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, 2008





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:


None





Securities
Registered Under Section 12(g) of the Act:


Common
Stock, par value $0.01 per share











Indicate
by check mark if the registrant is a well-know seasoned issuer as defined in
Rule 405 of the Securities Act o YesxNo





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. o Yes x No





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or Section 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.


x Yes o No





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 definitive proxy or information statements
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 file, 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-1 of the Act.) o Yes x  No





The
aggregate market value of common stock held by non-affiliates of the registrant
as of June 30, 2008 was $1,236,000.





As of
March 27, 2009, there were issued and outstanding 38,823,359 shares of the
registrant’s common stock.





Portions
of the registrant’s definitive Proxy Statement for its 2009 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form
10-K.





2





BRANDPARTNERS
GROUP, INC.


TABLE OF
CONTENTS





PagePART
      IItem
      1
                  Business
                  
                  4Item
      1A
                  Risk
      Factors
                  
                  7Item
      1B
                  Unresolved
      Staff Comments
                  
                  13Item
      2
                  Properties
                  
                  13Item
      3
                  Legal
      Proceedings
                  
                  14Item
      4
                  Submission
      of Matters to a Vote of Security Holders
                  
                  14PART
      IIItem
      5
                  Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                  
                  14Item
      6
                  Selected
      Financial Data
                  
                  15Item
      7
                  Management’s
      Discussion and Analysis of Financial Condition And Results of
      Operations
                  
                  16Item
      7A
                  Quantitative
      and Qualitative Disclosures about Market Risk
                  
                  20Item
      8
                  Consolidated
      Financial Statements and Supplemental Data
                  
                  21Item
      9
                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                  
                  21Item
      9A
                  Controls
      and Procedures
                  
                  21Item
      9B
                  Other
      Information
                  
                  22PART
      IIIItem
      10
                  Directors,
      Executive Officers and Corporate Governance
                  
                  22Item
      11
                  Executive
      Compensation
                  
                  23Item
      12
                  Security
      Ownership of Certain Beneficial Owners and Management And Related
      Stockholder Matters
                  
                  23Item
      13
                  Certain
      Relationships and Related Transactions and Director
      Independence
                  
                  23Item
      14
                  Principal
      Accounting Fees and Services
                  
                  23PART
      IVItem
      15
                  Exhibits,
      Financial Statement Schedules
                  
                  23Signatures
                  
                  
                  33




3





PART
I





Item
1.  Description of Business





BrandPartners
Group, Inc. (“BrandPartners Group” or “BrandPartners”), was originally
incorporated in 1984 under the name “Performance Services Group, Inc.” in the
state of New York.  We changed our name to “Financial Performance
Corporation” in 1986, and in 2001 we were reincorporated in the state of
Delaware and changed our name to BrandPartners Group, Inc. to more accurately
reflect the products and services we offer.  Today we operate through
our wholly owned subsidiaries BrandPartners Retail, Inc. (“Brand Retail”),
Grafico Incorporated (“Grafico”) and Building Partners, Inc. (“Build Partners”),
to offer to our customers the next generation retail environments for financial
service companies and retail organizations.





·
            Brand
      Retail





Brand
Retail(formerly known as Willey Brothers) is a provider of integrated products
and services dedicated to providing clients with turn-key retail environment and
design/build solutions and programs for financial and non-financial
retailers.   Brand Retail has been providing products and
services to the financial and non-financial services industry throughout the
United States and Canada since 1983.





·
            Grafico





Grafico
provides similar services to those offered by Brand Retail with a focus on the
non-standard market segment of the financial services
industry.  Grafico business operations were minimal for the most
recently completed fiscal year.





·
            Building
      Partners





Build
Partners provides general contracting services.





BrandPartners
Products and Services





BrandPartners
serves an evolving industry, helping retail networks transform uninspiring
environments into dynamic customer experiences or continuously enhance more
sophisticated spaces.  The company’s solutions are intended to help
clients and their employees engage customers, cross-sell products and services,
and communicate a consistent brand identity across a retail
network.  Our integrated solutions are designed to maximize the
efficiency of branch environments, enhance the customer and employee experience,
and optimize retail network profitability.





.”  BrandPartners
works with financial and other retail organizations to positively influence
consumer buying behavior through brand translation, creative services, retail
merchandising, retail digital networking, integrated design/build and space
planning services, and strategic market intelligence.





BrandPartners’
offering of integrated branch environment and communications services, including
architectural, product and creative merchandising, encompasses a large spectrum
of retail solutions.  Architectural design services, including
conceptual design, design development, construction, documentation, contract
administration, and project management, have allowed BrandPartners to leverage
its 25 years of experience working with financial retail networks to offer a
comprehensive, turn-key design build approach that is unparalleled in the
industry.





Working
with our extensive network of vendors and a proprietary logistics and project
management system, we are able to offer a comprehensive array of products and
services including:





·
            Brand
      Translations,





·
            Branch
      Network Analysis and Branch Strategic
Planning





·
            Strategic
      market intelligence





·
            Environmental
      design, construction, and project management
  services





4





·
            Retail
      Communications Products and Services, including interior and exterior
      merchandising,  digitalnetworks and content management,
      logistics, distribution, and inventory
  management





·
            Point-of-sale
      communications,  branch environment sales training and marketing
      programs





·
            Space
      Planning and Contract Furniture
Solutions





BrandPartners
Business Platform





BrandPartners
is a project-oriented company. We manage internal and external resources to
service our clients’ needs. Internal resources are directed by individual
program managers and are shared throughout the Company. Collaboration is the key
in providing seamless and efficient service to our clients.





Because
of BrandPartners’ position in the retail financial services marketplace, we are
able to service the needs of clients ranging from the non-standard lending
market, credit unions and community banks, regional banks and the largest
financial institutions. Our sales force markets our products and services to
targeted companies through trade shows, direct marketing, email marketing,
industry publications, speaking engagements, and company-sponsored events. Our
collaborative teams include brand strategists, architects, designers, account
managers, project and program managers, purchasing managers, CAD analysts,
construction professionals, and installers. Our project management skills ensure
that the client’s vision becomes a physical reality. Our Information Technology
(IT) department is capable of developing web sites to create on-line ordering as
well as 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 package, dependent upon the
needs of the client and of the project:





·
            Brand
      BluePrint.  Through interviews and discussions with the
      client and with 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
      objectives. The “Brand Blueprint” is a deliberate methodology for
      developing a successful brand identity and is crucial to maximizing brand
      equity.  It is a disciplined plan that creates, designs, and
      communicates the intended brand
perception.








·
            Network Analysis
      /.  We analyze
      the client’s current retail network.  This analysis covers
      on-site audits of locations for overall interior fitness, traffic flow,
      selling zones, fixture placements and design, point-of-sales messages and
      placements, and local demographic analysis.  Point-of-Sale
      Communications. We translate the
      client’s branding strategy into a well-coordinated written, verbal, and
      physical message, which is refined and promoted to the target market
      through in-store communication vehicles,
  including:





o
            Point-of-sale
      communications


o
            Digital
      merchandising


o
            Marketing
      materials


o
            Advertising
      campaigns





·
            Site Analysis/Market
      Analysis.  Site
      selection is about weighing options and making the right choice to protect
      the significant investment in a new branch.  A comprehensive
      assessment of the potential of a proposed expansion or current operating
      area, focusing on market characteristics most important to success, is
      used to develop a three to five year program by identifying and
      prioritizing the most attractive growth
markets.





·
            Environmental
      Design.  BrandPartners’
      industry award-winning, 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-sale communications, and
      communicate with the customer through the appropriate brand
      experience.





5





·
            Project
      Management.  We manage
      the implementation process, including designing, sourcing, and installing
      allcomponents of the branch,.  In a design/.build project, we
      either act as the general contractor and hire and manager the
      subcontractors, or we are responsible for hiring the general contractor
      and ensuringthat the project is finished on time and on
      budget.





·
            Space Planning and
      Contract Furniture.  We
      supplement our projects with sophisticated space planning and office
      furniture systems and case goods, which are often integrated in innovative
      ways into our design/build
programs.





·
            Logistics,
      Distribution and Inventory Management.  In
      conjunction with our various products and services, we provide logistics,
      distribution, warehousing, and inventory management to our
      clients.  In many cases, we warehouse client-owned inventory for
      future acquisitions or renovated
branches.





Target
Markets





BrandPartners’
revenues have historically been derived primarily from clients in the financial
services markets.  Target markets and a representative sample of
clients include:





·
            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 between 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 include brokerage
      houses, mutual fund companies, asset management companies, insurance and
      mortgage companies, and tax services
companies.





·
            Other.  Other
      retail industries and service organizations that can use our capabilities
      and expertise in the retail environment, focusing on industries that have
      synergies and parallels to our core
industry.





Suppliers/Working
Capital





BrandPartners
outsources most of its manufacturing and fabrication services from a variety of
suppliers in many locations.  We do some light production work (i.e.
engraving, painting, screen printing, etc.) but do 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, with the typical turnaround from the suppliers being 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.  For the
years ended December 31, 2008, 2007 and 2006, the backlog was approximately $21
million, $11 million and $19 million, respectively.





Significant
Customers





As
BrandPartners is a contract/project driven company, those clients designated as
“significant” (greater than 10% of consolidated revenues) varies from period to
period.  For the year ended December 31, 2008, one customer accounted
for 18% of our revenues.  For the year ended December 31, 2007, one
customer accounted for 16% of our revenues.  For the year ended
December 31, 2006, one customer accounted for 10% of our revenues.




6





Employees





As of
March 23, 2009, we have 115 full-time employees and 2 part time
employees.  Our employees are not represented by a union or collective
bargaining unit.  We believe our relations with our employees are
good.





Competition





Due to
the nature of BrandPartners’ business, we compete with design houses,
architectural firms, consulting firms, fixture companies, and advertising
agencies of varying sizes.  Our product and service offerings are
fragmented across many sectors, which results in a highly competitive
environment.  We believe that our competitive advantage is our
approach and expertise across a range of products and services, touching
numerous aspects of the retail system.  Many of our primary
competitors focus on only one type of product or service.





Where
to Get More Information





Our
corporate website address is http://www.bptr.com.  Information
contained on the website is not incorporated into this document.  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.





Cautionary
Note Regarding Forward-Looking Statements





This
report includes statements of our expectations, intentions, plans and beliefs
that constitute “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 and are intended to come within the safe harbor protection provided by
those sections.  These statements, which involve risks and
uncertainties, relate to matters such as sales growth, price changes, earnings,
performance, strategic direction, the demand for our products and services as
well as competition, financial viability of the financial services industry, and
our ability to maintain a credit facility.  We have used words such as
“may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,”
“believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,” “projects,”
“potential” and other similar terms and phrases, including references to
assumptions, in this report to identify forward-looking
statements.  These forward-looking statements are made based on
expectations and beliefs concerning future events affecting us and are subject
to uncertainties, risks and factors relating to our operations and business
environments, all of which are difficult to predict and many of which are beyond
our control, that could cause our actual results to differ materially from those
matters expressed or implied by these forward-looking
statements.  These risks and other factors include those listed in
this Item 1A.  “Risk Factors,” and elsewhere in this
report.





When
considering these forward-looking statements, you should keep in mind the
cautionary statements in this report and the documents incorporated by
reference.  New risks and uncertainties arise from time to time, and
we cannot predict those events or how they may affect us.  There may
also be other factors that we cannot anticipate or that are not described in
this report that could cause results to differ materially from our
expectations.  Forward-looking statements speak only as of the date
they are made and we assume no obligation to update them after the date of this
report as a result of new information, future events or subsequent developments,
except as required by the federal securities law.




Item
1A.  Risk Factors





You
should carefully consider the following risk factors in addition to the other
information included in this report.  If any of these risks or
uncertainties actually occurs, our business, financial condition, and results of
operations could be materially adversely affected.





The business of providing
merchandising, design/build, creative/point of sale, furniture, and
branding/marketing services to financial services 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
consulting design services, merchandising markets, and the store build-out
industry in which we operate, although fragmented, includes a large number of
service providers, making our business highly competitive.  Many 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, to price their services more aggressively, to compete for
skilled professionals, to finance acquisitions, to fund internal growth, and to
compete for market share generally.





7





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.  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 revenues, gross margins and net profits.  In addition,
financial institutions may not choose to outsource their design and
merchandising needs, which would have an adverse effect on our revenue
growth.





There can be no assurances
that we will be successful in our efforts to expand and diversify our revenue
base or enter into new partnerships to further expand our
business.





Because
our business and revenues are contract driven, we are not able to maintain a
steady revenue stream.  As such, 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 acquisitions candidate or
other business transaction, we may need to seek additional financing, although
no assurances can be given that we will be able to expand our business to other
vertical markets, find suitable acquisition/partners, or obtain additional
financing if necessary, on favorable terms or at all.





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 were a continued economic downturn, we might
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 business, financial
condition, and the 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’
design/build and retail merchandising needs, or mergers and/or consolidations in
the financial services industry.  Reduced demand for the services that
we offer could also increase price competition within our industry by our
competitors, which could further diminish our revenues.





We derive a large portion of
our revenues from the financial services industry, which has experienced
viability issues among certain institutions as well as consolidated in recent
years, and if it continues to experience these issues, we may be adversely
affected by a reduction in available market share.





The
financial services industry, which we serve, has experienced significant
viability issues among certain institutions as well as, a number of mergers and
acquisitions in recent years.  While we may experience a short-term
gain in the demand for our products and services as a result of mergers and
consolidations, long term, we may lose existing clients due to financial
constraints by way of the merger activity as a result of a reduction in
available market share, which could adversely affect our revenues.





The profitability of our
engagements with clients may not meet our expectations.





There are
a number of variables, some of which are beyond our control, that go into
determining the profitability of a particular project we
undertake.  Unexpected costs from suppliers 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 of 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 we are unable to meet completion
schedules, we may experience payment penalties with our clients reducing the
profitability of an engagement.





8





Additionally,
we may also be subject to cost overruns as a result of delays beyond our
control.  Cost overruns or early contract terminations could cause our
business to be less profitable than anticipated.





In
connection with some of our design/build construction projects, we may
experience delays in receiving final certificates of occupancy, which might
result in payment delays by our clients.  From time to time, we may
also encounter changes in construction and building codes that might increase
the costs of a long-term build-out project, which we may be unable to pass along
to a client.





Our
clients typically retain us on a contract engagement by contract engagement
basis, rather than under exclusive long-term contracts.  Large client
projects may involve multiple engagements, and locations, and there is a risk
that a client may not choose to retain us 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 to 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 all of the
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, the loss of a
significantly large client or several clients could adversely impact our
revenues and profitability.  Over the past three (3) completed fiscal
years, we have derived at least ten (10%) percent of our revenues from at least
one or more significant clients.  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.





