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 September 30, 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 |X| No |_|
The number of shares of common stock outstanding on November 10, 2003 was
18,063,553
BRANDPARTNERS GROUP, INC.
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets
September 30, 2003 and December 31, 2002............................1
Consolidated Statements of Operations for the Nine and Three
Months Ended September 30, 2003 and 2002.............................3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2003 and 2002....................................4
Notes to Consolidated Financial Statements..............................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.................................................24
Item 4. Controls and Procedures...........................................24
Part II - Other Information
Item 5. Other Information.................................................25
Item 6. Exhibits and Reports on Form 8-K..................................27
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
As of September 30, 2003 and December 31, 2002
ASSETS September 30, 2003 December 31, 2002
------------------ -----------------
(unaudited) (see Note "L")
Current assets:
Cash and cash equivalents $ 551,105 $ 2,812,924
Accounts receivable, net 5,166,475 7,476,432
Costs and estimated earnings in
excess of Billings 1,328,606 6,288,532
Inventories 1,194,542 2,102,909
Prepaid expenses and other
current assets 339,890 878,700
Income tax receivable -- 690,136
----------- -----------
Total current assets 8,580,618 20,249,633
----------- -----------
Property and equipment, net of
accumulated depreciation 1,444,776 1,600,415
Goodwill, net of accumulated
amortization 24,271,969 24,271,969
Deferred financing and
acquisition costs 360,282 472,450
Other assets 91,784 270,349
----------- -----------
Total assets $34,749,429 $46,864,816
=========== ===========
The accompanying notes are an integral part of these statements.
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
As of September 30, 2003 and December 31, 2002
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, 2003 December 31, 2002
------------------- -----------------
(unaudited) (see Note "L")
Current liabilities:
Revolving credit facility $ 4,440,965 $ 4,000,000
Accounts payable and accrued expenses 6,358,064 14,837,277
Billings in excess of costs and estimated earnings 4,588,071 1,116,360
Current maturities of long-term debt 3,404,200 4,568,083
Other current liabilities 1,494,217 1,175,494
------------ ------------
Total current liabilities 20,285,517 25,697,214
Notes and interest payable 12,671,131 12,465,008
Capital lease obligations 1,323 2,445
Put warrant liability 56,093 56,295
------------ ------------
Total liabilities 33,014,064 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
September 30, 2003 and December 31, 2002,
18,063,553 shares outstanding as of
September 30, 2003 and December 31, 2002 181,636 181,636
Additional paid-in capital 40,198,822 40,109,102
Accumulated deficit (38,332,593) (31,334,384)
Treasury stock (312,500) (312,500)
------------ ------------
Total stockholders' equity 1,735,365 8,643,854
------------ ------------
Total liabilities and stockholders' equity $ 34,749,429 $ 46,864,816
============ ============
The accompanying notes are an integral part of these statements.
2
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine and Three Months Ended September 30, 2003 and 2002
(unaudited)
Nine Months Ended September 30, Three Months Ended September 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues $ 24,125,178 $ 24,176,748 $ 7,754,648 $ 8,742,920
------------ ------------ ------------ ------------
Costs and expenses
Cost of revenues 21,733,399 19,330,909 7,666,800 6,541,247
Selling, general and administrative 7,073,906 9,852,601 2,472,010 2,611,187
Depreciation and amortization 673,017 659,869 224,042 111,651
------------ ------------ ------------ ------------
Total expenses 29,480,322 29,843,379 10,362,852 9,264,085
------------ ------------ ------------ ------------
Operating loss (5,355,144) (5,666,631) (2,608,204) (521,165)
------------ ------------ ------------ ------------
Interest expense 1,396,041 1,854,563 445,912 626,110
------------ ------------ ------------ ------------
Other (income) expense
Interest income (25,275) (49,376) (4,881) (9,716)
Management fee income -- (312,895) -- --
Settlement of lawsuit 227,220 -- -- --
Loss on sale of assets 37,818 -- -- --
Other 7,261 (339,998) (58,957) (206,145)
------------ ------------ ------------ ------------
Total other (income) expense 247,024 (702,269) (63,838) (215,861)
------------ ------------ ------------ ------------
Loss from continuing operations (6,998,209) (6,818,925) (2,990,278) (931,414)
Loss from discontinued operations -- (7,245,981) -- (6,648,410)
------------ ------------ ------------ ------------
NET LOSS $ (6,998,209) $(14,064,906) $ (2,990,278) $ (7,579,824)
============ ============ ============ ============
Basic and diluted loss per share:
Continuing operations $ (0.38) $ (0.37) $ (0.16) $ (0.05)
Discontinued operations -- $ (0.39) -- $ (0.36)
------------ ------------ ------------ ------------
Basic and diluted loss per share $ (0.38) $ (0.76) $ (0.16) $ (0.41)
============ ============ ============ ============
Weighted -average shares outstanding 18,468,553 18,427,626 18,468,553 18,468,553
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
3
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months ended September 30
(unaudited)
2003 2002
----------- -----------
Cash flows from operating activities of continuing operations
Loss from continuing operations $(6,998,209) $(6,818,925)
Adjustments to reconcile loss from continuing operations to cash used in operating
activities
Depreciation and amortization 673,017 659,869
Amortization of discount on notes payable 63,112 300,435
Settlement of lawsuit 77,220 --
Bad debt provision 8,616 25,599
Non-cash compensation 12,500 310,000
Allowance for obsolete inventory 890,000 123,750
Gain on derivative transaction (202) (339,998)
Loss on sale of assets 37,818 --
Changes in operating assets and liabilities of continuing operations
Accounts receivable 2,301,341 1,658,672
Costs and estimated earnings in excess of billings 4,959,926 (1,207,333)
Inventories 18,367 32,402
Prepaid expenses and other current assets 493,811 (20,696)
Other assets -- 2,285
Accounts payable and accrued expenses (8,479,213) 774,557
Other liabilities 318,723 157,508
Billings in excess of costs and estimated earnings 3,471,711 1,046,259
Interest payable - long term 160,772 342,410
Income tax receivable 690,136 104,489
----------- -----------
Net cash used in operating activities (1,300,554) (2,848,717)
----------- -----------
Cash flows from investing activities of continuing operations
Acquisition of equipment (226,646) (330,969)
Proceeds from sale of assets 7,182 --
Restricted cash -- (4,000,000)
Loan to officers -- (78,000)
Repayment on loan to officer's -- 31,200
----------- -----------
Net cash used in investing activities of continuing operations (219,464) (4,377,769)
----------- -----------
Cash flows from financing activities of continuing operations
Net borrowings on credit facility 440,965 3,593,252
Proceeds from sale of common stock, net -- 245,508
Repayment of long-term debt (1,182,766) (748,418)
----------- -----------
Net cash provide by (used in) financing activities of continuing operations (741,801) 3,090,342
----------- -----------
NET DECREASE IN CASH (2,261,819) (4,136,144)
Cash and cash equivalents, beginning of period 2,812,924 4,225,756
----------- -----------
Cash and cash equivalents, end of period $ 551,105 $ 89,612
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 792,786 $ 908,239
=========== ===========
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 nine months
