SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended AprilJuly 2, 2004

OR

For the transition period from            to            

Commission File Number 0-24343

Answerthink, Inc.

(Exact name of Registrant as specified in its charter)

(305) 375-8005

(Registrant’s telephone number, including area code)

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 requirement for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2 of the Securities Exchange Act of 1934).    YES  x    NO  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

As of AprilJuly 30, 2004, there were 44,976,76643,961,863 shares of common stock outstanding.

Answerthink, Inc.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Answerthink, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

The accompanying notes are an integral part of the consolidated financial statements.

Answerthink, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

Answerthink, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

The consolidated financial statements of Answerthink,Inc. (“Answerthink” or the “Company”) include the accounts of the Company and all of its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by accounting principles generally accepted in the United States of America for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended January 2, 2004 included in the Form 10-K filed by the Company with the Securities and Exchange Commission. The consolidated results of operations for the quarter and six months ended AprilJuly 2, 2004 are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

2. Revenue Recognition

The Company principally derives revenues from fees for services generated on a project-by-project basis. Revenues for services rendered are recognized on a time and materials basis or on a fixed-fee or capped-fee basis. Revenues for time and materials contracts are recognized based on the number of hours worked by the Company’s consultants at an agreed upon rate per hour and are recognized in the period in which services are performed. Revenues related to fixed-fee or capped-fee contracts are recognized on the proportional performance method of accounting based on the ratio of labor hours incurred to estimated total labor hours. This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to recognize in an accounting period. The contracted dollar amount used in this calculation excludes the amount the client pays for reimbursable expenses. There are situations where the number of hours to complete projects may exceed the Company’s original estimate. These increases can be as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. On an on-going basis, the Company’s project delivery, office of risk management and finance personnel review hours incurred and estimated total labor hours to complete projects and any revisions in these estimates are reflected in the period in which they become known.

Unbilled revenues represent revenues for services performed that have not been invoiced. If the Company does not accurately estimate the scope of the work to be performed, or does not manage the projects properly within the planned periods of time or does not meet the clients’ expectations under the contracts, then future consulting margins may be negatively affected or losses on existing contracts may need to be recognized. Any such resulting reductions in margins or contract losses could be material to the Company’s results of operations. Revenues before reimbursements exclude reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-pocket expenses, are included in revenues, and an equivalent amount of reimbursable expenses is included in project personnel and expenses.

The agreements entered into in connection with a project, whether time and materials based or fixed-fee or capped-fee based, typically allow the Company’s clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the termination. In addition, from time to time the Company enters into agreements with clients that limit the Company’s right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit the Company from performing a defined range of services that it might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

3. Pro Forma Impact of Employee Stock Option Plans

The Company applies Accounting Principles Board (“APB”) Opinion No. 25,Accounting for Stock Issued to Employeesand related interpretations, in accounting for its stock option plans related to the grant of stock options and stock-based awards to employees (including independent directors). In accordance with APB Opinion No. 25, compensation expense, if any, is generally based on the difference between the exercise price of an option, or the amount paid for an award, and the market price or fair value of the underlying common stock at the date of the award or at the measurement date for variable awards. Stock-based compensation arrangements involving non-employees are accounted for under Statement of Financial Accounting Standards (“SFAS”) No. 123,Accounting for Stock-Based Compensation, under which such arrangements are accounted for based on the fair value of the option or award.

Under SFAS No. 123, compensation cost for the Company’s stock-based compensation plans would be determined based on the fair value at the grant dates for awards under those plans. Had the Company adopted SFAS No. 123 in accounting for its stock option plans, the Company’s consolidated net income (loss)loss and net income (loss)loss per share for the quarters and six months ended AprilJuly 2, 2004 and AprilJuly 4, 2003 would have been adjusted to the pro forma amounts indicated as follows (in thousands, except per share data):

4. Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. With regard to restricted stock andor restricted stock units issued to employees, the calculation includes only the vested portion of such stock.

Net income (loss) per common share assuming dilution is computed by dividing net income (loss) by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period. For the quarter ended April 2, 2004, potentially dilutive securities included 3,613,409 shares of unvested restricted stock and restricted stock units issued to employees and 999,601 shares of common stock issuable upon the exercise of stock options and warrants following the treasury stock method.

Potentially dilutive shares were excluded from the diluted loss per share calculation for the quarter and six months ended AprilJuly 2, 2004 and July 4, 2003 because their effects would have been anti-dilutive to the loss incurred by the Company. Therefore, the amounts reported for basic and diluted net loss per share were the same for the quarter and six months ended AprilJuly 2, 2004 and July 4, 2003. Potentially dilutive securities which were not included in the diluted loss per share calculation for the quarter and six months ended April 4, 2003July 2, 2004 include 181,0073,654,200 and 3,633,805 shares, respectively, of unvested restricted stock issued to employees and 137,828866,497 and 933,049 shares, respectively, of common stock issuable upon the exercise of stock options and warrants following the treasury stock method. Potentially dilutive securities which were not included in the diluted loss per share calculation for the quarter and six months ended July 4, 2003 include 76,086 and 128,547 shares, respectively, of unvested restricted stock issued to employees and 60,891 and 99,360 shares, respectively, of common stock issuable upon the exercise of stock options and warrants following the treasury stock method.

