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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-16530
BRANDPARTNERS GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3236325
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
777 Third Avenue, New York, New York 10017
(Address of Principal Executive Offices)
212-446-0200
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is an accelerated filer.
Yes No X
The number of shares of common stock outstanding on May 12, 2003 was 18,063,553
BRANDPARTNERS GROUP, INC.
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
March 31, 2003 and December 31, 2002............................. 1
Consolidated Statements of Operations for the Three Months
Ended March 31, 2003 and 2002.................................... 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002.................................... 4
Notes to Consolidated Financial Statements.......................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk............................................ 19
Item 4. Controls and Procedures........................................ 19
Part II - Other Information
Item 1. Legal Proceedings.............................................. 20
Item 2. Changes in Securities and Use of Proceeds...................... 20
Item 6. Exhibits and Reports on Form 8-K............................... 21
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
As of March 31, 2003 and December 31, 2002
ASSETS March 31, 2003 December 31, 2002
-------------- -----------------
(unaudited)
Current assets:
Cash and cash equivalents $ 757,755 $ 2,812,924
Accounts receivable, net 5,510,860 7,476,432
Costs and estimated earnings in excess of
billings 4,979,650 6,288,532
Inventories 2,383,643 2,102,909
Prepaid expenses and other current assets 661,307 878,700
----------- -----------
Total current assets 14,293,215 19,559,497
----------- -----------
Property and equipment, net of accumulated
depreciation 1,516,425 1,600,415
Goodwill, net of accumulated amortization 24,271,969 24,271,969
Deferred financing and acquisition costs 422,130 472,450
Other assets 227,208 270,349
----------- -----------
Total assets $40,730,947 $46,174,680
=========== ===========
The accompanying notes are an integral part of these statements.
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
As of March 31, 2003 and December 31, 2002
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 2003 December 31, 2002
-------------- -----------------
(unaudited)
Current liabilities:
Revolving credit facility $ 4,545,528 $ 4,000,000
Accounts payable and accrued expenses 11,615,741 14,837,277
Billings in excess of costs and estimated earnings 264,326 1,116,360
Current maturities of long-term debt 4,271,042 4,568,083
Other current liabilities 1,234,514 1,175,494
------------ ------------
Total current liabilities 21,931,151 25,697,214
Notes and interest payable 12,525,412 12,465,008
Capital lease obligations 2,805 2,445
Put warrant liability 56,295 56,295
------------ ------------
Total liabilities 34,515,663 38,220,962
------------ ------------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 20,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock - 100,000,000 shares
authorized, $.01 par value; 18,163,553,
shares issued as of March 31, 2003 and
December 31, 2002, 18,063,553 shares outstanding
as of March 31, 2003 and December 31, 2002 181,636 181,636
Additional paid-in capital 40,198,822 40,109,102
Accumulated deficit (33,852,674) (32,024,520)
Treasury stock (312,500) (312,500)
------------ ------------
Total stockholders' equity 6,215,284 7,953,718
------------ ------------
Total liabilities and stockholders' equity $ 40,730,947 $ 46,174,680
============ ============
The accompanying notes are an integral part of these statements.
2
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2003 and 2002
(unaudited)
2003 2002
------------ ------------
Revenues $ 9,488,813 $ 5,852,599
------------ ------------
Costs and expenses
Cost of revenues 7,831,191 5,549,562
Selling, general and administrative 2,580,794 3,945,233
Depreciation and amortization 218,645 481,824
------------ ------------
Total expenses 10,630,630 9,976,619
------------ ------------
Operating loss (1,141,817) (4,124,020)
------------ ------------
Interest expense 467,472 604,689
------------ ------------
Other (income) expense
Interest income (15,855) (24,515)
Settlement of lawsuit 227,220 --
------------ ------------
Total other (income) expense 211,365 (24,515)
------------ ------------
Loss from continuing operations before
income taxes (1,820,654) (4,704,194)
Income taxes 7,500 (42,850)
------------ ------------
Loss from continuing operations (1,828,154) (4,661,344)
Loss from discontinued operations -- 384,420
------------ ------------
NET LOSS $ (1,828,154) $ (5,045,764)
============ ============
Basic and diluted (loss) per share
Continuing operations $ (0.10) $ (0.26)
Discontinued operations -- $ (0.02)
------------ ------------
Basic and diluted $ (0.10) $ (0.28)
============ ============
Weighted -average shares outstanding 18,468,553 17,939,407
============ ============
The accompanying notes are an integral part of these statements.
3
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months ended March 31,
(unaudited)
2003 2002
----------- -----------
Cash flows from operating activities of continuing operations
Loss from continuing operations $(1,828,154) $(4,661,344)
Adjustments to reconcile loss from continuing operations
to cash used in operating activities
Depreciation and amortization 218,645 481,824
Amortization of discount on notes payable 25,696 94,861
Settlement of lawsuit 227,220 --
Bad debt provision 10,120 45,812
Non-cash compensation 12,500 167,500
Allowance for obsolete inventory 30,000 41,250
Changes in operating assets and liabilities of
continuing operations
Accounts receivable 1,955,452 975,126
Costs and estimated earnings in excess of billings 1,308,882 (470,246)
Inventories (310,734) (216,380)
Prepaid expenses and other current assets 217,393 (541,345)
Other assets (2,869) 3,953
Accounts payable and accrued expenses (3,371,536) 1,045,066
Other liabilities 59,020 68,379
Billings in excess of costs and estimated earnings (852,034) 447,719
Interest payable - long term 52,469 111,368
Income taxes -- 104,489
----------- -----------
Net cash used in operating activities (2,247,930) (2,301,968)
----------- -----------
Cash flows from investing activities of continuing operations
Acquisition of equipment (38,325) (317,761)
Restricted cash -- (4,000.000)
Loan to officers -- (78,000)
----------- -----------
Net cash used in investing activities of continuing operations (38,325) (4,395,761)
----------- -----------
Cash flows from financing activities of continuing operations
Net borrowings on credit facility 545,528 3,701,622
Proceeds from sale of common stock, net -- 280,708
Repayment of long-term debt (314,442) (212,440)
----------- -----------
Net cash provided by financing activities of continuing operations 231,086 3,769,890
----------- -----------
NET DECREASE IN CASH (2,055,169) (2,927,839)
Cash and cash equivalents, beginning of period 2,812,924 4,225,756
----------- -----------
Cash and cash equivalents, end of period $ 757,755 $ 1,297,917
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 249,496 $ 259,749
=========== ===========
The accompanying notes are an integral part of these statements.