ended September 30, 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 C to the Company's restated consolidated financial
statements in Amendment No. 2 to 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 nine months ended September 30, 2003, and
the accounts of BrandPartners Group, Willey Brothers and BrandPartners
Group's discontinued operation, iMapData.com, Inc., for the nine months
ended September 30, 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. 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' revolving
credit facility and term loan (together, the "Facility") are currently due
to expire on December 1, 2003. The Company has guaranteed 100% of the
Facility. Willey Brothers and its lender are in the process of negotiating
an extension of the Facility on terms and conditions acceptable to the
parties, but no assurances can be given that Willey Brothers will be
successful in concluding such an extension at all or on terms favorable to
Willey Brothers. If for any reason Willey Brothers is unable to extend or
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 substantially all of the assets of Willey Brothers and
the Company's ownership interest in Willey Brothers. Should that
foreclosure occur the Company would have no further operations. In
addition, in the event that Willey Brothers is unable to pay the amount
due under the Facility upon maturity, such a default would trigger a
default under and acceleration of the Willey Subordinated Note Payable (as
defined in Note "E" below), and would trigger the right of the holder of
the Put Warrant (as defined in Note "E" below) to put such Put Warrant to
Willey Brothers (see Note "E").
5
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE A - NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)
In response to current market conditions and as a part of its ongoing
corporate strategy, the Company is negotiating 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 debt and equity financing arrangements to permit payment of the
Company's short-term debt, support the Company's operations and allow the
execution of its business plan. While no assurances can be given,
management believes that implementation of these initiatives and the
anticipated extension 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 September 30, 2003 and December 31,
2002.
September 30, 2003 December 31, 2002
------------------ -----------------
Finished Goods $ 739,598 $1,560,943
Raw Materials 436,616 534,619
Work-in-Process 18,328 7,347
---------- ----------
$1,194,542 $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 interest rate in effect on September 30, 2003
was 6.25% for the term loan and the revolving credit facility. As of
September 30, 2003, the outstanding balances under the term loan and the
revolving credit facility were $1,389,045 and $4,440,965 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, March 18, 2003, August 21, 2003 and
September 29, 2003, and by a letter agreement dated February 12, 2003. The
September 29, 2003 Amendment extended the facility and payment of the
amendment fees to December 1, 2003 and increased the required pre-payments
of principal. The August 21, 2003 and March 18, 2003 Amendments extended
the expiration of the Facility to September 29, 2003 and August 22, 2003,
respectively, extended the payment terms for the amendment fee and
required additional pre-payments of principal. 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 various other
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 February 12, 2003 letter
agreement extended the payment terms for the amendment fee. Willey
Brothers and its lender are in the process of negotiating an extension of
the Facility on terms and conditions acceptable to the parties, but no
assurances can be given that Willey Brothers will be successful in
concluding such an extension at all or on terms favorable to Willey
Brothers. Borrowings under the 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. If for any
reason Willey Brothers is unable to extend or 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
substantially all of the assets of Willey Brothers and the Company's
ownership interest in Willey Brothers. Should that foreclosure occur the
Company would have no further operations. In addition, in the event that
Willey Brothers is unable to pay the amount due under the Facility upon
maturity, such a default would trigger a default under and acceleration of
the Willey Subordinated Note Payable, and would trigger the right of the
holder of the Put Warrant to put such Put Warrant to Willey Brothers (see
Note "E"). At September 30, 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 September 30, 2003
and December 31, 2002:
2003 2002
------------ ------------
Notes payable (1) (2) $ 14,500,000 $ 14,500,000
Discount on notes payable (236,592) (299,704)
Interest payable 407,723 246,951
Less current maturities (2,000,000) (1,982,239)
------------ ------------
$ 12,671,131 $ 12,465,008
============ ============
Notes payable of $14.5 million consist of the following at September 30,
2003:
(1) Two subordinated convertible promissory notes totaling $7,500,000
(the "$7.5 Million Notes"), and two convertible promissory notes
totaling $2,000,000 (the "$2.0 Million Notes," together with the
$7.5 Million Notes, 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 September 30, 2003 was
2.6%. 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 November 30, 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 has been 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. 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 Note "D"). Should the Company be
unable to secure the necessary financing to pay or refinance the
$2.0 Million Notes at or prior to their due date, or the earliest
date on which payment is permitted by Willey Brothers' lender, if
later, the existence of such a default in payment of the $2.0
Million Notes may result in litigation for enforcement of such $2.0
Million Notes and could compromise the Company's ability to obtain
additional financing to support its operations. In addition, such a
default in the payment of the $2 Million Notes would trigger a
default under and acceleration of each of the $7.5 Million Notes and
the Willey Subordinated Note Payable (as defined below), and would
trigger the right of the holder of the Put Warrant to put such Put
Warrant to Willey Brothers.
8
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE E - NOTES AND INTEREST PAYABLE (continued)
On May 15, 2003, the Company entered into an agreement with the
former shareholders of Willey Brothers (the "Willey Agreement")
providing for, among other things, the cancellation and forgiveness
of certain debt upon the occurrence of certain events. Under the
agreement, as amended for certain consideration on June 16, 2003,
September 15, 2003 and October 17, 2003, 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 November 30, 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 $1,475,000 (included in Other Current
Liabilities at September 30, 2003) and accrued, unpaid Earn-Out of
$500,000 (included in accounts payable and accrued expenses at
September 30, 2003), 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. As discussed above, Willey Brothers' Facility with
its commercial lender prohibits the Company from making any payments
in respect of the $2.0 Million Notes until all of its obligations
are repaid in full to such commercial lender. No assurances can be
given that the Company will have sufficient capital or be permitted
by its commercial lender to repay the $2.0 Million Notes on or by
the date required under the Willey Agreement. In the event that the
$2.0 Million Notes are not repaid on or by such required date, the
Willey Agreement will expire and no debt will be forgiven or
cancelled.