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

5. Comprehensive Income

The Company accounts for comprehensive income under SFAS No. 130,Reporting Comprehensive Income. Comprehensive income (loss) is summarized below (in thousands):

6. Acquisition

In May 2004, the Company purchased the US and India operations of EZCommerce Global Solutions, Inc., a business specializing in the dual-shore implementation of primarily SAP and, to a lesser extent, Oracle software. The purchase price for this acquisition was $9.0 million in cash, which includes $3.0 million of deferred payments payable in equal installments on the first and second anniversary of the purchase. In addition, approximately $3.0 million of contingent consideration will be payable over the next two years if certain earnings goals are achieved.

The acquisition has been accounted for using the purchase method of accounting. Accordingly, the results of operations of the acquisition are included in the Company’s consolidated results of operations from the date of the acquisition. The excess of the purchase price of the acquisition over the estimated fair value of the net identifiable assets acquired has been recorded as $1.4 million of intangible assets and $6.5 million of goodwill. The intangible assets are being amortized over periods ranging from 8 months to 4 years. The pro forma impact of this acquisition was not significant to the results of the Company’s consolidated operations for the six months ended July 2, 2004.

7. Accounts Receivable and Unbilled Revenue, Net

Accounts receivable and unbilled revenues, net consists of the following (in thousands):

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

6.8. Restructuring Accrual

The Company recorded restructuring costs of $10.9 million and $5.6 million in fiscal years 2002 and 2001, respectively, for reductions in consultants and functional support personnel and for closure and consolidation of facilities and related exit costs. These actions were taken as a result of the continued decline in demand for technology services to better align the Company’s overall cost structure and organization with anticipated demand for services. In the second quarters of 2004 and 2003, the Company recorded restructuring costs of $3.7 million and $4.9 million, respectively, to increase existing restructuring accruals to account for potentially higher estimated losses on the sublease of facilities as a result of lower than expected sublease rates and longer than expected time estimates to sublease excess facilities. Also in the second quarter of 2004, the restructuring accrual was reduced by $370 thousand relating to the final settlement of a lease obligation which was recorded as income from discontinued operations in the accompanying consolidated statement of operations for the quarter and six months ended July, 2004.

The following table sets forth the detail and activity in the restructuring expense accrual during the quartersix months ended AprilJuly 2, 2004 (in thousands):

2001 Restructuring Accrual

2002 Restructuring Accrual

7.9. Income Taxes

The Company recorded $43,000 of netan income tax expensebenefit of $53 thousand for the six months ended July 2, 2004. This amount reflects an estimated annual 8% tax rate for 2004 for certain state and foreign taxes during the first quarter of 2004. Included in the net incometaxes. The estimated annual effective tax expense israte includes an income tax benefit attributable to a decrease in the valuation allowance as a result of the expected utilization of tax net operating loss carryforwards.carryforwards in 2004. The liability method of accounting for deferred income taxes requires that a change in the valuation allowance for deferred tax assets be included in income tax expense or benefit for the current year.

The Company recorded $150 thousand of income tax expense for state and foreign taxes for the first six months of 2003. The Company did not recognize an income tax benefit for federal taxes for the first quartersix months of 2003 due to the establishment of a valuation allowance for the tax benefit generated on losses in the quarter.first six months.

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

7.9. Income Taxes (continued)

In 2002, the Company discontinued its interactive marketing business which was acquired with THINK New Ideas. The Company claimed a $92.0 million worthless stock deduction for the its investment in THINK New Ideas in its 2002 tax return as a result of the discontinuance of THINK New Ideas. The Company voluntarily requested that the Internal Revenue Service (“IRS”) review this position on an expedited basis. ThisOn August 5, 2004, theCompany reached an agreement with the IRS representing the final step in the review is currently in process. AlthoughPursuant to the agreement, the Company believes its tax position is sustainable, there is no assuranceand the IRS agreed that the IRS will agree withCompany was entitled to a worthless stock deduction of $77.3 million on the Company’s conclusion or2002 tax return. Including this deduction, the amountCompany has approximately $77 million of the deduction. The final resolutionnet operating loss carryforwards as of this matter could result in a deduction materially less than the amount claimed.January 2, 2004.

8.10. Shareholders’ Equity

Stock Plans

On June 11, 2003,During the Company commenced two tender offer programs involving voluntary stock option exchanges for the Company’s employees. The offering periods for the two stock option exchange programsquarter and six months ended on July 14, 2003.