In order to grow our
business, we may need to do so in part by acquisitions, which may be difficult
to integrate or manage with our existing businesses, which may harm our
financial results or reputation in the marketplace.





Because
of the nature of our business and the market we serve, 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:





·
            Overpaying
      for acquired businesses


·
            Facing
      integration challenges


·
            Having
      difficulty in 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 reporting results;





·
            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 in
consummating acquisitions on terms acceptable or favorable to us.  We
may not succeed in integrating or managing acquired businesses, or in managing
the larger company that could result from these acquisitions.  Client
dissatisfaction or performance problems, 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
underperform relative to our expectations.





9





Our business will be
negatively affected if we are not able to keep pace with marketing changes and
the needs of our clients.





Our
industry continues to evolve, and traditional revenue streams continue to be
modified.  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 non-competitive 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 clients
may require us to incur significant expenses.  If we cannot offer
innovative, cost-effective approaches 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
to our business than in other businesses.  Moreover, if we fail to
meet our contractual obligations, we could be subject to legal liability, or the
loss of client relationships.





Clients
and third parties, who are dissatisfied with our services, or who claim to
suffer 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 might hurt our reputation and business.





The nature of our
design/build work involves the use of a large number of subcontractors, which in
turn, could have an adverse impact on the profitability of any given
project.





In the
event that the implementation or design or 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 that could create client
problems that could delay payment.





Our
ability to schedule and rely upon these subcontractors for the timely and proper
completion of a project is essential.  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.





The loss of key employees
could damage or result in the loss of client relationships and adversely affect
our business.





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 who possess substantial experience or
expertise could adversely affect our ability to secure and complete engagements,
which could adversely affect our results of operations.  We have
non-compete agreements with certain employees.  However, the
enforceability of these agreements may be limited because of the limitations
that have restricted their enforceability due to 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 might also result in the loss of a client relationship or a
new business opportunity.





10





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 services firms and companies, in order
to develop, market, and deliver our services.  If our strategic
alliances were to be discontinued, or if we have difficulty developing new
alliances, our ability to increase or maintain our client base may be
substantially diminished.





Increases 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
projects.  Additionally, we are subject to material price increases
that can be imposed on us during or after we have submitted a bid price for a
project, and while we attempt to pass along cost increases for labor and
materials, there is no assurance that we will be able to do so.





An increase in borrowing
costs or retraction in the economy may have an adverse impact on our core
business.





In the
event of any increase in the prime and federal funds lending rates, or a general
economic downturn, 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.





The price of our shares may
be adversely affected by the public sale of a significant number of the shares
eligible for future sale.





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 or
“PIPE” transactions, 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 shareholders 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 may be required to
repurchase certain warrants or underlying warrant shares.





Our
subordinated lender, Corporate Mezzanine II, L.P., as part of our financings,
was issued 405,000 warrants to purchase 405,000 shares of our common stock at
$0.01 per share, an additional 10,000 warrants to purchase 10,000 shares at
$0.24 per share, and an additional 250,000 warrants to purchase 250,000 shares
at $0.26 per share.  The warrants, which expire on October 22, 2011,
contain both anti-dilution price and share equivalent protection, which is
triggered by our issuing shares or warrants below the market value price of our
stock on the date of issuance.  The holder of the warrants and/or
underlying warrant shares has the right to “put” the warrant or underlying
shares to us and we are required to repurchase the warrants and/or warrant
shares.





In the
event we do not have sufficient available funds to repurchase the warrants, we
may be required to issue a three-year promissory note with interest at 18% per
annum as payment for the warrants or shares.





We have incurred losses in
the past, and we may incur losses in the future.





We have
incurred losses in a majority of our fiscal years since our
inception.  This past fiscal year, we had a loss of approximately
$2,279,000, prompted primarily by an impairment charge to Goodwill of
$2,000,000.  Depending upon business cycles and other factors beyond
our control, we may experience losses in the future, or in the event of a
quarterly profit, profits may not be sustainable.





11





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 may continue to seek
additional financing through the issuance of equity or
debt.  Additionally, if we experience any changes in the revenues we
derive from our 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.





We are dependent upon our
current credit facility to maintain our operations.





We are
party to a commercial loan agreement with a lender through which we have a
revolving line of credit of up to $5,000,000.  All of the assets of
our wholly owned subsidiaries are pledged to secure the credit facility, which
requires us to make principal and interest payments over the life of the
facility.  The credit facility imposes certain loan covenants on
us.  We have in the past been unable to satisfy these
covenants.  In the event we fail to satisfy the covenants or if we do
not receive a waiver from our lender or a modification of same, we would be in
default under our commercial loan agreement, and our lender could call the full
outstanding facility due, which would have a materially adverse effect on our
ability to maintain our business operations.  Further our credit
facility currently elapses May [     ].  In
the event we are not able to renew the facility on comparable or more favorable
terms, it would have a material adverse effect on our ability to maintain our
business operations.





We are subject to a
subordinate financing arrangement that requires quarterly interest payments and
matures in October 2010, at which time we will be required to make a payment of
approximately $7.1 million to the lender.





We are
party to a subordinate loan agreement with Corporate Mezzanine II, L.P., secured
by a pledge of all our assets.  As of March 28, 2009, the balance of
the note was approximately $6.7 million.  The facility requires
quarterly interest payments and matures in October 2010, at which time a balloon
payment of approximately $7.1 million will be due.  While we are
seeking to modify terms of the facility, if we are unable to modify same or make
payment on this facility at any time or at the maturity date of same, of if we
are unable to abide by the financial covenants of the facility, we may be deemed
in default of the subordinate loan agreement.  There is no assurance
that we will be able to make quarterly interest payments or have adequate funds
or will be able to make arrangements for financing to satisfy this facility when
it matures in 2010.  Failing to have adequate funds to satisfy the
facility will result in a default.





Shareholders of our common
stock may face dilution of their holdings.





The
exercise of some or all of our outstanding warrants and stock options 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 number of outstanding options and
warrants could depress the price of our common stock.  Moreover, the
terms upon which we would be able to 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.





Our common stock is subject
to the “penny stock’ rules of the SEC, and the trading marketing 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 shares of our common stock
to certain regulations which impose sales practice requirements on
brokers/dealers.  For example, brokers/dealers selling 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:





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





12





·
            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
      a “penny stock” is sold to an individual in violation of the rights listed
      above, or other federal or states securities laws, the person may be able
      to cancel the purchase and receive a
refund





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





·
            If
      an arbitration agreement was signed, however, the claim may have to be
      pursued 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 as to
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 purchases of the shares of our common stock.





Our certificate of
incorporation places limitations on the liability of our
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 in 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 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 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
1B.  Unresolved Staff Comments





The Staff
issued a Comment Letter requesting that the Company file full amendments to its
Form 10-Q for the quarters ended June 30, 2008 and September 30, 2008 to reflect
corrected Section 906 Certifications.  The Company has filed the
amendments effective March 25, 2009 and is waiting further comment or
confirmation from the Staff.





Item
2.  Description of Property





BrandPartners’
executive offices, as well as the offices for Brand Retail and Building
Partners, are located in Rochester, New Hampshire, where we lease a facility of
approximately 82,000 square feet.  The annual rent for this location
is approximately $332,000.   The lease for this location expires
in August of 2011.  We also lease a warehouse, which houses our
production facilities and our inventory, in Rochester, New Hampshire of
approximately 72,000 square feet at an approximate annual rent of
$303,000.  This lease expires also in August 2011.





13





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.




Location
              
              Approximate
                Annual
      Rent
              
              
              Square
                Footage
              
              Lease
                ExpirationAdministrative/sales
      office
              
              $
              332,000
              
              
              
              82,000
              
              August
      2011Warehouse
              
              
              303,000
              
              
              
              72,000
              
              August
      2011




Item
3.  Legal Proceedings





None





Item
4.  Submission of Matters to 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 shows 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
                    
                    
                    LowCalendar
      Year 2007First
      Quarter Ended March 31, 2007
                    
                    $
                    0.15
                    
                    
                    $
                    0.09Second
      Quarter Ended June 30, 2007
                    
                    
                    0.14
                    
                    
                    
                    0.06Third
      Quarter Ended September 30, 2007
                    
                    
                    0.11
                    
                    
                    
                    0.08Fourth
      Quarter Ended December 31, 2007
                    
                    
                    0.11
                    
                    
                    
                    0.03Calendar
      Year 2008First
      Quarter Ended March 31, 2008
                    
                    $
                    0.07
                    
                    
                    $
                    0.04Second
      Quarter Ended June 30, 2008
                    
                    
                    0.09
                    
                    
                    
                    0.03Third
      Quarter Ended September 30, 2008
                    
                    
                    0.07
                    
                    
                    
                    0.03Fourth
      Quarter Ended December 31, 2008
                    
                    
                    0.06
                    
                    
                    
                    0.02Calendar
      Year 2009First
      Quarter Ended March 31, 2009
                    
                    $
                    0.04
                    
                    
                    $
                    0.01


As of
March 12, 2009, we had approximately 2,100 holders of record of our common
stock.





14





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, 2009, related to Company
compensation plans as approved by the shareholders.





Plan
      Category
                          
                          Number
      of
                            securities
      to be
                            issued
      upon
                            exercise
      of
                            outstanding
                            options, warrants
                            &
      rights
                            (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
                          
                          
                          1,767,500
                          
                          
                          $
                          0.52
                          
                          
                          
                          2,332,500Financial
      Performance Corporation 2001 Stock Incentive Plan
                          
                          
                          48,192
                          
                          
                          $
                          1.00
                          
                          
                          
                          4,951,808Total
                          
                          
                          1,815,692
                          
                          
                          
                          
                          
                          
                          
                          7,284,308





Item
6.  Selected Financial Data




Years
Ended December 31, 2008, 2007, 2006, 2005 and 2004
 (in
thousands except per share data)


2008
                              
                              
                              2007
                              
                              
                              2006
                              
                              
                              2005
                              
                              
                              2004For
      the YearRevenues
                              
                              $
                              36,262
                              
                              
                              $
                              43,809
                              
                              
                              $
                              52,476
                              
                              
                              $
                              52,036
                              
                              
                              $
                              50,613Income
      (Loss) from Continuing Operations
                              
                              $
                              (966
                              )
                              
                              $
                              (10,793
                              )
                              
                              $
                              (745
                              )
                              
                              $
                              3,586
                              
                              
                              $
                              5,134Income
      (Loss) Per Share from Continuing Operations*
                              
                              $
                              (0.02
                              )
                              
                              $
                              (0.31
                              )
                              
                              $
                              (0.02
                              )
                              
                              $
                              0.11
                              
                              
                              $
                              0.17At
      Year EndTotal
      Assets
                              
                              $
                              21,805
                              
                              
                              $
                              21,027
                              
                              
                              $
                              36,506
                              
                              
                              $
                              36,376
                              
                              
                              $
                              37,306Long
      Term Debt
                              
                              $
                              6,648
                              
                              
                              $
                              6,404
                              
                              
                              $
                              6,452
                              
                              
                              $
                              6,740
                              
                              
                              $
                              5,784Dividends
      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.
 The
financial information for 2004 does not include the gain on forgiveness of
debt.





15





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 the Company’s
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 of
America.  Some of the information contained in this discussion and
analysis or set forth elsewhere in this annual report, including information
with respect to our plans and strategy for our business and expected financial
results, includes forward-looking statements that involve risks and
uncertainties. You should review the “Risk Factors” under Item 1A for a
discussion of important factors that could cause actual results to differ
materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.





We assist
our clients in providing a positive and dynamic retail experience to their
customers and sell related products and services to the retail services
marketplace, primarily to financial services companies in the United
States.  We operate wholly owned subsidiaries [BrandPartners Retail,
Inc. (“Brand Retail”); Building Partners, Inc. (“Build Partners”); and Grafico
Incorporated (“Grafico”)], although only Brand Retail and Build Partners are
currently active.  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 which provides 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 include the
effectiveness of the client’s current brand, the placement of current marketing
materials, overall interior fitness, traffic flow, and selling
zones.  The client may wish to create an entirely new environment,
which may involve changing the branding identity, and updating the architectural
and interior design.  Marketing materials may also be assessed as to
their effectiveness and the alignment with the branding message.





Due to
the acquisition and merger activity in the financial services sector, the lack
of warehouse facilities for many of our clients, and to quantity/cost ratios of
merchandising fixtures and collateral, BrandPartners also provides
after-the-sale 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 requested.





Our
revenue has fluctuated historically due to the project nature of BrandPartners’
larger contracts.  We have sought to expand our market focus to
include firms outside the financial services marketplace to provide more
consistent revenue.  To take advantage of new market opportunities, we
continue to invest in research and development for new products and in existing
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
United States 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.  Actual results may differ from these
estimates.





Our
critical accounting estimates include:





1.
            Collectability
      of accounts receivable


2.
            Inventory
      allowances


3.
            Impairment
      testing of goodwill and long-lived
assets


4.
            Costs
      and billings on uncompleted
contracts


5.
            Income
      tax and valuation allowances on deferred
taxes




16





Revenue
Recognition





BrandPartners
records revenue using the accounting method appropriate to the product and/or
service being delivered.  Management primarily uses the
percentage-of-completion method, 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 current period charges, and therefore, are not
included in the calculation of the estimates to complete.





Accounts
Receivable





Periodically,
we review accounts receivable to assess 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.





Goodwill
and Long-Lived Assets





On at
least an annual basis we evaluate our goodwill and long-lived assets for
impairment or whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable.  In assessing
recoverability, management must make certain assumptions regarding estimated
future cash flows and other factors to determine the estimated fair value of
these assets.





During
the fourth quarter of 2008 and 2007, using the estimated fair value of its
business operations, management recorded a non-cash impairment charge to the
carrying value of its goodwill of $2 million and $12 million, respectively,
within the statement of operations.  We did not record an impairment
charge for goodwill and long-lived assets during the year ended December 31,
2006.





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, 2008 Compared to Year Ended December 31, 2007





Revenues.  Revenues
from operations decreased approximately $7.5 million or 17% for the twelve
months ended December 31, 2008 as compared to the twelve month period ended
December 31, 2007.  The decrease was due to various projects that were
anticipated to close with prospective clients in the community banking market
were either put on hold or lost.





Cost of
Revenues.  Cost of revenues decreased 19% or approximately $6.2
million primarily due to lower revenues in 2008 versus 2007.  In
addition, due to the change in the product and services mix, our cost of
revenues as a percentage of revenue was 75% in 2008 as compared to 76% for the
year ended December 31, 2007.




