**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, 2005




o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





Commission
      File No. 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.
                EmployerIncorporation
                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 pursuant to Section 12(b)
                of the Act:NoneSecurities
                registered under Section 12(g) of the
                Act:**Common
                Stock, par value $.01 per
                share**












Indicate
      by checkmark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.





Yeso No
x





Indicate
      by checkmark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.





Yes o Nox





Indicate
      by checkmark 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 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
o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of the registrant’s knowledge, in definite proxy or information statement
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
      the
      Exchange Act).





Large
      accelerated filer o Accelerated
      filer o Non-accelerated
      filer x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act).





Yes o No
x


The
      aggregate market value of common stock held by non-affiliates of the registrant
      as of June 30, 2005 was $24,137,980.





As
      of
      March 27, 2006, there were issued and outstanding 34,264,897 shares of the
      registrant’s Common Stock.





-2-


BRANDPARTNERS
      GROUP, INC.


TABLE
      OF
      CONTENTS




PagePART
                  IItem
                  1
              Business
              4Item
                  1A.
              Risk
                  Factors
              8Item
                  1B
              Unresolved
                  Staff Comments
              8Item
                  2
              Property
              8Item
                  3
              Legal
                  Proceedings
              8Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              9PART
                  IIItem
                  5
              Market
                  for Registrant’s Common Equity, Related StockholderMatters
                  and Issuer Purchases of Equity Securities
              9Item
                  6
              Selected
                  Financial Data
              10Item
                  7
              Management’s
                  Discussion and Analysis of Financial Conditionand
                  Results of Operations
              11Item
                  7A
              Quantitative
                  and Qualitative Disclosures about Market Risk
              25Item
                  8
              Financial
                  Statements and Supplementary Data
              26Item
                  9
              Changes
                  in and Disagreements with AccountantsOn
                  Accounting and Financial Disclosure
              27Item
                  9A
              Controls
                  and Procedures
              27Item
                  9B
              Other
                  Information
              28PART
                  IIIItem
                  10
              Directors
                  and Executive Officers of the Registrant
              28Item
                  11
              Executive
                  Compensation
              28Item
                  12
              Securities
                  Ownership of Certain Beneficial Owners, Managementand
                  Related Stockholder Matters
              28Item
                  13
              Certain
                  Relationships and Related Transactions
              28Item
                  14
              Principal
                  Accountant Fees and Services
              29PART
                  IVItem
                  15
              Exhibits,
                  Financial Statement Schedules
              30Signatures
              
              41





-3-


**PART
      I**








**Item
      1. Description of Business**





BrandPartners
      Group, Inc. (“BrandPartners Group”), through its wholly-owned subsidiaries,
      BrandPartners Retail, Inc. (“Brand Retail”) [formerly known as Willey Brothers,
      Inc.]; Grafico, Incorporated (“Grafico”); BrandPartners Europe, Ltd. (‘Brand
      Europe”); and Building Partners, Inc., a newly organized general contracting
      firm, creates next generation retail environments for financial services
      companies and retail organizations.





BrandPartners
      Group was originally incorporated in 1984 in New York under the name
“Performance Services Group, Inc.,” and changed its name to “Financial
      Performance Corporation” in 1986 and in 2001 reincorporated in the state of
      Delaware, the Company changed its name to the current name of BrandPartners
      Group, Inc.





In
      connection with the reincorporation, our authorized capital stock was increased
      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.





We
      continue to seek acquisitions/partnerships, expand and diversify our customer
      base in our core industry, and pursue new growth opportunities in other vertical
      markets. We may fund such acquisitions or other transactions through the
      issuance of equity or debt securities, with indebtedness or cash, through other
      forms of compensation and incentives, or any combination thereof. If we identify
      an appropriate 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.





Brand
      Retail





We
      purchased 100% of Brand Retail’s common stock on January 16, 2001. Brand Retail
      (formerly known as Willey Brothers, Inc.) has been providing products and
      services to the financial services industry throughout the United States and
      Canada since 1983.





Brand
      Europe





In
      January of 2005, Brand Europe was incorporated in England to provide products
      and services similar to those offered by Brand Retail to the European market
      place.





Grafico





In
      April
      of 2005, we formed Grafico, a Delaware corporation, and in May of 2005,
      purchased certain assets of a design company, namely furniture and office
      equipment. Grafico provides similar services to Brand Retail and Brand Europe
      but to the sub-prime market segment of the financial services
      industry.





Building
      Partners





In
      February 2006, we formed Building Partners, which provides general contracting
      services to our clients.





BrandPartners
      Products and Services





BrandPartners
      through its subsidiaries provides marketing and environmental solutions to
      the
      financial services industry (including both banks and non-bank financial
      services companies) and other service retailers.




-4-





BrandPartners
      offers a full range of products and services including:





·
            Strategic
                market intelligence and branch network
                analysis





·
            Environmental
                design, construction, and store project management
                services





·
            Traditional
                and digital merchandising systems, logistics, distribution and inventory
                management





·
            Point-of-sale
                communications, brand strategy, sales training and marketing
                programs





·
            Contract
                furniture





BrandPartners
      seeks to develop unique and creative solutions to help its clients build brands
      through environments, maximize sales and create strong platforms for sustained
      growth.





BrandPartners
      Business Platform





Because
      of the position of BrandPartners in the retail financial services marketplace,
      we are able to service 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 trade shows, direct
      mail, other direct marketing methods, speaking engagements, and company
      sponsored events. A multi-disciplinary project team works with our clients
      to
      ensure that deliverables are consistent throughout the project. Our program
      management team works in conjunction with the Information Technology (IT)
      department (via client specific web sites) to communicate daily with the client
      from the design and planning stages through the implementation of the
      project.





BrandPartners
      offers the following services independently or as a holistic package, each
      with
      well-defined phases, as follows:





o
            Corporate
                Reconnaissance. Through interviews and discussions with 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
            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 products
                should be
                recommended for the network (i.e. custom design, existing company
                fixture
                line, or retrofit of existing company fixture line.) We then develop
                a
                singular thematic brand concept (Brand Blueprint) 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
                communication 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 (i.e. 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.





-5-


o
            Site
                Analysis/Market Intelligence. Using proprietary software programs
                developed by BrandPartners, 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
                competitors.





o
            Environmental
                Design. If the client is seeking a prototype location, we develop
                it based
                on concepts identified during the brand blueprint phase. However,
                clients
                may engage us to work on projects ranging 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.





BrandPartners’s
      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 layout identifying the location and type of millwork and
      merchandising fixtures.





o
            Project
                Management. After the designs are completed, we manage the implementation
                process, including overall pricing of all components of the branch,
                hiring
                the subcontractors, and ensuring that the project is finished on
                time and
                on budget. Our experience in the financial service marketplace allows
                us
                to offer clients fixture, millwork, furniture and creative products
                and
                services to ensure that the exterior and interior areas are well
                coordinated and designed to maximize
                sales.





o
            Furniture.
                We supplement our projects with office furniture systems and case
                goods,
                which are often integrated in innovative ways into our merchandising
                fixture programs.





o
            Logistics,
                Distribution and Inventory Management. In conjunction with our various
                products, we provide logistics, distribution, warehousing, and inventory
                management systems. In many cases, we warehouse client-owned inventory
                for
                future acquisitions or renovated branches. Support facilities are
                located
                at our Rochester, New Hampshire
                headquarters.








Target
      Markets





BrandPartners’s
      revenues have historically been primarily derived from businesses in the
      financial services markets. Target markets and a representative sample of
      clients are as follows:





·
            Tier
                One Banks - Retail banking organizations, bank holding companies
                and
                thrifts with more than 250 branch
                locations.





·
            Regional
                and Community Banks - Banking organizations and bank holding companies
                with between 25 and 250 branches.





·
            Credit
                Unions - Banking organizations with 1 to 25
                branches.





·
            Non-bank
                financial services companies - Companies providing financial service
                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.





-6-


·
            Sub-prime
                financial services companies - This rapidly growing segment of the
                financial services industry offers products and services to that
                portion
                of the population not regularly serviced by the financial institutions
                mentioned above.





·
            Other
                - We are beginning to transfer our capabilities and expertise in
                the
                retail 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/Working
      Capital





BrandPartners
      outsources most of its manufacturing and fabrication services from a variety
      of
      suppliers in many locations. BrandPartners does some light production work
      (i.e.
      engraving, painting, screen printing, etc.) but does not own or operate
      manufacturing facilities. Most outsourcing is project specific, based upon
      branch locations and the nature of the products and services provided. Since
      the
      majority of the product produced for customers is project specific and the
      turnaround from the suppliers is timely, BrandPartners is not required to
      maintain a large inventory.





Backlog





The
      backlog consists of signed orders to be delivered in future periods and does
      not
      include any revenue recognized in the current fiscal year. As of December 31,
      2005, the backlog was approximately $22 Million. For the year ended December
      31,
      2004, the backlog was approximately $31 Million. For the year ended December
      31,
      2003, the backlog was approximately $21 Million.





Significant
      Customers





Since
      BrandPartners is a contract driven company, those clients designated as
“significant” (greater than 10% of consolidated revenues) varies from period to
      period. For the year ended December 31, 2005, three customers accounted for
      19%,
      15% and 13% of our revenues, respectively. For the year ended December 31,
      2004,
      two customers accounted for 11% each of our revenues. For the year ended
      December 31, 2003, one customer accounted for approximately 16% of our revenues.


Employees





As
      of
      March 13, 2006, we had 142 full-time employees and 2 part time employees. Our
      employees are not represented by a union or collective bargaining entity. We
      believe our relations with our employees are good.





Competition





The
      landscape for the products and services provided by BrandPartners is fragmented
      across many sectors and is competitive. We are often engaged by clients without
      going through a request for proposal (RFP) 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. Many of our primary competitors focus only on
      one
      type of product or service. Due to the nature of BrandPartners’ business, we
      also compete with design houses, architectural firms, consulting firms, fixture
      companies, and advertising agencies of varying sizes.




-7-


Where
      to
      Get More Information





Our
      website address is http:// **www.bptr.com** .
      We file
      annual, quarterly and special reports, proxy statements and other information
      with the Securities and Exchange Commission (“SEC”). These reports are available
      on our website free of charge as soon as reasonably practicable after such
      material is electronically filed with, or furnished to, the SEC.





**Item
      1A. Risk Factors**





See
      Item
      6, “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations.”





**Item
      1B. Unresolved Staff Comments**





Not
      applicable





**Item
      2. Description of Property**





BrandPartners’
      executive offices, as well as the office for Brand Retail and Building Partners,
      are located in Rochester, New Hampshire, where we lease a facility of
      approximately 82,000 square feet. The lease for this location expires in August
      of 2011. Annual rent for this location is approximately $299,000. We also lease
      a warehouse in Rochester, New Hampshire of approximately 36,000 square feet.
      The
      annual rent for the warehouse is approximately $177,000. This lease expires
      in
      March of 2006, and is being renegotiated.





We
      also
      lease and maintain a design center of approximately 3,000 square feet in New
      York City. The New York Design Center is dedicated to design, brand strategy,
      and business development. This lease expires in January 2007 and provides for
      annual rent of approximately $74,000.





Our
      subsidiary, Grafico, Incorporated, rents on a month-to-month basis approximately
      1,635 square feet of office and design space in Stamford, Connecticut. The
      approximate annual rent is $24,000.





We
      anticipate that we will be able to extend these leases on terms satisfactory
      to
      us or, if necessary, locate substitute facilities on acceptable terms. Our
      present facilities are deemed adequate for our business for the foreseeable
      future.




**Item
      3. Legal Proceedings**





None


-8-




**Item
      4. Submission of Matters of a Vote of Securities Holders**





None





**PART
      II**





**Item
      5. Market for Common Equity and Related Stockholder
      Matters**





The
      Company’s common stock is currently quoted on The Over The Counter Bulletin
      Board under the symbol “BPTR.OB”. The following table sets for the periods
      indicated, the high and low reported sales prices per share for the common
      stock
      of the Company as reported by the Over The Counter Bulletin Board.


**High**
              
              **Low****Calendar
                  Year 2004**First
                  Quarter Ended March 31, 2004
              
              $
              0.79
              
              $
              0.45Second
                  Quarter Ended June 30, 2004
              
              
              1.08
              
              
              0.48Third
                  Quarter Ended September 30, 2004
              
              
              0.68
              
              
              0.48Fourth
                  Quarter Ended December 31, 2004
              
              
              0.96
              
              
              0.65**Calendar
                  Year 2005**First
                  Quarter Ended March 31, 2005
              
              $
              1.15
              
              $
              0.90Second
                  Quarter Ended June 30, 2005
              
              
              0.95
              
              
              0.74Third
                  Quarter Ended September 30, 2005
              
              
              0.91
              
              
              0.70Fourth
                  Quarter Ended December 31, 2005
              
              
              0.73
              
              
              0.41**Calendar
                  Year 2006**First
                  Quarter (through March 24, 2006)
              
              $
              0.50
              
              $
              0.38


As
      of
      March 15, 2006, we had approximately 2,478 holders of record for our common
      stock.





To
      date,
      we have not paid any dividends on our common stock, nor do we anticipate paying
      dividends on our common stock for the foreseeable future. Any payment of future
      cash dividends and the amount thereof will be dependent upon our earnings,
      financial requirements, and other factors deemed relevant by our Board of
      Directors.





The
      following table sets forth information as of March 27, 2006 related to Company
      compensation plans as approved by shareholders.




-9-


Plan
                    Category
                
                Number
                    of securities to be issued upon exercise of outstanding options
                  (a)
                
                Weighted-average
                    exercise price of outstanding options
                  (b)
                
                Number
                    of securities remaining available for future issuance under equity
                    compensation plans [excluding securities reflected in column
                    (a)]
                  (
                    c)BrandPartners
                    2004 Stock Incentive Plan
                
                
                7,826,500
                
                $
                0.54
                
                
                173,500Financial
                    Performance Corporation 2001 Stock Incentive Plan
                
                
                385,095
                
                $
                1.00
                
                
                4,614,905Total
                
                
                8,211,595
                
                
                
                
                
                4,788,405




**Item
      6. Selected Financial Data**


*Years
                  Ended December 31, 2005, 2004, 2003, 2002 and 2001*(in
                  thousands except per share data)2005
              
              2004
              
              2003
              
              2002
              
              2001*For
                  the Year*Revenues
              
              $
              52,036
              
              $
              50,613
              
              $
              33,667
              
              $
              38,879
              
              $
              39,693Income
                  (Loss) from Continuing Operations
              
              $
              3,586
              
              $
              5,134
              
              $
              (10,964
              )
              $
              (4,803
              )
              $
              (5,304
              )Income
                  (Loss) Per Share from Continuing Operations*
              
              $
              0.11
              
              $
              0.17
              
              
              ($0.59
              )
              
              ($0.26
              )
              
              ($0.56
              )*At
                  Year End*Total
                  Assets
              
              $
              36,376
              
              $
              37,306
              
              $
              35,834
              
              $
              46,738
              
              $
              56,687Long
                  Term Debt
              
              $
              6,740
              
              $
              5,784
              
              
              12,953
              
              
              12,465
              
              
              20,046Dividends
                  Declared Per Share
              
              
              None
              
              
              None
              
              
              None
              
              
              None
              
              
              None**
                  Income (loss) per share from continuing operations is based on
                  basic
                  number of shares and does not include dilution.*2004
                  does not include the gain on forgiveness of
                  debt.


-10-
  **Item
      7. Management’s Discussion and Analysis of Results of Operations and Financial
      Condition**





OVERVIEW





The
      following Management’s Discussion and Analysis (“MD&A”) is intended to help
      the reader understand BrandPartners Group, Inc. The MD&A is provided as a
      supplement to, and should be read in conjunction with, our financial statements
      and the accompanying notes (“Notes”). Management’s discussion and analysis of
      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.





We
      assist
      our clients in providing a positive and dynamic retail experience to their
      customers. Our wholly-owned subsidiaries, BrandPartners Retail, Inc. (“Brand
      Retail”), BrandPartners Europe, Ltd. (“Brand Europe”) and Grafico Incorporated
      (“Grafico”), sell similar products and services to the financial services and
      other retail services marketplace in the United States, Canada and Europe.
      BrandPartners is a service company challenged with meeting the needs of its
      clients to produce an environment, which creates an experience maximizing the
      client’s branded identity and sets up specific areas to provide the client’s
      customers with the messages and services so that the customer is fully aware
      of
      and can utilize the client’s product offerings.





As
      part
      of the initial contact with the client, an analysis of the client’s current
      locations may be required. This analysis may involve the effectiveness of the
      client’s current brand, the placement of current marketing materials, overall
      interior fitness, traffic flow, and selling zones. Or the client may wish to
      create an entirely new environment, which may involve changing the branding
      identity, updating the architectural and interior design, and a marketing
      materials assessment.





Due
      to
      the acquisition and merger activity in the financial services sector, to the
      lack of warehouse facilities for many of our clients, and to quantity/cost
      ratios, BrandPartners also provides after-the-sale fulfillment services to
      many
      of our clients. Clients frequently purchase additional inventory to provide
      for
      future needs with BrandPartners’ providing warehousing and fulfillment services
      to bring the client’s inventory to its locations as needed.