One program was offered to employees at a Director level or below. Under this exchange program, employees holding nonqualified or incentive stock options to purchase the Company’s common stock with an exercise price of $4.50 or more were given the opportunity to exchange their existing options for new options to purchase shares of the Company’s common stock equal to an amount depending on the exercise price of the surrendered options. Options for 521,991 shares were tendered on July 14, 2003 in the exchange program. On January 15,2, 2004, the Company granted 163,995 options to purchase shares of the Company’s common stock in exchange for the options tendered. The new options were granted six monthsincurred $592 thousand and one day after acceptance of the old options for exchange and cancellation. The exercise price of the new options was $6.34, which was the last reported sale price of the Company’s common stock on the Nasdaq Stock Market’s National Market on January 15, 2004. The new options will vest over a two-year period from the date of grant.

The other program was offered to employees at a Senior Director level or above who had been with the Company since July 4, 2002. Under this exchange program, employees holding nonqualified options to purchase the Company’s common stock with an exercise price of $2.80 or more were given the opportunity to exchange their existing options for restricted stock units, which were granted on a one-to-one ratio and are subject to a new four-year vesting schedule. On July 14, 2003, the Company accepted for cancellation options to purchase 3,826,561 shares of the Company’s common stock representing 95% of the 4,045,182 options that were eligible to be tendered in the exchange program. Pursuant to the terms of the exchange program, the Company issued 3,826,561 restricted stock units in exchange for the options surrendered. The issuance of these restricted stock units resulted in $575,000$1.2 million, respectively, of stock compensation expense for the quarter ended April 2, 2004 and is expectedin connection with its outstanding restricted stock units. The Company expects to result inincur approximately the same amount of stock compensation expense per quarter over the four yearremaining vesting period. The remaining 218,621 eligibleperiod of the restricted stock units which fully vest in the third quarter of 2007. As of July 2, 2004, the Company had 200,499 stock options that were not exchangedwhich are required to be accounted for under variable plan accounting under APB Opinionpursuant to FASB Interpretation No. 25.28,Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans. The weighted average exercise price of these remaining eligible options is $4.01.$3.91. Variable plan accounting resulted in a reduction of stock compensation expense of approximately $215$100 thousand for the quarter ended July 2, 2004 and $115 thousand of stock compensation expense for the quartersix months ended AprilJuly 2, 2004.

Treasury Stock

In July 2002, the Company announced that its Board of Directors approved the repurchase of up to $5.0 million of Answerthink’s common stock. During the second quarterquarters of 2004 and 2003, the Board of Directors approved the repurchase of an additional $5.0 million of Answerthink’s common stock.stock for each of these two quarters. Under the repurchase plans, Answerthink may buy back shares of its outstanding stock from time to time either on the open market or through privately negotiated transactions, subject to market conditions and trading restrictions. During the quarter ended July 2, 2004, the Company repurchased 819,600 shares of its common stock at a cost of approximately $5.3 million. As of AprilJuly 2, 2004, the Company had repurchased 3,550,2794,369,879 shares of its common stock at an average price of $2.16$2.98 per share. The amount of sharesIn June 2003, the Company repurchased to date includes 465,120 shares purchased from the Company’s President, who is also a director, at $2.15 per share. The Company holds repurchased shares of its common stock as treasury stock and accounts for treasury stock under the cost method.

Answerthink, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

8. Shareholders’ Equity (continued)

Shareholder Rights Plan

On February 13, During the third quarter of 2004, the Board of Directors approved an additional $5 million for the repurchase of the Company adopted a Shareholder Rights Plan. Under the plan, a dividend of one preferred share purchase right (a “Right”) was declared for each share ofour common stock ofthereby increasing the Company that was outstanding on February 26, 2004. Each right, when exercisable, entitles the holdertotal program size to purchase from the Company one one-thousandth of a share of Series A Junior Preferred Stock at a purchase price of $32.50, subject to adjustment.

The Rights will trade automatically with the common stock and will not be exercisable until a person or group has become an “acquiring person” by acquiring 15% or more of the Company’s outstanding common stock, or a person or group commences or publicly announces a tender offer that will result in such a person or group owning 15% or more of the Company’s outstanding common stock. However, Columbia Wanger Asset Management, L.P., together with its affiliates and associates, will be permitted to acquire up to 20% or more of the common stock without making the rights exercisable. Upon announcement that any person or group has become an acquiring person, each Right will entitle all rightholders (other than the acquiring person) to purchase, for the exercise price of $32.50, a number of shares of the Company’s common stock having a market value equal to twice the exercise price. Rightholders would also be entitled to purchase common stock of the acquiring person having a value of twice the exercise price if, after a person had become an acquiring person, the Company were to enter into certain mergers or other transactions. If any person becomes an acquiring person, the Board of Directors may, at its option and subject to certain limitations, exchange one share of common stock for each right.

