SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to
Commission file number 0-27408
SPAR GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware
33-0684451
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1910 Opdyke Court, Auburn Hills, Michigan
48326
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (248) 364-7727
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
SGRP
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ 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. Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the
definitions of "large accelerated filer", "accelerated filer", "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.). (Check one):
Large Accelerated Filer ☐
Accelerated Filer ☐
Non-Accelerated Filer ☒
Smaller reporting company ☒
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the Registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
The aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant on December 31, 2024, based on the closing price of the Common Stock of $1.94 per
share as reported by the Nasdaq Capital Market on such date, was approximately $25,013,045.
The number of shares of the Registrant's Common Stock outstanding as of March 15, 2025, was 23,449,701 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement on Schedule 14A for the registrant's 2025 Annual Meeting of Stockholders, are incorporated by reference into Part III of this Form 10-K, and
various Exhibits are incorporated by reference into Part IV of this Form 10-K.
EXPLANATORY NOTE
In connection with our year-end financial statement close and preparation of this Annual Report on Form 10-K for the year ended December 31, 2024, misstatements were identified in certain of
our previous interim financial statements. The determination to restate was made upon the recommendation of the audit committee (the “Audit Committee”) of our Board of Directors after
consultation with our independent auditors and management team.
SPAR Group, Inc. (the “Company”) is filing this Annual Report on Form 10-K for the year ended December 31, 2024, and restating the Company’s interim financial statements (collectively, the
“Prior Period Financial Statements”) as of June 30, 2024, September 30, 2024, and for the three and six months ended June 30, 2024 and the three and nine months ended September 30, 2024
(collectively, the “Non-Reliance Periods”).
Background of Restatement
On May 14, 2025, the management and the Audit Committee of the Company, in consultation with BDO USA, P.C. (“BDO”), the Company’s independent registered public accounting firm,
determined that the Company’s Prior Period Financial Statements for the Non-Reliance Periods, should no longer be relied upon. As previously disclosed, on June 3, 2024, SPAR Group
completed the sale of its 51% ownership stake in its Brazilian joint venture. The total consideration was $10.7 million, consisting of $9.7 million in cash received by SPAR and $1.0 million
withheld for Brazilian tax purposes. SPAR’s carrying value for its investment in the Brazilian joint venture was approximately $4.8 million before the sale. Based on these figures, the transaction
generated an economic benefit of approximately $5.9 million (i.e. the excess of the $10.7 million proceeds over the $4.8 million carrying value). To facilitate this purchase, the buyer largely
financed the payment at the joint venture level, rather than using entirely new funds. The funding was achieved through two components:
●
a new $7.5 million loan incurred by the Brazilian joint venture in March 2024, and
●
an amount of $3.5 million paid by the minority (49%) joint venture partner.
When doing its year-end financial statement close and preparation for this Annual Report, the Company concluded that under GAAP the payment originating from the joint venture qualified as a
capital distribution (instead of consideration for sale) and that the appropriate treatment would be to reclassify approximately $7.5 million into the income statement as part of the gain/loss
calculation. Management and the Audit Committee have determined that these errors in the unaudited condensed consolidated financial statements for the Non-Reliance Periods required a
restatement of the Prior Period Financial Statements (the “Restatement”). Previously filed quarterly reports on Form 10-Q for the Prior Period Financial Statements have not been amended.
Accordingly, investors should no longer rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these
periods, and, for these periods, investors should rely solely on the financial statements and other financial data for the relevant periods included in this Annual Report on Form 10-K. See Note 16,
“Restatement (Unaudited),” for the impact of these adjustments on each of the second and third quarters of fiscal 2024.
Compensation Recovery Policy
The Company established a policy regarding the recoupment of certain performance-based compensation payments (“Compensation Recovery Policy”), which became effective as of October 2,
2023. As indicated above, the Company concluded that the Prior Period Financial Statements for the Non-Reliance Periods required the Restatement. The Compensation Committee of the
Company determined that no performance-based compensation (or the vesting of such compensation) within the prior three years was based upon the achievement of financial results, as reported
in a Form 10-Q, Form 10-K or other report filed with the Securities and Exchange Commission, and therefore had no obligation, pursuant to the Company’s Compensation Recovery Policy, to
recover erroneously paid or awarded compensation.