Current maturities consist of the following at September 30, 2003
and December 31, 2002:
September 30, 2003 December 31, 2002
------------------ -----------------
Seller Notes $2,000,000 $1,982,239
Term Loan 1,389,045 2,499,045
Capital Lease Liability 15,155 86,799
---------- ----------
$3,404,200 $4,568,083
========== ==========
(2) A subordinated promissory note in the principal amount of $5,000,000
issued on October 22, 2001 to a third party (the "Willey Subordinated Note
Payable"). 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
9
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE E - NOTES AND INTEREST PAYABLE (continued)
financial covenants through September 30, 2003. Concurrently and in
connection with the issuance of the note, the Company issued a common
stock purchase warrant (the "Put Warrant") to purchase 405,000 shares of
common stock of the Company at $0.01 per share. The Put Warrant expires
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 Put Warrant
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 was recorded. Changes to the
future fair value of the Put Warrant are recorded in accordance with SFAS
No. 133 and credited or charged to other income or loss, respectively. For
the nine and three months ended September 30, 2003 the Company recorded an
unrealized gain of $202 and $66,420 respectively. For the nine and three
months ended September 30, 2002 the Company recorded an unrealized gain of
$339,998 and $206,145 respectively. In consideration for the extension of
an interest payment due date, on September 30, 2003 the Company issued a
common stock purchase warrant to purchase 10,000 shares of common stock of
the Company at $0.24 per share, the closing price of the Company's common
stock on the date of issue, on the same terms as the Put Warrant.
NOTE F - SIGNIFICANT CUSTOMERS
For the nine months ended September 30, 2003, one customer of Willey
Brothers accounted for approximately 21% of its revenues. For the three
months ended September 30, 2003, six customers of Willey Brothers
accounted for approximately 17%, 17%, 16%, 15%, 15% and 12% of its
revenues, respectively.
For the nine months ended September 30, 2002, two customers of Willey
Brothers accounted for approximately 12% and 11% of its revenues,
respectively. For the three months ended September 30, 2002, three
customers of Willey Brothers accounted for approximately 15%, 13% and 10%
of its revenues, respectively.
NOTE G - SUPPLEMENTAL DISCLOSURES FOR STATEMENTS OF CASH FLOWS
On May 12, 2003, the Company issued 300,000 options to Rebot Corporation
in settlement of a lawsuit against the Company. The options have a
Black-Scholes valuation of approximately $77,220. The transaction was
accounted for by charging other expense and crediting
additional-paid-in-capital.
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. The transaction was accounted for by charging consulting expense
and crediting additional-paid-in-capital.
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. The transaction was accounted for by charging salary
expense and crediting common stock and additional-paid-in-capital.
10
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
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 September 30, 2003 the Company had a liability
of $500,000 related to the year 2001. As of September 30, 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").
The Company has entered into an agreement with the former shareholders,
whereby, if certain conditions are met all accrued and unpaid obligations
under the Earn-Out shall be forgiven and no further Earn-Out obligation
shall accrue (see Note "E").
11
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
six and three months 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 nine and
three months ended September 30, 2003 and expected lives of five and eight
years for the year ended December 31, 2002.
Nine Months Ended Three Months Ended
September 30, September 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net loss applicable to common stockholders
As reported $ (6,998,209) $(14,064,906) $ (2,990,278) $ (7,579,824)
Stock based compensation expense 1,095,696 762,011 163,420 41,308
------------ ------------ ------------ ------------
Pro forma $ (8,093,905) $(14,826,917) $ (3,153,698) $ (7,621,132)
============ ============ ============ ============
Weighted-average shares outstanding
Basic and diluted 18,468,553 18,427,626 18,468,553 18,468,553
============ ============ ============ ============
Net loss per share
As reported $ (0.38) $ (0.76) $ (0.16) $ (0.41)
============ ============ ============ ============
Pro forma $ (0.44) $ (0.80) $ (0.17) $ (0.41)
============ ============ ============ ============
12
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 nine and three months
ended September 30, 2002 is as follows:
Nine Months Ended Three Months Ended
September 30, September 30,
2002 2002
----------- -----------
Revenues $ 1,654,271 $ 655,274
----------- -----------
Cost and expenses:
Cost of revenues 1,369,828 449,206
Selling, general and
administrative expenses 1,044,747 357,409
Impairment of goodwill 6,602,610 6,602,610
Depreciation and amortization 71,768 28,171
----------- -----------
Total expenses 9,088,853 7,437,396
----------- -----------
Operating loss (7,434,582) (6,782,122)
----------- -----------
Other income:
Interest income 7,895 1,971
Minority interest 366,359 131,741
----------- -----------
Total other income 374,254 133,712
----------- -----------
Loss before change in accounting
principle (7,060,328) (6,648,410)
Change in accounting principle 185,553 --
----------- -----------
Net loss from discontinued
operations $(7,245,981) $(6,648,410)
=========== ===========
13
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE L - PRIOR PERIOD RESTATEMENT
At December 31, 2002 the Company was eligible for a federal income tax
refund, the effect of which was not reflected in the financial statements
contained in its Annual Report on Form 10-KSB for the year ended December
31, 2002. The error was discovered during the second quarter of 2003 in
the course of preparing federal income tax returns for the year ended
December 31, 2002, when the Company learned that its wholly-owned
subsidiary, Willey Brothers, Inc. could take advantage of a five-year
carryback rule effective for the tax years ending December 31, 2001 and
December 31, 2002. Simultaneously with the filing of its Quarterly Report
on Form 10-Q for the quarter ended June 30, 2003, the Company filed an
Amendment No. 2 to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2002, which amended report contains restated financial
statements reflecting the effect of the federal tax refund. The tables
below show the effect of the correction on the Consolidated Balance
Sheets, Consolidated Statements of Operations, Consolidated Statement of
Stockholders' Equity and Consolidated Statements of Cash Flows for the
year ended December 31, 2002.