4
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF BUSINESS AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
BrandPartners Group, Inc. and Subsidiaries (the "Company") have been
prepared by the Company pursuant to the rules of the Securities and
Exchange Commission ("SEC") for quarterly reports on Form 10-Q and do not
include all of the information and note disclosures required by accounting
principles generally accepted in the United States of America for annual
financial statements, and should be read in conjunction with our
consolidated financial statements and notes thereto for the fiscal year
ended December 31, 2002 filed with the SEC on Form 10-KSB. The
accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America and include all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of financial position, results of operations and
cash flows. The consolidated statements of operations for the three months
ended March 31, 2003 are not necessarily indicative of the results
expected for the full year.
A summary of significant accounting policies followed by the Company is
set forth in Note B to the Company's consolidated financial statements in
the Company's Annual Report on Form 10-KSB for the year ended December 31,
2002, which is incorporated herein by reference.
The consolidated financial statements include the accounts of
BrandPartners Group, Inc. and its 100% owned subsidiary, Willey Brothers,
Inc. ("Willey Brothers") for the three months ended March 31, 2003, and
the accounts of BrandPartners Group, Willey Brothers and BrandPartners
Group's discontinued operation, iMapData.com, Inc., for the three months
ended March 31, 2002. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Certain amounts in the prior year have been reclassified to conform to the
classifications used in 2003.
The Company currently operates through its sole subsidiary, Willey
Brothers, acquired on January 16, 2001. Through Willey Brothers, the
Company provides services and products to the financial services industry
consisting of strategic retail positioning and branding, environmental
design and store construction services, retail merchandising analysis,
display systems and signage, and point-of-sale communications and
marketing programs.
Our ability to satisfy our working capital requirements depends on, among
other things, whether we are successful in generating revenues and income
from Willey Brothers and the cost and availability of third party
financing. We have been impacted by limitations and restrictions placed
upon Willey Brothers by its lender with respect to availability under its
revolving credit facility (see Note "D"). Willey Brothers's revolving
credit facility and term loan (together, the "Facility") expire in August
2003.
Willey Brothers has signed a commitment letter with a commercial bank for
a $6,000,000 credit facility with annual renewals, subject to the
execution of definitive agreements. The commitment expires June 12, 2003.
Willey Brothers intends to refinance its debt with a commercial lender
under terms and conditions acceptable to Willey Brothers, but no
assurances can be given that Willey Brothers will be successful in
concluding this or any other financing transaction. If for any reason
Willey Brothers is unable to refinance the Facility upon maturity, and the
amount outstanding under the Facility becomes
5
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)
due and payable, the lender has the right to proceed against the
collateral granted to it to secure the indebtedness under the Facility,
including the Company's ownership interest in Willey Brothers. The Company
has guaranteed 100% of the loan. Should that foreclosure occur the Company
would have no further operations.
In response to current market conditions and as a part of its ongoing
corporate strategy, the Company is pursuing several initiatives intended
to increase liquidity and better position the Company in the marketplace.
These initiatives include vigorously pursuing new sales and customers,
continually reviewing costs and expenses and aggressively collecting
accounts receivable. In addition, the Company is pursuing various
financing arrangements to allow the execution of its business plan. While
no assurances can be given, management believes that implementation of
these initiatives and the refinancing of the Facility will provide
sufficient cash flow for the next twelve months.
We may in the future continue to experience fluctuations in quarterly
operating results. Factors that may cause our quarterly operating results
to vary include the number of active customer projects, the requirements
of customer projects, the termination of major customer projects, the loss
of major customers and the timing of new engagements.
NOTE B - INVENTORY
Inventory consists of the following at March 31, 2003 and December 31,
2002.
March 31, 2003 December 31, 2002
-------------- -----------------
Finished Goods $1,762,174 $1,560,943
Raw Materials 614,140 534,619
Work-in-Process 7,329 7,347
---------- ----------
$2,383,643 $2,102,909
========== ==========
NOTE C - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair value
of the net asset acquired and has been amortized on the straight-line
basis over a ten year period through December 31, 2001. On January 1,
2002, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets" and accordingly
ceased amortizing its goodwill. In conformance with the standard the
Company conducts periodic reviews of the value of its goodwill for
potential impairment.
6
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE D - LOAN PAYABLE TO BANK AND REVOLVING CREDIT FACILITY
On January 11, 2001, Willey Brothers entered into a credit agreement with
a commercial lender, consisting of an $8 million term loan and a $6
million revolving credit facility (together, the "Facility"). All
borrowings are repayable with interest, which accrues, at the borrower's
option, at the bank's base rate plus the applicable margin or LIBOR plus
the applicable margin. The weighted average interest rate in effect on
March 31, 2003 was 5.2527% for the term loan and 5.1156% for the revolving
credit facility. As of March 31, 2003, the outstanding balances under the
term loan and the revolving credit facility were $2,209,045 and
$4,545,528, respectively. The Facility has been amended by Amendment and
Waiver Agreements dated May 21, 2001, October 22, 2001 and March 29, 2002,
by Amendment Agreements dated September 25, 2002, December 20, 2002 and
March 18, 2003 and by a letter agreement dated February 12, 2003. The
March 18, 2003 Amendment extends the expiration of the Facility to August
22, 2003, extends the payment terms for the amendment fee and requires
additional pre-payments of principal. The various Amendments and Amendment
and Waiver Agreements waive certain financial covenants for the remainder
of the term, require the payment of amendment fees, limit the availability
under the credit facility and restrict the payments of certain other
obligations. The September 25, 2002 Amendment increased the availability
under the revolving credit facility and extended the payment terms for the
amendment fee. The December 20, 2002 Amendment permanently applied
$4,000,000 of cash, restricted by the March 29, 2002 Amendment and Waiver
Agreement, to the term loan and extended the payment terms for the
amendment fee. The February 12, 2003 letter agreement re-extended the
payment terms for the amendment fee. Borrowings under the credit facility
are secured by substantially all of the assets of Willey Brothers and a
pledge by the Company of its stock in Willey Brothers. The Facility is
guaranteed by the Company. Willey Brothers has signed a commitment letter
with a commercial bank for a $6.0 million credit facility, subject to the
execution of definitive agreements. The commitment expires June 12, 2003.