Our
      revenue has fluctuated historically due to the project nature of BrandPartners’
contracts. We have expanded our market focus to include firms outside the
      financial services marketplace to provide more consistent income. To take
      advantage of new market opportunities, we continue to invest in research and
      development of existing and new products that we believe can contribute
      significantly to our long term growth.





SIGNIFICANT
      ACCOUNTING POLICIES





Our
      financial statements and accompanying notes are prepared in accordance with
      U.S.
      Generally Accepted Accounting Principles (“GAAP”). Preparing financial
      statements requires management to make estimates and assumptions that affect
      the
      reported amounts of assets, liabilities, revenue and expenses. These estimates
      and assumptions are affected by management’s application of accounting policies.





*Revenue
      Recognition*





BrandPartners
      records revenue using the accounting method appropriate to the product being
      delivered. This is generally percentage-of-completion, based upon actual costs
      incurred to date on such contracts. Contract costs include all direct materials,
      labor and subcontractor costs. Anticipated losses are provided for in their
      entirety without reference to percentage-of-completion. Revenue on those
      products and services, which are not delivered as part of a larger project,
      are
      recognized as they are shipped or delivered, depending upon the nature of the
      product and/or service. General and administrative expenses are accounted for
      as
      period charges, and therefore, are not included in the calculation of the
      estimates to complete.





-11-


*Accounts
      Receivable*





Periodically,
      the Company reviews accounts receivable to reassess its estimates of
      collectibility. BrandPartners provides valuation reserves for bad debts based
      on
      specific identification of likely and probable losses. In addition,
      BrandPartners provides valuation reserves for estimates of aged receivables
      that
      may be written off, based upon historical evidence. These valuation reserves
      are
      periodically re-evaluated and adjusted as more information about the ultimate
      collectibility of accounts receivable becomes available. Circumstances that
      could cause the Company’s valuation reserves to increase include other factors
      negatively impacting clients’ ability to pay their obligations as they come due
      and the quality of the collection efforts.





*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.





*Income
      Taxes*





SFAS
      No.
      109, *Accounting
      for Income Taxes* ,
      establishes financial accounting and reporting standards for the effect of
      income taxes. The objectives of accounting for income taxes are:





·
            Recognition
                of the amount of taxes payable or refundable for the current year





·
            Recognition
                of deferred tax liabilities and assets for future tax consequences
                of
                events that have been recognized in an entity’s financial statements or
                tax returns.





Judgment
      is required in assessing the future tax consequences of events that have been
      recognized in our financial statements or tax returns. Variations in the actual
      outcome of these future tax consequences could materially impact our financial
      position, results of operations, or cash flows.





**Results
      of Operations**





**Year
      Ended December 31, 2005 Compared to Year Ended December 31,
      2004**





*Revenues* .
      Revenues from continuing operations increased 3% or approximately $1,423,000
      for
      the twelve months ended December 31, 2005. The improvement was due
      to:





·
            Strength
                in the industry





·
            Improved
                visibility to the variety of BrandPartners’ offerings





·
            Offset
                by project delays because of permitting issues, weather conditions
                and
                property availability. Completion of certain projects delayed some
                revenues to a future fiscal period.





*Cost
      of Revenues.* Cost of
      revenues from continuing operations increased 7% or approximately $2,281,000.
      The increase was due to the change in product mix and higher product costs.
      The
      relationship between cost of revenues as a percentage of revenue increased
      slightly from 69% to 72% due to the factors noted above.





-12-


*Selling,
      General and Administrative Expenses.* Sales,
      general and administrative expenses are accounted for as period charges and
      increased approximately $1,680,000 or 18% from 2004 to 2005. This increase
      is
      primarily attributable to:





·
            Addition
                of sales personnel at Brand Retail, Brand Europe and Grafico for
                approximately $791,000 including wages and
                travel





·
            Increase
                in marketing expense of approximately $1,209,000 for Brand Retail
                and
                Brand Europe





·
            Increase
                in professional services expense of approximately
                $271,000





·
            Increase
                in depreciation expense including Brand Retail, Brand Europe and
                Grafico
                of approximately $176,000





·
            Increase
                in computer expense of approximately $66,000 for Brand Retail and
                Grafico





·
            Offset
                by decrease in salaries and wages of approximately
                $724,000





·
            Offset
                by decrease in corporate travel expenses of approximately
                $109,000





*Interest
      Expense*





Interest
      expense from continuing operations increased approximately $31,000 or 3% for
      the
      twelve months ended December 31, 2005. This increase is primarily due
      to:





·
            Restructuring
                of credit facility


·
            Offset
                by reduction in term loan


·
            Offset
                by reduction in line of credit





*Other
      Income (Expense)* Other
      expense in 2004 consisted of a Gain on Forgiveness of Debt (see Note F). There
      was no Other Income (Expense) in 2005.





*Income
      Taxes.* For the
      year ended December 31, 2005, the Company and its Subsidiaries accrued
      approximately $607,000 for federal and state income taxes. The Company has
      previously unused Net Operating Losses (“NOL’s”) of approximately $7 million.
      However, the use of the NOL’s are restricted in many states and federally by the
      alternative minimum tax.





*Net
      Income.* Net
      income decreased approximately $12,305,000 for the twelve months ended December
      31, 2005 as compared to 2004. The decrease is due to:





·
            Increase
                in cost of goods as a percentage of revenue as noted
                above





·
            Increase
                in sales and general & administrative expenses due to factors noted
                above





·
            Gain
                from forgiveness of debt recognized in 2004. This is discussed in
                more
                detail in Note F to the Financial
                Statements.





Net
      income from operations, which excludes the gain on forgiveness of debt,
      decreased approximately $2,613,000 from 2004 and was due to the factors noted
      above.




-13-





**Results
      of Operations**





**Year
      Ended December 31, 2004 Compared to Year Ended December 31,
      2003**





*Revenues.* Revenues
      from continuing operations increased 50% or approximately $16,946,000 for the
      twelve months ended December 31, 2004 as compared to December 31, 2003. The
      improvement was due to:





·
            Strength
                in the industry after lack of investment in capital expenditures
                due to
                the economic downturn following September 11,
                2001





·
            Increase
                in merger activity





·
            Improved
                visibility to the variety of BrandPartners’ product and service offerings,
                offset by project delays. These delays were due to an assortment
                of
                factors including permitting issues, weather conditions and availability
                of product.





*Cost
      of Revenues.* Cost of
      revenues from continuing operations increased approximately $5,621,000 or 19%.
      The increase in cost of revenues was due to:





·
            Increase
                in sales


·
            Increased
                service offerings


·
            Greater
                control of costs


·
            Better
                budget projections and control


·
            2003
                charge for obsolete inventory of $987,000





*Selling,
      General and Administrative Expenses.* Selling,
      general and administrative expenses are accounted for as period charges and
      decreased approximately $2,449,000 or 21%. This decrease is primarily
      attributable to the following:





·
            Decreases
                in payroll of approximately
                $500,000





·
            Lease
                settlement of approximately $1,075,000 (See Note G in the accompanying
                financial statements).





·
            Decrease
                in marketing activity of approximately
                $150,000





·
            Decrease
                in insurance costs of approximately
                $160,000





·
            Decrease
                in the use of consultants of approximately
                $250,000





·
            Decrease
                in professional services of approximately
                $240,000





·
            Fulfillment
                of agreement with former shareholders of Brand Retail (See Note F
                in the
                accompanying financial statements) of approximately
                $500,000





·
            Offset
                by the increase in salaries of approximately
                $110,000





·
            Offset
                by the increase of corporate travel expenses of approximately
                $316,000






-14-




*Interest
      Expense.* Interest
      expense from continuing operations decreased approximately $837,000 or 46%
      for
      the twelve months ended December 31, 2004. This decrease is primarily
      attributable to:





·
            Reduction
                in term loan


·
            Reduction
                in line of credit


·
            Restructuring
                of subordinated debt





*Other
      Income (Expense).* Other
      expense in 2004 consisted of a Gain on Forgiveness of Debt (See Note F) and
      the
      settlement of a lawsuit in 2003.





*Income
      Taxes.* For the
      year ended December 31, 2004, the Company and its Subsidiary had previously
      unused Net Operating Losses (“NOL’s”) of approximately $11 million, and
      accordingly, made no accrual for federal or state income taxes.





*Net
      Income.* Net
      income increased approximately $25,184,000 for the twelve months ended December
      31, 2004. The increase is due to the following:





·
            Increase
                in gross margin for products/services
                provided


·
            Decrease
                in sales and general & administrative expense due to factors noted
                above


·
            Gain
                in forgiveness of debt by former shareholders of Brand
                Retail





**Compensation
      Committee**





On
      February 28, 2006, Clifford D. Brune was appointed Chairman of the Compensation
      Committee, and J. Weldon Chitwood was added as a member of the Compensation
      Committee.


**Liquidity
      and Capital Resources**





As
      of
      December 31, 2005, the Company had negative working capital (current assets
      less
      current liabilities) of approximately $244,000 and a working capital ratio
      (current assets to current liabilities) of approximately .98:1. At December
      31,
      2004, the Company had negative working capital of $3,640,000 and a working
      capital ratio of .75:1. This change in working capital arises primarily
      from:





·
            Decrease
                in cash


·
            Increase
                in accounts receivable


·
            Decrease
                in inventories


·
            Increase
                in accounts payable





Cash
      flows provided by operating activities were approximately $371,000, $3,303,000,
      and $613,000 for the years ended December 31, 2005, 2004 and 2003, respectively.
      In 2005, cash flows were provided by reduction in inventory and an increase
      in
      accounts payable offset by a reduction in accounts receivable. Cash provided
      by
      operating activities in 2004 was primarily due to the increase in net income,
      offset by the forgiveness of long term debt to the former shareholders of Brand
      Retail. The changes in the Cost in Excess of Billings and Billings in Excess
      of
      Cost accounts decreased cash by approximately $3 million in 2005 and $828,000
      in
      2004. The changes provided approximately $9,651,000 in 2003 which along with
      other factors offset the net loss of approximately $11 million resulting in
      positive cash flow from operations. These accounts are used to track the timing
      differences between the revenue recognition and invoicing, which occurs on
      contracts, and are discussed in more detail in Note I in the attached notes
      to
      the financial statements.





-15-


Investing
      activities (used) approximately $689,000 in 2005 due to equipment acquisitions,
      primarily computers and related software. Equipment acquisitions and the
      purchase of a 15% membership interest in an unrelated party resulted in
      approximately $800,000 in cash being used in investing activities for 2004.
      For
      2003, equipment purchases offset by the proceeds from discontinued operations
      used $385,566 in cash.





Repayment
      of the prior credit facility offset by the new long term debt net borrowings,
      resulted in cash usage of approximately $2,378,000 for financing activities
      in
      2005. Net borrowings on short term and long term debt offset by the proceeds
      from the private placement of equity resulted in financing activities using
      approximately $75,000 in cash for 2004. In 2003, net borrowings on debt required
      approximately $2 million.





While
      we
      believe that our cash balances with the funds available under our existing
      credit facilities will be sufficient to meet our operating and recurring cash
      needs for foreseeable periods, retirement of debt, acquisitions or other
      strategic initiatives may require the raising of additional funds. We have
      not
      paid dividends on our common stock and have no intention to pay any dividends
      in
      the foreseeable future.





The
      Company’s material commitments as regards capital resources consist primarily of
      leases for office facilities under operating lease agreements. Future minimum
      payments under these leases are included in Note Q to the consolidated financial
      statements.





**Recently
      Issued Accounting Standards**





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 for 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. FASB has required that FAS No. 123(R) be adopted for fiscal years
      beginning after June 15, 2005. The Company adopted FAS No. 123(R) effective
      January 1, 2006, and a further discussion of the effect of the implementation
      of
      the statement is discussed in Note B-14 to the consolidated financial
      statements.





In
      May
      2005, FASB issued FASB 154, *Accounting
      Changes and Error Corrections - A Replacement of APB Opinion No. 20 and FASB
      Statement No. 3.* This
      statement replaces APB Opinion No. 20, *Accounting
      Changes* ,
      and
      FASB No. 3, *Reporting
      Accounting Changes in Interim Financial Statements* .
      FASB
      154 changes the requirements of the accounting for and the reporting of a change
      in accounting principle. FASB 154 applies to all voluntary changes in accounting
      principle. It also applies to changes required by an accounting pronouncement
      in
      the unusual instance that the pronouncement does not include specific transition
      provisions. When a pronouncement includes specific transition provisions, those
      provisions should be followed. This statement is effective for accounting
      changes and corrections of errors made in fiscal years beginning after December
      15, 2005.





In
      June
      2005, the EITF reached consensus on Issue No. 05-6, *Determining
      the Amortization Period for Leasehold Improvements* ,
      (“EITF
      05-6”). EITF 05-6 provides guidance on determining the amortization period for
      leasehold improvements acquired in a business combination or acquired subsequent
      to lease inception. The guidance on EITR 05-6 will be applied prospectively
      and
      is effective for periods beginning after June 29, 2005. EITF 05-6 is not
      expected to have a material impact on the Company’s consolidated financial
      statements.




-16-




**Certain
      Risk Factors**





The
      following risks, as well as other risks and uncertainties that are not yet
      identified or that we currently think are immaterial, could materially and
      adversely affect our business, financial condition and results of operations.





**RISKS
      ASSOCIATED WITH THE RESIGNATION OF OUR FORMER INDEPENDENT PUBLIC
      ACCOUNTANTS**





OUR
      FORMER INDEPENDENT PUBLIC ACCOUNTANTS, GOLDSTEIN AND MORRIS, P.C., RESIGNED
      EFFECTIVE OCTOBER 20, 2004, WHICH MAY LIMIT YOUR ABILITY TO SEEK RECOURSE
      AGAINST THEM IN THE EVENT OF A CLAIM.





On
      October 20, 2004, Goldstein and Morris Certified Public Accountants informed
      us
      that they were resigning as our independent, registered public accounting firm
      as it was no longer able to service our audited needs as a public company.
      The
      resignation was not sought or recommended by our audit committee or our Board
      of
      Directors. Effective January 1, 2005, we learned that the firm of Goldstein
      and
      Morris was no longer an active operating entity engaged in the practice of
      public accounting and auditing work. Due to Goldstein and Morris’s resignation
      and discontinuation of its public practice, investors and shareholders of our
      common stock may have limited recourse against Goldstein and Morris in the
      event
      of any claims associated with prior work performed on behalf of the Company
      by
      Goldstein and Morris as independent auditors.





Our
      consolidated financial statements as of December 31, 2003 and 2002 have been
      audited by Goldstein and Morris Certified Public Accountants, PC. Their report
      for the years ended December 31, 2003, and 2002 has not been reissued due to
      the
      fact that Goldstein and Morris has discontinued operations. A copy of their
      previously issued report has been included.





**RISKS
      RELATED TO OUR BUSINESS**





THE
      BUSINESS OF PRODUCTS AND SERVICES TO FINANCIAL INSTITUTIONS AND TRADITIONAL
      RETAILERS IS HIGHLY COMPETITIVE. IF WE ARE NOT ABLE TO COMPETE EFFECTIVELY,
      OUR
      REVENUES AND PROFIT MARGINS WILL BE ADVERSELY AFFECTED.





The
      industry in which we operate includes a large number of service providers making
      our business highly competitive. Some of our competitors have greater financial,
      technical and marketing resources, larger customer bases, greater name
      recognition, and more established relationships with their customers and
      suppliers than we have. Larger and better capitalized competitors may be better
      able to respond to the need for technical changes, price their services more
      aggressively, compete for skilled professionals, finance acquisitions, fund
      internal growth and compete for market share generally.





Our
      current and potential competitors have established or may establish cooperative
      relationships among themselves or with third parties to increase their abilities
      to address client needs. New competitors or alliances among competitors could
      emerge and gain significant market share and some of our competitors may have
      or
      may develop a lower cost structure, adopt more aggressive pricing policies
      or
      provide superior services that gain greater market acceptance than the services
      that we offer or develop. Furthermore, our clients may establish either
      strategic sourcing or centralized purchasing departments, which may aggressively
      pursue low cost producers at the expense of value-add firms. In order to respond
      to increased competition and pricing pressure, we may have to lower our prices,
      which would have an adverse effect on our gross margins and net profits. In
      addition, financial institutions and banks may choose not to outsource their
      design and merchandising needs, which could have an adverse effect on our
      revenue growth. The merger and acquisition of financial institutions may result
      in a temporary increase in our business, but in the long term, a reduced number
      of branches of financial institutions and banks will reduce our customer base
      and result in a decline in resources.





-17-


A
      SIGNIFICANT OR PROLONGED ECONOMIC DOWNTURN COULD HAVE A MATERIALLY ADVERSE
      EFFECT ON OUR REVENUES AND PROFIT MARGIN.





Our
      results of operations are affected directly by the level of business activity
      of
      our clients, which in turn is affected by economic activity in general. If
      there
      is continued economic downturn, we may experience a reduction in the growth
      of
      new business as well as a reduction in existing business, which may have an
      adverse effect on our financial condition and results of operations. We may
      also
      experience decreased demand for our services as a result of postponed or
      terminated outsourcing, budget reductions, reductions in the size of our
      clients' needs, or mergers and consolidation in the financial services industry.
      Reduced demand for our services could increase price competition.