Consolidated Balance Sheets
Previously Reported As Restated
------------------- -----------
Income tax receivable -- $ 690,136
Total current assets $ 19,559,497 20,249,633
Total assets 46,174,680 46,864,816
Accumulated deficit (32,024,520) (31,334,384)
Total stockholders' equity 7,953,718 8,643,854
Total liabilities and stockholders' equity 46,174,680 46,864,816
Consolidated Statements of Operations
Previously Reported As Restated
------------------- -----------
Income tax expense (benefit) $ 167,155 $ (522,981)
Loss from continuing operations 5,956,382 5,266,246
Net Loss 13,125,967 12,435,831
Net loss applicable to common
Stockholders 13,125,967 12,435,831
Basic and diluted loss per share
from continuing operations (0.32) (0.28)
Basic and diluted loss per share (0.71) (0.67)
Consolidated Statements of Cash Flows
Previously Reported As Restated
------------------- -----------
Net loss from continuing operations $ (5,956,382) $ (5,266,246)
Changes in operating assets, net of
effects from acquisitions
Income taxes 104,489 (585,647)
14
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE L - PRIOR PERIOD RESTATEMENT (continued)
Consolidated Statement of Stockholders' Equity
Accumulated Deficit Total
------------------- -----
Previously Previously
Reported As Restated Reported As Restated
------------ ------------ ------------ ------------
Net loss (13,125,967) (12,435,831) (13,125,967) (12,435,831)
Balance at December 31, 2002 $(32,024,520) $(31,334,384) $ 7,953,718 $ 8,643,854
NOTE M - SUBSEQUENT EVENTS
On October 1, 2003, Edward T. Stolarski, the Company's former Chairman and
Chief Executive Officer, resigned as a member of the Board of Directors,
effective immediately, and as Chief Executive Officer of the Company, effective
on October 10, 2003. In addition, on October 6, 2003, Kenneth Csaplar resigned
from the Board, and on October 7, 2003 Chet Borgida and Anthony van Daalen
resigned from the Board. All of the resignations were without any dispute or
disagreement with the Company and/or the practices of management. On October 15,
2003, Anthony J. Cataldo and J. Weldon Chitwood were appointed to the Board of
Directors, Mr. Cataldo was elected Non-executive Chairman of the Board and Mr.
Chitwood was elected Corporate Secretary.
On October, 15, 2003, the Company entered into an agreement with Mr.
Cataldo for a period of one year wherein Mr. Cataldo agreed to serve as the
Company's Non-executive Chairman. Mr. Cataldo's agreement provides for payment
to Mr. Cataldo of $30,000 per month and for the issuance to Mr. Cataldo of
options to purchase 1,500,000 shares of the Company's common stock at an
exercise price of $0.20 per share and 1,500,000 shares of the Company's common
stock at an exercise price of $0.30 per share. The options will have cost-free
piggy-back registration rights and will be exercisable over a period of five (5)
years.
As of October 15, 2003, the Company agreed to enter into a six (6) month
agreement with Mr. Chitwood wherein Mr. Chitwood will agree to serve as the
Company's Corporate Secretary. The agreement will provide for payment to Mr.
Chitwood of $5,000 per month and for the issuance to Mr. Chitwood of options to
purchase 400,000 shares of the Company's common stock at an exercise price of
$0.30 per share. The options will have cost-free piggy-back registration rights
and will be exercisable over a period of five (5) years.
On October 15, 2003, the Company approved a grant of options to Richard
Levy, a director of the Company, to purchase 400,000 shares of the Company's
common stock at an exercise price of $0.30 per share. The options will have
cost-free piggy-back registration rights and will be exercisable over a period
of five (5) years.
On October 15, 2003, the Company approved a grant of options to Ronald
Nash to purchase 2,000,000 shares of the Company's common stock at an exercise
price of $0.30 per share. The options will be issued in recognition of certain
services performed by Mr. Nash on behalf of the Company and in exchange for the
cancellation of options previously issued to Mr. Nash to purchase 1,000,000
shares of the Company's common stock at an exercise price of $0.43 per share and
1,000,000 shares of the Company's common stock at an exercise price of $14.50
per share. The grant of options will be subject to certain minimum exercise
requirements and the shares of common stock underlying the options will have
cost-free registration rights.
15
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE M - SUBSEQUENT EVENTS (continued)
On October 15, 2003 and November 1, 2003 the Company entered into two
consulting agreements. Each of the agreements is for a period of one year and
provides for payment of consulting fees of $10,000 per month. Additionally, the
Company has agreed to issue to such consultants options to purchase an aggregate
of 750,000 shares of the Company's common stock at an exercise price of $0.30
per share. The options will have cost-free piggy-back registration rights and
will be exercisable over a period of five (5) years.
On October 23, 2003, the Company entered into a consulting agreement for a
period of nine (9) months. The agreement provides for the payment of consulting
fees of $7,000 per month and for the issuance to the consultant of 300,000
shares of the Company's common stock.
On November 7, 2003, the Company executed two promissory notes payable to
third parties for the aggregate amount of $350,000. The notes bear interest at a
rate of 5% per annum and are due and payable on December 9, 2003.
On November 7, 2003, the Company was served with a five (5) day notice on
behalf of its landlord in connection with its offices at 777 Third Avenue, New
York, New York. The five (5) day notice provides that the Company has until
November 14, 2003 to cure a default in its failure to pay rent and related
charges for the months of October and November 2003. The Company is seeking to
negotiate a settlement regarding its rental obligations with its landlord.
