Item 1. Description of Business
BrandPartners Group, Inc. (“BrandPartners Group” or “BrandPartners”), was originally incorporated in 1984 under the name “Performance Services Group, Inc.” in the state of New York. We changed our name to “Financial Performance Corporation” in 1986, and in 2001 we were reincorporated in the state of Delaware and changed our name to BrandPartners Group, Inc. to more accurately reflect the products and services we offer. Today we operate through our wholly owned subsidiaries BrandPartners Retail, Inc. (“Brand Retail”), Grafico Incorporated (“Grafico”), Building Partners, Inc. (“Build Partners”), and BrandPartners Europe, Ltd. (“Brand Europe”), to offer to our customers the next generation retail environments for financial service companies and retail organizations.
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Brand Retail
On January 16, 2001, we purchased 100% of the common stock of Brand Retail, a New Hampshire corporation (formerly known as Willey Brothers). Brand Retail is a provider of integrated products and services dedicated to providing clients with turn-key interior, exterior, and design/build solutions and programs for financial and non-financial retailers. Brand Retail has been providing products and services to the financial and non-financial services industry throughout the United States and Canada since 1983.
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Grafico
We formed Grafico, a Delaware corporation in 2005, to provide similar services as those offered by Brand Retail with a focus on the non-standard market segment of the financial services industry. On June 30, 2007 certain assets of Grafico of nominal value were sold to its former general manager for $15,000. Grafico business operations were minimal for the period July 1, 2007 to December 31, 2007.
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Building Partners
Build Partners was incorporated in Delaware in January 2006 and provides general contracting services.
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Brand Europe
Brand Europe was formed in 2005 and has been located in London, England. Brand Europe focuses on providing similar products and services as Brand Retail to the European market. Brand Europe business operations were inactive in 2007.
BrandPartners Products and Services
BrandPartners serves an evolving industry, helping companies transform transactional environments into three-dimensional retail experiences. This customer experience is intended to retain clients, sell products and services, and builds a consistent brand identity. Our integrated solutions are designed to build the client’s brand, enhance the customer experience, and optimize retail network profitability.
BrandPartners believes that a retail space must deliver tangibly and consistently on the brand promise. We call this “Making Brands Real.” BrandPartners works with financial and other retail organizations to positively influence consumer buying behavior through brand translation, creative services, retail merchandising, retail digital networking, design/build, and strategic market intelligence.
BrandPartners’ unique offering of branded customer experiences and integrated design services, including architectural, product and creative merchandising, encompasses a large spectrum of branch design services. Architectural design services, including conceptual design, design development, construction, documentation, contract administration, and project management, have allowed BrandPartners to offer a menu of products and services to both large and small institution clients.
Working with our proven system of vendors or those of the client’s choice, our comprehensive products and services include:
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Strategic market intelligence and branch network analysis
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Environmental design, construction, and project management services
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Traditional and digital merchandising systems, logistics, distribution, and inventory management
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Point-of-sale communications, brand strategy, sales training and marketing programs
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Contract furniture
BrandPartners Business Platform
BrandPartners is a project-oriented company. We assemble internal and external resources to service our clients’ needs. Internal resources are directed by individual program managers and are shared throughout the Company. Collaboration is the key in providing seamless and efficient service to our clients.
Because of BrandPartners’ position in the retail financial services marketplace, we are able to service the needs of clients ranging from the non-standard lending market, credit unions and community banks, to the largest financial institutions. Our sales force markets our products and services to targeted companies through trade shows, direct marketing, speaking engagements, and company-sponsored events. Our collaborative teams include brand strategists, architects, designers, account managers, analysts, construction and logistical planners. Our project management skills ensure that the client’s vision becomes a physical reality. Our program management team works in conjunction with the Information Technology (IT) department via client specific web sites to communicate daily with the client from the design and planning stages through the implementation of the project.
BrandPartners offers the following services independently or as a package, dependent upon the needs of the client and of the project:
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Corporate Reconnaissance. Through interviews and discussions with the client and with market research, we work with the client to understand its history of retail development, current corporate culture, customer demographics, product strategy, overall image, and future brand objectives.
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Network Analysis/Site Analysis/Branch Typing. We analyze the client’s current retail network. This analysis covers on-site audits of locations for overall interior fitness, traffic flow, selling zones, fixture placements and design, point-of-sales messages and placements, and local demographic analysis. Branch typing helps to determine what type of products should be recommended for the network. The “Brand Blueprint” is a deliberate methodology for developing a successful brand identity and is crucial to maximizing brand equity. It is a disciplined plan that creates, designs, and communicates the intended brand perception.
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Point-of-Sale Communications. We translate the client’s branding strategy into a well-coordinated written, verbal, and physical message, which is refined and promoted to the target market through in-store communication vehicles, including:
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Point-of-sale communications
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Digital merchandising
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Marketing materials
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Advertising campaigns
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Site Analysis/Market Intelligence. Site selection is about weighing options and making the right choice to protect the significant investment in a new branch. A comprehensive assessment of the potential of a proposed expansion or current operating area, focusing on market characteristics most important to success, is used to develop a three to five year program by identifying and prioritizing the most attractive growth markets.
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Environmental Design. BrandPartners’ industry award-winning, architectural design team creates a design template that translates the attributes of the “model branch” into a master store design. Retail locations are designed to support the brand, maximize the impact of point-of-sale communications, and communicate with the customer through the appropriate brand experience.
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Project Management. We manage the implementation process, including the overall pricing of all components of the branch, hiring the subcontractors, and ensuring that the project is finished on time and on budget.
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Furniture. We supplement our projects with office furniture systems and case goods, which are often integrated in innovative ways into our programs.
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Logistics, Distribution and Inventory Management. In conjunction with our various products and services, we provide logistics, distribution, warehousing, and inventory management to our clients. In many cases, we warehouse client-owned inventory for future acquisitions or renovated branches.
Target Markets
BrandPartners’ revenues have historically been derived primarily from clients in the financial services markets. Target markets and a representative sample of clients include:
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Tier One Banks. Retail banking organizations, bank holding companies, and thrifts with more than 250 branch locations.
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Regional and Community Banks. Banking organizations and bank holding companies with between 25 and 250 branches.
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Credit Unions. Banking organizations with between 1 to 25 branches.
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Non-Bank Financial Services Companies. Companies providing financial service products to consumers and businesses that are not licensed as banks. These organizations include brokerage houses, mutual fund companies, asset management companies, insurance and mortgage companies, and tax services companies.
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Other. Other retail industries and service organizations that can use our capabilities and expertise in the retail environment, focusing on industries that have synergies and parallels to our core industry.
Suppliers/Working Capital
BrandPartners outsources most of its manufacturing and fabrication services from a variety of suppliers in many locations. We do some light production work (i.e. engraving, painting, screen printing, etc.) but do not own or operate manufacturing facilities. Most outsourcing is project specific, based upon branch locations, and the nature of the products and services provided. Since the majority of the product produced for customers is project specific, with the typical turnaround from the suppliers being timely, BrandPartners is not required to maintain a large inventory.
Backlog
The backlog consists of signed orders to be delivered in future periods and does not include any revenue recognized in the current fiscal year. For the years ended December 31, 2007, 2006 and 2005, the backlog was approximately $11 million, $19 million and $22 million, respectively.
Significant Customers
As BrandPartners is a contract/project driven company, those clients designated as “significant” (greater than 10% of consolidated revenues) varies from period to period. For the year ended December 31, 2007, one customer accounted for 16% of our revenues. For the year ended December 31, 2006, one customer accounted for 10% of our revenues, respectively. For the year ended December 31, 2005, three customers accounted for 19%, 15% and 13% of our revenues, respectively.
Employees
As of March 23, 2008, we have 123 full-time employees and no part time employees. Our employees are not represented by a union or collective bargaining unit. We believe our relations with our employees are good.
Competition
Due to the nature of BrandPartners’ business, we compete with design houses, architectural firms, consulting firms, fixture companies, and advertising agencies of varying sizes. Our product and service offerings are fragmented across many sectors, which results in a highly competitive environment. We believe that our competitive advantage is our approach and expertise across a range of products and services, touching numerous aspects of the retail system. Many of our primary competitors focus on only one type of product or service.
Where to Get More Information
Our corporate website address is http://www.bptr.com. We file annual, quarterly, and special reports; proxy statements and other information with the Securities and Exchange Commission (“SEC”). These reports are available on our website free of charge as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
Item 1A.
Item 1A. Risk Factors
You should carefully consider the following risk factors in addition to the other information included in this report. If any of these risks or uncertainties actually occurs, our business, financial condition, and results of operations could be materially adversely affected. Additional risks not presently known to us, or which we consider immaterial based on information currently available to us, may also materially adversely affect us. In this section, the terms “Brand,” “we,” “us,” and “our” refer to BrandPartners and its subsidiaries, unless the context clearly indicates otherwise.
The business of providing merchandising, design/build, creative/point of sale, furniture, and branding/marketing services to financial services institutions and traditional retailers is highly competitive. If we are not able to compete effectively, our revenues and profit margins will be adversely affected.
The consulting design services, merchandising markets, and the store build-out industry in which we operate, although fragmented, includes a large number of service providers, making our business highly competitive. Many of our competitors have greater financial, technical, and marketing resources; larger customer bases; greater name recognition; and more established relationships with their customers and suppliers than we have. Larger and better-capitalized competitors may be better able to respond to the need for technical changes, to price their services more aggressively, to compete for skilled professionals, to finance acquisitions, to fund internal growth, and to compete for market share generally.
Our current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase their abilities to address client needs. New competitors or alliances among competitors could emerge and gain significant market share. Some of our competitors may have or may develop a lower cost structure, adopt more aggressive pricing policies, or provide superior services that gain greater market acceptance than the services that we offer or develop. Furthermore, our clients may establish either strategic sourcing or centralized purchasing departments, which may aggressively pursue low cost producers at the expense of value-add firms. In order to respond to increased competition and pricing pressure, we may have to lower our prices, which would have an adverse effect on our revenues, gross margins and net profits. In addition, financial institutions may not choose to outsource their design and merchandising needs, which would have an adverse effect on our revenue growth. .
There can be no assurances that we will be successful in our efforts to expand and diversify our revenue base or enter into new partnerships to further expand our business.
Because our business and revenues are contract driven, we are not able to maintain a steady revenue stream. As such, we continue to seek acquisitions/partnerships, expand and diversify our customer base in our core industry, and pursue new growth opportunities in other vertical markets. We may fund such acquisitions or other transactions through the issuance of equity or debt securities, with indebtedness or cash, through other forms of compensation and incentives, or any combination thereof. If we identify an appropriate acquisitions candidate or other business transaction, we may need to seek additional financing, although no assurances can be given that we will be able to expand our business to other vertical markets, find suitable acquisition/partners, or obtain additional financing if necessary, on favorable terms or at all.
A significant or prolonged economic downturn could have a materially adverse effect on our revenues and profit margin.
Our results of operations are affected directly by the level of business activity of our clients, which in turn, is affected by economic activity in general. If there were a continued economic downturn, we might experience a reduction in the growth of new business, as well as a reduction in existing business, which may have an adverse effect on our business, financial condition, and the results of operations. We may also experience decreased demand for our services as a result of postponed or terminated outsourcing, budget reductions, reductions in the size of our clients’ design/build and retail merchandising needs, or mergers and/or consolidations in the financial services industry. Reduced demand for the services that we offer could also increase price competition within our industry by our competitors, which could further diminish our revenues.
We derive a large portion of our revenues from the financial services industry, which has consolidated in recent years, and if it continues to consolidate, we may be adversely affected by a reduction in available market share.
The financial services industry, which we serve, has experienced a number of mergers and acquisitions in recent years. While we may experience a short-term gain in the demand for our products and services as a result of mergers and consolidations, long term, we may lose existing clients by way of the merger activity as a result of a reduction in available market share, which could adversely affect our revenues.
The profitability of our engagements with clients may not meet our expectations.
There are a number of variables, some of which are beyond our control that go into determining the profitability of a particular project we undertake. Unexpected costs from suppliers or delays encountered in our projects could make our outsourcing contracts or consulting engagements less profitable than anticipated. When making proposals for outsourcing or consulting contracts, we estimate the costs associated with such engagements. Any increased or unexpected costs of unanticipated delays in connection with the performance of these engagements, including delays caused by factors outside our control, could have an adverse effect on our profit margin. In the event we are unable to meet completion schedules, we may experience payment penalties with our clients reducing the profitability of an engagement.
Additionally, we may also be subject to cost overruns as a result of delays beyond our control. Cost overruns or early contract terminations could cause our business to be less profitable than anticipated.
In connection with some of our design/build construction projects, we may experience delays in receiving final certificates of occupancy, which might result in payment delays by our clients. From time to time, we may also encounter changes in construction and building codes that might increase the costs of a long-term build-out project, which we may be unable to pass along to a client.
Our clients typically retain us on a contract engagement by contract engagement basis, rather than under exclusive long-term contracts. Large client projects may involve multiple engagements, and locations, and there is a risk that a client may not choose to retain us or may cancel or delay additional stages of a project. These terminations, cancellations, or delays could result from factors unrelated to our work product or to the progress of the project, such as the business or financial condition of the client, or general economic conditions. When engagements are terminated, we lose the associated revenues, and we may not be able to eliminate all of the associated costs or redeploy the affected employees in a timely manner to minimize the negative impact on profitability.
The loss of a significantly large client or several clients could have a materially adverse effect on our revenues.
Although our client relationships are often on a project-by-project basis, the loss of a significantly large client or several clients could adversely impact our revenues and profitability. Over the past three (3) completed fiscal years, we have derived at least ten (10%) percent of our revenues from at least one or more significant clients. Given the amount of time needed to develop new clients, there is no assurance that we would be able to promptly replace the revenues lost if a significantly large client, or several clients terminated our services.
In order to grow our business, we may need to do so in part by acquisitions, which may be difficult to integrate or manage with our existing businesses, which may harm our financial results or reputation in the marketplace.
Because of the nature of our business and the market we serve, our expansion and growth may be dependent in part on our ability to make acquisitions of similar companies, or companies that provide synergy with our business. The risks we face related to acquisitions include:
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Overpaying for acquired businesses
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Facing integration challenges
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Having difficulty in finding appropriate acquisition candidates
We may pursue acquisitions in the future, which may subject us to a number of risks, including:
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Diversion of management attention;
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Amortization and potential impairment of intangible assets, which could adversely affect our reporting results;
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Inability to establish uniform standards, controls, procedures, and policies;
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Inability to retain the acquired company’s clients;
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Exposure to legal claims for activities of the acquired business prior to acquisition; and
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Inability to effectively integrate the acquired company and its employees into our organization.