THE
      FINANCIAL SERVICES AND BANKING INDUSTRY HAS CONSOLIDATED IN RECENT YEARS, AND
      IF
      IT CONTINUES TO CONSOLIDATE, WE MAY BE ADVERSELY AFFECTED BY A REDUCTION IN
      AVAILABLE MARKET SHARE.





Our
      core
      market, the financial services and banking industry, has experienced an
      unprecedented number of mergers and acquisitions in recent years which is
      expected to continue. While the consolidation within the financial services
      industry with banks and brokerage firms may have a positive effect on our
      business short term, we may ultimately lose existing clients by way of
      acquisition or merger, and we may have a reduction in available market share
      which could adversely affect our revenues.





THE
      PROFITABILITY OF OUR ENGAGEMENTS WITH CLIENTS MAY NOT MEET OUR EXPECTATIONS.





Unexpected
      costs or delays encountered in our projects could make our outsourcing contracts
      or consulting engagements less profitable than anticipated. When making
      proposals for outsourcing or consulting contracts, we estimate the costs
      associated with such engagements. Any increased or unexpected costs or
      unanticipated delays in connection with the performance of these engagements,
      including delays caused by factors outside our control, could have an adverse
      effect on our profit margin. In the event that we are unable to meet completion
      schedules, we may experience payment penalties in our agreements with our
      clients. However, penalties are involved in very few of our
      contracts.





Cost
      overruns or early contract terminations could cause our business to be less
      profitable than anticipated. At the beginning of each new agreement, we
      undertake an implementation process whereby we gather data and customize our
      analysis. We may experience delays in finalizing that could result in payment
      delays by our clients.





Our
      clients typically retain us on an engagement-by-contract basis, rather than
      under exclusive long-term contracts. Large client projects involve multiple
      engagements or stages, and there is a risk that a client may choose not to
      retain us for or may cancel or delay additional stages of a project. These
      terminations, cancellations or delays could result from factors unrelated to
      our
      work product or the progress of the project, such as the business or financial
      condition of the client or general economic conditions. When engagements are
      terminated, we lose the associated revenues, and we may not be able to eliminate
      associated costs or redeploy the affected employees in a timely manner to
      minimize the negative impact on profitability.





THE
      LOSS
      OF A SIGNIFICANTLY LARGE CLIENT OR SEVERAL CLIENTS COULD HAVE A MATERIALLY
      ADVERSE EFFECT ON OUR REVENUES.





Although
      our client relationships are often on a project by project basis, in fiscal
      year
      2005 we had three clients that accounted for 19%, 15% and 13% of our net
      revenues, respectively. The loss of a significantly large client or several
      clients could adversely impact our revenues and profitability. Given the amount
      of time needed to develop new clients, there is no assurance that we would
      be
      able to promptly replace the revenues lost if a significantly large client
      or
      several clients terminated our services.




-18-


WE
      MAY
      HAVE DIFFICULTY INTEGRATING OR MANAGING ACQUIRED BUSINESSES, WHICH MAY HARM
      OUR
      FINANCIAL RESULTS OR REPUTATION IN THE MARKETPLACE.





Our
      expansion and growth may be dependent in part on our ability to make
      acquisitions of similar companies or companies that provide synergy with our
      business. The risks we face related to acquisitions include that we could
      overpay for acquired businesses, face integration challenges and/or have
      difficulty finding appropriate acquisition candidates.





We
      may
      pursue acquisitions in the future, which may subject us to a number of risks,
      including:





·
            Diversion
                of management attention;





·
            Amortization
                and potential impairment of intangible assets, which could adversely
                affect our reported results;





·
            Inability
                to retain the management, key personnel and other employees of the
                acquired business;





·
            Inability
                to establish uniform standards, controls, procedures and
                policies;





·
            Inability
                to retain the acquired company’s
                clients





·
            Exposure
                to legal claims for activities of the acquired business prior to
                acquisition; and





·
            Inability
                to effectively integrate the acquired company and its employees into
                our
                organization.





We
      may
      not be successful in identifying appropriate acquisition candidates or
      consummating acquisitions on terms acceptable or favorable to us. We may not
      succeed at integrating or managing acquired businesses or in managing the larger
      company that result from these acquisitions. Client dissatisfaction or
      performance problems, whether as a result of integration or management
      difficulties or otherwise, could have an adverse impact on our reputation.
      In
      addition, any acquired business could significantly under perform relative
      to
      our expectations.





OUR
      BUSINESS WILL BE NEGATIVELY AFFECTED IF WE ARE NOT ABLE TO KEEP PACE WITH
      MARKETING CHANGES AND THE NEEDS OF OUR CLIENTS.





Our
      future success depends, in part, on our ability to develop and implement design
      and marketing plans that anticipate and keep pace with rapid and continuing
      changes in industry standards and client preferences. We may not be successful
      in anticipating or responding to these developments on a timely and
      cost-effective basis, and our ideas may not be accepted in the marketplace.
      Also, marketing plans developed by our competitors may make our service
      noncompetitive or obsolete. Any one of these circumstances could have a
      materially adverse effect on our ability to obtain and complete important client
      engagements.





Our
      business is also dependent, in part, upon continued growth in business by our
      clients and prospective clients and our ability to deliver innovative design
      and
      marketing concepts to our clients. The effort to gain new customers may require
      us to incur significant expenses. If we cannot offer innovative cost effective
      plans as compared to our competitors, we could lose market share.





IF
      OUR
      CLIENTS OR THIRD PARTIES ARE NOT SATISFIED WITH OUR SERVICES, WE MAY FACE DAMAGE
      TO OUR PROFESSIONAL REPUTATION OR LEGAL LIABILITY AND PAYMENT DELAYS.





We
      depend
      to a large extent on our relationships with our clients and our reputation
      for
      high-quality outsourcing and consulting services. As a result, if a client
      is
      not satisfied with our services or products, it may be more damaging in our
      business than in other businesses. Moreover, if we fail to meet our contractual
      obligations, we could be subject to legal liability or loss of client
      relationships.





-19-


Clients
      and third parties who are dissatisfied with our services or who claim to have
      suffered damages caused by our services may bring lawsuits against us. Defending
      lawsuits arising out of any of our services could require substantial amounts
      of
      management attention, which could adversely affect our financial performance.
      In
      addition to the risks of liability exposure and increased costs of defense
      and
      insurance premiums, claims may produce publicity that could hurt our reputation
      and business.





In
      the
      event that a project is delayed as a result of a dispute with a subcontractor
      or
      client, payment may be delayed and cause a cash flow deficit in our business.
      Additionally, subcontractors and vendors could file liens for materials and
      services which could create client problems that could delay payment.





The
      nature of our work involves the use of a large number of subcontractors. Our
      ability to schedule and rely upon these subcontractors for the timely and proper
      completion of a project is essential. There is, therefore, a strict
      qualification process for all our vendors. The failure of a subcontractor to
      timely or properly perform a job on a project could have a ripple effect that
      might adversely affect our revenue stream.





WE
      DEPEND
      ON OUR EMPLOYEES; THE LOSS OF KEY EMPLOYEES COULD DAMAGE OR RESULT IN THE LOSS
      OF CLIENT RELATIONSHIPS AND ADVERSELY AFFECT OUR BUSINESS.





Our
      success and ability to grow is dependent, in part, on our ability to hire and
      retain talented people. We compete against many traditional retailers to attract
      our employees. The inability to attract qualified employees in sufficient
      numbers to meet demand or the loss of a significant number of our employees
      could have a serious negative effect on us, including our ability to obtain
      and
      successfully complete important client engagements and thus maintain or increase
      our revenues.





Our
      success largely depends upon the business generation capabilities and project
      execution skills of our employees. In particular, our employees' personal
      relationships with our clients are an important element of obtaining and
      maintaining client engagements. Losing employees who manage substantial client
      relationships or possess substantial experience or expertise could adversely
      affect our ability to secure and complete engagements, which would adversely
      affect our results of operations. We do have non-compete agreements with certain
      employees. However the enforceability of same may be limited due to the
      limitations on these agreements that have restricted their enforceability by
      court decisions in various states.





In
      addition, if any of our key employees were to join an existing competitor or
      form a competing company, some of our clients could choose to use the services
      of that competitor instead of our services. Clients or other companies seeking
      to develop in-house services similar to ours also could hire our key employees.
      Such hiring would not only result in our loss of key employees but also could
      result in the loss of a client relationship or a new business opportunity.





IF
      WE
      FAIL TO ESTABLISH AND MAINTAIN ALLIANCES FOR DEVELOPING, MARKETING AND
      DELIVERING OUR SERVICES, OUR ABILITY TO INCREASE OUR REVENUES AND PROFITABILITY
      MAY SUFFER.





Our
      business depends, in part, on our ability to develop and maintain alliances
      with
      businesses such as banks and financial service firms and companies in order
      to
      develop, market and deliver our services. If our strategic alliances were
      discontinued or if we have difficulty developing new alliances, our ability
      to
      increase or maintain our client base may be substantially diminished.





INCREASE
      IN LABOR AND MATERIAL COSTS COULD RESULT IN A DECLINE IN PROFITABILITY.





We
      are
      subject to cost increases for both labor and materials, and while we have a
      good
      relationship with our employees, we cannot be certain that we will not face
      an
      increase in our labor costs, or an increase in the labor costs of our vendors
      and subcontractors that perform services on our jobs. Additionally, we are
      subject to material price increases that could be imposed on us during or after
      we have submitted a bid price. While we may attempt to pass along cost increases
      for labor and materials, there is no assurance that we will be able to do so.





-20-


WE
      RELY
      ON THIRD PARTIES TO PROVIDE SERVICES AND THEIR FAILURE TO PERFORM THE SERVICE
      COULD DO HARM TO OUR BUSINESS.





As
      part
      of providing services to clients, we rely on a number of third-party service
      providers. The failure of a third party to properly or timely perform services
      could jeopardize our ability to maintain certain business relationships and
      could adversely affect our revenues.





We
      may
      face cost increases as a result of increases in business insurance and related
      costs. We are required to carry business and professional liability insurance
      in
      favor of our clients, and insurance companies have been subject to rising
      premium rates for insurance coverage.





AN
      INCREASE IN BORROWING COSTS MAY HAVE AN ADVERSE IMPACT ON OUR CORE BUSINESS.





In
      the
      event of any increase in the prime and federal funds rates, our clients may
      postpone or eliminate new projects, as well as related consulting services,
      which could have an adverse effect on our resources and profit.





**RISKS
      RELATED TO OUR FINANCIAL CONDITION**





THE
      PRICE
      OF OUR SHARES MAY BE ADVERSELY AFFECTED BY THE PUBLIC SALE
      OF A
      SIGNIFICANT NUMBER OF THE SHARES ELIGIBLE FOR FUTURE SALE.





A
      large
      number of our restricted shares may be subject to Rule 144 of the Securities
      Act
      whereby they may currently be eligible for resale. Sales of a large amount
      of
      our common stock in the public market could materially adversely affect the
      market price of our common stock. Such sales also may inhibit our ability to
      obtain future equity or equity-related financing on acceptable terms.





In
      the
      past, we have raised money through the sale of shares of our common stock or
      derivative securities that may convert into shares of our common stock at a
      discount to the current market price. Such arrangements have included the
      private sale of shares to investors on the condition that we register such
      shares for resale by the investors to the public. These arrangements have taken
      various forms including private investments in public equities ("PIPE’s" ), and
      other transactions.





We
      will
      continue to seek financing on an as-needed basis on terms that are negotiated
      in
      arms-length transactions. Moreover, the perceived risk of dilution may cause
      our
      existing stockholders and other holders to sell their shares of stock, which
      would contribute to a decrease in our stock price. In this regard, significant
      downward pressure on the trading price of our stock may also cause investors
      to
      engage in short sales, which would further contribute to significant downward
      pressure on the trading price of our stock.





WE
      HAVE
      INCURRED LOSSES IN THE PAST AND WE MAY INCUR LOSSES IN THE FUTURE.





Except
      for the last two fiscal years, we have incurred losses in each year since our
      inception. Depending upon business cycles and other factors beyond our control,
      we may not be able to sustain profits and may experience losses.





WE
      MAY
      REQUIRE ADDITIONAL FINANCING TO SUSTAIN OUR BUSINESS OPERATIONS OR IMPLEMENT
      BUSINESS INITIATIVES IN THE FUTURE





Although
      we believe that we currently have sufficient funding in place to sustain our
      present business operations for the foreseeable future, we continue to seek
      additional financing through the issuance of equity or debt. Additionally,
      if we
      experience any changes in the revenues we derive from products and services,
      we
      may require additional funding to maintain our current business operations.
      Unless we are able to generate additional revenue from our current business,
      we
      will require additional funds to implement any business initiatives we may
      seek
      to realize in the future.





-21-


ALL
      OF
      OUR ASSETS ARE CURRENTLY PLEDGED AS SECURITY PURSUANT TO THE TERMS OF OUR CREDIT
      FACILITY





On
      May 5,
      2005, we negotiated a new credit facility with TD BankNorth which replaced
      the
      prior credit facility with Bank of America. All assets of the Company are
      pledged to secure the credit facility. The facility provides for a $5,000,000
      revolving line of credit, and a $2,000,000 term loan. The term loan and all
      or a
      portion of the line of credit are subject to the LIBOR rate. The LIBOR rate
      equals LIBOR plus 250 basis points. The line of credit principal not subject
      to
      the LIBOR rate is subject to Prime Rate interest. The facility expires on May
      5,
      2008.





**RISKS
      RELATED TO THE MARKET FOR OUR COMMON STOCK**





WE
      ARE
      UNCERTAIN HOW TRADING ON THE OVER THE COUNTER BULLETIN BOARD WILL AFFECT THE
      LIQUIDITY AND SHARE VALUE OF OUR STOCK.





Since
      August 29, 2003, our stock has traded on the Over-the-Counter Bulletin Board.
      We
      are uncertain about the long-term impact, if any, on share value as a result
      of
      trading on the Over-the-Counter Bulletin Board.




THE
      PRICE
      OF OUR COMMON STOCK HAS BEEN HIGHLY VOLATILE DUE TO SEVERAL FACTORS WHICH WILL
      CONTINUE TO AFFECT THE PRICE OF OUR STOCK.





Our
      common stock has traded as low as $0.41 per share and as high as $1.15 per
      share
      in the twelve months ended December 31, 2005. We believe that some of the
      factors leading to the volatility include:





·
            Price
                and volume fluctuations in the stock market at large which do not
                relate
                to our operating performance;





·
            Fluctuations
                in our operating results;





·
            Concerns
                about our ability to finance our continuing
                operations;





·
            Financing
                arrangements, including the 2004 private placement, which have resulted
                in
                the issuance of a significant number of shares in relation to the
                number
                of shares previously outstanding;





·
            Announcements
                of technological innovations or new products which we or our competitors
                make;





·
            Changes
                in financial services and the banking industry in the United States
                or
                abroad;





·
            Changes
                in stock market analysts’ recommendations regarding BrandPartners and
                other companies that may provide similar
                services;





·
            Fluctuations
                in market demand for our services and products;
                and





OUR
      ISSUANCE OF WARRANTS, OPTIONS AND STOCK GRANTS MAY HAVE A NEGATIVE EFFECT ON
      THE
      TRADING PRICE OF OUR COMMON STOCK AND OUR FINANCIAL RESULTS.





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB
      Statement No. 123R, *Share-Based
      Payments* (“FAS
      123R”). FAS 123R requires that the cost of all awards of equity instruments made
      to employees in exchange for employment services be recorded at fair value
      on
      the grant date with the cost to be charged to expense as the award vests. The
      Company adopted FAS 123R on January 1, 2006. The impact of the adoption is
      discussed further in Note B-14 to the consolidated financial statements. As
      we
      continue to look for ways to minimize our use of cash while obtaining required
      services, we may issue additional options at or below the current market price
      and make additional stock bonus grants. In addition to the potential dilutive
      effect of a large number of shares and a low exercise price for options, there
      is the potential that a large number of the underlying shares may be sold on
      the
      open market at any given time, which could place downward pressure on the
      trading price of our common stock.





-22-


SHAREHOLDERS
      OF OUR COMMON STOCK MAY FACE DILUTION OF THEIR HOLDINGS.





The
      exercise of some or all of our outstanding warrants and options, including
      the
      exercise of our Class A Warrants and Class B Warrants, would dilute the
      then-existing stockholders' ownership of common stock, and any sales in the
      public market of the common stock issuable upon such exercise could adversely
      affect prevailing market prices for our common stock. In addition, the existence
      of a significant amount of outstanding options and warrants may encourage short
      selling because the exercise of the outstanding options and warrants could
      depress the price of our common stock. Moreover, the terms upon which we would
      be able obtain additional equity capital could be adversely affected, because
      the holders of such securities can be expected to exercise them at a time when
      we would, in all likelihood, be able to obtain any needed capital on terms
      more
      favorable than those provided by such securities.





CERTAIN
      HOLDERS OF OUR CLASS A AND B WARRANTS ISSUED IN OUR PRIVATE PLACEMENT COMPLETED
      IN FEBRUARY 2002 HAVE CLAIMED THAT THE EXERCISE PRICE OF THEIR WARRANTS SHOULD
      BE RESET.





