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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-16530
BRANDPARTNERS GROUP, INC.
(Name of Small Business Issuer in its Charter)
Delaware 13-3236325
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10 Main Street
Rochester, New Hampshire 03839
(Address of Principal Executive Offices, Including Zip Code)
(603) 335-1400
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
Class A Warrants, exercisable at $2.00 per share until November 30, 2006
Class B Warrants, exercisable at $3.00 per share until November 30, 2006
(Title of Classes)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No ____
-------
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The issuer's revenues for its most recent fiscal year were $33,667,062
On March 26, 2004, the aggregate market value of the voting stock held by
non-affiliates of the registrant, using the average bid and asked prices of the
registrant's common stock on said date, was $10,822,683.
As of March 26, 2004, there were issued and outstanding 29,713,554 shares
of the registrant's Common Stock.
PART 1
Item 1. Description of Business
BrandPartners Group, Inc. through its wholly-owned subsidiary, Willey Brothers,
Inc., provides financial services firms and other retailers with strategic
market intelligence, data mining and network analysis services; creative,
point-of-sale, and brand strategy services; system wide merchandising and
distribution/logistics services; and branch design, build and project management
services.
In 2000, we conducted our operations through our majority-owned subsidiary,
Michaelson Kelbick Partners, Inc. ("MKP"), a provider of communications
consulting services to the financial services industry, and our wholly-owned
subsidiary acquired in March 2000, iMapData.com, Inc., a provider of on-line
database solutions with access to market and economic data in user-friendly
mapped formats. In January 2001, we sold our 80% ownership interest in MKP, and
acquired 100% of the shares of common stock of Willey Brothers, currently our
sole operating subsidiary. In February 2001, an investor group contributed $3
million to iMapData in the form of an equity investment in exchange for a
minority position in iMapData, and in October 2002 we sold our majority stake in
iMapData in order to consolidate resources and to pursue our strategy of
expanding on the foundation of Willey Brothers.
We continue to seek acquisitions, expand and diversify our customer base in our
core industry, and pursue new growth opportunities in other vertical markets. We
may fund such acquisitions or other transactions through the issuance of equity
or debt securities, with indebtedness or cash, through other forms of
compensation and incentives, or any combination thereof. If we identify an
appropriate acquisition candidate or other business transaction, we may need to
seek additional financing, although no assurances can be given that additional
financing will be available to us on favorable terms or at all.
We were originally incorporated in 1984 in New York under the name "Performance
Services Group, Inc." We changed our name to "Financial Performance Corporation"
in 1986, prior to our initial public offering. In 2001 stockholders approved a
proposal to reincorporate in Delaware by merging into a newly formed,
wholly-owned subsidiary.
The reincorporation, which was effected on August 20, 2001, changed our legal
domicile from New York to Delaware, but did not result in a change in our
business, management, assets or liabilities. In connection with the
reincorporation the stockholders also approved proposals increasing our
authorized capital stock from 50,000,000 shares of common stock and 10,000,000
shares of "blank check" preferred stock to 100,000,000 shares of common stock
and 20,000,000 shares of "blank check" preferred stock, classifying our board of
directors, and again changing our name to our current name "BrandPartners Group,
Inc."
Willey Brothers
We purchased 100% of Willey Brothers' common stock on January 16, 2001. Willey
Brothers, founded in 1983, provides total marketing and environmental solutions
to the financial services industry (including both banks and non-bank financial
services companies) and other service retailers.
Willey Brothers offers a full range of products and services, including:
o Strategic market intelligence and branch network analysis.
o Environmental design, furniture and store project management
services.
o Traditional and digital merchandising systems, logistics,
distribution, and inventory management.
o Point-of-sale communications, brand strategy, sales training and
marketing programs.
Willey Brothers seeks to develop unique and creative solutions to help its
clients build brands through environments, maximize sales and create strong
platforms for sustained growth.
Willey Brothers Business Platform
3
Willey Brothers is considered a leader in the retail financial services
marketplace, and has developed a holistic expertise that is unparalleled in the
industry. Consequently, we are able to satisfy the needs of clients ranging from
credit unions and community banks to the largest financial institutions. Our
sales force markets our products and services to targeted companies through
tradeshows, direct mail and other direct marketing methods, speaking
engagements, and company-sponsored events. When a client requires the full
services that we offer, a multi-disciplinary project team from our creative,
merchandising, and design build business units, works together to ensure that
deliverables are consistent throughout the project. And, our program management
team works in conjunction with the IT department (via client specific web sites)
to communicate daily with the client from the design and planning stages through
the implementation of the project.
Willey Brothers offers the following services independently or as a holistic
package, each with well-defined phases, as follows:
o Brand Strategy, Creative and Point-Of-Sale Services
o Corporate Reconnaissance. Through interviews and discussions
with a client and market research, we work with the client to
understand its history of retail development, current
corporate culture, customer demographics, product strategy,
overall image, and future brand and branch objectives.
o Brand Blueprint. We then develop a singular thematic brand
concept that seeks to embody the character of the client,
which will guide the design, product and environment, and
implementation efforts that follow.
o Point-Of-Sale Communications. We translate a client's branding
strategy into a well-coordinated written, verbal and physical
merchandising message, which is refined and promoted to a
targeted market through in-store communications vehicles,
including point-of-sale communications, digital merchandising,
marketing materials and advertising campaigns. Digital
merchandising, which is the confluence of high-definition
plasma and LCD screens with either fixed or constantly
changing content (ie. cable or satellite television combined
with company-specific marketing and advertising content), is
an evolving product line that is transforming communications
in every retail industry, and offers tremendous growth
opportunities.
o Site Analysis, Environmental Design and Build
o Site Analysis/Market Intelligence. Using proprietary software
programs developed by Willey Brothers, we are able to identify
site locations for new facilities and measure the
attractiveness of potential new markets based on area
demographics and deposit data at competitor banks.
o Environmental Design. If the client is seeking a prototype
branch, we develop it based on concepts identified during the
brand blueprint phase. However, clients engage us to work on
projects range from basic interior reconfiguration and
renovation to the design and construction of new facilities.
Where branch planning and design is required, we analyze
traffic patterns inside a representative sample of facilities.
With the help of a branch fitness analysis, we develop a
branch-typing matrix that reveals how a model branch should be
developed in conjunction with merchandising and
creative/point-of-sale systems to maximize profitability.
o Willey Brothers' industry award-winning in-house architectural
design team creates a design template that translates the
attributes of the "model" branch into a master store design.
Retail locations are designed to support the brand, maximize
the impact of point-of-sales communications, and connect with
the customer through the appropriate brand experience.
Included in the master design are the branch floor plan and
the layout identifying the location and type of millwork and
merchandise. Once a design has been approved, construction
documentation follows.
o Project Management/Build. After most designs are completed, we
are engaged to manage the branch construction process
including overall pricing of all components of the branch,
hiring the general contractor, and ensuring that the project
is finished on time and on budget. Our expertise in the
financial services marketplace allows it to offer clients
fixture, millwork, furniture, and creative products and
4
services to ensure that the branch exterior and interior areas
are well coordinated, and designed to maximize branch sales.
o Furniture. We are an office furniture dealership and represent
hundreds of manufacturers. This business unit allows us to
supplement build projects with office furniture systems and
casegoods which are often integrated in innovative ways into
our merchandising fixture programs.
o Merchandising Roll-Outs
o Network Analysis/Site Analysis/Branch Typing. We analyze the
client's current retail network. The analysis covers on-site
audits of branch locations for overall interior fitness,
traffic flow, selling zones, fixture placements and design,
point-of-sale messages and placements, and local demographic
analysis. Branch typing helps to determine what type of
fixture system should be recommended for the network (ie.
custom design, existing company fixture line, or retrofit of
existing company fixture line).
o Retail Merchandising Roll-Outs. Fixtures are the delivery
vehicles for point-of-sale and branding communications. We are
recognized for our ability to provide strategic assessments of
branch layouts in conjunction with our network analysis
service. Following the strategic analysis, we recommend either
customized or generic fixture programs and manage roll-outs to
clients with branches ranging from 25 to several thousand. We
develop fixture programs and corresponding signage (general
and FDIC mandated) that maximize efficiency of clients'
communications messages to their in-store customers. Products
sold include, but are not limited to, brochure displays, wall
frames, digital merchandising (in conjunction with
point-of-sale), kiosks, regulatory displays, interest rate
boards and directional signs that are located throughout a
branch office. Willey Brothers utilizes technology to assist
in program management supervision. Program managers and
coordinators communicate with clients through project-specific
web sites created for sharing up-to-date information on all
aspects of a program's implementation.
o Logistics, Distribution, and Inventory Management. In
conjunction with fixture roll-out programs and year-round
quarterly point-of-sale campaigns, we provide logistics,
distribution, warehousing, and inventory management services.
In many cases, we warehouse client-owned fixture inventory for
future acquisitions or renovated branches. Support facilities
are located at our Rochester, New Hampshire headquarters
office, Dover, New Hampshire, and Phoenix, Arizona.
Target Markets
Willey Brothers' revenues have historically been derived from businesses in the
financial services markets, primarily, but not exclusively, banking
organizations. Target markets and a representative sample of clients are as
follows:
o Tier One Banks - retail banking organizations, bank holding
companies and thrifts with more than two hundred and fifty branch
locations.
o Regional and Community Banks - banking organizations, bank holding
companies, with between twenty-five and two-hundred and fifty
branches.
o Credit Unions - banking organizations with one to twenty-five
branches.
o Non-bank financial services companies - companies providing
financial services products to consumers and businesses that are not
licensed as banks. These organizations are primarily brokerage
houses, mutual fund companies, asset management companies, insurance
and mortgage companies and tax services companies.
o Other - we are seeking to grow our business internationally, and
have recently retained a business development consultant located in
Great Britain. In addition, we are seeking to transfer our
capabilities and expertise in the retail
5
environment space to other retail industries and service
organizations. Though that space is unlimited, we are focusing on
industries that have more synergies and parallels to our core
industry such as wireless telecommunications retailers, auto
dealerships, and health care facilities.
Suppliers
Willey Brothers outsources most of its manufacturing and fabrication services
from a variety of suppliers throughout the United States; Willey Brothers does
some light production work (ie. engraving, painting, screen printing, etc.), but
does not own or operate manufacturing facilities. Most outsourcing is
project-specific based upon location and the nature of the products and services
provided.
Significant Customers
For the year ended December 31, 2003, one customer of Willey Brothers accounted
for approximately 16% of our revenues. For the twelve months ended December 31,
2002 one customer accounted for approximately 14% of revenues. For the twelve
months ended December 31, 2001, three customers accounted for approximately 15%,
11%, and 10% of our revenues.
Employees
As of March 10, 2004, we had approximately 130 full-time employees. The Company
considers its relations with its employees to be good.
Intellectual Property
Willey Brothers owns the following registered trademarks:
o Willey Brothers(R)
o Willey Brothers Direct(R)
o Willey Brothers International(R)
Competition
The competitive landscape for the products and services provided by Willey
Brothers is fragmented across many sectors and is competitive. We are often
engaged by clients without going through a request for proposal process, but
this is typically required when we are competing for sizeable multi-million
dollar contracts. There are selective competitors who focus solely on the retail
financial services marketplace, however, our competitive advantage is our
holistic approach and expertise across a range of products and services touching
all aspects of the retail system. And, many of our primary competitors only
focus on either fixtures, design and build, or creative services. Due to the
nature of the Willey Brothers' business, we also compete with design houses,
architectural firms, consulting firms, fixture companies and advertising
agencies of varying sizes.
Item 2. Description of Property.
Our principal administrative and sales office is located in Rochester, New
Hampshire, where we lease a facility of approximately 73,000 square feet. The
lease for such offices expires in 2006 and provides for payment of annual rent
of approximately $162,756. We also lease on a month-to-month basis 20,000 square
foot warehouses and fulfillment centers in Phoenix, Arizona, and Dover, New
Hampshire, and an office in New York, NY dedicated to design, brand strategy,
and business development.
Item 3. Legal Proceedings.
None
6
Item 4. Submission of Matters to a Vote of Securities Holders
No matters were submitted to a vote of security-holders during the fourth
quarter of the year ended December 31, 2003.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's common stock has been publicly quoted on The OTC Bulletin
Board under the symbol BPTR.OB since August 29, 2003, the Nasdaq SmallCap Market
under the trading symbol "BPTR" since August 21, 2001. Prior thereto, it was
traded on the The Nasdaq SmallCap Market under the symbol "FPCX" beginning on
September 22, 2000. Prior thereto, it was traded on the OTC Bulletin Board under
the same symbol.
The following table sets forth, for the periods indicated, the high and
low reported sales prices per share for the common stock of the Company as
reported by the The Nasdaq SmallCap Market or the OTC Bulletin Board, as the
case may be.
High Low
---- ---
Calendar Year 2002
First Quarter Ended March 31, 2002 ........... $1.310 $0.660
Second Quarter Ended June 30, 2002 ........... 1.110 0.600
Third Quarter Ended September 30, 2002 ....... 0.840 0.150
Fourth Quarter Ended December 31, 2002 ....... 0.250 0.070
Calendar Year 2003
First Quarter Ended March 31, 2003 ........... $0.210 $0.090
Second Quarter Ended June 30, 2003 ........... 0.460 0.130
Third Quarter Ended September 30, 2003 ....... 0.260 0.010
Fourth Quarter Ended December 31, 2003 ....... 1.000 0.140
Calendar Year 2004
First Quarter (through March 26, 2004) ....... $0.790 $0.450
As of March 26, 2004, we had approximately 247 holders of record of our
common stock.
To date, we have not paid any dividends on our common stock. Any payment
of future cash dividends and the amount thereof will be dependent upon our
earnings, financial requirements, and other factors deemed relevant by our Board
of Directors.
Item 6. Selected Financial Data
Years Ended December 31, 2003, 2002, 2001, 2000 and 1999
(in thousands except per share data)
2003 2002 2001 2000 1999
For the Year
Revenues $33,667 $38,879 $39,693 $0.0 $0.8
Loss from Continuing Operations (10,964) (4,803) (5,304) (3,728) (1,587)
Loss Per Share from Continuing Operations $(0.59) $(0.26) $(0.56) $(0.34) $(0.17)
At Year End
Total Assets $35,834 $46,738 $56,687 $13,961 $4,499
Long Term Debt 12,732 12,465 20,046 0.5 None
Dividends Declared Per Share None None None None None
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Critical Accounting Policies
7
The Securities and Exchange Commission ("SEC") recently issued disclosure
guidance for critical accounting policies. The SEC defines "critical accounting
policies" as those that require complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and
may change in subsequent periods.
Management's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The Company's consolidated financial
statements include a summary of significant accounting policies used in the
preparation of such financial statements (see Note B to the consolidated
financial statements). The following reviews the more critical accounting
policies used:
Revenue Recognition
Willey Brothers records sales on its long term contracts on a
percentage-of-completion basis, based upon actual costs incurred to date on such
contracts. Contract costs include all direct materials, labor and subcontractor
costs. General and administrative expenses are accounted for as period charges
and, therefore, are not included in the calculation of the estimates to
complete. Anticipated losses are provided for in their entirety without
reference to the percentage-of-completion.
Revenue from short term contracts is recognized when the product is
shipped and/or the service is rendered.
