Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 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)

Registrant's telephone number including area code: (312) 984-7000

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

Securities registered pursuant to Section 12(g) of the Act:

Title of class
Common stock, par value $.001 per share

    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, and (2) has been subject to such filing requirements for the past 90 days: Yes  X   No    .

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

    As of February 28, 2001, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant (based upon the per share closing price of $6.56 on February 28, 2001, and for the purpose of this calculation only, the assumption that the registrant's directors and executive officers are affiliates) was approximately $61 million.

    The number of shares outstanding of the registrant's common stock as of February 28, 2001 was 20,327,266 shares.

DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the registrant's definitive Proxy Statement in connection with its 2001 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

PART I

ITEM 1. Business

    This Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "except," "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 section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as any cautionary language in this Form 10-K, 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 Form 10-K 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.

    In this Form 10-K, "Braun Consulting," the "Company," "we," "us" and "our" refer to Braun Consulting, Inc. and its subsidiaries and predecessors.

Our Company

    Braun Consulting is a professional services firm delivering customer-focused business solutions. Our service approach integrates business intelligence, internet application development skills and customer relationship management technologies with business strategy. Our business solutions 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 1000 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 $78.6 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 that focus 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 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 expertise with our ability to develop business strategies and Internet applications for our clients, we are well positioned to provide comprehensive professional services. Since 1993, we have provided services to more than 320 companies, including Ameren, Ameritech, AT&T, Biogen, Carrier, Chase, Cintas, Citigroup, Cummins, DirectTV, Eaton, Eli Lilly, Embratel, General Electric, Heritage Environmental Services, Marathon Oil, Motorola, OnStar, Pharmacia, The CIT Group, Thomson Consumer Electronics, and TMP Worldwide.

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 $78.6 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, 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.

    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

2

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 that 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. International Data Corporation also projects that the worldwide customer relationship management service market will grow to $89.7 billion in 2003 and that global investments in applications used to analyze data will grow to $5.2 billion in 2003.

    Turbulence and changes in previously established markets provide tremendous opportunities for organizations that are insightful and focused on their customers. Businesses working to attain competitive advantage in changing markets are compelled to use Web-based business approaches and efficiently manage business and customer information. Strategies focused on customers and business intelligence are enabling a new era of business.

The Braun Consulting Advantage

    We believe clients that are dependent upon business and customer information and effective integration of business strategy and information technology will purchase professional services from qualified and proven providers. Braun Consulting is well positioned to deliver these services. Our business solutions are designed to provide a measurable return on a client's investment by driving its revenue growth and profitability. We believe the following key attributes differentiate us from the competition:

Our Transform Methodology

    Our Transform methodology is a proprietary project management process we use to deliver professional services to clients. Through the Transform methodology, we deliver solutions that integrate strategy and information technology with customer and business information. We provide comprehensive business solutions through integrated project teams to Fortune 1000 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 information technologies, deployed via the Internet. Our methodology is designed to provide completed work to the client approximately every 90 days.

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.

3

Customer-Focused 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 solution centers located in Chicago, Boston and Denver. These centers are used to develop applications for our clients and to provide technology training to our staff.

Growth Strategy

    Braun Consulting's objective is to continue our growth by capitalizing on our position as a 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 320 middle-market and Fortune 1000 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 integrated business solutions combining business strategies with information technology and the Internet.

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%, 10% and 12% in 2000, 1999 and 1998, respectively.

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 business strategy services, financial services and advising clients about technologies and methods that have been developed to collect and analyze business and customer information;

4

•

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.

Business Solutions

    Braun Consulting delivers comprehensive business solutions which combine our experience in customer-focused business strategy, information technologies, including business intelligence 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.

5

•

Customer Relationship Management. We help clients better understand their customers' needs through effectively combining data warehousing, front office applications, campaign management systems, 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.

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, Linux and Unix platforms.



•

Front Office Automation. We help clients design, build and implement systems that enable the capture, storage, analysis, exchange and utilization of large volumes of data among geographically dispersed sales representatives, customer service representatives and customers. We also have expertise in helping clients effectively implement large-scale call center, sales force automation and field force service systems.



•

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 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.

6

    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, 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, we continue 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 Business Solutions

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.

    Business Solution:  Braun Consulting worked 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. In the second phase, we designed and implemented a new marketing system that defined optimal organization and business processes.

    Results:  We developed a marketing system which handles 21 million current and prospective customers and 1 billion customer transactions per month. In the third phase of the project, we designed and implemented enhancements to the Web-enabled, customer-focused marketing data warehouse.