On November 10, 2003, the Company entered into a one year employment
agreement with James F. Brooks, its Chief Executive Officer. The agreement
provides for payment to Mr. Brooks of an annual salary of $300,000, and for the
issuance to Mr. Brooks of options to purchase 500,000 shares of the Company's
common stock at an exercise price of $0.20 per share and 500,000 shares of the
Company's common stock at an exercise price of $0.30 per share. The options will
have cost-free piggy-back registration rights and will be exercisable over a
period of five (5) years.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
As of September 30, 2003, the Company had negative working capital
(current assets less current liabilities) of $11,705,000, stockholders' equity
of $1,735,000 and a working capital ratio (current assets to current
liabilities) of approximately .42:1. At December 31, 2002, the Company had
negative working capital of $5,448,000, stockholders' equity of $8,644,000 and a
working capital ratio of approximately .79:1. The balances of the Term Loan and
Revolving Credit Facility (as each of such terms is defined below) of
approximately $1,389,000 and $4,441,000, respectively, as of September 30, 2003,
are currently due to be repaid on December 1, 2003. Willey Brothers and its
lender are in the process of negotiating an extension of the Facility (as such
term is defined below) on terms and conditions acceptable to the parties, but no
assurances can be given that Willey Brothers will be successful in concluding
such an extension at all or on terms favorable to Willey Brothers. In addition,
the $2.0 Million Notes (as defined below) with accrued interest of approximately
$690,000 are due to be repaid on November 30, 2003 (see "The Seller Notes"
below). The Company is actively seeking financing to repay the $2.0 Million
Notes. The terms of the Company's debt instruments, including the consequences
of any failure to pay such debt at maturity, is discussed in more detail in
"Indebtedness" and "Liquidity Issues" below. In August 2003 Willey Brothers
received a federal tax refund in the amount of approximately $1.2 million
arising from the carryback of Willey Brothers' 2002 income tax loss. The
proceeds of the refund were used for working capital purposes. On November 7,
2003, the Company executed two promissory notes for the aggregate amount of
$350,000. The notes are at a rate of five percent (5%) interest and are due
December 9, 2003. The proceeds from the notes are being used for working
capital.
As of September 30, 2003 and December 31, 2002 the Company had
unrestricted cash and cash equivalents of $551,000 and $2,813,000, respectively.
For the nine months ended September 30, 2003 and 2002, net cash used in
operating activities of continuing operations was $1,301,000 and $2,849,000,
respectively, net cash used in investing activities of continuing operations was
$219,000 and $4,378,000, respectively, and net cash provided by (used in)
financing activities of continuing operations was $(742,000) and $3,091,000,
respectively.
Indebtedness
The Willey Brothers Facility
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
September 30, 2003, there was $1,389,000 outstanding under the Term Loan and
$4,441,000 outstanding under the Revolving Credit Facility, and outstanding
amendment fees in the amount of $580,000. The interest rate in effect on
September 30, 2003 was 6.25% for the Term Loan and 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, March 18, 2003, August 21, 2003 and
September 29, 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' cash and restrict the payment of
certain other obligations. The September 29, 2003 Amendment extended the
facility and payment of the amendment fees to December 1, 2003 and increased the
required pre-payments of principal. 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. The August 21, 2003 Amendment
extended the expiration of the Facility from August 22, 2003 until
17
September 29, 2003, extended the payment of the amendment fee until such date,
and increased the amount of the weekly pre-payments toward the balance of the
Term Loan mandated by the March 18, 2003 Amendment. Willey Brothers and its
lender are in the process of negotiating an extension of the Facility on terms
and conditions acceptable to the parties, but no assurances can be given that
Willey Brothers will be successful in concluding such an extension at all or on
terms favorable to Willey Brothers. If for any reason Willey Brothers is unable
to extend or 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 substantially all of the assets of Willey Brothers and 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. For further discussion of the consequences of a failure to pay the
Facility upon maturity, see "Liquidity Issues" below. As of November 7, 2003
there were outstanding balances of approximately $909,000 under the Term Loan
and $4,685,000 under the Revolving Credit Facility.
The Seller Notes
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 "$2 Million Notes"), and two subordinated convertible promissory
notes, each in the principal amount of $3,750,000 (the "$7.5 Million Notes,"
together with the $2.0 Million Notes, the "Seller Notes"). The $2.0 Million
Notes bear interest at 11% per annum and provide for quarterly principal
payments. The remaining principal and accrued interest under the $2.0 Million
Notes are due in one payment on November 30, 2003. Subject to certain
conditions, the $2.0 Million Notes are convertible into common stock of the
Company at the option of the noteholder at a rate of $3.00 per share. 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 interest
rate in effect on September 30, 2003 was 2.6%. The principal and any accrued
interest under the $7.5 Million Notes are due in one payment on October 11,
2007. Subject to certain conditions, the $7.5 Million 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 Seller Notes for the
first three quarters of 2001 were deferred until the end of the term, the
maturity date of the $2 Million Notes was extended to October 11, 2003 from
January 11, 2003 and the maturity date of the $7.5 Million Notes was extended to
October 11, 2007 from January 11, 2007. Pursuant to the Willey Agreement (as
defined below), the maturity date of the $2 Million Notes was further extended
until November 30, 2003. Pursuant to the Amendment and Waiver Agreement, dated
March 29, 2002, among the Company, Willey Brothers and Willey Brothers' lender
for the Facility, and consented to by the noteholders, no payments in respect of
the Seller Notes can be made until all of the obligations are paid, in full, to
the lender. No payments have been made under the Seller Notes to date. Should
the Company be unable to secure the necessary financing to pay or refinance the
$2.0 Million Notes at or prior to their due date, or the earliest date on which
payment is permitted by Willey Brothers' lender, if later, the Company will be
in default under the terms of such $2.0 Million Notes, and the existence of such
a default may result in litigation for enforcement of such $2.0 Million Notes
and could compromise the Company's ability to obtain additional financing to
support its operations. For further discussion of the consequences of a failure
to pay the $2.0 Million Notes upon maturity, see "Liquidity Issues" below.
The Company has entered into an agreement with the former shareholders of
Willey Brothers (the "Willey Agreement") 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 November 30, 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 entered into in connection with the purchase of Willey Brothers
shall be forgiven and no further earn-out obligations shall accrue. As of
September 30, 2003 such debt cancellation and forgiveness would total
approximately $9,475,000. As discussed above, Willey Brothers' Facility with its
commercial lender prohibits the Company from making any payments in respect of
the $2.0 Million Notes until all of its obligations are repaid in full to such
commercial lender. No assurances can be given that the Company will have
sufficient capital or be permitted by its commercial lender to repay the $2.0
Million Notes in the time frame required by the Willey Agreement, in which case
the Company will derive no benefit from the Willey Agreement. In the event that
18
the Company does not make payment of the $2.0 Million Notes as set forth in the
Willey Agreement, the Company's obligations to pay principal and interest under
the $2.0 Million, $7.5 Million Notes and earn-out will remain in full force and
effect. The consequences of a failure to pay the $2.0 Million Notes upon
maturity are discussed above.