We may not be successful in identifying appropriate acquisition candidates or in consummating acquisitions on terms acceptable or favorable to us. We may not succeed in integrating or managing acquired businesses, or in managing the larger company that could result from these acquisitions. Client dissatisfaction or performance problems, as a result of integration or management difficulties or otherwise, could have an adverse impact on our reputation. In addition, any acquired business could significantly underperform relative to our expectations.
Our business will be negatively affected if we are not able to keep pace with marketing changes and the needs of our clients.
Our industry continues to evolve, and traditional revenue streams continue to be modified. Our future success depends, in part, on our ability to develop and implement design and marketing plans that anticipate and keep pace with rapid and continuing changes in industry standards and client preferences. We may not be successful in anticipating or responding to these developments on a timely and cost-effective basis, and our ideas may not be accepted in the marketplace. Also, marketing plans developed by our competitors may make our service non-competitive or obsolete. Any one of these circumstances could have a materially adverse effect on our ability to obtain and complete important client engagements.
Our business is also dependent, in part, upon continued growth in business by our clients and prospective clients, and our ability to deliver innovative design and marketing concepts to our clients. The effort to gain new clients may require us to incur significant expenses. If we cannot offer innovative, cost-effective approaches as compared to our competitors, we could lose market share.
If our clients or third parties are not satisfied with our services, we may face damage to our professional reputation, or legal liability and payment delays.
We depend to a large extent on our relationships with our clients and our reputation for high-quality outsourcing and consulting services. As a result, if a client is not satisfied with our services or products, it may be more damaging to our business than in other businesses. Moreover, if we fail to meet our contractual obligations, we could be subject to legal liability, or the loss of client relationships.
Clients and third parties, who are dissatisfied with our services, or who claim to suffer damages caused by our services, may bring lawsuits against us. Defending lawsuits arising out of any of our services could require substantial amounts of management attention, which could adversely affect our financial performance. In addition to the risks of liability exposure and increased costs of defense and insurance premiums, claims may produce publicity that might hurt our reputation and business.
The nature of our design/build work involves the use of a large number of subcontractors, which in turn, could have an adverse impact on the profitability of any given project.
In the event that the implementation or design or a project is delayed as a result of a dispute with a subcontractor or client, payment may be delayed and cause a cash flow deficit in our business. Additionally, subcontractors and vendors could file liens for materials and services that could create client problems that could delay payment.
Our ability to schedule and rely upon these subcontractors for the timely and proper completion of a project is essential. The failure of a subcontractor to timely or properly perform a job on a project could have a ripple effect that might adversely affect our revenue stream.
The loss of key employees could damage or result in the loss of client relationships and adversely affect our business.
Our success largely depends upon the business generation capabilities and project execution skills of our employees. In particular, our employees’ personal relationships with our clients are an important element of obtaining and maintaining client engagements. Losing employees who manage substantial client relationships, or who possess substantial experience or expertise could adversely affect our ability to secure and complete engagements, which could adversely affect our results of operations. We have non-compete agreements with certain employees. However, the enforceability of these agreements may be limited because of the limitations that have restricted their enforceability due to court decisions in various states.
In addition, if any of our key employees were to join an existing competitor or form a competing company, some of our clients could choose to use the services of that competitor instead of our services. Clients or other companies seeking to develop in-house services similar to ours also could hire our key employees. Such hiring would not only result in our loss of key employees, but might also result in the loss of a client relationship or a new business opportunity.
If we fail to establish and maintain alliances for developing, marketing, and delivering our services, our ability to increase our revenues and profitability may suffer.
Our business depends, in part, on our ability to develop and maintain alliances with businesses, such as banks and financial services firms and companies, in order to develop, market, and deliver our services. If our strategic alliances were to be discontinued, or if we have difficulty developing new alliances, our ability to increase or maintain our client base may be substantially diminished.
Increases in labor and material costs could result in a decline in profitability.
We are subject to cost increases for both labor and materials, and while we have a good relationship with our employees, we cannot be certain that we will not face an increase in our labor costs, or an increase in the labor costs of our vendors and subcontractors that perform services on our projects. Additionally, we are subject to material price increases that can be imposed on us during or after we have submitted a bid price for a project, and while we attempt to pass along cost increases for labor and materials, there is no assurance that we will be able to do so.
An increase in borrowing costs may have an adverse impact on our core business.
In the event of any increase in the prime and federal funds lending rates, our clients may postpone or eliminate new projects, as well as related consulting services, which could have an adverse effect on our resources and profit.
The price of our shares may be adversely affected by the public sale of a significant number of the shares eligible for future sale.
In the past, we have raised money through the sale of shares of our common stock or derivative securities that may convert into shares of our common stock at a discount to the current market price. Such arrangements have included the private sale of shares to investors on the condition that we register such shares for resale by the investors to the public. These arrangements have taken various forms, including private investments in public equities or “PIPE” transactions, and other transactions.
We will continue to seek financing on an as-needed basis on terms that are negotiated in arms-length transactions. Moreover, the perceived risk of dilution may cause our existing shareholders and other holders to sell their shares of stock, which would contribute to a decrease in our stock price. In this regard, significant downward pressure on the trading price of our stock may also cause investors to engage in “short” sales, which would further contribute to significant downward pressure on the trading price of our stock.
We may be required to repurchase certain warrants or underlying warrant shares.
Our subordinated lender, Corporate Mezzanine II, L.P., as part of our financings, was issued 405,000 warrants to purchase 405,000 shares of our common stock at $0.01 per share, an additional 10,000 warrants to purchase 10,000 shares at $0.24 per share, and an additional 250,000 warrants to purchase 250,000 shares at $0.26 per share. The warrants, which expire on October 22, 2011, contain both anti-dilution price and share equivalent protection, which is triggered by our issuing shares or warrants below the market value price of our stock on the date of issuance. The holder of the warrants and/or underlying warrant shares has the right to “put” the warrant or underlying shares to us and we are required to repurchase the warrants and/or warrant shares.
In the event we do not have sufficient available funds to repurchase the warrants, we may be required to issue a three-year promissory note with interest at 18% per annum as payment for the warrants or shares.
We have incurred losses in the past, and we may incur losses in the future.
We have incurred losses in a majority of our fiscal years since our inception. This past fiscal year, we had a loss of approximately $12,269,000 prompted primarily by an impairment charge to Goodwill of $12,000,000. Depending upon business cycles and other factors beyond our control, we may experience losses in the future, or in the event of a quarterly profit, profits may not be sustainable.
We may require additional financing to sustain our business operations or implement business initiatives in the future.
Although we believe that we currently have sufficient funding in place to sustain our present business operations for the foreseeable future, we may continue to seek additional financing through the issuance of equity or debt. Additionally, if we experience any changes in the revenues we derive from our products and services, we may require additional funding to maintain our current business operations. Unless we are able to generate additional revenue from our current business, we will require additional funds to implement any business initiatives we may seek to realize in the future.
We are dependent upon our current credit facility to maintain our operations.
We are party to a commercial loan agreement with a lender through which we have a credit facility comprised of a term loan, whose balance at December 31, 2007 was approximately $278,000, and a revolving line of credit of up to $5,000,000. All of the assets of our wholly owned subsidiaries are pledged to secure the credit facility, which requires us to make principal and interest payments over the life of the facility. The credit facility imposes certain loan covenants on us. We have in the past been unable to satisfy these covenants. In the event we fail to satisfy the covenants or if we do not receive a waiver from our lender or a modification of same, we would be in default under our commercial loan agreement, and our lender could call the full outstanding facility due, which would have a materially adverse effect on our ability to maintain our business operations.
We are subject to a subordinate financing arrangement that requires quarterly interest payments and matures in October 2009, at which time we will be required to make a payment of approximately $6.8 million to the lender.
We are party to a subordinate loan agreement with Corporate Mezzanine II, L.P., secured by a pledge of all our assets. As of March 28, 2008, the balance of the note was approximately $6.4 million. The facility requires quarterly interest payments and matures in October 2009, at which time a balloon payment of approximately $6.8 million will be due. If we are unable to make payment on this facility at any time or at the maturity date of same, of if we are unable to abide by the financial covenants of the facility, we may be deemed in default of the subordinate loan agreement. There is no assurance that we will have adequate funds or will be able to make arrangements for financing to satisfy this facility when it matures in 2009. Failing to have adequate funds to satisfy the facility will result in a default.
Shareholders of our common stock may face dilution of their holdings.
The exercise of some or all of our outstanding warrants and stock options would dilute the then existing stockholders’ ownership of common stock, and any sales in the public market of the common stock issuable upon such exercise could adversely affect prevailing market prices for our common stock. In addition, the existence of a significant number of outstanding options and warrants could depress the price of our common stock. Moreover, the terms upon which we would be able to obtain additional equity capital could be adversely affected because the holders of such securities can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable than those provided by such securities.
Our common stock is subject to the “penny stock’ rules of the SEC, and the trading marketing in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
Shares of our common stock are “penny stocks” as defined in the Exchange Act, which are traded in the Over-the-Counter Market on the OTC Bulletin Board. As a result, investors may find it more difficult to dispose of or obtain accurate quotations as to the price of the shares of the common stock being registered hereby. In addition, the “penny stock” rules adopted by the Commission under the Exchange Act subject the sale of shares of our common stock to certain regulations which impose sales practice requirements on brokers/dealers. For example, brokers/dealers selling securities must, prior to effecting the transaction, provide their customers with a document that discloses the risks of investing in such securities. Included in this document are the following:
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The bid and offer price quotes in and for the “penny stock” and the number of shares to which the quoted prices apply.
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The brokerage firm’s compensation for the trade.
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The compensation received by the brokerage firm’s salesperson for the trade.
In addition, the brokerage firm must send the investor:
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A monthly account statement that gives an estimate of the value of each “penny stock” in the investor’s account.
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A written statement of the investor’s financial situation and investment goals.
Legal remedies, which may be available to you as an investor in “penny stocks” are as follows:
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If a “penny stock” is sold to an individual in violation of the rights listed above, or other federal or states securities laws, the person may be able to cancel the purchase and receive a refund
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If the stocks are sold in a fraudulent manner, the individual may be able to sue the persons and firms that caused the fraud for damages.
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If an arbitration agreement was signed, however, the claim may have to be pursued through arbitration.
If the person purchasing the securities is someone other than an accredited investor or an established customer of the broker/dealer, the broker/dealer must also approve the potential customer’s account by obtaining information concerning the customer’s financial situation, investment experience, and investment objectives. The broker/dealer must also make a determination as to whether the transaction is suitable for the customer, and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in such securities. Accordingly, the Commission’s rules may limit the number of potential purchases of the shares of our common stock.
Our certificate of incorporation places limitations on the liability of our directors.
Our certificate of incorporation includes a provision to eliminate, to the fullest extent permitted by the Delaware General Corporation Law as in effect from time to time (the “DGCL”), the personal liability of our directors for monetary damages arising from a break in their fiduciary duties as directors. In addition, our certificate of incorporation and by-laws include provisions requiring us to indemnify to the fullest extent permitted by the DGCL any persons made party to or threatened to be made a party to any action, suit or proceeding by reason of the fact that such person is or was a director or officer of the Company, or is or was serving at our request as a director or officer of another corporation or entity, against all expense, liability or loss incurred in connection therewith. Such provisions also permit us, to the extent authorized by our Board of Directors, to indemnify and grant rights to indemnification to our employees and agents to the fullest extent such indemnification is available to officers and directors.
Certain provisions in our certificate of incorporation and by-laws may make it more difficult to effectuate change in the composition of our Board.
Certain provisions in our certificate of incorporation and by-laws may make it more difficult for holders of a majority of the outstanding shares of common stock to change the composition of the Board of Directors and to remove existing management where a majority of the stockholders may be dissatisfied with the performance of the incumbent directors or otherwise desire to make changes.
Item 1B.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2.
Item 2. Description of Property
BrandPartners’ executive offices, as well as the offices for Brand Retail and Building Partners, are located in Rochester, New Hampshire, where we lease a facility of approximately 82,000 square feet. The annual rent for this location is approximately $315,000. The lease for this location expires in August of 2011. We also lease a warehouse, which houses our production facilities and our inventory, in Rochester, New Hampshire of approximately 72,000 square feet at an approximate annual rent of $290,000. This lease expires also in August 2011.
We anticipate that we will be able to extend these leases on terms satisfactory to us, or, if necessary, locate substitute facilities on acceptable terms. Our present facilities are deemed adequate for our business for the foreseeable future.
Item 3.
Item 3. Legal Proceedings
None
Item 4.
Item 4. Submission of Matters to a Vote of Securities Holders
None
PART II
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters
The Company’s common stock is currently quoted on the Over-the-Counter Bulletin Board under the symbol “BPTR.OB.” The following table shows for the periods indicated, the high and low reported sales prices per share for the common stock of the Company as reported by the Over-the-Counter Bulletin Board.
As of March 12, 2008, we had approximately 2,100 holders of record of our common stock.
To date, we have not paid any dividends on our common stock, nor do we anticipate paying dividends on our common stock for the foreseeable future. Any payment of future cash dividends and the amount thereof will be dependent upon our earnings, financial requirements, and other factors deemed relevant by our Board of Directors.
The following table sets forth information as of March 27, 2008, related to Company compensation plans as approved by the shareholders.
Item 6.
Item 6. Selected Financial Data
* Income (loss) per share from continuing operations is based on basic number of shares and does not include dilution.
The financial information for 2004 does not include the gain on forgiveness of debt.
Item 7.
Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition
OVERVIEW
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand BrandPartners Group, Inc. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes (“Notes”). Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information with respect to our plans and strategy for our business and expected financial results, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” under Item 1A for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
We assist our clients in providing a positive and dynamic retail experience to their customers and sell related products and services to the retail services marketplace, primarily to financial services companies in the United States. We operate wholly owned subsidiaries [BrandPartners Retail, Inc. (“Brand Retail”); Building Partners, Inc. (“Build Partners”); Grafico Incorporated (“Grafico”); and BrandPartners Europe, Ltd. (“Brand Europe”)], although only Brand Retail, Build Partners and Grafico are currently active. BrandPartners is a service company challenged with meeting the needs of its clients to produce an environment, which creates an experience maximizing the client’s branded identity, and which provides the client’s customers with the messages and services so that the customer is fully aware of and can utilize the client’s product offerings.