17





Selling, General and Administrative
Expenses.  SG&A expense amounted to approximately $7.9
million in 2008 versus $9.3 million in 2007, a decrease of approximately $1.4
million or 15%.  The reduced SG&A expense was principally due to a
reduction in depreciation/amortization expense ($150,000) and the implementation
in 2007 by management of a cost savings initiative program.  This
program resulted in reduced costs including compensation (approximately
$370,000) and other general overhead costs.





Goodwill
impairment.In 2008 we recognized a $2 million non-cash
impairment charge related to goodwill.  In 2007 we recognized a $12
million non-cash impairment charge related to goodwill.





Interest
Expense.  Interest expense decreased approximately $196,000 or
14% for the twelve months ended December 31, 2008 due to a lower level of
average outstanding borrowings in 2008 versus 2007.





Income Taxes.  We
incurred a loss for the years ended December 31, 2008 and 2007, we did not
accrue Federal income taxes.  The expense in 2008 and 2007 related to
state taxes, whose amount is not based upon net income.





Loss.  The net loss
for the year ended December 31, 2008 of approximately $2,279,000 compares to a
loss of $12,269,000 in 2007, a favorable change of approximately $10
million.





The net
loss for 2008 was the result of the following:





·
            $2
      million non-cash Goodwill impairment
charge


·
            Decrease
      in sales to community banks and credit
unions


·
            $250,000
      non-cash asset impairment charge


·
            Offset
      by a decrease in interest expense


·
            Offset
      by decrease in selling, general and administrative
  expenses





Year
Ended December 31, 2007 Compared to Year Ended December 31, 2006





Revenues.  Revenues
from operations decreased approximately $8.7 million or 17% for the twelve
months ended December 31, 2007 as compared to the twelve month period ended
December 31, 2006.  The decrease was due to various projects that were
anticipated to close with prospective clients in the community banking market
were either put on hold or lost.





Cost of
Revenues.  Cost of revenues decreased 21% or approximately $9
million primarily due to lower revenues in 2007 versus 2006.  In
addition, due to the change in the product and services mix, our cost of
revenues as a percentage of revenue was 76% in 2007as compared to 81% for the
year ended December 31, 2006.





Selling, General and Administrative
Expenses.  SG&A expense amounted to approximately $9.3
million in 2007 versus $10.9 million in 2006, a decrease of approximately $1.6
million or 15%.  The reduced SG&A expense was principally due to
the implementation in 2007 by management of a cost savings initiative
program.  This program resulted in reduced costs including
compensation (approximately $600,000), professional fees (approximately
$300,000) and other general overhead costs.





Goodwill
impairment.In 2007 we recognized a $12 million non-cash
impairment charge related to goodwill.





Interest
Expense.  Interest expense decreased approximately $166,000 or
11% for the twelve months ended December 31, 2007 due to a lower level of
average outstanding borrowings in 2007 versus 2006.





Income Taxes.  We
incurred a loss for the years ended December 31, 2007 and 2006, we did not
accrue Federal income taxes.  The expense in 2007 related to state
taxes, whose amount is not based upon net income.





Loss.  The net loss
for the year ended December 31, 2007 of approximately $12,269,000 compares to a
loss of $2.3 million in 2006, a negative change of approximately $9.9
million.





The net
loss for 2007 was the result of the following:





·
            $12
      million non-cash Goodwill impairment
charge


·
            Decrease
      in sales to community banks and credit
unions





18





·
            Offset
      by a decrease in interest expense


·
            Offset
      by decrease in selling, general and administrative
  expenses




Liquidity
and Capital Resources





As of
December 31, 2008, we had negative working capital (current assets less current
liabilities) of approximately $1.6 million, and a working capital ratio (current
assets to current liabilities) of approximately .87 to 1.  At December
31, 2007, we had negative working capital of approximately $2.2 million and a
working capital ratio of .77 to 1.  This change in working capital
arises primarily from an increase in accounts receivable and cash, a decrease in
short term debt, partially offset by increases in billings in excess of cost and
estimated earnings, accounts payable and accrued expenses.





Cash
flows provided by (used in) operating activities were approximately $2,761,000,
($1,036,000) and $761,000 for the years ended December 31, 2008, 2007 and 2006,
respectively.  In 2008, cash flows were provided by an increase in
billings in excess of costs and estimated earnings, accounts payable and accrued
expenses.  This was offset by an increase in accounts
receivable.  In 2007, cash flows were provided by cash received for
the payment of accounts receivable and the reduction in costs and estimated
earnings in excess of billings.  This was offset by a reduction in
accounts payable and accrued expenses.  In 2006, cash flows were
provided by cash received for the payment of accounts receivable and the
increase in accounts payable and job costing.  The aggregated changes
in the Cost in Excess of Billings and Billings in Excess of Cost accounts
increased cash by approximately $3,648,353 in 2008, increased cash by
approximately $731,000 in 2007 and increased cash by $1.8 million in
2006.  These accounts are used to track the timing differences between
revenue recognition and invoicing, and are discussed in more detail in Note E in
the attached notes to the financial statements.





We used
cash flows to principally fund the acquisition of property and equipment
amounting to approximately $184,000, $194,000 and $548,000 during the years
ended December 31, 2008, 2007 and 2006, respectively.





In 2008
our cash used in financing activities was principally from net short-term
payments of $1,365,000 and payments on long-term borrowings of $309,000,
partially offset by additional borrowings on long-term debt of
$262,000.  In 2007 our cash flows from financing activities were
principally provided from additional net short-term borrowings of $1,348,000 and
additional long-term borrowings of $251,000, partially offset by payments on
long-term debt of $688,000.  In 2006 long-term debt payments of
$675,000 were partially offset by additional long-term borrowings of $386,000
and additional short-term borrowings of $63,000, resulting in a net decrease in
cash of approximately $225,000.





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 the calendar year 2009, funds for retirement of debt, acquisitions, or
other strategic initiatives may require the raising of additional
funds.





We have
not paid dividends on our common stock. In addition, due to servicing our debt
obligations, we have no intention to pay any dividends in the foreseeable
future.





Our
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 N of the accompanying
consolidated financial statements.


19





Recently
Issued Accounting Standards





In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of SFAS
No. 115," which is effective for fiscal years beginning after
November 15, 2007. This statement permits entities to choose to measure
many financial instruments and certain other items at fair value. This statement
also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. Unrealized gains and losses on items
for which the fair value option is elected would be reported in earnings. We
have evaluated the statement and have determined that it will not have a
significant impact on the determination or reporting of our financial
results.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" (SFAS 141(R)), which replaces SFAS No. 141, "Business
Combinations." SFAS 141(R) retains the underlying concepts of SFAS 141 in that
all business combinations are still required to be accounted for at fair value
under the acquisition method of accounting but SFAS 141(R) changed the method of
applying the acquisition method in a number of significant aspects. Acquisition
costs will generally be expensed as incurred; noncontrolling interests will be
valued at fair value at the acquisition date; in-process research and
development will be recorded at fair value as an indefinite-lived intangible
asset at the acquisition date; restructuring costs associated with a business
combination will generally be expensed subsequent to the acquisition date; and
changes in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date generally will affect income tax expense. SFAS 141(R)
is effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first annual period
subsequent to December 15, 2008, with the exception of the accounting for
valuation allowances on deferred taxes and acquired tax contingencies. SFAS
141(R) amends SFAS 109 such that adjustments made to valuation allowances on
deferred taxes and acquired tax contingencies associated with acquisitions that
closed prior to the effective date of SFAS 141(R) would also apply the
provisions of SFAS 141(R). Early adoption is not permitted. We are currently
evaluating the effects, if any, that SFAS 141(R) may have on our financial
statements and believe it could have a significant impact if business
combinations are consummated.  The effect is indeterminable as of
December 31, 2008.





In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51." This
statement is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008, with earlier adoption
prohibited. This statement requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial statements and
separate from the parent's equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the income statement. It also amends certain of ARB No. 51's
consolidation procedures for consistency with the requirements of SFAS
141(R).This statement
also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interest. We have evaluated the statement and have
determined that it will not have a significant impact on the reporting of our
results of operations.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The company is currently evaluating the impact of adopting SFAS No.
161 on its financial statements.




Item
7A.          Qualitative and
Quantitative Disclosures about Market Risk





The
Company’s Debt Facility with the revolving line of credit exposes 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, 2008:





Principal
      Balance
                      
                      
                      Weighted
      Average
                        Interest
      Rate at
                        December
      31, 2008Revolving
      Credit Facility
                      
                      $
                      0
                      
                      
                      
                      4.90
                      %





20


Holding
Company and Operating Subsidiaries





We
conduct our business through our wholly owned subsidiaries (Brand Retail,
Grafico, and Build Partners).  Grafico has been inactive since June
30, 2007.  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.





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 our 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.





Item
8.  Consolidated Financial Statements and Supplemental
Data





The
audited, consolidated financial statements of the Company for the years ended
December 31, 2008, 2007 and 2006 are included within this Annual Report on Form
10-K.





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





None





Item
9A.  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





We have
established and maintain disclosure controls and procedures that are
designed to ensure that material information relating to us and
our subsidiaries required to be disclosed by us in the reports that we file
or submit under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's (“SEC”)
rules and forms, and that such information is accumulated and communicated
to our management, including our chief executive officer (principal
executive officer) and interim accounting officer, as appropriate to allow
timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognized that any
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, no matter how well designed and operated, can only provide
reasonable assurance of achieving the desired control objectives, and in
reaching a reasonable level of assurance, management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship
of possible controls and procedures.





We
carried out an evaluation, under the supervision and with the participation
of our management, including our chief executive officer and interim accounting
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the chief executive officer and interim accounting
officer concluded that our disclosure controls and procedures
were effective as of the date of such evaluation to provide reasonable
assurance that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the
SEC's rules and forms.


21


Management's
Annual Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Internal control over financial reporting is a process
designed by, or under the supervision of, our chief executive and chief
financial officers and effected by our board of directors, management and other
personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles and includes those
policies and procedures that:


§
            pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of our
      assets;


§
            provide
      reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance
      with generally accepted accounting principles, and that our receipts
      and expenditures are being made only in accordance with the
      authorizations of our management and directors;
  and.


§
            provide
      reasonable assurance regarding prevention or timely detection
      of unauthorized acquisition, use or disposition of our assets that
      could have a material effect on our financial
    statements





Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the risks that controls
may become inadequate because of changes in conditions, or that the degree
of compliance with policies or procedures may deteriorate. However, these
inherent limitations are known features of the financial reporting process.
It is possible to design into the process safeguards to reduce, thought not
eliminate, the risk that misstatements are not prevented or detected on a
timely basis. Management is responsible for establishing and maintaining
adequate internal control over financial reporting for the
company.





Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2008. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control-Integrated Framework. Based on this
assessment, our management concluded that, as of December 31, 2008, our internal
control over financial reporting was effective to provide reasonable assurance
regarding the reliability of financial reporting and the preparation and
presentation of financial statements for external purposes in accordance with
generally accepted accounting principles.




Change in Internal Control Over
Financial Reporting





There
were no changes in the our internal control over financial reporting that
occurred during our last fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.





Item
9B.  Other Information





Effective March 18, 2009, the
employment of Patrick H. Peyton, the Company’s Chief Financial Officer was
terminated.




Effective March 19, 2009,
James F. Brooks the Company’s current Chief Executive Officer and President was
appointed to serve as Interim Financial Officer.





Effective
March 30, 2009 the Company entered into an amendment to its Loan Agreement with
its commercial lender where by its revolving facility was renewed. The line of
credit as renewed continues to be a demand facility subject to the terms and
conditions of the Company’s Loan Agreement and Revolving Line of
Credit.





Effective
March 30, 2009, the Company entered into an amendment of its subordinated
promissory note whereby the maturity date was extended to October 29, 2010.
As a part of the amendment, the terms of the note were modified so that the
Company will be required to make a mandatory prepayment of $1,000,000 on or
prior to July 31, 2010. If the Company fails to make the timely prepayment of
$1,000,000, the accreted principal amount of the note will then bear interest at
a rate of seventeen (17%) percent per annum with interest of thirteen (13%)
percent per annum payable in accordance with the terms of the note and interest
of four (4%) percent per annum accruing.





Part
III





Item
10.  Directors, Executive Officers of the Registrant and Corporate
Governance





We
incorporate by reference the information appearing under “Executive Officers of
the Registrant” under “Election of Directors” and “Corporate Governance” in our
Proxy Statement for our 2009 Annual Meeting of Stockholders, which we expect to
file with the Securities and Exchange Commission on or about April 30, 2009 (the
“Proxy Statement”).


22


Item
11.  Executive Compensation





We
incorporate by reference the information appearing under “Executive and Director
Compensation and Other Information” and “Corporate Governance – Compensation
Committee and “Compensation Committee Report” in the Proxy
Statement.





Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters





We
incorporate by reference the information appearing under “Principal
Stockholders” and “Election of Directors” in the Proxy Statement.





Item
13.  Certain Relationships and Related Transactions, and Director
Independence





We
incorporate by reference the information appearing under “Transactions with
Related Persons” and “Corporate Governance” in the Proxy Statement.





Item
14.  Principal Accountant Fees and Services





We
incorporate by reference the information appearing under “Selection of
Independent Registered Public Accounting  Firm” in the Proxy
Statement.





PART
IV





Item
15. Exhibits, Financial Schedules





(a)
            The
      following documents are filed as part of this Annual Report on Form
      10-K:


(1)
              Financial
      Statements.





See Index
to Financial Statements and Schedule on page 34.





(2)
              Financial Statement
      Schedules.





See Index
to Financial Statements and Schedule on page 34.  All other schedules
are omitted as the required information is not present or is nor present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial statements or
notes thereto.





(3)
              Exhibits.