Willey Brothers intends to refinance its debt with a commercial lender
under terms and conditions acceptable to Willey Brothers. No assurances
can be given that Willey Brothers will be successful in concluding this or
any other financing transaction. If for any reason Willey Brothers is
unable to refinance the Facility upon maturity, and the amount outstanding
under the Facility becomes due and payable, the lender has the right to
proceed against the collateral granted to it to secure the indebtedness
under the Facility, including the Company's ownership interest in Willey
Brothers. At March 31, 2003 the Company had a liability for amendment fees
of $580,000.
7
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE E - NOTES AND INTEREST PAYABLE
Notes and interest payable consist of the following at March 31, 2003 and
December 31, 2002:
2003 2002
------------ ------------
Notes payable (1) (2) $ 14,500,000 $ 14,500,000
Discount on notes payable (274,008) (299,704)
Interest payable 299,420 246,951
Less current maturities (2,000,000) (1,982,239)
------------ ------------
$ 12,525,412 $ 12,465,008
============ ============
Notes payable of $14.5 million consist of the following at March 31, 2003:
(1) Two subordinated convertible promissory notes totaling $7,500,000, and
two convertible promissory notes totaling $2,000,000 (collectively the
"Seller Notes"). The $7.5 million notes bear interest at LIBOR plus 150
basis points and provide for quarterly interest payments and quarterly
interest reset dates. The notes are convertible into common stock of the
Company incrementally on the first four anniversaries of the issuance date
at $4.00 per share at the option of the Company or the noteholder. The
principal and any accrued interest are due in one payment on October 11,
2007. The interest rate in effect for these notes as of March 31, 2003 was
2.89%. The $2.0 million notes bear interest at 11% per annum and provide
for quarterly principal payments. The remaining principal and accrued
interest are due in one payment on October 11, 2003. The notes are
convertible into common stock of the Company, at the option of the
noteholder, at $3.00 per share. The aggregate beneficial conversion of the
$2.0 million notes of $666,667 has been accounted for as a debt discount
and is being recorded as interest expense over the term of the notes.
Pursuant to an agreement with the noteholders, all payments required to be
made under each of the Seller Notes for the first three quarters of 2001
were deferred until the end of the term, the maturity date on the $2.0
million notes was extended to October 11, 2003 from January 11, 2003 and
the maturity date on the $7.5 million notes was extended to October 11,
2007 from January 11, 2007. Pursuant to an Amendment and Waiver Agreement
dated March 29, 2002, with the commercial lender and consented to by the
noteholders, no payments in respect of the Seller Notes can be made until
all of the obligations are repaid, in full, to the commercial lender (See
Notes "D" and "L").
Current maturities consist of the following at March 31, 2003 and December
31, 2002:
March 31, 2003 December 31, 2002
-------------- -----------------
Seller Notes $2,000,000 $1,982,239
Term Loan 2,209,045 2,499,045
Capital Lease Liability 61,997 86,799
---------- ----------
$4,271,042 $4,568,083
========== ==========
8
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE E - NOTES AND INTEREST PAYABLE (continued)
(2) A subordinated promissory note in the principal amount of $5,000,000
issued on October 22, 2001 to a third party. The note bears interest at
16% per annum, 12% payable quarterly in cash and 4% added to the unpaid
principal quarterly (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.
The Company has received a waiver from such certain financial covenants
through March 31, 2003.
Concurrently and in connection with the 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 October 22, 2011 and can be put to Willey
Brothers after the fifth year, or earlier under certain conditions, based
on certain criteria set forth in the warrant agreement. The relative fair
value of the warrants totaling $338,000 on the date of the transaction has
been treated as a debt discount and is being amortized to interest expense
over the term of the note and a liability for the put warrant has been
recorded. Changes to the future fair value of the put warrants are
recorded in accordance with SFAS No. 133 and charged to other income or
loss. At March 31, 2003 and 2002 there was no unrealized gain or loss.
NOTE F - SIGNIFICANT CUSTOMERS
For the three months ended March 31, 2003, four customers of Willey
Brothers accounted for approximately 34%, 18%, 13% and 13% of its
revenues, respectively. For the three months ended March 31, 2002, four
customers of Willey Brothers accounted for approximately 22%, 16%, 14% and
12% of its revenues, respectively.
NOTE G - SUPPLEMENTAL DISCLOSURES FOR STATEMENTS OF CASH FLOWS
On January 30, 2003, the Company issued 125,000 options to a consultant in
consideration of services to be provided to the Company and its subsidiary
during 2003. The options have a Black-Scholes valuation of approximately
$12,500. Consulting expense and additional-paid-in-capital were increased
for the transaction.
On January 17, 2002 the Company issued 20,833 shares of common stock to an
officer of the Company in accordance with the terms of his employment
agreement with the Company. The shares were valued at $25,000, the value
of the compensation. Salary expense, common stock and
additional-paid-in-capital were increased for the transaction.