Under
      the
      terms of warrant agreements entered into as a part of our private placement
      completed in February 2002, we were obligated to reset the exercise price of
      warrants issued. The agreement provided for a resetting of the exercise price
      if
      during the two year period immediately following the closing of the sale of
      common stock and warrants to a subscriber we issued, other than pursuant to
      a
      stock grant or stock options to employees or consultants in connection with
      merger or acquisition activities, any shares of common stock or equivalents
      at a
      price or exercise price per share that was less that the market price as defined
      in the warrant agreements. We 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 certain
      warrants issued in our placement completed in February 2002, since the warrants
      were issued in a closing that occurred less than two years prior to January
      20,
      2004. Specifically, a total of 681,985 warrants issued in closings that occurred
      in the final two traunches of the placement completed in February 2002 were
      eligible for an adjustment of the exercise price as the January 20, 2004 share
      issuance occurred within two years of the closings for those warrants. Certain
      holders of 4,232,421 warrants that were issued in closings more than two years
      prior to the January 20, 2004 date have also requested that their warrants
      be
      reset or ratcheted down. We contend that these warrants should not be reset
      by
      virtue of the terms of their warrant agreements.





OUR
      COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC, AND THE TRADING
      MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK
      CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.





Shares
      of
      our common stock are "penny stocks" as defined in the Exchange Act, which are
      traded in the Over-The-Counter Market on the OTC Bulletin Board. As a result,
      investors may find it more difficult to dispose of or obtain accurate quotations
      as to the price of the shares of the common stock being registered hereby.
      In
      addition, the "penny stock" rules adopted by the Commission under the Exchange
      Act subject the sale of the shares of our common stock to certain regulations
      which impose sales practice requirements on broker/dealers. For example,
      brokers/dealers selling such securities must, prior to effecting the
      transaction, provide their customers with a document that discloses the risks
      of
      investing in such securities. Included in this document are the following:




-23-


·
            The
                bid and offer price quotes in and for the “penny stock” and the number of
                shares to which the quoted prices
                apply.





·
            The
                brokerage firm’s compensation for the
                trade.





·
            The
                compensation received by the brokerage firm’s salesperson for the
                trade.





In
      addition, the brokerage firm must send the investor:





·
            A
                monthly account statement that gives an estimate of the value of
                each
                “penny stock” in the investor’s
                account.





·
            A
                written statement of the investor’s financial situation and investment
                goals.





Legal
      remedies, which may be available to you as an investor in “penny stocks,” are as
      follows:





·
            If
                “penny stock” is sold to you in violation of your rights listed above, or
                other federal or states securities laws, you may be able to cancel
                your
                purchase and get your money back.





·
            If
                the stocks are sold in a fraudulent manner, you may be able to sue
                the
                persons and firms that caused the fraud for
                damages.





·
            If
                you have signed an arbitration agreement, however, you may have to
                pursue
                your claim through arbitration.





If
      the
      person purchasing the securities is someone other than an accredited investor
      or
      an established customer of the broker/dealer, the broker/dealer must also
      approve the potential customer's account by obtaining information concerning
      the
      customer's financial situation, investment experience, and investment
      objectives. The broker/dealer must also make a determination whether the
      transaction is suitable for the customer and whether the customer has sufficient
      knowledge and experience in financial matters to be reasonably expected to
      be
      capable of evaluating the risk of transactions in such securities. Accordingly,
      the Commission's rules may limit the number of potential purchasers of the
      shares of our common stock.





Resale
      restrictions on transferring "penny stocks" are sometimes imposed by some
      states, which may make transactions in our stock more difficult and may reduce
      the value of the investment. Various state securities laws pose restrictions
      on
      transferring "penny stocks.” As a result, investors in our common stock may have
      the ability to sell their shares of our common stock impaired.





OUR
      BOARD
      OF DIRECTORS HAS CERTAIN DISCRETIONARY RIGHTS WITH RESPECT TO OUR PREFERRED
      SHARES THAT MAY ADVERSELY AFFECT THE RIGHTS OF OUR COMMON STOCKHOLDERS.





Our
      Board
      may, without shareholder approval, designate and issue our preferred stock
      in
      one or more series. Additionally, our Board may designate the rights and
      preferences of each series of preferred stock it designates which may be greater
      than the rights of our common stock. Potential effects on our common stock
      may
      include among other things:





·
            Restriction
                of dividends;


·
            Dilution
                of voting power;


·
            Impairment
                of liquidation rights; and


·
            Delay
                or prevention of a change in the control of the
                Company.




-24-





OUR
      CERTIFICATE OF INCORPORATION PLACES LIMITATIONS ON THE LIABILITY OF
      DIRECTORS





Our
      Certificate of Incorporation includes a provision to eliminate, to the fullest
      extent permitted by the Delaware General Corporation Law as in effect from
      time
      to time (the "DGCL"), the personal liability of our directors for monetary
      damages arising from a breach of their fiduciary duties as directors. In
      addition, our Certificate of Incorporation and By-laws include provisions
      requiring us to indemnify, to the fullest extent permitted by the DGCL, any
      persons made a party to or threatened to be made a party to any action, suit
      or
      proceeding by reason of the fact that such person is or was a director or
      officer of the Company, or is or was serving at our request as a director or
      officer of another corporation or entity, against all expense, liability or
      loss
      incurred in connection therewith. Such provisions also permit us, to the extent
      authorized by our Board of Directors, to indemnify and grant rights to
      indemnification to our employees and agents to the fullest extent such
      indemnification is available to officers and directors.





CERTAIN
      PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BY-LAWS MAY MAKE IT MORE
      DIFFICULT TO EFFECTUATE A CHANGE IN THE COMPOSITION OF OUR BOARD





Certain
      provisions in our Certificate of Incorporation and By-laws may make it more
      difficult for holders of a majority of the outstanding shares of Common Stock
      to
      change the composition of the Board of Directors and to remove existing
      management where a majority of the stockholders may be dissatisfied with the
      performance of the incumbent directors or otherwise desire to make changes.





**Item
      7A. Qualitative and Quantitative Disclosures about Market
      Risk**





The
      Company’s Facility with the $2 million note and revolving line of credit expose
      the company to the risk of earnings or cash flow loss due to changes in market
      interest rates. The Facility accrues interest at the Prime Rate or at LIBOR
      plus
      an applicable margin.





The
      table
      below provides information on the Company’s market sensitive financial
      instruments as of December 31, 2005:


Principal
                    Balance
                
                Weighted
                    Average
                  Interest
                    Rate at
                  December
                    31, 2005Term
                    Loan
                
                $
                1,611,111
                
                
                6.81
                %Revolving
                    Credit Facility
                
                $
                0
                
                
                6.79
                %




**Holding
      Company and Operating Subsidiaries**





We
      conduct our business through our subsidiaries, BrandPartners Retail, Inc.;
      BrandPartners Europe, Ltd.; Grafico Incorporated; and Building Partners, Inc.
      We
      have relied and continue to rely on cash payments from our operating
      subsidiaries to, among other things, pay creditors, maintain capital, and meet
      our operating requirements. Regulations, legal restrictions and contractual
      agreements could restrict any needed payments from our present subsidiaries
      and
      any other operating subsidiaries we may subsequently acquire. If we were unable
      to receive cash funds from any of our operating subsidiaries, our operations
      and
      financial condition would be materially and adversely affected.





-25-


**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 and market
      conditions. In addition, the stock markets commonly experience price and volume
      fluctuations. These fluctuations have affected stock prices of many companies
      without regard to their specific operating performance. The price of our common
      stock may fluctuate significantly in the future.





**Inflation**





We
      do not
      believe that inflation has had a material effect on the Company’s results of
      operations.





**Forward-Looking
      Statements**





This
      Annual Report on Form 10-K contains forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933, as amended, and Section
      21E of the Securities Exchange Act of 1934, as amended, that are not historical
      facts but rather reflect the Company’s current expectations concerning future
      results and events. The words “believes,” “anticipates,” “ expects,” and similar
      expressions, which identify forward-looking statements, are subject to certain
      risks, uncertainties and factors, including those which are economic,
      competitive, and technological, that could cause actual results to differ
      materially from those forecast or anticipated. Such factors include, among
      others:





·
            The
                continued services of James Brooks as Chief Executive Officer of
                BrandPartners Group.





·
            Our
                ability to identify appropriate acquisition candidates, finance and
                complete such acquisitions and successfully integrate the acquired
                businesses





·
            Changes
                in our business strategies or development
                plans





·
            Competition





·
            Our
                ability to grow within the financial services
                industry





·
            Our
                ability to successfully penetrate other
                markets





·
            General
                economic and business conditions, both nationally and in the regions
                in
                which we operate





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 the unanticipated events.
      Readers are also urged to carefully review and consider the various disclosures
      made by the Company in this report, as well as the Company’s periodic reports on
      Forms 10-K and 10-Q and other filings with the Securities and Exchange
      Commission.





**Item
      8. Financial Statements**





The
      audited, consolidated financial statements of the Company for the years ended
      December 31, 2005, 2004 and 2003 are set forth at the end of this Annual Report
      on Form 10-K and begin on page 48.





The
      consolidated financial statements of BrandPartners Group, Inc. and subsidiaries
      as of December 31, 2003 have been audited by Goldstein and Morris Certified
      Public Accountants, PC, (“GM”). Their report for the year ended December 31,
      2003 has not been reissued due to their discontinuation of public accounting
      and
      the cessation of operations. A copy of their previously issued report has been
      included.





-26-


**Item
      9. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure**





On
      October 20, 2004, Goldstein and Morris Certified Public Accountants, P.C.
      (“Goldstein and Morris”) resigned as the Company’s independent auditors and
      advised the Company that they no longer had the resources available to service
      the Company. Goldstein and Morris’ reports on the financial statements for our
      fiscal years ended December 31, 2003 and 2002 did not contain an adverse opinion
      or a disclaimer of opinion nor were such reports qualified or modified as to
      uncertainty, audit scope or accounting principles. During the period in which
      Goldstein and Morris served as the Company’s certifying accountants, there were
      no disagreements with Goldstein and Morris on any matter of accounting
      principles or practices, financial statement disclosure or auditing scope or
      procedure, which disagreements, if not resolved to the satisfaction of Goldstein
      and Morris, would have caused Goldstein and Morris to make reference to the
      subject matter of such disagreements in connection with its audit
      report.





On
      November 2, 2004, upon the recommendation of our audit committee, our Board
      of
      Directors engaged Michael F. Albanese, C.P.A., (“Albanese”) to audit our
      consolidated financial statements. On April 18, 2005, the Company dismissed
      Albanese as its independent auditor. The decision to dismiss Albanese was
      approved by the Company’s Board of Directors. The financial statements for the
      period audited did not contain an adverse opinion nor a disclaimer of opinion,
      nor was qualified or modified as to uncertainty, audit scope or accounting
      principles. During the period in which Albanese audited the Company’s financial
      statements and the interim period in which Albanese served as the Company’s
      certifying accountant, there were no disagreements with Albanese on any matter
      of accounting principles or practices, financial statement disclosure or
      auditing scope or procedure, which disagreements, if not resolved to the
      satisfaction of Albanese, would have caused Albanese to make reference to the
      subject matter of such disagreements in connection with the audit report. In
      addition, there were no reportable events as described in Item 304(a)(1)(v)
      of
      Regulation S-K.





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. During the two most recent
      fiscal years, we had not consulted with Moore Stephens regarding either the
      application of accounting principles to a specified transaction, either
      completed or proposed, or the type of audit opinion that might be rendered
      on
      our financial statements. Neither a written report nor oral advice was provided
      that was an important factor considered in our reaching a decision as to the
      accounting, auditing or financial reporting issue, or any matter that was either
      the subject of a disagreement.





**Item
      9A. Controls and Procedures**





(a)
            Evaluation
                of disclosure controls and
                procedures





Under
      the
      supervision of 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. Based on
      their evaluation, our Chief Executive Officer and Chief Financial Officer have
      concluded that these disclosure controls and procedures are effective in timely
      altering 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 report that we file under the Exchange
      Act
      is accumulated and communicated to our management, including our Non-Executive
      Chairman, Chief Executive Officer and Chief Financial Officer, as appropriate,
      to allow timely decisions regarding required disclosure.





-27-


(b)
            Changes
                in internal controls





Not
      applicable.




**Item
      9B Other Information**





None.





**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 2006 annual meeting of stockholders to be filed with the Securities and
      Exchange Commission within 120 days following December 31, 2005.





Executive
      Officers





The
      information concerning our executive officers required by Item 10 is
      incorporated herein by reference to the information contained in our definitive
      proxy/information statement related to the 2006 annual meeting of stockholders
      to be filed with the Securities and Exchange Commission within 120 days
      following December 31, 2005.





Section
      16(a) Beneficial Ownership Reporting Compliance





The
      information concerning Section 16(a) Beneficial Ownership Reporting Compliance
      is incorporated herein by reference to the information contained in our
      definitive proxy/information statement related to the 2006 annual meeting of
      stockholders to be filed with the Securities and Exchange Commission within
      120
      days following December 31, 2005.




**Item
      11. Executive Compensation**





The
      information required by Item 11 is incorporated herein by reference to the
      information contained in our definitive proxy/information statement related
      to
      the 2006 annual meeting of stockholders to be filed with the Securities and
      Exchange Commission within 120 days following December 31, 2005.


**Item
      12. Securities Ownership of Certain Beneficial Owners and
      Management**





The
      information required by Item 12 is incorporated herein by reference to the
      information contained in our definitive proxy/information statement related
      to
      the 2006 annual meeting of stockholders to be filed with the Securities and
      Exchange Commission within 120 days following December 31, 2005.





**Item
      13. Certain Relationships and Related Transactions**





The
      information required by Item 13 is incorporated herein by reference to the
      information contained in our definitive proxy/information statement related
      to
      the 2006 annual meeting of stockholders to be filed with the Securities and
      Exchange Commission within 120 days following December 31, 2005.





-28-


**Item
      14. Principal Accountant Fees and Services**





The
      information required by Item 14 is incorporated herein by reference to the
      information contained in our definitive proxy/information statement related
      to
      the 2006 annual meeting of stockholders to be filed with the Securities and
      Exchange Commission within 120 days following December 31, 2005.





-29-


PART
      IV


**Index
      To Exhibits**








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).





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).





-30-


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).





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).





-31-


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
      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).





10.26
      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).





10.27
      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).





10.28
      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).





10.29
      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).





10.30
      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).





10.31
      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).





10.32
      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).





10.33
      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).





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).





-32-


10.35
      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).





10.36
      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 Form10-KSB for the year ended
      December 31, 2000).





10.37
      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).





10.38
      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).





10.39
      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).





10.40
      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).





10.41
      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).





10.42
      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).





10.43
      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).





10.44
      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).





10.45
      Financial Performance Corporation 2001 Stock Incentive Plan (incorporated by
      reference to Exhibit 10.33 to the Company's Quarterly Report on Form 10-QSB
      for
      the quarter ended September 30, 2001).





-33-


10.46
      Subordinated Note and Warrant Purchase Agreement, dated as of October 22, 2001,
      by and among the Company, Willey Brothers, Inc. and Corporate Mezzanine II,
      L.P
      ("CMII") (incorporated by reference to Exhibit 10.34 to the Company's Quarterly
      Report on Form 10-QSB for the quarter ended September 30, 2001).





10.47
      Subordinated Promissory Note, in the Principal Amount of $5,000,000, made by
      Willey Brothers, Inc. in favor of CMII (incorporated by reference to Exhibit
      10.34 to the Company's Quarterly Report on Form 10-QSB for the quarter ended
      September 30, 2001).





10.48
      Common Stock Purchase Warrant, dated October 22, 2001, between the Company
      and
      CMII (incorporated by reference to Exhibit 10.34 to the Company's Quarterly
      Report on Form 10-QSB for the quarter ended September 30, 2001).





10.49
      Registration Rights Agreement, dated as of October 22, 2001, between the Company
      and CMII (incorporated by reference to Exhibit 10.34 to the Company's Quarterly
      Report on Form 10-QSB for the quarter ended September 30, 2001).





10.50
      Subordination and Intercreditor Agreement, dated as of October 22, 2001, by
      and
      among Willey Brothers, Inc., CMII and Fleet Capital Corporation (incorporated
      by
      reference to Exhibit 10.34 to the Company's Quarterly Report on Form 10-QSB
      for
      the quarter ended September 30, 2001).





10.51
      Form of Warrant Agreement, between the Company and the Warrant holders 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).





10.52
      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).





10.53
      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).





10.54
      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).





10.55
      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).





10.56
      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).





10.57
      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).





10.58
      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)





-34-


10.59
      Letter Agreement, dated May 15, 2002, between and among Fleet, Willey Brothers
      and the Company (incorporated by reference to Exhibit 10.21 to the Company's
      Quarterly Report on Form 10-QSB for the quarter ended June 30,
      2002).





10.60
      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).





10.61
      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).





10.62
      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).





10.63
      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).





10.64
      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).





10.65
      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).





10.66
      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).





10.67
      Letter Agreement, dated October 31, 2002, between the Company and iMapData
      (incorporated by reference to Exhibit 10.4 to the Company's Current Report
      on
      Form 8-K filed on November 14, 2002).