The
following exhibits are filed (or incorporated by reference herein) as part of
this Annual Report on Form 10-K:


23


Index
to Exhibits





2.1
              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 in 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 Designation of Class A Convertible Preferred Stock of the Company
      (incorporated by reference to Exhibit 4.1 to the Company’s Current Report
      on Form 8-K filed on January 31, 2001).10.1
              Form
      of Indemnification Agreement between the Company and its Officers and
      Directors (incorporated by reference to Exhibit 10.35 to the Company’s
      Registration Statement on Form S-1, Registration No.
      33-20886).10.2
              Restated
      and Amended Shareholders Agreement, dated as of October 18, 1994, by and
      among Michaelson Kelbick Partners Inc., Susan Michaelson, Hillary Kelbick
      and the Company, effective as of October 1, 1998 (incorporated by
      reference to Exhibit 10.80 to the Company’s Quarterly Report on Form
      10-QSB for the quarter ended September 30, 1998).10.3
              Form
      of Warrant, dated as of October 21, 1998, between the Company and Richard
      Levy (incorporated by reference to Exhibit 10.81 to the Company’s Annual
      Report on Form 10-KSB for the year ended December 31,
    1998).10.4
              Form
      of Warrant Agreement, dated as of October 21, 1998, covering warrants
      issued to Richard Levy and others (incorporated by reference to Exhibit
      10.86 to the Company’s Annual Report on Form 10-KSB for the year ended
      December 31, 1998).10.5
              Stock
      Purchase and Sale Agreement, dated as of November 17, 1999, by and among
      the Company, Robert S. Trump and Jeffrey Silverman (incorporated by
      reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
      filed November 30, 1999).10.6
              Stock
      Purchase and Sale Agreement, dated as of November 17, 1999, by and among
      the Company, Robert S. Trump and Ronald Nash (incorporated by reference to
      Exhibit 10.2 to the Company’s Current Report on Form 8-K filed November
      30, 1999).10.7
              Stockholders
      Agreement, dated as of November 17, 1999, by and among the Company, Robert
      S. Trump, Jeffrey Silverman, and Ronald Nash (incorporated by reference to
      Exhibit 10.3 to the Company’s Current Report on Form 8-K filed November
      30, 1999).10.8
              Option
      Agreement, dated November 17, 1999, between Robert S. Trump and Jeffrey
      Silverman (incorporated by reference to Exhibit 10.4 to the Company’s
      Current Report on Form 8-K filed on November 30, 1999.)10.9
              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).10.10
              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).10.11
              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).


24





10.12
              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).10.13
              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).10.14
              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).10.15
              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).10.16
              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).10.17
              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).10.18
              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).10.19
              Agreement
      and Plan of Merger dated February 23, 2000, between the Company, FPC
      Acquisition Corp., iMapData.com, Inc., William Lilley III and Laurence J.
      Defiance (incorporated by reference to Exhibit 10.17 to the Company’s
      Current Report on Form 8-K filed February 24, 2000).10.20
              Employment
      Agreement dated April 25, 2000, between the Company and Edward T.
      Stolarski (incorporated by reference to Exhibit 10.5 to the Company’s
      Current Report on Form 10-QSB for the quarter ended March 31,
      2000).10.21
              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).10.22
              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).10.23
              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).10.24
              Stock
      Option Agreement dated August 9, 2000, between the Company Nathan Ganther
      (incorporated by reference to Exhibit 10.48 to the Company’s Annual Report
      on Form 10-KSB for the year ended December 31, 2000).10.25
              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).10.26
              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).


25





10.27
                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 January 31,
    2001).10.28
                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 January 31, 2001).10.29
                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 January 31,
    2001).10.30
                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 January 31,
    2001).10.31
                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 January 31,
      2001).10.32
                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 January 31,
      2001).10.33
                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).10.34
                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).10.35
                Promissory
      Note, dated February 12, 2001, made by iMapData in favor of Jeffrey
      Silverman, in the principal amount of $50,000 (incorporated by reference
      to Exhibit 10.46 to the Company’s Annual Report on Form 10-KSB for the
      year ended December 31, 2000).10.36
                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).10.37
                Stockholders
      Agreement dated February 12, 2001, by and among iMapData.com, Inc.,
      financial Performance Corporation, 1404467 Ontario Limited, BP 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).10.38
                Subordinated
      Convertible Promissory Note, dated March 1, 2001, made by the Company in
      favor of Jeffrey 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).10.39
                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).10.40
                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).


26





10.41
              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).10.42
              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).10.43
              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).10.44
              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).10.45
              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).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
              Amendment
      to the 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).10.52
              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,
      200210.53
              Form
      of Warrant Agreement, between the Company and the Warrantholders listed
      therein, together with Form of Warrant Certificate, executed by each
      purchaser in the private placement of common stock and warrants through
      Broadband Capital, LLC as placement agent (incorporated by reference to
      Exhibit 10.33 to the Company’s Annual Report on Form 10-KSB for the year
      ended December 31, 2001).


27





10.54
                  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).10.55
                  Form
      of Stock Option Agreement, dated as of March 27, 2002, between the Company
      and each of Jonathan Foster, Nathan Ganther 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
                  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).10.57
                  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).10.58
                  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).10.59
                  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
                  Amendment
      No. 1 and Waiver, dated as of May 14, 2002, by and among the Company,
      Willey Brothers, and CMII (incorporated by reference to Exhibit 10.30 to
      the Company’s Quarterly Report on Form 10-QSB for the quarter ended June
      30, 2002).10.61
                  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).10.62
                  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).10.63
                  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).10.64
                  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).10.65
                  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).10.66
                  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).10.67
                  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).


28




10.68
                  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
              Letter
      Agreement, dated February 12, 2003 among Fleet, Willey Brothers and the
      Company (incorporated by reference to Exhibit 10.69 to the Company’s
      Annual Report on Form 10-KSB filed on March 31, 2003).10.70
              Sixth
      Amendment, dated as of March 18, 2003, among Fleet, Willey Brothers and
      the Company (incorporated by reference to Exhibit 10.70 to the Company’s
      Annual Report on Form 10-KSB filed on March 31, 2003).10.71
              Waiver
      dated March 31, 2003, by and among the Company, Willey Brothers and CMII
      (incorporated by reference to Exhibit 10.71 to the Company’s Annual Report
      on Form 10-KSB filed on March 31, 2003).10.72
              Form
      of Stock Option Agreement dated as of March 25, 2003 between the Company
      and each of Chet Borgida, Kenneth Csaplar, Richard Levy, Jeffrey Adam
      Lipsitz and Anthony van Daalen (incorporated by reference to Exhibit 10.1
      to the Company’s Report on Form 10-Q filed May 15,
  2003).10.73
              Employee
      Stock Option Agreement dated as of March 25, 2003 between the Company and
      Edward T. Stolarski (incorporated by reference to Exhibit 10.2 to the
      Company’s Report on Form 10-Q filed May 15, 2003).10.74
              Employee
      Stock Option Agreement dated as of March 25, 2003 between the Company and
      Sharon Burd (incorporated by reference to Exhibit 10.3 to the Company’s
      Report on Form 10-Q filed May 15, 2003).10.75
              Agreement
      dated as 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).10.76
              Amended
      agreement dated June 16, 2003 by and among the Company, Willey Brothers,
      James M. Willey, individually and as trustee of the James M. Willey Trust
      – 1995 and 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).10.77
              Waiver
      dated as of June 30, 2003 by and among the Company, Willey Brothers and
      Corporate Mezzanine II, L.P. (incorporated by reference to Exhibit 10.2 to
      the Company’s Report on Form 10-Q filed August 26,
  2003).10.78
              Seventh
      Amendment, dated as of August 21, 2003, among Fleet Capital Corporation,
      Willey Brothers, Inc. and the Company (incorporated by reference to
      Exhibit 10.3 to the Company’s Report on Form 10-Q filed August 26,
      2003).10.79
              Eighth
      Amendment, dated as of September 29, 2003, among Fleet Capital
      Corporation, Willey Brothers, Inc. and the Company (incorporated by
      reference to Exhibit 99.1 to the Company’s Report on Form 8-K filed
      October 2, 2003 and Exhibit 10.2 to the Company’s Report on Form 10-Q
      filed November 14, 2003).10.80
              Second
      Amended Agreement dated as of September 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 and Nixon
      Peabody LLP as Escrow Agent, amending Agreement, dated as of May 15, 2003,
      by and among the parties (incorporated by reference to Exhibit 10.1 to the
      Company’s Report on Form 10-Q filed November 14, 2003).10.81
              Letter
      Agreement dated as of September 30, 2003, between and among the Company,
      Willey Brothers, Corporate Mezzanine II, L.P. and Fleet Capital
      Corporation, relating to Subordinated Notes and Warrant Purchase
      Agreement, dated October 22, 2001, between the Company, 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).


29





10.82
              Common
      Stock Purchase Warrant, dated October 2, 2003 between the Company and
      James F. Brooks (incorporated by reference to Exhibit 10.4 to the
      Company’s Report on Form 10-Q filed November 14, 2003).10.83
              Stock
      Option Agreement dated as of October 2, 2003 between the Company and James
      F. Brooks (incorporated by reference to Exhibit 10.5 to the Company’s
      Report on Form 10-Q filed November 14, 2003).10.84
              Agreement
      effective as of October 15, 2003, between the Company and Anthony J.
      Cataldo (incorporated by reference to Exhibit 10.6 to the Company’s Report
      on Form 10-Q filed November 14, 2003).10.85
              Termination
      Agreement dated as of January 13, 2003 (delivered October 28, 2003), by
      and among the Company, Robert S. Trump, Ronald Nash and the Estate of
      Jeffrey Silverman, relating to Stockholders Agreement, dated as of
      November 17, 1999, by and among the parties (incorporated by reference to
      Exhibit 10.7 to the Company’s Report on Form 10-Q filed November 14,
      2003).10.86
              Waiver
      dated as of November 6, 2003, by and among the Company, Willey Brothers
      and Corporate Mezzanine II, L.P. (incorporated by reference to Exhibit
      10.8 to the Company’s Report on Form 10-Q filed November 14,
      2003).10.87
              Promissory
      Note dated November 7, 2003 in the principal amount of $100,000 made
      by  the Company in favor of Filter International (incorporated
      by reference to Exhibit 10.9 to the Company’s Report on Form 10-Q filed
      November 14, 2003).10.88
              Promissory
      Note dated November 7, 2003, in the principal amount $250,000, made by the
      Company in favor of Camden International Ltd. (incorporated by reference
      to Exhibit 10.10 to the Company’s Report on Form 10-Q filed November 14,
      2003).10.89
              Employment
      Agreement dated as of November 10, 2003 between the Company and James F.
      Brooks (incorporated by reference to Exhibit 10.11 to the Company’s Report
      on Form 10-Q filed November 14, 2003).10.90
              Ninth
      Amendment, dated as of November 29, 2003, among 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).10.91
              Surrender
      Agreement for leasehold at 777 Third Avenue, New York NY, dated as of
      January 20, 2004 between the Company and Sage Realty Group as agent
      (incorporated by reference to Exhibit 10.1 to the Company’s Report on Form
      8-K filed February 5, 2004).10.92
              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 and Thomas P. Willey, individually and as trustee of
      The Thomas P. Willey Revocable Trust of 1998 and McLane, Graf, Raulerson
      & Middleton, PA as escrow agent, settling obligations under prior
      agreements dated as of May 15, 2003 (incorporated by reference to Exhibit
      10.2 to the Company’s Report on Form 8-K filed February 5,
      2004).10.93
              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).10.94
              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).10.95
              Unsecured
      Subordinated Promissory Note between the Company and Longview Fund L.P.
      dated July 6, 2004 (incorporated by reference to Exhibit 10.1 to the
      Company’s Quarterly Report on Form 10-Q filed August 16,
      2004).10.96
              Common
      Stock Purchase Warrant, dated as of July 6, 2004, between the Company and
      Longview Fund L.P. (incorporated by reference to Exhibit 10.2 to the
      Company’s Quarterly Report on Form 10-Q filed August 16,
      2004).


30





10.97
              Amendment
      to Employment Agreement dated as of August 13, 2004 between the Company
      and James F. Brooks (incorporated by reference to Exhibit 10.3 to the
      Company’s Quarterly Report on Form 10-Q filed August 16,
      2004).10.98
              Amendment
      to Agreement dated August 13, 2004 between the Company and Anthony J.
      Cataldo (incorporated by reference to Exhibit 10.4 on the Company’s
      Quarterly Report on Form 10-Q filed August 16, 2004).10.99
              Agreement
      dated August 16, 2004 between the Company and James F. Brooks
      (incorporated by reference to Exhibit 10.3 on the Company’s Quarterly
      Report on Form 10-Q filed August 16, 2004 (incorporated by reference to
      Exhibit 10.22 to the Company’s Annual 10K Report filed on March 25,
      2005).10.100
              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).10.101
              Modification
      Agreement dated September 29, 2004, between the Company and Longview Fund
      L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current
      Report Form 8-K, dated September 30, 2004).10.102
              Unsecured
      Subordinated $625,000 Promissory Note issued by the Company to Longview
      Fund L.P. dated September 29, 2004 (incorporated by reference to Exhibit
      10.2 to the Company’s Current Report filed on form 8-K filed September 30,
      2004).10.103
              Registration
      Rights Agreement entered into September 20, 2004 between the Company and
      Longview Fund L.P. (incorporated by reference to Exhibit 10.3 to the
      Company’s Current Report filed on Form 8-K filed September 30,
      2004).10.104
              Tenth
      Amendment dated December 28, 2004 between Bank of America Business
      Capital, Willey Brothers and the Company (incorporated by reference to
      Exhibit 10.14 to the Company’s Annual 10K Report filed on March 25,
      2005).10.105
              Modification
      agreement to Unsecured Subordinated $625,000 Subordinated Promissory Note
      dated January 5, 2005 between Longview Fund, L.P. and the Company
      (incorporated by reference to Exhibit 10.15 to the Company’s Annual 10K
      Report filed on March 25, 2005).10.106
              Form
      of Common Stock Purchase Warrant to be issued in accord with Modification
      Agreement to Unsecured $625,000 Subordinated Note (incorporated by
      reference to Exhibit 10.16 to the Company’s Annual 10K Report filed on
      March 25, 2005).10.107
              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 10K Report filed on March 25,
    2005).10.108
              Common
      Stock Purchase Warrant, exercisable at $1.00 issued to Trilogy Capital
      Partners(incorporated by reference to Exhibit 10.18 to the Company’s
      Annual 10K Report filed on March 25, 2005).10.109
              Common
      Stock Purchase Warrant, exercisable at $1.50 issued to Trilogy Capital
      Partners (incorporated by reference to Exhibit 10.19 to the Company’s
      Annual 10K Report filed on March 25, 2005).10.110
              Common
      Stock Purchase Warrant, exercisable at $2.00 issued to Trilogy Capital
      Partners (incorporated by reference to Exhibit 10.20 to the Company’s
      Annual 10K Report filed on March 25, 2005).10.111
              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 10K Report filed on March 25, 2005).10.112
              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 10K Report filed on March 25,
2005).