7

Significant enhancements include customer care information from the front-office system, additional marketing campaign channels, and current customer demographics from a new billing system.

Maximizing Revenues Through Customer Relationship Management

    Challenge:  Increase national service firm's revenues from their current customer base and grow the profitability of their catalog business.

    Business Solution:  Braun Consulting worked with the client to create a state-of-the-art customer relationship management system, from development of a customer-focused strategy through technology implementation. Our solution integrated the client's multiple customer service, billing, and order entry information technology systems. Customer information is collected and analyzed to define customer profiles and develop meaningful customer segmentation. The system is designed as a marketing portal that executes marketing programs using campaign management tools. The campaigns use newly developed metrics to target promotional activities to the most receptive customers. In addition, our business solution also ranks catalog customers by profitability, allowing for more finely tuned marketing to relevant clientele. Our deployment of leading-edge technologies in database development, data quality, and campaign management were essential for the success of the project.

    Results:  Improved understanding of customer information allows our client to grow revenues through cross-selling to the existing client base. In addition, the catalog business increases profits by focusing marketing efforts on the most profitable customers.

Intranet-driven Products and Services

    Challenge:  Increase Fortune 100 client's effectiveness in sales and marketing through the use of an intranet.

    Business Solution:  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 business solution made the complex system user-friendly. The system is now able to calculate product and service offering charges and improve inventory management.

    Results:  The client improved its competitive position and increased customer satisfaction by identifying and tailoring product and service offerings. 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.

Clients

    We work with Fortune 1000 and leading-edge middle-market companies across a wide variety of industries, including media and telecommunications, healthcare and pharmacueticals, consumer goods, manufacturing and financial services. In 2000 our ten largest clients generated approximately 42% of our revenues, with Pharmacia accounting for 16.5% 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 65% of our revenues in 2000 and approximately 75% of our revenues in 1999. The volume of work performed for specific clients is likely to vary from year to

8

year, and a significant client in one year may not use our services in a subsequent year. Since the beginning of 1998, our clients have included:

Media and Telecommunications
  Ameritech
  AT&T
  BMG Entertainment
  DirectTV
  Embratel
  MCI WorldCom
  MediaOne
  OnStar
  Qwest

Healthcare and Pharmacueticals
  American Home Products
  Aventis
  Biogen
  Clinical Reference Laboratory
  Eisai
  Eli Lilly
  Pharmacia

Consumer Goods
  American Greetings.com
  Kraft
  Mattel
  Quaker Oats
  Ralston Purina
  S.C. Johnson

Manufacturing
  Carrier
  Cummins
  Eaton
  General Electric
  General Motors
  Honeywell
  Motorola
  Steelcase
  Thomson Consumer
   Electronics
  Trane
  Ty Inc.

Financial Services
  Blue Cross/Blue Shield
  Chase
  Citigroup
  CNA Insurance
  Coregis
  Employers Reinsurance
  Kemper Insurance
  MasterCard
  The CIT Group
  Charles Schwab

Other
  Ameren
  BP Amoco
  Cintas
  Delano
  Hyperion
  Marathon Oil
  MatchLogic
  New Century Energies
  TMP Worldwide

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, Web site 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 a leading 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

9

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 to twelve 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 December 31, 2000, we had 572 employees. Of these, 450 were project personnel, 34 were selling and marketing personnel, and 88 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. In 2000, approximately 72% of our new hires were experienced professionals and approximately 28% were 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.

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, revenue, 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 weekly.

    Time & Expense Reports and Billing.  Time and expense reports are generally available online within 12 hours of weekly 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.

10

    Flash Report.  Performance is monitored by practice area in weekly, 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 professional services marketplace is strong. Our current and anticipated competitors include:

•

emerging Web consulting firms such as Digitas, Proxicom, Inforte, eLoyalty, Scient and Viant, which are focused on Internet-based, digital business solutions and customer relationship management;



•

systems integrators such as Accenture, Cambridge Technology Partners, Cap Gemini Ernst & Young, PricewaterhouseCoopers and Sapient;



•

strategy and management consulting firms such as Bain, Boston Consulting Group, Diamond Cluster 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.

    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 and customer relationship management 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.

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. Effective March 26, 2001, Braun Consulting's principal executive offices have moved to 20 West Kinzie, Suite 1600, Chicago, Illinois, 60610, 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 Form 10-K.