10.68
      Fifth Amendment, dated as of December 20, 2002, among Fleet, Willey Brothers
      and
      the Company (incorporated by reference to Exhibit 10.68 to the Company's Annual
      Report on Form 10-KSB filed on March 31, 2003).





10.69
      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)





10.70
      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).





10.71
      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).





10.72
      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).





-35-


10.73
      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).





10.74
      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).





10.75
      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).





10.76
      Agreement dated as of May 15, 2003 by and among the Company, Willey Brothers,
      James M. Willey, individually and as trustee of the James M. Willey Trust -
      1995, and Thomas P. Willey, individually and as trustee of the Thomas P. Willey
      Revocable Trust of 1998 (incorporated by reference to Exhibit 10.4 to the
      Company's Report on Form 10-Q filed May 15, 2003).


.


10.77
      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).





10.78
      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).





10.79
      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).





10.80
      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
      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).





10.82
      Letter Agreement dated as of September 30, 2003, between and among the Company,
      Willey Brothers, Corporate Mezzanine II, L.P. and Fleet Capital Corporation,
      relating to Subordinated Notes and Warrant Purchase Agreement, dated October
      22,
      2001, between the Company, Willey Brothers and Corporate Mezzanine II, L.P.
      (incorporated by reference to Exhibit 10.3 to the Company's Report on Form
      10-Q
      filed November 14, 2003).





10.83
      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).





10.84
      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).





-36-


10.85
      Consulting agreement, dated as of October 8, 2003 between the Company and Peter
      Benz (incorporated by reference to Exhibit 4.1(b) to the Company's Registration
      on Form S-8 filed April 9, 2004).





10.86
      Stock Option agreement, dated as of October 8, 2003 between the Company and
      James F. Brooks (incorporated by reference to Exhibit 4.1(d) to the Company's
      Registration on Form S-8 filed April 9, 2004.





10.87
      Stock Option agreement, dated as of October 15, 2003 between the Company and
      Richard Levy (incorporated by reference to Exhibit 4.1(e) to the Company's
      Registration on Form S-8 filed April 9, 2004.





10.88
      Stock Option agreement, dated as of October 15, 2003 between the Company and
      J.
      Weldon Chitwood (incorporated by reference to Exhibit 4.1(f) to the Company's
      Registration on Form S-8 filed April 9, 2004.





10.89
      Stock Option agreement, dated as of October 8, 2003 between the Company and
      Joseph Baratta (incorporated by reference to Exhibit 4.1(g) to the Company's
      Registration on Form S-8 filed April 9, 2004.)





10.90
      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).





10.91
      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).





10.92
      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).





10.93
      Promissory Note dated November 7, 2003 in the principal amount $250,000, made
      by
      the Company in favor of Camden International Ltd. (incorporated by reference
      to
      Exhibit 10.10 to the Company's Report on Form 10-Q filed November 14,
      2003).





10.94
      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)





10.95
      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).





10.96
      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).





10.97
      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).





10.98
      Amended Consulting agreement, dated as of January 8, 2004 between the Company
      and Clifford Brune (incorporated by reference to Exhibit 4.1(c) to the Company's
      Registration on Form S-8 filed April 9, 2004).





-37-


10.99
      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 Current Report
      on
      Form 8-K filed February 5, 2004).





10.100
      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 dates 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).





10.101
      Amended agreement, dated as of April 1, 2004 between the Company and Anthony
      J.
      Cataldo (incorporated by reference to Exhibit 4.1(a) to the Company's
      Registration on Form S-8 filed April 9, 2004).





10.102
      Common Stock Warrant and Certificate, dated as of May 12, 2004 issued to
      Rubenstein Investor Relations, Inc. (incorporated by reference to Form S-2
      File
      No. 333-119782 filed October 15, 2004).





10.103
      BrandPartners Group 2004 Stock Incentive Plan (incorporated by reference to
      Exhibit 4.1 to the Company's S-8 filed July 30, 2004).





10.104
      Unsecured Subordinated Promissory Note, dated as of July 6, 2004 issued by
      the
      Company to Longview Fund LP (incorporated by reference to Exhibit 10.1 to the
      Company's Form 10-Q filed August 16, 2004).





10.105
      Common Stock Purchase Warrant, dated as of July 6, 2004 issued to Longview
      Fund
      LP (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed
      August 16, 2004).





10.106
      Employment Agreement, made as of August 13, 2004 with James F. Brooks
      (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed
      August 16, 2004).





10.107
      Agreement made as of August 13, 2004 with Anthony J. Cataldo, Non-executive
      Chairman (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q
      filed August 16, 2004).





10.108  Purchase
      and Joinder Agreement with BancRealty Advisors, LLC, dated September 21, 2004
      (incorporated by reference to Exhibit 10.1 on the Company’s Quarterly Report on
      Form 10-Q filed November 16, 2004).





10.109
      Modification Agreement, dated as of September 29, 2004 between the Company
      and
      Longview Fund LP (incorporated by reference to Exhibit 10.1 to the Company's
      Form 8-K filed October 1, 2004).





10.110
      Unsecured Subordinated Promissory Note, issued by the Company to Longview Fund
      LP executed September 29, 2004 (incorporated by reference to Exhibit 10.2 to
      the
      Company's Form 8-K filed October 1, 2004).





10.111
      Registration Rights Agreement, dated as of September 29, 2004 between the
      Company and Longview Fund LP) incorporated by reference to Exhibit 10.3 to
      the
      Company's Form 8-K filed October 1, 2004).





10.112
      Tenth Amendment, dated as of December 28, 2004, between Bank of America Business
      Capital, successor in interest to Fleet Capital Corporation, Willey Brothers
      and
      the Company (incorporated by reference to Exhibit 10.14 to the Company’s Annual
      10-K Report filed March 25, 2005)





10.113
      Modification Agreement to Unsecured Subordinated $625,000 Subordinated
      Promissory Note, dated as of January 5, 2005 between the Company and Longview
      Fund LP (incorporated by reference to Exhibit 10.15 to the Company’s Annual 10-K
      Report filed March 25, 2005)





-38-


10.114  Form of
      Common Stock Purchase Warrant issued in accordance with Modification Agreement
      to Unsecured $625,000 Subordinated Note (incorporated by reference to Exhibit
      10.16 to the Company’s Annual 10-K Report filed March 25, 2005)





10.115  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
      10-K Report filed March 25, 2005)





10.116  Common
      Stock Purchase Warrant, dated February 1, 2005, exercisable at $1.00 per share
      issued to Trilogy Capital Partners (incorporated by reference to Exhibit 10.18
      to the Company’s Annual 10-K Report filed March 25, 2005)





10.117  Common
      Stock Purchase Warrant, dated February 1, 2005, exercisable at $1.50 per share
      issued to Trilogy Capital Partners (incorporated by reference to Exhibit 10.19
      to the Company’s Annual 10-K Report filed March 25, 2005)





10.118  Common
      Stock Purchase Warrant, dated February 1, 2005, exercisable at $2.00 per share
      issued to Trilogy Capital Partners (incorporated by reference to Exhibit 10.20
      to the Company’s Annual 10-K Report filed March 25, 2005)





10.119  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 10-K Report filed March 25, 2005)





10.120  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 10-K
      Report filed March 25, 2005)





10.121  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 15, 2005).





10.122  Consulting agreement with Bristol Capital dated May 2, 2005 for investor
      relations (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q
      filed August 9, 2005).





10.123  Commercial loan agreement between the Company and Banknorth, N.A., dated May
      5,
      2005 providing for a term loan and a revolving line of credit (incorporated
      by
      reference to Exhibit 10.3 to the Company’s Form 10-Q filed August 9,
      2005).





10.124  Revolver
      Note between the Company and Banknorth, N.A. dated May 5, 2005(incorporated
      by
      reference to Exhibit 10.4 to the Company’s Form 10-Q filed August 9,
      2005).





10.125  Term
      Note between the Company and Banknorth, N.A. dated May 5, 2005 (incorporated
      by
      reference to Exhibit 10.5 to the Company’s Form 10-Q filed August 9,
      2005).





10.126  Employment agreement between the Company and Suzanne Verrill effective June
      30,
      2005 (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q filed
      August 9, 2005).





14.1
      Code
      of Ethics adopted December 8, 2004 by the Company’s Board of Directors
      (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on
      Form 8-K, dated December 10, 2004)





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).





-39-


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).





16.3
      Resignation Letter from Goldstein and Morris dated October 20, 2004
      (incorporated by reference to Exhibit 16.1 to the Company’s Current Report filed
      on Form 8-K October 22, 2004).





16.4
      Letter from Goldstein and Morris Certified Public Accountants 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/A (No.1) filed December 1, 2004).





16.5
      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 22, 2005).





22.1
      List
      of Subsidiaries





31.2  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.





31.3  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.




-40-





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.








BRANDPARTNERS GROUP, INC./s/
              JAMES F. BROOKSJames F. BrooksChief Executive Officer and
              PresidentMarch 31, 2006




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.




/s/
                  Anthony J. Cataldo
              March
                  31, 2006Anthony
                  J. Cataldo, Chairman of the Board/s/
                  James F. Brooks
              March
                  31, 2006James
                  F. Brooks, Chief Executive Officer and Secretary/s/
                  J. Weldon Chitwood
              March
                  31, 2006J.
                  Weldon Chitwood, Director/s/
                  Richard Levy
              March
                  31, 2006Richard
                  Levy, Director/s/
                  Clifford D. Brune
              March
                  31, 2006Clifford
                  D. Brune, Director/s/
                  Suzanne Verrill
              March
                  31, 2006Suzanne
                  Verrill, Chief Financial Officer




-41-








**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





PageReport
                  of Independent Registered Public Accountants
              43Financial
                  StatementsConsolidated
                  Balance Sheets
              46Consolidated
                  Statements of Operations
              47Consolidated
                  Statements of Stockholders’ Equity
              48Consolidated
                  Statements of Cash Flows
              49Notes
                  to Consolidated Financial Statements
              50


-42-


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and Stockholders of


BrandPartners
      Group, Inc.





We
      have
      audited the accompanying consolidated balance sheet of BrandPartners Group,
      Inc.
      and Subsidiaries as of December 31, 2005 and the related consolidated statements
      of operations, stockholders equity and cash flows for the year then ended.
      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 audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform an audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audit provides 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, 2005 and the consolidated
      results of their operations and their cash flows for the year then ended in
      conformity with accounting principles generally accepted in the United States
      of
      America.








/s/
      Moore
      Stephens, P.C.





Cranford,
      New Jersey


March
      7,
      2006





-43-


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Board of Directors and Stockholders of


BrandPartners
      Group, Inc.





I
      have
      audited the accompanying consolidated balance sheet of BrandPartners Group,
      Inc.
      and Subsidiary as of December 31, 2004 and the related consolidated statements
      of operations, stockholders equity (deficit) and cash flows for the year then
      ended. These consolidated financial statements are the responsibility of the
      Company’s management. My responsibility is to express an opinion on these
      consolidated financial statements based on my audit.





I
      conducted my audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that I
      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.
      I believe that my audit provides a reasonable basis for my opinion.





In
      my
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of BrandPartners
      Group, Inc. and Subsidiary as of December 31, 2004 and the consolidated results
      of their operations and their cash flows for the year then ended in conformity
      with accounting principles generally accepted in the United States of
      America.








/s/
      Michael F. Albanese, C.P.A.








Parsippany,
      New Jersey


February
      25, 2005





-44-


THIS
      REPORT IS A COPY OF A PREVIOUSLY ISSUED GOLDSTEIN AND MORRIS CERTIFIED PUBLIC
      ACCOUNTANTS, PC, REPORT. THIS REPORT HAS NOT BEEN REISSUED BY GOLDSTEIN AND
      MORRIS. THIS REPORT REFERS TO THE YEARS ENDED DECEMBER 31, 2001 AND 2002, WHICH,
      IN ACCORDANCE WITH SEC REQUIREMENTS, ARE NOT PRESENTED IN THIS
      FILING.




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





-45-





BrandPartners
      Group, Inc. and Subsidiaries


**CONSOLIDATED
      BALANCE SHEETS**


December
                  31,
              
              December
                  31,2005
              
              2004ASSETSCash
              
              $
              525,665
              
              $
              2,845,573Accounts
                  receivable,net of allowance fordoubtful
                  accounts of $321,251 and $141,339
              
              
              6,924,612
              
              
              5,079,667Costs
                  and estimated earnings in excess of billings
              
              
              1,567,239
              
              
              1,079,515Inventories
              
              
              651,143
              
              
              1,326,942Prepaid
                  expenses and other current assets
              
              
              336,393
              
              
              691,158Total
                  current assets
              
              
              10,005,052
              
              
              11,022,855Property
                  and equipment, net
              
              
              1,599,465
              
              
              1,515,237Goodwill
              
              
              24,271,969
              
              
              24,271,969Deferred
                  financing costs
              
              
              193,255
              
              
              202,057Other
                  assets
              
              
              306,294
              
              
              293,818Total
                  assets
              
              $
              36,376,035
              
              $
              37,305,936LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilitiesAccounts
                  payable and accrued expenses
              
              $
              7,344,764
              
              $
              5,959,252Billings
                  in excess of cost and estimated earnings
              
              
              2,237,249
              
              
              4,729,661Current
                  maturities, long term debt
              
              
              666,667
              
              
              -Short
                  term debt
              
              
              -
              
              
              3,972,708Total
                  current liabilities
              
              
              10,248,680
              
              
              14,661,621Long
                  term debt, net of current maturities
              
              
              6,740,267
              
              
              5,784,193Stockholders'
                  equityPreferred
                  stock, $.01 par value; 20,000,000 sharesauthorized;
                  none outstanding.
              
              
              -
              
              
              -Common
                  stock, $.01 par value; 100,000,000 sharesauthorized;
                  issued 34,255,597 and 32,497,597
              
              
              342,554
              
              
              324,976Additional
                  paid in capital
              
              
              44,999,810
              
              
              44,463,181Accumulated
                  deficit
              
              
              (25,700,726
              )
              
              (27,615,535
              )Other
                  Comprehensive IncomeForeign
                  currency adjustment
              
              
              57,951
              
              
              -Treasury
                  stock, at cost
              
              
              (312,500
              )
              
              (312,500
              )Total
                  stockholders' equity
              
              
              19,387,089
              
              
              16,860,122Total
                  liabilities and stockholders' equity
              
              $
              36,376,035
              
              $
              37,305,936*The
                  accompanying notes are an integral part of these financial
                  statements.*
   -46-


BrandPartners
      Group, Inc. and Subsidiaries





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**




December
                  31,
              
              December
                  31,
              
              December
                  31,2005
              
              2004
              
              2003Revenues
              
              $
              52,036,057
              
              $
              50,612,819
              
              $
              33,667,062Costs
                  and expensesCost
                  of revenues
              
              
              37,298,018
              
              
              35,017,272
              
              
              29,396,353Selling,
                  general and administrative
              
              
              11,152,475
              
              
              9,472,529
              
              
              11,921,942Total
                  expenses
              
              
              48,450,493
              
              
              44,489,801
              
              
              41,318,295Operating
                  income (loss)
              
              
              3,585,564
              
              
              6,123,018
              
              
              (7,651,233
              )Other
                  income (expense)Interest,
                  net
              
              
              (1,064,244
              )
              
              (988,676
              )
              
              (1,786,244
              )Gain
                  on forgiveness of debt
              
              
              -
              
              
              9,085,285
              
              
              -Settlement
                  of lawsuit
              
              
              -
              
              
              -
              
              
              (227,220
              )Lease
                  termination fee
              
              
              -
              
              
              -
              
              
              (1,075,000
              )Other
              
              
              -
              
              
              -
              
              
              (224,365
              )Total
                  other income (expense)
              
              
              (1,064,244
              )
              
              8,096,609
              
              
              (3,312,829
              )Income
                  (loss) from continuing operations
              
              
              2,521,320
              
              
              14,219,627
              
              
              (10,964,062
              )Provision
                  for income taxes
              
              
              606,511
              
              
              -
              
              
              -**NET
                  INCOME (LOSS)**
              
              $
              1,914,809
              
              $
              14,219,627
              
              $
              (10,964,062
              )Basic
                  and diluted earnings (loss) per shareBasic
              
              $
              0.06
              
              $
              0.47
              
              $
              (0.59
              )Diluted
              
              $
              0.04
              
              $
              0.39
              
              $
              (0.59
              )Weighted
                  - average shares outstandingBasic
              
              
              33,109,064
              
              
              30,390,636
              
              
              18,468,553Diluted
              
              
              46,266,876
              
              
              36,474,663
              
              
              18,468,553*The
                  accompanying notes are an integral part of these
                  statements.*


-47-


BrandPartners
      Group, Inc. and Subsidiaries


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**





Accum.CommonStock
              
              Additional
              
              Comp.
              
              Accumulated
              
              Comp.
              