As part of the initial contact with the client, an analysis of the client’s current locations may be required. This analysis may include the effectiveness of the client’s current brand, the placement of current marketing materials, overall interior fitness, traffic flow, and selling zones. The client may wish to create an entirely new environment, which may involve changing the branding identity, and updating the architectural and interior design. Marketing materials may also be assessed as to their effectiveness and the alignment with the branding message.
Due to the acquisition and merger activity in the financial services sector, the lack of warehouse facilities for many of our clients, and to quantity/cost ratios of merchandising fixtures and collateral, BrandPartners also provides after-the-sale services to many of our clients. Clients frequently purchase additional inventory to provide for future needs, with BrandPartners providing warehousing and fulfillment services to bring the client’s inventory to its locations as requested.
Our revenue has fluctuated historically due to the project nature of BrandPartners’ larger contracts. We have sought to expand our market focus to include firms outside the financial services marketplace to provide more consistent revenue. To take advantage of new market opportunities, we continue to invest in research and development for new products and in existing products that we believe can contribute significantly to our long-term growth.
SIGNIFICANT ACCOUNTING POLICIES
Our financial statements and accompanying notes are prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Actual results may differ from these estimates.
Our critical accounting estimates include:
1.
Collectibility of accounts receivable
2.
Valuation of goodwill and long-lived assets
3.
Costs and billings on uncompleted contracts
4.
Income taxes
Revenue Recognition
BrandPartners records revenue using the accounting method appropriate to the product and/or service being delivered. Management primarily uses the percentage-of-completion method, based upon actual costs incurred to date on such contracts. Contract costs include all direct materials, labor, and subcontractor costs. Anticipated losses are provided for in their entirety without reference to percentage-of-completion. Revenue on those products and services, which are not delivered as part of a larger project, are recognized as they are shipped or delivered, depending upon the nature of the product and/or service. General and administrative expenses are accounted for as current period charges, and therefore, are not included in the calculation of the estimates to complete.
Accounts Receivable
Periodically, we review accounts receivable to assess its estimates of collectibility. BrandPartners provides valuation reserves for bad debts based on specific identification of likely and probable losses. In addition, BrandPartners provides valuation reserves for estimates of aged receivables that may be written off, based upon historical evidence. These valuation reserves are periodically re-evaluated and adjusted as more information about the ultimate collectibility of accounts receivable becomes available.
Goodwill and Long-Lived Assets
On at least an annual basis we evaluate our goodwill and long-lived assets for impairment or whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. In assessing recoverability, management must make certain assumptions regarding estimated future cash flows and other factors to determine the estimated fair value of these assets.
During the fourth quarter of 2007, using the estimated fair value of its business operations, management recorded a non-cash impairment charge to the carrying value of its goodwill of $12 million within the statement of operations. We did not record an impairment charge for its goodwill and long-lived assets during each of the years ended December 31, 2006 and 2005.
Income Taxes
SFAS No. 109, Accounting for Income Taxes, establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are:
·
Recognition of the amount of taxes payable or refundable for the current year
·
Recognition of deferred tax liabilities and assets for future tax consequences of events that have been recognized in an entity’s financial statements or tax returns
Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position, results of operations, or cash flows.
Results of Operations
Year Ended December 31, 2007 Compared to Year Ended December 31,
Revenues. Revenues from operations decreased approximately $8.7 million or 17% for the twelve months ended December 31, 2007. The decrease was due to various projects that were anticipated to close with prospective clients in the community banking market were either put on hold or lost.
Cost of Revenues. Cost of revenues decreased 21% or approximately $9 million primarily due to lower revenues in 2007 versus 2006. In addition, due to the change in the product and services mix, our cost of revenues as a percentage of revenue was 76% in 2007as compared to 81% for the year ended December 31, 2006.
Selling, General and Administrative Expenses. SG&A expense amounted to approximately $9.4 million in 2007 versus $11.0 million in 2006, a decrease of approximately $1.6 million or 15%. The reduced SG&A expense was principally due to the implementation in 2007 by management of a cost savings initiative program. This program resulted in reduced costs including compensation (approximately $600,000), professional fees (approximately $300,000) and other general overhead costs.
Goodwill impairment. In we recognized a $12 million non-cash impairment charge related to Goodwill.
Interest Expense. Interest expense decreased approximately $165,000 or 11% for the twelve months ended December 31, 2007 due to a lower level of average outstanding borrowings in versus 2006.
Income Taxes. We incurred a loss for the years ended December 31, 2007 and 2006, we did not accrue Federal income taxes. The expense in 2007 related to state taxes, whose amount is not based upon net income.
Loss. The net loss for the year ended December 31, 2007 of approximately $12,269,000 compares to a loss of $2.3 million in 2006, a negative change of approximately $9.9 million.
The net loss for 2007 was the result of the following:
·
$12 million non-cash Goodwill impairment charge
·
Decrease in sales to community banks and credit unions
·
Offset by a decrease in interest expense
·
Offset by decrease in selling, general and administrative expenses
Year Ended December 31, 2006 Compared to Year Ended December 31,
Revenues. Revenues from operations increased approximately $440,000 or 1% for the twelve months ended December 31, 2006. The increase was due to:
·
Increase in sales to community banks and credit unions
·
Offset by lower sales to larger financial institutions
Cost of Revenues. Cost of revenues increased 13% or approximately $5.0 million, which due to the product and services mix, resulted in a cost of revenues as a percentage of revenue of 81% in 2006 versus 72% in 2005.
Selling, General and Administrative Expenses. SG&A expense amounted to approximately $11.0 million in 2006 versus $11.2 million in 2005, a decrease of approximately $200,000 for 2006. This decrease was due to the following:
·
Decrease in sales and marketing expenses of approximately $750,000
·
Decrease in insurance expense of approximately $100,000
·
Offset by an increase in salaries and benefits of approximately $230,000
·
Offset by an increase in outside services expense to of approximately $230,000
·
Offset by an increase in depreciation expense of approximately $100,000
Interest Expense. Interest expense increased approximately $437,000 or 41% in 2006 versus 2005, primarily due to to higher average levels of debt in 2006 and to an increase in the average interest rates.
Income Taxes. We incurred a net loss of approximately $2.3 million in 2006, we did not record an income tax provision. This resulted in a net change of approximately $600,000 when compared to December 31, 2005.
Net Income (Loss). The net loss in 2006 of approximately $2.3 million versus net income in 2005 of approximately $1.9 million resulted in a negative change of approximately $4.2 million or 221%.
Liquidity and Capital Resources
As of December 31, 2007, we had negative working capital (current assets less current liabilities) of approximately $2.2 million, and a working capital ratio (current assets to current liabilities) of approximately .77 to 1. At December 31, 2006, we had negative working capital of approximately $2.4 million and a working capital ratio of .81 to 1. This change in working capital arises primarily from the decrease in accounts payable and accrued expenses.
Cash flows provided by (used in) operating activities were approximately ($1,036,000), $761,000 and $372,000 for the years ended December 31, 2007, and 2005, respectively. In 2007, cash flows were provided by cash received for the payment of accounts receivable and the reduction in costs and estimated earnings in excess of billings. This was offset by a reduction in accounts payable and accrued expenses. In 2006, cash flows were provided by cash received for the payment of accounts receivable and the increase in accounts payable and job costing. In 2005, cash flows were provided by a reduction in inventory and an increase in accounts payable offset by a reduction in accounts receivable. The aggregated changes in the Cost in Excess of Billings and Billings in Excess of Cost accounts increased cash by approximately $731,000 in 2007, increased cash by $1.8 million in 2006 and decreased cash by $3.0 million in 2005. These accounts are used to track the timing differences between revenue recognition and invoicing, and are discussed in more detail in Note E in the attached notes to the financial statements.
We used cash flows to principally fund the acquisition of property and equipment amounting to approximately $194,000, $548,000 and $693,000 during the years ended December 31, 2007, 2006 and 2005, respectively.
In our cash flows from financing activities were principally provided from additional net short-term borrowings of $1,348,000 and additional long-term borrowings of $251,000, partially offset by payments on long-term debt of $688,000. In 2006 long-term debt payments of $675,000 were partially offset by additional long-term borrowings of $386,000 and additional short-term borrowings of $63,000, resulting in a net decrease in cash of approximately $225,000. Repayment of the prior credit facility offset by new long-term debt borrowings resulted in net cash usage of approximately $2.1 million for financing activities in 2005.
While we believe that our cash balances with the funds available under our existing credit facilities will be sufficient to meet our operating and recurring cash needs for the calendar year 2008, funds for retirement of debt, acquisitions, or other strategic initiatives may require the raising of additional funds.
We have not paid dividends on our common stock. In addition, due to servicing our debt obligations, we have no intention to pay any dividends in the foreseeable future.
Our material commitments as regards capital resources consist primarily of leases for office facilities under operating lease agreements. Future minimum payments under these leases are included in Note N of the accompanying consolidated financial statements.
Recently Passed Legislation
Sarbanes-Oxley. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, referred to herein as the Act, which immediately impacts Securities and Exchange Commission registrants, public accounting firms, lawyers and securities analysts. This legislation is the most comprehensive securities legislation since the passage of the Securities Acts of 1933 and 1934. It has far reaching effects on the standards of integrity for corporate management, board of directors, and executive management. We do not expect any material adverse effect on our business as a result of the passage of this legislation. We were in compliance with the Act as of December 31, 2007.
Refer to management’s certifications contained elsewhere in this report regarding our compliance with Sections 302 and 906 of the Act.
Recently Issued Accounting Standards
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115," which is effective for fiscal years beginning after November 15, 2007. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option is elected would be reported in earnings. We have evaluated the new statement and have determined that it will not have a significant impact on the determination or reporting of our financial results.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" (SFAS 141(R)), which replaces SFAS No. 141, "Business Combinations." SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted. We are currently evaluating the effects, if any, that SFAS 141(R) may have on our financial statements and believe it could have a significant impact if business combinations are consummated. However, the effect of which is indeterminable as of December 31, 2007.
In December 2007, the FASB issued Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51." This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. This statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. It also amends certain of ARB No. 51's consolidation procedures for consistency with the requirements of SFAS 141(R). This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. We are currently evaluating this new statement and anticipate that the statement will not have a significant impact on the reporting of our results of operations.
In March 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The company is currently evaluating the impact of adopting SFAS. No. 161 on its financial statements.
Item 7A.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk
The Company’s Debt Facility with the $2,000,000 term note and revolving line of credit expose the Company to the risk of earnings or cash flow loss due to changes in market interest rates. The Facility accrues interest at the Prime Rate or at LIBOR plus an applicable margin.
The table below provides information on the Company’s market sensitive financial instruments as of December 31, 2007:
Holding Company and Operating Subsidiaries
We conduct our business through our wholly owned subsidiaries (Brand Retail, Grafico, Build Partners). Grafico was inactive for the last 6 months of 2007. We have relied and continue to rely on cash payments from our operating subsidiaries to, among other things, pay creditors, maintain capital, and meet our operating requirements. Regulations, legal restrictions, and contractual agreements could restrict any needed payments from our present subsidiaries and any other operating subsidiaries we may subsequently acquire. If we were unable to receive cash funds from any of our operating subsidiaries, our operations and financial condition would be materially and adversely affected.
Stock Price Fluctuations
The market price of our common stock has fluctuated significantly and may be affected by our operating results, changes in our business and management, changes in the industries in which we conduct our business, and general and market conditions. In addition, the stock markets commonly experience price and volume fluctuations. These fluctuations have affected stock prices of many companies without regard to their specific operating performance. The price of our common stock may fluctuate significantly in the future.
Inflation
We do not believe that inflation has had a material effect on the Company’s results of operations.
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts, but rather reflect the Company’s current expectations concerning future results and events. The words “believes,” “anticipates,” “expects,” and similar expressions, which identify forward-looking statements, are subject to certain risks, uncertainties and factors, including those which are economic, competitive, and technological, that could cause actual results to differ materially from those forecast or anticipated. Such factors include, among others:
·
The continued services of James Brooks as Chairman of the Board and Chief Executive Officer of BrandPartners Group and other key senior management members.
·
Our ability to identify appropriate acquisition candidates, finance and complete such acquisitions and successfully integrate the acquired businesses
·
Changes in our business strategies or development plans
·
Competition
·
Our ability to grow within the financial services industry
·
Our ability to successfully penetrate other markets
·
General economic and business conditions, both nationally and in the regions in which we operate
·
Our ability to pass vendor cost increases on to our customers
Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of the unanticipated events. Readers are also urged to carefully review and consider the various disclosures made by the Company in this report, as well as the Company’s periodic reports on Form 10-K, Form 10-Q, and other filings with the Securities and Exchange Commission.
Item 8.
Item 8. Financial Statements
The audited, consolidated financial statements of the Company for the years ended December 31, 2007, 2006 and 2005 are included within this Annual Report on Form 10-K.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We have established and maintain disclosure controls and procedures that are designed to ensure that material information relating to us and our subsidiaries required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's (“SEC”) rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief accounting officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the chief executive officer and chief accounting officer concluded that our disclosure controls and procedures were effective as of the date of such evaluation to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our chief executive and chief financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:
§
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
§
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorizations of our management and directors; and.
§
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. However, these inherent limitations are known features of the financial reporting process. It is possible to design into the process safeguards to reduce, thought not eliminate, the risk that misstatements are not prevented or detected on a timely basis. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the company.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on this assessment, our management concluded that, as of December 31, 2007, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation and presentation of financial statements for external purposes in accordance with generally accepted accounting principles.
Change in Internal Control Over Financial Reporting
There were no changes in the our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
In March 2008 the Company negotiated an extension of the credit facility with a commercial lender for the Revolving Line of Credit to April 30, 2009.
In March 2008 the Company negotiated an extension of the maturity date of the subordinated promissory note to October 22, 2009. In addition, the Company received an adjustment to certain of the financial covenants.
Part III
Item 10.