NOTE H - RELATED PARTY TRANSACTIONS
On February 1, 2002, a subsidiary of the Company advanced $78,000 to two
officers of the subsidiary. The original terms of the note called for
payment in two installments on September 30, 2002 and December 31, 2002.
The notes bear interest at the rate for federal short-term debt
instruments.
On April 3, 2002, the note of one of the officers was repaid in full with
interest. The due date on the remaining note was extended to December 31,
2003.
9
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I - COMMITMENTS AND CONTINGENCIES
Earn-Out
On January 16, 2001 the Company acquired 100% of the stock of Willey
Brothers. The terms of the acquisition provide for additional
consideration to be paid if the earnings of Willey Brothers exceed certain
targeted levels through the year 2005 (the "Earn-Out"). The aggregate
maximum amount of contingent consideration is $1,800,000. The additional
consideration is payable in cash at the end of each fiscal year subject to
Willey Brothers's compliance with certain bank reporting and covenant
requirements. The amounts paid for contingent consideration will increase
expense rather than goodwill, in the years earned, since payments are
automatically forfeited if employment of the former shareholders of Willey
Brothers terminates. As of March 31, 2003 and 2002 the Company had a
liability of $500,000 related to the year 2001 (see Note "L"). As of March
31, 2003 the Company has not recorded a provision for the current year
since Willey Brothers has not reached the level of profitability which is
required for the payment of the Earn-Out. A liability for the year ended
December 31, 2002 was not recorded as the terms of the Earn-Out were not
met. A liability for the remaining contingent consideration has not been
recorded as the outcome of the contingency is not determinable beyond a
reasonable doubt.
Pursuant to an Amendment and Waiver Agreement, dated March 29, 2002, with
the commercial lender, and consented to by the former shareholders, no
payments in respect of the Earn-Out can be made until all of the
obligations are repaid, in full, to the lender (See Note "D").
10
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE J- STOCK BASED COMPENSATION
On March 25, 2003 the Company granted five-year options to certain
employees, officers and directors, as an incentive, to purchase an
aggregate of 1,545,000 shares of common stock of the Company at an
exercise price of $0.15 per share, as follows: (i) option grants to three
employees of the Company and its subsidiaries to purchase an aggregate of
120,000 shares, exercisable commencing March 25, 2004; (ii) option grant
to the Company's Chief Financial Officer to purchase 25,000 shares,
exercisable commencing March 25, 2004; (iii) option grant to the Company's
Chief Executive Officer to purchase 400,000 shares, exercisable on the
date of grant as to 200,000 shares and commencing January 1, 2004 as to
200,000 shares; and (iv) option grant to each of five outside directors of
the Company to purchase 200,000 shares, exercisable on the date of grant
as to 100,000 shares and commencing January 1, 2004 as to 100,000 shares.
The Company has elected to follow Accounting Principles Board Opinion No.
25 ("APB No. 25"), "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options. Under APB
No. 25, when the exercise price of employee stock options equals the
market price of the underlying stock on the date of grant no compensation
expense is recorded. The Company discloses information relating to the
fair value of stock-based compensation awards in accordance with Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting
for Stock-Based Compensation." The following table illustrates the effect
on net loss and loss per share as if the Company had applied the fair
value recognition provision of SFAS No. 123. 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 the
first quarter of 2003 and 2002, respectively: (1) average expected
volatility of 121.3% and 125.88%, (2) average risk-free interest rates of
2.97% and 4.69%, and (3) expected lives of five years for the period ended
March 31, 2003 and expected lives of five and eight years for year ended
December 31, 2002.
March 31, 2003 March 31, 2002
-------------- --------------
Net loss applicable to common stockholders
As reported $ (1,828,154) $ (5,045,764)
Stock based compensation expense 768,856 680,542
------------ ------------
Pro forma $ (2,597,010) $ (5,726,306)
============ ============
Weighted-average shares outstanding
Basic and diluted 18,468,553 17,939,407
============ ============
Net loss per share
As reported $ (0.10) $ (0.28)
============ ============
Pro forma $ (0.14) $ (0.32)
============ ============
11
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE K - DISCONTINUED OPERATIONS
On October 31, 2002, the Company disposed of its majority interest in its
subsidiary, iMapData.com, Inc., for $2,000,000, through a sale to
iMapData.
A summary of operating results for iMapData, for the period ended March
31, 2002, is as follows:
March 31, 2002
--------------
Revenues $509,893
--------
Cost and expenses:
Cost of revenues 434,020
Selling, general and administrative expenses 351,352
Depreciation and amortization 21,446
--------
Total expenses 806,818
--------
Operating loss 296,925
--------
Other income:
Interest income 3,408
Minority interest 94,750
--------
Total other income 98,158
--------
Loss before income taxes and change in
accounting principle 198,767
Income taxes 100
--------
Loss before change in accounting principle 198,867
Change in accounting principle 185,553
--------
Net loss from discontinued operations $384,420
========
12
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE L - SUBSEQUENT EVENTS
Agreement with Former Shareholders of Willey Brothers
On May 15, 2003, the Company entered into an agreement with the former
shareholders of Willey Brothers providing for, among other things, the
cancellation and forgiveness of certain debt upon the occurrence of
certain events. Under the agreement, in the event that, at or
contemporaneously with the closing of a transaction not in the ordinary
course of business (including, without limitation, a debt or equity
investment in, or a refinancing of all or a portion of the indebtedness
of, either the Company or Willey Brothers), but in any event not later
than September 1, 2003, the Company makes payment to the former
shareholders of the principal balance due under the $2.0 million notes,
the principal and interest owed under the $2.0 million notes shall be
deemed paid, the principal and interest owed under the $7.5 million notes
shall be canceled and forgiven, the accrued and unpaid obligations under
the Earn-Out shall be forgiven and no further Earn-Out obligations shall
accrue. The Company currently carries $9.5 million of notes payable,
accrued interest on the notes of approximately $1,232,000, as of March 31,
2003, included in other current liabilities as of March 31, 2003 and
December 31, 2002, and accrued, unpaid, Earn-Out of $500,000, payable to
the former shareholders. In addition, the Company has a contingent
liability, through 2005, to pay an earn-out to the former shareholders,
based upon certain targeted levels (see Note "I" - Earn Out). The
transaction, if it occurs, will be accounted for as a Troubled Debt
Restructuring. No gain or loss will be recognized on the transaction as it
is with a related party. No assurances can be given that the Company will
be able to repay the $2.0 million notes on or by the required date. In the
event that the $2.0 million notes are not repaid on or by the required
date, the agreement will expire and no debt will be forgiven or cancelled.
