<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
(Mark
One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000 or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-15213
----------------
BRAUN CONSULTING, INC.
(Exact name of registrant as specified in its charter)
----------------
DELAWARE 36-3702425
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 WEST MONROE, SUITE 300, CHICAGO, ILLINOIS 60603
(Address of principal executive offices) (Zip Code)
312-984-7000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address, and former fiscal year, if changed since last
report)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Number of shares outstanding as of October 30, 2000--20,203,323
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART I--CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue.......................... $ 21,385 $ 12,066 $ 58,458 $ 32,585
Costs and expenses:
Project personnel and expenses. 11,320 6,531 31,382 17,931
Selling and marketing expenses. 2,117 1,069 5,353 2,942
General and administrative
expenses...................... 5,744 3,025 15,092 7,874
Amortization of intangible
assets........................ 2,344 -- 7,095 --
Stock compensation............. 978 188 3,713 440
Merger costs................... -- -- -- 170
---------- ---------- ---------- ----------
Total costs and expenses..... 22,503 10,813 62,635 29,357
---------- ---------- ---------- ----------
Operating income (loss).......... (1,118) 1,253 (4,177) 3,228
Interest income.................. 974 135 1,931 160
Interest expense................. 24 24 69 129
---------- ---------- ---------- ----------
Income (loss) before provision
for income taxes................ (168) 1,364 (2,315) 3,259
Provision for income taxes....... 996 438 3,182 448
---------- ---------- ---------- ----------
Net income (loss)............ $ (1,164) $ 926 $ (5,497) $ 2,811
========== ========== ========== ==========
Pro forma (Note 5):
Income before pro forma
provision for income taxes.... $ 1,364 $ 3,259
Pro forma provision for income
taxes......................... 620 1,467
---------- ----------
Pro forma net income........... $ 744 $ 1,792
========== ==========
Earnings (loss) per share--basic
(Note 6):
Historical actual.............. $ (0.06) $ (0.29)
Pro forma (Note 5)............. $ 0.05 $ 0.14
Earnings (loss) per share--
diluted (Note 6):
Historical actual.............. $ (0.06) $ (0.29)
Pro forma (Note 5)............. $ 0.05 $ 0.13
Weighted average shares:
Basic.......................... 20,157,107 14,674,224 19,093,236 13,054,800
Diluted........................ 21,638,575 16,346,899 20,656,147 14,098,190
</TABLE>
See notes to unaudited consolidated financial statements.
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
------ ------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 1,536 $ 5,947
Marketable securities............................. 50,050 3,902
Accounts receivable (net of allowance: $400 in
2000; $100 in 1999).............................. 23,311 12,251
Accounts receivable--employees.................... 118 73
Receivable from Wincite........................... -- 114
Income taxes receivable........................... -- 609
Prepaid expenses and other current assets......... 1,811 948
-------- -------
Total current assets............................ 76,826 23,844
Equipment, furniture and software--net.............. 8,248 3,703
Intangibles (net of accumulated amortization of
$7,964 in 2000 and $840 in 1999)................... 18,682 25,545
-------- -------
Total assets.................................... $103,756 $53,092
======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Notes payable..................................... $ 85 $ 639
Accounts payable.................................. 2,834 1,648
Accrued offering expenses......................... 366 366
Accrued compensation.............................. 553 741
Accrued merger costs.............................. 20 325
Income taxes payable.............................. 100 --
Other accrued liabilities......................... 512 389
Unearned revenue.................................. 681 414
Current deferred income taxes..................... 757 159
-------- -------
Total current liabilities....................... 5,908 4,681
Deferred income taxes............................... 266 425
Stockholders' equity:
Common stock, $0.001 par value at September 30,
2000 and December 31, 1999; authorized 50,000,000
shares at September 30, 2000 and December 31,
1999; issued and outstanding 20,201,150 shares at
September 30, 2000, 17,130,783 shares at December
31, 1999......................................... 20 17
Additional paid-in capital........................ 104,898 48,041
Unearned deferred compensation.................... (2,604) (837)
Retained earnings/accumulated deficit............. (4,732) 765
-------- -------
Total stockholders' equity...................... 97,582 47,986
-------- -------
Total liabilities and stockholders' equity...... $103,756 $53,092
======== =======