Valuation of Accounts Receivable
Periodically the Company reviews accounts receivable to reassess its
estimates of collectibility. Willey Brothers provides valuation reserves for bad
debts based on specific identification of likely and probable losses. In
addition, Willey Brothers provides valuation reserves for estimates of aged
receivables that may be written off, based upon historical evidence. These
valuation reserves are periodically re-evaluated and adjusted as more
information about the ultimate collectibility of accounts receivable becomes
available. Circumstances that could cause the Company's valuation reserves to
increase include changes in its clients' liquidity and credit quality, other
factors negatively impacting clients' ability to pay their obligations as they
come due, and the quality of its collection efforts.
Valuation of Intangible Assets
The Company assesses the impairment of goodwill whenever changes in
circumstances, such as continuing losses, indicate that the fair value may be
less than the carrying value. In the event of such circumstances, or at least
annually, the Company estimates the recoverability of goodwill by obtaining
appraisals of fair value from outside specialists.
8
Results of Operations
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
Revenues. Revenues from continuing operations decreased approximately
$5,212,000, or 13%, to $33,667,000 for the twelve months ended December 31, 2003
from $38,879,000 for the twelve months ended December 31, 2002. This decrease is
related to weakness in the industry, during the first 3 quarters of 2003, in
which the Company's Willey Brothers subsidiary operates.
Cost of Revenues. Cost of revenues from continuing operations decreased
approximately $330,000, or 1%, to $29,396,000 (87% of net revenues), for the
twelve months ended December 31, 2003 from $29,726,000 (76% of net revenues) for
the twelve months ended December 31, 2002. This decrease is the result of
decreased sales offset by a charge for obsolete inventory of approximately
$987,000, by higher than expected costs in the fixture and branch planning and
design businesses and to a lesser extent to the shift in product mix from higher
margin merchandising products to branch planning and design, which has a lower
margin, resulting from shifts in market demands for the Company's products and
services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses from continuing operations decreased approximately
$1,310,000, or 10%, to $11,922,000 for the twelve months ended December 31, 2003
from $13,232,000 for the twelve months ended December, 31, 2002. This decrease
is primarily attributable to decreases in payroll, professional fees, selling
expenses and amendment fees offset by increases in public relations, consulting
fees, director's fees, bad debt expense and insurance expense.
Interest Expense. Interest expense from continuing operations decreased
approximately $636,000, or 26%, to $1,825,000 for the twelve months ended
December 31, 2003 from $2,461,000 for the twelve months ended December 31, 2002.
This decrease is primarily attributable to a reduction in the term loan of
$4,000,000 in December 2002 and reductions of $1,958,000 during 2003 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 $2,239,000 to expense of $1,488,000 for the twelve months ended
December 31, 2003 from income of $751,000 for the twelve months ended December
31, 2002. This increase is primarily due to a lease termination fee of
$1,075,000, to an unrealized loss on the Put Warrant in 2003 of $164,000 from an
unrealized gain of $384,000 in 2002, to the settlement of the Reiss lawsuit in
the amount of $227,000 and to the absence in the current year of management fee
income from MKP, the Company's former majority-owned subsidiary from which the
Company received management fee income of $332,000 in 2002.
Income Taxes. For the year ended December 31, 2003 the Company and its
Subsidiary had taxable losses and accordingly made no accrual for federal or
state income taxes. For the year ended December 31, 2002 the Company had an
income tax benefit of approximately $986,000, due primarily to an income tax
refund of $1.2 million which did not occur in 2003. The benefit in 2002 was due
to a carryback of Willey Brothers' taxable loss for the tax year ended December
31, 2002. There are no further carrybacks available.
Loss from Continuing Operations. Loss from continuing operations increased
approximately $6,161,000, or 128%, to $10,964,000 for the twelve months ended
December 31, 2003 from $4,803,000 for the twelve months ended December 31, 2002.
The increase in the loss from continuing operations is due to the factors
referred to above.
9
Net Loss. Net loss decreased approximately $1,009,000, or 8%, to
$10,964,000 for the twelve months ended December 31, 2003 from $11,973,000 for
the twelve months ended December 31, 2002. The decrease in the net loss is due
to the absence in the current year of a loss from discontinued operations of
approximately $7,170,000 offset by the income tax benefit in 2002 of
approximately $986,000 offset by the increase in the operating loss of
approximately $3,572,000 and other expense of $2,239,000 and the decrease in
interest expense of approximately $636,000 in the year ended December 31, 2003.
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Revenues. Revenues from continuing operations decreased approximately
$814,000, or 2%, to $38,879,000 for the twelve months ended December 31, 2002
from $39,693,000 for the twelve months ended December 31, 2001. This decrease is
related to the Company's Willey Brothers subsidiary, which experienced a decline
in revenues attributable to a slow-down in the United States economy.
Cost of Revenues. Cost of revenues from continuing operations increased
approximately $2,468,000, or 9%, to $29,726,000 (76% of net revenues), for the
twelve months ended December 31, 2002 from $27,258,000 (69% of net revenues) for
the twelve months ended December 31, 2001. This increase is primarily
attributable to a shift in product mix from higher margin merchandising products
to branch planning and design, which has a lower margin, resulting from shifts
in market demands for the Company's products and services, and higher costs
primarily for consultants.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses from continuing operations decreased approximately
$2,369,000, or 15%, to $13,232,000 for the twelve months ended December 31, 2002
from $15,601,000 for the twelve months ended December, 31, 2001. This decrease
is primarily attributable to a decrease in goodwill amortization of
approximately $2.7 million due to the cessation of amortization on goodwill
effective January 1, 2002, offset by increases in amendment fees and expenses of
approximately $857,000 related to the amendment of the Company's debt agreement
and to increases in selling and marketing expenses, primarily trade show
expenses and sales presentation expenses, offset by decreases in general and
administrative expenses, primarily salary expenses, professional and consulting
fees and travel expenses.
Interest Expense. Interest expense from continuing operations increased
approximately $496,000, or 25%, to $2,461,000 for the twelve months ended
December 31, 2002 from $1,965,000 for the twelve months ended December 31, 2001.
This increase is attributable to interest on a subordinated promissory note
issued in October 2001 and to increased borrowings under the credit facility,
offset by lower interest rates.
Other Income. Other income from continuing operations increased
approximately $737,000 to $751,000 for the twelve months ended December 31,
2002, from $14,000 for the twelve months ended December 31, 2001. This increase
is primarily due to management fee income received from MKP, the Company's
former majority-owned subsidiary, which was reclassified as a discontinued
operation for the twelve months ended December 31, 2000 but from which the
Company had the right to receive management fee income for 2001 in 2002 and to
an unrealized gain of approximately $384,000 resulting from the valuation of a
put feature on warrants issued in conjunction with a note payable.
Income Taxes. Income taxes from continuing operations decreased
approximately $1,173,000, to a benefit of $986,000 for the twelve months ended
December 31, 2002 from an expense of $187,000 for the twelve months ended
December 31, 2001. This benefit is due to a carryback of Willey Brothers'
taxable loss for the tax year ended December 31, 2002.
Loss from Continuing Operations. Loss from continuing operations decreased
approximately $501,000, or 9%, to $4,803,000 for the twelve months ended
December 31, 2002 from $5,304,000 for the twelve months ended December 31, 2001.
The decrease in the loss from continuing operations is due to the factors
referred to above.
10
Net Loss. Net loss increased approximately $4,958,000, or 71%, to
$11,973,000 for the twelve months ended December 31, 2002 from $7,015,000 for
the twelve months ended December 31, 2001. The increase in the net loss is
primarily due to the impairment charge of approximately $6.6 million included in
discontinued operations at December 31, 2002, offset by the income tax benefit
derived from the carryback claim referred to above.
Liquidity and Capital Resources
As of December 31, 2003, the Company had negative working capital (current
assets less current liabilities) of $14,100,000 and a working capital ratio
(current assets to current liabilities) of approximately .41:1. At December 31,
2002 the Company had negative working capital of $5,000,000 and a working
capital ratio of approximately .80:1. The increase in the negative working
capital at December 31, 2003 arises primarily from a reduction in current
assets, primarily costs and estimated earnings in excess of billings, cash (due
to the reduction of debt) and accounts receivable. Costs and estimated earnings
in excess of billings represent revenue that has been recognized but that cannot
yet be billed due to the terms of the contract. This number is a function of the
terms of the current contracts as to billings vs. the revenue that has been
earned under the percentage of completion method of accounting and can fluctuate
greatly at any point in time. Accounts receivable represents amounts that have
been billed but not necessarily recognized as revenue and are also a function of
the terms of the current contracts. At March 12, 2004, the Company had an order
backlog of approximately $17.8 million vs. $10.7 at the same time in the prior
year period. Backlog represents signed contracts for services. Substantially all
of the revenue from such contracts will be recognized in the current year. On
November, 28, 2003 the Company's subsidiary, Willey Brothers, extended its
credit facility to December 31, 2004. On January 2, 2004 Willey Brothers' repaid
the balance of its term loan. On January 20, 2004, the Company received net
proceeds of approximately $2,900,000 in a private placement of equity. The
proceeds from the private placement were used to reduce certain debt and
obligations and repay the balance of the term loan. The balance of the proceeds
will be used for working capital purposes. The Company is seeking to raise
additional funds through the issuance of equity. No assurances can be given that
the Company will be successful in concluding this or any other financing
transaction. As of December 31, 2003 and December 31, 2002 the Company had
unrestricted cash and cash equivalents of $414,000 and $2,168,000, respectively.
On January 20, 2004, the Company completed a private placement of equity.
The Company received net proceeds from the private placement of approximately
$2,900,000 and issued 12,400,001 shares of common stock of the Company. The
proceeds from the private placement were used to reduce certain debt and
obligations as described below and repay the balance of the term loan. The
balance of the proceeds will be used for working capital purposes.
On January 20, 2004, in conjunction with the private placement, the
Company entered into a new agreement with the former shareholders of Willey
Brothers (the "Agreement") providing for, among other things, the cancellation
and forgiveness of certain debt. Upon payment of $1.0 million, concurrent with
the signing of the Agreement two new 24-Month Notes were issued, each in the
amount of $500,000, payable to the former shareholders of Willey Brothers, and
the $7.5 million Seller Notes were cancelled and forgiven along with all accrued
unpaid interest on the notes of approximately $844,000. The $2.0 million Seller
Notes previously issued are maintained in escrow and will be cancelled upon
payment in full of the 24 Month Notes. The balance of the 24-Month Notes are to
be repaid in two equal installments of $500,000 each on April 15, 2004 and July
15, 2004. Upon payment in full of the 24-Month Notes all accrued, unpaid
interest on the $2.0 Seller Notes (approximately $755,000 at December 31, 2003)
will be cancelled and forgiven and the accrued unpaid earn-out of $500,000 will
be forgiven and no further Earn-Out will accrue.
On January 19, 2004, in conjunction with the private placement, the
Company entered into a Surrender Agreement with its Landlord for the termination
of its Lease at 777 Third Ave, New York City. In exchange for the termination of
its rights and obligations under the lease the Company agreed to pay to the
Landlord an aggregate of $800,000 and issue to the Landlord 500,000 shares of
restricted common stock of the Company with cost free piggyback registration
rights. $500,000 of the fee was paid upon signing the Agreement. The balance of
the fee is to be paid in three equal installments of $100,000 each on March 1,
2004, September 1, 2004 and March 1, 2005. The shares were valued at $0.55 per
share, the closing price of the stock on February 9, 2004, the date the stock
was issued. The payment due on March 1, 2004 was made. The terminated lease had
an expiration date of 12/31/2009 with minimum lease rentals of approximately
$647,000 in 2004 and $671,000 annually through 2009.
11
On January 7, 2004, the Company amended and restructured its subordinated
note payable. In exchange for a waiver of certain covenants through December 31,
2004 and a reduction in the interest rate on the note, the Company issued to the
note-holder a common stock purchase warrant to purchase 250,000 shares of the
Company's common stock at $0.26 per share. The interest rate reduction is for a
period of two years commencing January 1, 2004 and reduces the interest rate
from 16% per annum to 10% per annum, 8% payable in cash quarterly and 2% added
to the principal (the "PIK Amount").
On November 28, 2003 the Company entered into its ninth amendment with its
commercial lender (the "Ninth Amendment"). The facility as amended was extended
to December 31, 2004. The Amendment continued to require weekly prepayments of
principal on the term loan until January 2, 2004, at which time repayment in
full of the balance of the term loan was made. In addition, On January 2, 2004,
the $6,000,000 revolving credit facility was divided into a $4,000,000 New Term
Loan and a $2,000,000 Revolving Credit Facility, with no limitations as to
availability, and the LIBOR option was eliminated providing for interest at the
banks Base Rate plus an applicable margin. Commencing March 1, 2004, the
Amendment mandates monthly prepayments of principal on the New Term Loan. The
Amendment also allows the repayment of the Seller Notes with cash infused as
equity.
For the twelve months ended December 31, 2003, 2002 and 2001, net cash
provided by (used in) operating activities of continuing operations was
$613,000, $(1,548,000) and $(2,509,000), respectively, net cash provided by
(used in) investing activities of continuing operations was $(386,000)
(primarily for the acquisition of fixed assets) $1,385,000 (primarily from the
sale of iMapData, offset by fixed asset purchases) and $(13,284,000) (primarily
for the acquisition of Willey Brothers), respectively, and net cash provided by
(used in) financing activities of continuing operations was (1,981,000)
(primarily from the pay down of long term debt), $(1,895,000) (primarily from
the pay down of long term debt offset by borrowings on the revolving credit
facility) and $20,016,000 (primarily through long term debt and equity
issuances), respectively.
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 offering new products and services, pursuing international
business and new vertical markets, diversifying and expanding its customer base
in financial services, improving operating efficiencies via technology,
continually reviewing pricing strategies, 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, internally generated funds from operations, proceeds received from
the private placement and the refinancing of the facility will provide
sufficient cash flow for the next twelve months.
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 the economic downturn in the United States, in the
industry in which Willey Brothers operates, during the first three quarters of
2003, which has resulted in a decline in revenues and profitability at Willey
Brothers for the twelve months ended December 31, 2003, and by limitations
placed upon Willey Brothers by its lender with respect to funds available under
its Facility. During the fourth quarter of 2003 the Company saw an increase in
orders. At March 12, 2004, Willey Brothers had an order backlog of approximately
$17.8 million compared to a backlog of $10.7 million in the prior year period.
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.
Recently Issued Accounting Standards
In December 2003, the Financial Accounting Standards Board's ("FASB") issued
SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other
Post Retirement Benefits" ("SFAS 132R"). SFAS 132R revises the disclosures for
pension plans and other post retirement benefit plans. The adoption of this
statement does not impact the Company's historical or present financial
statements.
12
In December 2003, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 104, Revenue Recognition. SAB 104 revises or
rescinds portions of the interpretive guidance included in Topic 13 of the
codification of staff accounting bulletins in order to make this interpretive
guidance consistent with current authoritative accounting and auditing guidance
and SEC rules and regulations. The adoption of SAB 104 did not have a material
effect on the Company's results of operations or financial position.
In December 2003, the Financial Accounting Standards Board ("FASB") issued a
revised FASB Interpretation ("FIN") No. 46, Consolidation of Variable Interest
Entities. FIN No. 46R addresses consolidation by business enterprises of
variable interest entities and significantly changes the consolidation
application of consolidation policies to variable interest entities and thus,
improves comparability between enterprises engaged in similar activities when
those activities are conducted through variable interest entities. The Company
does not hold any variable interest entities.