Settlement of Litigation
On May 12, 2003, in connection with an action entitled Marvin M. Reiss and
Rebot Corporation v. BrandPartners Group, Inc., formerly known as
Financial Performance Corporation, the Company entered into a settlement
with the plaintiffs, whereby the Company agreed to pay the plaintiffs a
total of $150,000 over a period of five months, to grant the plaintiffs
five-year options to purchase an aggregate of 300,000 shares of common
stock of the Company, exercisable 25% per year cumulatively beginning May
12, 2004, at an exercise price per share of $0.35 as to 150,000 shares and
$0.45 as to 150,000 shares, and to provide certain other consideration as
set forth with more particularity in a Stipulation of Settlement to be
filed with the court. The Company expects that the Stipulation of
Settlement will be filed with the court by May 30, 2003. As of March 31,
2003, the Company has recorded a provision for the settlement of the
lawsuit of $227,220.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
As of March 31, 2003, the Company had negative working capital (current
assets less current liabilities) of $7,638,000, stockholders' equity of
$6,215,000 and a working capital ratio (current assets to current liabilities)
of approximately .65:1. At December 31, 2002, the Company had negative working
capital of $6,138,000, stockholders' equity of $7,954,000 and a working capital
ratio of approximately .76:1. The negative working capital at March 31, 2003
arises primarily from the classification of $4,271,000 of the Company's debt as
current maturities and to an increase in accounts payable and accrued expenses.
The balances of the Term Loan and Revolving Credit Facility (as each of such
terms is defined below) of approximately $2,209,000 and $4,546,000,
respectively, as of March 31, 2003, are due to be repaid on August 22, 2003.
Willey Brothers is seeking to refinance this Facility (as defined below) on
terms and conditions acceptable to Willey Brothers, and has obtained a
commitment from another lender for a $6,000,000 credit facility, subject to the
execution of definitive agreements. The commitment expires June 12, 2003. No
assurances can be given that Willey Brothers will be successful in concluding
this or any other financing transaction. In addition, two $1,000,000 Notes (as
defined below) with accrued interest of approximately $690,000 are due to be
repaid October 11, 2003. As of March 31, 2003 and December 31, 2002 the Company
had unrestricted cash and cash equivalents of $758,000 and $2,813,000,
respectively. See "Liquidity Issues" below.
For the three months ended March 31, 2003 and March 31, 2002, net cash
used in operating activities of continuing operations was $2,248,000 and
$2,302,000, respectively, net cash used in investing activities of continuing
operations was $38,000 and $4,396,000, respectively, and net cash provided by
financing activities of continuing operations was $231,000 and $3,770,000,
respectively.
On January 11, 2001, the Company's wholly owned subsidiary, Willey
Brothers, established a loan facility (the "Facility") with a third party. The
Facility consists of an $8,000,000 term loan (the "Term Loan") and a $6,000,000
revolving credit facility (the "Revolving Credit Facility") and bears interest,
at the borrower's option, at a rate per annum equal to either the bank's base
rate plus the applicable margin or LIBOR plus the applicable margin. As of March
31, 2003, there was $2,209,000 outstanding under the term loan and $4,546,000
outstanding under the Revolving Credit Facility. The weighted average interest
rate in effect on March 31 2003 was 5.2527% for the Term Loan and 5.1156% for
the Revolving Credit Facility. The Facility has been amended by Amendment and
Waiver Agreements dated May 21, 2001, October 22, 2001 and March 29, 2002, by
Amendment Agreements dated September 25, 2002, December 20, 2002 and March 18,
2003, and by a letter agreement dated February 12, 2003. The various Amendments
and Amendment and Waiver Agreements waive certain financial covenants for the
remainder of the term, require the payment of amendment fees, limit the
availability under the Revolving Credit Facility, place restrictions on the use
of $4,000,000 of Willey Brothers's cash and restrict the payment of certain
other obligations. The December 20, 2002 Amendment permanently applied the
$4,000,000 of cash restricted by the March 29, 2002 Amendment to the Term Loan.
The February 12, 2003 letter agreement extended the payment date of the
amendment fee until March 28, 2003. The March 18, 2003 Amendment extended the
expiration of the Facility from March 31, 2003 until August 22, 2003, extended
the payment of the amendment fee until such date, and mandated weekly
pre-payments toward the balance of the Term Loan. As of May 6, 2003 there were
outstanding balances of approximately $2,149,000 under the Term Loan and
$4,503,000 under the Revolving Credit Facility.
14
In connection with the purchase of Willey Brothers in January 2001, the
Company issued two convertible promissory notes, each in the principal amount of
$1,000,000 (the "$1,000,000 Notes"), and two subordinated convertible promissory
notes, each in the principal amount of $3,750,000 (the "$3,750,000 Notes"). The
term of the $3,750,000 Notes are described in greater detail in the section
entitled "Long Term Debt" below. The $1,000,000 Notes bear interest at 11% per
annum and provide for quarterly principal payments. The remaining principal and
accrued interest are due in one payment on October 11, 2003. Subject to certain
conditions, the $1,000,000 Notes are convertible into common stock of the
Company at the option of the noteholder at a rate of $3.00 per share. Pursuant
to an agreement made with the noteholders in October 2001, all payments required
to be made under the $1,000,000 Notes for the first three quarters of 2001 were
deferred until the end of the term and the maturity date of the $1,000,000 Notes
was extended to October 11, 2003 from January 11, 2003. Pursuant to the
Amendment and Waiver Agreement, dated March 29, 2002, among the Company, Willey
Brothers and Willey Brothers's lender for the Facility, and consented to by the
noteholders, no payments in respect of the $1,000,000 Notes can be made until
all of the obligations are paid, in full, to the lender. No payments have been
made under the $1,000,000 Notes to date.