Internal Control Considerations
In connection with the restatement, management has assessed the effectiveness of our internal controls over financial reporting as of December 31, 2024. Based on this assessment, management
identified material weaknesses in our internal control over financial reporting as of December 31, 2024. As a result, the Company’s disclosure controls and procedures were not effective as of
December 31, 2024. Management is taking steps to remediate the material weaknesses in our internal control over financial reporting, as described in Part II, Item 9A, “Controls and Procedures.”
SPAR GROUP, INC.
ANNUAL REPORT ON FORM 10-K
INDEX
PART I
Page
Item 1
Business
5
Item 1A
Risk Factors
8
Item 1B
Unresolved Staff Comments
13
Item 1C
Cybersecurity
13
Item 2
Properties
14
Item 3
Legal Proceedings
14
Item 4
Mine Safety Disclosures
14
PART II
Item 5
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
15
Item 6
[Reserved]
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
22
Item 8
Financial Statements and Supplementary Data
22
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
22
Item 9A
Controls and Procedures
22
Item 9B
Other Information
23
Item 9C
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
23
PART III
Item 10
Directors, Executive Officers and Corporate Governance
24
Item 11
Executive Compensation
24
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
24
Item 13
Certain Relationships and Related Transactions, and Director Independence
24
Item 14
Principal Accountant Fees and Services
24
PART IV
Item 15
Exhibits and Financial Statement Schedules
25
Item 16
Form 10-K Summary
30
Signatures
31
NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K for the year ended December 31, 2024 (this "Annual Report"), contains forward-looking statements within the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, made by, or respecting, SPAR Group, Inc. ("SGRP" or the
"Corporation") and its subsidiaries (and SGRP together with its subsidiaries may be referred to as "SPAR Group", the "Company" "SPAR", "We", or
"Our"). There also are "forward-looking statements" contained in SGRP's definitive Proxy Statement respecting its 2025 Annual Meeting of
Stockholders (the "Proxy Statement"), which SGRP expects to file on or about May 23, 2025, with the Securities and Exchange Commission (the
"SEC"), and SGRP's Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and statements as and when filed with the
SEC (including this Annual Report, the Proxy Statement and such Current Reports, each a "SEC Report").
Readers can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Words such as "may," "will,"
"expect," "intend," "believe," "estimate," "anticipate," "continue," "plan," "project," or the negative of these terms or other similar expressions also
identify forward-looking statements. Forward-looking statements made by the Company in this Annual Report may include (without limitation)
statements regarding: risks, uncertainties, cautions, circumstances and other factors ("Risks"); Those Risks include (without limitation): the impact of
the news of the proposed acquisition of the Corporation by Highwire Capital in an all cash transaction (the “Proposed Acquisition”) or developments
in it; the uncertainty of the closing of the Proposed Acquisition within the anticipated time period, or at all, due to any reason, including any failure to
satisfy the conditions to the consummation of the Proposed Acquisition or to complete any necessary financing arrangements; the risk that the
Proposed Acquisition disrupts our current plans and operations or diverts management's attention from its ongoing business; the nature, cost and
outcome of any legal proceedings related to the Proposed Acquisition; uncertainty of satisfaction of closing conditions respecting the Proposed
Acquisition; the impact of the Corporation’s continued strategic review process, or any resulting action or inaction, should the Proposed Acquisition
not occur; the impact of selling certain of the Corporation’s subsidiaries or any resulting impact on revenues, earnings or cash; the impact of adding
new directors or new finance team members; the potential and continuing negative effects of the COVID pandemic on the business of the Corporation
and its subsidiaries; the Corporation’s potential non-compliance with applicable Nasdaq annual stockholder meeting, director independence, bid price
or other rules; the Company’s cash flow or financial condition; and plans, intentions, expectations, guidance or other information respecting the
pursuit or achievement of the Corporation’s corporate objectives. The Company's forward-looking statements also include (without limitation) those
made in this Annual Report in "Business," "Risk Factors," "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Directors, Executive Officers and Corporate Governance," "Executive Compensation," "Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters," and "Certain Relationships and Related Transactions, and Director
Independence."