In May 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS No. 150 requires that
certain financial instruments, which under previous guidance were accounted for
as equity, must now be accounted for as liabilities. The financial instruments
affected include mandatorily redeemable stock, certain financial instruments
that require or may require the issuer to buy back some of its shares in
exchange for cash or other assets and certain obligations that can be settled
with shares of stock. Subsequently, FASB Staff Position 150-3 indefinitely
deferred certain classification and measurement requirements of SFAS No. 150.
SFAS No. 150 is effective for all financial instruments entered into or modified
after May 31, 2003 and must be applied to existing instruments for the first
interim period beginning after June 15, 2003. The adoption of SFAS No.150 had no
effect on the Company's financial position, results of operations, or cash
flows.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-based
Compensation, Transition and Disclosure". SFAS No 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS No. 148 also requires
that disclosures of the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed more prominently
and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the
pro forma effect in interim financial statements. The adoption of the provisions
of SFAS No. 148 did not have a material impact on the Company's consolidated
financial statements. The Company modified its disclosures in its quarterly
reports commencing with the quarter ended March 31, 2003, as provided for in the
new standard.
On July 30, 2002, the FASB issued Statement of Financial Accounting Standard No.
146, "Accounting for Costs Associated with Exit or Disposal Activities". The
standard requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated with
a restructuring, discontinued operation, plant closing, or other exit or
disposal activity. SFAS No. 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The Company will follow
the requirements of the statement for any applicable transactions initiated
after December 31, 2002.
In November 2002, FASB Interpretation 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others," (FIN 45), was issued. FIN 45 requires a guarantor entity, at the
inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. The Company previously did not record a
liability when guaranteeing obligations unless it became probable that the
Company would have to perform under the guarantee. FIN 45 applies prospectively
to guarantees the Company issues or modifies subsequent to December 31, 2002,
but has certain disclosure requirements effective for interim and annual periods
ending after December 15, 2002. The Company does not anticipate FIN 45 will have
a material effect on its financial statements. Disclosures required by FIN 45,
if any, are included in the accompanying financial statements.
13
In November 2002, the EITF reached a consensus on EITF No. 02-16, "Accounting
for Consideration Received from a Vendor by a Customer". EITF No. 02-16 provides
guidance as to how customers should account for cash consideration received from
a vendor. EITF No. 02-16 presumes that cash received from a vendor represents a
reduction of the prices of the vendor's products or services, unless the cash
received represents a payment for assets or services provided to the vendor or a
reimbursement of costs incurred by the customer to sell the vendor's products.
The provisions of EITF No. 02-16 apply to all agreements entered into or
modified after December 31, 2002. Management does not expect the provisions of
EITF No. 02-16 to have a material impact on the Company's consolidated financial
statements.
In November 2002, the Emerging Issues Task Force reached a consensus opinion on
EITF 00-21, "Revenue Arrangements with Multiple Deliverables." The consensus
provides that revenue arrangements with multiple deliverables should be divided
into separate units of accounting if certain criteria are met. The consideration
for the arrangement should be allocated to the separate units of accounting
based on their relative fair values, with different provisions if the fair value
of all deliverables are not known or if the fair value is contingent on delivery
of specified items or performance conditions. Applicable revenue recognition
criteria should be considered separately for each separate unit of accounting.
EITF 00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. Entities may elect to report the change as a
cumulative effect adjustment in accordance with APB Opinion 20, "Accounting
Changes." The Company does not expect the provisions of EITF 00-21 to have a
material impact on the Company's consolidated financial statements
Item 7A. Qualitative and Quantitative Disclosure about Market Risk
The Company's Facility and $3,750,000 Notes expose the Company to the risk
of earnings or cash flow loss due to changes in market interest rates. The
Facility accrues interest at LIBOR plus an applicable margin or the bank's base
rate plus an applicable margin. On January 2, 2004, the LIBOR interest rate
option was eliminated for the Facility. The $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 was immaterial at December 31, 2003. The agreement expires April 23,
2004.
The table below provides information on the Company's market sensitive
financial instruments as of December 31, 2003.
Weighted Average
Interest Rate
Principal Balance at December 31, 2003
----------------- --------------------
Term Loan $541,000 6.2500%
Revolving Credit Facility $3,666,000 6.2500%
$3,750,000 Notes $7,500,000 2.6500%
Holding Company and Operating Subsidiaries
We conduct our operations through our subsidiaries. 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. Currently, Willey Brothers is our sole operating subsidiary. The
March 29, 2002 Amendment and Waiver Agreement with our 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 January 2, 2005. Regulations,
legal restrictions and contractual agreements could restrict any needed payments
from Willey Brothers or any other
14
operating subsidiaries we may subsequently acquire. If we are unable to receive
cash funds from Willey Brothers, 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 Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are not
historical facts but rather reflect the Company's current expectations
concerning future results and events. The words "believes," "anticipates,"
"expects," and similar expressions, which identify forward-looking statements,
are subject to certain risks, uncertainties and factors, including those which
are economic, competitive and technological, that could cause actual results to
differ materially from those forecast or anticipated. Such factors include,
among others:
o the continued services of James Brooks as Chief Executive Officer of
BrandPartners Group and 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 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. 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.
15
Item 8. Financial Statements.
The audited consolidated financial statements of the Company for the years
ended December 31, 2003, 2002 and 2001 are set forth at the end of this Annual
Report on Form 10-K and begin on page F-3.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On February 18, 2004, the Registrant (the "Company") dismissed Goldstein
Golub Kessler LLP ("GGK") as its certifying accountants. The decision to dismiss
GGK was approved by the Company's Board of Directors.
GGK was previously appointed as the Company's certifying accountants on
April 16, 2003 and as such no audit reports have been issued on the Company's
financial statements. During the interim period in which GGK served as the
Company's certifying accountants there were no disagreement(s) with GGK on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreement(s), if not resolved to the
satisfaction of GGK, would have caused GGK to make reference to the subject
matter of such disagreement(s) in connection with its audit report. In addition,
there were no reportable events as described in Item 304(a)(1)(v) of Regulation
S-K.
On February 18, 2004, upon approval of the Board of Directors, the Company
engaged Goldstein and Morris Certified Public Accountants, PC ("Goldstein and
Morris") to audit the consolidated financial statements of the Company for the
year ended December 31, 2003. During the Company's two most recent fiscal years
and through February 18, 2004, the Company has not consulted with Goldstein and
Morris regarding either (i) the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's financial statements, and
neither a written report nor oral advice was provided that was an important
factor considered by the Company in reaching a decision as to the accounting,
auditing or financial reporting issue; or (ii) any matter that was either the
subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions to Item 304 of Regulation S-K.
Item 9A. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this annual report,
and based on their evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that these disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company required to be included in the Company's periodic SEC filings. There
were no significant changes in our internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation.
Disclosure controls and procedures are the controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports we file or submit under the Exchange Act is recorded, processed,
summarized, and reported, within the time periods specified in the Securities
and Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
Executive Chairman, Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal controls.
Not applicable.
16
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The information required by Item 10 is incorporated herein by reference to
the information contained in our definitive proxy/information statement related
to the 2004 annual meeting of stockholders to be filed with the Securities and
Exchange Commission within 120 days following December 31, 2003.
Executive Officers
The information concerning our executive officers required by this Item 10
is incorporated herein by reference to the information contained in our
definitive proxy/information statement related to the 2004 annual meeting of
stockholders to be filed with the Securities and Exchange Commission within 120
days following December 31, 2003.
Section 16(a) Beneficial Ownership Reporting Compliance
The information concerning Section 16(a) Beneficial Ownership Reporting
Compliance by our directors and executive officers is incorporated by reference
to the information contained in our definitive proxy/information statement
related to the 2004 annual meeting of stockholders to be filed with the
Securities and Exchange Commission within 120 days following December 31, 2003.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference to the
information contained in our definitive proxy/information statement for the 2004
annual meeting of stockholders to be filed with the Securities and Exchange
Commission within 120 days following December 31, 2003.
Item 12. Securities Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference to the
information contained in our definitive proxy/information statement for the 2004
annual meeting of stockholders to be filed with the Securities and Exchange
Commission within 120 days following December 31, 2003.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference to the
information contained in our definitive proxy/information statement for the 2004
annual meeting of stockholders to be filed with the Securities and Exchange
Commission within 120 days following December 31, 2003.
Item 14. Principal Accountant Fees and Services
The information required by Item 14 is incorporated by reference to the
information contained in our definitive proxy/information statement for the 2004
annual meeting of stockholders to be filed with the Securities and Exchange
Commission within 120 days following December 31, 2003.
17
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
See Index to Consolidated Financial Statements which begins on page F-1 of
this Annual Report.
2. Financial Statement Schedules
None, as all information required in these schedules is included in the
Notes to the Consolidated Financial Statements, which begin on page F-9.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are
incorporated by reference as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
On October 2, 2003, the Company furnished a Report on Form 8-K, dated
September 29, 2003 that included information under Items 5 and 7 relating
to the Company entering into an amendment to a loan security agreement.
The Report further contained information under Item 9 relating to the
resignation of Edward T. Stolarski from the board of directors of the
Company and its wholly owned subsidiary as well as his resignation as
Chief Executive Officer and the election of James F. Brooks as interim
President of the Company and its wholly owned subsidiary.
On February 5, 2004, the Company furnished a Report on Form 8-K, dated
January 20, 2004 that included information reported under Items 5 and 7
relating to the Company's private placement under Regulation D as well as
the Company's restructuring of certain debt and liabilities.
On February 23, 2004 the Company furnished a Report on Form 8-K, dated
February 18, 2004, that included information reported under Item 4
relating to the change in the Company's certifying public accountants.
INDEX TO EXHIBITS
The following exhibits are included herewith unless otherwise indicated:
2.1 Stock Purchase Agreement, dated as of January 11, 2001, by and among
James M. Willey, individually and as trustee of the James M. Willey
Trust - 1995, Thomas P. Willey, individually and as trustee of The
Thomas P. Willey Revocable Trust of 1998, and the Company (incorporated
by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
filed on January 31, 2001).
2.2 Agreement and Plan of Merger, dated as of August 1, 2001, between
Financial Performance Corporation and the Company (incorporated by
reference to Exhibit 2.2 to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 2001).
3.1 By-laws of the Company (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2001).
3.2 Certificate of Incorporation dated August 7, 2001 (incorporated by
reference to Exhibit 3.2 to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 2001).
18
4.1 Specimen Certificate of Common Stock (incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 2001).
4.2 Certificate of Designations of Class A Convertible Preferred Stock of
the Company (incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on January 31, 2001).
10.1 Form of Indemnification Agreement between the Company and its Officers
and Directors (incorporated by reference to Exhibit 10.35 to the
Company's Registration Statement on Form S-1, Registration No.
33-20886).
10.2 Restated and Amended Shareholders Agreement, dated as of October 18,
1994, by and among Michaelson Kelbick Partners Inc., Susan Michaelson,
Hillary Kelbick and the Company, effective as of October 1, 1998
(incorporated by reference to Exhibit 10.80 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1998).
10.3 Form of Warrant, dated as of October 21, 1998, between the Company and
Richard Levy (incorporated by reference to Exhibit 10.81 to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1998).
10.4 Form of Warrant Agreement, dated as of October 21, 1998, covering
warrants issued to Richard Levy and others (incorporated by reference
to Exhibit 10.86 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998).
10.5 Stock Purchase and Sale Agreement, dated as of November 17, 1999, by
and among the Company, Robert S. Trump and Jeffrey Silverman
(incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed November 30, 1999).
10.6 Stock Purchase and Sale Agreement, dated as of November 17, 1999, by
and among the Company, Robert S. Trump and Ronald Nash (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
filed November 30, 1999).
10.7 Stockholders Agreement, dated as of November 17, 1999, by and among the
Company, Robert S. Trump, Jeffrey Silverman, and Ronald Nash
(incorporated by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K filed November 30, 1999).
10.8 Option Agreement, dated November 17, 1999, between Robert S. Trump and
Jeffrey Silverman incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K filed November 30, 1999).
10.9 Amendment to Option Agreement, dated as of November 15, 2001, between
Jeffrey S. Silverman and Robert Trump (incorporated by reference to
Exhibit 10.8 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 2002).
10.10 Option Agreement, dated November 17, 1999, between Robert S. Trump and
Jeffrey Silverman (incorporated by reference to Exhibit 10.5 to the
Company's Current Report on Form 8-K filed November 30, 1999).
10.11 Option Agreement, dated November 17, 1999, between Robert S. Trump and
Jeffrey Silverman incorporated by reference to Exhibit 10.6 to the
Company's Current Report on Form 8-K filed November 30, 1999).
10.12 Option Agreement, dated November 17, 1999, between Robert S. Trump and
Ronald Nash incorporated by reference to Exhibit 10.7 to the Company's
Current Report on Form 8-K filed November 30, 1999).
19
10.13 Amendment to Option Agreement, dated as of November 15, 2001, between
Ronald Nash and Robert Trump (incorporated by reference to Exhibit
10.11 to the Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 2002).
10.14 Option Agreement, dated November 17, 1999, between Robert S. Trump and
Ronald Nash (incorporated by reference to Exhibit 10.8 to the Company's
Current Report on Form 8-K filed November 30, 1999).
10.15 Option Agreement, dated November 17, 1999, between Robert S. Trump and
Ronald Nash (incorporated by reference to Exhibit 10.9 to the Company's
Current Report on Form 8-K filed November 30, 1999).
10.16 Stock Option Agreement, dated as of November 17, 1999, between the
Company and Jeffrey Silverman (incorporated by reference to Exhibit
10.10 to the Company's Current Report on Form 8-K filed November 30,
1999).
10.17 Stock Option Agreement, dated as of November 17, 1999, between the
Company and Ronald Nash (incorporated by reference to Exhibit 10.11 to
the Company's Current Report on Form 8-K filed November 30, 1999).
10.18 Registration Rights Agreement, dated as of November 17, 1999 by and
among the Company, Robert S. Trump, William F. Finley, Jeffrey
Silverman and Ronald Nash (incorporated by reference to Exhibit 10.12
to the Company's Current Report on Form 8-K filed November 30, 1999).
10.19 Stock Option Agreement, dated as of January 10, 2000, between the
Company and Jeffrey Silverman (incorporated by reference to Exhibit
10.39 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999).
10.20 Stock Option Agreement, dated as of January 10, 2000, between the
Company and Ronald Nash (incorporated by reference to Exhibit 10.40 to
the Company's Annual Report on Form 10-KSB for the year ended December
31, 1999).
10.21 Agreement and Plan of Merger dated February 23, 2000, between the
Company, FPC Acquisition Corp., iMapData.com, Inc., William Lilley III
and Laurence J. Defiance (incorporated by reference to Exhibit 10.17 to
the Company's Current Report on Form 8-K filed February 24, 2000).
10.22 Employment Agreement, dated April 25, 2000, between the Company and
Edward T. Stolarski (incorporated by reference to Exhibit 10.5 to the
Company's Report on Form 10-QSB for the quarter ended March 31, 2000).
10.23 Stock Option Agreement, dated as of April 26, 2000, between the Company
and Edward T. Stolarski, covering 100,000 shares of common stock
(incorporated by reference to Exhibit 10.5 to the Company's Report on
Form 10-QSB for the quarter ended March 31, 2000).
10.24 Stock Option Agreement, dated as of April 26, 2000, between the Company
and Edward T. Stolarski, covering 300,000 shares of common stock
(incorporated by reference to Exhibit 10.5 to the Company's Report on
Form 10-QSB for the quarter ended March 31, 2000).