31




10.113
                                  Investor
      Relations Consulting Agreement between the Company and Alliance Advisors,
      LLC, effective April 3, 2006 (incorporated by reference to Exhibit 10.1 to
      the Company’s report on Form 10-Q filed on May 15,
  2006).10.114
                                  Separation
      agreement and release dated August 10, 2006 between the Company and
      Anthony J. Cataldo (incorporated by reference to Exhibit 10.1 to the
      Company’s report on Form 8-K filed August 10, 2006).10.115
                                  Commitment
      letter to amend and extend existing revolving line of credit loan dated
      March 19, 2008 between the Company and TD Banknorth, N.A. (incorporated by
      reference to Exhibit 10.115 to the Company’s Annual 10-K Report filed on
      March 28, 2008)10.116
                                  Amendment
      No. 6 to subordinated note and warrant purchase agreement and amendment
      No. 2 to note between the Company and Corporate Mezzanine II, L.P.
      (“CMII”) dated March 27, 2008. (incorporated by reference to Exhibit
      10.116 to the Company’s Annual 10-K Report filed on March 28,
      2008)10.117
                                  Amendment
      to Commercial Loan Agreement and Loan Documents effective April 30, 2008
      between the Company and TD Banknorth, N.A. (incorporated by reference to
      Exhibit 10.1 to the Company’s Report on Form 8-K filed May 12,
      2008).10.118
                                  Form
      of RSA 399-B Statement of Finance Charges by and between the Company, its
      subsidiaries Brand Partners Retail as borrowers and Grafico Inc and
      Building Partners Inc as guarantors with TD Banknorth N.A. dated as of
      April 30, 2008, (incorporated by reference to Exhibit 10.2 to the
      Company’s Report on Form 8-K filed May 12, 2008)10.119
                                  Amendment
      to Commercial Loan Agreement and Loan Documents effective March 30, 2009
      between the Company and TD Bank, N.A.10.120
                                  Form
      of RSA 399-B Statement of Finance Changes, by and between the Company, its
      subsidiaries, Brand Partners Retail as borrowers and Grafico Inc. and
      Building Partners Inc. as guarantors with TD Bank, N.A. effective March
      30, 2009.10.121
                                  Amendment
      No. 3 to note between the Company and Corporate Mezzanine II, L.P. dated
      as of March 30, 2009.14.1
                                  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).14.2
                                  Letter
      from Grant Thornton LLP addressed to the Securities and Exchange
      Commission in accordance with Item 304(a)(3) of Regulation S-K
      (incorporated by reference to Exhibit 16.1 to the Company’s Report on Form
      8-K filed April 17, 2003).16.1
                                  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, 2003).16.2
                                  Letter
      from Goldstein Golub Kessler LLP dated February 20, 2004 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
      Current Report on Form 8-K filed February 23, 2004).16.3
                                  Resignation
      letter from Goldstein & Morris dated October 20, 2004 (incorporated by
      reference to Exhibit 16.1 to the Company’s Current Report filed on Form
      8-K filed October 22, 2004).16.4
                                  Letter
      from Goldstein and Morris Certified Public Accountants P.C. addressed to
      the Securities and Exchange Commission dated November 23, 2004
      (incorporated by reference to Exhibit 16.1 to the Company’s Current Report
      filed on Form 8-K filed December 1, 2004).16.5
                                  Letter
      from Michael F. Albanese, CPA, addressed to 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 I-K filed April 22, 2005).21.1
                                  List
      of Subsidiaries (incorporated by reference to Exhibit 21.1 to the
      Company’s Annual Report filed on Form 10-K Report filed March 25,
      2005).23.1
                                  Consent
      of Goldstein and Morris Certified Public Accountants (incorporated by
      reference to Exhibit 23.1 to the Company’s Annual Report filed on Form
      10-K for the year ended December 31, 2003).31.1
                                  Certification
      of Chief Executive Officer and Interim Financial Officer Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002 (filed
    herewith)32.1
                                  Certification
      of Chief Executive Officer and Interim Financial Officer Pursuant to 18
      U.S.C. Section 1350, as adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002. (filed
herewith)


32


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.





March 30,
2009 BRANDPARTNERS GROUP, INC.





/s/    JAMES F.
      BROOKSJames
      F. BrooksChairman,
      Chief Executive Officer, PresidentAnd
      Interim Financial Officer





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/    James F.
      Brooks
                
                March
      30, 2009James
      F. Brooks, Chairman and Chief Executive Officer/s/    Clifford D.
      Brune
                
                March
      30, 2009Clifford
      D. Brune, Director/s/    J. Weldon
      Chitwood
                
                March
      30, 2009J.
      Weldon Chitwood, Director/s/    Richard
      Levy
                
                March
      30, 2009Richard
      Levy, Director


33





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
                  
                  35Financial
      StatementsConsolidated
      Balance Sheets
                  
                  36Consolidated
      Statements of Operations
                  
                  37Consolidated
      Statements of Stockholders’ Equity and Comprehensive
Income
                  
                  38Consolidated
      Statements of Cash Flows
                  
                  39Notes
      to Consolidated Financial Statements
                  
                  40





34





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders


BrandPartners
Group, Inc.


Rochester,
New Hampshire





We have
audited the accompanying consolidated balance sheets of BrandPartners Group,
Inc. and subsidiaries as of December 31, 2008 and 2007 and the related
consolidated statements of operations, stockholders equity and comprehensive
loss, and cash flows each of the three years in periods ended December 31,
2008.  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 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 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, 2008 and 2007, and the
consolidated results of their operations and their cash flows for each of the
three years in periods ended December 31, 2008 the three years ended December
31, 2008 in conformity with accounting principles generally accepted in the
United States of America.





/s/
      MSPCCertified
      Public Accountants and
Advisors





Cranford,
New Jersey


March 27,
2009





35





BrandPartners
Group, Inc. and Subsidiaries


CONSOLIDATED
BALANCE SHEETS





December
      31,
                                                      2008
                                                    
                                                    
                                                    December
      31,
                                                      2007ASSETSCash
                                                    
                                                    $
                                                    1,348,271
                                                    
                                                    
                                                    $
                                                    184,504Accounts
      receivable,net of allowance for doubtful accounts of $87,064 and
      $193,955
                                                    
                                                    
                                                    7,555,631
                                                    
                                                    
                                                    
                                                    4,967,674Costs
      and estimated earnings in excess of billings
                                                    
                                                    
                                                    986,616
                                                    
                                                    
                                                    
                                                    1,271,043Inventories,
      net
                                                    
                                                    
                                                    640,112
                                                    
                                                    
                                                    
                                                    758,944Prepaid
      expenses and other current assets
                                                    
                                                    
                                                    300,416
                                                    
                                                    
                                                    
                                                    319,052Total
      current assets
                                                    
                                                    
                                                    10,831,046
                                                    
                                                    
                                                    
                                                    7,501,217Property
      and equipment, net
                                                    
                                                    
                                                    670,039
                                                    
                                                    
                                                    
                                                    933,430Goodwill
                                                    
                                                    
                                                    10,271,969
                                                    
                                                    
                                                    
                                                    12,271,969Deferred
      financing costs
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    38,565Other
      assets
                                                    
                                                    
                                                    31,532
                                                    
                                                    
                                                    
                                                    281,532Total
      assets
                                                    
                                                    $
                                                    21,804,586
                                                    
                                                    
                                                    $
                                                    21,026,713LIABILITIES
      AND STOCKHOLDERS’EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
                                                    
                                                    $
                                                    4,601,753
                                                    
                                                    
                                                    $
                                                    3,582,895Billings
      in excess of cost and estimated earnings
                                                    
                                                    
                                                    7,790,590
                                                    
                                                    
                                                    
                                                    4,426,664Short
      term debt
                                                    
                                                    
                                                    32,903
                                                    
                                                    
                                                    
                                                    1,688,325Total
      current liabilities
                                                    
                                                    
                                                    12,425,246
                                                    
                                                    
                                                    
                                                    9,697,884Long
      term debt, net of current maturities
                                                    
                                                    
                                                    6,648,041
                                                    
                                                    
                                                    
                                                    6,403,731Commitments
      & Contingencies
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Stockholders'
      equityPreferred
      stock, $.01 par value; 20,000,000 shares authorized; none
      outstanding.
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Common
      stock, $.01 par value; 100,000,000 shares authorized; issued 38,823,359
      and 34,923,359
                                                    
                                                    
                                                    388,234
                                                    
                                                    
                                                    
                                                    349,234Additional
      paid in capital
                                                    
                                                    
                                                    45,181,302
                                                    
                                                    
                                                    
                                                    45,133,635Accumulated
      deficit
                                                    
                                                    
                                                    (42,573,154
                                                    )
                                                    
                                                    
                                                    (40,294,603
                                                    )Accumulated
      Other Comprehensive IncomeForeign
      currency adjustment
                                                    
                                                    
                                                    47,417
                                                    
                                                    
                                                    
                                                    49,332Treasury
      stock, 100,000 shares at cost
                                                    
                                                    
                                                    (312,500
                                                    )
                                                    
                                                    
                                                    (312,500
                                                    )Total
      stockholders' equity
                                                    
                                                    
                                                    2,731,299
                                                    
                                                    
                                                    
                                                    4,925,098Total
      liabilities and stockholders' equity
                                                    
                                                    $
                                                    21,804,586
                                                    
                                                    
                                                    $
                                                    21,026,713





The
accompanying notes are an integral part of these financial
statements.





36





BrandPartners
Group, Inc. and Subsidiaries


CONSOLIDATED
STATEMENTS OF OPERATIONS





YEARS ENDEDDecember 31,
                  2008
                
                
                December 31,
                  2007
                
                
                December 31,
                  2006Revenues
                
                $
                36,261,607
                
                
                $
                43,809,283
                
                
                $
                52,476,383Costs
      and expensesCost
      of revenues
                
                
                27,063,073
                
                
                
                33,281,529
                
                
                
                42,306,432Selling,
      general and administrative
                
                
                7,914,126
                
                
                
                9,320,595
                
                
                
                10,914,981Goodwill
      impairment
                
                
                2,000,000
                
                
                
                12,000,000
                
                
                
                -Asset
      impairment
                
                
                250,000
                
                
                
                -
                
                
                
                -Total
      expenses
                
                
                37,227,199
                
                
                
                54,602,124
                
                
                
                53,221,413Operating
      loss
                
                
                (965,592
                )
                
                
                (10,792,841
                )
                
                
                (745,030
                )Interest,
      net
                
                
                (1,218,213
                )
                
                
                (1,413,746
                )
                
                
                (1,579,361
                )Loss
                
                
                (2,183,805
                )
                
                
                (12,206,587
                )
                
                
                (2,324,391
                )Provision
      for state income taxes
                
                
                94,746
                
                
                
                62,899
                
                
                
                -NET
      LOSS
                
                $
                (2,278,551
                )
                
                $
                (12,269,486
                )
                
                $
                (2,324,391
                )Basic
      and diluted loss per share
                
                $
                (0.06
                )
                
                $
                (0.35
                )
                
                $
                (0.07
                )Weighted
      - average shares outstandingBasic
      and diluted
                
                
                38,904,097
                
                
                
                34,923,359
                
                
                
                34,923,262





The
accompanying notes are an integral part of these statements.





37





BrandPartners
Group, Inc. and Subsidiaries


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS





Common
      Stock
                                          
                                          
                                          Additional
                                          
                                          
                                          Comprehensive
                                          
                                          
                                          Accumulated
                                          
                                          
                                          Accumulated
                                            Other
                                            comprehensive
                                          
                                          
                                          Treasury
      StockShares
                                          
                                          
                                          Par
      Value
                                          
                                          
                                          Paid
      in Capital
                                          
                                          
                                          Loss
                                          
                                          
                                          Deficit
                                          
                                          
                                          Income
                                          
                                          
                                          Shares
                                          
                                          
                                          Cost
                                          
                                          
                                          TotalBalance
      at December 31, 2005
                                          
                                          
                                          34,255,397
                                          
                                          
                                          $
                                          342,554
                                          
                                          
                                          $
                                          44,999,810
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (25,700,726
                                          )
                                          
                                          $
                                          57,951
                                          
                                          
                                          
                                          (100,000
                                          )
                                          
                                          $
                                          (312,500
                                          )
                                          
                                          $
                                          19,387,089Shares
      issued for legal services
                                          
                                          
                                          9,500
                                          
                                          
                                          $
                                          95
                                          
                                          
                                          $
                                          3,610
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          3,705Shares
      issued for services
                                          
                                          
                                          120,000
                                          
                                          
                                          $
                                          1,200
                                          
                                          
                                          $
                                          45,600
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          46,800Shares
      issued as part of severance agreement
                                          
                                          
                                          538,462
                                          
                                          
                                          $
                                          5,385
                                          
                                          
                                          $
                                          84,615
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          90,000Comprehensive
      lossForeign
      currency adjustment
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (8,094
                                          )
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (8,094
                                          )
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (8,094
                                          )Net
      loss
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (2,324,391
                                          )
                                          
                                          $
                                          (2,324,391
                                          )
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (2,324,391
                                          )Balance
      at December 31, 2006
                                          
                                          
                                          34,923,359
                                          
                                          
                                          $
                                          349,234
                                          
                                          
                                          $
                                          45,133,635
                                          
                                          
                                          $
                                          (2,332,485
                                          )
                                          
                                          $
                                          (28,025,117
                                          )
                                          
                                          $
                                          49,857
                                          
                                          
                                          
                                          (100,000
                                          )
                                          
                                          $
                                          (312,500
                                          )
                                          
                                          $
                                          17,195,109Comprehensive
      lossForeign
      currency adjustment
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (525
                                          )
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (525
                                          )
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (525
                                          )Net
      loss
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (12,269,486
                                          )
                                          
                                          $
                                          (12,269,486
                                          )
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (12,269,486
                                          )Balance
      at December 31, 2007
                                          
                                          
                                          34,923,359
                                          
                                          
                                          $
                                          349,234
                                          
                                          
                                          $
                                          45,133,635
                                          
                                          
                                          $
                                          (12,270,011
                                          )
                                          
                                          $
                                          (40,294,603
                                          )
                                          
                                          $
                                          49,332
                                          
                                          
                                          
                                          (100,000
                                          )
                                          
                                          $
                                          (312,500
                                          )
                                          
                                          $
                                          4,925,098Restricted
      shares issued to Employees and directors
                                          
                                          
                                          3,900,000
                                          
                                          
                                          $
                                          39,000
                                          
                                          
                                          $
                                          47,667
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          86,667Comprehensive
      lossForeign
      currency adjustment
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (1,915
                                          )
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (1,915
                                          )
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (1,915
                                          )Net
      loss
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (2,278,551
                                          )
                                          
                                          $
                                          (2,278,551
                                          )
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (2,278,551
                                          )Balance
      at December 31, 2008
                                          
                                          
                                          38,823,359
                                          
                                          
                                          $
                                          388,234
                                          
                                          
                                          $
                                          45,181,302
                                          
                                          
                                          $
                                          (2,280,466
                                          )
                                          
                                          $
                                          (42,573,154
                                          )
                                          
                                          $
                                          47,417
                                          
                                          
                                          
                                          (100,000
                                          )
                                          
                                          $
                                          (312,500
                                          )
                                          
                                          $
                                          2,731,299


The accompanying notes are an
integral part of these statements.