You should carefully review and consider the Company's forward-looking statements (including all risk factors and other cautions and uncertainties)
and other information made, contained or noted in or incorporated by reference into this Annual Report, but you should not place undue reliance on
any of them. The results, actions, levels of activity, performance, achievements or condition of the Company (including its subsidiaries, assets, business,
clients, capital, cash flow, credit, expenses, financial condition, income, legal costs, liabilities, liquidity, locations, marketing, operations, performance,
prospects, sales, strategies, taxation or other achievement, results, risks, trends or condition) and other events and circumstances planned, intended,
anticipated, estimated or otherwise expected by the Company (collectively, "Expectations"), and our forward-looking statements (including all Risks)
and other information reflect the Company's current views about future events and circumstances. Although the Company believes those Expectations
and views are reasonable, the results, actions, levels of activity, performance, achievements or condition of the Company or other events and
circumstances may differ materially from our Expectations and views, and they cannot be assured or guaranteed by the Company, since they are
subject to Risks and other assumptions, changes in circumstances and unpredictable events (many of which are beyond the Company's control). In
addition, new Risks arise from time to time, and it is impossible for the Company to predict these matters or how they may arise or affect the Company.
Accordingly, the Company cannot assure you that its Expectations will be achieved in whole or in part, that it has identified all potential Risks, or that
it can successfully avoid or mitigate such Risks in whole or in part, any of which could be significant and materially adverse to the Company and the
value of your investment in the Company's Common Stock.
These forward-looking statements reflect the Company's Expectations, views, Risks and assumptions only as of the date of this Annual Report, and the
Company does not intend, assume any obligation, or promise to publicly update or revise any forward-looking statements (including any Risks or
Expectations) or other information (in whole or in part), whether as a result of new information, new or worsening Risks or uncertainties, changed
circumstances, future events, recognition, or otherwise.
4
PART I
Item 1. Business
Our Company
SPAR Group, Inc., a Delaware corporation ("SGRP" or the "Corporation"), and its subsidiaries (together with SGRP, "SPAR Group" or the "Company"), is
a leading merchandising and brand marketing services company, providing a broad range of sales enhancing services to retailers across most classes of
trade and consumer goods manufacturers and distributors. Our goal is to be the most creative, energizing and effective retail services company that drives
sales, margins and operating efficiency for our clients.
As of December 31, 2024, we operated in the United States and Canada, having exited Mexico, Brazil, South Africa, China, Japan and India during
2024. Now focused on the United States and Canada, we successfully execute programs through our robust logistics, reporting and communication
technology, which provides clients value through real-time insight on store / product conditions.
With more than 50 years of experience, a focus on excellence and industry leadership, we continue to grow our long-term relationships with some of the
world's leading businesses. Our unique combination of resource scale, deep expertise, advanced technology and unwavering commitment to excellence,
separates us from the competition.
Our focus is services. Our team works closely with clients to determine their key objectives to execute, focusing on enhancing their sales and profit. At
retail, our merchandising brand marketing specialists perform a wide range of programs to maximize product sell-through to consumers. Some of these
programs include launching new products, installing displays, assembling product fixtures, and ensuring shelves are fully stocked and reordering when they
are not. We also assist with sales and customer service. As retailers adapt to changes and new opportunities, our team engages in the total renovations and
transformation of stores, as well as preparing new locations for grand openings. Our distribution associates work in retail and consumer goods distribution
centers to prepare the centers to open, testing systems, putting away, picking product and providing peak staffing services for our clients.
We provide the "last two feet" of retail and consumer goods product merchandising and marketing. Our clients make great products. We ensure these
products are presented in a compelling and exciting way exactly when and where they need to be to drive sales and margin. Our technology adds to these
services by providing clients with detailed insight across all aspects of individual stores.
Our Industry
The merchandising and marketing outsourced services industry plays an important role in the growth and performance of some of the world’s most
successful product and retail companies. Merchandising services include placing orders, retail shelf maintenance, display setup, reconfiguring products on
store shelves and replenishing product inventory. Additional marketing services include, but are not limited to, new store sets and remodels, audits, sales
assistance, installation and assembly, product demos/sampling, promotion and more. The Company believes that merchandising and marketing services add
value to retailers, manufacturers and other businesses by making a product more visible and more available to consumers.
Historically, retailers staffed their stores to ensure the store was well merchandised and product was properly featured and placed. However, in an effort to
control costs and improve margins, most retailers have reduced store payroll and increased their reliance on distributors to set up their own products and
merchandise the shelves on behalf of the retailer. To begin, distributors utilized their own sales representatives to do this work. Over time, this resulted in
competing representatives working in the same stores. This often led to the best presentation of merchandise resulting from the last
distributor representative physically in the store. As a result, retailers began looking for third parties who could manage the merchandising process and
ensure that the store, in total, was ready for the consumer. The result was the growth of the merchandising and marketing services industry.