The Willey Subordinated Note Payable
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 September 30, 2003 was $5,171,000 including PIK interest of $408,000 and
less the aggregate discount on notes payable of $237,000. 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 a common stock purchase warrant (the "Put
Warrant") to purchase 405,000 shares of common stock of the Company at an
exercise price of $0.01. The Put Warrant expires 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 Put Warrant 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. In consideration for the extension
of an interest payment due date, on September 30, 2003 the Company issued a
common stock purchase warrant to purchase 10,000 shares of common stock of the
Company at an exercise price of $0.24, the closing price on the date of
issuance, on terms similar to the Put Warrant. The Company has received waivers
from certain financial covenants through September 30, 2003. At September 30,
2003 the Company had a long-term liability of approximately $56,000 related to
the Put Warrant.
Liquidity Issues
As discussed above, the outstanding balances under the Willey Brothers'
Facility, consisting of $909,000 under the Term Loan and $4,685,000 under the
Revolving Credit Facility at November 7, 2003, and outstanding amendment fees of
$580,000, are due and payable on December 1, 2003. Although Willey Brothers and
its commercial lender are in the process of negotiating an extension of the
Facility on terms and conditions acceptable to the parties, no assurances can be
given that Willey Brothers will be successful in concluding such an extension at
all or on terms favorable to Willey Brothers. If for any reason Willey Brothers
is unable to extend or 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 substantially all of the assets of Willey Brothers and
the Company's ownership interest in Willey Brothers. Should that foreclosure
occur the Company would have no further operations. In addition, in the event
that Willey Brothers is unable to pay the amount due under the Facility upon
maturity, such a default would trigger a default under and acceleration of the
Willey Subordinated Note Payable, and would trigger the right of the holder of
the Put Warrant to put such Put Warrant to Willey Brothers.
In addition, the $2 Million Notes will mature and become payable on
November 30, 2003. As discussed above, the Willey Agreement provides the
opportunity, if the principal balance of the $2 Million Notes is paid pursuant
to the terms of the Willey Agreement, to obtain cancellation and forgiveness of
the interest due under the $2 Million Notes, the principal and interest due
under the $7.5 Million Notes, and certain earn-out obligations. In the event
that the $2 Million Notes are not paid upon maturity, or at the earliest date on
which payment is permitted by Willey Brothers' lender, if later, such a default
of payment may result in litigation for enforcement of such $2.0 Million Notes
and could compromise the Company's ability to obtain additional financing to
support its operations. In addition, such a default in the payment of the $2
Million Notes would trigger a default under and acceleration of each of the $7.5
Million Notes and the Willey Subordinated Note Payable, and would trigger the
right of the holder of the Put Warrant to put such Put Warrant to Willey
Brothers.
19
Our ability to satisfy our working capital requirements depends on, among
other things, whether we are able to extend or refinance our short-term debt at
all or on terms favorable to the Company, as discussed above, and whether we are
successful in generating revenues and income from Willey Brothers. The Company
is also actively seeking additional capital through debt or equity financing
arrangements to permit payment of the Company's obligations under the $2.0
Million Notes, which are due on November 30, 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. We continue to
be impacted by limitations placed upon Willey Brothers by its lender with
respect to funds available under its Facility. 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.
Results of Operations
Nine Months Ended September 30, 2003 Compared to Nine Months Ended
September 30, 2002
Revenues. Revenues from continuing operations decreased approximately
$52,000, or .22%, to $24,125,000 for the nine months ended September 30, 2003
from $24,177,000 for the nine months ended September 30, 2002.
Cost of Revenues. Cost of revenues from continuing operations increased
approximately $2,402,000, or 12%, to $21,733,000 (90% of net revenues), for the
nine months ended September 30, 2003 from $19,331,000 (80% of net revenues) for
the nine months ended September 30, 2002. This increase is primarily
attributable to an increase in costs in the Branch Planning and Design division
and to the write off of obsolete inventory totaling $800,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses from continuing operations decreased approximately
$2,778,000, or 28%, to $7,074,000 for the nine months ended September 30, 2003
from $9,852,000 for the nine months ended September 30, 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 increased approximately $13,000, or 2%, to $673,000 for
the nine months ended September 30, 2003 from $660,000 for the nine months ended
September 30, 2002. This increase is primarily attributable to the accelerated
amortization of financing fees in anticipation of the expiration of Willey's
credit facility offset by of the amortization in full at December 31, 2002 of a
financing fee incurred in the Company's private placement of equity, completed
in February 2002.
Operating Loss. Operating loss from continuing operations decreased
approximately $311,000, or 5%, to $5,355,000 for the nine months ended September
30, 2003, from $5,666,000 for the nine months ended September 30, 2002. This
decrease in the operating loss is primarily due to the decrease in selling,
general and administrative expenses offset by the increase in cost of sales.
Interest Expense. Interest expense from continuing operations decreased
approximately $459,000, or 25%, to $1,396,000 for the nine months ended
September 30, 2003 from $1,855,000 for the nine months ended September 30, 2002.
This decrease is attributable to a reduction in the term loan, of $4,000,000, in
December 2002 and reductions of $1,110,000 in the current period, and to the
amortization in full in January 2003 of the beneficial conversion on preferred
stock.
Other Income (Expense). Other expense from continuing operations increased
approximately $949,000, or 135%, to expense of $247,000 for the nine months
ended September 30, 2003 from income of $702,000 for the nine months ended
September 30, 2002. This increase in other expense is primarily attributable to
the absence of management fee income in the current period received in the prior
year period from a former subsidiary, the provision recorded for the settlement
of the action entitled Marvin A. Reiss and Rebot Corporation v.
20
BrandPartners Group, Inc., and to a decrease in an unrealized gain resulting
from the valuation of a put feature on a warrant issued in conjunction with a
note payable.
Loss from Continuing Operations. Loss from continuing operations increased
approximately $179,000, or 3%, to $6,998,000 for the nine months ended September
30, 2003 from $6,819,000 for the nine months ended September 30, 2002. This
decrease is due to the factors referred to above.
Net Loss. Net loss decreased approximately $7,067,000, or 50%, to
$6,998,000 for the nine months ended September 30, 2003 from $14,065,000 for the
nine months ended September 30, 2002. The decrease in the net loss is primarily
due to the absence in the current period of a loss from discontinued operations
of $7,246,000.