Item 10. Directors, Executive Officers of the Registrant and Corporate Governance
Name
Age
Position
Term
Expiration
Chairman of the Board,
James F. Brooks
Chief Executive Officer and interim
Chief Financial Officer
Richard Levy
Director
J. Weldon Chitwood
Director
Clifford D. Brune
Director
Set forth below is information relating to the business experience of each of the directors and executive officers of the Company
James F. Brooks joined the Company’s operating subsidiary, BrandPartners Retail, Inc., as Chief Operating Officer in June 2002. Mr. Brooks was elected Interim President of the Company in September 2003 and was appointed Chief Executive Officer in October 2003, and President and Secretary of the Company in August 2004. He was appointed Chairman of the Board in August 2006. Mr. Brooks has held senior management positions with subsidiaries of major international corporations and start-up companies. Prior to June 2002, Mr. Brooks was a consultant with Getzler & Co., a national management and financial consulting firm specializing in corporate turnaround and restructuring. From 2000 through March 2001, he was Senior Vice President of Cityspree, Inc., an offline and online start-up company that offered local businesses an innovative, barter-based marketing model via gift certificate auctions on e-Bay and other auction oriented web sites. From 1998 to 1999, Mr. Brooks served as the Vice President, North and South America, of acquisitions and development for Swissotel, a subsidiary of Swissair. From 1996-1997, Mr. Brooks was a co-founder of Sorbak, Inc., a wholesale and retail franchisee of a national chain focused on ergonomic and back care products. From 1989 to 1995, Mr. Brooks served as Vice President, North America, of acquisitions, development, and asset management for Meridien Hotels, a subsidiary of Air France. Mr. Brooks graduated with a B.A. cum laude in 1984 from Connecticut College, and has an M.B.A. from the Harvard Business School, awarded in 1989.
Clifford D. Brune, C.P.A. was appointed a Director of the Company in December 2005. At that time, Mr. Brune was also appointed to the Company’s Compensation and Audit Committees and serves as the Chairman of both committees. He was elected as a Class II Director of the Company in June 2006. Mr. Brune was previously employed by the Company from September 2004 through January 2005, and currently serves as a consultant to the Company. He has acted in such capacity from time to time since October of 2003. Mr. Brune has been a consultant to various public and private companies with respect to organizing growth and restructuring since 1999. Mr. Brune, formerly with Coopers & Lybrand, is a Certified Public Accountant, and is a member of the AICPA with over 25 years of experience in working with public companies. He received a BS degree in Accounting and Finance from the University of South Carolina.
J. Weldon Chitwood has been a Director of the Company since October 2003 and served as corporate secretary of the Company from November 2003 through April 2004. He was formerly a managing partner of Redwood Grove Capital Management, an institutional investor based in San Francisco and New York, and served as managing partner. Prior to his service with Redwood Grove Capital Management, Mr. Chitwood spent sixteen years with Shaw Industries, preceding its acquisition by Berkshire Hathaway in January 2001. While with Shaw Industries, Mr. Chitwood was responsible for the turnaround of five different businesses in wholesale, international, and commercial contracting. Mr. Chitwood attended the University of Georgia and obtained a degree in economics.
Richard Levy has been a director of the Company since April 1994 and was Secretary of the Company from 1994 through August 2001. Since February 2007, Mr. Levy has been with Silverstein Properties, Inc., owners of property in Manhattan, including the World Trade Center properties. From October 2000 Mr. Levy was a Senior Managing Director of Insignia/ESG, a real estate management and brokerage firm, until the company merged with CB Richard Ellis, where Mr. Levy was employed as a Senior Vice President. From March 1998 to October 2000, Mr. Levy was a Senior Vice President of Tishman Real Estate Services, a real estate consulting and brokerage firm, and was employed in various positions with the firm for almost 40 years.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 2007, the Board of Directors met four (4) times with all incumbent Directors attending in excess of 75% of the meetings. Additionally, during the fiscal year ended December 31, 2007, the Company’s Audit Committee met four (4) times and its Compensation Committee met three (3) times.
Audit Committee
The Audit Committee is currently comprised of Clifford D. Brune, a licensed Certified Public Accountant, who serves as Chairman. Additionally, current members of the committee include J. Weldon Chitwood and Richard Levy. The role of the Audit Committee (the “Committee”) is to assist the Board in its oversight of the Company’s financial reporting process. The Committee operates pursuant to a Charter that was last amended and restated by the Board in 2004. A copy of the Committee’s charter is available on the Company’s website at www.bptr.com.
The management of the Company is responsible for the preparation, presentation, and integrity of the Company’s financial statements, the Company’s accounting and financial reporting principles, and the internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent auditors are responsible for auditing the Company’s financial statements, and for expressing an opinion as to their conformity with generally accepted accounting principles.
In the performance of its oversight function, the Committee reviewed the Company’s quarterly financial reports and regulatory issues facing the Company. Members of the Audit Committee as presently constituted met and held discussions with Moore Stephens, P.C., who served as the Company’s independent auditors. Management represented to the Committee that the Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, and the Committee reviewed and discussed the consolidated financial statements with management and with the Company’s independent auditors. The Committee also discussed with the Company’s independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU 308), as amended.
In addition, the Committee discussed with its auditors their independence from the Company and its management, and the auditors provided the Company the written disclosures and letter required from an independent auditor by the Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
The Committee discussed with the independent auditors the overall scope and plans for the audit. The Committee met with the Company’s auditors, with and without management present, to discuss the results of their examination, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.
Mr. Clifford D. Brune, C.P.A., serves as the “audit committee financial expert” for purposes of the Securities and Exchange Commission’s rules. Members of the Committee rely, without independent verification, on the information provided to them and on the presentations made by management and the independent auditors. Accordingly, the Audit Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal control and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Further, the Audit Committee’s reviews and discussions referred to above do not assure that the audit of the Company’s financial statements has been carried out in accordance with generally accepted accounting standards, that the financial statements are presented in accordance with generally accepted accounting principles, or that the Company’s auditors are in fact “independent.”
Compensation Committee
The Compensation Committee is currently comprised of Clifford D. Brune, a licensed Certified Public Accountant, who serves as Chairman, and J. Weldon Chitwood and Richard Levy. The Committee is responsible for approving the nature and amount of compensation to be paid to, and the employment agreements with, BrandPartners’ executive officers and senior management, establishing and evaluating performance-based criteria and goals related to compensation, administering BrandPartners’ cash bonus and equity-based plans, determining the balance of short- and long-term compensation to be awarded under these plans with respect to any particular year, and determining and overseeing BrandPartners’ compensation and benefits policies generally. The Compensation Committee currently does not have a charter.
Compensation Policy.
We seek to offer those types of compensation that will serve to attract, motivate, and retain highly qualified executive officers and key employees in an effort to enhance BrandPartners’ success and shareholder value. In addition, our compensation policies are designed to align the interests of management with BrandPartners’ shareholders. In order to do so, we consider a range of short-and long-term cash, and non-cash compensation elements. We believe this serves the goals of compensating BrandPartners’ executive officers competitively on a current basis, tying a significant portion of the executives’ compensation to company performance, and allowing the executive officers and key employees to gain an ownership stake in BrandPartners commensurate with their relative levels of seniority and responsibility. Each year, we perform a review of the executive compensation programs, compensation philosophy, and committee mission and performance. In addition, each year we review the nature and amounts of all elements of the executive officers’ compensation, both separately and in the aggregate, to ensure that the total amount of compensation is competitive with respect to BrandPartners’ peer companies, and that there is an appropriate balance for compensation that is tied to the short- and long-term performance of the Company.
Nominating Committee
The Nominating Committee currently does not have a charter. The Committee is intended to assist in the oversight of the Company’s corporate governance matters, including the determination of the independent of current and prospective Board members, periodic evaluation of the Board of Directors, its committees and individual directors, and the identification and selection of director nominees.
Code of Ethics
The Company has adopted a Code of Ethics effective as of December 8, 2004. The Code is posted on the Company’s corporate website at www.bptr.com.
Item 11.
Item 11. Executive Compensation
The following chart displays the compensation for the officers of the Company.
(1)
Mr. Brooks was appointed Chairman in August 2006. He entered into an employment agreement as of October 2003 to serve as Chief Executive Officer. The term of the employment agreement was through March 15, 2008. Mr. Brooks also serves as Chief Executive Officer and President of the Company’s wholly owned subsidiaries. The exercisable prices of the options exceed the closing price of the company’s closing stock price as of December 31, 2007. Pursuant to the 2004 Stock Incentive Plan, Mr. Brook’s options were cancelled and replaced by 1,250,000 shares of restricted common stock on February 8, 2008. These shares vest 50% on the first anniversary of date of grant and 100% on the second anniversary of date of grant.
Column (f) Option Awards consists of the following options:
Column (i) All Other Compensation consists of - health insurance, 401K expense, housing, meal and car (monthly payment, insurance fuel, and maintenance expenses) allowance in accordance with the terms of Mr. Brooks amended employment contract entered into March 16, 2005.
(2)
Ms. Verrill was appointed Chief Financial Officer in April 2004 and served in that capacity pursuant to the terms of an employment agreement through March 1, 2007. She also served as Chief Financial Officer of the Company’s wholly owned subsidiaries.
Column (c) 2007 Salary represents partial year as Ms. Verrill left the Company on March 1, 2007.
Column (i) Other Compensation consists of the Company’s contribution to health insurance, 401K expense, consulting services and severance.
The following table set forth information with respect to the Company’s executives listed in the Summary Compensation Table above concerning the number of unexercised options and the value of unexercised options held by such executives as of the end of 2007. No options were granted nor exercised by such executives during 2007.
Stock Awards - Pursuant to the 2004 Stock Incentive Plan, Mr. Brook’s options were cancelled and replaced by 1,250,000 shares of restricted common stock on February 8, 2008. These shares vest 50% on the first anniversary of date of grant and 100% on the second anniversary of date of grant.
Other Benefits
The Company provides life insurance of one time annual salary, and short and long-term disability insurance to all employees at no cost to the employees.
Employment Contracts
On August 13, 2004, the Company entered into an amended employment agreement with James F. Brooks, pursuant to which Mr. Brooks agreed to serve as President, Chief Executive Officer, and Corporate Secretary of the Company for a term of three years, ending August 15, 2007. Pursuant to the employment agreement, the Company is currently paying Mr. Brooks a salary of $360,000 per annum, subject to annual review by the Compensation Committee. The agreement also contains a change of control provision, which, if invoked, entitles Mr. Brooks to receive all payments due to him under the agreement at said time with a minimum of six months salary. The non-compete portion of the agreement is in effect for a period of one year after Mr. Brooks’ departure from the Company. On March 16, 2005, the agreement was amended to extend the term through March 15, 2008 and to permit Mr. Brooks to engage in outside consulting, provided that the Company’s Board of Directors determined that said services would not conflict or interfere with Mr. Brooks’ responsibilities and obligations to the Company. Mr. Brooks was named Chairman of the Board of Directors in August of 2006.
On July 24, 2004, the Company entered into an employment agreement with Suzanne M. Verrill. The initial term of the employment agreement was through December 31, 2005 and renewed annually thereafter unless terminated by the Company upon a minimum of ninety (90) days notice prior to the renewal date. The Board of Directors amended Ms. Verrill’s agreement on August 2, 2005 pursuant to which Ms. Verrill served as the Chief Financial Officer of BrandPartners Group, Inc. Ms. Verrill entered into a separation agreement with the Company effective March 1, 2007 terminating her employment agreement with the Company.
Director Compensation
The following table illustrates Director Compensation for fiscal year 2007:
(1)
Clifford D. Brune was appointed a director of the Company in December 2005 and elected as a director in June 2006. He receives a stipend as a Director and for serving as the Chairman of the Audit Committee and the Compensation Committee. Mr. Brune also receives additional compensation for his consulting services to the Company.
(2)
J. Weldon Chitwood has been a director of the Company since October 2003 and receives a stipend as a Director.
(3)
Richard Levy has been a director of the Company since April 1994 and receives a stipend as a Director.
Item 12.
Item 12. Securities Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the Company’s Directors and executive officers, and persons who own more than ten percent of any class of its equity securities registered pursuant to Section of the Exchange Act to file reports of ownership, and changes in ownership with the Securities and Exchange Commission (the “Commission”). Officers, directors, and greater than ten percent stockholders are required by the Commission to furnish the Company with copies of all Section 16(a) forms they file.
The Company believes, based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons, that all filing requirements applicable to its officers, directors, and greater than ten percent stockholders were complied with during 2007.
The following table sets forth certain information regarding ownership of the Company’s common stock as of March 26, 2008 by (a) each person who is known to us to be the beneficial owner of more than 5% of the common stock of the Company, (b) each of our directors, (c) each of our executive officers, and (d) all directors and executive officers of the Company as a group. The following information is based in part upon data furnished by the persons indicated below.
(1)
Unless otherwise indicated, the business address for each of such beneficial owners is in care of BrandPartners Group, Inc., 10 Main Street, Rochester, New Hampshire 03839.
(2)
Directly and indirectly. The inclusion of securities owned by others as beneficially owned by the respective individuals does not constitute an admission that such individuals are the beneficial owners of such securities.
(3)
Represents 4,455,422 shares of common stock. The business address for Mr. Trump is in care of Trump Management, Inc., 2611 West Second Street, Brooklyn, NY
(4)
Represents 3,995,665 shares of common stock. The business address for Stadium Capital Management, LLC is 19785 Village Office Court, Suite 101, Bend, OR 97702.
(5)
Represents 3,185,517 shares of common stock. The address for Longview Fund L.P. is 600 Montgomery St., 44th Floor, San Francisco, CA 94111. Besides the shares of common stock reported on Form 13G, Longview Fund owns 196,667 warrants for common stock priced at $0.85 per share.
(6)
Mr. Brooks is the Company’s Chairman of the Board of the Directors, President and Chief Executive Officer. This represents: 1,250,000 restricted shares issued February 8, 2008 vesting 50% on February 8, 2009 and 50% on February 8, 2010, and 31,100 common shares.
(7)
Mr. Brune is a member of the Company’s Board of Directors. This represents: 1,000,000 restricted shares issued February 8, 2008 vesting 50% on February 8, 2009 and 50% on February 8, 2010.
(8)
Mr. Chitwood is a member of the Company’s Board of Directors. This represents: 500,000 restricted shares issued February 8, 2008 vesting 50% on February 8, 2009 and 50% on February 8, 2010.
(9)
Mr. Levy is a member of the Company’s Board of Directors. This represents: 500,000 restricted shares issued February 8, 2008 vesting 50% on February 8, 2009 and 50% on February 8, 2010.
Item 13.
Item 13. Certain Relationships and Related Transactions and Director Independence
Mr. Chitwood and Mr. Levy are both independent members of the Board of Directors. The Company does not have any specific guidelines related to the independence of the members of its Board of Directors as it is not listed on any national securities exchange or with any national securities association and its stock is traded on the Over the Counter Bulletin Board.
