UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
| x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the
quarterly period ended March 31, 2005
OR
| o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the
transition period from ___________ to _______________
Commission
File Number 0-16530
BRANDPARTNERS
GROUP, INC.
(Exact
Name of Registrant as Specified in its Charter)
|
DELAWARE |
|
13-3236325 |
|
(State or Other Jurisdiction
of |
|
(I.R.S.
Employer Identification No.) |
|
Incorporation or
Organization) |
|
|
| |
|
|
| |
10 MAIN ST., ROCHESTER, NEW HAMPSHIRE
03839 |
|
| |
(Address of Principal Executive
Offices) |
|
| |
|
|
| |
(603) 335-1400 |
|
| |
Registrant’s Telephone number, Including
Area Code |
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Indicate
by check mark whether the registrant is an accelerated filer.
The
number of shares of common stock outstanding on May 9, 2005 was
33,651,597.
BRANDPARTNERS
GROUP, INC.
TABLE OF
CONTENTS
|
Part
I |
Financial
Statements |
|
| |
|
|
|
| |
Item
1 Financial Statements |
|
| |
|
|
|
| |
|
Consolidated
Balance Sheets March 31, 2005 (unaudited) and December 31,
2004 |
3 |
| |
|
|
|
| |
|
Consolidated
Statements of Operations (unaudited) for the Three Months Ended March 31,
2005 and 2004 |
4 |
| |
|
|
|
| |
|
Consolidated
Statements of Cash Flows (unaudited) for the Three Months Ended March 31,
2005 and 2004 |
5 |
| |
|
|
|
| |
|
Notes
of Consolidated Financial Statements (unaudited) |
6 |
| |
|
|
|
| |
Item
2 Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
14 |
| |
|
|
|
| |
Item
3 Quantitative
and Qualitative Disclosures about Market Risk |
20 |
| |
|
|
|
| |
Item
4 Controls
and Procedures |
20 |
| |
|
|
|
|
Part
II |
Other
Information |
|
| |
|
|
|
| |
Item
5 Other
Information |
21 |
| |
|
|
|
| |
Item
6 Exhibits |
22 |
Part
I Financial
Statements
Item
1 Financial
Information
BrandPartners
Group, Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
March
31, 2005 |
|
|
December
31, 2004 |
|
| |
|
|
|
(unaudited) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Cash |
|
|
$ |
2,181,767 |
|
$ |
2,845,573 |
|
|
Accounts
receivable,net of allowance for |
|
|
|
|
|
|
|
|
|
doubtful
accounts of $178,186 and $141,339 |
|
|
|
6,652,508
|
|
|
5,079,667
|
|
|
Costs
and estimated earnings in excess of billings |
|
|
|
2,503,739
|
|
|
1,079,515
|
|
|
Inventories |
|
|
|
1,259,767
|
|
|
1,326,942
|
|
|
Prepaid
expenses and other current assets |
|
|
|
408,337
|
|
|
691,158
|
|
|
Total
current assets |
|
|
|
13,006,118
|
|
|
11,022,855
|
|
| |
|
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
|
|
1,576,545
|
|
|
1,515,237
|
|
|
Goodwill |
|
|
|
24,271,969
|
|
|
24,271,969
|
|
|
Deferred
financing costs |
|
|
|
201,535
|
|
|
202,057
|
|
|
Other
assets |
|
|
|
307,475
|
|
|
293,818
|
|
| |
|
|
|
|
|
|
|
|
|
Total
assets |
|
|
$ |
39,363,642 |
|
$ |
37,305,936 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses |
|
|
$ |
6,368,839 |
|
$ |
5,959,252 |
|
|
Billings
in excess of cost and estimated earnings |
|
|
|
3,676,425
|
|
|
4,729,661
|
|
|
Short
term debt |
|
|
|
4,327,215
|
|
|
3,972,708
|
|
|
Total
current liabilities |
|
|
|
14,372,479
|
|
|
14,661,621
|
|
| |
|
|
|
|
|
|
|
|
|
Long
term debt, net of current maturities |
|
|
|
5,930,629
|
|
|
5,784,193
|
|
| |
|
|
|
|
|
|
|
|
|
Stockholders'
equity |
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 20,000,000 shares |
|
|
|
|
|
|
|
|
|
authorized;
none outstanding. |
|
|
|
—
|
|
|
—
|
|
|
Common
stock, $.01 par value; 100,000,000 shares |
|
|
|
|
|
|
|
|
|
authorized;
issued 33,648,597 and 31,063,554 |
|
|
|
336,486
|
|
|
324,976
|
|
|
Additional
paid in capital |
|
|
|
44,842,181
|
|
|
44,463,181
|
|
|
Accumulated
deficit |
|
|
|
(25,805,633 |
) |
|
(27,615,535 |
) |
|
Treasury
stock, 100,000 shares at cost |
|
|
|
(312,500 |
) |
|
(312,500 |
) |
| |
|
|
|
|
|
|
|
|
|
Total
stockholders' equity |
|
|
|
19,060,534
|
|
|
16,860,122
|
|
| |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity |
|
|
$ |
39,363,642 |
|
$ |
37,305,936 |
|
| |
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements. |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
BrandPartners
Group, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
|
3
Months Ended |
|
3
Months Ended |
|
|
|
March
31 |
|
March
31 |
|
|
|
|
2005 |
|
2004* |
|
|
|
(unaudited) |
|
(unaudited) |
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
Revenues |
|
$ |
14,568,029 |
|
$ |
15,676,229 |
|
| |
|
|
|
|
|
|
|
|
Costs
and expenses |
|
|
|
|
|
|
|
|
Cost
of revenues |
|
|
9,531,750
|
|
|
11,267,114
|
|
|
Selling,
general and administrative |
|
|
2,900,738
|
|
|
2,521,251
|
|
| |
|
|
|
|
|
|
|
|
Total
expenses |
|
|
12,432,488
|
|
|
13,788,365
|
|
| |
|
|
|
|
|
|
|
|
Operating
income |
|
|
2,135,541
|
|
|
1,887,864
|
|
| |
|
|
|
|
|
|
|
|
Other
income (expense) |
|
|
|
|
|
|
|
|
Interest
expense, net |
|
|
(325,639 |
) |
|
(174,539 |
) |
|
Gain
on forgiveness of debt |
|
|
—
|
|
|
8,326,051
|
|
|
Total
other income (expense) |
|
|
(325,639 |
) |
|
8,151,512
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
NET
INCOME |
|
$ |
1,809,902 |
|
$ |
10,039,376 |
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Basic
and diluted earnings per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.05 |
|
$ |
0.40 |
|
|
Diluted |
|
$ |
0.05 |
|
$ |
0.33 |
|
| |
|
|
|
|
|
|
|
|
Weighted
- average shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
33,109,064
|
|
|
25,084,671
|
|
|
Diluted |
|
|
39,680,204
|
|
|
30,370,405
|
|
| |
|
* |
Reclassified
for comparative purposes |
|
The
accompanying notes are an integral part of these
statements. |
BrandPartners
Group, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
| |
|
March
31, |
|
March
31, |
|
|
|
|
2005 |
|
2004* |
|
|
|
(unaudited) |
|
(unaudited) |
|
|
Cash
flows provided by (used in) operating activities |