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
----------------
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $(5,497) $ 2,811
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Compensation expense related to stock options............ 3,713 440
Income tax benefit from disqualifying dispositions....... 1,749 --
Deferred income taxes.................................... 439 (3)
Depreciation and amortization............................ 8,372 608
Changes in assets and liabilities:
Accounts receivable.................................... (10,991) (2,493)
Income taxes receivable................................ 609 --
Income taxes payable................................... 100 438
Prepaid expenses and other current assets.............. (863) (490)
Accounts payable....................................... 1,186 378
Accrued liabilities.................................... (370) 2,630
Unearned revenue....................................... 267 425
------- -------
Net cash flows from operating activities............. (1,286) 4,744
Cash flows from investing activities:
Purchases of marketable securities......................... (89,384) (19,235)
Sales of marketable securities............................. 43,236 1,100
Purchases of equipment, furniture and software............. (5,793) (1,551)
Proceeds from sale of discontinued operations.............. -- 95
Payments for acquisitions.................................. (261) --
------- -------
Net cash flows from investing activities............. (52,202) (19,591)
Cash flows from financing activities:
Borrowings................................................. 5,375 1,165
Repayment of debt.......................................... (5,929) (3,360)
Exercise of stock options.................................. 1,737 186
Proceeds from public offerings............................. 47,916 24,493
Distributions paid to stockholders......................... (22) (3,804)
------- -------
Net cash flows from financing activities............. 49,077 18,680
------- -------
Net increase (decrease) in cash and cash equivalents......... (4,411) 3,833
Cash and cash equivalents, January 1......................... 5,947 570
------- -------
Cash and cash equivalents, September 30...................... $ 1,536 $ 4,403
======= =======
Supplemental disclosure of cash flow information:
Interest paid.............................................. $ 69 $ 12
======= =======
Income taxes paid.......................................... $ 284 $ --
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
BRAUN CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
1. Basis of Presentation
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
and recurring adjustments) necessary to present fairly the Company's financial
position, results of operations and cash flows as of the dates and for the
periods presented. The balance sheet as of December 31, 1999, presented
herein, has been derived from the audited financial statements for the year
then ended.
Accounting policies followed by the Company are described in Note 2 to the
audited consolidated financial statements for the year ended December 31,
1999, included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. Certain other information and footnote disclosures normally
included in annual 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, 1999.
The consolidated results of operations for the periods presented herein are
not necessarily indicative of the results to be expected for the full year.
2. Cash and Cash Equivalents
Cash and cash equivalents include cash deposits in banks and highly liquid
investments with original maturities of three months or less at the time of
purchase.
3. Marketable Securities
Marketable securities represent available-for-sale securities, which are
recorded at fair market value and approximate cost as of September 30, 2000.
Realized gains and losses from sales of available-for-sale securities were not
material for any period presented. Interest on marketable securities is
included in interest income.
4. Equipment, Furniture and Software
Equipment, furniture, and software are stated at cost, less accumulated
depreciation and amortization of $3,779 at September 30, 2000 and $2,531 at
December 31, 1999.
5. Pro forma Information
Prior to the termination of its status as an S corporation on July 28,
1999, the Company was treated as an S corporation for federal and certain
state income tax purposes. The pro forma information is presented 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.
6. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed based on the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed based on the weighted average number of common shares
outstanding plus the dilutive effect of stock options outstanding during the
period. The Company is in a net loss position for the three and nine months
ended September 30, 2000. Therefore, the common stock equivalents are not
considered in earnings (loss) per share-diluted, since their effect is anti-
dilutive.
