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. Employer
Incorporation or Organization)	Identification No.)

10 Main Street

Rochester, New Hampshire 03839

(Address of Principal Executive Offices, Including Zip Code)

(603) 335-1400

(Issuer’s Telephone Number, Including Area Code)

Securities Registered 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 Yes x No

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.

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BRANDPARTNERS GROUP, INC.

TABLE OF CONTENTS

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

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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

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· 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.

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· 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.

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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.

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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.

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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.

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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.

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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.

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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.

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· 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.

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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 Expiration
Administrative/sales office	$	332,000		82,000	August 2011
Warehouse		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		Low
Calendar Year 2007
First Quarter Ended March 31, 2007	$	0.15	$	0.09
Second Quarter Ended June 30, 2007		0.14		0.06
Third Quarter Ended September 30, 2007		0.11		0.08
Fourth Quarter Ended December 31, 2007		0.11		0.03
Calendar Year 2008
First Quarter Ended March 31, 2008	$	0.07	$	0.04
Second Quarter Ended June 30, 2008		0.09		0.03
Third Quarter Ended September 30, 2008		0.07		0.03
Fourth Quarter Ended December 31, 2008		0.06		0.02
Calendar Year 2009
First 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.

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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		2,332,500
Financial Performance Corporation 2001 Stock Incentive Plan		48,192	$	1.00		4,951,808
Total		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		2004
For the Year
Revenues	$	36,262		$	43,809		$	52,476		$	52,036	$	50,613
Income (Loss) from Continuing Operations	$	(966	)	$	(10,793	)	$	(745	)	$	3,586	$	5,134
Income (Loss) Per Share from Continuing Operations*	$	(0.02	)	$	(0.31	)	$	(0.02	)	$	0.11	$	0.17
At Year End
Total Assets	$	21,805		$	21,027		$	36,506		$	36,376	$	37,306
Long Term Debt	$	6,648		$	6,404		$	6,452		$	6,740	$	5,784
Dividends 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.

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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

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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.

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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

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· 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.

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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, 2008
Revolving Credit Facility	$	0		4.90	%

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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.

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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”).

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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:

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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).

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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).

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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).

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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, 2002
10.53	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).

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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).

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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).

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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).

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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. BROOKS

James F. Brooks

Chairman, Chief Executive Officer, President

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

33

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	35
Financial Statements
Consolidated Balance Sheets	36
Consolidated Statements of Operations	37
Consolidated Statements of Stockholders’ Equity and Comprehensive Income	38
Consolidated Statements of Cash Flows	39
Notes 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/ MSPC

Certified Public Accountants and Advisors

Cranford, New Jersey

March 27, 2009

35

BrandPartners Group, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

	December 31, 2008			December 31, 2007
ASSETS
Cash	$	1,348,271		$	184,504
Accounts receivable,net of allowance for doubtful accounts of $87,064 and $193,955		7,555,631			4,967,674
Costs and estimated earnings in excess of billings		986,616			1,271,043
Inventories, net		640,112			758,944
Prepaid expenses and other current assets		300,416			319,052
Total current assets		10,831,046			7,501,217
Property and equipment, net		670,039			933,430
Goodwill		10,271,969			12,271,969
Deferred financing costs		-			38,565
Other assets		31,532			281,532
Total assets	$	21,804,586		$	21,026,713
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	4,601,753		$	3,582,895
Billings in excess of cost and estimated earnings		7,790,590			4,426,664
Short term debt		32,903			1,688,325
Total current liabilities		12,425,246			9,697,884
Long term debt, net of current maturities		6,648,041			6,403,731
Commitments & Contingencies		-			-
Stockholders' equity
Preferred stock, $.01 par value; 20,000,000 shares authorized; none outstanding.		-			-
Common stock, $.01 par value; 100,000,000 shares authorized; issued 38,823,359 and 34,923,359		388,234			349,234
Additional paid in capital		45,181,302			45,133,635
Accumulated deficit		(42,573,154	)		(40,294,603	)
Accumulated Other Comprehensive Income
Foreign currency adjustment		47,417			49,332
Treasury stock, 100,000 shares at cost		(312,500	)		(312,500	)
Total stockholders' equity		2,731,299			4,925,098
Total 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 ENDED
	December 31, 2008			December 31, 2007			December 31, 2006
Revenues	$	36,261,607		$	43,809,283		$	52,476,383
Costs and expenses
Cost of revenues		27,063,073			33,281,529			42,306,432
Selling, general and administrative		7,914,126			9,320,595			10,914,981
Goodwill impairment		2,000,000			12,000,000			-
Asset impairment		250,000			-			-
Total expenses		37,227,199			54,602,124			53,221,413
Operating 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 outstanding
Basic 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 Stock
	Shares		Par Value		Paid in Capital		Loss			Deficit			Income			Shares			Cost			Total
Balance at December 31, 2005		34,255,397	$	342,554	$	44,999,810				$	(25,700,726	)	$	57,951			(100,000	)	$	(312,500	)	$	19,387,089
Shares issued for legal services		9,500	$	95	$	3,610																$	3,705
Shares issued for services		120,000	$	1,200	$	45,600																$	46,800
Shares issued as part of severance agreement		538,462	$	5,385	$	84,615																$	90,000
Comprehensive loss
Foreign 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	)	$	17,195,109
Comprehensive loss
Foreign 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	)	$	4,925,098
Restricted shares issued to Employees and directors		3,900,000	$	39,000	$	47,667																$	86,667
Comprehensive loss
Foreign 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 ENDED
	December 31, 2008			December 31, 2007			December 31, 2006
Cash 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 activities
Depreciation		446,133			598,263			776,183
Amortization of deferred financing costs		38,565			76,793			77,897
Provision 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			-			140,505
Allowance 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 liabilities
Accounts receivable		(2,485,161	)		2,062,182			115,399
Costs 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	)		430,430
Billings in excess of costs and estimated earnings		3,363,926			71,925			2,117,490
Net cash provided by (used in) operating activities		2,761,286			(1,036,159	)		760,661
Cash flows (used in) investing activities
Acquisition 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 activities
Net borrowings (payments) on short term debt		(1,364,722	)		1,347,522			63,025
Proceeds from long term debt		262,342			251,267			386,061
Payments 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			525,665
Cash, end of years	$	1,348,271		$	184,504		$	504,684
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	1,170,820		$	1,061,985		$	709,331
Cash 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			2007
Finished Goods	$	351,931		$	482,674
Raw Material		341,058			266,890
Work-in-Process		32,314			20,277
	$	725,303		$	769,841
Less - 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.