10.25 Loan and Security Agreement, dated as of January 11, 2001, between
Fleet Capital Corporation ("Fleet") and Willey Brothers, Inc.
(incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on January 31, 2001).
10.26 Secured Guaranty Agreement, dated as of January 11, 2001, executed by
the Company in favor of Fleet (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed on January 31,
2001).
20
10.27 Amendment and Waiver Agreement, dated as of May 21, 2001, between Fleet
and Willey Brothers (incorporated by reference to Exhibit 10.25 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2001).
10.28 Second Amendment and Waiver Agreement, dated as of October 22, 2001,
between Fleet and Willey Brothers (incorporated by reference to Exhibit
10.25 to the Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 2001).
10.29 Third Amendment and Waiver Agreement, dated as of March 29, 2002, among
Fleet, Willey Brothers and the Company (incorporated by reference to
Exhibit 10.23 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2001).
10.30 Letter Agreement, dated April 17, 2002, between and among Fleet, Willey
Brothers and the Company (incorporated by reference to Exhibit 10.21 to
the Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 2002).
10.31 Letter Agreement, dated May 15, 2002, between and among Fleet, Willey
Brothers and the Company (incorporated by reference to Exhibit 10.21 to
the Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 2002).
10.32 Letter Agreement, dated July 11, 2002, between and among Fleet, Willey
Brothers and the Company (incorporated by reference to Exhibit 10.21 to
the Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 2002).
10.33 Fourth Amendment, dated as of September 25, 2002, among Fleet, Willey
Brothers and the Company (incorporated by reference to Exhibit 10.21 to
the Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2002).
10.34 Agreement dated as of January 11, 2001, among the Company, Thomas P.
Willey, as trustee of the Thomas P. Willey Revocable Trust of 1998,
James M. Willey, as trustee of the James M. Willey Trust - 1995,
Jeffrey S. Silverman, William Lilley III, Ronald Nash, Robert Trump and
Laurence DeFranco (incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed on January 31, 2001).
10.35 Amendment, dated as of March 21, 2001, to Agreement, dated as of
January 11, 2001, among the Company, Thomas P. Willey, as trustee of
the Thomas P. Willey Revocable Trust of 1998, James M. Willey, as
trustee of the James M. Willey Trust - 1995, Jeffrey S. Silverman,
William Lilley III, Ronald Nash, Robert Trump and Laurence DeFranco
(incorporated by reference to Exhibit 10.44 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2000).
10.36 Subordinated Convertible Term Promissory Note, dated January 11, 2001,
made by the Company in favor of the James M. Willey Trust-1995, in the
principal amount of $3,750,000 (incorporated by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K filed on January 31,
2001).
10.37 Subordinated Convertible Term Promissory Note, dated January 11, 2001,
made by the Company in favor of the James M. Willey Trust-1995, in the
principal amount of $1,000,000 (incorporated by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K filed on January 31,
2001).
10.38 Subordinated Convertible Term Promissory Note, dated January 11, 2001,
made by the Company in favor of The Thomas P. Willey Revocable Trust of
1998, in the principal amount of $3,750,000 (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on
January 31, 2001).
21
10.39 Subordinated Convertible Term Promissory Note, dated January 11, 2001,
made by the Company in favor of The Thomas P. Willey Revocable Trust of
1998, in the principal amount of $1,000,000 (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on
January 31, 2001).
10.40 Promissory Note, dated February 12, 2001, made by iMapData in favor of
Ronald Nash, in the principal amount of $50,000 (incorporated by
reference to Exhibit 10.46 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 2000).
10.41 Promissory Note, dated February 12, 2001, made by iMapData in favor of
Jeffrey Silverman, in the principal amount of $50,000 (incorporated by
reference to Exhibit 10.46 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 2000).
10.42 Promissory Note, dated February 12, 2001, made by iMapData in favor of
William Lilley, in the principal amount of $100,000 (incorporated by
reference to Exhibit 10.46 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 2000).
10.43 Subordinated Convertible Promissory Note, dated March 1, 2001, made by
the Company in favor of Jeffery S. Silverman, in the principal amount
of $245,000 (incorporated by reference to Exhibit 10.47 to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2000).
10.44 Subordinated Convertible Promissory Note, dated March 1, 2001, made by
the Company in favor of Ronald Nash, in the principal amount of
$245,000 (incorporated by reference to Exhibit 10.47 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.45 Stock Option Agreement, dated August 9, 2000, between the Company and
Jonathan Foster (incorporated by reference to Exhibit 10.48 to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2000).
10.46 Stock Option Agreement, dated August 9, 2000, between the Company
Nathan Gantcher (incorporated by reference to Exhibit 10.48 to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2000).
10.47 Stock Option Agreement, dated August 9, 2000, between the Company J.
William Grimes (incorporated by reference to Exhibit 10.48 to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2000).
10.48 Stockholders' Agreement, dated February 12, 2001, by and among
iMapData.com, Inc., Financial Performance Corporation, 1404467 Ontario
Limited, BG Media Intermediate Fund L.P., William Lilley and Laurence
DeFranco (incorporated by reference to Exhibit 10.49 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000).
10.49 Financial Performance Corporation Incentive Compensation Plan
(incorporated by reference to Exhibit 10.32 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2001).
10.50 Financial Performance Corporation 2001 Stock Incentive Plan
(incorporated by reference to Exhibit 10.33 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2001).
10.51 Subordinated Note and Warrant Purchase Agreement, dated as of October
22, 2001, by and among the Company, Willey Brothers, Inc. and Corporate
Mezzanine II, L.P ("CMII") (incorporated by reference to Exhibit 10.34
to the Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2001).
22
10.52 Subordinated Promissory Note, in the Principal Amount of $5,000,000,
made by Willey Brothers, Inc. in favor of CMII (incorporated by
reference to Exhibit 10.34 to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 2001).
10.53 Common Stock Purchase Warrant, dated October 22, 2001, between the
Company and CMII (incorporated by reference to Exhibit 10.34 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2001).
10.54 Registration Rights Agreement, dated as of October 22, 2001, between
the Company and CMII (incorporated by reference to Exhibit 10.34 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2001).
10.55 Subordination and Intercreditor Agreement, dated as of October 22,
2001, by and among Willey Brothers, Inc., CMII and Fleet Capital
Corporation (incorporated by reference to Exhibit 10.34 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2001).
10.56 Amendment No. 1 and Waiver, dated as of May 14, 2002, by and among the
Company, Willey Brothers, and CMII (incorporated by reference to
Exhibit 10.30 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2002).
10.57 Amendment No. 2 and Waiver, dated as of August 9, 2002, by and among
the Company, Willey Brothers, and CMII (incorporated by reference to
Exhibit 10.30 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2002).
10.58 Form of Warrant Agreement, between the Company and the Warrantholders
listed therein, together with Form of Warrant Certificate, executed by
each purchaser in the private placement of common stock and warrants
through Broadband Capital, LLC as placement agent (incorporated by
reference to Exhibit 10.33 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 2001).
10.59 Form of Registration Rights Agreement, between the Company and the
Holders listed therein, executed by each purchaser in the private
placement of common stock and warrants through Broadband Capital, LLC
as placement agent (incorporated by reference to Exhibit 10.34 to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
2001).
10.60 Form of Stock Option Agreement, dated as of March 27, 2002, between the
Company and each of Jeffrey S. Silverman and Edward T. Stolarski,
(incorporated by reference to Exhibit 10.33 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended March 31, 2002).
10.61 Stock Redemption Agreement, dated as of October 31, 2002, between the
Company and iMapData (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on November 14, 2002).
10.62 Pledge and Escrow Agreement, dated as of October 31, 2002, among the
Company, iMapData and LandAmerica Financial Group, Inc. (incorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form
8-K filed on November 14, 2002).
10.63 Promissory Note, dated October 31, 2002, made by iMapData in favor of
the Company, in the principal amount of $1,550,000 (incorporated by
reference to Exhibit 10.3 to the Company's Current Report on Form 8-K
filed on November 14, 2002).
10.64 Letter Agreement, dated October 31, 2002, between the Company and
iMapData (incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K filed on November 14, 2002).
23
10.65 Letter Agreement, dated October 16, 2001, amending the terms of i)
Stock Purchase Agreement, dated as of January 11, 2001, by and among
the Company, James M. Willey, individually and as trustee of the James
M. Willey Trust - 1995 and Thomas P. Willey, individually and as
trustee of The Thomas P. Willey Revocable Trust of 1998, ii)
Subordinated Convertible Term Promissory Notes, dated January 11, 2001,
made by the Company in favor of each of the James M. Willey Trust -
1995 and the Thomas P. Willey Revocable Trust of 1998, in the principal
amount of $3,750,000, and iii) Subordinated Convertible Term Promissory
Notes, dated January 11, 2001, made by the Company in favor of each of
the James M. Willey Trust - 1995 and the Thomas P. Willey Revocable
Trust of 1998, in the principal amount of $1,000,000. (incorporated by
reference to Exhibit 10.65 to the Company's Annual Report on Form
10-KSB filed on March 31, 2003).
10.66 Form of Stock Option Agreement, dated as of March 27, 2002, between the
Company and each of Jonathan Foster, Nathan Gantcher and J. William
Grimes (incorporated by reference to Exhibit 10.66 to the Company's
Annual Report on Form 10-KSB filed on March 31, 2003)..
10.67 Letter Agreement, dated October 9, 2002, between Willey Brothers and
CMII. (incorporated by reference to Exhibit 10.67 to the Company's
Annual Report on Form 10-KSB filed on March 31, 2003).
10.68 Fifth Amendment, dated as of December 20, 2002, among Fleet, Willey
Brothers and the Company. (incorporated by reference to Exhibit 10.68
to the Company's Annual Report on Form 10-KSB filed on March 31, 2003).
10.69 Letter Agreement, dated February 12, 2003, among Fleet, Willey Brothers
and the Company. (incorporated by reference to Exhibit 10.69 to the
Company's Annual Report on Form 10-KSB filed on March 31, 2003).
10.70 Sixth Amendment, dated as of March 18, 2003, among Fleet, Willey
Brothers and the Company. (incorporated by reference to Exhibit 10.70
to the Company's Annual Report on Form 10-KSB filed on March 31, 2003).
10.71 Waiver, dated as of March 31, 2003, by and among the Company, Willey
Brothers and CMII (incorporated by reference to Exhibit 10.71 to the
Company's Annual Report on Form 10-KSB filed on March 31, 2003)..
10.72 Form of Stock Option Agreement dated as of March 25, 2003 between the
Company and each of Chet Borgida, Kenneth Csaplar, Richard Levy,
Jeffrey Adam Lipsitz and Anthony van Daalen. (incorporated by reference
to Exhibit 10.1 to the Company's Report on Form 10-Q filed May 15,
2003).
10.73 Employee Stock Option Agreement dated as of March 25, 2003 between the
Company and Edward T. Stolarski (incorporated by reference to Exhibit
10.2 to the Company's Report on Form 10-Q filed May 15, 2003).
10.74 Employee Stock Option Agreement dated as of March 25, 2003 between the
Company and Sharon Burd (incorporated by reference to Exhibit 10.3 to
the Company's Report on Form 10-Q filed May 15, 2003).
10.75 Agreement dated as if Nay 15, 2003 by and among the Company, Willey
Brothers, James M. Willey, individually and as trustee of the James M.
Willey Trust - 1995, and Thomas P. Willey, individually and as trustee
of the Thomas P. Willey Revocable Trust of 1998 (incorporated by
reference to Exhibit 10.4 to the Company's Report on Form 10-Q filed
May 15, 2003).
10.76 Amended Agreement dated June 16, 2003 by and among the Company, Willey
Brothers, James M. Willey, individually and as trustee of the James M.
Willey Trust - 1995, Thomas P. Willey, individually and as trustee of
the Thomas P. Willey Revocable Trust of 1998 and Nixon Peabody LLP as
Escrow Agent, amending Agreement, dated as of May 15, 2003, by and
among the parties (incorporated by reference to Exhibit 10.1 to the
Company's Report on Form 10-Q filed August 26, 2003).
24
10.77 Waiver dated as of June 30, 2003 by and among the Company, Willey
Brothers and Corporate Mezzanine II, L.P. (incorporated by reference to
Exhibit 10.2 to the Company's Report on Form 10-Q filed August 26,
2003).
10.78 Seventh Amendment, dated as of August 21, 2003, between Fleet Capital
Corporation, Willey Brothers, Inc and the Company (incorporated by
reference to Exhibit 10.3 to the Company's Report on Form 10-Q filed
August 26, 2003).
10.79 Eighth Amendment, dated as of September 29, 2003, between Fleet Capital
Corporation, Willey Brothers, Inc and the Company (incorporated by
reference to Exhibit 99.1 to the Company's Report on Form 8-K filed
October 2, 2003 and Exhibit 10.2 to the Company's Report on Form 10-Q
filed November 14, 2003 ).
10.80 Second Amended Agreement dated 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 (incorporated by reference to Exhibit
10.1 to the Company's Report on Form 10-Q filed November 14, 2003).
10.81 Letter Agreement dated as of September 30, 2003, between and among the
Company, Willey Brothers, Corporate Mezzanine II, L.P. and Fleet
Capital Corporation, relating to Subordinated Notes and Warrant
Purchase Agreement, dated October 22, 2001, between the Company, Wiley
Brothers and Corporate Mezzanine II, L.P. (incorporated by reference to
Exhibit 10.3 to the Company's Report on Form 10-Q filed November 14,
2003).
10.82 Common Stock Purchase Warrant, dated October 2, 2003 between the
Company and James F. Brooks (incorporated by reference to Exhibit 10.4
to the Company's Report on Form 10-Q filed November 14, 2003).
10.83 Stock Option Agreement dated as of October 2, 2003 between the Company
and James F. Brooks (incorporated by reference to Exhibit 10.5 to the
Company's Report on Form 10-Q filed November 14, 2003).
10.84 Agreement effective as of October 15, 2003, between the Company and
Anthony J. Cataldo (incorporated by reference to Exhibit 10.6 to the
Company's Report on Form 10-Q filed November 14, 2003).
10.85 Termination Agreement dated as of January 13, 2003 (delivered October
28, 2003), by and among the Company, Robert S. Trump, Ronald Nash and
the Estate of Jeffrey Silverman, relating to Stockholders Agreement,
dated as of November 17, 1999, by and among the parties (incorporated
by reference to Exhibit 10.7 to the Company's Report on Form 10-Q filed
November 14, 2003).
10.86 Waiver dated as of November 6, 2003, by and among the Company, Willey
Brothers and Corporate Mezzanine II, L.P. (incorporated by reference to
Exhibit 10.8 to the Company's Report on Form 10-Q filed November 14,
2003).
10.87 Promissory Note dated November 7, 2003 in the principal amount of
$100,000 made by the Company in favor of Filter International
(incorporated by reference to Exhibit 10.9 to the Company's Report on
Form 10-Q filed November 14, 2003).
10.88 Promissory Note dated November 7, 2003 in the principal amount
$250,000, made by the Company in favor of Camden International Ltd.
(incorporated by reference to Exhibit 10.10 to the Company's Report on
Form 10-Q filed November 14, 2003).
25
10.89 Employment Agreement dated as of November 10, 2003 between the Company
and James F. Brooks (incorporated by reference to Exhibit 10.11 to the
Company's Report on Form 10-Q filed November 14, 2003).