The rights have certain anti-takeover effects, in that they would cause substantial dilution to a person or group that attempts to acquire a significant interest in the Company on terms not approved by the Board of Directors. In the event that the Board of Directors determines a transaction to be in the best interests of the Company and its stockholders, the Board of Directors may redeem the Rights for $0.001 per share at any time prior to a person or group becoming an acquiring person. The Rights will expire on February 13, 2014.$20 million.

9.11. Litigation

Between November 2002 and January 2003, six class actions seeking unspecified damages were filed against Answerthink and certain of its current and former officers and directors alleging violations of the Securities and Exchange Act of 1934. The complaints alleged misstatements and omissions concerning, among other things, related party transactions during the alleged class period of February 8, 2000 to April 25, 2002. On January 7, 2003 the federal district court entered an order closing and consolidating these cases and any subsequently filed related cases into Druskin, et al. v. Answerthink, Inc., et al., Case No. 02-23304-CIV-GOLD. A consolidated amended complaint was filed on May 9, 2003. The Company filed a motion to dismiss the consolidated amended complaint on July 15, 2003. The court granted the Company’s motion to dismiss the consolidated and amended complaint on January 5, 2004 and allowed the plaintiffs leave to amend the consolidated amended complaint. The plaintiffs did not file an amended complaint within the time allowed by the court. On February 11, 2004, the court entered a final judgement dismissing the case against all parties with prejudice and closed the case. The time for appeal has expired and this matter is concluded.

The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such other matters will not have a material adverse effect on the financial position or results of operations of the Company.

10. Subsequent Event

In May 2004, the Company purchased the US and India operations of EZCommerce Global Solutions, Inc., a business specializing in the dual-shore implementation of primarily SAP and to a lesser extent Oracle software. The combined purchase price for this acquisition was $9 million in cash and approximately $3 million of contingent consideration due over the next two years if certain earnings goals are achieved.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report and the information incorporated by reference in it include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Factors that impact such forward-looking statements include, among others, our ability to effectively integrate acquisitions into our operations, our ability to attract additional business, the timing of projects and the potential for contract cancellation by our customers, changes in expectations regarding the information technology industry, our ability to attract and retain skilled employees, possible changes in collections of accounts receivable, risks of competition, price and margin trends, changes in general economic conditions and interest rates, the risk that the Internal Revenue Service or the courts may not accept the amount or nature of one or more items of deduction, loss, income or gain as reported by Answerthink for tax purposes and the possible outcome of pending litigation. An additional description of our risk factors is set forth in our Annual Report on Form 10-K for the year ended January 2, 2004. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

OVERVIEW

Answerthink, Inc. is a leading business and technology consulting firm that provides services to enable companies to achieve world-class business performance. By leveraging the comprehensive database of The Hackett Group, the world’s leading repository of enterprise best practice metrics and business process knowledge, Answerthink’s business and technology solutions help clients improve performance and maximize returns on technology investments. Answerthink’s capabilities include benchmarking, business transformation, business applications, business intelligence, and offshore application development and support.

Critical Accounting Policies

Revenue Recognition

Our revenues are principally derived from fees for services generated on a project-by-project basis. Revenues for services rendered are recognized on a time and materials basis or on a fixed-fee or capped-fee basis. Revenues for time and materials contracts are recognized based on the number of hours worked by our consultants at an agreed upon rate per hour and are recognized in the period in which services are performed. Revenues related to fixed-fee or capped-fee contracts are recognized on the proportional performance method of accounting based on the ratio of labor hours incurred to estimated total labor hours. This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to recognize in an accounting period. The contracted dollar amount used in this calculation excludes the amount the client pays us for reimbursable expenses. There are situations where the number of hours to complete projects may exceed our original estimate. These increases can be as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. On an on-going basis, our project delivery, office of risk management and finance personnel review hours incurred and estimated total labor hours to complete projects and any revisions in these estimates are reflected in the period in which they become known.

Unbilled revenues represent revenues for services performed that have not been invoiced. If we do not accurately estimate the scope of the work to be performed, or we do not manage our projects properly within the planned periods of time or we do not meet our clients’ expectations under the contracts, then future consulting margins may be negatively affected or losses on existing contracts may need to be recognized. Any such resulting reductions in margins or contract losses could be material to our results of operations. Revenues before reimbursements exclude reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-pocket expenses, are included in revenues, and an equivalent amount of reimbursable expenses is included in project personnel and expenses.