11

ITEM 2. Properties

    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 19,400 square feet of leased office space and our facilities in Boston are located in approximately 36,000 square feet of leased office space. We also serve clients out of leased office space in Cleveland, Ohio; Dallas, Texas; Denver, Colorado; Detroit, Michigan; Indianapolis, Indiana; Minneapolis, Minnesota; Mount Laurel, New Jersey; Reston, Virginia; and St. Louis, Missouri. We have leased new office space for the our headquarters totalling 81,600 square feet and are moving at the end of the first quarter of 2001. 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.

ITEM 3. Legal Proceedings

    Braun Consulting is not involved in any material legal proceedings.

ITEM 4. Submission of Matters to a Vote of Security Holders

    At the Company's Annual Meeting of Stockholders held on December 15, 2000, the following proposals were adopted by the votes specified below:

(i)

The election of three Class I Directors (Michael J. Evanisko, James M. Kalustian and Eric V. Schultz) to serve until the 2002 Annual Meeting. Mr. Evanisko received a total of 16,408,228 shares of common stock voting in favor, with 651,645 withheld from the vote. Mr. Kalustian received a total of 16,593,975 shares of common stock voting in favor, with 465,898 withheld from the vote. Mr. Schultz received a total of 16,748,438 shares of common stock voting in favor, with 311,435 withheld from the vote.



(ii)

The approval and adoption of the Company's 2001 Employee Stock Purchase Plan. A total of 16,615,711 shares of common stock voted in favor of this proposal, 430,662 shares were voted against the proposal, and 13,500 shares abstained from voting.



(iii)

The approval of the appointment of Deloitte & Touche LLP as independent auditors of the Company. A total of 17,037,318 shares of common stock voted in favor of this proposal, 9,549 shares were voted against the proposal, and 13,006 shares abstained from voting.

PART II

ITEM 5. Market for the Registrant's Common Stock and Related Stockholder Matters

    Our common stock has been quoted on the Nasdaq National Market under the symbol "BRNC" since our initial public offering on August 10, 1999. Prior to that time, there had not been a market for our common stock. The following table shows the high and low per share closing sale prices of our common stock, as reported on the Nasdaq National Market for the periods indicated:

12

    On February 28, 2001, the last reported sale price of our common stock on the Nasdaq National Market was $6.56. As of February 28, 2001, there were approximately 244 holders of record of our common stock.

    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 July 28, 1999, 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. With the exception of these dividends, we have never declared or paid any cash dividends on our capital stock.

    In August 1999, Braun Consulting sold 4,000,000 shares of common stock in its initial public offering. Of the net proceeds of approximately $24.5 million, we distributed approximately $3.8 million to stockholders as previously taxed but undistributed S corporation income and retired approximately $3.0 million of existing indebtedness. We used the remainder of the net proceeds, plus cash generated from operations, to invest in cash, cash equivalents and marketable securities with a value of approximately $9.8 million at December 31, 1999. We used approximately $9.5 million of the net proceeds to finance the cash consideration and the transaction costs associated with the acquisition of Emerging Technologies Consultants, Inc., or ETCI.

    On April 12, 2000, Braun Consulting sold 2,400,000 shares of common stock in its secondary public offering. 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. Of the net proceeds of approximately $47.7 million, plus cash generated from operations, the proceeds were used to invest in cash, cash equivalents and marketable securities with a value of approximately $48.3 million at December 31, 2000.

ITEM 6. 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 Form 10-K. The consolidated balance sheet data as of December 31, 1999 and 2000 and the consolidated statement of operations data for the years ended December 31, 1998, 1999 and 2000 have been derived from the Consolidated Financial Statements included in this Form 10-K, which have been audited by Deloitte & Touche LLP, independent auditors. The consolidated balance sheet data as of December 31, 1996, 1997 and 1998 and the consolidated statement of operations for the years ended December 31, 1996 and

13

1997 have been derived from audited Consolidated Financial Statements which have not been included in this Form 10-K.

(1)

For all periods indicated prior to July 28, 1999, we operated as an S corporation and were not subject to federal and certain state income taxes. 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 for periods prior to July 28, 1999 reflects federal and state income taxes as if we had not elected S corporation status for income tax purposes. Pro forma net income for the period beginning on July 28, 1999 reflects federal and state income taxes on a basis consistent with other periods.

(2)

Loss per share for the year ended December 31, 2000 is calculated by dividing net loss by the weighted average number of common shares outstanding. The common stock equivalents are not considered in loss per share-diluted, since their effect is anti-dilutive.

14

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

    The following section should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained on pages 21 to 38 of this Form 10-K. 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.