|
|
|
|
|
|
Net
income |
|
$ |
1,809,902 |
|
$ |
10,039,376 |
|
| |
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities |
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
151,696
|
|
|
138,630
|
|
|
Forgiveness
of long term debt |
|
|
—
|
|
|
(8,326,051 |
) |
|
Provision
for doubtful accounts |
|
|
15,000
|
|
|
(27,140 |
) |
|
Non-cash
compensation |
|
|
85,000
|
|
|
|
|
|
Allowance
for obsolete inventory |
|
|
7,500
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(1,587,841 |
) |
|
(893,630 |
) |
|
Costs
and estimated earnings in excess of billings |
|
|
(1,424,224 |
) |
|
(3,173,189 |
) |
|
Inventories |
|
|
59,675
|
|
|
427,577
|
|
|
Prepaid
expenses and other current assets |
|
|
282,821
|
|
|
305,172
|
|
|
Other
assets |
|
|
(13,657 |
) |
|
31,372
|
|
|
Accounts
payable and accrued expenses |
|
|
409,585
|
|
|
397,119
|
|
|
Other
liabilities |
|
|
121,438
|
|
|
—
|
|
|
Billings
in excess of costs and estimated earnings |
|
|
(1,053,236 |
) |
|
1,534,206
|
|
| |
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities |
|
|
(1,136,341 |
) |
|
453,442
|
|
| |
|
|
|
|
|
|
|
|
Cash
flows (used by) investing activities |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Acquisition
of equipment |
|
|
(187,482 |
) |
|
(145,357 |
) |
| |
|
|
|
|
|
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net
borrowings (payments) on short term debt |
|
|
354,507
|
|
|
(2,545,281 |
) |
|
Proceeds
from exercise of options |
|
|
305,510
|
|
|
|
|
|
Proceeds
from private placement of equity, net of costs |
|
|
—
|
|
|
2,895,000
|
|
| |
|
|
|
|
|
|
|
|
Net
cash provided by financing activities |
|
|
660,017
|
|
|
349,719
|
|
| |
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH |
|
|
(663,806 |
) |
|
657,804
|
|
| |
|
|
|
|
|
|
|
|
Cash,
beginning of period |
|
|
2,845,573
|
|
|
413,946
|
|
| |
|
|
|
|
|
|
|
|
Cash,
end of period |
|
$ |
2,181,767 |
|
$ |
1,071,750 |
|
| |
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash
paid during the period for interest |
|
$ |
221,745 |
|
$ |
71,417 |
|
| * |
Reclassified
for comparative purposes |
|
The
accompanying notes are an integral part of these
statements. |
BrandPartners
Group, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -
NATURE OF BUSINESS AND BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements of BrandPartners Group,
Inc. (“BrandPartners”) and Subsidiaries (the “Company”) have been prepared by
the Company pursuant to the rules of the Securities and Exchange Commission
(“SEC”) for quarterly reports on Form 10-Q and do not include all of the
information and note disclosures required by accounting principles generally
accepted in the United States of America for annual financial statements and
should be read in conjunction with our consolidated financial statements and
notes for the fiscal year ended December 31, 2004 and filed with the SEC on Form
10-K. The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and include all adjustments (consisting of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
presentation of financial position, results of operations and cash flows. The
consolidated statements of operations for the three months ended March 31, 2005
are not necessarily indicative of the results expected for the full
year.
The
Company currently operates through its subsidiaries, Willey Brothers, Inc.,
which formally announced its name change to BrandPartners Retail, Inc. on April
4, 2005 (“Brand Retail”) and BrandPartners Europe, Ltd. (“Brand Europe”).
Through Brand Retail, 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. Brand Europe was incorporated in England
in January 2005 and has just begun operations. It provides similar services to
the European marketplace.
The
consolidated financial statements for the three months ended March 31, 2005 and
2004 include the accounts of BrandPartners and its wholly owned subsidiaries,
Brand Retail and Brand Europe. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The
accounting policies followed by the Company are set forth in Note B to the
Company’s consolidated financial statements in the Form 10-K for December 31,
2004.
Certain
amounts in the prior year have been reclassified to conform to the current
period presentation.
NOTE B -
GOODWILL AND OTHER INTANGIBLE ASSETS
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 a ten
year period through December 31, 2001. On January 1, 2002, the Company adopted
Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill
and Other Intangible Assets and
accordingly ceased amortizing its goodwill. In conformance with the standard,
the Company conducts periodic reviews of the value of its goodwill for potential
impairment. For the three months ended March 31, 2005 and 2004, no impairments
were present and no indications of impairment were identified.
BrandPartners
Group, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE C -
RECENT ACCOUNTING PRONOUNCEMENTS
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“FAS”) No. 123(R), Share-Based
Payment. FAS
123(R) is a revision of FAS 123, Accounting
for Stock-Based Compensation. This
statement supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees, and its
related implementation guidance. This Statement establishes standards for the
accounting of transactions in which an entity exchanges its equity instruments
for goods or services. The statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. On April 14, 2005, the Securities and Exchange Commission
announced a new rule, which amended the compliance dates for FAS 123(R). The new
rule allows companies to implement FAS 123(R) at the beginning of their next
fiscal year. The Company has decided to implement FAS 123(R) on January 1, 2006
and believes that its adoption may have a material effect on the Company’s
financial position or results of operations.