The agreements entered into in connection with a project, whether time and materials based or fixed-fee or capped-fee based, typically allow our clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by us through the effective date of the termination. In addition, from time to time we enter into agreements with our clients that limit our right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit us from performing a defined range of our services that we might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

Accounts Receivable and Allowances for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our clients to make required payments. Periodically, we review accounts receivable to assess our estimates of collectibility. Management critically reviews accounts receivable and analyzes historical bad debts, past-due accounts, client credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of our clients were to deteriorate, resulting in their inability to make payments, additional allowances may be required.

Goodwill

We assess goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, on an annual basis. We have made determinations as to what our reporting units are and what amounts of goodwill and intangible assets should be allocated to those reporting units.

In assessing the recoverability of long-lived identifiable assets and goodwill, we must make assumptions regarding estimated future cash flows, discount rates and other factors to determine if impairment tests are met. These estimates contain management’s best estimates, using appropriate and customary assumptions and projections at the time. If these estimates or their related assumptions change in the future, we may be required to record additional impairment charges.

Restructuring Reserves

Restructuring reserves reflect judgements and estimates of our ultimate costs of severance, closure and consolidation of facilities and settlement of contractual obligations under our operating leases, including sublease rental rates, absorption period to sublease space and other related costs. We reassess the reserve requirements to complete each individual plan under our restructuring programs at the end of each reporting period. If these estimates change in the future or actual results are different than our estimates, we may be required to record additional charges in the future.

Income Taxes

We record income taxes using the liability method. Under this method, we record deferred taxes based on temporary taxable and deductible differences between the tax bases of our assets and liabilities and our financial reporting bases. The liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Contingent Liabilities

We have certain contingent liabilities that arise in the ordinary course of our business activities. We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. Reserves for contingent liabilities are reflected in our consolidated financial statements based on management’s assessment, along with legal counsel, of the expected outcome of the contingencies. If the final outcome of our contingencies differs adversely from that currently expected, it would result in a charge to earnings when determined.

The foregoing list is not intended to be a comprehensive list of all our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for us to judge the application. There are also areas in which our judgement in selecting any available alternative would not produce a materially different result. Please see our consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K, which contain accounting policies and other disclosures required by accounting principles generally accepted in the United States.

Results of Operations

The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to revenues of such results:

Revenues.Revenues for the quarter ended AprilJuly 2, 2004 decreasedincreased by $1.7$6.1 million or 5%20% to $35.1$37.6 million from $36.8$31.5 million in the quarter ended AprilJuly 4, 2003. Revenues for the six months ended July 2, 2004 increased by $4.4 million or 7% to $72.7 million from $68.3 million in the six months ended July 4, 2003. The decreaseincrease in revenues for the quarter and the six months ended July 2, 2004 was primarily attributable to lowerincreased revenue from benchmarking sales

and related follow-on consulting projects, and the acquisitions of EZCommerce, a dual-shore ERP implementation company, and Beacon Analytics, Inc., a business performance management consulting company, focusing on the implementation of Hyperion software. These impacts were partially offset by a decline in Peoplesoft implementation revenues from two of our larger customers$1.6 million and $7.9 million for the quarter and six months ended July 2, 2004, respectively, due to the wind down of significant PeopleSoft implementations, partially offset by increased revenue from benchmarking sales and related follow-on consulting projects.projects at two of our larger customers. Reimbursements as a percentage of revenues during the quarters and six months ended AprilJuly 2, 2004 and AprilJuly 4, 2003 were 10% and 11%, respectively. During the first quarter and six months ended July 2, 2004, one customer had revenues greater than 5%, accounting for 9% and 10% of 2004, tworevenues, respectively. During the quarter ended July 4, 2003, three customers had revenues greater than 5%, which, in the aggregate accounted for 13%24% of revenues. InFor the comparable quarter ofsix months ended July 4, 2003 fourthree customers had revenues greater than 5%, which in the aggregate accounted for 33%26% of revenues. With respect to our two largest customerscustomer in 2004, our contracts can be cancelled for convenience within 30 days’ notice. Our projects with these customersthis customer expire on various dates ranging fromJuly 2004 to January 2005. We do not anticipate any credit and/or collection issues with these customers.this customer. As is customary with most of our significant relationships, we may be able to continue with new orand follow-on projects as

these initiatives progress into subsequent phases. However, there is no assurance that we will be able to renew these contracts. The cancellation or significant reduction in the use of services from our key customerscustomer could have a material adverse effect on our results of operations.

Project Personnel and Expenses.Project personnel costs and expenses primarily consist of salaries, benefits and incentive compensation for consultants and reimbursable expenses associated with projects. Project personnel costs and expenses were $21.5$23.2 million in the quarter ended AprilJuly 2, 2004, a decreasean increase of $4.0$1.7 million or 16%8% compared to the quarter ended AprilJuly 4, 2003. This decreaseincrease was primarily dueattributable to the reductionincrease in the number of consultants in order to balance workforce capacity with market demand for services.services partially offset by a lower average cost per consultant. Consultant headcount was 493597 as of AprilJuly 2, 2004 compared to 540469 as of AprilJuly 4, 2003. Project personnel costs and expenses were $44.7 million in the six months ended July 2, 2004, a decrease of $2.3 million or 5% compared to the six months ended July 4, 2003. This decrease was primarily attributable to a lower average cost per consultant. The average number of consultants in the six months ended July 2, 2004 was comparable to the average in the six months ended July 4, 2003 as headcount levels declined throughout the six months ended July 4, 2003 due to a decline in demand for services.