Overview

    We derive substantially all of our revenues from fees for consulting services, which are billed on a time-and-materials or fixed-price 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. 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 41% of our consulting services revenues in 2000 were derived from fixed-price contracts.

    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 65% of our revenues in 2000 and approximately 75% of our revenues in 1999. Through the acquisitions of Vertex Partners and ETCI in 1999, we acquired offices in Boston, Massachusetts; Mount Laurel, New Jersey; and Reston, Virginia. We manage our client development efforts through several strategic service groups, each having specific geographic responsibility and focus. As of December 31, 2000, we had 572 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.

    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 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 our 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. We continue to incur increased rent associated with our growth and the opening of new offices.

    Prior to July 28, 1999, 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 the period was taxed directly to our stockholders rather than to Braun Consulting. The statement of operations data reflects a pro forma

15

adjustment for federal and state income taxes for each of the four years in the period ended December 31, 1999, assuming Braun Consulting had been operating as a C corporation during such period.

Recent Developments

    In January 2001, we hired Anne Zaczek as Senior Vice President of Finance. Ms. Zaczek has 20 years of experience in the financial management, accounting and information systems. In January 2001, we hired Kurt Schroeder as Vice President of Customer Relationship Management Solutions. Mr. Schroeder has 20 years of experience in consulting, business development and marketing. Mr. Schroeder focuses on leading and defining the Company's sales and marketing strategy.

    In January 2001, Tom Duvall, Chief Operating Officer announced his resignation to pursue other opportunites. Mr. Duvall will transition his responsibilities during the first quarter of 2001 and Steve Braun, CEO and President, will assume Mr. Duvall's responsibilities on an interim basis.

    In March, 2001, John C. Burke, Chief Financial Officer announced his resignation to pursue other opportunities. His responsibilities will transition to Tom Schuler, Senior Vice President of Corporate Development and Investor Relations, and Anne Zaczek, Senior Vice President of Finance, on an interim basis.

Results of Operations

    The following table sets forth, for the years indicated, selected statement of operations data as a percentage of revenue:

16

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

    Revenue.  Revenue increased 62.0% to $76.6 million in 2000 from $47.3 million in 1999. The increase in revenue primarily reflected increases in the volume of consulting services provided to existing and new clients. The Company continues to sell some software products as an occasional accommodation to clients. Such sales represented less than 4.7% of revenue in 2000 and less than 4.9% in 1999.

    Project Personnel and Expenses.  Project personnel and expenses increased 73.2% to $45.3 million in 2000 from $26.1 million in 1999. The increase in project personnel and expenses for 2000 was due primarily to an increase in project personnel as of December 31, 2000 as compared with December 31, 1999. Project personnel and expenses increased as a percentage of revenue to 59.1% in 2000 from 55.3% in 1999.

    Selling and Marketing Expenses.  Selling and marketing expenses increased 105.3% to $7.7 million in 2000 from $3.8 million in 1999. The increase was due primarily to our decision to expand our selling and marketing personnel 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 increased as a percentage of revenue to 10.1% in 2000 from 7.9% in 1999.

    General and Administrative Expenses.  General and administrative expenses increased 129.2% to $27.4 million in 2000 from $11.9 million in 1999. An important part of the increase in general and administrative expenses for 2000 compared to 1999 was due to an increase in facilities costs. In 2000, we expanded our offices in Boston, Chicago, Denver and Indianapolis and moved to new offices in Dallas and St. Louis. In addition, the Company's investment in an application service provider and accounts receivable associated with various telecommunication clients were written-off, and the Company incurred increased costs to recruit additional staff. General and administrative expenses increased as a percentage of revenue to 35.7% in 2000 from 25.3% in 1999.

    Amortization of Intangible Assets.  Amortization of intangible assets, primarily goodwill, increased to $9.6 million in 2000 from $719,000 in 1999 as a result of our acquisition of ETCI in December 1999.

    Stock Compensation.  Stock compensation expense increased to $4.5 million in 2000 from $620,000 in 1999. The increase in stock compensation expense was primarily the result of options granted during the first quarter 2000 related to the hiring of senior personnel.

    Interest Income and Interest Expense.  Interest income increased to $2.7 million in 2000 from $461,000 in 1999. The increase was due to the investment of the proceeds from the secondary public offering completed in April 2000. Interest expense remained unchanged in 2000 as compared to 1999.