Long Term Debt
On October 22, 2001, Willey Brothers issued a subordinated promissory note
in the principal amount of $5,000,000 (the "Willey Subordinated Note Payable")
to a third party. The note bears interest at 16% per annum payable as follows:
12% on the accreted principal amount, payable in cash quarterly, and 4% on the
accreted principal amount, added to principal (PIK amount). The balance of the
note at March 31, 2003 was $5,025,000 including PIK interest of $299,000 and
less the aggregate discount on notes payable of $274,000. The note matures on
October 22, 2008, at which time the principal and all PIK amounts are due. The
funds were used for working capital and to reduce the balance of the Term Loan.
Concurrently, and in connection with the issuance of the Willey Subordinated
Note Payable, the Company issued warrants to purchase 405,000 shares of common
stock of the Company at an exercise price of $0.01. The warrants expire October
22, 2011 and can be put to Willey Brothers after the fifth year, or earlier
under certain conditions, based on certain criteria. The Company is also
required to maintain compliance with certain financial and other covenants.
Pursuant to a letter agreement dated October 9, 2002 between the noteholder and
Willey Brothers, the noteholder waived its rights to demand immediate payment of
the Willey Subordinated Note Payable and to put the warrants to Willey Brothers,
which rights had been triggered by the change in control resulting from the
death of the Company's former Chairman and Chief Executive Officer. The Company
has received waivers from certain financial covenants through March 31, 2003. At
March 31, 2003 the Company had a liability of approximately $56,000 related to
the put warrants.
In connection with the purchase of Willey Brothers in January 2001, the
Company issued two $3,750,000 Notes. The $3,750,000 Notes bear interest at LIBOR
plus 150 basis points and provide for quarterly interest payments and quarterly
interest reset dates. The interest rate in effect on March 31, 2003 was 2.89%.
The principal and any accrued interest are due in one payment on October 11,
2007. Subject to certain conditions, the $3,750,000 Notes are convertible into
common stock of the Company at the option of the Company or the noteholder at a
rate of $4.00 per share. Pursuant to an agreement made with the noteholders in
October 2001, all payments required to be made under the $3,750,000 Notes for
the first three quarters of 2001 were deferred until the end of the term. In
addition, the maturity date of the $3,750,000 Notes was extended to October 11,
2007 from January 11, 2007. Pursuant to the Amendment and Waiver Agreement dated
March 29, 2002 among the Company, Willey Brothers and Willey Brothers's lender,
and consented to by the noteholders, no payments in respect of the $3,750,000
Notes can be made until all of the obligations are paid, in full, to the lender.
As described below, the Company has entered into an agreement with the former
shareholders of Willey Brothers whereby the principal and interest due under the
$3,750,000 Notes are subject to cancellation and forgiveness under certain
circumstances. No payments have been made under the $3,750,000 Notes to date.
15
Liquidity Issues
On May 15, 2003, the Company entered into an agreement with the former
shareholders of Willey Brothers whereby, in the event that at or
contemporaneously with the closing of a transaction not in the ordinary course
of business (including, without limitation, a debt or equity investment in, or a
refinancing of all or a portion of the indebtedness of, either the Company or
Willey Brothers), but in any event not later than September 1, 2003, the Company
makes payment to the former shareholders of the principal balance due under each
of the $1,000,000 Notes, the principal and interest owed under the $1,000,000
Notes shall be deemed paid, the principal and interest owed under each of the
$3,750,000 Notes shall be canceled and forgiven, the accrued and unpaid
obligations under the earn-out entered into in connection with the purchase of
Willey Brothers shall be forgiven and no further earn-out obligations shall
accrue. In the event that the Company does not make payment of the two
$1,000,000 Notes as set forth in the agreement, the Company's obligations to pay
principal and interest under the $1,000,000 Notes, $3,750,000 Notes and earn-out
will remain in full force and effect. There can be no assurances that the
Company will be able to make such payments in the time frame required by the
agreement, in which case the Company will derive no benefit from this agreement.
All outstanding principal and interest under the $1,000,000 Notes is otherwise
due and payable on October 11, 2003. Should the Company be unable to secure
necessary financing to pay or refinance the $1,000,000 notes at or prior to
their due date, the existence of such a default may compromise the Company's
ability to obtain additional financing to support its operations.
Willey Brothers is seeking to refinance the Facility on terms and
conditions acceptable to Willey Brothers. While it has obtained a commitment for
a $6,000,000 credit facility from another lender, subject to the execution of
definitive documents, no assurances can be given that Willey Brothers will be
successful in concluding this or any other financing transaction. The Company
has guaranteed 100% of the Facility. If for any reason Willey Brothers is unable
to refinance the Facility upon maturity, and the amount outstanding under the
Facility becomes due and payable, the lender has the right to proceed against
the collateral granted to it to secure the indebtedness under the Facility,
including the Company's ownership interest in Willey Brothers which was pledged
to the lender as security for the Facility. Should that foreclosure occur the
Company would have no further operations.
Our ability to satisfy our working capital requirements depends on, among
other things, whether we are successful in generating revenues and income from
Willey Brothers and the cost and availability of third party financing. We
continue to be impacted by limitations placed upon Willey Brothers by its lender
with respect to funds available under its Facility.