5
<PAGE>
BRAUN CONSULTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Revenue Recognition
Revenue includes revenue from consulting services and product sales. Those
amounts have been combined in the current quarter presentation as product
sales amounts were substantially less than 10% of total revenue in each period
presented. Accordingly, all prior period amounts have been reclassified to
conform to the current quarter presentation.
8. Adjustment of Purchase Price Allocation
In December 1999, the Company acquired Emerging Technologies Consultants,
Inc. ("ETCI") for a total purchase price of approximately $27.0 million.
During the nine months ended September 30, 2000, management adjusted its
estimates of the fair value of liabilities acquired in connection with the
allocation of the purchase price. As a result, intangible assets and
liabilities were increased by $261,000.
9. Secondary Public Offering
On April 12, 2000, the Company closed its secondary public offering of
securities and issued 2,400,000 shares of common stock at $21.00 per share. In
addition, on April 22, 2000, the underwriters exercised a portion of their
over-allotment option by selling 45,000 shares of the Company's common stock.
Proceeds to the Company from its secondary public offering, net of
underwriting discounts and costs of the offering, were approximately $47.9
million.
10. Recent Accounting Pronouncements
In July 1999, the Financial Accounting Standards Board issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133, an amendment of FASB Statement No.
133." SFAS 137 defers the implementation of SFAS 133 by one year. SFAS 133, as
amended by SFAS 137, is effective for the Company's fiscal quarters beginning
after January 1, 2001. The Company has determined that SFAS 137 will not
impact its financial position and results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101"), as amended by 101A and 101B. SAB 101 summarizes some of the SEC's
interpretations of the application of generally accepted accounting principles
to revenue recognition. The Company believes that its revenue recognition
practices are in compliance with SAB 101 for the nine months ended September
30, 2000 and all periods herein.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues
clarifies the following: the definition of an employee for purposes of
applying APB Opinion No. 25, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequences of various
modifications to the terms of previously fixed stock options or awards, and
the accounting for an exchange of stock compensation awards in a business
combination. The Company believes that its stock compensation practices are in
compliance with FIN 44 for the nine months ended September 30, 2000.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Braun Consulting, Inc. (the "Company") is a leading Internet professional
services firm delivering customer-focused business solutions to clients. The
Company's approach combines cutting-edge business intelligence and customer
relationship management technologies with business strategy to help clients
drive business performance, generate sustainable growth and profitability and
cultivate long-term customer relationships. Our solutions integrate strategy
and technology to help clients identify and implement the strategies, tools
and tactics necessary to drive organizational change and fundamentally change
the way they do business.
The Company derives substantially all of its revenues from fees for
consulting services, which are billed on a time-and-materials or fixed-price
basis. Invoices are typically issued semi-monthly to monitor client
satisfaction and manage outstanding accounts receivable balances. Revenues on
time-and-materials contracts are recognized as the services are provided. The
Company recognizes revenue on fixed-price projects as services are performed
over the life of the contract. Losses on contracts, if any, are recognized in
full in the period when determined. Approximately 44% of our revenue for the
nine months ended September 30, 2000 was derived from fixed-price contracts as
compared to 41% for the nine months ended September 30, 1999.
The Company also realizes a limited amount of revenue from product sales as
a value-added reseller of software products. The Company currently resells
software products primarily as an accommodation to clients who prefer to
retain a single-source provider.
The Company's most significant expense is project personnel and expenses,
which consists primarily of project personnel salaries, bonuses and benefits,
and non-reimbursed expenses incurred to complete projects. The Company seeks
to manage its costs by adding a variable portion of employee compensation
payable upon the achievement of measurable performance goals.
The Company's project personnel and expenses as a percentage of revenues
are also related to consultant utilization. The Company manages 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 unexpected
termination of a significant project could also cause the Company to
experience lower consultant utilization, resulting in a higher than expected
number of unassigned consultants. In addition, the Company does not fully
utilize its consulting personnel on billable projects during the initial
months of their employment. During that time, they undergo training and become
integrated into the Company's operations.