We believe this industry will continue to grow and is more important today than ever before. With the acceleration of digital and online retailing, the
pressure on the physical store to remain relevant, efficient and compelling has never been higher. In addition, product manufacturers are constantly trying
to grab the consumer’s attention and make sure they are everywhere the consumer wants to shop. These are exactly the issues merchandising and marketing
services companies solve.
Merchandising and marketing services companies work to ensure the store is exceptionally merchandised and products thoughtfully featured while
enabling the retailer to maintain margins and leverage payroll. As the industry evolves, these services will continue to be a significant part of retailer and
manufacturer success.
With more than 50 years of history, the Company has established itself as a strategic partner to many of the world’s most exciting product manufacturers
and retailers.
Our Growth Strategy
As the need for flexibility and efficiency in merchandising and marketing services continues to increase, brand owners, consumer goods companies,
manufacturers, distributors, and retailers will continue to rely on third-party providers for these services. SPAR Group is uniquely able to meet these needs
because of our global reach, more than 50-year track record, access to thousands of merchandisers, breadth of capability, unwavering focus on excellence
and deep expertise. We combine great people, an understanding of what is needed and unique technologies, enabling us to offer enhanced services.
To capitalize on the growing demand, the Company’s business strategy is focused on three (3) priorities: 1) Grow the Core Business; 2) Introduce or
Acquire New Services; and 3) Invest in Technology. The result of this strategic framework will be top-line growth, expanded margins, more value for
clients and higher levels of free cash flow to allow us to invest in future growth.
Grow the Core Business
The Company is constantly pursuing new core business services while working to earn more business from current clients. We have a significant number of
long-tenured clients that, in order to ensure we understand their businesses, SPAR Group invests resources in people, technology and time, and thus we are
well-positioned to meet their needs in the future. This includes expanding the services we offer to existing clients. At the same time, we pursue and solicit
requests for proposals ("RFPs"), we actively market our services, we participate in industry events and we continuously look for opportunities to grow our
business. We believe our history, relationships, expertise, technology and scale are all competitive advantages for us.
5
Introduce or Acquire New Services
The Company believes in testing new ideas and services and applying its considerable existing expertise in new ways to increase revenues and expand
client relationships. The changing retail landscape and need for enhanced digital, e-commerce, and fulfillment capability along with the opportunities
arising from the emergence of Artificial Intelligence ("AI"), deep learning, and computer vision shapes our thinking. Our objective is to identify and
introduce new or complimentary capabilities that we believe the market and our clients need now and in the future. To accomplish this, we pursue business
partnerships, look for acquisitions and joint ventures and explore ideas based on market trends and our own unique client experiences. Our market
positioning provides us with an unparalleled window into changes and opportunities in the markets we serve. We carefully measure the results of these tests
and look for new services that can have a material impact on our financial and operational performance.
Invest in Technology
We believe our current SPARView technology provides us with a competitive advantage in the marketplace. Our technology enables us to communicate,
plan, track, analyze, and optimize our merchandising and marketing services work. However, we recognize that technology and our opportunity to
successfully leverage technology continues to change. As a result, we are constantly adapting and innovating. We explore relationships within and across
geographies and businesses with solution providers, while simultaneously making investments in our own solutions, with a focus to provide clients with
better results, through our broader capability. This will facilitate our ability to offer higher value services over time. Our objective is to provide technology
to field merchandisers, our client partners and our management to make smarter decisions that yield better customer and Company results.
Our Business Divisions
In 2023 and 2024, the Company operated through three divisions: Americas, Asia Pacific (APAC), and Europe, Middle East and Africa (EMEA). The
Americas division encompassed the United States, Canada, Mexico, and Brazil. The APAC division included Japan, China, Australia, and India. The
EMEA division consisted of South Africa. As part of the strategic review of our businesses, the Company has exited all its international joint ventures. The
financial results for the full years of 2024 and 2023 incorporate the results of these operations for the time periods that those joint ventures were held.
The total business is led and operated from our global headquarters in Auburn Hills, Michigan. Our Canada business has a regional leadership office in
Vaughan, Ontario.
The following table provides details of the structure of our Domestic and International businesses as of December 31, 2024:
Primary Territory
Entity Name
SGRP Percentage
Ownership
Principal Office Location
Americas
United States of America
SPAR Marketing Force, Inc.
100% Auburn Hills, Michigan
SPAR Assembly and Installation, Inc.