On February 1, 2005, the Company signed an agreement for consulting services with Clifford D. Brune, who became a member of the Board of Directors on December 29, 2005. The agreement provided for twelve months of consulting services at a fee of $15,000 per month. On December 19, 2005, the agreement was amended to change the term of the agreement from a term of twelve months to “month-to-month.” The amended agreement provides for a minimum six-month written notice if either the Company or Mr. Brune elects to terminate the agreement.
Item 14.
Item 14. Principal Accountant Fees and Services
The classification “audit fees” includes fees for the audits of the Company’s annual financial statements for 2007 and 2006 and the quarterly review of the statements. “Audit-related services” consists primarily of the review of registration statements and the issuance of related consents. “Tax fees” include tax planning and the preparation of the Company’s tax returns. Moore Stephens did not provide any tax or financial information systems design or implementation services to the Company for the year 2007.
PART IV
Index to Exhibits
2.1
Agreement and Plan of Merger, dated as of August 1, 2001, between Financial Performance Corporation and the Company (incorporated by reference to Exhibit 2.2 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
3.1
By-laws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report in Form 10-QSB for the quarter ended September 30, 2001).
3.2
Certificate of Incorporation dated August 7, 2001 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
4.1
Specimen Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
4.2
Certificate of Designation of Class A Convertible Preferred Stock of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 31, 2001).
10.1
Form of Indemnification Agreement between the Company and its Officers and Directors (incorporated by reference to Exhibit 10.35 to the Company’s Registration Statement on Form S-1, Registration No. 33-20886).
10.2
Restated and Amended Shareholders Agreement, dated as of October 18, 1994, by and among Michaelson Kelbick Partners Inc., Susan Michaelson, Hillary Kelbick and the Company, effective as of October 1, 1998 (incorporated by reference to Exhibit 10.80 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 1998).
10.3
Form of Warrant, dated as of October 21, 1998, between the Company and Richard Levy (incorporated by reference to Exhibit 10.81 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1998).
10.4
Form of Warrant Agreement, dated as of October 21, 1998, covering warrants issued to Richard Levy and others (incorporated by reference to Exhibit 10.86 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1998).
10.5
Stock Purchase and Sale Agreement, dated as of November 17, 1999, by and among the Company, Robert S. Trump and Jeffrey Silverman (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 30, 1999).
10.6
Stock Purchase and Sale Agreement, dated as of November 17, 1999, by and among the Company, Robert S. Trump and Ronald Nash (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed November 30, 1999).
10.7
Stockholders Agreement, dated as of November 17, 1999, by and among the Company, Robert S. Trump, Jeffrey Silverman, and Ronald Nash (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed November 30, 1999).
10.8
Option Agreement, dated November 17, 1999, between Robert S. Trump and Jeffrey Silverman (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on November 30, 1999.)
10.9
Option Agreement, dated November 17, 1999, between Robert S. Trump and Jeffrey Silverman (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed November 30, 1999).
10.10
Option Agreement, dated November 17, 1999, between Robert S. Trump and Jeffrey Silverman (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed November 30, 1999).
10.11
Option Agreement, dated November 17, 1999, between Robert S. Trump and Ronald Nash (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed November 30, 1999).
10.12
Option Agreement, dated November 17, 1999, between Robert S. Trump and Ronald Nash (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed November 30, 1999).
10.13
Option Agreement, dated November 17, 1999, between Robert S. Trump and Ronald Nash (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed November 30, 1999).
10.14
Stock Option Agreement, dated as of November 17, 1999, between the Company and Jeffrey Silverman (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed November 30, 1999).
10.15
Stock Option Agreement, dated as of November 17, 1999, between the Company and Ronald Nash (incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed November 30, 1999).
10.16
Registration Rights Agreement, dated as of November 17, 1999 by and among the Company, Robert S. Trump, William F. Finley, Jeffrey Silverman and Ronald Nash (incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed November 30, 1999).
10.17
Stock Option Agreement, dated as of January 10, 2000, between the Company and Jeffrey Silverman (incorporated by reference to Exhibit 10.39 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999).
10.18
Stock Option Agreement, dated as of January 10, 2000, between the Company and Ronald Nash (incorporated by reference to Exhibit 10.40 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1999).
10.19
Agreement and Plan of Merger dated February 23, 2000, between the Company, FPC Acquisition Corp., iMapData.com, Inc., William Lilley III and Laurence J. Defiance (incorporated by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K filed February 24, 2000).
10.20
Employment Agreement dated April 25, 2000, between the Company and Edward T. Stolarski (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 10-QSB for the quarter ended March 31, 2000).
10.21
Stock Option Agreement, dated as of April 26, 2000, between the Company and Edward T. Stolarski, covering 100,000 shares of common stock (incorporated by reference to Exhibit 10.5 to the Company’s Report on Form 10-QSB for the quarter ended March 31, 2000).
10.22
Stock Option Agreement, dated as of April 26, 2000, between the Company and Edward T. Stolarski, covering 300,000 shares of common stock (incorporated by reference to Exhibit 10.5 to the Company’s Report on Form 10-QSB for the quarter ended March 31, 2000).
10.23
Stock Option Agreement dated August 9, 2000, between the Company and Jonathan Foster (incorporated by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.24
Stock Option Agreement dated August 9, 2000, between the Company Nathan Ganther (incorporated by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.25
Stock Option Agreement dated August 9, 2000, between the Company J. William Grimes (incorporated by reference to Exhibit 10.48 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.26
Loan and Security Agreement, dated as of January 11, 2001, between Fleet Capital Corporation (“Fleet”) and Willey Brothers, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 31, 2001).
10.27
Secured Guaranty Agreement, dated as of January 11, 2001, executed by the Company in favor of Fleet (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 31, 2001).
10.28
Agreement dated as of January 11, 2001, among the Company, Thomas P. Willey, as trustee of the Thomas P. Willey Revocable Trust of 1998, James M. Willey, as trustee of the James M. Willey Trust - 1995, Jeffrey S. Silverman, William Lilley III, Ronald Nash, Robert Trump, and Laurence DeFranco (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 31, 2001).
10.29
Subordinated Convertible Term Promissory Note, dated January 11, 2001, made by the Company in favor of the James M. Willey Trust - 1995, in the principal amount of $1,000,000 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed January 31, 2001).
10.30
Subordinated Convertible Term Promissory Note, dated January 11, 2001, made by the Company in favor of the James M. Willey Trust - 1995, in the principal amount of $3,750,000 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed January 31, 2001).
10.31
Subordinated Convertible Term Promissory Note, dated January 11, 2001, made by the Company in favor of the Thomas P. Willey Revocable Trust of 1998, in the principal amount of $3,750,000 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed January 31, 2001).
10.32
Subordinated Convertible Term Promissory Note, dated January 11, 2001, made by the Company in favor of the Thomas P. Willey Revocable Trust of 1998, in the principal amount of $1,000,000 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed January 31, 2001).
10.33
Stock Purchase Agreement, dated as of January 11, 2001, by and among James M. Willey, individually and as trustee of the James M. Willey Trust - 1995, Thomas P. Willey, individually and as trustee of the Thomas P. Willey Revocable Trust of 1998, and the Company (incorporated by reference to Exhibit 2.1 to the Company’s current report on Form 8-K filed on January 31, 2001).
10.34
Promissory Note, dated February 12, 2001, made by iMapData in favor of Ronald Nash, in the principal amount of $50,000 (incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.35
Promissory Note, dated February 12, 2001, made by iMapData in favor of Jeffrey Silverman, in the principal amount of $50,000 (incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.36
Promissory Note, dated February 12, 2001, made by iMapData in favor of William Lilley, in the principal amount of $100,000 (incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.37
Stockholders Agreement dated February 12, 2001, by and among iMapData.com, Inc., financial Performance Corporation, 1404467 Ontario Limited, BP Media Intermediate Fund L.P., William Lilley, and Laurence DeFranco (incorporated by reference to Exhibit 10.49 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.38
Subordinated Convertible Promissory Note, dated March 1, 2001, made by the Company in favor of Jeffrey S. Silverman, in the principal amount of $245,000 (incorporated by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.39
Subordinated Convertible Promissory Note, dated March 1, 2001, made by the Company in favor of Ronald Nash, in the principal amount of $245,000 (incorporated by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.40
Amendment, dated as of March 21, 2001, to Agreement, dated as of January 11, 2001, among the Company, Thomas P. Willey, as trustee of the Thomas P. Willey Revocable Trust of 1998, James M. Willey, as trustee of the James M. Willey Trust - 1995, Jeffrey S. Silverman, William Lilley III, Ronald Nash, Robert Trump, and Laurence DeFranco (incorporated by reference to Exhibit 10.44 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.41
Amendment and Waiver Agreement, dated as of May 21, 2001, between Fleet and Willey Brothers (incorporated by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
10.42
Letter Agreement, dated October 16, 2001, amending the terms of i) Stock Purchase Agreement, dated as of January 11, 2001, by and among the Company, James M. Willey, individually and as trustee of the James M. Willey Trust - 1995 and Thomas P. Willey, individually and as trustee of The Thomas P. Willey Revocable Trust of 1998, ii) Subordinated Convertible Term Promissory Notes, dated January 11, 2001, made by the Company in favor of each of the James M. Willey Trust - 1995 and the Thomas P. Willey Revocable Trust of 1998, in the principal amount of $3,750,000, and iii) Subordinated Convertible Term Promissory Notes, dated January 11, 2001, made by the Company in favor of each of the James M. Willey Trust - 1995 and the Thomas P. Willey Revocable Trust of 1998, in the principal amount of $1,000,000 (incorporated by reference to Exhibit 10.65 to the Company’s Annual Report on Form 10-KSB filed on March 31, 2003).
10.43
Second Amendment and Waiver Agreement, dated as of October 22, 2001, between Fleet and Willey Brothers (incorporated by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
10.44
Financial Performance Corporation Incentive Compensation Plan (incorporated by reference to Exhibit 10.32 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
10.45
Financial Performance Corporation 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.33 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
10.46
Subordinated Note and Warrant Purchase Agreement, dated as of October 22, 2001, by and among the Company, Willey Brothers, Inc. and Corporate Mezzanine II, L.P. (“CMII”) (incorporated by reference to Exhibit 10.34 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
10.47
Subordinated Promissory Note, in the Principal Amount of $5,000,000, made by Willey Brothers, Inc. in favor of CMII (incorporated by reference to Exhibit 10.34 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
10.48
Common Stock Purchase Warrant, dated October 22, 2001, between the Company and CMII (incorporated by reference to Exhibit 10.34 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
10.49
Registration Rights Agreement, dated as of October 22, 2001, between the Company and CMII (incorporated by reference to Exhibit 10.34 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
10.50
Subordination and Intercreditor Agreement, dated as of October 22, 2001, by and among Willey Brothers, Inc., CMII and Fleet Capital Corporation (incorporated by reference to Exhibit 10.34 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001).
10.51
Amendment to the Option Agreement, dated as of November 15, 2001, between Jeffrey S. Silverman and Robert Trump (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2002).
10.52
Amendment to Option Agreement, dated as of November 15, 2001, between Ronald Nash and Robert Trump (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31,
10.53
Form of Warrant Agreement, between the Company and the Warrantholders listed therein, together with Form of Warrant Certificate, executed by each purchaser in the private placement of common stock and warrants through Broadband Capital, LLC as placement agent (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001).
10.54
Rights Agreement, between the Company and the Holders listed therein, executed by each purchaser in the private placement of common stock and warrants through Broadband Capital, LLC as placement agent (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001).
10.55
Form of Stock Option Agreement, dated as of March 27, 2002, between the Company and each of Jonathan Foster, Nathan Ganther and J. William Grimes (incorporated by reference to Exhibit 10.66 to the Company’s Annual Report on Form 10-KSB filed on March 31, 2003).
10.56
Form of Stock Option Agreement, dated as of March 27, 2002, between the Company and each of Jeffrey S. Silverman and Edward T. Stolarski (incorporated by reference to Exhibit 10.33 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2002).
10.57
Third Amendment and Waiver Agreement, dated as of March 29, 2002, among Fleet, Willey Brothers and the Company (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001).
10.58
Letter Agreement, dated April 17, 2002, between and among Fleet, Willey Brothers and the Company (incorporated by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002).
10.59
Letter Agreement, dated May 15, 2002, between and among Fleet, Willey Brothers and the Company (incorporated by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002).
10.60
Amendment No. 1 and Waiver, dated as of May 14, 2002, by and among the Company, Willey Brothers, and CMII (incorporated by reference to Exhibit 10.30 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002).
10.61
Letter Agreement, dated July 11, 2002, between and among Fleet, Willey Brothers and the Company (incorporated by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002).
10.62
Amendment No. 2 and Waiver, dated as of August 9, 2002, by and among the Company, Willey Brothers, and CMII (incorporated by reference to Exhibit 10.30 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002).
10.63
Fourth Amendment, dated as of September 25, 2002, among Fleet, Willey Brothers and the Company (incorporated by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002).
10.64
Letter Agreement, dated October 9, 2002, between Willey Brothers and CMII (incorporated by reference to Exhibit 10.67 to the Company’s Annual Report on Form 10-KSB filed on March 31, 2003).
10.65
Stock Redemption Agreement, dated as of October 31, 2002, between the Company and iMapData (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 14, 2002).
10.66
Pledge and Escrow Agreement, dated as of October 31, 2002, among the Company, iMapData and LandAmerica Financial Group, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 14, 2002).
10.67
Promissory Note, dated October 31, 2002, made by iMapData in favor of the Company, in the principal amount of $1,550,000 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 14, 2002).
10.68
Letter Agreement, dated October 31, 2002, between the Company and iMapData (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on November 14, 2002).
10.68
Fifth Amendment, dated as of December 20, 2002, among Fleet, Willey Brothers and the Company (incorporated by reference to Exhibit 10.68 to the Company’s Annual Report on Form 10-KSB filed on March 31, 2003).
10.69
Letter Agreement, dated February 12, 2003 among Fleet, Willey Brothers and the Company (incorporated by reference to Exhibit 10.69 to the Company’s Annual Report on Form 10-KSB filed on March 31, 2003).
10.70
Sixth Amendment, dated as of March 18, 2003, among Fleet, Willey Brothers and the Company (incorporated by reference to Exhibit 10.70 to the Company’s Annual Report on Form 10-KSB filed on March 31, 2003).
10.71
Waiver dated March 31, 2003, by and among the Company, Willey Brothers and CMII (incorporated by reference to Exhibit 10.71 to the Company’s Annual Report on Form 10-KSB filed on March 31, 2003).