Three Months Ended September 30, 2003 Compared to Three Months Ended
September 30, 2002
Revenues. Revenues from continuing operations decreased approximately
$988,000, or 11%, to $7,755,000 for the three months ended September 30, 2003
from $8,743,000 for the three months ended September 30, 2002. This decrease is
due to the timing of contract revenue and when it is recognized and to a
decrease in orders in the current quarter.
Cost of Revenues. Cost of revenues from continuing operations increased
approximately $1,126,000, or 17%, to $7,667,000 (98.9% of net revenues), for the
three months ended September 30, 2003 from $6,541,000 (75% of net revenues) for
the three months ended September 30, 2002. This increase is primarily
attributable to the write down of obsolete inventory totaling $800,000 and to
increased costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses from continuing operations decreased approximately
$139,000, or 5%, to $2,472,000 for the three months ended September 30, 2003
from $2,611,000 for the three months ended September 30, 2002. This decrease is
primarily attributable to a decrease in professional fees and salary expense,
offset by an increase in insurance expense, at the parent company.
Depreciation and Amortization. Depreciation and amortization from
continuing operations increased approximately $112,000, or 100%, to $224,000 for
the three months ended September 30, 2003 from $112,000 for the three months
ended September 30, 2002. This increase is primarily attributable to an increase
in depreciation expense resulting from the acquisition of fixed assets in the
current year and to the accelerated amortization of a financing fee in
anticipation of the expiration of Willey Brothers' credit facility, offset by
the amortization in full at December 31, 2002 of a financing fee incurred in the
Company's private placement of equity, completed in February of 2002.
Operating Loss. Operating loss from continuing operations increased
approximately $2,087,000, or 401%, to $2,608,000 for the three months ended
September 30, 2003, from $521,000 for the three months ended September 30, 2002.
This increase is primarily due to the factors referred to above.
Interest Expense. Interest expense from continuing operations decreased
approximately $180,000, or 29%, to $446,000 for the three months ended September
30, 2003 from $626,000 for the three months ended September 30, 2002. This
decrease is attributable to a reduction in the term loan, of $4,000,000, in
December 2002 and reductions of $450,000 in the three months ended September 30,
2003, and to the amortization in full in January 2003 of the beneficial
conversion on preferred stock.
Other Income (Expense). Other income from continuing operations decreased
approximately $152,000, or 70% to $64,000 for the three months ended September
30, 2003 from of $216,000 for the three months ended September 30, 2002. This
decrease in other income is primarily attributable to a decrease in an
unrealized gain resulting from the valuation of a put feature on a warrant
issued in conjunction with a note payable.
Loss from Continuing Operations. Loss from continuing operations increased
approximately $2,059,000, or 221%, to $2,990,000 for the three months ended
September 30, 2003 from $931,000 for the three months ended September 30, 2002.
This increase is due to the factors referred to above.
21
Net Loss. Net loss decreased approximately $4,590,000, or 61%, to
$2,990,000 for the three months ended September 30, 2003 from $7,580,000 for the
three months ended September 30, 2002. The decrease in the net loss is primarily
due to the absence in the current quarter of a loss from discontinued operations
of $6,649,000 offset by the factors referred to above.
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.
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' lender prohibits
Willey Brothers from paying management fees to the Company until the debt is
repaid in full to the lender. 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. 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.
In addition, at the opening of business on August 29, 2003, our common stock was
delisted from the Nasdaq SmallCap Market and became eligible for quotation on
the Over-the-Counter Bulletin Board. The delisting was the result of our failure
to satisfy Nasdaq's minimum bid price requirement for continued listing. It is
impossible to predict the effect of these or other factors on the market price
of our common stock, and the price may continue to fluctuate significantly in
the future.
Inflation
We believe that inflation has not had a material effect on our 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, identify forward-looking statements, which
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 James F. Brooks as Chief Executive Officer
of the Company and Willey Brothers;
o our ability to refinance or obtain an extension of our existing
short term debt at all or on terms favorable to us
22
o our ability to repay the two $1,000,000 Notes on the terms required
by the Willey Agreement with the former shareholders of Willey
Brothers, thereby entitling us to certain debt cancellation and
forgiveness;
o our ability to continue to obtain waivers of covenants and other
defaults under our debt instruments and credit facilities;
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;
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. We undertake 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 in this report, as well as in our periodic reports
on Forms 10-K and 10-Q, current reports on 8-K, and other filings with the
Securities and Exchange Commission.
23
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Our $7.5 Million Notes, Term Loan and Revolving Credit Facility expose us
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 $7.5
Million Notes accrue interest at LIBOR plus 150 basis points. On April 23, 2001,
and in conjunction with obtaining our Revolving Credit Facility, we entered into
an interest rate cap agreement, which limits our 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 September 30, 2003. For a description
of the terms of the $7.5 Million 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 our market sensitive financial
instruments as of September 30, 2003.
Interest Rate at
Principal Balance September 30, 2003
----------------- ------------------
Term Loan $1,389,000 6.25%
Revolving Credit Facility 4,441,000 6.25%
$7.5 Million Notes 7,500,000 2.60%
Item 4. Controls and Procedures
Based on their evaluation as of the end of the period covered by this
Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures are effective
to ensure that information required to be disclosed in the reports that we file
or submit under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. There has
been no change in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15
promulgated under the Exchange Act that occurred during our fiscal quarter ended
September 30, 2003 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
24
PART II - OTHER INFORMATION
Item 5. Other Information.
At the opening of business on August 29, 2003, our common stock was
delisted from the Nasdaq SmallCap Market and became eligible for quotation on
the Over-the-Counter Bulletin Board. The delisting was the result of our failure
to satisfy Nasdaq's minimum bid price requirement for continued listing.
On October 1, 2003, Edward T. Stolarski, our former Chairman and Chief
Executive Officer, resigned as a member of the Board of Directors, effective
immediately, and as Chief Executive Officer of the Company, effective on October
10, 2003. In addition, on October 6, 2003, Kenneth Csaplar resigned from the
Board, and on October 7, 2003 Chet Borgida and Anthony van Daalen resigned from
the Board. All of the resignations were without any dispute or disagreement with
the Company and/or the practices of management. On October 15, 2003, Anthony J.
Cataldo and J. Weldon Chitwood were appointed to the Board of Directors, Mr.
Cataldo was elected Non-executive Chairman of the Board and Mr. Chitwood was
elected Corporate Secretary.