NOTE D -
SHORT TERM DEBT
| |
|
March
31, 2005 |
|
December
31, 2004 |
|
| |
|
(unaudited) |
|
|
|
| |
|
|
|
|
|
|
Revolving
credit facility (1) |
|
$ |
635,757 |
|
$ |
— |
|
|
Bank
Term Loan (1) |
|
|
3,000,000
|
|
|
3,300,000
|
|
|
Note
Payable (2) |
|
|
691,458
|
|
|
672,708
|
|
| |
|
|
|
|
|
|
|
|
Total
Short Term Debt |
|
$ |
4,327,215 |
|
$ |
3,972,708 |
|
Short-Term
Debt consists of the following:
| (1) |
On
December 28, 2004, the Company renegotiated its agreement with its
commercial lender to amend (the “Tenth Amendment”) its credit facility
(“Facility”), which includes a term loan and a revolving credit facility.
The term loan requires monthly principal payments of $100,000, from
January 1, 2005 to June 30, 2005, with monthly principal payments of
$200,000 from July 1, 2005 through December 31, 2005. The revolving credit
facility was reduced from $2,000,000 to $1,750,000 on January 1, 2005 and
was further decreased to $1,500,000 on April 1, 2005. Monthly payments of
$25,000 were instituted on the previously accrued amendment fee from
January 1, 2005 to June 30, 2005 with the payments being increased to
$50,000 from July 1, 2005 to December 31, 2005. As a fully-earned,
non-refundable amendment fee, Brand Retail paid 0.5% of the obligation on
January 3, 2005, and was required to pay 1.0% of the obligation as of June
30, 2005 and 1.5% of the obligation as of September 30, 2005. Interest is
calculated at the bank’s Base Rate plus an applicable margin. The interest
rate in effect on March 31, 2005 was 9.25%. The Facility was replaced on
May 5, 2005. |
BrandPartners
Group, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D -
SHORT TERM DEBT - (continued)
On May 5,
2005, the Company negotiated a new credit facility (the “New Facility”) with a
commercial lender. The New Facility replaced the Facility described above. The
New Facility provides for the following:
| · |
$5,000,000
Revolving Line of Credit Loan |
| · |
Prime
Rate interest on Revolving Line of Credit Loan principal not subject to
the LIBOR rate |
| · |
LIBOR
rate on all of the Term Loan and all or a portion of the outstanding
principal on the Revolving Line of Credit Loan
|
The New
Facility expires on May 5, 2008.
| (2) |
On
July 6, 2004, the Company negotiated an unsecured subordinated promissory
note for $1,000,000. The note was payable on October 4, 2004; however, 50%
of the note could be extended to January 3, 2005. The stated interest rate
was 12% per annum. With the issuance of the note, a three (3) year Common
Stock Purchase Warrant (Purchase Warrant) was issued to purchase up to
500,000 shares of the Company’s common stock. The exercise price of the
Warrant Shares was $0.68, the closing price of the stock on the date of
the issuance of the Note. Based on a Black-Scholes valuation of the
warrants, $105,000 of interest expense was recognized during the period
ended March 31, 2005. |
On
September 29, 2004, the Note and the Purchase Warrants were cancelled. In
consideration of the cancellation of the Original Note, a new unsecured
subordinated promissory note in the amount of $625,000 was issued, with interest
accruing at a rate of 12% per annum. The Company also issued 750,000 restricted
shares of common stock for the sum of $375,000, which was applied as partial
payment to the Original Note. The stock was issued on September 29, 2004. The
price of the stock on the date of issuance was $0.63 per share. The New Note
matured on January 6, 2005.
On
January 5, 2005, the maturity date of the New Note was extended to May 6, 2005.
In consideration of the extension, a total of 200,000 common stock warrants
could be issued at an exercise price of $0.85 per share subject to a
pro-rata
percentage
adjustment reducing the number of warrants to be issued if the Company elects to
make prepayment(s) of all or a portion of the Promissory Note. Fifty-thousand
(50,000) warrants were issued on February 7, 2005 and on March 7, 2005,
respectively. Interest expense of $85,000, based on a Black-Scholes valuation,
was recorded in Quarter 1, 2005. On April 7, 2005, 50,000 warrants were issued
and an additional 46,667 warrants were issued on May 5, 2005 when payment in
full of the note and all interest was made. The proceeds from the note were used
for working capital purposes.
BrandPartners
Group, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E -
LONG TERM DEBT
Long-Term
Debt consists of the following:
| |
|
March
31, 2005 |
|
December
31, 2004 |
|
| |
|
(unaudited) |
|
|
|
| |
|
|
|
|
|
|
Note
Payable |
|
$ |
5,000,000 |
|
$ |
5,000,000 |
|
|
Discount
on Note Payable |
|
$ |
(232,360 |
) |
$ |
(232,360 |
) |
|
Put
Warrant Liability |
|
|
390,100
|
|
|
272,385
|
|
|
Interest
payable |
|
|
772,889
|
|
|
744,168
|
|
| |
|
$ |
5,930,629 |
|
$ |
5,784,193 |
|
A
subordinated promissory note in the principal amount of $5,000,000 was issued on
October 22, 2001 to an unrelated third party. The note bears interest at 16% per
annum - 12% payable quarterly in cash and 4% added to the unpaid principal (“PIK
amount”). The note matures on October 22, 2008, at which time the principal and
all PIK amounts are due. Under the terms of the note, the Company is required to
maintain certain financial covenants. 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 PIK amount.
Concurrently
and in connection with the 2001 issuance of the note, the Company issued 405,000
warrants to purchase the common stock of the Company at $0.01 per share. The
warrants expire October 11, 2011 and can be put to the Company after the fifth
year. The transaction has been treated as a debt discount and has been amortized
to interest expense over prior periods. A liability for the put warrant has been
recorded. Changes to the future fair value of the put warrants are recorded in
accordance with SFAS No. 133 and charged to other income (loss). At March 31,
2005 and 2004, the Company had a liability of $390,100 and $220,248,
respectively, related to the Put Warrant.