100% Auburn Hills, Michigan
Resource Plus of North Florida, Inc. ("RPI")
100% Auburn Hills, Michigan
Canada
SPAR Canada Inc,
100% Vaughan, Ontario, Canada
The Company tracks and reports certain financial information separately for the individual countries using the same metrics. The primary measurement
utilized by management is operating profit, historically the key indicator of long-term growth and profitability. Certain financial information regarding each
of the Company's divisions, which includes their respective net revenues and operating income for each of the years ended December 31, 2024 and 2023,
and their respective assets as of December 31, 2024 and 2023, is provided in Note 12 to the Company's Consolidated Financial Statements – Segment
Information, below.
Our Services
The Company currently provides six (6) principal types of services: Merchandising and Marketing, Category Management and Setup, Remodel and Retail
Transformation, Assembly and Installation, Business Analytics and Insights, and Fulfilment and Distribution.
Merchandising and Marketing
Merchandising and Marketing services are pivotal in ensuring that retail environments are optimally organized, products are well-presented, and
promotions are effectively implemented to drive sales and enhance customer engagement. This category encompasses a broad range of activities tailored to
maintain and elevate the retail experience, including: (i) resets and cut-ins, which involve the strategic rearrangement or introduction of products within the
retail space to keep the store layout fresh and aligned with current marketing strategies or consumer trends, (ii) price and inventory audits, which ensures
that pricing is accurate and inventory levels are properly maintained, providing valuable insights for inventory management and pricing strategies, (iii)
stock replenishment and rotation services, which are essential for keeping shelves well-stocked and products fresh, especially for perishable goods, thereby
enhancing customer satisfaction and minimizing waste, (iv) out of stock management, which focuses on minimizing the occurrence of stockouts and
efficiently addressing them when they happen, thus reducing lost sales opportunities and maintaining customer trust, (v) promotional event setup, which
entails the planning and execution of in-store events or displays to highlight specific products or sales promotions, creating an engaging shopping
experience, and (vi) display management, which includes the design, setup, and maintenance of product displays to attract customer attention and promote
featured items effectively. Together, these Merchandising & Marketing services are crucial for retail success, ensuring products are visible, accessible, and
appealing to customers.
Category Management and Setup
Category Management and Setup is a comprehensive suite of services aimed at optimizing retail space and product presentation for enhanced customer
experience and sales performance. This service category includes a variety of tasks such as (i) category and product resets, which involve reorganizing and
refreshing product arrangements and categories in-store to maintain relevance and appeal; (ii) planogram maintenance, which ensures that the layout of
products on shelves aligns with a strategic plan to optimize retail space and product visibility; (iii) display and shelf services, which focuses on the
maintenance and arrangement of shelves and displays to ensure products are presented attractively; (iv) POP (Point of Purchase) installation and
management, which involves setting up and managing marketing materials at the point of purchase to capture customer attention and encourage sales;
and (v) display setup, which includes the assembly and arrangement of product displays to highlight new products or promotions, creating an engaging
shopping environment. Together, these services work to maintain a coherent and appealing retail environment that enhances product visibility and shopper
engagement.
6
Remodel and Retail Transformation
Remodel & Retail Transformation encompasses a range of strategic services designed to update and revitalize retail environments, ensuring they meet
contemporary shopping expectations and trends. This category includes (i) store remodels, where retail spaces undergo comprehensive renovations to
enhance aesthetics, functionality, and shopper experience, (ii) store department resets which involve the reorganization and updating of specific sections
within a store to improve navigation and product presentation, (iii) fixture and banner installations, which contribute to refreshing the store's visual appeal
and marketing communication, (iv) pop-up store services which offer temporary retail setups that can test new markets, products, or concepts in an agile
and cost-effective manner and (v) store closings, managed with a focus on efficiency and minimal disruption, ensuring that transitions are smooth for both
the retailer and its customers. Through these services, Remodel & Retail Transformation aims to keep retail environments dynamic, engaging, and aligned
with brand identity and consumer expectations.