On October, 15, 2003, we entered into an agreement with Mr. Cataldo for a
period of one year wherein Mr. Cataldo agreed to serve as our Non-executive
Chairman. Mr. Cataldo's agreement provides for payment to Mr. Cataldo of $30,000
per month and for the issuance to Mr. Cataldo of options to purchase 1,500,000
shares of our common stock at an exercise price of $0.20 per share and 1,500,000
shares of our common stock at an exercise price of $0.30 per share. The options
will have cost-free piggy-back registration rights and will be exercisable over
a period of five (5) years.
As of October 15, 2003, we agreed to enter into a six (6) month agreement
with Mr. Chitwood wherein Mr. Chitwood will agree to serve as our Corporate
Secretary. The agreement will provide for payment to Mr. Chitwood of $5,000 per
month and for the issuance to Mr. Chitwood of options to purchase 400,000 shares
of our common stock at an exercise price of $0.30 per share. The options will
have cost-free piggy-back registration rights and will be exercisable over a
period of five (5) years.
On October 15, 2003, we approved a grant of options to Richard Levy, a
director of the Company, to purchase 400,000 shares of our common stock at an
exercise price of $0.30 per share. The options will have cost-free piggy-back
registration rights and will be exercisable over a period of five (5) years.
On October 15, 2003, we approved a grant of options to Ronald Nash to
purchase 2,000,000 shares of our common stock at an exercise price of $0.30 per
share. The options will be issued in recognition of certain services performed
by Mr. Nash on behalf of the Company and in exchange for the cancellation of
options previously issued to Mr. Nash to purchase 1,000,000 shares of our common
stock at an exercise price of $0.43 per share and 1,000,000 shares of our common
stock at an exercise price of $14.50 per share. The grant of options will be
subject to certain minimum exercise requirements and the shares of common stock
underlying the options will have cost-free registration rights.
25
On October 15, 2003 and November 1, 2003 we entered into two consulting
agreements. Each of the agreements is for a period of one year and provides for
payment of consulting fees of $10,000 per month. Additionally, we have agreed to
issue to such consultants options to purchase an aggregate of 750,000 shares of
our common stock at an exercise price of $0.30 per share. The options will have
cost-free piggy-back registration rights and will be exercisable over a period
of five (5) years.
On October 23, 2003, we entered into a consulting agreement for a period
of nine (9) months. The agreement provides for the payment of consulting fees of
$7,000 per month and for the issuance to the consultant of 300,000 shares of our
common stock.
On November 7, 2003, we executed two promissory notes payable to third
parties for the aggregate amount of $350,000. The notes bear interest at a rate
of 5% per annum and are due and payable on December 9, 2003. The proceeds of the
notes are being used for working capital purposes.
On November 7, 2003, we were served with a five (5) day notice on behalf
of our landlord in connection with our offices at 777 Third Avenue, New York,
New York. The five (5) day notice provides that we have until November 14, 2003
to cure a default in our failure to pay rent and related charges for the months
of October and November 2003. We are seeking to negotiate a settlement regarding
our rental obligations with our landlord.
On November 10, 2003, we entered into a one year employment agreement with
James F. Brooks, our Chief Executive Officer. The agreement provides for payment
to Mr. Brooks of an annual salary of $300,000, and for the issuance to Mr.
Brooks of options to purchase 500,000 shares of our common stock at an exercise
price of $0.20 per share and 500,000 shares of our common stock at an exercise
price of $0.30 per share. The options will have cost-free piggy-back
registration rights and will be exercisable over a period of five (5) years.
26
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included herewith unless otherwise
indicated:
3.1 Amended and Restated By-laws of the Company.
10.1 Second Amendment Agreement, dated September 15, 2003, by and among
the Company, Willey Brothers, 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 Nixon Peabody LLP as Escrow Agent, amending Agreement,
dated as of May 15, 2003, by and among the parties.
10.2 Eighth Amendment, dated as of September 29, 2003, between Fleet
Capital Corporation, Willey Brothers and the Company.
10.3 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 Note and Warrant
Purchase Agreement, dated October 22, 2001, between the Company,
Willey Brothers and Corporate Mezzanine II, L.P.
10.4 Common Stock Purchase Warrant, dated September 30, 2003, between the
Company and Corporate Mezzanine II, L.P.
10.5 Stock Option Agreement, dated October 2, 2003, between the Company
and James F. Brooks.
10.6 Agreement, effective as of October 15, 2003, between the Company and
Anthony J. Cataldo.
10.7 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 S. Silverman, relating to
Stockholders Agreement, dated as of November 17, 1999, by and among
the parties.
10.8 Waiver, dated as November 6, 2003, by and among the Company, Willey
Brothers and Corporate Mezzanine II, L.P.
10.9 Promissory Note, dated November 7, 2003, in the principal amount of
$100,000, made by the Company in favor of Filter International.
10.10 Promissory Note, dated November 7, 2003, in the principal amount of
$250,000, made by the Company in favor of Camden International Ltd.
10.11 Employment Agreement, dated as of November 10, 2003, between the
Company and James F. Brooks.
31.1 Certification of Chief Executive Officer Pursuant to 17 C.F.R.
240.13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to 17 C.F.R.
240.13a-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 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.
27
32.2 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 September 30, 2003:
(i) The Company's Current Report on Form 8-K dated August 12, 2003
(filed August 13, 2003) reporting the issuance of a press release
announcing the expected delisting of the Company's common stock from
the Nasdaq SmallCap Market on or about September 3, 2003.
(ii) The Company's Current Report on Form 8-K dated August 26, 2003
(filed August 27, 2003) reporting the issuance of a press release
announcing the Company's financial and operational results for the
quarter ended June 30, 2003 and the restatement of the Company's
financial statements for the year ended December 31, 2003.
(iii) The Company's Current Report on Form 8-K dated August 27, 2003
(filed August 28, 2003) reporting the issuance of press release
announcing the delisting of the Company's common stock from the
Nasdaq SmallCap Market effective at the opening of business on
August 29, 2003, and the eligibility for quotation of the Company's
common stock on the Over-the-Counter Bulletin Board beginning on
such date.
28
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 November 14, 2003
BRANDPARTNERS GROUP, INC.
By: /s/ James F. Brooks
-----------------------------------
James F. Brooks
Chief Executive Officer
By: /s/ Sharon Burd
-----------------------------------
Sharon Burd
Chief Financial Officer
29