To sustain its growth and profitability, the Company has and continues 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 consist primarily of salaries, employee
benefits and travel costs of selling and marketing personnel and promotional
costs. General and administrative expenses consist primarily of costs
associated with the Company's executive management, finance and administrative
groups including personnel devoted to recruiting, employee retention and
training; occupancy costs including depreciation, amortization and office
equipment leases; travel; and all other branch and corporate costs. The
Company continues to incur increased rent associated with its growth,
including the opening of new offices and major expansion of existing offices.
Stock compensation expenses consist of non-cash compensation expenses
arising from option grants. For the nine months ended September 30, 2000, the
Company recorded stock compensation expense totaling $3.7 million in
connection with certain stock option grants from November 1998 through
September 30, 2000. 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.
7
<PAGE>
Prior to July 28, 1999, the Company 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 the
Company during the three and nine months ended September 30, 1999 was taxed
directly to its stockholders rather than to the Company. The consolidated
statements of income reflect a pro forma adjustment for federal and state
income taxes for the three and nine months ended September 30, 1999, assuming
the Company had been operating as a C corporation during such periods.
Statements in this Quarterly Report on Form 10-Q that are not strictly
historical are "forward-looking" statements that involve risks or
uncertainties, many of which are not under the control of the Company. The
risks and uncertainties include, but are not limited to, competition, general
economic conditions, the number of projects undertaken and completed during a
period, attracting and retaining highly skilled employees, as well as other
risks identified in the Company's prospectus dated April 6, 2000. The Company
is under no duty to update any of the forward-looking statements after the
date of this report or to conform these statements to actual results or
changes in its expectations.
Results of Operations
The following table sets forth, for the periods indicated, selected
consolidated statements of operations data as a percentage of total revenue:
<TABLE>
<CAPTION>
Three
Months Nine Months
Ended Ended
September September
30, 30,
------------- -------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue.................................... 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Project personnel and expenses........... 52.9 54.1 53.7 55.0
Selling and marketing expenses........... 9.9 8.9 9.2 9.0
General and administrative expenses...... 26.9 25.0 25.8 24.2
Amortization of intangible assets........ 11.0 -- 12.1 --
Stock compensation....................... 4.6 1.6 6.4 1.4
Merger costs............................. -- -- -- 0.5
----- ----- ----- -----
Total costs and expenses............... 105.3 89.6 107.2 90.1
----- ----- ----- -----
Operating income (loss).................... (5.3) 10.4 (7.2) 9.9
Interest income............................ 4.6 1.1 3.3 0.5
Interest expense........................... 0.1 0.2 0.1 0.4
----- ----- ----- -----
Income (loss) before provision for income
taxes..................................... (0.8) 11.3 (4.0) 10.0
Provision for income taxes................. 4.7 3.6 5.4 1.4
----- ----- ----- -----
Net income (loss)...................... (5.5)% 7.7% (9.4)% 8.6%
===== ===== ===== =====
Pro forma:
Income before pro forma provision for
income taxes............................ 11.3% 10.0%
Pro forma provision for income taxes..... 5.1 4.5
----- -----
Pro forma net income..................... 6.2% 5.5%
===== =====
</TABLE>
Revenue. Revenue increased 77.2% to $21.4 million for the three months
ended September 30, 2000 from $12.1 million for the three months ended
September 30, 1999. Revenue increased 79.4% to $58.5 million for the nine
months ended September 30, 2000 from $32.6 million for the nine months ended
September 30, 1999. These increases primarily reflect increases in the volume
of consulting services provided to existing and new clients. The Company
continues to sell some software products as an accommodation to clients.
8
<PAGE>
Project Personnel and Expenses. Project personnel and expenses increased
73.3% to $11.3 million for the three months ended September 30, 2000 from $6.5
million for the three months ended September 30, 1999 and increased 75.0% to
$31.4 million for the nine months ended September 30, 2000 from $17.9 million
for the nine months ended September 30, 1999. These increases in project
personnel and expenses were due primarily to increases in project personnel as
of September 30, 2000 as compared with September 30, 1999. Project personnel
and expenses decreased as a percentage of revenue to 52.9% for the three
months ended September 30, 2000 from 54.1% for the three months ended
September 30, 1999 and to 53.7% of revenue for the nine months ended September
30, 2000 from 55.0% for the nine months ended September 30, 1999. The
improvements in margins resulted from increases in billing rates and better
utilization of project personnel.