10.72
Form of Stock Option Agreement dated as of March 25, 2003 between the Company and each of Chet Borgida, Kenneth Csaplar, Richard Levy, Jeffrey Adam Lipsitz and Anthony van Daalen (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q filed May 15, 2003).
10.73
Employee Stock Option Agreement dated as of March 25, 2003 between the Company and Edward T. Stolarski (incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 10-Q filed May 15, 2003).
10.74
Employee Stock Option Agreement dated as of March 25, 2003 between the Company and Sharon Burd (incorporated by reference to Exhibit 10.3 to the Company’s Report on Form 10-Q filed May 15, 2003).
10.75
Agreement dated as of May 15, 2003 by and among the Company, Willey Brothers, James M. Willey, individually and as trustee of the James M. Willey Trust - 1995 and Thomas P. Willey, individually and as trustee of The Thomas P. Willey Revocable Trust of 1998 (incorporated by reference to Exhibit 10.4 to the Company’s Report on Form 10-Q filed May 15, 2003).
10.76
Amended agreement dated June 16, 2003 by and among the Company, Willey Brothers, James M. Willey, individually and as trustee of the James M. Willey Trust - 1995 and Thomas P. Willey, individually and as trustee of The Thomas P. Willey Revocable Trust of 1998 and Nixon Peabody LLP as Escrow Agent, amending Agreement, dated as of May 15, 2003, by and among the parties (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q filed August 26, 2003).
10.77
Waiver dated as of June 30, 2003 by and among the Company, Willey Brothers and Corporate Mezzanine II, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 10-Q filed August 26, 2003).
10.78
Seventh Amendment, dated as of August 21, 2003, among Fleet Capital Corporation, Willey Brothers, Inc. and the Company (incorporated by reference to Exhibit 10.3 to the Company’s Report on Form 10-Q filed August 26, 2003).
10.79
Eighth Amendment, dated as of September 29, 2003, among Fleet Capital Corporation, Willey Brothers, Inc. and the Company (incorporated by reference to Exhibit 99.1 to the Company’s Report on Form 8-K filed October 2, 2003 and Exhibit 10.2 to the Company’s Report on Form 10-Q filed November 14, 2003).
10.80
Second Amended Agreement dated as of September 15, 2003 by and among the Company, Willey Brothers, James M. Willey, individually and as trustee of the James M. Willey Trust - 1995 and Thomas P. Willey, individually and as trustee of The Thomas P. Willey Revocable Trust of 1998 and Nixon Peabody LLP as Escrow Agent, amending Agreement, dated as of May 15, 2003, by and among the parties (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 10-Q filed November 14, 2003).
10.81
Letter Agreement dated as of September 30, 2003, between and among the Company, Willey Brothers, Corporate Mezzanine II, L.P. and Fleet Capital Corporation, relating to Subordinated Notes and Warrant Purchase Agreement, dated October 22, 2001, between the Company, Willey Brothers and Corporate Mezzanine II, L.P. (incorporated by reference to Exhibit 10.3 to the Company’s Report on Form 10-Q filed November 14, 2003).
10.82
Common Stock Purchase Warrant, dated October 2, 2003 between the Company and James F. Brooks (incorporated by reference to Exhibit 10.4 to the Company’s Report on Form 10-Q filed November 14, 2003).
10.83
Stock Option Agreement dated as of October 2, 2003 between the Company and James F. Brooks (incorporated by reference to Exhibit 10.5 to the Company’s Report on Form 10-Q filed November 14, 2003).
10.84
Agreement effective as of October 15, 2003, between the Company and Anthony J. Cataldo (incorporated by reference to Exhibit 10.6 to the Company’s Report on Form 10-Q filed November 14, 2003).
10.85
Termination Agreement dated as of January 13, 2003 (delivered October 28, 2003), by and among the Company, Robert S. Trump, Ronald Nash and the Estate of Jeffrey Silverman, relating to Stockholders Agreement, dated as of November 17, 1999, by and among the parties (incorporated by reference to Exhibit 10.7 to the Company’s Report on Form 10-Q filed November 14, 2003).
10.86
Waiver dated as of November 6, 2003, by and among the Company, Willey Brothers and Corporate Mezzanine II, L.P. (incorporated by reference to Exhibit 10.8 to the Company’s Report on Form 10-Q filed November 14, 2003).
10.87
Promissory Note dated November 7, 2003 in the principal amount of $100,000 made by the Company in favor of Filter International (incorporated by reference to Exhibit 10.9 to the Company’s Report on Form 10-Q filed November 14, 2003).
10.88
Promissory Note dated November 7, 2003, in the principal amount $250,000, made by the Company in favor of Camden International Ltd. (incorporated by reference to Exhibit 10.10 to the Company’s Report on Form 10-Q filed November 14, 2003).
10.89
Employment Agreement dated as of November 10, 2003 between the Company and James F. Brooks (incorporated by reference to Exhibit 10.11 to the Company’s Report on Form 10-Q filed November 14, 2003).
10.90
Ninth Amendment, dated as of November 29, 2003, among Fleet Capital Corporation, Willey Brothers and the Company (incorporated by reference to Exhibit 10.5 to the Company’s Report on Form 8-K filed February 5, 2004).
10.91
Surrender Agreement for leasehold at 777 Third Avenue, New York NY, dated as of January 20, 2004 between the Company and Sage Realty Group as agent (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form 8-K filed February 5, 2004).
10.92
Settlement Agreement dated January 20, 2004 by and among the Company, Willey Brothers, James M. Willey, individually and as trustee of the James M. Willey Trust - 1995 and Thomas P. Willey, individually and as trustee of The Thomas P. Willey Revocable Trust of 1998 and McLane, Graf, Raulerson & Middleton, PA as escrow agent, settling obligations under prior agreements dated as of May 15, 2003 (incorporated by reference to Exhibit 10.2 to the Company’s Report on Form 8-K filed February 5, 2004).
10.93
Amendment No. 3 and Waiver to Subordinated Note and Warrant Purchase Agreement dated as of January 7, 2004 between Corporate Mezzanine II, L.P., Willey Brothers and the Company (incorporated by reference to Exhibit 10.3 to the Company’s Report on Form 8-K filed February 5, 2004).
10.94
Amendment No. 1 to the Subordinated Note dated as of January 7, 2004 by Willey Brothers, Inc. as maker and Corporate Mezzanine II, L.P. as holder (incorporated by reference to Exhibit 10.4 to the Company’s Report on Form 8-K filed February 5, 2004).
10.95
Unsecured Subordinated Promissory Note between the Company and Longview Fund L.P. dated July 6, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 16, 2004).
10.96
Common Stock Purchase Warrant, dated as of July 6, 2004, between the Company and Longview Fund L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed August 16, 2004).
10.97
Amendment to Employment Agreement dated as of August 13, 2004 between the Company and James F. Brooks (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed August 16, 2004).
10.98
Amendment to Agreement dated August 13, 2004 between the Company and Anthony J. Cataldo (incorporated by reference to Exhibit 10.4 on the Company’s Quarterly Report on Form 10-Q filed August 16, 2004).
10.99
Agreement dated August 16, 2004 between the Company and James F. Brooks (incorporated by reference to Exhibit 10.3 on the Company’s Quarterly Report on Form 10-Q filed August 16, 2004 (incorporated by reference to Exhibit 10.22 to the Company’s Annual 10K Report filed on March 25, 2005).
10.100
Purchase and Joinder Agreement with BancRealty Advisors, LLC, dated September 21, 2004 (incorporated by reference to Exhibit 10.1 on the Company’s Quarterly Report on Form 10-Q filed November 16, 2004).
10.101
Modification Agreement dated September 29, 2004, between the Company and Longview Fund L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report Form 8-K, dated September 30, 2004).
10.102
Unsecured Subordinated $625,000 Promissory Note issued by the Company to Longview Fund L.P. dated September 29, 2004 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report filed on form 8-K filed September 30, 2004).
10.103
Registration Rights Agreement entered into September 20, 2004 between the Company and Longview Fund L.P. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report filed on Form 8-K filed September 30, 2004).
10.104
Tenth Amendment dated December 28, 2004 between Bank of America Business Capital, Willey Brothers and the Company (incorporated by reference to Exhibit 10.14 to the Company’s Annual 10K Report filed on March 25, 2005).
10.105
Modification agreement to Unsecured Subordinated $625,000 Subordinated Promissory Note dated January 5, 2005 between Longview Fund, L.P. and the Company (incorporated by reference to Exhibit 10.15 to the Company’s Annual 10K Report filed on March 25, 2005).
10.106
Form of Common Stock Purchase Warrant to be issued in accord with Modification Agreement to Unsecured $625,000 Subordinated Note (incorporated by reference to Exhibit 10.16 to the Company’s Annual 10K Report filed on March 25, 2005).
10.107
Letter of Engagement for marketing, financial public relations and investor relations services dated as of February 1, 2005 between Trilogy Capital Partners, Inc. and the Company (incorporated by reference to Exhibit 10.17 to the Company’s Annual 10K Report filed on March 25, 2005).
10.108
Common Stock Purchase Warrant, exercisable at $1.00 issued to Trilogy Capital Partners(incorporated by reference to Exhibit 10.18 to the Company’s Annual 10K Report filed on March 25, 2005).
10.109
Common Stock Purchase Warrant, exercisable at $1.50 issued to Trilogy Capital Partners (incorporated by reference to Exhibit 10.19 to the Company’s Annual 10K Report filed on March 25, 2005).
10.110
Common Stock Purchase Warrant, exercisable at $2.00 issued to Trilogy Capital Partners (incorporated by reference to Exhibit 10.20 to the Company’s Annual 10K Report filed on March 25, 2005).
10.111
Amendment to Employment Agreement dated March 16, 2005 between James F. Brooks and the Company (incorporated by reference to Exhibit 10.21 to the Company’s Annual 10K Report filed on March 25, 2005).
10.112
Amendment to Agreement dated March 16, 2005, between Anthony J. Cataldo and the Company (incorporated by reference to Exhibit 10.22 to the Company’s Annual 10K Report filed on March 25, 2005).
10.113
Investor Relations Consulting Agreement between the Company and Alliance Advisors, LLC, effective April 3, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-Q filed on May 15, 2006).
10.114
Separation agreement and release dated August 10, 2006 between the Company and Anthony J. Cataldo (incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed August 10, 2006).
10.115
Commitment letter to amend and extend existing revolving line of credit loan dated March 19, 2008 between the Company and TD Banknorth, N.A.
10.116
Amendment No. 6 to subordinated note and warrant purchase agreement and amendment No. 2 to note between the Company and Corporate Mezzanine II, L.P. (“CMII”) dated March 27, 2008.
14.1
Code of Ethics adopted December 8, 2004 by the Company’s Board of Directors (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, dated December 10, 2004).
14.2
Letter from Grant Thornton LLP addressed to the Securities and Exchange Commission in accordance with Item 304(a)(3) of Regulation S-K (incorporated by reference to Exhibit 16.1 to the Company’s Report on Form 8-K filed April 17, 2003).
16.1
Letter from Goldstein Golub Kessler LLP addressed to the Securities and Exchange Commission in connection with Item 304(a)(3) of Regulation S-K (incorporated by reference to Exhibit 16.1 to the Company’s Report on Form 8-K filed February 23, 2003).
16.2
Letter from Goldstein Golub Kessler LLP dated February 20, 2004 addressed to the Securities and Exchange Commission in connection with Item 304(a)(3) of Regulation S-K (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed February 23, 2004).
16.3
Resignation letter from Goldstein & Morris dated October 20, 2004 (incorporated by reference to Exhibit 16.1 to the Company’s Current Report filed on Form 8-K filed October 22, 2004).
16.4
Letter from Goldstein and Morris Certified Public Accountants P.C. addressed to the Securities and Exchange Commission dated November 23, 2004 (incorporated by reference to Exhibit 16.1 to the Company’s Current Report filed on Form 8-K filed December 1, 2004).
16.5
Letter from Michael F. Albanese, CPA, addressed to Securities and Exchange Commission in connection with Item 304(a)(3) of Regulation S-K (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form I-K filed April 22, 2005).
21.1
List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report filed on Form 10-K Report filed March 25, 2005).
23.1
Consent of Goldstein and Morris Certified Public Accountants (incorporated by reference to Exhibit 23.1 to the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2003).
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith)
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.
March 28,
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
BrandPartners Group, Inc.
Rochester, New Hampshire
We have audited the accompanying consolidated balance sheets of BrandPartners Group, Inc. and subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of operations, stockholders equity and cash flows for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BrandPartners Group, Inc. and subsidiaries as of December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.
/s/ Moore Stephens, P.C.
Certified Public Accountants
Cranford, New Jersey
March 27,
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these statements.
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
The accompanying notes are an integral part of these statements.
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
The accompanying notes are an integral part of the financial statements.
* Reclassified for comparative purposes
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE A - NATURE OF BUSINESS AND BASIS OF PRESENTATION
BrandPartners Group, Inc. (“BrandPartners” “the Company” or “we”) operates through its wholly-owned subsidiaries:
BrandPartners Retail, Inc.
“Brand Retail”
Grafico, Incorporated
“Grafico”
Building Partners, Inc.
“Build Partners”
BrandPartners Europe, Ltd.
“Brand Europe”
BRAND RETAIL
Brand Retail was formerly known as Willey Brothers, Inc. On January 16, 2001, the Company acquired the stock of Brand Retail for a combination of cash, common stock of the Company, options in the Company’s stock, and notes payable. The total purchase price was approximately $33.1 million.
GRAFICO
On April 1, 2005 Grafico was formed as a Delaware corporation. In May of 2005 Grafico purchased the assets of a Connecticut design company. Grafico provides similar services to those of Brand Retail, targeting a specific segment of the financial services industry. On June 30, 2007 certain assets of Grafico were sold to its former General Manager. A loss of approximately $15,000 was recorded as a result of this transaction. Grafico was inactive for the last 6 months of 2007.
BUILD PARTNERS
Build Partners was incorporated in Delaware in January of 2006 and provides general contracting services.
BRAND EUROPE
Brand Europe was incorporated in Great Britain in January 2005 and provides products and services to the European marketplace. Brand Europe was inactive in 2007.
Through its subsidiaries, the Company provides integrated products and services to the financial services industry and other retail markets. Those products and services include:
·
Strategic retail positioning and branding
·
Environmental design and constructions services
·
Retail merchandising analysis, display systems and signage
·
Point-of-sale communications and marketing programs
These products and services are offered as a complete turnkey package or as individual offerings, based upon the client’s needs.