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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.

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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			2007
Computer equipment and software	$	2,573,409		$	3,488,124
Furniture, fixtures and other equipment		1,412,262			1,720,498
Leasehold improvements		896,187			866,709
Assets in progress		9,206			4,000
		4,891,064			6,079,331
Less 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.

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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			2007
Costs and estimated earnings in excess of billings	$	986,616		$	1,271,043
Billings 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		2007
Current portion long term debt (1)	$	-	$	277,778
Line of credit (1)		-		1,364,722
Capital lease, current portion (2)		20,753		21,525
Put 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.

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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			2007
Machinery & Equipment	$	9,662		$	9,662
Office equipment		91,521			91,521
		101,183			101,183
Less 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	$	25,592
2010		22,270
2011		12,992
Total future minimum lease payments		60,854
Less 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.

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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			2007
Note payable (1)	$	-		$	277,778
Note payable (2)		5,000,000			5,000,000
Interest payable (2)		1,615,835			1,353,493
Put warrant liability (2)		12,150			24,300
Capital lease (3)		52,959			71,763
		6,680,944			6,727,334
Less 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		2010
Note payable (1)	$	-	$	-
Note payable (2)		-		5,000,000
Interest payable (2)		-		2,116,669
Totals	$	-	$	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 Operating
Loss Expires
2021	$	345,000
2022		1,247,000
2023		3,398,000
2025		1,345,000
2026		1,551,000
2027		875,000
2028		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 as of 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		48,192
		2,175,692						2,175,692

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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-Average
	Warrants/Options			Exercise Price
Outstanding at December 31, 2006		13,840,216		$	0.45
Granted		-
Exercised		-
Forfeited		(2,892,857	)	$	0.60
Outstanding at December 31, 2007		10,947,359		$	0.41
Granted		-
Exercised		-
Forfeited		(8,771,667	)	$	0.39
Outstanding 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.

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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:

	Rental
	Commitments
Years Ending December 31,
2009	$	645,000
2010		666,000
2011		451,000
Thereafter		-
	$	1,762,000

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

	Operating Lease
	Commitments
Years Ending December 31,
2009	$	91,000
2010		20,000
2011		8,000
2012		5,000
Thereafter		-
	$	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.

Effective March 30, 2009, the Company entered into an extension of its credit facility with a commercial lender for its Revolving Line of Credit extending same with terms similar to the previous extension. Additionally, 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 accredited 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.

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:

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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, 2008
	March 31			June 30			September 30			December 31
Revenue	$	9,247,317		$	8,730,827		$	8,916,657		$	9,366,806
Cost of Goods		6,476,887			6,072,574			6,862,705			7,650,907
Selling, general & administrative expense		1,935,037			2,092,031			1,982,387			1,904,671
Goodwill impairment		-			-			-			2,000,000
Asset impairment		-			-			-			250,000
Total expenses		8,411,924			8,164,605			8,845,092			11,805,578
Operating 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		-			-			-			94,746
Net Income (Loss)	$	536,320		$	279,418		$	(233,262	)	$	(2,861,027	)
Per share income
Basic	$	0.01		$	0.01		$	(0.01	)	$	(0.07	)
Diluted	$	0.01		$	0.01		$	(0.01	)	$	(0.07	)
Shares used
Basic		37,351,930			39,221,711			39,573,359			39,554,881
Diluted		37,675,930			39,559,211			39,573,359			39,554,881

	December 31, 2007
	March 31			June 30			September 30			December 31
Revenue	$	13,888,165		$	13,098,668		$	8,440,694		$	8,381,756
Cost of Goods		10,651,903			10,004,437			6,780,704			5,844,485
Selling, general & administrative expense		2,455,364			2,496,972			2,235,552			2,132,703
Goodwill impairment		-			-			-			12,000,000
Total expenses		13,107,267			12,501,409			9,016,256			19,977,188
Operating 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		-			-			-			62,899
Net Income (Loss)	$	445,170		$	232,844		$	(935,013	)	$	(12,012,482	)
Per share income
Basic	$	0.01		$	0.01		$	(0.03	)	$	(0.34	)
Diluted	$	0.01		$	0.01		$	(0.03	)	$	(0.34	)
Shares used
Basic		34,923,359			34,923,359			34,923,359			34,923,359
Diluted		35,328,359			35,328,359			34,923,359			34,923,359

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