10.90 Surrender Agreement for leasehold at 777 Third Avenue, New York NY,
dated as of January 20, 2004 between the Company and Sage Realty Group
as agent (incorporated by reference to Exhibit 10.1 to the Company's
Report on Form 8-K filed February 5, 2004).
10.91 Settlement Agreement dated January 20, 2004, by and among the Company,
Willey Brothers, James M. Willey, individually and as trustee of the
James M. Willey Trust - 1995, Thomas P. Willey, individually and as
trustee of the Thomas P. Willey Revocable Trust of 1998 and McLane,
Graf, Raulerson & Middleton, PA as escrow agent, settling obligations
under prior agreements dated as of May 15, 2003 (incorporated by
reference to Exhibit 10.2 to the Company's Report on Form 8-K filed
February 5, 2004).
10.92 Amendment No. 3 and Waiver to Subordinated Note and Warrant Purchase
Agreement dated as of January 7, 2004 between Corporate Mezzanine II,
L.P., Willey Brothers and the Company (incorporated by reference to
Exhibit 10.3 to the Company's Report on Form 8-K filed February 5,
2004).
10.93 Amendment No. 1 to the Subordinated Note dated as of January 7, 2004 by
Willey Brothers, Inc. as maker and Corporate Mezzanine II, L.P. as
holder (incorporated by reference to Exhibit 10.4 to the Company's
Report on Form 8-K filed February 5, 2004).
10.94 Ninth Amendment, dated as of November 29, 2003, between Fleet Capital
Corporation, Willey Brothers and the Company (incorporated by reference
to Exhibit 10.5 to the Company's Report on Form 8-K filed February 5,
2004).
16.1 Letter from Grant Thornton LLP addressed to the Securities and Exchange
Commission in accordance with Item 304(a)(3) of Regulation S-K
(incorporated by reference to Exhibit 16.1 to the Company's Report on
Form 8-K filed April 17, 2003).
16.2 Letter from Goldstein Golub Kessler LLP addressed to the Securities and
Exchange Commission in connection with Item 304(a)(3) of Regulation S-K
(incorporated by reference to Exhibit 16.1 to the Company's Report on
Form 8-K filed February 23, 2004).
23.1 Consent of Goldstein and Morris Certified Public Accountants.
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BrandPartners Group, Inc.
/s/ James F. Brooks
- -----------------------------------------
James F. Brooks, Chief Executive Officer
Rochester, New Hampshire
March 29, 2004
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.
/s/ Anthony J. Cataldo March 29, 2004
- -----------------------------------------
Anthony J. Cataldo, Chairman of the Board
March 29, 2004
- -----------------------------------------
J. Weldon Chitwood, Director and
Corporate Secretary
/s/ Richard Levy March 29, 2004
- -----------------------------------------
Richard Levy, Director
/s/ James F. Brooks March 29, 2004
- -----------------------------------------
James F. Brooks, Chief Executive Officer
/s/ Sharon Burd March 29, 2004
- -----------------------------------------
Sharon Burd, Chief Financial Officer
27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity (Deficit) F-6 - F-7
Consolidated Statements of Cash Flows F - 8
Notes to Consolidated Financial Statements F-9 - F-36
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders' of
BrandPartners Group, Inc.
We have audited the accompanying consolidated balance sheets of BrandPartners
Group, Inc. and Subsidiaries as of December 31, 2003 and 2002 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 2003, 2002 and 2001. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
BrandPartners Group, Inc. and Subsidiaries as of December 31, 2003 and 2002 and
the consolidated results of its operations and their consolidated cash flows for
the years ended December 31, 2003, 2002 and 2001 in accordance with accounting
principles generally accepted in the United States of America.
/s/ Goldstein and Morris CPA's, P.C.
New York, New York
March 26, 2004
F-2
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
ASSETS 2003 2002
----------- -----------
Current assets
Cash and cash equivalents $ 413,946 $ 2,167,924
Accounts receivable, net of allowance for
doubtful accounts of $186,330 and $113,960
Respectively 5,956,610 7,476,432
Costs and estimated earning in excess of billings 1,854,886 6,288,532
Inventories 969,020 2,102,909
Prepaid expenses and other current assets 541,635 878,700
Income tax refund -- 1,208,420
----------- -----------
Total current assets 9,736,097 20,122,917
----------- -----------
Property and equipment, net of accumulated
Depreciation 1,486,551 1,600,415
Goodwill 24,271,969 24,271,969
Deferred financing costs 304,126 472,450
Other assets 34,911 270,349
----------- -----------
Total assets $35,833,654 $46,738,100
=========== ===========
The accompanying notes are an integral part of these statements.
F-3
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 2003 2002
------------ ------------
Current liabilities
Revolving credit facility $ 3,666,441 $ 4,000,000
Accounts payable and accrued expenses 9,343,177 14,247,277
Billings in excess of costs and estimated earnings 6,333,235 1,116,360
Current maturities of long-term debt 2,542,584 4,568,083
Other current liabilities 1,600,848 1,175,494
Notes Payable 350,000 --
------------ ------------
Total current liabilities 23,836,285 25,107,214
------------ ------------
Long term debt
Notes and interest payable 12,732,320 12,465,008
Capital lease obligations 905 2,445
Put warrant liability 220,348 56,295
Lease termination fee payable in common stock 275,000 --
Lease termination fee 100,000 --
Commitments and contingencies -- --
Stockholders' equity (deficit)
Preferred stock, $.01 par value; 20,000,000 shares
authorized; none outstanding -- --
Common stock, $.01 par value; 100,000,000 shares
authorized, 18,163,553 issued 181,636 181,636
Additional-paid-in-capital 40,634,822 40,109,102
Accumulated deficit (41,835,162) (30,871,100)
Treasury stock (312,500) (312,500)
------------ ------------
Total stockholders' equity (deficit) (1,331,204) 9,107,138
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 35,833,654 $ 46,738,100
============ ============
The accompanying notes are an integral part of these statements.
F-4
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2003, 2002 and 2001
2003 2002 2001
------------ ------------ ------------
Revenues $ 33,667,062 $ 38,879,500 $ 39,693,427
------------ ------------ ------------
Costs and expenses
Cost of revenues 29,396,353 29,725,975 27,257,861
Selling, general and administrative 11,921,942 13,232,518 15,601,626
------------ ------------ ------------
Total expenses 41,318,295 42,958,493 42,859,487
------------ ------------ ------------
Operating loss (7,651,233) (4,078,993) (3,166,060)
------------ ------------ ------------
Interest expense (1,825,179) (2,461,632) (1,965,037)
------------ ------------ ------------
Other income (expense)
Interest income 38,935 71,100 236,335
Management fee income -- 332,160 --
Settlement of lawsuit (227,220) -- --
Lease termination fee (1,075,000) -- --
Other (224,365) 348,138 (222,147)
------------ ------------ ------------
Total other income (expense) (1,487,650) 751,398 14,188
------------ ------------ ------------
Loss from continuing operations before income taxes (10,964,062) (5,789,227) (5,116,909)
Income taxes benefit (expense) -- 986,265 (186,890)
------------ ------------ ------------
Loss from continuing operations (10,964,062) (4,802,962) (5,303,799)
Loss from discontinued operations -- (7,169,585) (1,710,760)
------------ ------------ ------------
NET LOSS (10,964,062) (11,972,547) (7,014,559)
Beneficial conversion on preferred stock -- -- (2,475,000)
------------ ------------ ------------
Net loss applicable to common stockholders $(10,964,062) $(11,972,547) $ (9,489,559)
============ ============ ============
Basic and diluted (loss) per share
Continuing operations $ (0.59) $ (0.26) $ (0.56)
Discontinued operations -- (0.39) $ (0.12)
------------ ------------ ------------
Net loss-basic and diluted $ (0.59) $ (0.65) $ (0.68)
============ ============ ============
Weighted-average shares outstanding 18,468,553 18,437,942 13,951,398
============ ============ ============
The accompanying notes are an integral part of these statements.
F-5
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 2003, 2002 and 2001
Preferred stock Common stock
------------------------- -------------------------- Additional Accumulated
Shares $ Shares $ paid-in capital deficit
----------- ----------- ----------- ----------- --------------- ----------------
Balance at January 1, 2001 11,458,040 $114,580 $22,079,129 $(9,408,994)
Shares issued in private placement 2,702,268 27,023 2,839,503
Issuance of preferred stock, including
beneficial conversion 1,650,000 $ 16,500 6,449,125 (2,475,000)
Conversion of preferred stock (1,650,000) (16,500) 1,650,000 16,500
Issuance of shares for acquisition
of Willey Brothers 1,512,500 15,125 6,034,875
Beneficial conversion on
notes payable 666,667
Exercise of options 150,000 1,500 148,500
Issuance of shares for services 384,654 3,847 673,918
Options issued for services 787,000
Contribution of services - officer 150,000
Imputed interest on subsidiary notes 12,938
Exchange of Company stock for
IMapData.com, Inc. stock
(7,014,559)
--------- --------- ---------- -------- ----------- ------------
Balance at December 31, 2001 -- $ -- 17,857,462 $178,575 $39,841,655 $(18,898,553)
========= ========= ========== ======== =========== ============
Treasury stock
-------------------------
Shares $ Total
---------- ----------- ---------
Balance at January 1, 2001 $12,784,715
Shares issued in private placement 2,866,526
Issuance of preferred stock, including
beneficial conversion 3,990,625
Conversion of preferred stock -
Issuance of shares for acquisition
of Willey Brothers 6,050,000
Beneficial conversion on
notes payable 666,667
Exercise of options 150,000
Issuance of shares for services 677,765
Options issued for services 787,000
Contribution of services - officer 150,000
Imputed interest on subsidiary notes 12,938
Exchange of Company stock for
IMapData.com, Inc. stock (100,000) $(312,500) (312,500)
(7,014,559)
-------- --------- -----------
Balance at December 31, 2001 (100,000) $(312,500) $20,809,177
======== ========= ===========
The accompanying notes are an integral part of this statement.
F-6
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (continued)
Years ended December 31, 2003, 2002 and 2001
Common stock Additional Treasury stock
---------------------- paid-in Accumulated -----------------------
Shares Par value Capital Deficit Shares $ Total
---------- --------- ------------ ------------- ----------- ----------- ---------
Balance at December 31, 2001 17,857,462 $178,575 $ 39,841,655 $(18,898,553) (100,000) $(312,500) $20,809,177
Shares issued in private placement 285,258 2,853 242,655 245,508
Issuance of shares for services
Provided 20,833 208 24,792 25,000
Net loss (11,972,547) (11,972,547)
---------- -------- ----------- ------------ -------- --------- -----------
Balance at December 31, 2002 18,163,553 $181,636 $40,109,102 $(30,871,100) (100,000) $(312,500) $9,107,138
Options issued to settle lawsuit 77,220 77,220
Options issued for services 448,500 448,500
Net loss (10,964,062) (10,964,062)
---------- -------- ----------- ------------ -------- --------- -----------
Balance at December 31, 2003 18,163,553 $181,636 $40,634,822 $(41,835,162) (100,000) $(312,500) $(1,331,204)
========== ======== =========== ============= ========= ========== ============
The accompanying notes are an integral part of this statement.
F-7
BrandPartners Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2003, 2002 and 2001
2003 2002 2001
------------ ------------ ------------
Cash flows from operating activities of continuing operations
Net loss from continuing operations $(10,964,062) $ (4,802,962) $ (5,303,799)
Adjustments to reconcile net loss from continuing operations
to cash provided by (used in) operating activities:
Depreciation and amortization 919,919 889,875 3,521,629
Amortization of discount on notes payable 67,344 410,646 294,608
Loss on disposal of fixed assets 18,340 -- 13,691
Bad debt provision (recovery) 72,370 17,194 (63,562)
Non-cash compensation 860,720 310,000 1,114,557
Put warrant (gain) loss 164,053 (384,143) 102,147
Allowance for obsolete inventory 317,849 (7,575) (15,934)
Options issued below fair market value 135,000 -- --
Loss on write-down of securities -- -- 120,000
Loss on sale of assets 41,972 36,005 --
Changes in operating assets and liabilities
Accounts receivable 1,447,452 (1,090,453) 2,338,074
Costs and estimated earnings in excess of billings 4,433,646 (2,853,785) (2,313,011)
Inventories 816,040 378,753 872,943
Prepaid expenses and other current assets 265,032 (529,158) (58,758)
Other assets (5,006) (164,092) (766,925)
Accounts payable and accrued expenses (5,145,900) 5,890,720 (2,104,333)
Other liabilities 525,354 741,370 401,974
Billings in excess of costs and estimated earnings 5,216,875 723,062 (1,492,721)
Interest payable - long term 217,729 (9,707) 256,658
Income taxes 1,208,420 (1,103,931) 573,337
------------ ------------ ------------
Net cash provided by (used in) operating activities of
continuing operations 613,147 (1,548,181) (2,509,425)
------------ ------------ ------------
Cash flows from investing activities of continuing operations
Acquisition of equipment (415,627) (545,734) (574,741)
Proceeds from disposition of discontinued operations and other assets 30,061 2,008,995 2,075,350
Acquisition of Willey Brothers, net of cash acquired -- -- (14,694,926)
Loan to officers -- (78,000) --
Purchase of marketable securities -- -- (90,000)
------------ ------------ ------------
Net cash (used in) provided by investing activities of
continuing operations (385,566) 1,385,261 (13,284,317)
------------ ------------ ------------
Cash flows from financing activities of continuing operations
Borrowings (repayments) on credit facility, net (333,559) 2,857,648 1,142,352
Proceeds from long-term debt -- -- 13,000,000
Proceeds from short-term debt 350,000 -- --
Proceeds from sale of common stock -- 245,508 2,866,526
Proceeds from exercise of options/warrants -- -- 150,000
Proceeds from sale of preferred stock -- -- 4,125,000
Repayment of long-term debt (2,044,800) (5,029,268) (1,267,651)
Repayment of loan to officers 46,800 31,200 --
------------ ------------ ------------
Net cash provided by (used in) financing activities of
continuing operations (1,981,559) (1,894,912) 20,016,227
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (1,753,978) (2,057,832) 4,222,485
Cash and cash equivalents, at beginning of year 2,167,924 4,225,756 3,271
------------ ------------ ------------
Cash and cash equivalents, at end of year $ 413,946 $ 2,167,924 $ 4,225,756
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 870,656 $ 1,251,352 $ 1,063,873
============ ============ ============
Taxes $ 0 $ 263,888 $ 481,424
============ ============ ============
The accompanying notes are an integral part of these statements.
F-8
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
NOTE A - NATURE OF BUSINESS AND BASIS OF PRESENTATION
BrandPartners Group, Inc. operates through its wholly-owned subsidiary,
Willey Brothers, Inc. ("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, throughout the United States. The
Consolidated Financial Statements are prepared in conformity with
accounting principles generally accepted in the United States of America.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The consolidated financial statements include the accounts of
BrandPartners Group, Inc., its wholly-owned subsidiary, Willey
Brothers, from January 16, 2001, and iMapData through October 31,
2002. All significant inter-company accounts and transactions have
been eliminated in consolidation.
2. Revenue Recognition
Willey Brothers records sales on its long-term contracts on a
percentage-of-completion basis, based upon actual costs incurred to
date on such contracts. Contract costs include all direct materials,
labor and subcontractor costs. General and administrative expenses
are accounted for as period charges and, therefore, are not included
in the calculation of the estimates to complete. Anticipated losses
are provided for in their entirety without reference to the
percentage-of-completion. Costs and estimated earnings in excess of
billings represent unbilled charges on long-term contracts
consisting of amounts recognized but not billed at December 31. Such
billings are generally made and collected in the subsequent year.