    Provision (Benefit) for Income Taxes.  In 2000 there was a tax benefit of $640,000 as compared to the pro forma provision for income taxes of $2.2 million for 1999. The effective tax rate for 2000 was a benefit of 4.2% as compared to the pro forma effective tax rate of 52.7% for 1999 as a result of the Company generating a net operating loss in 2000. The amortization of intangible assets and certain stock compensation expense significantly impact the Company's effective tax rate.

    Net Income (Loss).  Net income decreased to a loss of $14.6 million in 2000 from pro forma net income of $2.0 million in 1999. The net loss was due primarily to amortization of intangible assets related to the acquisition of ETCI, increased stock compensation expense attributable to various option grants, and charges associated with writing off uncollectible accounts receivable from telecommunication clients and the investment in an application service provider.

17

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

    Revenue.  Revenue increased 69.8% to $47.3 million in 1999 from $27.9 million in 1998. The increase in revenue primarily reflected increases in the volume of services provided to existing and new clients. During 1999, we continued to sell some software products as an occasional accommodation to clients. Such sales represented less than 4.9% of revenue in 1999 and less than 3.4% in 1998.

    Project Personnel and Expenses.  Project personnel and expenses increased 55.9% to $26.1 million in 1999 from $16.8 million in 1998. The increase in project personnel and expenses for 1999 was due primarily to an increase in project personnel at December 31, 1999 as compared to December 31, 1998. Project personnel and expenses decreased as a percentage of revenue to 55.3% in 1999 from 60.1% in 1998.

    Selling and Marketing Expenses.  Selling and marketing expenses increased 63.3% to $3.8 million in 1999 from $2.3 million in 1998. The increase was due primarily to our decision to expand our selling and marketing group to 22 employees at December 31, 1999 from 16 employees at December 31, 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 7.9% in 1999 from 8.3% in 1998.

    General and Administrative Expenses.  General and administrative expenses increased 53.6% to $11.9 million in 1999 from $7.8 million in 1998. An important part of the increase in general and administrative expenses for 1999 compared to 1998 was due to an increase in facilities costs. In 1999, we expanded our offices in Boston, Chicago, Denver and Indianapolis. In addition, our total general and administrative headcount increased to 46 employees at December 31, 1999 from 40 employees at December 31, 1998. General and administrative expenses decreased as a percentage of consulting services to 25.3% in 1999 from 27.9% in 1998.

    Amortization of Intangible Assets.  In 1999, amortization of intangible assets, primarily goodwill, was $719,000 as a result of our acquisition of ETCI.

    Stock Compensation.  Stock compensation expense increased to $620,000 in 1999 from $271,000 in 1998 due to various option grants.

    Interest Income and Interest Expense.  Interest income was $461,000 in 1999 compared to $16,000 in 1998. The increase in interest income was due to the investment of the net proceeds from our initial public offering in August 1999. Interest expense increased slightly in 1999 versus 1998.

    Net Income.  Net income increased to $3.0 million in 1999 from $783,000 in 1998. The increase in net income was due primarily to increased revenue and decreasing costs as a percentage of revenue.

    Pro Forma Provision for Income Taxes.  The pro forma provision for income taxes for 1999 was $2.2 million as compared to $457,000 for 1998. The effective tax rate for 1999 was 52.7% as compared to 58.6% for 1998.

Liquidity and Capital Resources

    On April 12, 2000, Braun Consulting sold 2,400,000 shares of common stock in a secondary public offering. Of the net proceeds of approximately $47.7 million, plus cash generated from operations, the proceeds were used to invest in cash, cash equivalents and marketable securities with a value of approximately $48.3 million at December 31, 2000.

    As of December 31, 2000, we maintained lines of credit providing for borrowings of up to $5.0 million. Our 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 our LaSalle Bank National

18

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. We expect to renew this line of credit upon its expiration. As of December 31, 2000, we had no bank borrowings outstanding under our $5.0 million line of credit. Capital expenditures of approximately $9.6 million, $2.6 million and $1.5 for 2000, 1999 and 1998, 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 revenue or income (loss) from operations in 2000, 1999 or 1998.

    As of December 31, 2000, we had cash, cash equivalents and marketable securities of approximately $48.3 million. We believe that cash provided from operations and borrowings available under our credit facility will be sufficient to meet working capital and capital expenditure requirements for at least the next 24 months.

Recent Accounting Pronouncements

    In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as recently amended by SFAS No. 138, is effective for the Company's fiscal year beginning January 1, 2001. The Company has determined that SFAS 133 will not impact its financial position and results of operations upon the adoption of SFAS No. 133 on January 1, 2001.