BrandPartners
Group, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F -
FORGIVENESS OF LONG TERM DEBT
In July
2004, the Company recognized a gain on forgiveness of long term debt related to
the 2001 purchase of Brand Retail (formerly known as Willey Brothers). On
January 20, 2004, the Company entered into an amended agreement with the former
shareholders of Brand Retail which provided for, among other things, the
cancellation and forgiveness of $7.5 Million notes payable. Upon the signing of
the Agreement, two promissory notes were issued, each in the amount of
$1,000,000, payable to the former shareholders of Brand Retail. The $7.5 Million
Notes were cancelled and forgiven along with all accrued unpaid interest of
approximately $844,000. The balance of the promissory notes was repaid with the
payment of $1.0 Million in the aggregate upon issuance of the notes and in two
equal installments of $500,000 each on April 15, 2004 and July 14, 2004. Upon
payment in full of the promissory notes, the $2.0 Seller Notes and all accrued,
unpaid interest on the Seller Notes (approximately $755,000 at July 14, 2004)
was cancelled and forgiven and the accrued unpaid earn-out of $500,000 was
forgiven. Total gain on forgiveness of debt was approximately $9.1 Million as of
July 31, 2004. During the first quarter of 2004, $8.3 Million was recognized as
gain on forgiveness of debt. Recovery of the earn-out expense was part of the
general and administrative expense.
NOTE G -
SIGNIFICANT CUSTOMERS
For the
three months ended March 31, 2005, three customers accounted for approximately
32%, 17% and 10% of the Company’s revenues, respectively.
For the
three months ended March 31, 2004, two customers accounted for approximately 14%
and 13% of the Company’s revenues, respectively.
NOTE H -
SUPPLEMENTAL DISCLOSURES FOR STATEMENTS OF CASH FLOWS
On
February 7, and March 7, 2005, using the Black-Scholes valuation model, interest
expense of $85,000 was recognized for 100,000 warrants issued as part of an
agreement to extend the maturity of a Note Payable. [See Note D (2)] The
transaction was accounted for by charging interest expense and crediting
additional paid in capital.
On
January 20, 2004, the Company entered into a surrender agreement with its
landlord for the termination of its lease at 777 Third Ave., New York, New York.
In exchange for the termination of its rights and obligations under the lease,
the Company paid to the landlord an aggregate of $800,000 and issued to the
landlord 500,000 shares of restricted common stock of the Company with cost-free
piggyback registration rights. $500,000 was paid upon the signing of the
agreement. The balance of $300,000 was paid in three equal payments on March 1,
2004, September 1, 2004 and March 1, 2005. The shares were valued at $0.55 per
share.
BrandPartners
Group, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE I -
COMMITMENTS AND CONTINGENCIES
On March
16, 2005, the Company amended its agreement with its Non-Executive Chairman and
its Chief Executive Officer. These agreements expire on March 15, 2008. The
agreement with its Non-Executive Chairman of the Board provides monthly payments
of $30,000 and severance payments, as defined in the agreement. The Chief
Executive Officer’s agreement provides for an annual salary of $300,000, subject
to annual review by the Board of Directors, and severance payments, as defined
in the agreement.
Under the
terms of the warrant agreements entered into as part of the private placement
completed in February 2002, the Company was obligated to reset the exercise
price of the warrants issued under certain conditions. The Company subsequently
issued securities in a private placement that closed January 20, 2004, which as
a result of the prior warrant agreements, resulted in the ratcheting down of the
exercise price of some warrants issued in the February 2002 placement. Certain
holders of other warrants that were issued in closings which did not fulfill the
requirements for the ratcheting down have also requested that their warrants be
reset or ratcheted down. The Company contends that these warrants should not be
reset by virtue of the terms of their warrant agreements.
On
September 21, 2004, the Company purchased a 15% Membership Interest in an
unrelated third party for $250,000. Under the agreement, the Company delivered
50% of the purchase price at closing, with the balance paid on November 5, 2004.
There are no further capital obligations required on this investment. The
investment is being accounted for using the cost method.
NOTE J -
STOCK BASED COMPENSATION
On
February 7, 2005, the Chairman of the Board, the Chief Executive Officer and the
two Directors were granted options to purchase the Company’s common stock at
$0.96 per share, the share price at the time of the grant. The Chairman and
Chief Executive Officer each received 500,000 options, with the two Directors
each receiving 100,000 options, for a total of 1,200,000 options. The options
vested immediately and expire five years from the date of issuance.
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 disclosed 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 income and loss per share as if
the Company had applied the fair value recognition provision of SFAS No. 123.
The fair value of each option grant is estimated on the date of
grant.
BrandPartners
Group, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Using the
Black-Scholes option pricing model with the following assumptions used for
grants in the three months of 2005 and 2004, respectively: 1) average expected
volatility of 351.43% and 121.3%, 2) average risk-free interest rates of 4.30%
and 2.97% and 3) expected lives of five years for the three months ended March
31, 2005.
| |
|
3
Months Ended |
|
3
Months Ended |
|
| |
|
March
31, 2005 |
|
March
31, 2004 |
|
| |
|
(unaudited) |
|
(unaudited) |
|
| |
|
|
|
|
|
|
Net
income (loss) |
|
|
|
|
|
|
As
reported |
|
$ |
1,809,902 |
|
$ |
10,039,376 |
|
|
Stock
based compensation expense |
|
|
1,392,000
|
|
|
479,727
|
|
| |
|
|
|
|
|
|
|
|
Pro
forma |
|
$ |
417,902 |
|
$ |
9,559,649 |
|
| |
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
33,109,064
|
|
|
25,084,671
|
|
|
Diluted |
|
|
39,680,204
|
|
|
30,370,405
|
|
| |
|
|
|
|
|
|
|
|
Net
earnings (loss) per share |
|
|
|
|
|
|
|
|
As
reported |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.05 |
|
$ |
0.40 |
|
|
Diluted |
|
$ |
0.05 |
|
$ |
0.33 |
|
| |
|
|
|
|
|
|
|
|
Pro
forma |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.01 |
|
$ |
0.38 |
|
|
Diluted |
|
$ |
0.01 |
|
$ |
0.31 |
|
| |
|
|
|
|
|
|
|
NOTE K -
INCOME TAXES
For the
quarter ended March 31, 2005, income taxes of approximately $816,000 were offset
by net operating loss carry-forwards. At December 31, 2004, the Company had net
operating loss carry-forwards (“NOL’s”) of approximately $9.3 million available
to offset future taxable income. These NOL’s expire at various dates through
2024. At December 31, 2004, the Company had deferred tax assets of approximately
$2,579,000. The deferred tax asset consists primarily of net operating loss
carry-forwards and accrued expenses. Realization of deferred tax assets is
dependent upon future earnings, if any, the timing and amount of which is
uncertain. Accordingly, the deferred tax asset has been fully offset by a
valuation allowance of the same amount. Pursuant to Section 382 of the Internal
Revenue Code, NOL carryforwards may be limited in use in any given year in the
event of a significant change in ownership.