Billings in excess of costs and estimated earnings represent billed
charges on long-term contracts consisting of amounts not recognized
but billed at December 31 (see Note "F").
Revenue from short-term contracts is recognized when the product is
shipped and/or the service is rendered.
3. Cash and Cash Equivalents
The Company considers all highly liquid investments with maturity of
three months or less when purchased to be cash equivalents.
F-9
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE B (Continued)
4. Inventories
Inventories are priced at the lower of cost (determined by the
weighted-average method, which approximates first-in, first-out) or
market. Inventories consist of the following at December 31, 2003
and 2002.
2003 2002
---- ----
Finished Goods $628,832 $1,560,822
Raw Materials 329,866 534,740
Work-in-Process 10,322 7,347
-------- ----------
$969,020 $2,102,909
======== ==========
Uncompleted contracts are included in inventory at the accumulated
cost of component units within each contract, not in excess of
realizable value.
5. Property and Equipment
Property and equipment are recorded at cost. Depreciation is
computed principally on a straight-line basis over the estimated
useful lives of the applicable assets ranging from three to seven
years.
Leasehold improvements are amortized over the term of the related
lease, or the estimated useful life of the improvement, whichever is
less. Significant improvements extending the useful lives of assets
are capitalized. When assets are retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in current
operating results. Maintenance and repairs are charged to expense,
while significant repairs and betterments are capitalized. When
property is sold or otherwise disposed of, the cost and related
depreciation are removed from the accounts, and any gain or loss is
reflected in operations for the period.
6. Goodwill and Deferred Financing Costs
Goodwill represents the excess of the purchase price over the fair
value of the net assets acquired and has been amortized on the
straight-line basis over ten years through December 31, 2001.
Beginning January 1, 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other
Intangible Assets" (see Note "C").
Deferred financing costs are being amortized on a straight-line
basis over 5 - 7 years, the life of the related debt.
F-10
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE B (continued)
7. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company evaluates its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount
of such assets or intangibles may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such an asset is considered to be
impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the asset exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. (See Note
"B-17")
8. Warranty Costs
Estimated future warranty costs are provided for in the period of
sale for products under warranty based upon past experience. Accrued
warranty costs at December 31, 2003 and 2002 were approximately
$71,000 and $47,000, respectively, and are included in accounts
payable and accrued expenses.
9. Income Taxes
As part of the process of preparing the BrandPartners consolidated
financial statements, the Company is required to estimate its income
taxes in each of the jurisdictions in which it operates. This
process involves estimating the Company's actual current tax
exposure together with assessing temporary differences resulting
from different treatment of items. These differences result in
deferred tax assets and liabilities, which are included within the
Company's consolidated balance sheets. The Company must then look at
the likelihood that its deferred tax assets will be recovered from
future taxable income and to the extent it believes that recovery is
not likely, the Company must establish a valuation allowance (see
Note "I").
10. Fair Value of Financial Instruments
The following methods and assumptions were used in estimating the
indicated fair values of financial instruments:
Cash, cash equivalents and short-term debt: The carrying value
approximates fair value due to the short maturity of these
instruments.
Long-term debt: The carrying value approximates fair value
based on current rates offered to the Company for similar
debt.
Derivative financial instruments: The carrying value is
re-measured at each balance sheet date based on the fair value
of these instruments.
F-11
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE B (continued)
11. Leases
Leases which meet certain criteria are capitalized as capital
leases. In such leases, assets and obligations are recorded
initially at the present value of the leased assets. The capitalized
leases are amortized using the straight-line method over the assets'
estimated economic lines. Interest expense relating to the
liabilities is recorded to effect a constant rate of interest over
the terms and obligations. Leases not meeting capitalization
criteria are classified as operating leases and related rentals are
charged to expense as incurred.
12. Income (Loss) Per Share
Basic and diluted income (loss) per share are computed using the
weighted-average number of shares of common stock outstanding during
the period. When applicable, diluted income per share is computed
using the weighted-average number of shares of common stock,
adjusted for the dilutive effect of potential common shares issued
or issuable pursuant to stock options, stock appreciation rights,
warrants and convertible securities. Potential common shares issued
are calculated using the treasury stock method. All potential common
shares have been excluded from the computation of diluted loss per
share as their effect would be antidilutive.
Potential common shares which are antidilutive and therefore
excluded from the computation of basic and diluted loss per share,
consisting of stock options, warrants and convertible debt, were
7,845,000, 2,650,000 and 7,055,764 for the years ended December 31,
2003, 2002 and 2001, respectively.
13. Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability at its fair value. Changes in
the fair value of those instruments are reported in earnings or
other comprehensive income depending on the use of the derivative
and whether it qualifies for hedge accounting. The accounting for
gains and losses associated with changes in the fair value of a
derivative and the effect on the consolidated financial statements
will depend on its hedge designation and whether the hedge is highly
effective in achieving offsetting changes in the fair value of cash
flows of the instrument hedged.
F-12
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE B (continued
On April 23, 2001, and in conjunction with obtaining the Company's
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%. Accordingly, the Company designated the interest
rate cap having an aggregate notional amount of $4 million as a cash
flow hedge as defined under SFAS No. 133. The contract matures on
January 22, 2004. As of December 31, 2003, 2002 and 2001, the fair
value of the agreement was immaterial.
14. Concentration of Credit Risk
Financial instruments that subject the Company to credit risk
primarily consist of accounts receivable and costs and estimated
earnings in excess of billings (see Note "F"). Willey Brothers
customer base primarily consists of U.S. financial institutions.
Management does not believe that significant credit risk exists in
connection with the Company's concentration of credit at December
31, 2003.
15. Stock-Based Compensation
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, using the
assumptions described in Note "K":
Years ended December 31,
---------------------------------------------
2003 2002 2001
---- ---- ----
Net loss applicable to common
stockholders
As reported $(10,964,062) $(11,972,547) $ (9,489,559)
Pro forma (13,327,750) (12,769,250) (9,704,336)
Weighted-average shares
outstanding
Basic and diluted 18,468,553 18,437,942 13,951,398
Net loss per share
As reported $(0.59) $(0.65) $(0.68)
Pro forma $(0.72) $(0.69) $(0.70)
F-13
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE B (continued)
Non-employee stock-based compensation arrangements are accounted for
in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force ("EITF") No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring,
or in Conjunction with Selling, Goods or Services." Under EITF No.
96-18, as amended by EITF No. 00-23, "Issues Related to the
Accounting for Stock Compensation" under APB No. 25 and FASB
Interpretation No. 44, where the fair value of the equity instrument
is more reliably measurable than the fair value of services
received, such services will be valued based on the fair value of
the equity instrument.
16. Use of Estimates
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America,
management is required to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
These estimates and assumptions relate to estimates of
collectibility of accounts receivable and costs in excess of
billings, the realizability of goodwill and other intangible assets,
costs to complete engagements, accruals, income taxes and other
factors. Management has used reasonable assumptions in deriving
these estimates; however, actual results could differ from these
estimates. Consequently, an adverse change in conditions could
affect the Company's estimate.
17. Long-Lived Assets
In 2002, the Company adopted SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. Although SFAS 144 supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed
Of", it retains many of the fundamental provisions of SFAS 121. SFAS
144 also supersedes the accounting and reporting provisions of APB
30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" for the disposal of
a segment of a business. However, it retains the requirement of ABP
30 to report separately discontinued operations and extends that
reporting to a component of an entity that either has been disposed
of, by sale, abandonment, or in a distribution to owners, or is
classified as held for sale. The adoption of SFAS 144 did not have a
material effect on the Company's consolidated financial statements.
18. Recently Issued Accounting Standards
In December 2003, the Financial Accounting Standards Board's
("FASB") issued SFAS No. 132 (revised 2003), "Employers' Disclosures
about Pensions and Other Post Retirement Benefits" ("SFAS 132R").
SFAS 132R revises the disclosures for pension plans and other post
retirement benefit plans. The adoption of this statement does not
impact the Company's historical or present financial statements.
F-14
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE B (continued)
In December 2003, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition.
SAB 104 revises or rescinds portions of the interpretive guidance
included in Topic 13 of the codification of staff accounting
bulletins in order to make this interpretive guidance consistent
with current authoritative accounting and auditing guidance and SEC
rules and regulations. The adoption of SAB 104 did not have a
material effect on the Company's results of operations or financial
position.
In December 2003, the Financial Accounting Standards Board ("FASB")
issued a revised FASB Interpretation ("FIN") No. 46, Consolidation
of Variable Interest Entities. FIN No. 46R addresses consolidation
by business enterprises of variable interest entities and
significantly changes the consolidation application of consolidation
policies to variable interest entities and thus, improves
comparability between enterprises engaged in similar activities when
those activities are conducted through variable interest entities.
The Company does not hold any variable interest entities.
In May 2003, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 requires that certain financial instruments, which
under previous guidance were accounted for as equity, must now be
accounted for as liabilities. The financial instruments affected
include mandatorily redeemable stock, certain financial instruments
that require or may require the issuer to buy back some of its
shares in exchange for cash or other assets and certain obligations
that can be settled with shares of stock. Subsequently, FASB Staff
Position 150-3 indefinitely deferred certain classification and
measurement requirements of SFAS No. 150. SFAS No. 150 is effective
for all financial instruments entered into or modified after May 31,
2003 and must be applied to existing instruments for the first
interim period beginning after June 15, 2003. The adoption of SFAS
No.150 had no effect on the Company's financial position, results of
operations, or cash flows.
In December 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-based Compensation, Transition and Disclosure". SFAS No 148
provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 also requires that disclosures of the pro
forma effect of using the fair value method of accounting for
stock-based employee compensation be displayed more prominently and
in a tabular format. Additionally, SFAS No. 148 requires disclosure
of the pro forma effect in interim financial statements. The
adoption of the provisions of SFAS No. 148 did not have a material
impact on the Company's consolidated financial statements. The
Company modified its disclosures in its quarterly reports commencing
with the quarter ended March 31, 2003, as provided for in the new
standard.
F-15
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE B (continued)
On July 30, 2002, the FASB issued Statement of Financial Accounting
Standard No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities". The standard requires companies to recognize
costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or
disposal plan. Examples of costs covered by the standard include
lease termination costs and certain employee severance costs that
are associated with a restructuring, discontinued operation, plant
closing, or other exit or disposal activity. SFAS No. 146 is to be
applied prospectively to exit or disposal activities initiated after
December 31, 2002. The Company will follow the requirements of the
statement for any applicable transactions initiated after December
31, 2002.
In November 2002, FASB Interpretation 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," (FIN 45), was issued. FIN 45
requires a guarantor entity, at the inception of a guarantee covered
by the measurement provisions of the interpretation, to record a
liability for the fair value of the obligation undertaken in issuing
the guarantee. The Company previously did not record a liability
when guaranteeing obligations unless it became probable that the
Company would have to perform under the guarantee. FIN 45 applies
prospectively to guarantees the Company issues or modifies
subsequent to December 31, 2002, but has certain disclosure
requirements effective for interim and annual periods ending after
December 15, 2002. The Company does not anticipate FIN 45 will have
a material effect on its financial statements. Disclosures required
by FIN 45, if any, are included in the accompanying financial
statements.
In November 2002, the EITF reached a consensus on EITF No. 02-16,
"Accounting for Consideration Received from a Vendor by a Customer".
EITF No. 02-16 provides guidance as to how customers should account
for cash consideration received from a vendor. EITF No. 02-16
presumes that cash received from a vendor represents a reduction of
the prices of the vendor's products or services, unless the cash
received represents a payment for assets or services provided to the
vendor or a reimbursement of costs incurred by the customer to sell
the vendor's products. The provisions of EITF No. 02-16 apply to all
agreements entered into or modified after December 31, 2002.
Management does not expect the provisions of EITF No. 02-16 to have
a material impact on the Company's consolidated financial
statements.
In November 2002, the Emerging Issues Task Force reached a consensus
opinion on EITF 00-21, "Revenue Arrangements with Multiple
Deliverables." The consensus provides that revenue arrangements with
multiple deliverables should be divided into separate units of
accounting if certain criteria are met. The consideration for the
arrangement should be allocated to the separate units of accounting
based on their relative fair values, with different provisions if
the fair value of all deliverables are not known or if the fair
value is contingent on delivery of specified items or performance
conditions. Applicable revenue recognition criteria should be
considered separately for each separate unit of accounting. EITF
00-21 is effective for revenue arrangements entered into in
F-16
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE B (continued)
fiscal periods beginning after June 15, 2003. Entities may elect to
report the change as a cumulative effect adjustment in accordance
with APB Opinion 20, "Accounting Changes." The Company does not
expect the provisions of EITF 00-21 to have a material impact on the
Company's consolidated financial statements.
19. Accounts Receivable
The majority of the Company's accounts receivable are due from
companies in the financial services industry. Credit is extended
based on evaluation of a customer's financial condition and,
generally, collateral is not required. Accounts receivable are due
within 30 days and are stated at amounts due from customers net of
an allowance for doubtful accounts. Periodically the Company reviews
accounts receivable to reassess its estimates of collectibility. The
Company provides valuation reserves for bad debts based on specific
identification of likely and probable losses. In addition, the
Company provides valuation reserves for estimates of aged
receivables that may be written off, based upon historical evidence.
These valuation reserves are periodically re-evaluated and adjusted
as more information about the ultimate collectibility of accounts
receivable becomes available. Circumstances that could cause the
Company's valuation reserves to increase include changes in its
clients' liquidity and credit quality, other factors negatively
impacting clients' ability to pay their obligations as they come
due, and the quality of its collection efforts. The Company writes
off accounts receivable when they become uncollectible, and payments
subsequently received on such receivables are credited to the
allowance for doubtful accounts. Interest income related to finance
charges is subsequently recognized only to the extent that cash is
received.
NOTE C - ADOPTION OF SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS"
On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 is effective for all business combinations completed after
June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001; however, certain provisions of this Statement apply to
goodwill and other intangible assets acquired between July 1, 2001 and the
effective date of SFAS No. 142. Major provisions of these Statements and
their effective dates for the Company are as follows:
o All business combinations initiated after June 30, 2001 must
use the purchase method of accounting. The pooling of interest
method of accounting is prohibited except for transactions
initiated before July 1, 2001;
F-17
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE C (continued)
o Intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the
acquired entity and can be sold, transferred, licensed, rented
or exchanged, either individually or as part of a related
contract, asset or liability;
o Goodwill, as well as intangible assets with indefinite lives,
acquired after June 30, 2001, will not be amortized. Effective
January 1, 2002, all previously recognized goodwill and
intangible assets with indefinite lives will no longer be
subject to amortization;
o Effective January 1, 2002, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and
whenever there is an impairment indicator; and,
o All acquired goodwill must be assigned to reporting units for
purposes of impairment of impairment testing and segment
reporting.
On January 1, 2002, the Company adopted SFAS No. 142, and accordingly,
stopped amortizing goodwill. During the first quarter of 2002 the Company
had an evaluation of its goodwill performed, under SFAS No. 142, with no
resulting impairment indicated.
Net loss and basic and diluted loss per share for the twelve months ended
December 31, 2003, 2002 and 2001 are set forth below as if goodwill and
other intangible assets had been accounted for in the same manner for all
periods presented. The adjustment of the previously reported net loss and
loss per share represents the amortization of goodwill.