38





BrandPartners
Group, Inc. and Subsidiaries


CONSOLIDATED
STATEMENTS OF CASH FLOWS





YEARS
      ENDEDDecember
      31,
                                                  2008
                                                
                                                
                                                December
      31,
                                                  2007
                                                
                                                
                                                December
      31,
                                                  2006Cash
      flows from operating activities
                                                
                                                $
                                                (2,278,551
                                                )
                                                
                                                $
                                                (12,269,486
                                                )
                                                
                                                $
                                                (2,324,391
                                                )Net
      (loss)Adjustments
      to reconcile net (loss) to net cash provided by (used in) operating
      activitiesDepreciation
                                                
                                                
                                                446,133
                                                
                                                
                                                
                                                598,263
                                                
                                                
                                                
                                                776,183Amortization
      of deferred financing costs
                                                
                                                
                                                38,565
                                                
                                                
                                                
                                                76,793
                                                
                                                
                                                
                                                77,897Provision
      for doubtful accounts
                                                
                                                
                                                (102,796
                                                )
                                                
                                                
                                                (166,045
                                                )
                                                
                                                
                                                (54,598
                                                )Goodwill
      impairment
                                                
                                                
                                                2,000,000
                                                
                                                
                                                
                                                12,000,000
                                                
                                                
                                                
                                                -Asset
      impairment
                                                
                                                
                                                250,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Non-cash
      compensation
                                                
                                                
                                                86,667
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                140,505Allowance
      for obsolete inventory
                                                
                                                
                                                190,511
                                                
                                                
                                                
                                                (4,102
                                                )
                                                
                                                
                                                (19,588
                                                )(Gain)
      loss on disposal of assets
                                                
                                                
                                                1,750
                                                
                                                
                                                
                                                36,134
                                                
                                                
                                                
                                                (2,383
                                                )Changes
      in operating assets and liabilitiesAccounts
      receivable
                                                
                                                
                                                (2,485,161
                                                )
                                                
                                                
                                                2,062,182
                                                
                                                
                                                
                                                115,399Costs
      and estimated earnings in excess of billings
                                                
                                                
                                                284,427
                                                
                                                
                                                
                                                658,890
                                                
                                                
                                                
                                                (362,694
                                                )Inventories
                                                
                                                
                                                (71,679
                                                )
                                                
                                                
                                                13,553
                                                
                                                
                                                
                                                (97,664
                                                )Prepaid
      expenses and other current assets
                                                
                                                
                                                18,636
                                                
                                                
                                                
                                                34,119
                                                
                                                
                                                
                                                (16,778
                                                )Other
      assets
                                                
                                                
                                                -
                                                
                                                
                                                
                                                43,909
                                                
                                                
                                                
                                                (19,147
                                                )Accounts
      payable and accrued expenses
                                                
                                                
                                                1,018,858
                                                
                                                
                                                
                                                (4,192,294
                                                )
                                                
                                                
                                                430,430Billings
      in excess of costs and estimated earnings
                                                
                                                
                                                3,363,926
                                                
                                                
                                                
                                                71,925
                                                
                                                
                                                
                                                2,117,490Net
      cash provided by (used in) operating activities
                                                
                                                
                                                2,761,286
                                                
                                                
                                                
                                                (1,036,159
                                                )
                                                
                                                
                                                760,661Cash
      flows (used in) investing activitiesAcquisition
      of equipment
                                                
                                                
                                                (184,492
                                                )
                                                
                                                
                                                (192,394
                                                )
                                                
                                                
                                                (548,072
                                                )Expenses
      from disposal of assets
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,700
                                                )
                                                
                                                
                                                -Net
      cash (used in) investing activities
                                                
                                                
                                                (184,492
                                                )
                                                
                                                
                                                (194,094
                                                )
                                                
                                                
                                                (548,072
                                                )Cash
      flows provided by (used in) financing activitiesNet
      borrowings (payments) on short term debt
                                                
                                                
                                                (1,364,722
                                                )
                                                
                                                
                                                1,347,522
                                                
                                                
                                                
                                                63,025Proceeds
      from long term debt
                                                
                                                
                                                262,342
                                                
                                                
                                                
                                                251,267
                                                
                                                
                                                
                                                386,061Payments
      on long term debt
                                                
                                                
                                                (308,732
                                                )
                                                
                                                
                                                (688,191
                                                )
                                                
                                                
                                                (674,562
                                                )Net
      cash provided by (used in) financing activities
                                                
                                                
                                                (1,411,112
                                                )
                                                
                                                
                                                910,598
                                                
                                                
                                                
                                                (225,476
                                                )NET
      INCREASE (DECREASE) IN CASH
                                                
                                                
                                                1,165,682
                                                
                                                
                                                
                                                (319,655
                                                )
                                                
                                                
                                                (12
      887
                                                )Effect
      of exchange rates on cash and equivalents
                                                
                                                
                                                (1,915
                                                )
                                                
                                                
                                                (525
                                                )
                                                
                                                
                                                (8,094
                                                )Cash,
      beginning of years
                                                
                                                
                                                184,504
                                                
                                                
                                                
                                                504,684
                                                
                                                
                                                
                                                525,665Cash,
      end of years
                                                
                                                $
                                                1,348,271
                                                
                                                
                                                $
                                                184,504
                                                
                                                
                                                $
                                                504,684Supplemental
      disclosures of cash flow information:Cash
      paid during the period for interest
                                                
                                                $
                                                1,170,820
                                                
                                                
                                                $
                                                1,061,985
                                                
                                                
                                                $
                                                709,331Cash
      paid during the period for taxes
                                                
                                                $
                                                134,875
                                                
                                                
                                                $
                                                53,603
                                                
                                                
                                                $
                                                236,179


The
accompanying notes are an integral part of the financial
statements.


Reclassified
for comparative purposes





39





BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
A - NATURE OF BUSINESS AND BASIS OF PRESENTATION





BrandPartners
Group, Inc. (“BrandPartners” “the Company” or “we”) operates through its
wholly-owned subsidiaries:





BrandPartners
      Retail, Inc.
              “Brand
      Retail”Grafico,
      Incorporated
              “Grafico”Building
      Partners, Inc.
              “Build
      Partners”





BRAND
RETAIL


Brand
Retail was formerly known as Willey Brothers, Inc.  On January 16,
2001, the Company acquired the stock of 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 approximately $33.1
million.





GRAFICO


On April
1, 2005 Grafico was formed as a Delaware corporation.  In May of 2005,
Grafico purchased the assets of a Connecticut design company.  Grafico
provides similar services to those of Brand Retail, targeting a specific segment
of the financial services industry.  On June 30, 2007, certain assets
of Grafico were sold to its former General Manager.  A loss of
approximately $15,000 was recorded as a result of this
transaction.  Grafico has been inactive since June 30,
2007.





BUILD
PARTNERS


Build
Partners was incorporated in Delaware in January of 2006 and provides general
contracting services.





Through
its subsidiaries, the Company provides integrated products and services to the
financial services industry and other retail markets.  Those products
and services include:





·
            Strategic
      retail positioning and branding


·
            Environmental
      design and constructions 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, based upon the client’s needs.





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 that we may acquire in the
future, our operations and financial condition would be materially and adversely
affected.





40





BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
B  - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





1.
            Principles of
      Consolidation





The
accompanying consolidated financial statements include the accounts of
BrandPartners and its wholly owned subsidiaries (Brand Retail, Grafico and Build
Partners).  All significant intercompany accounts and transactions
have been eliminated in consolidation.





The
Company records revenue based on the type of product and/or service
delivered.  For most contracts, percentage-of-completion is used,
based upon the actual costs incurred to date.  Contract costs include
all direct materials, labor and subcontractor costs.  General and
administrative expenses are accounted for as period charges and 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 invoiced at the end of the reporting period.  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 the end of the reporting period.





Revenue
from short-term agreements is recognized when the product is shipped and/or the
service is rendered.





2.
            Cash and Cash
      Equivalents





The
Company considers all highly liquid investments with maturity of three months or
less when purchased to be cash equivalents.





3.
            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, 2008 and 2007.





2008
                        
                        
                        2007Finished
      Goods
                        
                        $
                        351,931
                        
                        
                        $
                        482,674Raw
      Material
                        
                        
                        341,058
                        
                        
                        
                        266,890Work-in-Process
                        
                        
                        32,314
                        
                        
                        
                        20,277$
                        725,303
                        
                        
                        $
                        769,841Less
      - Reserves
                        
                        
                        (85,191
                        )
                        
                        
                        (10,897
                        )Net
      Inventory
                        
                        $
                        640,112
                        
                        
                        $
                        758,944





41





BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006




NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





4.
            Property and
      Equipment





Property
and equipment are recorded at cost.  Depreciation is computed
generally by the straight-line method 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 when incurred, while significant repairs and improvements 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 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.





5.
            Goodwill and Deferred
      Financing Costs





Goodwill
represents the excess of the purchase price over the fair value of the net
assets acquired.  We evaluate the recoverability and measure the
potential impairment of goodwill under the Financial Accounting Standards
(“SFAS”) No. 142 Goodwill and
Other Intangible Assets.  SFAS No. 142 requires that the
Company analyze goodwill for impairment on at least an annual
basis.  In assessing the recoverability of our goodwill at December
31, 2008, management used the following methods and assumptions regarding the
estimated fair value of the Company’s assets and liabilities and the Company’s
estimated market capitalization:





Assets –
The Company’s significant assets at December 31, 2008 are Accounts
Receivable-Net, Costs and Estimated Earnings in Excess of Billings (consists of
work-in-progress receivables aged less than one year), and Property and
Equipment – Net.  These assets represent approximately 80% of total
assets other than Goodwill.  Management assessed the fair value of
both Accounts Receivable-Net and Costs and Estimated Earnings in Excess of
Billings at approximately their net carrying values due to the relatively
short-term conversion of these assets into cash.  The Company assessed
that the net carrying value of Property and Equipment approximated fair value
based upon the assets remaining future benefits determined using the cash flow
based income approach and estimated useful lives.





Liabilities
– The Company’s liabilities at December 31, 2008 consisted of Accounts Payable
and Accrued Expenses, Billings in Excess of Cost and Estimated Earnings, and
Debt.  Accounts Payable and Accrued Expenses consist of liabilities
aged less than one year, Billings in Excess of Cost and Estimated Earnings
consist of unearned revenue for which the earnings process is expected to be
completed within one year.  Debt consists primarily of mezzanine debt
with a stated interest rate that is reflective of the Company’s borrowing rates
as of December 31, 2008.





42





BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Market
Capitalization – Management’s principal assumption used to value the Company’s
market capitalization at December 31, 2008 was derived by multiplying the
Company’s weighted average common stock price over the two year period ended
December 31, 2008 by the common shares outstanding as of December 31,
2008.  Management believed that the two year period was an appropriate
measure to reflect the market fluctuations in the stock price, which management
believed was the best measure of the Company’s estimated market
capitalization.





If
the calculated fair value of the goodwill is less than its carrying value, an
impairment loss is recognized in an amount equal to the
difference.  In the fourth quarter 2008 and 2007, the Company
evaluated Goodwill for impairment based upon the estimated fair value of our
business operations and as a result, recorded an impairment charge of $2 million
and $12 million, respectively, within the Statement of
Operations.  The Company did not record an impairment charge during
the year ended December 31, 2006.





Deferred
financing costs are amortized on a straight-line basis over three to seven
years, the life of the related debt.





6.
            Warranty
      Costs





Estimated
future warranty costs are provided for in the period of sale for products under
warranty based on historical experience.  Accrued warranty costs at
December 31, 2008, 2007 and 2006 were approximately $21,000, $13,000 and
$171,000, respectively, and are included in cost of revenues within the
statement of operations.





7.
            Income
      Taxes





We
account for income taxes in accordance with SFAS No. 109 Accounting for Income
Taxes.  Under SFAS No. 109, deferred tax assets and liabilities
are determined based on differences between the financial statement and tax
basis of assets and liabilities, net operating loss and credit carry-forwards
using enacted tax rates in effect for the year in which the differences are
expected to impact taxable income.  A valuation allowance is
established, when necessary, to reduce deferred tax assets to the amount that is
more likely than not to be realized.  If it becomes more likely than
not that a deferred tax asset will be used, the relatedvaluation allowance on
such assets would be reversed.





43





BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Management
makes judgments as to the interpretation of the tax laws that might be
challenged upon an audit and cause changes to previous estimates of tax
liability.  We operate within multiple taxing jurisdictions and are
subject to audit in these jurisdictions.  In Management’s opinion,
adequate provisions for income taxes have been made for all years.





On
January 1, 2007 we adopted the provisions of FIN 48, Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB Statement No. 109, which provides for a
financial recognition threshold and measurement attribute for a tax position
taken or expected to be taken in a tax return.  Under FIN 48, we may
recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the
position.  The tax benefits recognized in the financial statements
from such a position should be measured based on the largest benefits that has a
greater than 50% likelihood of being realized upon ultimate
settlement.  FIN 48 also provides guidance on derecognition of income
tax assets and liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties associated with
tax positions, and income tax disclosures.  The adoption of FIN 48 did
not have a material impact on our consolidated financial
statements.





8.
              Fair Value of Financial
      Instruments





Accounting
principles generally accepted in the United States of America require disclosing
the fair value of financial instruments to the extent practicable for financial
instruments, which are recognized or unrecognized in the balance
sheet.  The fair value of the financial instruments disclosed herein
is not necessarily representative of the amount that could be realized or
settled, nor does the fair value amount consider the tax consequences of
realization or settlement.  In assessing the fair value of these
financial instruments, we used a variety of methods and assumptions, which were
based on estimates of market conditions and risks existing at that
time.





The
following methods and assumptions were used in estimating the indicated fair
values of financial instruments:





Cash,
cash equivalents and short-term debt:  The carrying value approximates
fair value due to the short maturity of these instruments.





Property
and equipment: The fair value of our property and equipment is estimated to
approximate their net book values.





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.


44


BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE B –SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





9.
              Earnings (Loss) Per
      Share





Basic and
diluted earnings (loss) per share is computed using the weighted-average number
of shares of common stock outstanding during the period.  When
applicable, diluted earnings 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, which recognizes the use of proceeds that could
be obtained upon the exercise of options and warrants in computing diluted
earnings per share.  It assumes that any proceeds would be used to
purchase common stock at the average market price of the common stock during the
period.