NOTE L -
STOCKHOLDERS’ EQUITY
On
February 2, 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. The proceeds from the
private placement were used to reduce certain debt and obligations, repay the
balance of a term loan, and for working capital.
BrandPartners
Group, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE N -
SUBSEQUENT EVENTS
On May
12, 2005, the Company amended its Employment Agreement with James Brooks, the
Chief Executive Officer. As part of the amendment, Mr. Brooks’ salary was
increased to $360,000 per annum effective April 1, 2005 and will be pro-rated
for the balance of the year.
On May
12, 2005, the Company approved a bonus policy for fiscal year 2005 for James
Brooks, which ties the bonus schedule to the Company’s year-end results and is
similar to those approved for other executives in the Company’s subsidiaries.
On April
1, 2005, the Company formed a new wholly-owned subsidiary, Grafico Incorporated
(“Grafico”), a Delaware corporation. Subsequently, on May 9, 2005, Grafico
purchased certain assets, namely furniture and office equipment of a design
company. Grafico is intended to provide design, branding and consulting services
to a specific segment of the financial industry. The transaction was accounted
for by the purchase method and did not involve the transfer of cash or
stock.
On May 5,
2005, the Company negotiated a new credit facility (the “Facility”) with a
commercial lender. The Facility provides for:
| · |
Repayment
of previous Facility including all interest and amendment
fees |
| · |
$5,000,000
Revolving Line of Credit |
| · |
Prime
rate interest on principal not subject to LIBOR
rate |
| · |
LIBOR
rate on Term Loan and portion of Revolving Line of
Credit |
| · |
Expiration
date of May 5, 2008 |
On May 5,
2005, the Company paid in full a subordinated note payable. On April 7, 2005,
50,000 warrants were issued in accordance with a modification agreement, and on
May 5, 2005, a final 46,667 warrants were issued. [See Note D(2)]
On April
18, 2005, the Company dismissed Michael F. Albanese, CPA (“Albanese”) as its
independent auditor. The decision to dismiss Albanese was approved by the
Company’s Board of Directors.
On April
18, 2005, upon the approval of the Board of Directors, the Company engaged Moore
Stephens, P.C. (“Moore Stephens”) to audit the consolidated financial statements
of the Company for the year ending December 31, 2005.
Effective
April 11, 2005, the Company finalized agreements with five former Directors and
officers, as well as one current Director (the “Option Holders”) whereby the
Option Holders surrendered an aggregate of 1,050,000 out of 1,400,000 options
previously granted to the Option Holders under the Company’s 2001 Stock
Incentive Plan. The Company further agreed to amend the terms of the options by
providing a cashless exercise provision. The Company has agreed to register the
shares of common stock underlying its 2001 Stock Incentive
Plan.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY
AND CAPITAL RESOURCES
As of
March 31, 2005, the Company had a working capital deficit (current assets, less
current liabilities) of approximately $1,366,000 stockholders’ equity of
approximately $19,061,000, and a current ratio (current assets to current
liabilities) of approximately .91:1. At December 31, 2004, the Company had a
working capital deficit of approximately $3,640,000, stockholders’ equity of
approximately $16,860,000 and a working capital ratio of approximately .75:1.
The decrease in the working capital deficit was due to the increase in accounts
receivable, and in costs in excess of billings.
As of
March 31, 2005, the Company had cash of approximately $2,182,000. As of December
31, 2004, the Company had cash of approximately $2,846,000.
For the
three months ended March 31, 2005, the differences noted in the Statement of
Cash Flows from 2004 consisted of the following:
| · |
Net
cash (used in) operating activities was $(1,136,841) primarily from the
increase in Accounts Receivable ($1,587,841) and the change in
Costs/Billings and Estimated Earnings in Excess of Billings due to timing
differences on major contracts between revenue recognition and invoicing
of monies due for work performed because of the terms of the contracts
($2,477,460) offset by net income of
$1,809,902. |
| · |
Net
cash (used in) investing activities was $(187,482) for the purchase of new
equipment |
| · |
Net
cash provided by financing activities was $660,017 from the exercise of
stock options for $305,510 and net borrowings on short term debt of
$357,507 |
INDEBTEDNESS
THE BRAND
RETAIL FACILITY
On
January 11, 2001, the Company’s wholly owned subsidiary, BrandPartners Retail,
Inc. (formerly known as Willey Brothers, Inc.), established a loan facility (the
“Facility”) with a third party. The Tenth Amendment dated December 28, 2004
provided for the following:
| · |
Reduction
of Revolving Credit Facility from $2,000,000 to $1,750,000
|
through
March 31, 2005
| · |
Permanent
Reduction of Revolving Credit Facility to $1,500,000 as of April 1,
2005 |
| · |
Adjustment
of the interest rate to the bank’s base rate plus
3.5% |
| · |
Monthly
payments on term loan principal of $100,000 through June
2005 |
| · |
Monthly
payments on term loan principal of $200,000 beginning July
2005 |
| · |
Monthly
payments on amendment fee of $25,000 through June
2005 |
| · |
Monthly
payments on amendment fee of $50,000 beginning July
2005 |
| · |
Non-refundable
amendment fee: |
| o |
0.5%
of obligations as of and on January 3, 2005 |
| o |
1.0%
of obligations as of and on June 30, 2005 |
| o |
1.5%
of obligations as of and on September 30,
2005 |
The
Facility was replaced on May 5, 2005 by a credit facility between the Company
and a commercial lender.