Selling and Marketing Expenses. Selling and marketing expenses increased
98.0% to $2.1 million for the three months ended September 30, 2000 from $1.1
million for the three months ended September 30, 1999 and increased 82.0% to
$5.4 million for the nine months ended September 30, 2000 from $2.9 million
for the nine months ended September 30, 1999. These increases in selling and
marketing expenses primarily result from an increase in selling and marketing
personnel and the funding of business development costs to increase lead
generation activities and to broaden market awareness and the customer base.
Selling and marketing expenses increased as a percentage of revenue to 9.9%
for the three months ended September 30, 2000 from 8.9% for the three months
ended September 30, 1999 and to 9.2% of revenue for the nine months ended
September 30, 2000 from 9.0% for the nine months ended September 30, 1999.
General and Administrative Expenses. General and administrative costs
increased 89.9% to $5.7 million for the three months ended September 30, 2000
from $3.0 million for the three months ended September 30, 1999 and increased
91.7% to $15.1 million for the nine months ended September 30, 2000 from $7.9
million for the nine months ended September 30, 1999. General and
administrative costs increased as a percentage of revenue to 26.9% for the
three months ended September 30, 2000 from 25.0% for the three months ended
September 30, 1999 and to 25.8% for the nine months ended September 30, 2000
from 24.2% for the nine months ended September 30, 1999. An important part of
these increases in general and administrative expenses for the three months
and nine months ended September 30, 2000 compared to the three months and nine
months ended September 30, 1999 was due to increased costs of recruiting
additional staff and an increase in facilities costs. The Company expanded its
offices in Boston, Chicago, Denver and Indianapolis.
Amortization of Intangible Assets. Amortization of intangible assets,
primarily goodwill, was $2.3 million for the three months ended September 30,
2000 and $7.1 million for the nine months ended September 30, 2000 as a result
of the Company's acquisition of ETCI.
Stock Compensation Expense. Stock compensation expense increased to
$978,000 for the three months ended September 30, 2000 from $188,000 for the
three months ended September 30, 1999 and to $3.7 million for the nine months
ended September 30, 2000 from $440,000 for the nine months ended September 30,
1999. The increase in stock compensation expense was primarily the result of
options granted in the first quarter 2000 related to the hiring of senior
personnel.
Interest Income and Interest Expense. Interest income increased to $974,000
for the three months ended September 30, 2000 from $135,000 for the three
months ended September 30, 1999 and to $1.9 million for the nine months ended
September 30, 2000 from $160,000 for the nine months ended September 30, 1999.
The increase was due to the investment of the proceeds from the secondary
public offering completed in April 2000. The decrease in interest expense for
the three months and nine months ended September 30, 2000 versus the three
months and nine months ended September 30, 1999 was due to decreased
borrowings under the Company's line of credit during 2000.
Net Income (Loss). Net income decreased to a loss of $1.2 million for the
three months ended September 30, 2000 from pro forma net income of $744,000
for the three months ended September 30, 1999 and to a loss of $5.5 million
for the nine months ended September 30, 2000 from pro forma net income of $1.8
million for the
9
<PAGE>
nine months ended September 30, 1999. The decrease in net income was due
primarily to the amortization of intangible assets related to the acquisition
of ETCI and the increased stock compensation expense attributable to various
option grants.
Provision for Income Taxes. The provision for income taxes was $996,000 for
the three months ended September 30, 2000 as compared to the pro forma
provision for income taxes of $620,000 for the three months ended September
30, 1999 and $3.2 million for the nine months ended September 30, 2000 as
compared to the pro forma provision for income taxes of $1.5 million for the
nine months ended September 30, 1999. The effective income tax rate was 592.9%
for the three months ended September 30, 2000 and 137.5% for the nine months
ended September 30, 2000, as a result of the amortization of intangible assets
and certain stock compensation expenses. The pro forma effective tax rate was
45.5% for the three months ended September 30, 1999 and 45.0% for the nine
months ended September 30, 1999.