RISK
We cannot determine at the present time when or if any of these subsidiaries will remain or be profitable in the future. We have relied and continue to rely upon cash payments from our operating subsidiaries to, among other things, pay creditors, maintain capital and meet our operating requirements. Regulations, legal restrictions, and contractual agreements could restrict any needed payments from our subsidiaries. If we were unable to receive cash from our subsidiaries, or from any operating subsidiaries that we may acquire in the future, our operations and financial condition would be materially and adversely affected.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of BrandPartners and its wholly owned subsidiaries (Brand Retail, Grafico, Build Partners and Brand Europe). All significant intercompany accounts and transactions have been eliminated in consolidation.
The Company records revenue based on the type of product and/or service delivered. For most contracts, percentage-of-completion is used, based upon the actual costs incurred to date. Contract costs include all direct materials, labor and subcontractor costs. General and administrative expenses are accounted for as period charges and are not included in the calculation of the estimates to complete. Anticipated losses are provided for in their entirety without reference to percentage-of-completion. Costs and estimated earnings in excess of billings represent unbilled charges on long-term contracts, namely revenue recognized but not invoiced at the end of the reporting period. Such billings are generally made and collected in the subsequent year. Billings in excess of cost and estimated earnings represent billed charges, such as deposits, on long-term contracts for which revenue has not yet been recognized as of the end of the reporting period.
Revenue from short-term agreements is recognized when the product is shipped and/or the service is rendered.
2.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents.
3.
Inventories
Inventories are priced at the lower of cost (determined by the weighted-average method, which approximates first-in, first-out) or market. Inventories consist of the following at December 31, 2007 and 2006.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
4.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed generally by the straight-line method over the estimated useful lives of the applicable assets ranging from three to seven years.
Leasehold improvements are amortized over the term of the related lease, or the estimated useful life of the improvement, whichever is less. Significant improvements extending the useful lives of assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in current operating results. Maintenance and repairs are charged to expense when incurred, while significant repairs and improvements are capitalized.
Included in property and equipment is the capitalized cost of internal use software and website development, including software used to upgrade and enhance our websites and processes supporting our business. In accordance with SOP 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use, we capitalize costs incurred during the application development stage related to the development of internal use software and will amortize these costs over the estimated useful life of three years. Costs incurred related to design or maintenance of internal use software are expensed as incurred.
5.
Goodwill and Deferred Financing Costs
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. We evaluate the recoverability and measure the potential impairment of goodwill under the Financial Accounting Standards (“SFAS”) No. 142 Goodwill and Other Intangible Assets. SFAS No. 142 requires that the Company analyze goodwill for impairment on at least an annual basis. In assessing the recoverability of our goodwill, management must make certain assumptions regarding estimated future cash flows and other factors to determine its fair value. If the calculated fair value of the goodwill is less than its carrying value, an impairment loss is recognized in an amount equal to the difference. In the fourth quarter 2007 the Company evaluated Goodwill for impairment based upon the estimated fair value of our business operations and as a result, recorded an impairment charge of $12 million within the Statement of Operations. The Company did not record an impairment charge during the years ended December 31, 2006 and 2005.
Deferred financing costs are being amortized on a straight-line basis over three to seven years, the life of the related debt.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
6.
Long-Lived Assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future discounted cash flows expected to be generated by the asset. If such an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
7.
Warranty Costs
Estimated future warranty costs are provided for in the period of sale for products under warranty based on historical experience. Accrued warranty costs at December 31, 2007, 2006 and 2005 were approximately $13,000, $171,000 and $142,000, respectively, and are included in cost of goods within the statement of operations.
8.
Income Taxes
We account for income taxes in accordance with SFAS No. 109 Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on differences between the financial statement and tax basis of assets and liabilities, net operating loss and credit carry-forwards using enacted tax rates in effect for the year in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. If it becomes more likely than not that a deferred tax asset will be used, the related valuation allowance on such assets would be reversed. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years.
On January 1 2007 we adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. which provides for a financial recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefits that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. The adoption of FIN 48 did not have a material impact on our consolidated financial statements.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
9.
Fair Value of Financial Instruments
Accounting principles generally accepted in the United States of America require disclosing the fair value of financial instruments to the extent practicable for financial instruments, which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement. In assessing the fair value of these financial instruments, we used a variety of methods and assumptions, which were based on estimates of market conditions and risks existing at that time.
The following methods and assumptions were used in estimating the indicated fair values of financial instruments:
Cash, cash equivalents and short-term debt: The carrying value approximates fair value due to the short maturity of these instruments.
Property and equipment: The fair value of our property and equipment is estimated to approximate their net book values.
Long-term debt: The carrying value approximates fair value based on current rates offered to the Company for similar debt.
Derivative financial instruments: The carrying value is re-measured at each balance sheet date based on the fair value of these instruments.
10.
Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share is computed using the weighted-average number of shares of common stock outstanding during the period. When applicable, diluted earnings per share is computed using the weighted-average number of shares of common stock adjusted for the dilutive effect of potential common shares issued or issuable pursuant to stock options, stock appreciation rights and warrants. Potential common shares issued are calculated using the treasury stock method, which recognizes the use of proceeds that could be obtained upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price of the common stock during the period.
Potential common shares of approximately 10,900,000 and 13,800,000 are antidilutive and therefore excluded from the computation of diluted loss per share, consist of stock options, warrants, and convertible debt for the years ended December 31, 2007 and 2006, respectively. Such items may dilute earnings per share in the future.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or a liability at its fair value. Changes in the fair value of those instruments are reported in earnings or other comprehensive income, depending on the use of the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in fair value of a derivative and the effect on the consolidated financial statements will depend on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the fair value of cash flows of the instrument hedged.
12.
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist primarily of cash, accounts receivables, and costs and estimated earnings in excess of billings. BrandPartners’ customer base consists principally of U.S. financial institutions. Management does not believe that significant credit risk exists in connection with the Company’s concentration of credit at December 31, 2007 and 2006, respectively.
13.
Stock-Based Compensation
At December 31, 2007, the Company had two stock-based employee compensation plans, which are more fully described in Note K. The Company had previously accounted for these plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations. The Company had no stock-based employee compensation cost reflected in earnings in the fiscal years prior to the adoption of SFAS No. 123(R), Share-Based Payment (“SFAS 123(R)”), since the exercise price was equal to the market value of the underlying common stock at the date of grant. As of December 31, 2007, all options were fully vested.
On January 1, 2006, the Company adopted the provisions of SFAS 123(R). Using the modified prospective adoption method of SFAS 123(R), the Company recognized the fair value of compensation cost for all share-based payments granted after January 1, 2006, plus any awards granted to employees prior to January 1, 2006 that remained unvested at that time, over the service (vesting) period. Under this method of adoption, no restatement of prior periods was required.
Prior to January 1, 2006, the Company recognized the cost of employee services received in exchange for equity instruments in accordance with APB 25. APB 25 required the use of the intrinsic value method, which measures costs as the excess, if any, of the quoted market price of the stock over the amount the employee must pay for the stock. Compensation expense for substantially all of the Company’s equity based awards was measured under APB 25 on the date the shares were granted. Under APB 25, no compensation expense was recognized.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
There was no stock based compensation expense related to stock options during 2007, 2006 or 2005 as no options were granted nor did any options vest during the period.
Non-employee stock-based compensation arrangements are accounted for in accordance with the provisions of SFAS 123(R) and Emerging Issues Task Force (“EITF”) No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services. Under EITF No. 96-18, as amended by EITF No. 00-23, Issues Related to the Accounting for Stock Compensation, under APB 25 and FASB Interpretation No. 44, where the fair value of the equity instrument is more reliably measurable than the fair value of services received, such services will be valued based on the fair value of the equity instrument.
14.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make certain estimates and assumptions that affect:
·
Reported amounts of assets and liabilities
·
Disclosure of contingent assets and liabilities at the date of the financial statements
·
Revenues and expenses during the reporting period
Significant estimates that we make include:
·
Collectibility of accounts receivable
·
Valuation of Goodwill and other intangible assets
·
Costs and billings on uncompleted contracts
·
Income taxes
Management has used reasonable assumptions in deriving these estimates. However, actual results could differ from these estimates. Consequently, an adverse change in conditions could affect the Company’s estimates.
15.
Long-Lived Assets
The Company follows SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the assets’ carrying amounts may not be recoverable. In performing the review for recoverability, if future undiscounted cash flows (excluding interest charges) from the use and ultimate disposition of the assets are less than their carrying values, an impairment loss is recognized. Such losses are measured by the excess of the carrying amount over the fair value. No write-downs have been required for the years ended December 31, 2007, 2006 and 2005.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
16.
Comprehensive Income
In accordance with SFAS No. 130, Reporting Comprehensive Income, we are required to display comprehensive income (loss) and its components as part of our complete set of financial statements. Comprehensive income represents the change in stockholders’ equity resulting from transactions other than stockholder investments and distributions. Included in accumulated other comprehensive income are changes in stockholders’ equity that are excluded from our net earnings, specifically foreign currency gains (losses) and changes in fair value of marketable securities.
17.
Recently Issued Accounting Standards
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115," which is effective for fiscal years beginning after November 15, 2007. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option is elected would be reported in earnings. We have evaluated the new statement and have determined that it will not have a significant impact on the determination or reporting of our financial results.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" (SFAS 141(R)), which replaces SFAS No. 141, "Business Combinations." SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted. We are currently evaluating the effects, if any, that SFAS 141(R) may have on our financial statements and believe it could have a significant impact if business combinations are consummated. However, the effect of which is indeterminable as of December 31, 2007.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In December 2007, the FASB issued Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51." This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. This statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent's equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. It also amends certain of ARB No. 51's consolidation procedures for consistency with the requirements of SFAS 141(R). This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. We are currently evaluating this new statement and anticipate that the statement will not have a significant impact on the reporting of our results of operations.
In March 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The company is currently evaluating the impact of adopting SFAS. No. 161 on its financial statements.
18.
Accounts Receivable
The majority of the Company’s accounts receivable are due from companies in the financial services industry. Credit is extended based on evaluation of a customer’s financial condition. Accounts receivable are due within 30 days and are stated at amounts due from customers, net of an allowance for doubtful accounts. Periodically, the Company reviews accounts receivable to reassess its estimates of collectibility. The Company provides valuation reserves for bad debts based on specific identification of likely and probable losses. In addition, the Company provides valuation reserves for estimates of aged receivables, which may be written off, based upon historical evidence. These valuation reserves are periodically re-evaluated and adjusted as more information about the ultimate collectibility of accounts receivable becomes available.
The Company writes off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Interest income related to finance charges is recognized only to the extent that cash is received.
19.
Translation of Foreign Currency
For the Company’s non-U.S. subsidiary whose accounts are in a functional currency other than U.S. dollars, assets and liabilities are translated into U.S. dollars using year-end exchange rates. Expenses are translated at the average exchange rates in effect during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income (loss) within stockholders’ equity.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE C - INVESTMENT IN UNCONSOLIDATED AFFILIATE
On September 21, 2004, the Company purchased a 15% membership interest in an unrelated third party for $250,000. In March 2007 the membership interest increased to 20.9%. As of December 31, 2007, no dividends or returns on equity were recorded on the investment. The Company does not have oversight over the investments, operations, internal controls, or financial reporting of the unrelated third party, and as such, this investment is being accounted for using the cost method. No additional funding has been provided nor has been committed to for the foreseeable future.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation are as follows:
Depreciation expense was approximately $598,000, $776,000 and $605,000 for the years ended December 31, 2007, 2006, and 2005, respectively.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE E - COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
Due to the nature of the project accounting used for large contracts, all vendor and labor costs are entered on the balance sheet until the associated revenue is recognized. Upon revenue recognition, the associated expenses and profit are transferred to the statement of operations. The Cost in Excess of Billings account reflects the costs which have been incurred by the Company with resultant revenue recognition in completing a contractual obligation, which according to the terms of the contract, cannot be invoiced as of the end of the fiscal period and is therefore an asset since those charges will be invoiced in the future. Its companion account, Billings in Excess of Cost, reflects the balance of those invoices to clients for which work to the level of the billing deposits has not yet occurred. Thus, a liability exists on the balance sheet for the obligation on the part of the Company to perform work to the level of the deposits invoiced to the client. Due to the size of the contracts, these accounts can fluctuate considerably as of the end of the fiscal period and during the interim periods.
The accompanying consolidated balance sheets include the following captions at December 31:
NOTE F - SHORT TERM DEBT
Short-term debt consisted of the following:
(1)
On May 5, 2005, the Company negotiated a credit facility (the “Facility”) with a commercial lender. The Facility provides for the following:
·
$2,000,000 Term Loan, requiring 36 equal monthly payments
·
$5,000,000 Revolving Line of Credit
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE F - SHORT TERM DEBT (continued)
·
Prime Interest Rate on Term Loan principal not subject to the LIBOR rate
·
Prime Rate interest plus 25 basis points (0.25%) on Revolving Line of Credit Loan principal not subject to the LIBOR rate
·
LIBOR rate equals LIBOR plus 275 basis points (2.75%)
Under the terms of the agreement, the Company is required to maintain certain financial covenants and ratios. The Facility expires on May 5, 2008. On December 31, 2007, the LIBOR rate was 4.98%, and the adjusted Prime Rate was 8.07% for the term loan and 8.23% for the revolving line of credit. At December 31, 2007, approximately $2.9 million was available under the line of credit.
On March 22, 2007, certain of the financial covenants were waived and adjusted. As part of the waiver agreement, the amount available under the Revolving Line of Credit was adjusted to be the lesser of (1) $5 million or (2) 70% of acceptable accounts receivable, plus 50% of the cost in excess of billings (capped at $1 million), less an available reserve of $250,000. The Prime Rate interest premium was increased to 50 basis points (0.50%) for the Revolving Line of Credit and to 25 basis (0.25%) points for the Term Loan principal.
On July 13, 2007 the Company’s commercial lender consented to the Company exceeding the revolving line of credit limit on a temporary basis. Effective October 3, 2007 the amount outstanding under the revolving line of credit was reduced and was within the limits provided by the March 28, 2007 amendment to the Company’s banking facility.
On November 12, 2007 the Company received a waiver and adjustment of certain financial covenants from its commercial lender and its subordinated promissory note holder.