BRANDPARTNERS
FACILITY
BrandPartners
Group, Inc. and its wholly owned subsidiaries completed a credit facility
arrangement (the “Facility”) with a commercial lender effective May 5, 2005. The
Facility provides for the following:
| · |
Repayment
of previous Brand Retail Facility |
| · |
$5,000,000
Revolving Line of Credit |
| · |
Prime
rate interest on principal not subject to LIBOR
rate |
| · |
LIBOR
rate on Term Loan and portion of Revolving Line of
Credit |
| · |
Expiration
date of May 5, 2008 |
If for
any reason the Company is unable to extend or refinance the Facility upon
maturity, the amount outstanding under the Facility becomes due and payable, and
the lender has the right to proceed against the collateral granted to secure the
indebtedness under the Facility, including substantially all of the assets of
BrandPartners. In the event the Company does not make payment or refinance the
facility, the Company’s business operations would be adversely affected. For
further discussion of the consequences of a failure to pay the Facility upon
maturity, see “Liquidity Issues” below.
THE BRAND
RETAIL SUBORDINATED NOTE PAYABLE
On
October 22, 2001, Brand Retail issued a subordinated promissory note in the
principal amount of $5,000,000 (the “Brand Retail Subordinated Note Payable”) to
a third party. The note bears interest at 16% per annum payable as
follows:
| · |
12%
on accreted principal amount, payable in cash
quarterly. |
| · |
4%
on the accreted principal amount, added to principal (“PIK
amount”) |
The
balance of the note at March 31, 2005 was $5,772,889, including PIK interest of
$772,889. On January 7, 2004, when the closing price of the Company’s common
stock was $0.70, 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 PIK amount.
The note
matures on October 22, 2008, at which time the principal and all PIK amounts are
due. The funds were used for working capital and to reduce the balance of the
Term Loan. Concurrently, and in connection with the issuance of the Brand Retail
Subordinated Note Payable, the Company issued a common stock purchase warrant
(the “Put Warrant”) to purchase 405,000 shares of common stock of the Company at
an exercise price of $0.01. The Put Warrant expires on October 22, 2011 and can
be put to the Company after the fifth year, or earlier under certain conditions,
based on certain criteria. The Company is also required to maintain compliance
with certain financial and other covenants. At March 31, 2005, the Company had a
long-term liability of approximately $390,000 related to the Put
Warrant.
On
September 30, 2003, in consideration for the extension of an interest payment
due date, the Company issued a common stock purchase warrant to purchase 10,000
shares of common stock of the Company at an exercise price of $0.24, the closing
price on the date of issuance. The terms are similar to those on the Put
Warrant.
BRANDPARTNERS
GROUP SUBORDINATED NOTE
On July
6, 2004, the Company negotiated an unsecured subordinated promissory note for
$1,000,000. The stated interest rate was 12% per annum. With the issuance of the
note, a three-year Common Stock Purchase Warrant was issued to purchase up to
500,000 shares of the Company’s common stock at $0.68, the closing price of the
stock on the date of the issuance of the note.
On
September 29, 2004, the Note and the Purchase Warrants were cancelled. In
consideration of the cancellation of the original note, a new unsecured
subordinated promissory note in the amount of $625,000 was issued, with interest
accruing at 12% per annum. The Company also issued 750,000 restricted shares of
common stock on September 29, 2004 for the sum of $375,000, which was applied as
partial payment to the original note. The price of the stock on the date of
issuance was $0.63 per share. The new note matured on January 6,
2005.
On
January 5, 2005, the maturity date of the new note was extended to May 6, 2005.
In consideration of the extension, a total of 200,000 common stock warrants
could be issued at an exercise price of $0.85 per share subject to a
pro
rata
percentage adjustment reducing the number of warrants to be issued if the
Company elected to make prepayments against the note. A total of 100,000
warrants were issued - 50,000 on February 7, 2005 and 50,000 on March 7, 2005.
Interest expense of $85,000 was recorded in Quarter 1 based on a Black-Scholes
valuation of the warrants. On April 7, 2005, 50,000 warrants were issued. On May
5, 2005, the subordinated note and all applicable interest were paid in full,
and an additional 46,667 warrants were issued. The proceeds of the note were
used for working capital purposes.
LIQUIDITY
ISSUES
On
February 2, 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. The proceeds from the
private placement were used to reduce certain debt and obligations as described
below and to repay the balance of the term loan. The balance of the proceeds was
used for working capital.
On
January 20, 2004, in conjunction with the closing of the first traunch of the
private placement, the Company entered into a new agreement with the former
shareholders of Brand Retail (the “Agreement”). The Agreement provided for,
among other things:
| · |
$7.5
Million Seller Notes were cancelled and
forgiven |
| · |
All
accrued unpaid interest on the Seller Notes of approximately $844,000 was
cancelled and forgiven |
| · |
$2.0
Million Seller Notes were maintained in escrow and were cancelled upon
payment in full of the promissory notes. |
| · |
Two
new promissory notes were issued, each in the amount of $1.0 million,
payable to the former shareholders of Brand Retail.
|
| · |
Payment
of $1.0 million was made to the former shareholders of Brand Retail
against one of the 24-Month Notes. |
The
balance of the new promissory notes was paid on April 15, 2004 and July 14,
2004. Upon payment in full of the promissory notes:
| · |
All
accrued, unpaid interest on the $2.0 Million 24-Month Notes (approximately
$755,000 at July 14, 2004) was cancelled and
forgiven |
| · |
Accrued,
unpaid earn-out of $500,000 was forgiven |
On
January 20, 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, New York. In exchange for the termination of its
rights and obligations under the lease, the Company agreed to:
| · |
Pay
the landlord an aggregate of $800,000 |
| · |
Issue
to the landlord 500,000 shares of restricted common stock of the Company
with cost free piggyback registration
rights |
Upon the
signing of the agreement, $500,000 was paid. The balance of the fee was 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 terminated
lease had an expiration date of December 31, 2009 with minimum lease rentals of
approximately $637,000 in 2004 and $671,000 annually through 2009
Our
ability to satisfy our working capital requirements depends on, among other
things, whether we are successful in generating revenues and income from our
subsidiaries. In response to our current financial condition and current market
conditions, and as part of our ongoing corporate strategy, we are pursuing
several initiatives intended to better position the Company in the marketplace.
These initiatives include vigorously pursuing new sales and customers,
continually reviewing costs and expenses and aggressively collecting accounts
receivable.
COMMITMENTS
AND CONTINGENCIES
As of
March 31, 2005, booked orders, consisting of signed contracts not yet completed,
for the Company totaled approximately $31,404,000.