Project personnel and expenses as a percentage of revenues decreased to 61%62% in the quarter and six months ended AprilJuly 2, 2004 from 68% and 69%, respectively, in the comparable periodperiods of 2003. This decrease wasThese decreases were primarily the result of higher utilization of consultants which approximated 75%72% for the quarter ended AprilJuly 2, 2004 compared to 68%65% for the comparable quarter of 2003, and approximated 74% for the six months ended July 2, 2004 compared to 67% for the comparable period in 2003.

Selling, General and Administrative.Selling, general and administrative expenses decreased 4%increased 9% to $12.0 million in the quarter ended AprilJuly 2, 2004 from $12.5$11.0 million in the quarter ended AprilJuly 4, 2003. Selling, general and administrative expenses increased 2% to $24.0 million in the six months ended July 2, 2004 from $23.6 million in the six months ended July 4, 2003. The overall decreaseincreases in selling, general and administrative expenses waswere primarily due to our continued cost control initiatives and reduced discretionary spending. We incurred lower severance costs, professional fees and reduced headcount for back office functions. These reductions in expenses were partially offset by an increase in our benchmarking and business advisory services group related to an increased sales force and an increase in bad debt expense.recruiting expense, partially offset by lower legal fees. Selling, general and administrative expenses as a percentage of revenues were 34%32% and 35%, respectively during the quarters ended AprilJuly 2, 2004 and AprilJuly 4, 2003 and 33% and 35%, respectively, for the six months ended July 2, 2004 and July 4, 2003. These decreases were primarily attributable to the impact of fixed expenses on higher levels of revenues in 2004 as compared to 2003.

Restructuring Costs.We recorded restructuring costs of $3.7 million and $4.9 million for the quarter ended July 2, 2004 and July 4, 2003, respectively, to increase previously established reserves recorded for the closure and consolidation of facilities. Existing reserves were increased to account for higher estimated losses on the sublease of facilities as a result of lower than expected sublease rates and longer than expected time estimates to sublease facilities based on current market conditions. Also in the second quarter of 2004, the restructuring accrual was reduced by $370 thousand relating to the final settlement of a lease obligation, which was recorded as income from discontinued operations in the consolidated statement of operations for the quarter and six months ended July 2, 2004.

Stock Compensation Expense.Stock compensation expense in 2004 primarily related to the issuance ofour outstanding restricted stock units under the tender offer program, which ended on July 14, 2003. This program involved voluntary stock option exchanges for employees at a senior director level or above who had been with the Company since July 4, 2002.units. We recorded a non-cash compensation chargecharges of $575$592 thousand and $1.2 million in the quarter and six months ended AprilJuly 2, 2004 based on the vesting provisions of the restricted stock units and the fair market value of the stock on the grant date. We expect to incur approximately the same amount of stock compensation expense per quarter over the remaining vesting period of the restricted stock units which fully vest in the third quarter of 2007. In

addition, as of July 2, 2004 we had 200,499 stock options accounted under variable plan accounting for certain stock options that were not exchanged under the tender offer programpursuant to FASB Interpretation No. 28. Variable plan accounting resulted in $215a reduction of stock compensation expense of approximately $100 thousand for the quarter ended July 2, 2004 and $115 thousand of stock compensation expense for the quartersix months ended AprilJuly 2, 2004.

Income Taxes.InWe recorded an income tax benefit of $53 thousand for the first quartersix months of 2004, we recorded $43 thousand of net incomewhich represented an estimated annual 8.0% tax expenserate for 2004 for certain state and foreign taxes, which represented 4.3% of our pretaxes. The estimated annual effective tax income. Included in the net income tax expense israte includes an income tax benefit attributable to a decrease in the valuation allowance as a result of the expected utilization of tax net operating loss carryforwards.carryforwards in 2004. The liability method of accounting for deferred income taxes requires that a change in the valuation allowance for deferred tax assets be included in income tax expense or benefit for the current year. We recorded $150 thousand of net income tax expense for certain state and foreign taxes for the first six months of 2003. We did not recognize an income tax benefit for federal and state taxes for the first quartersix months of 2003 due to the establishment of a valuation allowance for the tax benefit generated on losses during that quarter.in the first six months.