On March 19, 2008 the Company negotiated an extension of the Facility for the Revolving Line of Credit to April 30, 2009.
(2)
The put warrant is related to the subordinated promissory note in the principal amount of $5,000,000, which is discussed further in Note H (2).
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE G - CAPITAL LEASES
The Company leases the telephone system for its main location and a piece of cleaning equipment under capital leases beginning in 2006. The leases expire in 2009 and 2011, respectively. The economic substance of the leases is that the Company is financing the acquisition of assets through the leases, and accordingly, they are recorded in the Company’s assets and liabilities.
The following is an analysis of the leased assets included in Property and Equipment:
The lease agreements contain a bargain purchase option at the end of the lease term.
The following is a schedule by years of future minimum payments required under the lease together with their present value as of December 31, 2007.
Amortization of assets held under capital lease is included with depreciation expense.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE H - LONG TERM DEBT
Long term debt consists of the following:
(1)
See Note F.
(2)
A subordinated promissory note (“the Note”) in the principal amount of $5,000,000 was issued on October 22, 2001 by an unrelated third party. The Note bears interest at 16% per annum, with 12% payable quarterly in cash and 4% being accreted to the unpaid principal (“PIK amount”). The Note matures on October 22, 2008, at which time the principal and all PIK amounts are due. Under the terms of the Note, the Company is required to maintain certain financial covenants and is in compliance as of December 31, 2007.
Concurrently and in connection with the 2001 issuance of the Note, the Company issued 405,000 warrants to purchase common stock of the Company at $0.01 per share. The warrants expire on October 11, 2011 and can be “put” to the Company under any of the following conditions:
(a)
Following October 22, 2006, the fifth anniversary of the closing date;
(b)
Repayment in full of the aggregate principal amount, together with interest, after the third anniversary of the closing date;
(c)
Effective declaration by any holder of the Note that the Note has become due and payable;
(d)
Change in control; or
(e)
Sale of all or substantially all of the assets of the Company.
The warrant transaction has been treated as a debt discount and has been amortized to interest expense over prior periods. A liability for the “put warrant” has been recorded. Changes to the future fair value of the “put warrants” are recorded in accordance with FASB No. 133 and been charged to Sales/General and Administrative expense. For the year ended December 31, 2007, the liability of the put warrant has been disclosed under Short Term Debt (Note F).
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE H - LONG TERM DEBT (continued)
If the Company is unable to pay the Put Warrant repurchase price, the Put Note can be issued to the holder of the warrants. That Put Note would have the following characteristics:
a)
Interest rate of 18% per annum
b)
Due and payable on October 22, 2009
c)
No financial covenants
On January 7, 2004, the Company amended and restructured the Note. In exchange for the waiver of certain covenants through December 31, 2003 and a reduction in the interest rate on the note, the Company issued to the note-holder a common stock purchase warrant to purchase 250,000 shares of the Company’s common stock at $0.26 per share. The interest rate reduction was for a period of two years, commencing January 1, 2004. The interest rate was reduced from 16% per annum to 10% per annum - 8% payable in cash per quarter and 2% accreted to the PIK amount.
In March 2008 the Company negotiated an extension of the maturity date of the Note to October 22, 2009. In addition the Company received an adjustment to certain of the financial covenants. As of December 31, 2007 the Note has been reflected as long-term debt in accordance with promulgated accounting principles.
At December 31, 2007 and 2006, the Company had a liability of $24,300 and $41,500 related to the “put warrants,” respectively.
The five-year maturity schedule for the principal on the above notes payable is as follows:
NOTE I - INCOME TAXES (BENEFIT)
At December 31, 2007 and 2006, the Company had a taxable loss of approximately $646,000 and $1.3 million, respectively, for which no federal income tax provisions were made. For the year ended December 31, 2007 and 2006 the Company recorded approximately $60,000 and $0 state tax expense, respectively.
At December 31, 2005, the Company utilized net operating losses (“NOLS”) of approximately $2.5 million to eliminate the federal income tax. However, the Company was subject to Alternative Minimum Tax (“AMT”) in the amount of approximately $200,000, along with a state tax expense of approximately $400,000.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE I - INCOME TAXES (BENEFIT) (continued)
The Company has NOLS of approximately $8.3 million available to offset future taxable income. These NOLS expire at various dates through 2027. At December 31, 2007, the Company has deferred tax assets of approximately $7.1 million. The deferred tax assts consist primarily of net operating loss carry-forwards and previously accrued reserves. Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which is uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance of the same amount. Pursuant to Section 382 of the Internal Revenue Code, NOL carry-forwards may be limited in use in any given year in the event of a significant change in ownership.
At December 31, 2007, the Company had federal net operating loss carry-forwards that expire as follows:
There may be state tax expense in certain states where tax statutes do not recognize or do limit the use of NOLS.
NOTE J - CONCENTRATIONS
Significant Customers
For the year ended December 31, 2007, one customer accounted for approximately 16% of the Company’s revenues. For the year ended December 31, 2006, one customer accounted for approximately 10% of the Company’s revenues. For the year ended December 31, 2005, three customers accounted for approximately 19%, 15%, and 13% each of the Company’s revenues.
Concentration of Credit Risk
The Company maintains its cash and cash equivalents with major financial institutions. The balances at December 31, 2007 did not exceed federally insured limits. The Company performs periodic evaluations of the relevant credit standings of these financial institutions in order to limit the amount of credit exposure.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE K - STOCKHOLDERS’ EQUITY
The Company is authorized to issue a maximum of 20,000,000 shares of preferred stock, par value $0.01, and 100,000,000 shares of common stock, par value $0.01.
Stock Options
During 2004, the shareholders approved the Company’s 2004 Stock Incentive Plan. The plan was amended at the annual meeting of the shareholders in May 2005 to increase the shares available for issuance under the plan from 5 million to million shares. The plan provides for the reservation and issuance of up to million options for shares of common stock, subject to future stock splits, stock dividends, reorganizations, and similar events. The exercise price of incentive stock options may not be less than the fair market value on the date of grant. The plan provides for options to be granted to officers, directors, and employees of the Company. On November 7, 2007 the board of directors amended the Company’s 2004 Stock Incentive Plan to permit the award of restricted stock to outside directors. During the years ended December 31, 2007 and 2006, the Company did not grant any options.
The Company’s 2001 Incentive Stock Plan was approved during 2001. The reservation and issuance of 5 million options for shares of common stock subject to similar conditions listed above was provided. During the years ended December 31, 2003, 2002 and 2001, the Company granted 1,720,000; 2,017,815; and 50,000 stock options, respectively, to officers, directors and employees under the plan. On January 14, 2005, the former directors of the Company agreed to a reduction in the number of options issued from 1,400,000 options to 350,000 options, in consideration for receiving registration rights for the remaining underlying shares. Total active options in the 2001 Incentive Stock Plan as of March 27, 2008 were 381,549. The Company has also issued stock options to certain individuals and companies under letter agreements. During the years ended December 31, 2004 and 2003, options to purchase 100,000 shares at $0.75 per share, price at time of issuance, and 6,425,000 shares, respectively, of the Company’s common stock were issued under such agreements. The options granted have an exercise price at least equal to the fair value of the Company’s stock (except for options issued to two directors and to a consultant which were below fair market value) and expire at various times through 2010. The options previously granted vested immediately prior to or on December 29, 2005.
A summary of the activity at December 31 is as follows:
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE K - STOCKHOLDERS’ EQUITY (continued)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 2005. As no options were granted in 2007 and 2006, the Black-Scholes model was not used.
(1)
Average expected volatility of 191% and 348%
(2)
Average risk-free interest rate of 4.51% and 3.70%
(3)
Expected lives of five years
The following table summarizes information concerning outstanding and exercisable options and warrants for common stock at December 31, 2007:
Common stock and options to purchase the common stock of the Company issued for services during the years ended December 31, 2007, 2006 and 2005 are as follows:
There were no transactions in 2007.
On August 10, 2006, the Non-Executive Chairman of the Board resigned from the Board of Directors. As part of his separation agreement with the Company, he received $90,000 (approximate fair value) in the Company’s common stock or 538,462 shares.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE K - STOCKHOLDERS’ EQUITY (continued)
In April 2006, 120,000 shares of the Company’s common stock with a fair value of approximately $47,000, were issued for public relations services to be performed during the following twelve months.
On January 30, 2006, using the Black-Scholes valuation model, legal expense of approximately $3,700 was recognized for 9,500 shares of the Company’s common stock that were issued to an unrelated party for services rendered.
On January 5, 2005, the maturity date of an unsecured subordinated promissory note was extended to May 6, 2005. In consideration of the extension, an aggregate total of 196,667 warrants were issued to the note holder at an exercise price of $0.85. On February 7, March 7 and April 7, 2005, a total of 50,000 warrants was issued on each date with the balance of 46,667 warrants being issued on May 5, 2005. The warrants were valued using the Black-Scholes model at a fair value of approximately $105,000 and were charged to interest expense in 2005. The warrants will expire at various dates in 2008.
NOTE L - STOCK BASED COMPENSATION
At December 31, 2007, the Company had two stock-based employee compensation plans, which are more fully described in Note K. The Company had previously accounted for these plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost was reflected in net income for 2005 as all options granted under those plans had an exercise price equal to the market value of the underlying common stock at the date of grant. As of December 31, 2005, all options were fully vested.
There was no stock-based compensation expense for the years ended December 31, 2007, and 2005 related to stock options as no options were granted, nor did any options vest during the period.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE L - STOCK BASED COMPENSATION (continued)
The fair value of the options awarded were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions. For a detailed analysis of the stock options, see Form 10-K for December 31, 2005.
During 2005, had the cost of employee services received in exchange for equity instruments been recognized based on the grant date fair value of those instruments in accordance with the provisions of SFAS 123(R), the Company’s net income and earnings per share would have been impacted as shown in the following table:
The historical pro forma impact of applying the fair value method prescribed by SFAS 123(R) is not representative of the impact that may be expected in the future due to changes resulting from additional grants and changes in assumptions, such as volatility, interest rates, and expected life used to estimate the fair value of the grants in future years.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE M - EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) profit sharing plan for all eligible employees. Through a salary reduction program, the plan allows employee contributions on a pretax basis. There are no minimum corporate contributions required under the plan. The Company may make discretionary matching contributions based on the participants’ contributions. The Company may also make a discretionary profit-sharing contribution for the benefit of all eligible employees. Participants in the plan vest in Company contributions on a graduated scale over a five-year period. For the years ended December 31, 2007, 2006 and 2005, the Company paid or accrued matching contributions of approximately $89,000, $86,000 and $56,000, respectively.
The Company has no other postretirement benefits.
NOTE N - COMMITMENTS AND CONTINGENCIES
Backlog
At December 31, 2007, the Company had a backlog, which consists of signed orders for which no revenue has been recognized, of approximately $11.4 million. The backlog at December 31, 2006 was approximately $19 million. The backlog at December 31, 2005 was approximately $22 million.
Employment Agreements
On March 16, 2005, the Company amended its agreement with its Non-Executive Chairman. This agreement, which terminates on March 15, 2008, provides for monthly payments of $30,000 and severance payments, as defined in the agreement. On August 10, 2006, the Non-Executive Chairman of the Board resigned from the Board of Directors. The agreement provided for the transfer of $90,000 of the Company’s common stock and cash payments through May 2007, totaling $180,000. All severance expense was recognized in 2006.
In August 2006, the Board of Directors named the Chief Executive Officer as the Chairman of the Board. The agreement between the Company and the Chairman/Chief Executive Officer was amended on March 16, 2005 and May 12, 2005. That agreement expires on March 15, 2008. The agreement provides for an annual salary of $360,000, subject to annual review by the Board of Directors, and severance payments, as defined in the agreement.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE N - COMMITMENTS AND CONTINGENCIES (continued)
Leases
The Company is committed under non-cancelable operating leases for equipment, and office and warehouse space, expiring at various dates through August 2011. The leases include provisions requiring the Company pay a proportionate of increases in real estate taxes and operating expenses over base period amounts.
Future minimum rental commitments under all non-cancelable leases are as follows:
Future commitments related to non-cancelable operating leases for equipment are as follows:
Rent and equipment operating lease expense for the years ended December 31, 2007, 2006 and 2005 were approximately $738,000, $823,000 and $692,000, respectively.
The Company has provided various representations, warranties, and other standard indemnifications in the ordinary course of business, in agreements to acquire and sell business assets, and in financing arrangements. The Company is subject to various legal proceedings and claims, which arise in the ordinary course of business.
Management believes that the ultimate liability with respect to these contingent obligations will not have a material effect on the Company’s financial position, results of operations, or cash flow.
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE O - RELATED PARTY TRANSACTIONS
On February 1, 2005, the Company signed an agreement for consulting services with an individual who became a member of the Board of Directors in December 2005. This agreement was amended on December 19, 2005 to provide for a consulting service fee of $15,000 per month and is on a “month-to-month” basis with a minimum six-month written notice if either the Company or the consultant elects to terminate the agreement. For fiscal year 2007 and 2006, consulting fees of $214,000 and $215,000, respectively, were recognized.
On June 30, 2007 certain assets of Grafico were sold to its former General Manager. A loss of approximately $14,000 was recorded as a result of this transaction.
NOTE P - SUPPLEMENTAL CASH FLOW INFORMATION
In January 2006, 9,500 shares of the Company’s common stock were issued for legal services to an unrelated party for services rendered.
In April 2006, 120,000 shares of the Company’s common stock were issued for public relations services to be performed during the following twelve months. Expense of approximately $47,000 was recognized.
In August 2006, the Non-Executive Chairman of the Board resigned from the Board of Directors. As part of his separation agreement, he received $90,000 in the Company’s common stock or 538,462 shares. The expense was recognized in 2006.
During 2005, the Company issued 196,667 warrants as consideration for the extension of the maturity date of an unsecured, subordinated promissory note.
NOTE Q - SUBSEQUENT EVENTS
In March 2008 the Company negotiated an extension of the credit facility with a commercial lender for the Revolving Line of Credit to April 30, 2009.
In March 2008 the Company negotiated an extension of the maturity date of the subordinated promissory note to October 22, 2009. In addition, the Company received an adjustment to certain of the financial covenants.
NOTE R - QUARTERLY RESULTS (unaudited)
The following tables contain selected unaudited statement of operations information for each quarter of 2007 and 2006. The following information reflects all normal, recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. Unaudited results were as follows:
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2007, 2006 and 2005
NOTE R - QUARTERLY RESULTS (unaudited) (continued)