Potential
common shares of approximately 2,200,000, 10,900,000 and 13,900,000 are
antidilutive and therefore excluded from the computation of diluted loss per
share, consist of stock options, warrants, and convertible debt for the years
ended December 31, 2008, 2007and 2006, respectively.  Such items may
dilute earnings per share in the future.





10.
              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 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.





11.
              Concentration of Credit
      Risk





Financial
instruments that subject the Company to credit risk consist primarily of cash,
accounts receivables, and costs and estimated earnings in excess of
billings.  BrandPartners’ customer base consists principally 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, 2008 and 2007, respectively.


45


BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





12.
              Stock-Based
      Compensation





At
December 31, 2008, the Company had two stock-based employee compensation plans,
which are more fully described in Note K.   As of December 31,
2008, all options were fully vested.





On
January 1, 2006, the Company adopted the provisions of SFAS 123(R).  Using the
modified prospective adoption method of SFAS 123(R), the Company recognized the
fair value of compensation cost for all share-based payments granted after
January 1, 2006, plus any awards granted to employees prior to January 1, 2006
that remained unvested at that time, over the service (vesting)
period.  Under this method of adoption, no restatement of prior
periods was required.





There was
no stock based compensation expense related to stock options during 2008, 2007
or 2006 as no options were granted nor did any options vest during the
period.





Non-employee
stock-based compensation arrangements are accounted for in accordance with the
provisions of SFAS 123(R) 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, 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.





NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





13.
              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





Significant
estimates that we make include:





·
              Collectability
      of accounts receivable


·
              Inventory
      allowances


·
              Impairment
      testing of Goodwill and other intangible
assets


·
              Costs
      and billings on uncompleted
contracts


·
              Income
      tax and valuation allowances on deferred
taxes





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.


46


BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





14.
              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.  In 2008, the Company recorded a
full write-down of its entire investment of $250,000 in an unconsolidated
affiliate, as the Company does not anticipate receiving any future cash flows
from this investment.  No write-downs have been required for the years
ended December 31, 2007 and 2006.





15.
              Comprehensive
      Income





In
accordance with SFAS No. 130, Reporting Comprehensive
Income, we are required to display comprehensive income (loss) and its
components as part of our complete set of financial
statements.  Comprehensive income represents the change in
stockholders’ equity resulting from transactions other than stockholder
investments and distributions.  Included in accumulated other
comprehensive income are changes in stockholders’ equity that are excluded from
our net earnings, specifically foreign currency gains (losses).





16.
              Recently Issued Accounting
      Standards





In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of SFAS
No. 115," which is effective for fiscal years beginning after
November 15, 2007. This statement permits entities to choose to measure
many financial instruments and certain other items at fair value. This statement
also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. Unrealized gains and losses on items
for which the fair value option is elected would be reported in earnings. We
have evaluated the new statement and have determined that it will not have a
significant impact on the determination or reporting of our financial
results.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" (SFAS 141(R)), which replaces SFAS No. 141, "Business
Combinations." SFAS 141(R) retains the underlying concepts of SFAS 141 in that
all business combinations are still required to be accounted for at fair value
under the acquisition method of accounting but SFAS 141(R) changed the method of
applying the acquisition method in a number of significant aspects. Acquisition
costs will generally be expensed as incurred; noncontrolling interests will be
valued at fair value at the acquisition date; in-process research and
development will be recorded at fair value as an indefinite-lived intangible
asset at the acquisition date; restructuring costs associated with a business
combination will generally be expensed subsequent to the acquisition date; and
changes in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date generally will affect income tax expense. SFAS 141(R)
is effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first annual period
subsequent to December 15, 2008, with the exception of the accounting for
valuation allowances on deferred taxes and acquired tax contingencies. SFAS
141(R) amends SFAS 109 such that adjustments made to valuation allowances on
deferred taxes and acquired tax contingencies associated with acquisitions that
closed prior to the effective date of SFAS 141(R) would also apply the
provisions of SFAS 141(R). Early adoption is not permitted. We are currently
evaluating the effects, if any, that SFAS 141(R) may have on our financial
statements and believe it could have a significant impact if business
combinations are consummated.  The effect is indeterminable as of
December 31, 2008.


47


BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51." This
statement is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008, with earlier adoption
prohibited.  This statement requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the parent's equity. The amount of net
income attributable to the noncontrolling interest will be included in
consolidated net income on the face of the income statement. It also amends
certain of ARB No. 51's consolidation procedures for consistency with the
requirements of SFAS 141(R).This statement also includes expanded disclosure requirements regarding
the interests of the parent and its noncontrolling interest. We are currently
evaluating this new statement and anticipate that the statement will not have a
significant impact on the reporting of our results of operations.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The company is currently evaluating the impact of adopting SFAS. No.
161 on its financial statements.





17.
              Accounts
      Receivable





The
majority of the Company’s accounts receivable are due from companies in the
financial services industry.  Credit is extended based on evaluation of a
customer’s financial condition.  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 estimates of aged receivables, which 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.





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
recognized only to the extent that cash is received.


48


BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





18.
              Translation of Foreign
      Currency





For the
Company’s non-U.S. subsidiary whose accounts are 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 stockholders’ equity.





NOTE
C – INVESTMENT IN UNCONSOLIDATED AFFILIATE





On
September 21, 2004, the Company purchased a 15% membership interest in an
unrelated third party for $250,000.  In March 2007 the membership
interest increased to 20.9%.  However, the Company’s ownership
interest is as a Class B (non-voting) member.  As of December 31,
2008, 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.  In 2008, the Company recorded a full write-down of its entire
investment of $250,000 in the unconsolidated affiliate, as the Company does not
anticipate receiving any future cash flows from this investment.  No
additional funding has been provided nor has been committed to for the
foreseeable future.





NOTE
D – PROPERTY AND EQUIPMENT





Property
and equipment and related accumulated depreciation are as follows:





2008
                                        
                                        
                                        2007Computer
      equipment and software
                                        
                                        $
                                        2,573,409
                                        
                                        
                                        $
                                        3,488,124Furniture,
      fixtures and other equipment
                                        
                                        
                                        1,412,262
                                        
                                        
                                        
                                        1,720,498Leasehold
      improvements
                                        
                                        
                                        896,187
                                        
                                        
                                        
                                        866,709Assets
      in progress
                                        
                                        
                                        9,206
                                        
                                        
                                        
                                        4,0004,891,064
                                        
                                        
                                        
                                        6,079,331Less
      accumulated depreciation
                                        
                                        
                                        (4,221,025
                                        )
                                        
                                        
                                        (5,145,901
                                        )$
                                        670,039
                                        
                                        
                                        $
                                        933,430





Depreciation
expense was approximately $446,000, $598,000 and $776,000 for the years ended
December 31, 2008, 2007, and 2006, respectively.





NOTE
E – COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS





Due to
the nature of the project accounting used for large contracts, all vendor and
labor costs are entered on the balance sheet until the associated revenue is
recognized.  Upon revenue recognition, the associated expenses and
profit are transferred to the statement of operations.


49


BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
E – COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS (continued)





The Cost
in Excess of Billings account 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 invoiced as
of the end of the fiscal period and is therefore an asset since those charges
will be invoiced in the future.  Its companion account, Billings in
Excess of Cost, reflects the balance of those invoices to clients 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 as of the end of the fiscal period and during the interim
periods.





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





2008
                                          
                                          
                                          2007Costs
      and estimated earnings in excess of billings
                                          
                                          $
                                          986,616
                                          
                                          
                                          $
                                          1,271,043Billings
      in excess of costs and estimated earnings
                                          
                                          
                                          (7,790,590
                                          )
                                          
                                          
                                          (4,426,664
                                          )$
                                          (6,803,974
                                          )
                                          
                                          $
                                          (3,155,621
                                          )





NOTE
F – SHORT TERM DEBT





Short-term
debt consisted of the following:





2008
                          
                          
                          2007Current
      portion long term debt (1)
                          
                          $
                          -
                          
                          
                          $
                          277,778Line
      of credit (1)
                          
                          
                          -
                          
                          
                          
                          1,364,722Capital
      lease, current portion (2)
                          
                          
                          20,753
                          
                          
                          
                          21,525Put
      warrant (3)
                          
                          
                          12,150
                          
                          
                          
                          24,300$
                          32,903
                          
                          
                          $
                          1,688,325





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





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





·
              $5,000,000
      Revolving Line of Credit





·
              Prime
      Interest Rate on Term Loan principal not subject to the LIBOR
      rate





·
              Prime
      Rate interest plus 25 basis points (0.25%) on Revolving Line of Credit
      Loan principal not subject to the LIBOR
rate


50


BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
F – SHORT TERM DEBT (continued)





·
              LIBOR
      rate equals LIBOR plus 275 basis points
(2.75%)





Under the
terms of the agreement, the Company is required to maintain certain financial
covenants and ratios.  The Company is in compliance with the covenants
and ratios as of December 31, 2008.  The Facility expires on April 30,
2009.  On December 31, 2008, the LIBOR was 1.90%, and the adjusted
Prime Rate was 3.75% for the revolving line of credit.  At December
31, 2008, $5.0 million was available under the line of credit.





On March
22, 2007, certain of the financial covenants were waived and
adjusted.  As part of the waiver agreement, the amount available under
the Revolving Line of Credit was adjusted to be the lesser of (1) $5 million or
(2) 70% of acceptable accounts receivable, plus 50% of the cost in excess of
billings (capped at $1 million), less an available reserve of
$250,000.  The Prime Rate interest premium was increased to 50 basis
points (0.50%) for the Revolving Line of Credit and to 25 basis (0.25%) points
for the Term Loan principal.





On July
13, 2007, the Company’s commercial lender consented to the Company exceeding the
revolving line of credit limit on a temporary basis.  Effective
October 3, 2007, the amount outstanding under the revolving line of credit was
reduced and was within the limits provided by the March 28, 2007 amendment to
the Company’s banking facility.





On
November 12, 2007, the Company received a waiver and adjustment of certain
financial covenants from its commercial lender and its subordinated promissory
note holder.





On March
19, 2008, the Company negotiated an extension of the Facility for the Revolving
Line of Credit to April 30, 2009.





On March
30, 2009, the Company negotiated an extension, with terms similar to the
previous extension of the Facility for the Revolving Line of
Credit.





(2)
            See
      Note G.





(3)
            The
      put warrant is related to the subordinated promissory note in the
      principal amount of$5,000,000,
      which is discussed further in Note H
(2).




NOTE
G – CAPITAL LEASES





The
Company leases the telephone system for its main location and a piece of
cleaning equipment under capital leases beginning in 2006.  The leases
expire in 2009 and 2011, respectively.  The economic substance of the
leases is that the Company is financing the acquisition of assets through the
leases, and accordingly, they are recorded in the Company’s assets and
liabilities.


51


BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
G – CAPITAL LEASES (continued)





The
following is an analysis of the leased assets included in Property and
Equipment:




2008
                      
                      
                      2007Machinery
      & Equipment
                      
                      $
                      9,662
                      
                      
                      $
                      9,662Office
      equipment
                      
                      
                      91,521
                      
                      
                      
                      91,521101,183
                      
                      
                      
                      101,183Less
      accumulated depreciation
                      
                      
                      (50,945
                      )
                      
                      
                      (29,420
                      )$
                      50,238
                      
                      
                      $
                      71,763





The lease
agreements contain a bargain purchase option at the end of the lease
term.





The
following is a schedule by years of future minimum payments required under the
capital leases together with their present value as of December 31,
2008.





Year Ending
                                    December 31,2009
                                  
                                  $
                                  25,5922010
                                  
                                  
                                  22,2702011
                                  
                                  
                                  12,992Total
      future minimum lease payments
                                  
                                  
                                  60,854Less
      amount representing interest
                                  
                                  
                                  (7,895
                                  )Present
      value of minimum lease payments
                                  
                                  $
                                  52,959





Amortization
of assets held under capital lease is included with depreciation
expense.


52





BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
H – LONG TERM DEBT





Long term
debt consists of the following:





2008
                              
                              
                              2007Note
      payable (1)
                              
                              $
                              -
                              
                              
                              $
                              277,778Note
      payable (2)
                              
                              
                              5,000,000
                              
                              
                              
                              5,000,000Interest
      payable (2)
                              
                              
                              1,615,835
                              
                              
                              
                              1,353,493Put
      warrant liability (2)
                              
                              
                              12,150
                              
                              
                              
                              24,300Capital
      lease (3)
                              
                              
                              52,959
                              
                              
                              
                              71,7636,680,944
                              
                              
                              
                              6,727,334Less
      current maturities (1)
                              
                              
                              -
                              
                              
                              
                              (277,778
                              )Less
      put warrant liability (2)
                              
                              
                              (12,150
                              )
                              
                              
                              (24,300
                              )Capital
      lease current portion (3)
                              
                              
                              (20,753
                              )
                              
                              
                              (21,525
                              )$
                              6,648,041
                              
                              
                              $
                              6,403,731





(1)
              See
      Note F.





(2)
              A
      subordinated promissory note (“the Note”) in the principal amount of
      $5,000,000 was issued on October 22, 2001 by an unrelated third
      party.  The Note bears interest at 16% per annum, with 12%
      payable quarterly in cash and 4% being accreted to the unpaid principal
      (“PIK amount”).  The Note matures on October 29, 2010, 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 and is in compliance as of December 31,
  2008.





Concurrently
and in connection with the 2001 issuance of the Note, the Company issued 405,000
warrants to purchase common stock of the Company at $0.01 per
share.  The warrants expire on October 11, 2011 and can be “put” to
the Company under any of the following conditions:





(a)
              Following
      October 22, 2006, the fifth anniversary of the closing
    date;





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





(c)
              Effective
      declaration by any holder of the 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
warrant transaction has been treated as a debt discount and has been amortized
to interest expense over prior periods.  A liability for the “put
warrant” has been recorded.  Changes to the future fair value of the
“put warrants” are recorded in accordance with SFAS No. 133 and have been
charged to Selling/General and Administrative expense.   For the
year ended December 31, 2008, the liability of the put warrant has been
disclosed under Short Term Debt (Note F).


53




BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
H – LONG TERM DEBT (continued)





If the
Company is unable to pay the Put Warrant repurchase price, the Put Note can be
issued to the holder of the warrants.  That Put Note would have the
following characteristics:





a)
            Interest
      rate of 18% per annum


b)
            Due
      and payable on October 22, 2009


c)
            No
      financial covenants





On
January 7, 2004, the Company amended and restructured the Note.  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.  The interest rate was reduced from 16% per annum to 10% per
annum – 8% payable in cash per quarter and 2% accreted to the PIK
amount.