              Treasury
                  StockShares
              
              Par
                  Value
              
              Paid
                  in Capital
              
              Income
              
              Deficit
              
              Income
              
              Shares
              
              $
              
              TotalBalance
                  at December 31, 2002
              
              
              18,163,553
              
              $
              181,636
              
              $
              40,109,102
              
              
              
              
              $
              (30,871,100
              )
              
              
              
              
              (100,000
              )
              $
              (312,500
              )
              $
              9,107,138Options
                  to settle lawsuit
              
              
              
              
              
              
              
              $
              77,220
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              77,220Options
                  issued for services
              
              
              
              
              
              
              
              $
              448,500
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              448,500Net
                  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
              )Shares
                  issued in private placement
              
              
              12,400,001
              
              
              124,000
              
              
              2,771,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,895,000Shares
                  issued for debt
              
              
              1,550,000
              
              
              15,510
              
              $
              789,490
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              805,000Shares
                  issued for services
              
              
              32,000
              
              
              1,330
              
              $
              16,029
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              17,359Options/warrants
                  exercised
              
              
              352,043
              
              
              2,500
              
              $
              73,370
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              75,870Warrants
                  issued in connection with
              
              
              
              
              
              
              
              $
              105,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              105,000extension
                  of debt maturityOptions/warrants
                  issued for services
              
              
              
              
              
              
              
              $
              73,470
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              73,470Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              14,219,627
              
              
              
              
              
              
              
              
              
              
              
              14,219,627Balance
                  at December 31, 2004
              
              
              32,497,597
              
              $
              324,976
              
              $
              44,463,181
              
              
              
              
              $
              (27,615,535
              )
              
              
              
              
              (100,000
              )
              $
              (312,500
              )
              $
              16,860,122Options/warrants
                  exercised
              
              
              1,757,800
              
              
              17,578
              
              $
              372,962
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              390,540Warrants
                  issued in connection with
              
              
              
              
              
              
              
              $
              163,667
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              163,667extension
                  of debt maturityOther
                  comprehensive incomeForeign
                  currency adjustment
              
              
              
              
              
              
              
              
              
              
              $
              57,951
              
              
              
              
              $
              57,951
              
              
              
              
              
              
              
              
              57,951Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,914,809
              
              
              
              
              
              
              
              
              
              
              
              1,914,809Balance
                  at December 31, 2005
              
              
              34,255,397
              
              $
              342,554
              
              $
              44,999,810
              
              
              
              
              $
              (25,700,726
              )
              
              
              
              
              (100,000
              )
              $
              (312,500
              )
              $
              19,387,089*The
                  accompanying notes are an integral part of these
                  statements.*


-48-


BrandPartners
      Group, Inc. and Subsidiaries


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





December
                  31,
              
              December
                  31,
              
              December
                  31,2005
              
              2004
              
              2003Cash
                  flows from operating activitiesNet
                  income (loss)
              
              $
              1,914,809
              
              $
              14,219,627
              
              $
              (10,964,062
              )Adjustments
                  to reconcile net income (loss) to net cash provided by (used in)
                  operating
                  activitiesDepreciation
                  and amortization
              
              
              711,770
              
              
              620,269
              
              
              919,919Forgiveness
                  of long term debt
              
              
              
              
              
              (9,085,285
              )
              
              -Amortization
                  of discount on notes payable
              
              
              
              
              
              -
              
              
              67,344Provision
                  for doubtful accounts
              
              
              179,912
              
              
              (139,824
              )
              
              72,370Non-cash
                  compensation
              
              
              167,167
              
              
              90,860
              
              
              860,720Allowance
                  for obsolete inventory
              
              
              35,000
              
              
              
              
              
              317,849Options
                  issued for services
              
              
              
              
              
              
              
              
              135,000Non-cash
                  interest expense
              
              
              
              
              
              105,000Put
                  warrant (gain) loss
              
              
              
              
              
              
              
              
              164,053Gain
                  on disposal of assets
              
              
              2,955
              
              
              
              
              
              60,312Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              (2,024,857
              )
              
              1,016,767
              
              
              1,447,452Costs
                  and estimated earnings in excess of billings
              
              
              (487,724
              )
              
              775,371
              
              
              4,433,646Inventories
              
              
              640,799
              
              
              (357,922
              )
              
              816,040Prepaid
                  expenses and other current assets
              
              
              354,765
              
              
              (149,523
              )
              
              265,032Other
                  assets
              
              
              (12,476
              )
              
              
              
              
              (5,006
              )Accounts
                  payable and accrued expenses
              
              
              1,382,051
              
              
              (587,807
              )
              
              (5,145,900
              )Other
                  current liabilities
              
              
              -
              
              
              (1,600,848
              )
              
              525,354Billings
                  in excess of costs and estimated earnings
              
              
              (2,492,412
              )
              
              (1,603,574
              )
              
              5,216,875Interest
                  payable (long term)
              
              
              
              
              
              
              
              
              217,729Income
                  taxes
              
              
              -
              
              
              -
              
              
              1,208,420Net
                  cash provided by operating activities
              
              
              371,759
              
              
              3,303,111
              
              
              613,147Cash
                  flows from investing activitiesPurchase
                  of Membership Interest
              
              
              
              
              
              (250,000
              )Acquisition
                  of equipment
              
              
              (692,668
              )
              
              (546,886
              )
              
              (415,627
              )Proceeds
                  from disposition of discontinued operations and other
                  assets
              
              
              -
              
              
              -
              
              
              30,061Net
                  cash (used in) investing activities
              
              
              (692,668
              )
              
              (796,886
              )
              
              (385,566
              )Cash
                  flows from financing activitiesBorrowings
                  (repayments) on credit facility, net
              
              
              
              
              
              
              
              
              (333,559
              )Net
                  borrowings on short term debt
              
              
              (3,378,564
              )
              
              (959,778
              )Net
                  borrowings on long term debt
              
              
              931,074
              
              
              (2,083,190
              )
              
              (2,044,800
              )Repayment
                  of loan to officers
              
              
              
              
              
              
              
              
              46,800Proceeds
                  from short term debt
              
              
              
              
              
              
              
              
              350,000Proceeds
                  from exercise of options
              
              
              390,540
              
              
              73,370Proceeds
                  from private placement of equity, net of costs
              
              
              -
              
              
              2,895,000
              
              
              -Net
                  cash (used in) financing activities
              
              
              (2,056,950
              )
              
              (74,598
              )
              
              (1,981,559
              )NET
                  INCREASE (DECREASE) IN CASH
              
              
              (2,377,859
              )
              
              2,431,627
              
              
              (1,753,978
              )Effect
                  of exchange rates on cash and equivalents
              
              
              57,951Cash,
                  beginning of periods
              
              
              2,845,573
              
              
              413,946
              
              
              2,167,924Cash,
                  end of periods
              
              $
              525,665
              
              $
              2,845,573
              
              $
              413,946Supplemental
                  disclosures of cash flow information:Cash
                  paid during the period for interest
              
              $
              385,790
              
              $
              328,565
              
              $
              870,656Cash
                  paid during the period for taxes
              
              $
              363,101
              
              $
              -
              
              $
              -*The
                  accompanying notes are an integral part of the financial
                  statements.*





-49-







BrandPartners
      Group, Inc. and Subsidiaries


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


December
      31, 2005, 2004 and 2003






**NOTE
      A - NATURE OF BUSINESS AND BASIS OF PRESENTATION**





BrandPartners
      Group, Inc. operates through its wholly-owned subsidiaries, BrandPartners
      Retail, Inc. (“Brand Retail”), formerly known as Willey Brothers, which was
      acquired on January 16, 2001; BrandPartners Europe, Ltd. (“Brand Europe”), which
      was formed in January 2005 in Great Britain; Grafico Incorporated (“Grafico”),
      which was incorporated in Delaware in April of 2005; and Building Partners,
      a
      general contracting firm which was formed in 2006. Through its subsidiaries,
      the
      Company provides integrated services and products to the financial services
      industry and other retail markets. These include:





·
            Strategic
                retail positioning and branding


·
            Environmental
                design and store construction
                services


·
            Retail
                merchandising analysis, display systems and
                signage


·
            Point-of-sale
                communications and marketing
                programs





These
      products and services are offered as a complete turnkey package or as individual
      offerings throughout the United States, Canada and Europe based upon the
      customer’s needs. 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 subsidiaries, Brand Retail, Brand Europe and Grafico.
      All
      significant intercompany accounts and transactions have been eliminated in
      consolidation.





In
      January 2003, the Financial Accounting Standards Board (“FASB”) issued Statement
      of Financial Accounting Standards Board Interpretation No. 46, *Consolidation
      of Variable Interest Entities, an Interpretation of ARB No. 51,* (“FIN
      46”). In December 2003, the FASB modified FIN 46 to make certain technical
      corrections and address certain implementation issues that had arisen. FIN
      46
      provides a new framework for identifying variable interest entities (“VIE’s”)
      and determining when a company should include the assets, liabilities,
      non-controlling interests and results of activities of a VIE in its consolidated
      financial statements.





In
      general, a VIE is a corporation, partnership, limited liability corporation,
      trust or any other legal structure used to conduct activities or hold assets
      that either (1) has a insufficient amount of equity to carry out its principal
      activities without additional subordinated financial support, (2) has a group
      of
      equity owners that are unable to make significant decisions about its
      activities, or (3) has a group of equity owners that do not have the obligation
      to absorb losses or the right to receive returns generated by its operations.
      However, FIN 46R specifically excludes a VIE that is a business if the variable
      interest holder did not participate significantly in the design or redesign
      of
      the entity.





We
      adopted the provisions of FIN 46R as of January 2004. We have reviewed the
      Company’s unconsolidated investment in the unconsolidated affiliate under the
      provision and have determined that none of these arrangements meet the
      definition of a variable interest entity.




-50-




BrandPartners
        Group, Inc. and Subsidiaries
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003





**NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** ****** **-
      (continued)**




*2.* *Revenue
      Recognition*





BrandPartners
      records revenue based on the type of product and/or service purchased. For
      most
      contracts, this means using percentage-of-completion, 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 percentage-of-completion. Costs and estimated earnings
      in
      excess of billings represent unbilled charges on long-term contracts namely
      revenue recognized but not billed at December 31. Such billings are generally
      made and collected in the subsequent year. Billings in excess of cost and
      estimated earnings represent billed charges, such as deposits, on long-term
      contracts for which revenue has not yet been recognized as of December 31 (see
      Note I).





Revenue
      from short-term agreements 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.





*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, 2005 and 2004.


2005
              
              2004Finished
                  goods
              
              $
              458,087
              
              $
              1,045,270Raw
                  Material
              
              $
              186,825
              
              $
              278,584Work-in-Process
              
              $
              6,231
              
              $
              3,088$
              651,143
              
              $
              1,326,942





-51-
 
  BrandPartners
            Group, Inc. and Subsidiaries
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 December
            31, 2005, 2004 and 2003


**NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** ****** **-
      (continued)**








*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.





Included
      in property and equipment is the capitalized cost of internal use software
      and
      website development, including software used to upgrade and enhance our websites
      and processes supporting our business. In accordance with SOP 98-1, *Accounting
      for the Costs of Computer Software Developed or Obtained for Internal
      Use* ,
      we
      capitalize costs incurred during the application development stage related
      to
      the development of internal use software and will amortize these costs over
      the
      estimated useful life of three years. Costs incurred related to design or
      maintenance of internal use software are expensed as incurred.





*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. 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 three to
      seven years, the life of the related debt.





*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
      undiscounted 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-16)







-52-
 
 BrandPartners
            Group, Inc. and Subsidiaries
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 December
            31, 2005, 2004 and 2003


NOTE
      B -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ** -
      (continued)








*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,
      2005
      and 2004 were approximately $142,000 and $139,000, 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 L)





*10.*
            *Fair
                Value of Financial Instruments*





The
      following methods and assumptions were used in estimated 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.





*11.*
            *Income
                (Loss) Per Share*





Basic
      and
      diluted income (loss) per share is 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, and warrants.
      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 6,085,308 for the year ended December 31,
      2005.







-53-
 
 BrandPartners
            Group, Inc. and Subsidiaries
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 December
            31, 2005, 2004 and 2003


NOTE
      B -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ** -
      (continued)








*12.*
            *Derivative
                Instruments and Hedging
                Activities*





In
      June
      1998, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards (“SFAS”) No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* .
      SFAS
      No. 133 establishes accounting and reporting standards requiring that every
      derivative instrument (including certain derivative instruments embedded in
      other contracts) be recorded on the balance sheet as either an asset or a
      liability at its fair value. Changes in the fair value of those instruments
      are
      reported in earnings or other comprehensive income depending on the use of
      the
      derivative and whether it qualifies for hedge accounting. The accounting for
      gains and losses associated with changes in 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.





*13.*
            *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 I). BrandPartners’ 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,
      2005.








*14.*
            *Stock-Based
                Compensation*





At
      December 31, 2005, the Company had two stock-based employee compensation plans,
      which are more fully described in Note O. The Company had previously accounted
      for these plans under the recognition and measurement provisions of APB Opinion
      No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related interpretations. No stock-based employee compensation cost reflected
      in
      net income in the fiscal years prior to the adoption of SFAS No. 123(R) had
      an
      exercise price equal to the market value of the underlying common stock at
      the
      date of grant. As of December 31, 2005, all options were fully vested.





Effective
      January 1, 2006, the Company adopted SFAS No. 123(R), *Share-Based
      Payment* .
      The
      Company has applied the modified retrospective application (MRA) method to
      effect the transition. The MRA method was applied to all prior years for which
      Statement 123 was effective. This required the adjustment of the financial
      statements for prior periods to give effect to the fair-value-based method
      of
      accounting for awards granted, modified, or settled in cash in fiscal years
      beginning after December 15, 1994, on a basis consistent with the *pro
      forma* disclosures required for those periods by Statement 123, as amended by FASB
      Statement No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure* .
      Accordingly, compensation cost and related tax effects will be recognized in
      those financial statements as though they had been accounted for under Statement
      123. Changes to amounts originally measured on a *pro
      forma* basis
      are precluded. Instead of presenting all of those years in comparative financial
      statements, the Company has adjusted the beginning balances of paid-in capital,
      deferred taxes and retained earnings for the earliest year presented to reflect
      the results of the MRA to those prior years not presented.




-54-
 
 BrandPartners
            Group, Inc. and Subsidiaries
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 December
            31, 2005, 2004 and 2003


NOTE
      B -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ** -
      (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.





*15.*
            *Use
                of Estimates*





In
      preparing financial statements in conformity with accounting principles
      generally accepted in the United States of America, management is required
      to
      make certain estimates and assumptions that affect:





·
            reported
                amounts of assets and liabilities





·
            disclosure
                of contingent assets and liabilities at the date of the financial
                statements





·
            revenues
                and expenses during the reporting
                period.





Actual
      results could differ from these estimates.





These
      estimates and assumptions relate to estimates of:





·
            collectibility
                of accounts receivable


·
            realizability
                of goodwill and other intangible
                assets


·
            costs
                to complete engagements


·
            accruals


·
            income
                taxes


·
            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 estimates.





*16.*
            *Long-Lived
                Assets*





The
      Company follows SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* .
      This
      statement requires that long-lived assets be reviewed for impairment whenever
      events or changes in circumstances indicate that the assets’ carrying amounts
      may not be recoverable. In performing the review for recoverability, if future
      undiscounted cash flows (excluding interest charges) from the use and ultimate
      disposition of the assets are less than their carrying values, an impairment
      loss is recognized. Such losses are measured by the excess of the carrying
      amount over the fair value. No write-downs have been required for the years
      ended December 31, 2005, 2004 and 2003.





-55-
 
  BrandPartners
            Group, Inc. and Subsidiaries
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 December
            31, 2005, 2004 and 2003




NOTE
      B -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ** -
      (continued)








*17.*
            *Recently
                Issued Accounting Standards*





In
      May
      2005, FASB issued FASB 154, *Accounting
      Changes and Error Corrections - A Replacement of APB Opinion No. 20 and FASB
      Statement No. 3.”* This
      statement replaces APB Opinion No. 20, *Accounting
      Changes* ,
      and
      FASB No. 3, *Reporting
      Accounting Changes in Interim Financial Statements* .
      FASB
      154 changes the requirements for the accounting for and the reporting of a
      change in accounting principle. FASB 154 applies to all voluntary changes in
      accounting principle. It also applies to changes required by an accounting
      pronouncement in the unusual instance that the pronouncement does not include
      specific transition provisions. When a pronouncement includes specific
      transition provisions, those provisions should be followed. This statement
      is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005.





In
      June
      2005, the EITF reached consensus on Issue No. 05-6, *Determining
      the Amortization Period for Leasehold Improvements* ,
      (“EITF
      05-6”). EITF 05-6 provides guidance on determining the amortization period for
      leasehold improvements acquired in a business combination or acquired subsequent
      to lease inception. The guidance on EITR 05-6 will be applied prospectively
      and
      is effective for periods beginning after June 29, 2005. EITF 05-6 is not
      expected to have a material impact on the Company’s consolidated financial
      statements.





*18.*
            *Accounts
                Receivable*





The
      majority of the Company’s accounts receivable is due from companies in the
      financial services industry. Credit is extended based on evaluation of a
      customer’s financial condition. Accounts receivable are due within 30 days and
      are stated at amounts due from customers, net of an allowance for doubtful
      accounts. Periodically, the Company reviews accounts receivable to reassess
      its
      estimates of collectibility. The Company provides valuation reserves for bad
      debts based on specific identification of likely and probable losses. In
      addition, the Company provides valuation reserves for estimates of aged
      receivables 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 factors negatively impacting clients’ ability to pay their
      obligations as they become 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.