Assembly and Installation
Assembly and Installation services play a crucial role in enhancing the retail and consumer experience by ensuring that products are properly assembled
and set up, whether in-store, in the office, or within the consumer's home. This category covers a broad spectrum of tasks that facilitate the ready-to-use
delivery of products, improving convenience and satisfaction for both retailers and end-users. Services include (i) the assembly of merchandise in stores,
such as furniture and desks, enabling customers to visualize the final product and making the shopping experience more engaging and efficient; (ii) in-store
services, which extend to the maintenance of these products, ensuring they remain in optimal condition for display and use; (iii) office setup/down-sizing
services, which cater to businesses undergoing changes in their physical workspace, providing expert assembly and installation support for a seamless
transition; (iv) National In-Home Furniture Assembly services, which offer consumers the convenience of having furniture professionally assembled in
their homes, eliminating the hassle and time commitment typically associated with DIY assembly; and (v) the assembly and installation of fitness
equipment, whether it's in a commercial gym setting or a home fitness space, ensures that equipment is set up safely and correctly, maximizing
functionality and user safety. Overall, Assembly and Installation services address a vital need in the post-purchase experience, ensuring products are fully
functional and ready for use, thereby enhancing customer satisfaction and loyalty.
Business Analytics and Insights
Business Analytics and Insights services provide a critical foundation for informed decision-making and strategic planning in retail and merchandising
environments. This suite of services leverages data analysis and visualization tools to deliver actionable insights that drive efficiency, sales, and customer
satisfaction, including: (i) product dashboards, which offer a comprehensive view of product performance, inventory levels, and sales trends, enabling
quick adjustments to product strategy and stock management, (ii) stock out reporting, which identifies and analyzes instances where products are
unavailable on the shelves, allowing for rapid response to restock items and prevent lost sales opportunities, (iii) visit reporting, which tracks and evaluates
the effectiveness and outcomes of merchandising visits, providing insights into operational efficiency and areas for improvement, (iv) real-time service
insights, which delivers immediate feedback on the execution of merchandising and marketing initiatives, enabling dynamic adjustments to enhance in-
store experiences and promotional effectiveness, (v) share of shelf analytics, which assesses the visibility and presence of products on the retail shelf
compared to competitors, crucial for strategic positioning and market share growth, and (vi) photo analysis, which uses visual data to evaluate the
compliance and appeal of product displays, ensuring that merchandising standards are met and that displays are engaging to customers. Together, these
Business Analytics & Insights services empower businesses with the knowledge to optimize operations, tailor marketing efforts, and ultimately drive better
business outcomes through data-driven strategies.
Fulfillment and Distribution
Fulfillment & Distribution is a critical service offering that encompasses a range of services including (i) Distribution Center Staffing, which provides the
necessary workforce for the effective operation of distribution centers, including handling and sorting,(ii) POP (Point of Purchase) Fulfillment Services
focus on the storage, assembly, and delivery of marketing and promotional materials directly to retail locations, ensuring that displays are ready and
available for immediate use, (iii) Kiosk Prep, which involves preparing and equipping kiosks with the necessary products and promotional materials,
tailored for specific marketing or sales campaigns, (iv) returns processing, which manages the flow of returned goods, ensuring they are efficiently
processed, restocked, or disposed of according to the retailer's policies, (v) picking and packing services, which are crucial for order fulfillment, involving
the selection of the correct products from inventory and packing them for shipment to the customer or retail outlet, and (vi) inventory services which
provide comprehensive management of stock levels, including tracking, auditing, and reporting, to ensure inventory accuracy and availability. Together,
these Fulfillment & Distribution services play an essential role in optimizing our customers' supply chain, enhancing their customers' satisfaction, and
maintaining seamless operations from warehouse to consumer.
Our Customers
The Company currently represents numerous manufacturers and retail clients in a wide range of retail segments and stores, and its customers (which it
refers to as "clients") include the following markets:
Retail segments served include:
●Mass Merchandisers
●Grocery
●HBA
●Pharmacies
●Discount
●Dollar
●Convenience
●Cash and Carry
●Home Improvement
●Consumer Electronics
●Automotive
●Office Supply
●Independents
7
Manufacturer segments served include:
●Personal Technology
●Consumer Electronics
●Beverage
●Household Products
●Consumables
●Financial Products
●Automotive Aftermarket
It is important to note that we also work across all channels: retail and online. Our services make it possible for clients to ensure the online orders can be
filled from stores and that the pricing is competitive in individual markets.
We are proud to serve some of the world’s most exciting brands and leading retail businesses. In many cases, our clients cross over geographical boundaries
and we provide services to support their business around the world.
The Company did not have any clients that represented 10% or more of the Company's net revenue for the years ended December 31, 2024 and 2023.