Reconciliation of net loss and loss per share
Twelve Months Ended December 31,
---------------------------------------------
2003 2002 2001
---- ---- ----
Net loss:
Reported loss from continuing operations $(10,964,000) $ (4,803,000) $ (5,304,000)
Beneficial conversion on preferred stock -- -- (2,475,000)
Add back goodwill amortization, net of tax -- -- 2,738,000
Reported loss from discounted operations -- (7,170,000) (1,711,000)
------------ ------------ ------------
Adjusted net loss applicable to common
stockholders $(10,964,000) $(11,973,000) $ (6,752,000)
============ ============ ============
Loss per share - basic and diluted:
Reported loss from continuing operations $ (0.59) $ (0.26) $ (0.38)
Beneficial conversion on preferred stock -- -- $ (0.18)
Add back goodwill amortization, net of tax -- -- $ 0.20
Reported loss from discontinued operations -- $ (0.39) $ (0.12)
------------ ------------ ------------
Adjusted net loss per share applicable to
common stockholders $ (0.59) $ (0.65) $ (0.48)
============ ============ ============
Weighted average shares - basic and diluted 18,469,000 18,438,000 13,951,000
============ ============ ============
F-18
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE D - ACQUISITIONS
Acquisitions are accounted for as purchases and, accordingly, are included
in the Company's consolidated results of operations from the date of
acquisition. The purchase price is allocated based on the estimated fair
values of assets acquired and liabilities assumed. Purchase price
allocations are subject to refinement until all pertinent information
regarding the acquisition is obtained.
WILLEY BROTHERS, INC.
On January 16, 2001, the Company acquired the stock of Willey Brothers for
a combination of cash, common stock of the Company, options in the
Company's stock and notes payable. The total purchase price was
$33,144,938. The acquisition was made with cash of $17,069,938, 1,512,500
shares of common stock of the Company valued at $6,050,000 ($4.00 per
share), stock options issued with a fair market valuation of $525,000 and
notes payable of $9,500,000.
The following table provides an analysis of the purchase of Willey
Brothers. The excess of the purchase price over the book value of the net
assets acquired has been allocated to goodwill, as follows:
Total purchase cost $33,144,938
Fair value of net assets acquired 6,134,704
-----------
Excess of cost over fair value of
net assets acquired allocated to goodwill $27,010,234
===========
Accumulated amortization at December 31, 2001 was $2,738,265 (see Note
"C").
The terms of the acquisition also provide for additional consideration to
be paid if the earnings of Willey Brothers exceed certain targeted levels
through the year 2005. The aggregate maximum amount of contingent
consideration is $1,200,000. The additional consideration is payable in
cash at the end of each fiscal year subject to Willey's compliance with
certain 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. The Company
recorded a liability as of December 31, 2001 of $500,000. A liability for
2003 and 2002 has not been recorded as the requirements 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 agreement with the Company's
commercial lender, and consented to by the former shareholders of Willey
Brothers, no payments in respect of the earn-out can be made until all of
the obligations are repaid, in full, to the commercial lender (see Note
"G").
On January 20, 2004, the Company entered into an agreement with the former
shareholders of Willey Brothers (The "Agreement"), 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
"U").
F-19
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE D (continued)
Unaudited pro forma operating results for twelve months ended December 31,
2001, for the Company, assuming the acquisition of Willey Brothers
occurred on January 1, 2001, are as follows:
2001
-----------
Revenues $40,750,000
Loss from continuing operations 5,687,000
Beneficial conversion on preferred stock
(see Note L) 2,475,000
Loss from discontinued operations 1,711,000
Basic and diluted loss per share:
Continuing operations $(0.59)
Discontinued operations (0.12)
------
$(0.71)
In 2001 goodwill was amortized on a straight-line basis over a ten-year
period for Willey Brothers (see Note "B-6"). Beginning January 1, 2002 the
Company stopped amortizing goodwill in conformance with SFAS No. 142,
"Goodwill and Other Intangible Assets" (see Note "C").
ACQUSITION OF COMMONWEALTH ASSETS
On September 10, 2001 the Company's subsidiary, Willey Brothers, acquired
certain assets, consisting of computer hardware and software, of the
Strategic Market Intelligence Division of the Commonwealth Group for cash
of $153,370 and stock of the Company valued at $80,834. The net assets
acquired are being amortized on the straight-line basis over a three-year
period. The pro forma effect on operations is not material.
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation are as
follows:
2003 2002
----------- ----------
Computer equipment and software $ 1,741,649 $1,272,775
Furniture, fixtures and other equipment 487,428 494,337
Leasehold improvements 414,132 405,256
Construction in Progress 222,128 325,423
----------- ----------
2,865,337 2,497,791
Less accumulated depreciation (1,378,786) (897,376)
----------- ----------
$ 1,486,551 $1,600,415
=========== ==========
F-20
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE E (continued)
Depreciation expense was $511,151, $515,546 and $415,712 for the years
ended December 31, 2003, 2002 and 2001, respectively.
NOTE F - COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
The following is a summary of costs and estimated earnings on uncompleted
contracts in comparison to billings at December 31, 2003 and 2002:
2003 2002
----------- -----------
Branch planning, design and construction
costs
Costs and estimated earnings to date $ 790,904 $ 4,936,612
Billings to date (372,542) (112,659)
----------- -----------
418,362 4,823,953
----------- -----------
Fixture and Point of Sale sales and
installment Contracts
Costs and estimated earnings to date 1,063,982 1,351,919
Billings to date (5,960,693) (1,003,700)
----------- -----------
(4,896,711) 348,219
----------- -----------
$(4,478,349) $ 5,172,172
=========== ===========
The accompanying consolidated balance sheets include the following
captions at December 31:
2003 2002
----------- -----------
Costs and estimated earnings in
excess of billings $ 1,854,886 $ 6,288,532
Billings in excess of costs and
estimated earnings (6,333,235) (1,116,360)
----------- -----------
$(4,478,349) $ 5,172,172
=========== ===========
F-21
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE G - 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. 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
December 31, 2003 was 6.25% for the term loan and 6.25% for the revolving credit
facility. As of December 31, 2003, the outstanding balances under the term loan
and the revolving credit facility were $541,045 and $3,666,441, respectively. As
amended on November 28, 2003 (the "Ninth Amendment"), the facility was extended
to December 31, 2004. The Amendment continues to require weekly prepayments of
principal on the term loan until January 2, 2004, at which time repayment in
full of the balance of the term loan was made. In addition, On January 2, 2004,
the $6,000,000 revolving credit facility will be divided into a $4,000,000 New
Term Loan and a $2,000,000 Revolving Credit Facility, with no limitations as to
availability, and eliminates the LIBOR option and provides for interest at the
banks Base Rate plus an applicable margin. Commencing March 1, 2004, the
Amendment mandates monthly prepayments of principal on the New Term Loan. The
Amendment also allows the repayment of the Seller Notes with cash infused as
equity (see Note "U"). The facility has also 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 extended the expiration of the facility to August 22, 2003, extended
the payment terms for the amendment fee and required additional pre-payments of
principal. The various amendment and waivers waived certain financial covenants
for the remainder of the term, required the payment of amendment fees, limited
the availability under the credit facility and restricted 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.
Total amendment fees and expenses of approximately $857,000 have been expensed
in the year ended December 31, 2002. At December 31, 2003 and 2002 the Company
had a liability for such fees of $580,000.
The maturities on the term loan payable at December 31, 2003 are as
follows:
Year Ending December 31,
------------------------
2004 $541,045
========
F-22
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE H - NOTES AND INTEREST PAYABLE
Notes and interest payable consist of the following at December 31, 2003
and 2002:
2003 2002
----------- -----------
Notes payable (1) (2) $14,500,000 $14,500,000
Discount on notes payable (232,360) (299,704)
Accrued interest payable 464,680 246,951
Less current maturities, net
of discount (2,000,000) (1,982,239)
----------- -----------
$12,732,320 $12,465,008
=========== ===========
Notes payable of $14,500,000 consists of the following at December 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 note-holder. 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 December 31, 2003
was 2.65%. The $2.0 million notes bear interest at 11% per annum and
provide for quarterly principal payments. The remaining principal and
accrued interest were due in one payment on October 11, 2003. The notes
are convertible into common stock of the Company, at the option of the
note-holder, 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 note-holders, 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 note-holders, no payments in respect of the
Seller Notes can be made until all of the obligations are repaid, in full,
to the commercial lender, except as permitted by the November 28, 2003
Amendment (see Note "G").
On January 20, 2004, the Company entered into a new agreement with the
former shareholders of Willey Brothers (the "Agreement") providing for,
among other things, the cancellation and forgiveness of certain debt upon
the occurrence of certain events (see Note "U").
F-23
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE H (Continued)
Current maturities consist of the following at December 31, 2003 and 2002:
2003 2002
---------- ----------
Seller notes $2,000,000 $1,982,239
Term loan (Note H) 541,045 2,499,045
Capital lease liability 1,539 86,799
---------- ----------
$2,542,584 $4,568,083
========== ==========
(2) A subordinated promissory note in the principal amount of $5,000,000
issued 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
(the "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 December 31, 2004. On January 7, 2004 the Original Note was
amended by Amendment No. 1 to Note. The Amendment provides for a reduction
of the interest rate, commencing on January 1, 2004 through December 31,
2005, to 10% per annum, of which 8% per annum shall be paid in cash on
each interest payment date and 2% added to the unpaid principal quarterly
(the "PIK Amount"). In exchange for the waiver and two year interest rate
reduction the Company issued a common stock purchase warrant to purchase
250,000 shares of common stock of the Company at $0.26 per share. (See
Note "U")
Concurrently and in connection with the issuance of the note,
BrandPartners Group, Inc. 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 has been recorded. Changes to the future fair value of
the Put Warrant are recorded in accordance with SFAS No. 133 and charged
or credited to other gain or loss. At December 31, 2003 and 2001 the
Company recorded put warrant losses of $164,000 and $102,000, respectively
and recorded a put warrant gain of $384,000 at December 31, 2002. At
December 31, 2003, 2002 and 2001 the Company had a liability of
approximately $220,000, $56,000 and $440,000, respectively, related to the
Put Warrant. 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.
F-24
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE H (continued)
Pursuant to a letter agreement dated October 9, 2002 between the
note-holder and Willey Brothers, the note-holder waived its rights to
demand immediate payment of the subordinated promissory note 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.
NOTE I - INCOME TAXES (BENEFIT)
The (benefit) provision for income taxes for the year ended December 31,
2002 and 2001 is as follows:
2002 2001
----------- -----------
Current
Federal $(1,208,420) $ --
State 63,155 186,890
----------- -----------
(1,145,265) 186,890
----------- -----------
Deferred
Federal 80,600 --
State 78,400 --
----------- -----------
159,000 --
----------- -----------
$ (986,265) $ 186,890
=========== ===========
The following table presents the principal reasons for the difference
between the effective income tax rate and the U.S. federal statutory
income tax rates at December 31, 2003, 2002 and 2001.
2003 2002 2001
---- ---- ----
U.S. federal statutory rate (34.0)% (34.0)% (34.0)%
Permanent differences .3 23.1 15.3
Change in valuation allowance 39.6 3.9 22.0
State taxes, net of federal benefit (5.9) (1.5) (1.3)
Other -- .9 1.0
---- ---- ----
0.0% (7.6)% 3.0%
==== ==== ====
The Company and its subsidiary generated losses for income tax purposes of
approximately $9,700,000 $4,800,000 and $1,364,000 for the years ended
December 31, 2003, 2002 and 2001, respectively and capital losses of
$487,000 for the year ended December 31, 2001. The capital loss was fully
utilized in 2002. For the year ending December 31, 2002, the Company
carried back approximately $3.6 million of Willey Brothers taxable loss,
receiving an income tax refund in 2003 of approximately $1.2 million.
F-25
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE I (continued)
Significant components of the Company's net deferred tax assets at
December 31, 2003 and 2002 are as follows:
2003 2002
----------- -----------
Deferred tax assets-net:
Net operating loss carryfowards $ 6,838,000 $ 3,040,000
Property and equipment (124,800) (105,200)
Warranty reserve 28,600 18,800
Stock options 525,100 314,800
Allowances for receivables 74,500 45,600
Inventory allowance 144,300 17,200
Bonus accrual 60,000 -0-
Put warrant liability 88,100 22,500
Vacation reserve 93,100 90,700
----------- -----------
Deferred tax assets-net, before
valuation allowance 7,726,900 3,444,400
Deferred tax liabilities:
Valuation allowance (7,726,900) (3,444,400)
----------- -----------
Deferred income tax asset, net $ -0- $ -0-
=========== ===========
At December 31, 2003, the Company has net operating loss carryforwards of
approximately $17.1 million, which expire at various dates through 2023,
available to offset future taxable income. At December 31, 2003, the
Company had a deferred tax asset amounting to approximately $7.7 million.
The deferred tax asset consists primarily of net operating loss
carryforwards and has been fully offset by a valuation allowance of the
same amount. Certain provisions of the tax law may limit the net operating
loss carryforwards available for use in any given year in the event of a
significant change in ownership interest. The balance of the deferred tax
asset at December 31, 2003 represents timing differences between book
income and taxable income. Approximately $834,000 of the estimated net
operating loss carryforwards available at December 31, 2003 will expire in
2004.
F-26
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE J - CONCENTRATIONS
Significant Customers
For the twelve months ended December 31, 2003 one customer accounted for
approximately 16% of the Company's revenues. For the twelve months ended
December 31, 2002 one customer accounted for approximately 14% of the
Company's revenues. For the twelve months ended December 31, 2001, three
customers accounted for approximately 15%, 11% and 10% of the Company's
revenues.
Concentration of Credit Risk
The Company maintains its cash and cash equivalents with major financial
institutions. The balances at December 31, 2003 exceed federally insured
limits. The Company performs periodic evaluations of the relevant credit
standings of these financial institutions in order to limit the amount of
credit exposure.
NOTE K - STOCKHOLDERS' EQUITY
The Company is authorized to issue a maximum of 20,000,000 shares of $.01
preferred stock.
Class A Convertible Preferred Stock
On August 1, 2001, the shareholders ratified the conversion of 1,650,000
shares of Class A Convertible Preferred Stock of the Company into common
stock. Accordingly, the shares were converted into common stock on a
one-to-one basis. The Company recorded a beneficial conversion of
$2,475,000, in August 2001, for the difference between the carrying value
of the preferred stock and the fair value of the shares of common stock at
the time of issuance of the preferred stock.
Private Placement of Equity
During the fourth quarter of 2001 and the first quarter of 2002, the
Company issued shares and warrants in a private placement offering. The
offering was completed on February 5, 2002. During the year ended December
31, 2001, the Company received net proceeds of $2,976,250 and issued
2,702,268 shares of common stock and common stock purchase warrants to
acquire an additional 4,728,959 shares of the Company's common stock at
various prices ranging from $1.056 to $3.00 per share. During 2002, the
Company received additional net proceeds from the offering of $311,800 and
issued 285,258 shares of common stock and common stock purchase warrants
to acquire an additional 474,198 shares of the Company's common stock at
various prices ranging from $1.152 to $3.00 per share. The warrants are
exercisable until November 30, 2006. The proceeds were used for working
capital purposes. Also, see Note "U".
F-27
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE K (continued)
Stock Options
During 2001, the shareholders approved the Company's 2001 Incentive Stock
Plan. The plan provides for the reservation and issuance of up to
5,000,000 shares of common stock, subject to future stock splits, stock
dividends, reorganizations and similar events. The exercise price of
incentive stock options may not be less than the fair market value on the
date of grant. The plan provides for options to be granted to officers,
directors, and employees of the Company. During the years ended December
31, 2003, 2002 and 2001, the Company granted 1,720,000, 2,017,815, and
50,000 stock options, respectively, to officers, directors and employees
under the plan.