*19.*
            *Translation
                of Foreign Currency*





For
      the
      Company’s non-U.S. subsidiary that accounts in a functional currency other than
      U.S. Dollars, assets and liabilities are translated into U.S. Dollars using
      year-end exchange rates. Expenses are translated at the average exchange rates
      in effect during the year. Foreign currency translation gains and losses are
      included as a component of accumulated other comprehensive income (loss) within
      shareholders’ equity.





-56-
 
 BrandPartners
            Group, Inc. and Subsidiaries
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 December
            31, 2005, 2004 and 2003





**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 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:





·
            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;





·
            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;





·
            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;





·
            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,





·
            All
                acquired goodwill must be assigned to reporting units for purposes
                of
                impairment testing and segment
                reporting.





On
      January 1, 2002, the Company adopted SFAS No. 142, and accordingly, stopped
      amortizing goodwill. For the years ended 2003, 2004, and 2005, the Company
      had
      an evaluation of its goodwill performed, under SFAS No. 142, and no impairment
      was indicated.








**NOTE
      D - ACQUISITIONS AND SUBSIDIARIES**





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 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.




-57-


BrandPartners
          Group, Inc. and Subsidiaries
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2005, 2004 and 2003


**NOTE
      D - ACQUISITIONS AND SUBSIDIARIES - (continued)**








*BRANDPARTNERS
      RETAIL, INC. (formerly known as WILLEY BROTHERS, INC.)*





On
      January 16, 2001, the Company acquired the stock of BrandPartners Retail, Inc.
      (“Brand Retail”) for a combination of cash, common stock of the Company, options
      in the Company’s stock and notes payable. The total purchase price was
      $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 value of $525,000; and notes payable of
      $9,500,000.





The
      following table provides an analysis of the purchase of Brand Retail. 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
              
              $
              33,144,938Fair
                  value of net assets acquired
              
              
              6,134,704Excess
                  of cost over fair value of net assetsacquired
                  allocated to goodwill
              
              $
              27,010,234


Accumulated
      amortization of goodwill at December 31, 2001 was $2,738,265. Based upon the
      implementation of SFAS 142, goodwill is no longer amortized. See Note
      C.





On
      January 20, 2004, the Company entered into an agreement with the former
      shareholders of Brand Retail which forgave approximately $9.1 Million in
      subordinated convertible promissory notes, including interest. (See Note
      F)





*BRANDPARTNERS
      EUROPE, LTD.*





In
      January of 2005, BrandPartners Europe, Ltd. (“Brand Europe”) was incorporated in
      Great Britain and has yet to produce any revenue. The Company has made a minimum
      investment in organizing the venture and is developing relationships with other
      local suppliers instead of creating our own infrastructure. Research concerning
      the potential for European banks to embrace our services and the success in
      Europe of one of the Company’s domestic competitors, led to our decision to
      establish our office in London. Brand Europe has participated in trade shows,
      has engaged industry consultants to assist with the penetration of the European
      market, and is working to build up a solid pipeline of business
      opportunities.





*GRAFICO
      INCORPORATED*





Grafico
      Incorporated (“Grafico”), a Delaware corporation, was formed on April 1, 2005.
      In May of 2005, Grafico purchased the assets of a Connecticut design company.
      Since its formation, Grafico has initiated marketing campaigns, participated
      in
      industry trade shows, and has built up a solid pipeline of business
      opportunities. While providing similar services to those of Brand Retail and
      Brand Europe, Grafico targets a specific segment of the financial services
      industry, which is showing large potential for expansion, and which was
      previously not serviced by the Company.







-58-


BrandPartners
          Group, Inc. and Subsidiaries
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2005, 2004 and 2003


**NOTE
      D - ACQUISITIONS AND SUBSIDIARIES - (continued)**





*RISK*





We
      cannot
      determine at the present time when or if any of these subsidiaries will remain
      or be profitable in the future. We have relied and continue to rely upon cash
      payments from our operating subsidiaries to, among other things, pay creditors,
      maintain capital and meet our operating requirements. Regulations, legal
      restrictions, and contractual agreements could restrict any needed payments
      from
      our subsidiaries. If we were unable to receive cash from our subsidiaries,
      or
      from any operating subsidiaries, which we may acquire in the future, our
      operations and financial condition would be materially and adversely
      affected.





**NOTE
      E - INVESTMENT IN UNCONSOLIDATED AFFILIATE**





On
      September 21, 2004, the Company purchased a 15% Membership Interest in an
      unrelated third party for $250,000. As of December 31, 2005, no dividends or
      returns on equity were recorded on the investment. The Company does not have
      oversight over the investments, operations, internal controls, or financial
      reporting of the unrelated third party, and as such, this investment is being
      accounted for using the cost method.





**NOTE
      F - GAIN ON FORGIVENESS OF DEBT**





At
      the
      time of the acquisition of Brand Retail (formerly known as Willey Brothers),
      two
      subordinated convertible promissory notes totalling $7.5 million were issued
      to
      the former shareholders of Brand Retail. On January 20, 2004, the Company
      entered into an amended agreement with the former shareholders of Brand Retail
      providing for, among other things, the cancellation and forgiveness of the
      $7.5
      Million Notes. 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 new
      promissory notes issued to the former shareholders of Brand Retail 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 new promissory notes, $2.0 Million in outstanding
      Seller Notes that were issued to the former shareholders of Brand Retail as
      a
      part of the consideration for the acquisition in January 2001 as well as all
      accrued, unpaid interest on the Seller Notes (approximately $755,000 at
      September 30, 2004) was cancelled and forgiven. Further with the satisfaction
      of
      the new notes, the accrued unpaid earn-out of $500,000 due to the former
      shareholders of Brand Retail was forgiven. Total gain on the forgiveness of
      debt
      was approximately $9.1 Million. Recovery of the earn-out expense was part of
      the
      general and administrative expense.





-59-


BrandPartners
          Group, Inc. and Subsidiaries
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2005, 2004 and 2003








**NOTE
      G - LEASE SETTLEMENT**





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 the landlord an aggregate of $800,000 and issued to the
      landlord 500,000 shares of restricted common stock with cost-free piggyback
      registration rights. The shares were valued at $0.55 per share. The payments
      were made as follows:




Upon
                  signing of the agreement
              
              $
              500,000March
                  1, 2004
              
              
              100,000September
                  1, 2004
              
              
              100,000February
                  24, 2005
              
              
              100,000$
              800,000




**NOTE
      H - PROPERTY AND EQUIPMENT**





Property
      and equipment and related accumulated depreciation are as follows:


2005
              
              2004Computer
                  equipment and software
              
              $
              3,297,785
              
              $
              3,123,090Furniture,
                  fixtures and other equipment
              
              
              1,509,511
              
              
              1,548,459Leasehold
                  improvements
              
              
              776,437
              
              
              678,323Assets
                  in progress
              
              
              35,628
              
              
              388,3615,619,361
              
              
              5,738,233Less
                  accumulated depreciation
              
              
              (4,019,896
              )
              
              (4,222,996
              )$
              1,599,465
              
              $
              1,515,237





Depreciation
      expense was $605,445, $518,000 and $511,151 for the years ended December 31,
      2005, 2004 and 2003, respectively. In October of 2005, the Company disposed
      of a
      fully depreciated vehicle for a gain of approximately $3,000, which is included
      in Sales, General & Administrative expense.




-60-
 
  BrandPartners
            Group, Inc. and Subsidiaries
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 December
            31, 2005, 2004 and 2003


**NOTE
      I - COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS**





The
      Costs
      in Excess and Billings in Excess accounts on the balance sheet reflect the
      revenue recognition and invoicing activity on large contracts. Due to the nature
      of the project accounting used for large contracts, all vendor and labor costs
      are put on the balance sheet until the associated revenue is recognized. At
      this
      point, revenue, costs and profit are transferred to the income statement. The
      Cost in Excess of Billings reflects the costs which have been incurred by the
      Company with resultant revenue recognition in completing a contractual
      obligation which according to the terms of the contract cannot be billed as
      of
      the end of the fiscal period and is thus an asset. Its companion account,
      Billings in Excess of Cost, reflects the balance of those billings made to
      customers for which work to the level of the billing deposits has not yet
      occurred. Thus, a liability exists on the balance sheet for the obligation
      on
      the part of the Company to perform work to the level of the deposits invoiced
      to
      the client. Due to the size of the contracts, these accounts can fluctuate
      considerably between and during the course of the fiscal years.





The
      accompanying consolidated balance sheets include the following captions at
      December 31:


2005
              
              2004Costs
                  and estimated earnings in excess of billings
              
              $
              1,567,239
              
              $
              1,079,515Billings
                  in excess of costs and estimated earnings
              
              
              (2,237,249
              )
              
              (4,729,661
              )$
              (670,010
              )
              $
              (3,650,146
              )





**NOTE
      J - SHORT TERM DEBT**





Short
      term debt consisted of the following:


2005
              
              2004Note
                  payable (1)
              
              $
              -
              
              $
              3,300,000Line
                  of credit (1)
              
              
              -
              
              
              -Note
                  payable (2)
              
              
              -
              
              
              672,708$
              -
              
              $
              3,972,708





(1)  On
      January 11, 2001, Brand Retail entered into a credit agreement with a commercial
      lender, consisting of an $8 million term loan and a $6 million revolving credit
      facility. On January 2, 2004, the balance of the term loan was paid, and the
      $6
      million revolving credit facility was divided into a $4 million New Term Loan
      and a $2 million Revolving Credit Facility. At December 31, 2004, the balance
      of
      the New Term Loan was $3,300,000 and there were no draw downs on the revolving
      credit facility.







-61-


BrandPartners
        Group, Inc. and Subsidiaries
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


**NOTE
      J - SHORT TERM DEBT - (continued)**





On
      May 5,
      2005, the Company negotiated a new credit facility (the “New Facility”) with a
      commercial lender, which replaced the prior facility. The New Facility provides
      for the following:





·
            $2,000,000
                Term Loan, requiring 36 equal monthly principal
                payments





·
            $5,000,000
                Revolving Line of Credit





·
            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 balance on the Revolving Line of Credit Loan. LIBOR rate
                equals
                LIBOR plus 250 basis points.





·
            The
                New Facility expires on May 5, 2008.





Borrowings
      under the credit facility are secured by the assets of the Company. As of
      December 31, 2005, there were no draw downs on the revolving credit
      facility.





(2)  On
      July
      6, 2004, the Company issued 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 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 this period.





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 elected to make prepayment(s) of all or a portion of the Promissory
      Note. The note was paid on May 4, 2005. As of December 31, 2005, interest
      expense of $28,125 was recorded and an aggregate of 196,667 warrants were
      issued.




-62-


BrandPartners
        Group, Inc. and Subsidiaries
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


**NOTE
      K - LONG TERM DEBT**





As
      of
      December 31, 2005, long term debt consisted of the following:





2005*
              
              2004*Note
                  payable (1)
              
              $
              1,611,111
              
              $
              -Note
                  payable (2)
              
              
              5,000,000
              
              
              5,000,000Put
                  warrant liability (2)
              
              
              166,000
              
              
              272,385Interest
                  payable (2)
              
              
              629,823
              
              
              511,8087,406,934
              
              
              5,784,193Less
                  current maturities (1)
              
              
              (666,667
              )
              
              -$
              6,740,267
              
              $
              5,784,193**Reclassified
                  for comparative purposes.*


(1)  On
      May 5,
      2005, the Company negotiated a new credit facility (the “New Facility”) with a
      commercial lender, which replaced the prior facility. The New Facility provides
      for the following:





·
            $2,000,000
                Term Loan, requiring 36 equal monthly principal
                payments





·
            $5,000,000
                Revolving Line of Credit





·
            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 balance on the Revolving Line of Credit Loan. LIBOR rate
                equals
                LIBOR plus 250 basis points.





·
            The
                New Facility expires on May 5, 2008.




(2)  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 the waiver of certain covenants through December 31,
      2003 and a reduction in the interest rate on the note, the Company issued to
      the
      note-holder a common stock purchase warrant to purchase 250,000 shares of the
      Company’s common stock at $0.26 per share. The interest rate reduction was for a
      period of two years commencing January 1, 2004 and reduced the interest rate
      from 16% per annum to 10% per annum - 8% payable in cash quarterly and 2% as
      the
      PIK amount. At December 31, 2005 and 2004, the Company had a liability of
      $166,000 and $272,385 related to the Put Warrant, respectively.




-63-


BrandPartners
        Group, Inc. and Subsidiaries
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


**NOTE
      K - LONG TERM DEBT - (continued)**





As
      part
      of the original note, 405,000 Put Warrants were issued at $0.01 per share and
      are being treated as a discount over the life of the note. The redemption by
      the
      Company is exercisable under the following conditions:





a)
            Following
                the fifth anniversary of the closing
                date;





b)
            Repayment
                in full of aggregate principal amount together with interest after
                the
                third anniversary of the closing
                date;





c)
            Effective
                declaration by any Holder of a Note that the Note has become due
                and
                payable;





d)
            Change
                in Control; or





e)
            Sale
                of all or substantially all of the assets of the
                Company





The
      five
      year maturity schedule for the principal on the above notes payable is as
      follows:





2006
              
              2007
              
              2008Note
                  payable (1)
              
              $
              666,667
              
              $
              666,667
              
              $
              277,777Note
                  payable (2)
              
              
              -
              
              
              -
              
              
              6,564,899Totals
              
              $
              666,667
              
              $
              666,667
              
              $
              6,842,677




**NOTE
      L - INCOME TAXES (BENEFIT)**





At
      December 31, 2003, the Company had deferred tax assets of approximately
      $7,851,700 consisting of net operating loss carryforwards and accrued expenses,
      which offset taxes due. The Company was not subject to the Alternative Minimum
      Tax “(AMT”), which is a separate method of determining income tax for December
      31, 2003.





At
      December 31, 2004, the Company utilized net operating losses (“NOL’s”) of
      approximately $9.3 million to eliminate the federal income tax. However, the
      Company was subject to the AMT. The AMT provides for reclaiming certain tax
      deductions utilized in calculating regular federal income tax.





At
      December 31, 2005, the Company recognized a liability for AMT of approximately
      $200,000, with a state tax expense of approximately $400,000.







-64-


BrandPartners
        Group, Inc. and Subsidiaries
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


**NOTE
      L - INCOME TAXES (BENEFIT) - (continued)**





The
      Company has NOL’s of approximately $7 million available to offset future taxable
      income. These NOL’s expire at various dates through 2024. At December 31, 2005,
      the Company has deferred tax assets of approximately $7.8 million. The deferred
      tax assets consist primarily of net operating loss carry-forwards and previously
      accrued reserves. Realization of deferred tax assets is dependent upon future
      earnings, if any, the timing and amount of which is uncertain. Accordingly,
      the
      deferred tax assets have been fully offset by a valuation allowance of the
      same
      amount. Pursuant to Section 382 of the Internal Revenue Code, NOL carry-forwards
      may be limited in use in any given year in the event of a significant change
      in
      ownership.





There
      may
      be state tax expense in certain states where the tax statutes do not recognize
      or do limit the use of NOL’s.





**NOTE
      M - CONCENTRATIONS**





*Significant
      Customers*





For
      the
      year ended December 31, 2005, three customers accounted for approximately 19%,
      15% and 13% each of the Company’s revenues. For the year ended December 31,
      2004, two customers accounted for approximately 11% each of the Company’s
      revenues, with a third customer accounting for approximately 9%. For the year
      ended December 31, 2003, one customer accounted for approximately 16% 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, 2005 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
      N - STOCKHOLDERS’ EQUITY**





The
      Company is authorized to issue a maximum of 20,000,000 shares of preferred
      stock, par value $0.01, and 100,000,000 shares of common stock, par value
      $0.01.





*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 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 the issuance of the preferred stock.





*Private
      Placement of 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.





-65-


BrandPartners
        Group, Inc. and Subsidiaries
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


**NOTE
      N - STOCKHOLDERS’ EQUITY - (continued)**





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 $1.0556 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.





Under
      the
      terms of the warrant agreements entered into as part of our private placement
      completed in February 2002, the Company was obligated to reset the exercise
      price of the warrants issued, if during the two-year period immediately
      following the closing of the sale of common stock and warrants to a subscriber
      we issued, other than pursuant to a stock grant or stock options to employees
      or
      consultants on or in connection with merger or acquisition activities, any
      shares of common stock or equivalents at a price or exercise price per share
      that was less than the market price as defined in the warrant agreements. 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 certain warrants issued in the
      placement completed in February 2002. Specifically, a total of 681,985 warrants
      issued in closings that occurred in the final two traunches of the placement
      completed in February 2002 were eligible for an adjustment of the exercise
      price
      to $0.537 per share as the January 20, 2004 share issuance occurred within
      two
      years of the closing for those warrants. Certain holders of 4,232,421 warrants
      that were issued in closings more than two years prior to the January 20, 2004
      date 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.





*Stock
      Options*





During
      2004, the shareholders approved the Company’s 2004 Stock Incentive Plan. The
      plan was amended at the annual meeting of stockholders in May 2005 to increase
      the shares available for issuance under the plan from 5 million to 8 million
      shares. The plan provides for the reservation and issuance of up to 8,000,000
      options for shares of common stock, subject to future stock splits, stock
      dividends, reorganizations and similar events. The exercise price of incentive
      stock options may not be less than the fair market value on the date of grant.
      The plan provides for options to be granted to officers, directors, and
      employees of the Company. During the year ended December 31, 2005, the Company
      granted 3,646,667 options.