In 2002, we discontinued our interactive marketing business which wewas acquired with THINK New Ideas. WeIn connection therewith, we claimed a $92.0 million worthless stock deduction for ourthe investment in THINK New Ideas in our 2002 tax return as a result of the discontinuance of THINK New Ideas. We voluntarily requested that the Internal Revenue Service (“IRS”) review this position on an expedited basis. ThisOn August 5, 2004 theCompany reached an agreement with the IRS representing the final step in the review is currently in process. Although we believe our tax position is sustainable, there is no assurancePursuant to the agreement, the Company and the IRS agreed that the IRS will agree with our conclusion orCompany was entitled to a worthless stock deduction of $77.3 million on the amountCompany’s 2002 tax return. Including this deduction, the Company has approximately $77 million of the deduction. The final resolutionnet operating loss carryforwards as of this matter could result in a deduction materially less than the amount claimed.January 2, 2004.

Liquidity and Capital Resources

We have funded our operations primarily with cash flow generated from operations and the proceeds from our initial public offering. At AprilJuly 2, 2004, we had approximately $54.9$43.2 million in cash and cash equivalents compared to $54.4 million at January 2, 2004. At AprilJuly 2, 2004 and January 2, 2004 we had $3.0 million on deposit with a financial institution as collateral for letters of credit and have classified this cash as restricted on the accompanying consolidated balance sheets. We also had marketable investments of $10.0 million at AprilJuly 2, 2004 and January 2, 2004.

Net cash provided by operating activities was $241$387 thousand for the quartersix months ended AprilJuly 2, 2004 compared to net cash used of $3.4$3.6 million during the first quartercomparable period of 2003. During the quartersix months ended AprilJuly 2, 2004, net cash provided by operating activities was primarily attributable to our net income of $967 thousand and $2.4$4.3 million of non-cash

expenses offset by a $1.4$2.9 million increase in accounts receivable and unbilled revenue, due to an increase in revenues and a $1.6 million decreasedecreases of $294 thousand in accounts payable and $545 thousand in accrued expenses and other liabilities. During the quartersix months ended AprilJuly 4, 2003, net cash used inprovided by operating activities was primarily attributable to a $5.1 million decrease in accrued expenses and other liabilities and a $1.5 million decrease in accounts payable. These effects were partially offset by a $1.7$9.6 million decrease in prepaid expenses and other assets primarily related to the $8.5 million tax refund received in the second quarter of 2003. This effect was partially offset by our net loss of $7.0 million, adjusted for $2.6 million of non-cash expenses and a $1.2$1.4 million decrease in accounts receivable and unbilled revenue and our net loss of $1.0 million adjusted for $1.4 million of non-cash expenses. Non-cash expenses included depreciation and amortization, provision for doubtful accounts and non-cash compensation expense.payable.

Net cash used in investing activities was $670 thousand$8.2 million for the quartersix months ended AprilJuly 2, 2004 compared to $278$675 thousand used during the comparative period of 2003. The uses of cash for investing activities in 2004 were primarily attributable to the purchase of $5.0$2.1 million of marketable investments, $577 thousand for purchases of property and equipment and $93 thousand$6.1 million used in deferred payments related to anthe acquisition offset by $5.0 million of proceeds from the call of marketable investments.a business. Cash used in investing activities in 2003 was mainly attributable to $273$670 thousand of purchases of property and equipment.

Net cash provided byused in financing activities was $922 thousand$3.4 million for the quartersix months ended AprilJuly 2, 2004 compared to net cash used in financing activities of $1.7$3.9 million for the comparable period of 2003. During the quartersix months ended AprilJuly 2, 2004, cash provided byused in financing activities was primarily for the repurchase of our common stock. These repurchases of $5.3 million were offset by proceeds of $1.9 million from the sale of stock as a result of exercises of stock options.options as well as the sale of stock through our employee stock purchase plan. During the quartersix months ended AprilJuly 4, 2003, cash used in financing activities was primarily for repurchases of our common stock.

On July 30, 2002, we announced that our Board of Directors approved the repurchase of up to $5.0 million of our common stock. During the second quarterquarters of 2004 and 2003, our Board of Directors approved the repurchase of an

additional $5.0 million of our common stock.stock for each of these two quarters. Under the repurchase plans, we may buy back shares of our outstanding stock from time to time either on the open market or through privately negotiated transactions, subject to market conditions and trading restrictions. As of AprilJuly 2, 2004, we had repurchased 3,550,2794,369,879 shares of our common stock at an average price of $2.16$2.98 per share. The amount of sharesIn June 2003, we repurchased to date includes 465,120 shares purchased from our president,the Company’s President, who is also a director, at $2.15 per share. We hold repurchased shares of our common stock as treasury stock and account for treasury stock under the cost method. During the third quarter of 2004, the Board of Directors approved an additional $5 million for the repurchase of our common stock thereby increasing the total program size to $20 million.

