following
securities:
(1) Pursuant to the 1995 Director Stock Option Plan, 1,603,118 shares of
common stock have been issued pursuant to the exercise of options by five
employees at a weighted average exercise price of $0.05 per share. Pursuant
to the 1998 Employee Long-Term Stock Investment Plan, 91,422 shares of
common stock have been issued pursuant to the exercise of options by
thirteen employees at a weighted average exercise price of $1.09 per share.
Pursuant to the 1998 Executive Long-Term Stock Investment Plan, 12,502
shares of common stock have been issued
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<PAGE>
pursuant to the exercise of options by one employee at a weighted average
exercise price of $3.00 per share. These issuances of securities were made
in reliance on Rule 701.
(2) On May 4, 1999, Braun Consulting issued to the stockholders of
Vertex Partners, Inc. 1,512,373 shares in connection with the acquisition
of Vertex Partners, Inc. by Braun Consulting. The stockholders of Vertex
Partners, Inc. receiving shares of common stock of Braun Consulting
consisted of Michael J. Evanisko and certain trusts for his children
(690,401), James M. Kalustian (493,144), and Paul J. Bascobert (328,828).
This issuance of shares was made in reliance on Section 4(2).
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offerings.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation.
*3.2 Form of Bylaws.
*4.1 Specimen Certificate representing Common Stock.
*4.2 Registration Rights Agreement dated as of May 4, 1999 by and
among Braun Consulting, Inc., Michael J. Evanisko, James M.
Kalustian and Paul J. Bascobert.
*5.1 Opinion of Locke Liddell & Sapp LLP.
*9.1 Voting Trust Agreement dated February 1, 1998 by and between
Wayne L. Schneider, Josephine L. Schneider, Amos W. Braun,
LaVerne M. Braun, Michael K. Braun, Maureen B. Braun, Janet M.
Ostendorf, Gregory A. Ostendorf and Steven J. Braun.
*10.1 Employment Agreement dated effective as of May 5, 1999 between
Braun Consulting, Inc. and Paul J. Bascobert.
*10.2 Employment Agreement dated effective as of May 5, 1999 between
Braun Consulting, Inc. and Michael J. Evanisko.
*10.3 Employment Agreement dated effective as of May 5, 1999 between
Braun Consulting, Inc. and James M. Kalustian.
*10.4 Executive Employment Agreement dated November 1, 1998 between
Braun Technology Group, Inc. and Thomas J. Duvall.
*10.5 Agreement dated September 1, 1998 between Steven J. Braun and
Stephen J. Miller.
*10.6 1995 Director Stock Option Plan.
*10.7 1998 Employee Long-Term Stock Investment Plan.
*10.8 1998 Executive Long-Term Stock Investment Plan.
*21.1 Subsidiaries of Braun Consulting, Inc.
**23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Locke Liddell & Sapp LLP (contained in Exhibit 5.1).
*24.1 Power of Attorney (included on the signature page of this
registration statement).
*27.1 Financial Data Schedule.
</TABLE>
- ---------------------
* Previously filed.
** Filed herewith.
II-3
<PAGE>
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Consolidated Financial Statements or
Notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters,
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act the information omitted from the form of prospectus filed as a part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this post-effective amendment no. 1 to registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Chicago, State of Illinois, on August 9, 1999.
Braun Consulting, Inc.
Dated: August 9, 1999
/s/ Steven J. Braun
By: _________________________________
Steven J. Braun
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this post-
effective amendment no. 1 to registration statement has been signed by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Steven J. Braun President, Chief Executive August 9, 1999
____________________________________ Officer and Chairman of the
Steven J. Braun Board (Principal Executive
Officer)
/s/ John C. Burke Chief Financial Officer and August 9, 1999
____________________________________ Treasurer (Principal
John C. Burke Financial Officer and
Principal Accounting
Officer)
* Director August 9, 1999
____________________________________
Thomas J. Duvall
* Director August 9, 1999
____________________________________
Stephen J. Miller
* Director August 9, 1999
____________________________________
Michael J. Evanisko
* Director August 9, 1999
____________________________________
James M. Kalustian
* /s/ Gregory A. Ostendorf
____________________________________
Gregory A. Ostendorf
Attorney-in-Fact
</TABLE>
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<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 333-79251 of Braun Consulting, Inc. on Form S-1 of our report
dated May 4, 1999 (July 16, 1999 as to Note 12) appearing in the Prospectus,
which is part of this Registration Statement. We also consent to the reference
to us under the headings "Selected Consolidated Financial Data" and "Experts" in
such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 9, 1999