The
      Company’s 2001 Incentive Stock Plan was approved during 2001. The reservation
      and issuance of 5,000,000 options for shares of common stock subject to similar
      conditions listed above was provided. During the years ended December 31, 2003,
      2002 and 2001, the Company granted 1,720,000; 2,017,815; and 50,000 stock
      options, respectively, to officers, directors and employees under the plan.
      On
      January 14, 2005, the former directors of the Company agreed to a reduction
      in
      the number of options issued from 1,400,000 options to 350,000 options in
      consideration for receiving registration rights for the remaining underlying
      shares. Total active options in the 2001 Incentive Stock Plan as of March 15,
      2006 was 160,095.






-66-


BrandPartners
        Group, Inc. and Subsidiaries
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


**NOTE
      N - STOCKHOLDERS’ EQUITY - (continued)**








The
      Company has also issued stock options to certain individuals and companies
      under
      letter agreements. During the years ended December 31, 2004 and 2003, options
      to
      purchase 100,000 at $0.75 per share/stock price at time of issuance and
      6,425,000 shares, respectively, of the Company’s common stock were issued under
      such agreements.





The
      options granted have an exercise price at least equal to the fair value of
      the
      Company’s stock (except for options issued to two directors and to a consultant
      below fair market value) and expire at various times through 2010. The options
      previously granted vested immediately prior to or on December 29,
      2005.





A
      summary
      of the activity at December 31 is as follows:




Weighted-AverageWarrants/Options
              
              Exercise
                  PriceOutstanding
                  at December 31, 2003
              
              
              22,049,276
              
              $
              2.06Granted
              
              
              4,469,812
              
              $
              0.54Exercised
              
              
              (501,650
              )
              $
              0.47Forfeited
              
              
              (7,016,111
              )
              $
              2.17Outstanding
                  at December 31, 2004
              
              
              19,001,327
              
              $
              1.69Granted
              
              
              3,646,667
              
              $
              0.57Exercised
              
              
              (1,804,000
              )
              $
              0.22Forfeited
              
              
              (1,600,874
              )
              $
              2.77Outstanding
                  at December 31, 2005
              
              
              19,243,120Weighted-average
                  fair value of optionsand
                  warrants granted during the year:December
                  31, 2003
              
              
              
              
              $
              0.57December
                  31, 2004
              
              
              
              
              $
              1.28December
                  31, 2005
              
              
              
              
              $
              0.57


The
      fair
      value of each option grant is estimated on the date of grant using the
      Black-Scholes option pricing model with the following assumptions used for
      grants in 2005, 2004, and 2003, respectively: (1) average expected volatility
      of
      191%, 348%, and 194.89%; (2) average risk-free interest rates of 4.51%, 3.70%,
      and 3.04%; and (3) expected lives of five years for the years ended December
      31,
      2005, 2004 and 2003.





The
      following table summarizes information concerning outstanding and exercisable
      options and warrants for common stock at December 31, 2005.







-67-


BrandPartners
          Group, Inc. and Subsidiaries
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2005, 2004 and 2003


**NOTE
      N - STOCKHOLDERS’ EQUITY - (continued)**





Exercise
                  Price Range
              
              Outstanding
                  as of
                December
                  31, 2005
              
              Outstanding
                Weighted
                  Average Remaining Life (years)
              
              Outstanding
                Weighted
                  Average Exercise Price
              
              Exercisable
                  as of
                December
                  31, 2005$0.00
                  to $0.50
              
              
              7,644,000
              
              
              2.52
              
              $
              0.34
              
              
              7,644,000$0.51
                  to $0.99
              
              
              6,210,479
              
              
              2.23
              
              $
              0.58
              
              
              6,210,479$1.00
                  to $1.99
              
              
              447,022
              
              
              3.62
              
              $
              1.13
              
              
              447,022$2.00
                  to $2.99
              
              
              3,306,752
              
              
              0.26
              
              $
              2.00
              
              
              3,306,752$3.00
                  to $8.00
              
              
              1,634,867
              
              
              0.16
              
              $
              3.01
              
              
              1,634,86719,243,120
              
              
              
              
              
              
              
              
              19,243,120





Common
      stock and options to purchase common stock of the Company issued for services
      during the years ended December 31, 2005, 2004 and 2003 are as
      follows:





On
      January 5, 2005, the maturity date of an unsecured subordinated promissory
      note
      was extended to May 6, 2005. (See Note J-2) In consideration of the extension,
      an aggregate total of 196,667 warrants were issued at an exercise price of
      $0.85
      to the note holder. On February 7, March 7 and April 7, 2005, a total of 50,000
      warrants was issued on each date with the balance of 46,667 warrants being
      issued on May 5, 2005. The warrants were valued using the Black-Scholes model,
      and were charged to interest expense with a credit to additional paid in
      capital.





On
      September 29, 2004 and August 2, 2004, 20,000 and 12,000 shares of common stock
      of the Company, respectively, were issued for legal services to the Company.
      The
      shares were valued at $16,029 using the Black-Scholes model and were charged
      to
      legal expense and additional paid in capital.





On
      May
      12, 2004, the Company entered into an agreement with a consultant to provide
      services. As part of the agreement, the consultant was issued a warrant for
      the
      purchase of 100,000 shares of common stock. The warrant was valued at $73,470
      using the Black-Scholes model. Consulting expense was charged and additional
      paid in capital was credited in the accounting transaction.





On
      January 20, 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 to satisfy the debt.





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.




-68-


BrandPartners
          Group, Inc. and Subsidiaries
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2005, 2004 and 2003


**NOTE
      N - STOCKHOLDERS’ EQUITY - (continued)**





On
      October 23, 2003, the Company issued 300,000 shares of its common stock to
      a
      consultant for services to be rendered. The shares were valued at $0.65 per
      share, the market price on the date of the agreement. The transaction was
      accounted for by charging consulting expense and crediting additional paid
      in
      capital.





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.








**NOTE
      O - STOCK BASED COMPENSATION**








At
      December 31, 2005, the Company had two stock-based employee compensation plans,
      which are more fully described in Note N. The Company had previously accounted
      for these plans under the recognition and measurement provisions of APB Opinion
      No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related interpretations. No stock-based employee compensation cost was reflected
      in net income for fiscal years 2001, 2002, 2003, 2004 and 2005 as all options
      granted under those plans had an exercise price equal to the market value of
      the
      underlying common stock on the date of grant. As of December 31, 2005, all
      options were fully vested.





On
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS No. 123(R), *Share-Based
      Payment* .
      Under
      the modified retrospective method of adoption selected by the Company under
      the
      provisions of FASB Statement No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure,* compensation cost recognized in 2006 is the same as that which would have been
      recognized had the recognition provisions of Statement 123 been applied from
      its
      original effective date. Results for prior years have not been restated. The
      following table illustrates the effect on net income and earnings per share
      if
      the fair value based method had been applied to all outstanding and unvested
      awards in each period:





-69-
 
  BrandPartners
            Group, Inc. and Subsidiaries
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 December
            31, 2005, 2004 and 2003


**NOTE
      O - STOCK BASED COMPENSATION - (continued)**


**2001**
              
              **2002**
              
              **2003**
              
              **2004**
              
              **2005**Net
                  income (loss), as reported
              
              $
              (9,489,559
              )
              $
              (11,972,547
              )
              $
              (10,964,062
              )
              $
              14,219,617
              
              $
              1,914,809Total
                  stock-based employeecompensation
                  expense determinedunder
                  fair value based method forall
                  awards, net of related tax effects
              
              
              (34,128
              )
              
              (15,355
              )
              
              (180,871
              )
              
              (399,067
              )
              
              (304,531
              )Pro
                  Forma net income
              
              
              (9,523,687
              )
              
              (11,987,902
              )
              
              (11,144,933
              )
              
              13,820,550
              
              
              1,610,278Weighted
                  average shares outstandingBasic
              
              $
              13,951,398
              
              
              18,437,942
              
              
              18,468,553
              
              
              30,390,636
              
              
              33,109,064Diluted
              
              $
              13,951,398
              
              
              18,437,942
              
              
              18,468,553
              
              
              36,474,663
              
              
              46,266,873Net
                  income (loss) per shareAs
                  reportedBasic
              
              
              ($0.68
              )
              
              ($0.65
              )
              
              ($0.59
              )
              $
              0.47
              
              $
              0.06Diluted
              
              
              ($0.68
              )
              
              ($0.65
              )
              
              ($0.59
              )
              $
              0.39
              
              $
              0.04Pro
                  formaBasic
              
              
              ($0.68
              )
              
              ($0.65
              )
              
              ($0.60
              )
              $
              0.45
              
              $
              0.05Diluted
              
              
              ($0.68
              )
              
              ($0.65
              )
              
              ($0.60
              )
              $
              0.38
              
              $
              0.03




Due
      to
      the adoption of SFAS No. 123(R), the Company has recognized a Deferred Tax
      Asset
      in the amount of approximately $327,000. The Deferred Tax Asset was not booked
      due to the Company’s Net Operating Loss carryforwards.





**NOTE
      P - EMPLOYEE BENEFIT PLANS**





The
      Company maintains a 401(k) profit sharing plan for all eligible employees.
      Through a salary reduction program, the plan allows employee contributions
      on a
      pretax basis. There are no minimum corporate contributions required under the
      plan. The Company may make discretionary matching contributions based on the
      participants’ contributions. The Company may also make a discretionary
      profit-sharing contribution for the benefit of all eligible employees.
      Participants in the plan vest in Company contributions on a graduated scale
      over
      a five year period. For the years ended December 31, 2005, 2004, and 2003,
      the
      Company paid or accrued matching contributions of approximately $56,000,
      $77,000, and $73,000 respectively.




-70-


BrandPartners
        Group, Inc. and Subsidiaries
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003







**NOTE
      Q - COMMITMENTS AND CONTINGENCIES**





*Backlog*





At
      December 31, 2005, the backlog of signed orders was $22 Million. The backlog
      consists of orders and contracts which have been signed but upon which revenue
      has not yet been recognized.





*Employment
      Agreements*





On
      March
      16, 2005 the Company amended its agreement with its Non-Executive Chairman
      and
      the 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. On May 12, 2005, the Company amended the agreement to increase
      the Chief Executive Officer’s salary to $360,000 per annum effective April 1,
      2005.





*Request
      for Warrant Price Adjustment*





Under
      the
      terms of the warrant agreements entered into as part of our private placement
      completed in February 2002, the Company was obligated to reset the exercise
      price of the warrants issued, if during the two-year period immediately
      following the closing of the sale of common stock and warrants to a subscriber
      we issued, other than pursuant to a stock grant or stock options to employees
      or
      consultants on or in connection with merger or acquisition activities, any
      shares of common stock or equivalents at a price or exercise price per share
      that was less than the market price as defined in the warrant agreements. 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 certain warrants issued in the
      placement completed in February 2002, provided the warrants were issued in
      a
      closing that occurred less than two years prior to January 2004. Specifically,
      a
      total of 681,985 warrants issued in closings that occurred in the final two
      traunches of the placement completed in February 2002 were eligible for an
      adjustment of the exercise price to $0.537 per share as the January 20, 2004
      share issuance occurred within two years of the closing for those warrants.
      Certain holders of 4,232,421 warrants that were issued in closings more than
      two
      years prior to the January 20, 2004, date 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.





*Leases*





The
      Company is committed under non-cancelable operating leases for equipment and
      office and warehouse space, expiring at various dates through August 2011.
      The
      leases include provisions requiring the Company to pay a proportionate share
      of
      increases in real estate taxes and operating expenses over base period amounts.







-71-


BrandPartners
        Group, Inc. and Subsidiaries
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


**NOTE
      Q - COMMITMENTS AND CONTINGENCIES - (continued)**




Future
      minimum rental commitments under all non-cancelable, operating leases are as
      follows:




CommitmentsYears
                  Ending December 31,2006
              
              $
              543,8672007
              
              
              445,3382008
              
              
              448,3192009
              
              
              442,8572010
              
              
              455,2002011
              
              
              306,381$
              2,641,961




Rent
      and
      equipment leasing expense for the years ended December 31, 2005, 2004 and 2003
      was $691,773, $669,270, and $1,227,090, respectively.





**NOTE
      R - RELATED PARTY TRANSACTIONS**





On
      February 1, 2005, the Company signed an agreement for consulting services with
      an individual who became a member of the Board of Directors in December 2005.
      The agreement provided for twelve months of consulting services at a fee of
      $15,000 per month. The agreement also provided for a one-time payment of
      $95,000. If the agreement were to be terminated due to the specific instances
      set out in the agreement, the consultant would be entitled to receive all
      payments due under the agreement or four months of payments, whichever would
      be
      greater. On December 19, 2005, the agreement was amended to change the term
      of
      the agreement from a term of twelve months to “month-to-month.” The amended
      agreement provides for a minimum six month written notice if either the Company
      or the consultant elects to terminate the agreement.








**NOTE
      S - SUPPLEMENTAL CASH FLOW INFORMATION**





During
      fiscal 2005, the Company issued 196,667 warrants as consideration for the
      extension of the maturity date of an unsecured, subordinated promissory note.
      (See Note J-2)





During
      fiscal 2004, the Company issued 1,550,000 shares of the Company’s common stock
      valued at $805,000 in payment of debt.





**NOTE
      T - SUBSEQUENT EVENTS**





None.






-72-





BrandPartners
        Group, Inc. and Subsidiaries
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 December
        31, 2005, 2004 and 2003


**NOTE
      U - QUARTERLY RESULTS (Unaudited)**





The
      following tables contain selected unaudited statement of operations information
      for each quarter of 2005 and 2004. The following information reflects all
      normal, recurring adjustments necessary for a fair presentation of the
      information for the periods presented. The operating results for any quarter
      are
      not necessarily indicative of results for any future period. Unaudited results
      were as follows:





-73-




BrandPartners
          Group, Inc. and Subsidiaries
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 December
          31, 2005, 2004 and 2003
 December31,2005March
                  31
              
              June
                  30
              
              September
                  30
              
              December
                  31Revenue
              
              $
              14,568,029
              
              $
              12,552,178
              
              $
              11,885,907
              
              $
              13,029,943Cost
                  of Goods
              
              
              9,531,750
              
              
              8,893,051
              
              
              8,639,266
              
              $
              10,233,951Selling,
                  general & adm inistrative expense
              
              
              2,900,738
              
              
              2,656,962
              
              
              2,832,630
              
              $
              2,762,145Total
                  expenses
              
              
              12,432,488
              
              
              11,550,013
              
              
              11,471,896
              
              
              12,996,096Operating
                  income (loss)
              
              
              2,135,541
              
              
              1,002,165
              
              
              414,011
              
              
              33,847Other
                  income (expense)
              
              
              (325,639
              )
              
              (318,962
              )
              
              (212,289
              )
              $
              (207,354
              )Net
                  Income (Loss) Before Income Taxes
              
              
              1,809,902
              
              
              683,203
              
              
              201,722
              
              
              (173,507
              )Provision
                  for Income Taxes
              
              
              -
              
              
              -
              
              
              352,170
              
              
              254,341N
                  et Income (Loss)
              
              $
              1,809,902
              
              $
              683,203
              
              $
              (150,448
              )
              $
              (427,848
              )Per
                  share incomeBasic
              
              $
              0.05
              
              $
              0.02
              
              $
              (0.00
              )
              $
              (0.01
              )Diluted
              
              $
              0.05
              
              $
              0.02
              
              $
              (0.00
              )
              $
              (0.01
              )Shares
                  usedBasic
              
              
              33,109,064
              
              
              33,775,982
              
              
              34,240,682
              
              
              34,660,397Diluted
              
              
              39,680,204
              
              
              45,122,144
              
              
              34,240,682
              
              
              34,660,397
  December31,2004March
                  31
              
              
              June
                  30
              
              
              September
                  30
              
              
              December
                  31Revenue
              
              $
              15,676,229
              
              $
              11,294,246
              
              $
              11,704,512
              
              $
              11,937,832Cost
                  of Goods
              
              
              11,267,114
              
              
              7,682,761
              
              
              8,432,334
              
              $
              7,635,063Selling,
                  general & administrative expense
              
              
              2,521,251
              
              
              2,366,423
              
              
              1,598,532
              
              $
              2,986,323Total
                  expenses
              
              
              13,788,365
              
              
              10,049,184
              
              
              10,030,866
              
              
              10,621,386Operating
                  income (loss)
              
              
              1,887,864
              
              
              1,245,062
              
              
              1,673,646
              
              
              1,316,446Other
                  income (expense)
              
              
              8,151,512
              
              
              (214,364
              )
              
              394,521
              
              $
              (235,060
              )Net
                  Income (Loss)
              
              $
              10,039,376
              
              $
              1,030,698
              
              $
              2,068,167
              
              $
              1,081,386Per
                  share incomeBasic
              
              $
              0.40
              
              $
              0.03
              
              $
              0.07
              
              $
              0.03Diluted
              
              $
              0.33
              
              $
              0.03
              
              $
              0.06
              
              $
              0.03


-74-