The Company has also issued stock options to certain individuals and
companies under letter agreements. During the years ended December 31,
2003 and December 31, 2001, options to purchase 6,425,000 shares and
567,045 shares, respectively, of the Company's common stock were issued
under such agreements.
The options granted have an exercise price at least equal to the fair
value of the Company's stock, (except for options issued to two directors
and a consultant below fair value-see Note "K") and expire at various
times through 2010. The options granted vest immediately, after one year
or over a two or five year period.
A summary of the activity at December 31 is as follows:
Weighted-Average
Warrants/Options Exercise Price
---------------- --------------
Outstanding at January 1, 2001 6,383,500 $ 6.02
Granted 617,045 2.14
Exercised or Forfeited (150,000) (1.00)
---------- ------
Outstanding - December 31, 2001 6,850,545 $ 5.80
Granted 2,333,228 1.06
Exercised or Forfeited (317,913) (1.09)
---------- ------
Outstanding - December 31, 2002 8,865,860 $ 4.72
Granted 8,145,000 0.25
Exercised or Forfeited (176,897) (2.06)
---------- ------
Outstanding - December 31, 2003 16,833,963 $ 2.58
========== ======
Weighted-average fair value of
options and warrants granted
during the year:
December 31, 2001 $2.08
=====
December 31, 2002 $0.92
=====
December 31, 2003 $0.20
=====
F-28
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE K (continued)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants in 2003, 2002 and 2001, respectively: (1)
average expected volatility of 194.89%, 125.88% and 119.045%, (2) average
risk-free interest rates of 3.04%, 4.69% and 3.77%, and (3) expected lives
of five years for the years ended December 31, 2003 and 2001 and five and
eight years for year ended December 31, 2002.
The following table summarizes information concerning outstanding and
exercisable options and warrants that were granted at the fair market
value on the date of grant (see Note "K"), at December 31, 2003.
Outstanding Outstanding Exercisable
Outstanding weighted- weighted- Exercisable weighted-
As of average Average as of average
Range of December 31, remaining Exercise December 31, exercise
exercise price 2003 life (years) price 2003 price
-------------- ------------ ------------ --------- ------------ ------------
$0.43 - $ 6.06 3,033,500 1.06 $ 0.68 3,033,500 $ 0.68
$2.75 - $14.50 3,200,000 1.28 11.35 3,200,000 11.35
$0.92 - $ 4.63 510,545 1.32 1.99 478,145 1.97
$0.76 - $ 1.07 1,944,918 3.42 1.06 1,796,984 1.07
$0.12 - $ 0.45 8,145,000 4.65 0.25 6,787,500 0.25
---------- ---- ----- ---------- -----
16,833,963 3.12 $2.58 15,296,129 $2.81
========== ==== ===== ========== =====
Common stock and options to purchase common stock, of the Company, issued
for services during the years ended December 31, 2003, 2002 and 2001 are
as follows:
On January 19, 2004, the Company entered into a Surrender Agreement with
its Landlord for certain consideration including 500,000 shares of the
Company's common stock. The Company charged other expense $275,000, which
is included in long term liabilities at December 31, 2003. In 2004 the
shares were issued to the landlord.
On December 19, 2003 the Company issued an option to purchase 250,000
shares of the Company's common stock to a consultant who provides services
to the Company. The option was valued at $185,000. The transaction was
accounted for by charging consulting expense and crediting
additional-paid-in-capital.
F-29
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE K (continued)
On October 15, 2003, the Company issued options to purchase an aggregate
of 800,000 shares of the Company's common stock to two directors of the
Company below the market value of the company's stock on that date. The
transaction was accounted for by charging directors fees $80,000 and
crediting additional-paid-in-capital.
On October 8, 2003, the Company issued an option to purchase 200,000
shares of the Company's common stock to a law firm that provides legal
services to the Company. The option has a Black-Scholes valuation of
approximately $36,000. The transaction was accounted for by charging legal
expense and crediting additional-paid-in-capital.
On October 8, 2003, the Company issued options to purchase an aggregate of
750,000 shares of the Company's common stock to two consultants in
consideration for services provided to the Company. The options have a
Black-Scholes valuation of approximately $135,000. The transaction was
accounted for by charging consulting expense and crediting
additional-paid-in-capital.
On May 12, 2003, the Company issued an option to purchase 300,000 shares
of the Company's common stock 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 an option to purchase 125,000
shares of the Company's common stock to a consultant in consideration for
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
transaction was accounted for by charging officers salary and crediting
common stock and additional-paid-in-capital.
On January 16, 2001, in connection with the purchase of Willey Brothers,
the Company issued an aggregate of 50,000 shares of common stock to two
Willey Brothers' employees. The shares were valued at $4.00 per share. The
transaction was accounted for by charging salary expense and crediting
common stock and additional-paid-in-capital.
F-30
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE K (continued)
On February 12, 2001, the Company issued 43,000 shares of common stock to
a consultant who provided services in connection with the sale of the
Company's Class A Convertible Preferred Stock. The shares were valued at
$3.125 per share. Common stock was increased and a net decrease to
additional-paid-in-capital recorded.
On April 6, 2001, the Company issued 25,000 shares of common stock to a
consultant who provides services to the Company. The shares were valued at
$2.50 per share. The transaction was accounted for by charging consulting
expense and crediting common stock and additional-paid-in-capital.
On July 2, 2001, the Company issued 10,000 shares of common stock to a
consultant who provides services to the Company. The shares were valued at
$2.50 per share. The transaction was accounted for by charging consulting
expense and crediting common stock and additional-paid-in-capital.
On July 3, 2001, the Company issued an option to purchase 100,000 shares
of the Company's common stock to a consultant in connection with a
consulting agreement that expired December 31, 2001. The options have a
Black-Scholes valuation of approximately $190,000. The transaction was
accounted for by charging consulting expense and crediting
additional-paid-in-capital.
On July 3, 2001, the Company issued an option to purchase 300,000 shares
of the Company's common stock to a consultant in connection with a
consulting agreement with a term of one year. The options have a
Black-Scholes valuation of approximately $570,000. The transaction was
accounted for by charging prepaid expense and crediting
additional-paid-in-capital. The prepaid expense was amortized over the
term of the agreement.
On September 26, 2001, the Company issued 112,500 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 $0.97 per
share. The transaction was accounted for by charging officers salary and
crediting common stock and additional-paid-in capital.
On October 22, 2001, the Company issued 55,556 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 $.90 per share.
Salary expense, common stock and additional paid-in capital were increased
for the transaction.
On November 6, 2001, the Company issued 5,264 shares of common stock to a
law firm that provides legal services to the Company. The shares were
valued at $3.03 per share. Legal expense, common stock and additional
paid-in capital were increased for the transaction.
F-31
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE L - EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) profit-sharing plan for all eligible
employees. Through a salary reduction program, the plan allows employee
contributions on a pretax basis. There are no minimum corporate
contributions required under the plan. The Company may make a
discretionary matching contribution based on a percentage of participants'
contributions. The Company may also make a discretionary profit-sharing
contribution for the benefit of all eligible employees. Participants in
the plan vest in Company contributions on a graduated scale over a
five-year period. For the year ended December 31, 2003 the Company paid or
accrued matching contributions of approximately $73,000. For the years
ended December 31, 2002 and 2001, the Company did not accrue any
discretionary matching or profit-sharing contributions.
NOTE M - COMMITMENTS AND CONTINGENCIES
The Company provides accruals for all direct costs associated with the
estimated resolution of contingencies at the earliest date at which it is
deemed probable that a liability has been incurred and the amount of such
liability can be reasonably estimated.
Employment Agreements
The Company has an employment agreement with its chief executive officer,
which expires on October 14, 2004. The agreement provides for an annual
salary of $300,000, options to purchase 1,000,000 shares of the Company's
common stock; 500,000 at $0.20 per share 500,000 at $0.30 per share, and
severance payments, as defined in the agreement.
Leases
The Company has entered into various operating leases for the use of
office space and equipment expiring at various dates through December
2006. The rental leases include provisions requiring the Company to pay a
proportionate share of increases in real estate taxes and operating
expenses over base period amounts.
Future minimum rental commitments under all non-cancelable leases are as
follows:
Commitments
-----------
Years ending December 31,
2004 $282,000
2005 244,000
2006 172,000
--------
$698,000
========
Rent and equipment leasing expense for the years ended December 31, 2003,
2002 and 2001 was $1,227,090, $1,394,952 and $1,222,160, respectively.
F-32
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE M (continued)
On January 19, 2004 the Company entered into an agreement (the "Surrender
Agreement") with its landlord for the termination of its lease at 777
Third Avenue. Under the terms of the Surrender Agreement the Company will
pay to the landlord an aggregate of $800,000 and issue 500,000 shares of
restricted common stock of the Company, with cost free piggyback
registration rights, in exchange for the termination of its lease (see
Note "U"). At December 31, 2003 the Company recorded a charge of
$1,075,000 related to the termination of the lease. The terminated lease
expired 12/31/2009 with minimum lease rentals of approximately $647,000 in
2004 and $671,000 annually thereafter, through 2009.
NOTE N - TRANSACTIONS WITH SIGNIFICANT STOCKHOLDERS
For the year ended December 31, 2002 the Company granted stock options to
purchase 1,500,000 shares of the Company's common stock at an exercise
price of $1.07 and recorded cash compensation of $369,000 paid to its
deceased, former, Chief Executive Officer. Of the options granted 500,000
were vested on the date of grant, 500,000 vested on January 1, 2003 and
500,000 vest January 1, 2004. For the year ended December 31, 2001 the
Company recorded compensation expense and additional paid-in capital of
$150,000 for services contributed by such deceased, former Chief Executive
Officer.
NOTE O - REDUCTION IN WORKFORCE
During the twelve months ended December 31, 2002, the Company's Willey
Brothers subsidiary recorded a charge, primarily for severance and
termination benefits, of approximately $430,000 relating to a reduction in
workforce of 53 employees which was the result of aligning Willey
Brothers' workforce with market demands for its services and products. All
of the affected employees have been terminated and are no longer employed
by Willey Brothers. The charge of $430,000 is included in selling, general
and administrative expense at December 31, 2002. There is no remaining
liability at December 31, 2002.
F-33
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE P - 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's minority shareholders.
A summary of operating results for iMapData, from the period January 1,
2002 through October 31, 2002 and for the year ended December 31, 2001, is
as follows:
2002 2001
----------- -----------
Revenues $ 2,091,000 $ 1,971,000
----------- -----------
Cost and expenses
Cost of revenues 1,467,000 1,558,000
Selling, general and administrative
expenses 1,336,000 2,525,000
----------- -----------
2,803,000 4,083,000
----------- -----------
Operating loss (712,000) (2,112,000)
Interest income 8,000 36,000
----------- -----------
Loss before change in accounting principle (704,000) (2,076,000)
Change in accounting principle 186,000 --
----------- -----------
Loss from operations before minority interest $ (890,000) $(2,076,000)
Minority interest 323,000 365,000
----------- -----------
Loss from operations (567,000) (1,711,000)
Loss on disposal of discontinued operation (6,603,000) --
----------- -----------
Net loss from discontinued operations $(7,170,000) $(1,711,000)
=========== ===========
F-34
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE Q - SUPPLEMENTAL CASH FLOW INFORMATION
The following non cash financing and investing activities are excluded
from the Statement of Cash Flow for the year ended December 31, 2001:
On January 16, 2001, the Company issued an aggregate of 1,512,500 shares
of common stock to the former shareholders of Willey Brothers, Inc. in
partial payment for the purchase of Willey Brothers. The shares were
valued at $4.00 per share.
On September 26, 2001, the Company issued an aggregate of 83,334 shares of
common stock in partial consideration for the purchase of various assets
of the Commonwealth Group by Willey Brothers. The shares were valued at
$.97 per share.
NOTE R - FOURTH QUARTER ADJUSTMENT
During the fourth quarter of 2001, the Company recorded post-acquisition
adjustments, relating to pre-acquisition contingencies and accruals,
applicable to its acquisition of Willey Brothers, on January 16, 2001, of
approximately $948,000. All prior quarterly amounts have been restated in
the Company's Reports on Form 10-QSB for 2002.
NOTE S - 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 and on that date the note was repaid in full with interest.
NOTE T - SHORT TERM DEBT
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 5% per annum and are payable on demand. The proceeds from the
notes were used for working capital purposes. In 2004 the Company issued
1,750,000 shares of the Company's common stock in settlement of the debt.
F-35
BrandPartners Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2003, 2002 and 2001
NOTE U - SUBSEQUENT EVENTS
A.) On January 20, 2004, the Company completed a private placement of
equity. The Company received net proceeds from the private placement of
approximately $2,900,000 and issued 12,400,001 shares of common stock of
the Company. The proceeds from the private placement were used to reduce
certain debt and obligations as described below and repay the balance of
the term loan. The balance of the proceeds will be used for working
capital purposes.
1.) On January 20, 2004, in conjunction with the private placement, the
Company entered into a new agreement with the former shareholders of
Willey Brothers (the "Agreement") providing for, among other things, the
cancellation and forgiveness of certain debt. Upon payment of $1.0
million, concurrent with the signing of the Agreement, two new 24-Month
Notes were issued, each in the amount of $500,000, payable to the former
shareholders of Willey Brothers, and the $7.5 million Seller Notes were
cancelled and forgiven along with all accrued unpaid interest on the notes
of approximately $844,000. The balance of the 24-Month Notes is to be
repaid in two equal installments of $500,000 each on April 15, 2004 and
July 15, 2004. Upon payment in full of the 24-Month Notes the $2.0 million
Seller Notes and all accrued, unpaid interest on the Seller Notes
(approximately $755,000 at December 31, 2003) will be cancelled and
forgiven and the accrued unpaid earn-out of $500,000 will be forgiven and
no further Earn-Out will accrue.
2.) On January 19, 2004, in conjunction with the private placement, the
Company entered into a Surrender Agreement with its Landlord for the
termination of its Lease at 777 Third Ave, New York City. In exchange for
the termination of its rights and obligations under the lease the Company
agreed to pay to the Landlord an aggregate of $800,000 and issue to the
Landlord 500,000 shares of restricted common stock of the Company with
cost free piggyback registration rights. $500,000 of the fee was paid upon
signing the Agreement. The balance of the fee is to be paid in three equal
installments of $100,000 each on March 1, 2004, September 1, 2004 and
March 1, 2005. The shares were valued at $0.55 per share. The payment due
on March 1, 2004 was made. The terminated lease expires 12/31/2009 with
minimum lease rentals of approximately $647,000 in 2004 and $671,000
annually thereafter, through 2009. At December 31, 2003, the Company
recorded a charge of $1,075,000 related to the terminated lease.
B.) On January 7, 2004, the Company amended and restructured its
subordinated note payable. In exchange for a waiver of certain covenants
through December 31, 2004 and a reduction in the interest rate on the
note, the Company issued to the note-holder a common stock purchase
warrant to purchase 250,000 shares of the Company's common stock at $0.26
per share. The interest rate reduction is for a period of two years
commencing January 1, 2004 and reduces the interest rate from 16% per
annum to 10% per annum, 8% payable in cash quarterly and 2% added to the
principal (the "PIK Amount").
F-36