RESULTS
OF OPERATIONS
THREE
MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31,
2004
REVENUES:
Revenues are recognized as products and services are delivered. In some cases,
this means using the percentage of completion method. The Company’s record
revenues recognized in the first quarter of 2004 ($15,576,229) were a result of
built-up demand for its products and services. While revenue from operations for
the quarter ended March 31, 2005 was down approximately $1,108,000 or 7%, the
Company entered 2005 with a $31 Million backlog of signed orders (an historic
high), which was approximately $8 Million higher than the backlog at the end of
2004. However, revenues recognized in any period depend upon a number of
factors, including but not limited to:
| · |
Design,
manufacturing or construction times given the scope of each
project |
| · |
Customer’s
required delivery dates, which may change in each
project |
| · |
New
projects signed and delivered in the same
quarter |
COST OF
REVENUES: Cost of revenues from operations decreased approximately $1.7 million
or 15% for the three months ended March 31, 2005. The cost of revenues from
operations as a percentage of revenues is dependent upon the product mix for
which revenue is recognized during the period. While the Company maintains
strict cost control measures, the nature of product offerings for which revenue
is recognized during the quarter changes the relationship of the cost of
revenues as a percentage of revenues.
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES: Relationship selling is a critical
component of the Company’s success. This requires an extended sales effort. The
typical sales cycle for new customers and larger capital projects is frequently
longer than one year as our customers are committing themselves to a long-term
investment as part of their capital improvement programs. Besides devoting time
and energy to current projects, the Company’s sales force is working
aggressively to develop new clients and markets. The Company has added several
additional sales representatives to concentrate on new and current domestic
markets. A sales/design office was also opened in London, England in January of
2005. These efforts have required investment, which has resulted in selling,
general and administrative expenses from operations increasing by approximately
$379,000 or 15% for the three months ended March 31, 2005.
OPERATING
INCOME: Even though revenues were down for the first quarter of 2005 as compared
to 2004, operating income increased approximately $248,000 or 13% for the three
months ended March 31, 2005. The Company’s focus on controlling costs and
increasing efficiency in all of its activities has benefited the bottom
line.
OTHER
INCOME (EXPENSE): Other Income/(Expense) consisted of interest expense, a
derivative loss on the put warrant associated with the subordinated debt (See
Note E) and a gain on forgiveness of debt in 2004.
Interest
expense increased approximately $151,000 or 87% for the three months ended March
31, 2005. The increase is attributable to:
| · |
Restructuring
credit facility. [See Note D(1)] |
| · |
Higher
prime interest rate |
| · |
Warrants
issued for extension on subordinated note [See Note
D(2)] |
The gain
on forgiveness of debt is discussed in detail in Note F.
We may in
the future continue to experience fluctuations in quarterly operating results.
Factors that may cause our quarterly operating results to vary
include:
| · |
Active
number of customer projects |
| · |
Requirements
of customer projects |
| · |
Termination
of major customer projects |
| · |
Loss
of major customers |
| · |
Timing
of new engagements |
| · |
Vendor
delays or problems with delivery |
HOLDING
COMPANY AND OPERATING SUBSIDIARIES
We
conduct our operations through our subsidiaries. There are currently two
subsidiaries, BrandPartners Retail, Inc. (formerly known as Willey Brothers,
Inc.) and BrandPartners Europe, Ltd. The European subsidiary was started in
mid-January 2005 and has not produced any revenue as of yet. We are considering
it as an investment in a new market. Research concerning the European market, as
well as of our domestic competitors’ success in the European market, has
demonstrated to us the potential in the European market for our products and
services. Grafico Incorporated was formed on April 1, 2005 and has recently
purchased certain nominal assets, namely furniture and office equipment of a
design firm. However, we cannot determine at the present time when or if either
of these subsidiaries will be profitable. We have relied and continue to reply
upon cash payments from our operating subsidiaries to, among other things, pay
creditors, maintain capital and meet our operating requirements. The March 29,
2002 Amendment and Waiver Agreement with Brand Retail’s lender prohibits Brand
Retail from paying management fees to the Company until the debt is repaid in
full. Regulations, legal restrictions and contractual agreements could restrict
any needed payments from our subsidiaries. If we are unable to receive cash from
our subsidiaries, or from any operating subsidiaries which we may acquire in the
future, our operations and financial condition would be materially and adversely
affected.
STOCK
PRICE FLUCTUATIONS
The
market price of our common stock has fluctuated significantly and may be
affected by:
| · |
Changes
in our business and management |
| · |
General
and market conditions |
The stock
markets in general have recently experienced extreme price and volume
fluctuations. These fluctuations have affected stock prices of many companies
without regard to their specific operating performance. In addition, at the
opening of business on August 29, 2003, our common stock was de-listed from the
Nasdaq SmallCap Market and became eligible for quotation on the Over-the Counter
Bulletin Board. The delisting was the result of our failure to satisfy Nasdaq’s
minimum bid price requirements for continued listing. It is impossible to
predict the effect of these or other factors on the market price of our common
stock. The price may continue to fluctuate significantly in the
future.
INFLATION
We
believe that inflation has not had a material effect on our results of
operations.
FORWARD-LOOKING
STATEMENTS
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that are not historical
facts but rather reflect the Company’s current expectations concerning future
results and events. The words “believes,” “anticipates,” “expects,” and similar
expressions identify forward-looking statements, which are subject to certain
risks, uncertainties and factors, including those which are economic,
competitive and technological, which could cause actual results to differ
materially from those forecast or anticipated. Such factors
include:
| · |
Continued
services of James Brooks as Chief Executive Officer and President of the
Company and its subsidiaries |
| · |
Our
ability to identify appropriate acquisition candidates, finance and
complete such acquisitions and successfully integrate acquired
businesses |
| · |
Changes
in our business strategies or development
plans |
| · |
Our
ability to grow within the financial services
industry |
| · |
Our
ability to penetrate new markets |
| · |
Our
ability to obtain sufficient financing to continue
operations |
| · |
General
economic and business conditions |
Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. We undertake no obligations to republish
revised forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events. Readers are
also urged to carefully review and consider the various disclosures made in this
report, as well as in our periodic reports on Forms 10-K and 10-Q, current
reports on Form 8-K, and other filings with the Securities and Exchange
Commission.
ITEM 3.