In March
2009 the Company negotiated an extension of the maturity date of the Note to
October 22, 2010.  As of December 31, 2008, the Note has been
reflected as long-term debt in accordance with promulgated accounting
principles.





At
December 31, 2008 and 2007, the Company had a liability of $12,150 and $24,300
related to the “put warrants,” respectively.





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





2009
                      
                      
                      2010Note
      payable (1)
                      
                      $
                      -
                      
                      
                      $
                      -Note
      payable (2)
                      
                      
                      -
                      
                      
                      
                      5,000,000Interest
      payable (2)
                      
                      
                      -
                      
                      
                      
                      2,116,669Totals
                      
                      $
                      -
                      
                      
                      $
                      7,116,669





(3)
See Note G.





NOTE
I – INCOME TAXES (BENEFIT)





At
December 31, 2008 and 2007, the Company had a taxable loss of approximately
$243,000 and $875,000, respectively, for which no federal income tax provisions
were made.  For the years ended December 31, 2008 and 2007, the
Company recorded approximately $90,000 and $60,000 state tax expense,
respectively.





The
Company has NOLS of approximately $9.0 million available to offset future
taxable income.  These NOLS expire at various dates through
2028.  At December 31, 2008, the Company has deferred tax assets of
approximately $4.1 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.




54





BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
I – LONG TERM DEBT (continued)





At
December 31, 2008, the Company had federal net operating loss carry-forwards
that expire as follows:





Year Net OperatingLoss Expires2021
                      
                      $
                      345,0002022
                      
                      
                      1,247,0002023
                      
                      
                      3,398,0002025
                      
                      
                      1,345,0002026
                      
                      
                      1,551,0002027
                      
                      
                      875,0002028
                      
                      
                      243,000$
                      9,004,000





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





NOTE
J – CONCENTRATIONS





Significant
Customers





For the
year ended December 31, 2008, one customer accounted for approximately 18% of
the Company’s revenues.  Accounts receivable for this customer as of
December 31, 2008 was $4.3 million.  For the year ended December 31, 2007,
one customer accounted for approximately 16% of the Company’s revenues. 
For the year ended December 31, 2006, one customer accounted for approximately
10% of the Company’s revenues.





Concentration
of Credit Risk





The
Company maintains its cash and cash equivalents with major financial
institutions.  The balances at December 31, 2008 exceeded federally
insured limits by $765,000.  The Company performs periodic evaluations
of the relevant credit standings of these financial institutions in order to
limit the amount of credit exposure.





NOTE
K – STOCKHOLDERS’ EQUITY





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





Stock
Options and Restricted Stock





During
2004, the shareholders approved the Company’s 2004 Stock Incentive
Plan.  The plan was amended at the annual meeting of the shareholders
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 million 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.  On November 7, 2007 the board of directors amended the
Company’s 2004 Stock Incentive Plan to permit the award of restricted stock to
outside directors.  In February and June 2008, the Company awarded
4,250,000 and 500,000, respectively, shares of restricted stock to key officers,
employees and directors in accordance with the Company’s 2004 Stock Incentive
Plan.  Compensation expense for the number of shares issued is
recognized over the two-year vesting period.  For the year ended
December 31, 2008 this expense totaled approximately $87,000.  During
the years ended December 31, 2008 and 2007, the Company did not grant any
options.




55




BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
K – STOCKHOLDERS’ EQUITY (continued)





The
Company’s 2001 Incentive Stock Plan was approved during 2001.  The
reservation and issuance of 5 million 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 27, 2009 were 48,192.  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 shares at $0.75 per share, 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 which were 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:





ExercisePrice
                            Range
                          
                          Outstanding as
                            of
                            December 31,
                            2008
                          
                          
                          Outstanding
                            Weighted
                            Average
                            Remaining Life
                            (years)
                          
                          
                          Outstanding
                            Weighted
                            Average
                            Exercise Price
                          
                          
                          Exercisable asof
                            December31,
                            2008$0.00
      to $0.50
                          
                          
                          763,000
                          
                          
                          
                          1.62
                          
                          
                          $
                          0.42
                          
                          
                          
                          763,000$0.51
      to $0.99
                          
                          
                          1,364,500
                          
                          
                          
                          0.41
                          
                          
                          $
                          0.54
                          
                          
                          
                          1,364,500$1.00
      to $1.99
                          
                          
                          48,192
                          
                          
                          
                          1.10
                          
                          
                          $
                          1.00
                          
                          
                          
                          48,1922,175,692
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          2,175,692




56




BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
K – STOCKHOLDERS’ EQUITY (continued)





The
following table summarizes information concerning outstanding and exercisable
options and warrants for common stock at December 31, 2008:





Weighted-AverageWarrants/Options
                                                    
                                                    
                                                    Exercise PriceOutstanding
      at December 31, 2006
                                                    
                                                    
                                                    13,840,216
                                                    
                                                    
                                                    $
                                                    0.45Granted
                                                    
                                                    
                                                    -Exercised
                                                    
                                                    
                                                    -Forfeited
                                                    
                                                    
                                                    (2,892,857
                                                    )
                                                    
                                                    $
                                                    0.60Outstanding
      at December 31, 2007
                                                    
                                                    
                                                    10,947,359
                                                    
                                                    
                                                    $
                                                    0.41Granted
                                                    
                                                    
                                                    -Exercised
                                                    
                                                    
                                                    -Forfeited
                                                    
                                                    
                                                    (8,771,667
                                                    )
                                                    
                                                    $
                                                    0.39Outstanding
      at December 31, 2008
                                                    
                                                    
                                                    2,175,692
                                                    
                                                    
                                                    $
                                                    0.51




No
      options or warrants were issued during the years ended December 31, 2006,
      2007 and 2008,
respectively.




Common
stock issued for services during the years ended December 31, 2008, 2007 and
2006 are as follows:





There
were no transactions in 2008 nor 2007.





On August
10, 2006, the Non-Executive Chairman of the Board resigned from the Board of
Directors.  As part of his separation agreement with the Company, he
received $90,000 (approximate fair value) in the Company’s common stock or
538,462 shares.





In April
2006, 120,000 shares of the Company’s common stock with a fair value of
approximately $47,000 were issued for public relations services to be performed
during the following twelve months.





On
January 30, 2006, legal expense of approximately $3,700 was recognized for 9,500
shares of the Company’s common stock that were issued to an unrelated party for
services rendered.




57





BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
L – EMPLOYEE BENEFIT PLANS





The
Company maintains a 401(k) profit sharing plan for all eligible
employees.  Through a salary reduction program, the plan allows
employee contributions on a pretax basis.  There are no minimum
corporate contributions required under the plan.  The Company may make
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, 2008, 2007 and 2006, the Company paid or accrued matching
contributions of approximately $83,000, $89,000 and $86,000,
respectively.





The
Company has no other postretirement benefits.





NOTE
M – COMMITMENTS AND CONTINGENCIES





Backlog





At
December 31, 2008, the Company had a backlog, which consists of signed orders
for which no revenue has been recognized, of approximately $21.2
million.  The backlog at December 31, 2007 was approximately $11.4
million.





Employment
Agreements





On August
10, 2006, the Non-Executive Chairman of the Board resigned from the Board of
Directors.  A March 16, 2005 agreement provided for the transfer of
$90,000 of the Company’s common stock and cash payments through May 2007,
totaling $180,000.  All severance expense was recognized in
2006.




58




BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
M – COMMITMENTS AND CONTINGENCIES (continued)





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 pay a
proportionate of increases in real estate taxes and operating expenses over base
period amounts.





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





RentalCommitmentsYears
      Ending December 31,2009
                            
                            $
                            645,0002010
                            
                            
                            666,0002011
                            
                            
                            451,000Thereafter
                            
                            
                            -$
                            1,762,000





Future
commitments related to non-cancelable operating leases for equipment are as
follows:





Operating LeaseCommitmentsYears Ending December 31,2009
                              
                              $
                              91,0002010
                              
                              
                              20,0002011
                              
                              
                              8,0002012
                              
                              
                              5,000Thereafter
                              
                              
                              -$
                              124,000





Rent and
equipment operating lease expense for the years ended December 31, 2008, 2007
and 2006 were approximately $779,000, $738,000 and $823,000,
respectively.





The
Company has provided various representations, warranties, and other standard
indemnifications in the ordinary course of business, in agreements to acquire
and sell business assets, and in financing arrangements.  The Company
is subject to various legal proceedings and claims, which arise in the ordinary
course of business.





Management
believes that the ultimate liability with respect to these contingent
obligations will not have a material effect on the Company’s financial position,
results of operations, or cash flow.




59




BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
N – RELATED PARTY TRANSACTIONS





The
Company has an agreement for consulting services with an individual who is a
member of the Board of Directors.  This agreement provides for a
consulting service fee of $15,000 per month and is on a “month-to-month” basis
with a minimum six-month written notice if either the Company or the consultant
elects to terminate the agreement.   For fiscal year 2008 and
2007, consulting fees of $230,000 and $214,000, respectively, were
recognized.





On June
30, 2007 certain assets of Grafico were sold to its former General
Manager.  A loss of approximately $14,000 was recorded as a result of
this transaction.





NOTE
O – SUBSEQUENT EVENTS





On
February 12, 2009 the Company issued a warrant to purchase 1.5 million shares of
the Company’s common stock at $.25 a share to a consultant as part of the
consideration under a consulting agreement  dated May 12, 2008 for
general business consulting through January 31, 2009.








NOTE
P – QUARTERLY RESULTS (unaudited)





The
following tables contain selected unaudited statement of operations information
for each quarter of 2008 and 2007.  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:




60





BrandPartners
Group, Inc. and Subsidiaries


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


For the
Years Ended December 31, 2008, 2007 and 2006





NOTE
P – QUARTERLY RESULTS (unaudited) (continued)





December 31,
      2008March 31
                                
                                
                                June 30
                                
                                
                                September 30
                                
                                
                                December 31Revenue
                                
                                $
                                9,247,317
                                
                                
                                $
                                8,730,827
                                
                                
                                $
                                8,916,657
                                
                                
                                $
                                9,366,806Cost
      of Goods
                                
                                
                                6,476,887
                                
                                
                                
                                6,072,574
                                
                                
                                
                                6,862,705
                                
                                
                                
                                7,650,907Selling,
      general & administrative expense
                                
                                
                                1,935,037
                                
                                
                                
                                2,092,031
                                
                                
                                
                                1,982,387
                                
                                
                                
                                1,904,671Goodwill
      impairment
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,000,000Asset
      impairment
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                250,000Total
      expenses
                                
                                
                                8,411,924
                                
                                
                                
                                8,164,605
                                
                                
                                
                                8,845,092
                                
                                
                                
                                11,805,578Operating
      income (loss)
                                
                                
                                835,393
                                
                                
                                
                                566,222
                                
                                
                                
                                71,565
                                
                                
                                
                                (2,438,772
                                )Other
      income (expense)
                                
                                
                                (299,073
                                )
                                
                                
                                (286,804
                                )
                                
                                
                                (304,827
                                )
                                
                                
                                (327,509
                                )Net
      Income (Loss) Before Income Taxes
                                
                                
                                536,320
                                
                                
                                
                                279,418
                                
                                
                                
                                (233,262
                                )
                                
                                
                                (2,766,281
                                )Provision
      for Income Taxes
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                94,746Net
      Income (Loss)
                                
                                $
                                536,320
                                
                                
                                $
                                279,418
                                
                                
                                $
                                (233,262
                                )
                                
                                $
                                (2,861,027
                                )Per
      share incomeBasic
                                
                                $
                                0.01
                                
                                
                                $
                                0.01
                                
                                
                                $
                                (0.01
                                )
                                
                                $
                                (0.07
                                )Diluted
                                
                                $
                                0.01
                                
                                
                                $
                                0.01
                                
                                
                                $
                                (0.01
                                )
                                
                                $
                                (0.07
                                )Shares
      usedBasic
                                
                                
                                37,351,930
                                
                                
                                
                                39,221,711
                                
                                
                                
                                39,573,359
                                
                                
                                
                                39,554,881Diluted
                                
                                
                                37,675,930
                                
                                
                                
                                39,559,211
                                
                                
                                
                                39,573,359
                                
                                
                                
                                39,554,881
  December 31, 2007March 31
                              
                              
                              June 30
                              
                              
                              September 30
                              
                              
                              December 31Revenue
                              
                              $
                              13,888,165
                              
                              
                              $
                              13,098,668
                              
                              
                              $
                              8,440,694
                              
                              
                              $
                              8,381,756Cost
      of Goods
                              
                              
                              10,651,903
                              
                              
                              
                              10,004,437
                              
                              
                              
                              6,780,704
                              
                              
                              
                              5,844,485Selling,
      general & administrative expense
                              
                              
                              2,455,364
                              
                              
                              
                              2,496,972
                              
                              
                              
                              2,235,552
                              
                              
                              
                              2,132,703Goodwill
      impairment
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              12,000,000Total
      expenses
                              
                              
                              13,107,267
                              
                              
                              
                              12,501,409
                              
                              
                              
                              9,016,256
                              
                              
                              
                              19,977,188Operating
      income (loss)
                              
                              
                              780,898
                              
                              
                              
                              597,259
                              
                              
                              
                              (575,562
                              )
                              
                              
                              (11,595,432
                              )Other
      income (expense)
                              
                              
                              (335,728
                              )
                              
                              
                              (364,415
                              )
                              
                              
                              (359,451
                              )
                              
                              
                              (354,151
                              )Net
      Income (Loss) Before Income Taxes
                              
                              
                              445,170
                              
                              
                              
                              232,844
                              
                              
                              
                              (935,013
                              )
                              
                              
                              (11,949,583
                              )Provision
      for Income Taxes
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              62,899Net
      Income (Loss)
                              
                              $
                              445,170
                              
                              
                              $
                              232,844
                              
                              
                              $
                              (935,013
                              )
                              
                              $
                              (12,012,482
                              )Per
      share incomeBasic
                              
                              $
                              0.01
                              
                              
                              $
                              0.01
                              
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.34
                              )Diluted
                              
                              $
                              0.01
                              
                              
                              $
                              0.01
                              
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.34
                              )Shares
      usedBasic
                              
                              
                              34,923,359
                              
                              
                              
                              34,923,359
                              
                              
                              
                              34,923,359
                              
                              
                              
                              34,923,359Diluted
                              
                              
                              35,328,359
                              
                              
                              
                              35,328,359
                              
                              
                              
                              34,923,359
                              
                              
                              
                              34,923,359





61