Liquidity and Capital Resources. In August 1999, the Company sold 4,000,000
shares of common stock in its initial public offering. Of the net proceeds of
approximately $24.5 million, approximately $3.8 million was used for
distribution to stockholders of previously taxed but undistributed S
corporation income, and the remainder of the net proceeds has been invested in
cash, cash equivalents and marketable securities to be utilized for working
capital purposes or acquisitions.
In April 2000, the Company sold 2,445,000 shares of common stock in its
secondary public offering. The Company has invested all of the net proceeds,
of approximately $47.9 million, in cash, cash equivalents and marketable
securities.
As of September 30, 2000, the Company maintained a line of credit providing
for borrowings of up to $5.0 million. The Company's line of credit for $5.0
million is with LaSalle Bank National Association, bears interest at the
bank's prime rate and expires on June 30, 2002. The terms of the LaSalle Bank
National Association line 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. At September
30, 2000, there were no borrowings outstanding under the $5.0 million line of
credit. Capital expenditures of approximately $5.8 million for the nine months
ended September 30, 2000 and approximately $1.6 million for the nine months
ended September 30, 1999 were primarily used for computers, office equipment
and leasehold improvements related to the Company's growth.
Management believes that the cash, cash equivalents and marketable
securities of $51.6 million as of September 30, 2000, together with cash
provided from operations and borrowings available under the credit facility,
will be sufficient to meet working capital and capital expenditure
requirements for at least the next 24 months.
Market Risk. The Company's investment in cash, cash equivalents and
marketable securities of approximately $51.6 million at September 30, 2000
primarily consists of investments in commercial paper. The Company does not
invest in derivatives. The fair market value of marketable securities
approximates the Company's cost at September 30, 2000.
Recent Accounting Pronouncements. In July 1999, the Financial Accounting
Standards Board issued SFAS 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,
an amendment of FASB Statement No. 133." SFAS 137 defers the implementation of
SFAS 133 by one year. SFAS 133, as amended by SFAS 137, is effective for the
Company's fiscal quarters beginning after January 1, 2001. The Company has
determined that SFAS 137 will not impact its financial position and results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101"), as amended by 101A and 101B. SAB 101 summarizes some of the SEC's
interpretations of the application of generally accepted accounting principles
to
10
<PAGE>
revenue recognition. The Company believes that its revenue recognition
practices are in compliance with SAB 101 for the nine months ended September
30, 2000 and all periods herein.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues
clarifies the following: the definition of an employee for purposes of
applying APB Opinion No. 25, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequences of various
modifications to the terms of previously fixed stock options or awards, and
the accounting for an exchange of stock compensation awards in a business
combination. The Company believes that its stock compensation practices are in
compliance with FIN 44 for the nine months ended September 30, 2000.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
The Company may be exposed to market risk related to changes in interest
rates. The Company's borrowing arrangements and short-term investments are
based on variable rates of varying maturities. The Company does not have any
agreements to protect the Company from the risk presented by a change in its
interest rates. As of September 30, 2000, there were no outstanding borrowings
under the Company's borrowing arrangements. If interest rates on the Company's
investments were to decrease immediately and uniformly by 10% from levels at
September 30, 2000 from approximately 7.1% to 6.39%, the Company's pre-tax net
income in the next twelve months would decrease by $355,355, which is equal to
the product of 10% decrease in the interest rate multiplied by the
approximately $50.1 million of short-term investments as of September 30,
2000.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not involved in any material legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S> <C>
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
None.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Braun Consulting, Inc. (Registrant)
/s/ John C. Burke
_____________________________________
John C. Burke
Chief Financial Officer
(Duly Authorized and Chief
Accounting Officer)
Date: November 14, 2000
12