QUALITATIVE AND QUANTATIVE DISCLOSURES ABOUT MARKET RISK
Our Term
Loan and Revolving Credit Facility expose us to the risk of earnings or cash
flow loss due to changes in market interest rates. The Term Loan and Revolving
Credit Facility accrued interest at the bank’s base rate plus an applicable
margin. For a description of the terms of the Term Loan and Revolving Credit
Facility, see “Management’s Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources” above.
The table
below provides information on our market sensitive financial instruments as of
March 31, 2005.
| |
|
Principal
Balance
|
|
Interest
Rate at
March
31, 2005 |
|
| |
|
|
|
|
|
|
|
|
Term
Loan |
|
$ |
3,000,000 |
|
|
9.25 |
% |
|
Revolving
Credit Facility |
|
$ |
635,757 |
|
|
9.25 |
% |
ITEM 4.
CONTROLS AND PROCEDURES
Based on
their evaluation as of the end of the period covered by this Quarterly Report on
Form 10-Q, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed in the reports that we file or submit
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms. There has been no
change in our internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Rule 13a-15 promulgated under
the Exchange Act that occurred during our fiscal quarter ended March 31, 2005
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 5.
OTHER INFORMATION
On
January 7, 2005, the Company established a new subsidiary in London, England.
BrandPartners Europe, Ltd. (“Brand Europe”) will provide services and products
consisting of strategic retail positioning and branding; environmental design;
retail merchandising analysis; display systems and signage; and point-of-sale
communications and marketing programs. Brand Europe currently has one employee
and no lease obligations.
On
January 31, 2005, the Company terminated its warehouse lease in Phoenix,
Arizona, and consolidated all inventory at its Rochester, New Hampshire
locations.
On
February 1, 2005, the Company entered into a letter of engagement with Trilogy
Capital Partners, Inc. (“Trilogy”), whereby Trilogy was to provide marketing,
financial public relations and investor relations services for one year. Under
the terms of the agreement, Trilogy was to receive fees of $10,000 a month with
an aggregate of 600,000 three-year warrants at $1.00, $1.50 and $2.00 per share.
In April 2005, the agreement was terminated and the warrants were
cancelled.
Effective
April 11, 2005, the Company finalized agreements with five former directors and
officers, as well as one current director (the “Option Holders”) whereby the
Option Holders surrendered an aggregate of 1,050,000 out of 1,400,000 options
previously granted to them under the Company’s 2001 Stock Incentive Plan. The
Company further agreed to amend the terms of the options by providing a cashless
exercise provision. The Company has agreed to register the shares of common
stock underlying its 2001 Stock Incentive Plan.
On May 1,
2005, the Company entered into an agreement with Bristol Investor Relations
(“Bristol”) to provide financial public relations and investor relations
services for one year. Under the terms of the agreement, Bristol is to be paid
$5,000 per month. An early termination provision permits either party to
terminate the agreement at prescribed times following the first three
months.
BrandPartners
Group, Inc. and its wholly owned subsidiaries completed a credit facility
arrangement (the “Facility”) with a commercial lender effective May 5, 2005. The
Facility provides for the following:
| · |
Repayment
of previous Brand Retail Facility |
| · |
$5,000,000
Revolving Line of Credit |
| · |
Prime
rate interest on principal not subject to LIBOR
rate |
| · |
LIBOR
rate on Term Loan and portion of Revolving Line of
Credit |
| · |
Expiration
date of May 5, 2008 |
ITEM 6.
EXHIBITS
| 10.1 |
Modification
Agreement to Unsecured Subordinated $625,000 Subordinated Promissory Note
dated January 5, 2005 between Longview Fund, L.P. and the Company
(incorporated by reference to Exhibit 10.15 to the Company’s Annual Report
on Form 10-K filed March 25, 2005). |
| 10.2 |
Form
of Common Stock Purchase Warrant t o be issued in accord with Modification
Agreement to Unsecured $625,000 Subordinated Note (incorporated by
reference to Exhibit 10.16 to the Company’s Annual Report filed on Form
10-K filed March 25, 2005.) |
| 10.3 |
Letter
of Engagement for marketing, financial public relations and investor
relations services dated as of February 1, 2005 between Trilogy Capital
Partners, Inc. and the Company (incorporated by reference to Exhibit 10.17
to the Company’s Annual Report on Form 10-K filed March 25,
2005). |
| 10.4 |
Common
Stock Purchase Warrant, Exercisable at $1.00 issued to Trilogy Capital
Partners (incorporated by reference to Exhibit 10.18 to the Company’s
Annual Report on Form 10-K filed March 25,
2005). |
| 10.5 |
Common
Stock Purchase Warrant, Exercisable at $1.50 issued to Trilogy Capital
Partners (incorporated by reference to Exhibit 10.19 to the Company’s
Annual Report on Form 10-K filed March 25,
2005). |
| 10.6 |
Common
Stock Purchase Warrant, Exercisable at $2.00 issued to Trilogy Capital
Partners (incorporated by reference to Exhibit 10.20 to the Company’s
Annual Report on Form 10-K filed March 25,
2005). |
| 10.7 |
Amendment
to Employment Agreement dated March 16, 2005 between James F. Brooks and
the Company (incorporated by reference to Exhibit 10.21 to the Company’s
Annual Report on Form 10-K filed March 25,
2005). |
| 10.8 |
Amendment
to Agreement dated March 16, 2005 between Anthony J. Cataldo and the
Company (incorporated by reference to Exhibit 10.22 to the Company’s
Annual Report on Form 10-K filed March 25,
2005). |
| 10.9 |
Agreement
with former directors/officers of the Company regarding the surrendering
of options (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed April 22,
2005). |
| 16.1 |
Letter
from Michael F. Albanese, CPA dated April 20, 2005 to the Securities and
Exchange Commission in connection with Item 304(a)(3) of Regulation S-K
(incorporated by reference to Exhibit 16.1 to the Company’s Current Report
on Form 8-K filed April 15, 2005). |
| 31.1 |
Certification
of Chief Executive Officer and President Pursuant to 17 C.F.R.
240.13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
| 31.2 |
Certification
of Chief Financial Officer Pursuant to 17 C.F.R. 240.13a-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. |
| 32.1 |
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
| Dated: May 13,
2005 |
|
|
| |
|
| |
BRANDPARTNERS GROUP,
INC. |
|
|
|
|
By: |
/s/ JAMES F.
BROOKS |
| |
James F. Brooks |
| |
Chief Executive Officer and
President |