We may in the future continue to experience fluctuations in quarterly
operating results. Factors that may cause our quarterly operating results to
vary include the number of active customer projects, the requirements of
customer projects, the termination of major customer projects, the loss of major
customers and the timing of new engagements.
In response to our current financial condition and current market
conditions, and as a part of our ongoing corporate strategy, we are pursuing
several initiatives intended to increase liquidity and better position the
Company in the marketplace. These initiatives include vigorously pursuing new
sales and customers, continually reviewing costs and expenses and aggressively
collecting accounts receivable. In addition, the Company is actively seeking
additional capital through debt or equity financing arrangements to permit
payment of Willey Brothers's obligations under the Facility, which expires
August 22, 2003, and the Company's obligations under the $1,000,000 Notes, which
are due October 11, 2003, to support the Company's operations and to allow the
execution of the Company's business plan. No assurances can be given that the
Company will be successful in obtaining such additional capital at all or on
terms favorable to the Company.
16
Results of Operations
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
Revenues. Revenues from continuing operations increased approximately
$3,636,000, or 62%, to $9,489,000 for the three months ended March 31, 2003 from
$5,853,000 for the three months ended March 31, 2002. This increase is due to an
increase in orders in the current year.
Cost of Revenues. Cost of revenues from continuing operations increased
approximately $2,281,000, or 41%, to $7,831,000 (83% of net revenues), for the
three months ended March 31, 2003 from $5,550,000 (95% of net revenues) for the
three months ended March 31, 2002. This increase is primarily attributable to an
increase in revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses from continuing operations decreased approximately
$1,364,000, or 35%, to $2,581,000 for the three months ended March 31, 2003 from
$3,945,000 for the three months ended March 31, 2002. This decrease is primarily
attributable to a decrease in professional fees, consulting fees and salary
expense at the parent company and to the benefits being realized from the
restructuring of Willey Brothers in the first quarter of 2002.
Depreciation and Amortization. Depreciation and amortization from
continuing operations decreased approximately $263,000, or 55%, to $219,000 for
the three months ended March 31, 2003 from $482,000 for the three months ended
March 31, 2002. This decrease is primarily attributable to a change in the
method of estimating depreciation expense.
Operating Loss. Operating loss from continuing operations decreased
approximately $2,982,000, or 72%, to $1,142,000 for the three months ended March
31, 2003, from $4,124,000 for the three months ended March 31, 2002. This
decrease is primarily due to the factors referred to above.
Interest Expense. Interest expense from continuing operations decreased
approximately $138,000, or 23%, to $467,000 for the three months ended March 31,
2003 from $605,000 for the three months ended March 31, 2002. This decrease is
attributable to a reduction in the term loan, of $4,000,000, in December 2002,
and to the amortization in full in January 2003 of the beneficial conversion of
preferred stock.
Other Income (expense). Other expense from continuing operations increased
approximately $236,000, to expense of approximately $211,000 for the three
months ended March 31, 2003 from income of approximately $25,000 for the three
months ended March 31, 2002. This increase is primarily attributable to the
provision recorded for the settlement of the action entitled Marvin A. Reiss and
Rebot Corporation v. BrandPartners Group, Inc., formerly known as Financial
Performance Corporation.
Income Taxes. Income taxes from continuing operations increased
approximately $51,000, or 118%, to $8,000 for the three months ended March 31,
2003 from a benefit of $43,000 for the three months ended March 31, 2002. This
increase is attributable to over accruals of state taxes recognized in the prior
year quarter and to lower estimated state taxes in the current year.
Loss from Continuing Operations. Loss from continuing operations decreased
approximately $2,833,000, or 61%, to $1,828,000 for the three months ended March
31, 2003 from $4,661,000 for the three months ended March 31, 2002. This
decrease is due to the factors referred to above.
Net Loss. Net loss decreased approximately $3,218,000, or 64%, to
$1,828,000 for the three months ended March 31, 2003 from $5,046,000 for the
three months ended March 31, 2002. The decrease in the net loss is primarily due
to the factors referred to above.
17
Holding Company and Operating Subsidiaries
We conduct our operations through our subsidiaries. At present Willey
Brothers, Inc. is our only operating subsidiary. 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. The March
29, 2002 Amendment and Waiver Agreement with Willey Brothers's lender prohibits
Willey Brothers from paying management fees to the Company until the debt is
repaid in full to the lender. The debt is due and payable August 22, 2003.
Regulations, legal restrictions and contractual agreements could restrict
any needed payments from our subsidiaries. If we are unable to receive cash
funds from our subsidiaries, or from any operating subsidiaries we may acquire
in the future, our operations and financial condition will 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 business, and general market and
economic conditions. In addition, the stock markets in general have recently
experienced extreme 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 believe that inflation has not had a material effect on the Company's
results of operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q 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:
o the continued services of Edward T. Stolarski as Chief Executive
Officer of BrandPartners Group and Willey Brothers, and of James
Brooks as Chief Operating Officer of Willey Brothers;
o our ability to refinance our existing short term debt at all or on
terms favorable to the Company;
o our ability to repay the two $1,000,000 Notes on the terms required
by the our agreement with the former shareholders of Willey
Brothers, thereby entitling the Company to certain debt cancellation
and forgiveness;
o our ability to identify appropriate acquisition candidates, finance
and complete such acquisitions and successfully integrate acquired
businesses;
o changes in our business strategies or development plans;
o competition;
18
o our ability to grow within the financial services industries;
o our ability to obtain sufficient financing to continue operations;
and
o general economic and business conditions, both nationally and in the
regions in which we operate.