    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 periods presented 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 year ended December 31, 2000.

ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk

    We may be exposed to market risk related to changes in interest rates. Our borrowing arrangements and short-term investments are based on variable rates of varying maturities. We do not have any agreements to protect us from the risk presented by a change in our interest rates. If interest rates on our borrowings were to increase immediately and uniformly by 10% from levels as of December 31, 2000 from 9.50% to 10.45%, our net loss would be unchanged. There were no outstanding bank borrowings as of December 31, 2000. If interest rates on our investments were to decrease immediately and uniformly by 10% from levels at December 31, 2000 from approximately 7.7% to 6.93%, our pre-tax net loss would increase by $350,735 which is equal to the product of the 10% decrease in the interest rate multiplied by the approximately $45.6 million of short-term investments in cash equivalents and marketable securities as of December 31, 2000.

19

ITEM 8. Financial Statements and Supplemental Information

    The information in response to this item is included in the Consolidated Financial Statements together with the report of Deloitte & Touche LLP, appearing on pages 21 through 38 of this Form 10-K, and in Item 7 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

    None.

PART III

    The information required by Part III (Items 10, 11, 12 and 13) has been omitted because the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of its fiscal year a definitive proxy statement pursuant to Regulation 14A. The information required by Items 10, 11, 12 and 13 will be set forth in the Company's definitive proxy statement and is incorporated by reference into this Annual Report on Form 10-K.

20

BRAUN CONSULTING, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

21

INDEPENDENT AUDITORS' REPORT

The Board of Directors and 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, 1999 and 2000 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a)2. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

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

    In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Braun Consulting, Inc. and subsidiaries as of December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP   

DELOITTE & TOUCHE LLP
Chicago, Illinois
February 7, 2001

22

BRAUN CONSULTING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

23

BRAUN CONSULTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to consolidated financial statements.

24

BRAUN CONSULTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

See notes to consolidated financial statements.

25

BRAUN CONSULTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.

26

BRAUN CONSULTING, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1999 and 2000
(In thousands, except share and per share data)

1. DESCRIPTION OF BUSINESS

    Braun Consulting, Inc. (the "Company" or "Braun Consulting") delivers business solutions by combining strategy, business intelligence and advanced Internet application development skills.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Principles of Consolidation—The accompanying consolidated financial statements of Braun Consulting include the accounts of its wholly owned subsidiaries, Emerging Technologies Consultants, Inc. ("ETCI"), Vertex Partners, Inc. ("Vertex") and BTG Ltd. 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, 1998 and 1999 have been restated to include the Vertex information. All intercompany accounts and transactions have been eliminated in consolidation.

    Management's Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of American 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 periods. Actual results could differ from those estimates.

    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.

    Marketable Securities—Marketable securities represent available-for-sale securities, which are recorded at fair market value, and approximate cost as of December 31, 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.

    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:

    In March 1998, the American Institute of Certified Public Accountants 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. The Company capitalized $156 and $1,714 in 1999 and 2000, respectively, 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.

    Intangible Assets—Goodwill and other intangibles are being amortized on a straight-line basis over lives ranging from one to three years.

27

    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 operations. 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 and customer acceptance, when all significant contractual obligations are satisfied and the collection of the resulting receivables is reasonably assured.

    Revenue includes revenue from consulting services and product sales. Those amounts have been combined in the current year presentation as product sales amounts were substantially less than 10% of revenue in each period presented. Accordingly, all prior period amounts have been reclassified to conform to the current year presentation.

    Stock-Based Compensation—The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Under APB Opinion No. 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Company's stock and the exercise price.

    Income Taxes—Prior to July 28, 1999, Braun Consulting was organized as an S corporation. In connection with its initial public offering ("IPO") the Company terminated its status as an S corporation, and declared and subsequently paid final S corporation distributions of approximately $2,814 representing certain taxed but undistributed earnings through that date.

    Effective July 29, 1999, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period of enactment. A valuation allowance is provided for deferred tax assets whenever it is more likely than not that future tax benefits will not be realized. During 2000, no valuation allowance was deemed necessary.

    Earnings (Loss) 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 common shares outstanding plus the dilutive effect of stock options outstanding. The Company is in a net loss position for the year ended December 31, 2000. Therefore, the common stock equivalents are not considered in earnings (loss) per share-diluted, since their effect is

28

anti-dilutive. The following summarizes the effects of dilutive securities for the periods in arriving at diluted earnings per share:

    Reclassifications—Certain prior year amounts have been reclassified to conform to the 2000 presentation.