In May 2004, the Companywe purchased the US and India operations of EZCommerce Global Solutions, Inc., a business specializing in the dual-shore implementation of primarily SAP and, to a lesser extent, Oracle software. The combined purchase price for this acquisition was $9 million in cash, which includes $3.0 million of deferred payments payable in equal installments on the first and second anniversary of the purchase. In addition, approximately $3 million of contingent consideration duewill be payable over the next two years if certain earnings goals are achieved.

We currently believe that available funds and cash flows generated by operations, if any, will be sufficient to fund our working capital and capital expenditure requirements for at least the next 12 months. We may decide to raise additional funds in order to fund expansion, to develop new or enhanced products and services, to respond to competitive pressures or to acquire complementary businesses or technologies. There is no assurance, however, that additional financing will be available when needed or desired.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

At AprilJuly 2, 2004, our exposure to market risk related primarily to changes in interest rates on our investment portfolio. Our marketable investments consist primarily of short-term fixed income securities. We invest only with high credit quality issuers and we do not use derivative financial instruments in our investment portfolio. We do not believe that a significant increase or decrease in interest rates would have a material adverse impact on the fair value of our investment portfolio.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) pursuant to Rule 13a-14(c) and Rule 15d-14(c) under the Securities Exchange Act of 1934. Based upon that evaluation,

the CEO and CFO concluded that, subject to the limitations noted below, our Disclosure Controls are effective in timely alerting them to material information required to be included in our periodic SEC filings.

Changes in Internal Controls

Subsequent to the date we carried out our evaluation, there have been no significant changes in our internal controls or other factors that could significantly affect these internal controls.

Limitations on the Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgements in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Between November 2002 and January 2003, six class actions seeking unspecified damages were filed against Answerthink and certain of its current and former officers and directors alleging violations of the Securities and Exchange Act of 1934. The complaints alleged misstatements and omissions concerning, among other things, related party transactions during the alleged class period of February 8, 2000 to April 25, 2002. On January 7, 2003 the federal district court entered an order closing and consolidating these cases and any subsequently filed related cases into Druskin, et al. v. Answerthink, Inc., et al., Case No. 02-23304-CIV-GOLD. A consolidated amended complaint was filed on May 9, 2003. The Company filed a motion to dismiss the consolidated amended complaint on July 15, 2003. The court granted the Company’s motion to dismiss the consolidated and amended complaint on January 5, 2004 and allowed the plaintiffs leave to amend the consolidated amended complaint. The plaintiffs did not file an amended complaint within the time allowed by the court. On February 11, 2004, the court entered a final judgement dismissing the case against all parties with prejudice and closed the case. The time for appeal has expired and this matter is concluded.

We are involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such other matters will not have a material adverse effect on our financial position or results of operations.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

During the quarter ended July 2, 2004, the Company repurchased 819,600 shares of its common stock at a cost of approximately $5.3 million, under a $15 million repurchase program approved by the Board of Directors during July 2002 ($5 million), June 2003 ($5 million) and May 2004 ($5 million). All repurchases were made in the open market, subject to market conditions and trading restrictions. There is no expiration date on the current authorization and during the period covered by the table, no determination was made by the Company to suspend or cancel purchases under the program.

Issuer Purchases of Equity Securities

During the third quarter of 2004, the Board of Directors approved an additional $5 million for the repurchase of our common stock thereby increasing the total program size to $20 million.

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

At our Annual Meeting of Stockholders held on May 12, 2004, the following proposal was adopted by the votes specified below:

The election of two directors (Ted A. Fernandez and Alan T.G. Wix) to serve until the year 2007. The security holders elected all nominated Directors with votes cast as follows: Mr. Fernandez: 32,536,217 shares for and 8,421,054 shares withheld; Mr. Wix: 37,691,681 shares for and 3,265,590 shares withheld. There were no abstentions or broker non-votes applicable to the election of Directors. In addition to the Directors listed above that were elected at the meeting, the terms of the following directors continued after the meeting: David N. Dungan, Allan R. Frank, Richard N. Hamlin, Edwin A. Huston and Jeffrey E. Keisling.

Item 6. Exhibits and Reports on Form 8-K

(a)Exhibits

See Index to Exhibits on page 19, which is incorporated herein by reference.

The Exhibits listed in the accompanying Index to Exhibits are filed as part of this report.

(b)Reports on Form 8-K

A Current Report on Form 8-K was furnished with the Securities and Exchange Commission on February 10,April 27, 2004 in connection with the announcement of the financial results for the fourth quarter of 2003.

Two Current Reports on Form 8-K were filed with the Securities and Exchange Commission on February 17, 2004 and March 10, 2004 in connection with the adoption of the Shareholders’ Rights Plan during the first quarter of 2004.

SIGNATURES

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.

INDEX TO EXHIBITS

19