Readers are cautioned not to place undue reliance on these 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
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 Forms 10-KSB and 10-QSB and other filings with the
Securities and Exchange Commission.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
The Company's two $3,750,000 Notes, Term Loan and Revolving Credit
Facility expose the Company to the risk of earnings or cash flow loss due to
changes in market interest rates. The Term Loan and Revolving Credit Facility
accrue interest at LIBOR plus an applicable margin or the bank's base rate plus
an applicable margin. The two $3,750,000 Notes accrue interest at LIBOR plus 150
basis points. On April 23, 2001, and in conjunction with obtaining the Company's
Revolving Credit Facility, the Company entered into an interest rate cap
agreement, which limits the Company's exposure if the LIBOR interest rate
exceeds 6.5%. The notional amount under the cap is $4,000,000. The fair value of
the agreement was immaterial at March 31, 2003. For a description of the terms
of the $3,750,000 Notes, Term Loan and Revolving Credit Facility, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" above.
The table below provides information on the Company's market sensitive
financial instruments as of March 31, 2003.
Weighted Average Interest
Principal Balance Rate at March 31, 2003
----------------- -------------------------
Term Loan $2,209,000 5.2527%
Revolving Credit Facility 4,546,000 5.1156%
$3,750,000 Notes 7,500,000 2.8900%
Item 4. Controls and Procedures
Based on their evaluation as of a date within 90 days of the filing of
this Form 10-Q, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that the company files or submits 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 rules and forms. There have been no
significant changes in the company's internal controls or in other factors that
could significantly affect those controls subsequent to the date of their
evaluation.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
A Verified Amended Complaint (the "Complaint") was filed in the Supreme
Court of the State of New York, County of New York, on January 15, 2002, in
connection with an action entitled Marvin M. Reiss and Rebot Corporation v.
BrandPartners Group, Inc., formerly known as Financial Performance Corporation
(Index No. 111385/98). The Complaint sought a declaration that plaintiffs were
entitled to exercise warrants issued to them by the Company in 1993 to purchase
an aggregate of 1,698,904 shares of the common stock of the Company at $.10 per
share in accordance with their terms, without adjustment for a one-for-five
reverse stock split declared by the Company in 1996, and damages in the amount
of approximately $28 million. The Complaint was filed subsequent to a decision
of the Court of Appeals of the State of New York reinstating plaintiffs' claim
for a declaration that they were entitled to exercise the warrants in accordance
with their terms, which claim had previously been dismissed by the New York
County Supreme Court, whose dismissal was affirmed by the Appellate Division,
First Department. The Company served a Verified Answer to the Complaint,
including affirmative defenses, on March 8, 2002. On January 30, 2003, the New
York County Supreme Court denied summary judgment motions made by both the
plaintiffs and the Company, and on February 27, 2003 the court set a June
discovery cut-off date and deadline for filing of a note of issue.
Although the Company believed that it had substantial defenses to the
claims and damages sought, no assurances could be given as to what effect, if
any, the outcome of this matter could have on the Company or its financial
position, which effect could be material. Accordingly, in order to avoid the
uncertainties and expense inherent in litigation, on May 12, 2003 the Company
entered into a settlement with the plaintiffs, whereby the Company agreed to (a)
pay the plaintiffs a total of $150,000 over a period of five months, (b) grant
the plaintiffs five-year options to purchase an aggregate of 300,000 shares of
common stock of the Company, exercisable 25% per year cumulatively beginning May
12, 2004, as to 150,000 share at an exercise price per share of $0.35 ($0.05
over the closing price on the Nasdaq SmallCap Market on the date of grant), and
as to 150,000 shares at an exercise price per share of $0.45 ($0.15 over the
closing price on the Nasdaq SmallCap Market on the date of grant), and (c)
provide certain other consideration, all as set forth in a Stipulation of
Settlement which the Company expects to be filed with the court by May 30, 2003.
Item 2. Changes in Securities and Use of Proceeds.
On January 30, 2003, in a private placement exempt from registration under
the securities laws pursuant to Section 4(2) of the Securities Act of 1933, as
amended, the Company granted five-year options to a consultant to purchase an
aggregate of 125,000 shares of common stock of the Company at an exercise price
of $0.12 per share, in consideration of services to be provided to the Company
and its subsidiary during 2003. These options are exercisable commencing January
30, 2004.
On March 25, 2003, in a private placement exempt from registration under
the securities laws pursuant to Section 4 (2) of the Securities Act of 1933, as
amended, the Company granted five-year options to certain employees, officers
and directors, as an incentive, to purchase an aggregate of 1,545,000 shares of
common stock of the Company at an exercise price of $0.15 per share, as follows:
(i) option grants to three employees of the Company and its subsidiaries to
purchase an aggregate of 120,000 shares, exercisable commencing March 25, 2004;
(ii) option grant to the Company's Chief Financial Officer to purchase 25,000
shares, exercisable commencing March 25, 2004; (iii) option grant to the
Company's Chief Executive Officer to purchase 400,000 shares, exercisable on the
date of grant as to 200,000 shares and commencing January 1, 2004 as to 200,000
shares; and (iv) option grant to each of five outside directors of the Company
to purchase 200,000 shares, exercisable on the date of grant as to 100,000
shares and commencing January 1, 2004 as to 100,000 shares.
20
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included herewith unless otherwise
indicated:
10.1 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.
10.2 Employee Stock Option Agreement, dated as of March 25, 2003, between
the Company and Edward T. Stolarski.
10.3 Employee Stock Option Agreement, dated as of March 25, 2003, between
the Company and Sharon Burd.
10.4 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.
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) The Company filed the following Current Reports on Form 8-K during the
quarter ended March 31, 2003:
None.
21
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.
Dated May 15, 2003
BRANDPARTNERS GROUP, INC.
By: /s/ Edward T. Stolarski
------------------------------------
Edward T. Stolarski
Chairman and Chief Executive Officer
By: /s/ Sharon Burd
------------------------------------
Sharon Burd
Chief Financial Officer
22
Certification
I, Edward T. Stolarski, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BrandPartners
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
By: /s/ Edward T. Stolarski
----------------------------
Edward T. Stolarski
Chief Executive Officer
23
Certification
I, Sharon Burd, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BrandPartners
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
By: /s/ Sharon Burd
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Sharon Burd
Chief Financial Officer