Trademarks and Technology Licensing
The Company has numerous registered trademarks. Certain of the Company's "SPAR" trademarks (the "Licensed Marks") are licensed: (i) for use by
affiliated companies in the United States, royalty free, and in perpetuity pursuant to license agreements that commenced in 1999; (ii) for use by its wholly-
owned subsidiaries worldwide royalty free and in perpetuity pursuant to informal license arrangements; (iii) for use by joint venture subsidiaries in their
respective jurisdictions pursuant to license agreements for limited terms (executed contemporaneously with their respective joint venture agreements); and
(iv) for use by the Independent Field Vendor providing field specialists to the Company domestically in the United States for limited terms and modest
royalties pursuant to license agreements with (each as defined below). Portions of the Company's proprietary scheduling, tracking, coordination, reporting
and expense software (the "Co-Owned Software") currently included in the Company's technology are co-owned by the Company, SPAR Business
Services, Inc. ("SBS") and SPAR InfoTech, Inc. ("Infotech"), pursuant to a 1999 agreement. The Company's global technology systems (including the Co-
Owned Software) were maintained and further developed and improved by the Company at its own expense at a cost of $1.0 million in 2024 and
$1.0 million in 2023, respectively. Except for SBS and Infotech if they choose to use the Co-Owned Software on their own equipment (they do not need
such software licenses because of their co-ownership), each subsidiary and field vendor trademark license and arrangement also licenses the Company's
global technology systems (including portions of the Co-Owned Software) pursuant to their trademark license and arrangement.
Our Labor Force
As of December 31, 2024, the Company's labor force totaled approximately 3,425 including the services of field specialists and field administrators
furnished by independent third parties. The Company employed in Americas a labor force of 249 full-time employees and 730 part-time employees engaged
in operations. In the Company's Americas Division, the Company's merchandising, audit, assembly and other services for its clients are performed by field
specialists, and the services of a significant portion of them (approximately 2,446) were supplied to the Company by an independent vendor (the
"Independent Field Vendor").
The Company continues to evaluate its business model of using third-party independent contractors as field specialists (whether or not provided by others)
in light of changing client requirements and legal and regulatory environments.
The Company considers its relations with its own employees and independent vendors to be generally good.
Our Competition
The marketing services industry is highly competitive. The Company's competition in all markets arises from a number of large enterprises. The Company
also competes with a large number of relatively small enterprises with specific client, channel or geographic coverage, as well as with the internal
marketing and merchandising operations of its existing and prospective clients. The Company believes that the principal competitive factors within its
industry favoring the Company include the breadth and quality of its client services, its competitive costs, the development and deployment of its
technology, its ability to execute specific client priorities rapidly and consistently over a wide geographic area, and its ability to conceive of ideas and
operate as a business partner delivering value above basic services. The Company believes that its current structure favorably addresses these factors and
establishes it as a leader in many retailer and manufacturer verticals. The Company also believes it has the ability to execute major initiatives and develop
and administer manufacturer and retailer programs throughout the USA and Canada.
Corporate Website
The Company's website can be found at: http://www.sparinc.com, and the Company's SEC filings are available on that website under the Investors section.
Item 1A. Risk Factors
Investing in SGRP's common stock ("SGRP Common Stock") is subject to a number of Risks that could cause the Company's actual results to differ
materially from those projected or otherwise expected in any forward-looking statements or other information (see Forward-Looking Statements
immediately preceding Part I, above).
You should carefully review and consider the following Risks, but you should not place undue reliance on any of them. All forward-looking statements and
other information attributable to the Company or persons acting on its behalf are expressly subject to and qualified by all such Risks.
8
Those Risks reflect our expectations, views and assumptions only as of the date of this Annual Report, and the Company does not intend, assume any
obligation, or promise to publicly update or revise any such Risk or information (in whole or in part), whether as a result of new information, new or
worsening Risks or uncertainties, changed circumstances, future events, recognition, or otherwise.
Our potential going private transaction poses various risks
As previously announced, on August 30, 2024, the Corporation entered into an Agreement and Plan of Merger (the "Merger Agreement"), with Highwire
Capital, LLC, a Texas limited liability company ("Highwire"), and Highwire Merger Co. I, Inc., a Delaware corporation and a wholly owned subsidiary of
Highwire ("Merger Sub"), pursuant to which Highwire, in a cash merger and the closing of the transaction (the " Proposed Acquisition"), will acquire all of
the stock of the Corporation for $2.50 per fully diluted share in cash, representing an aggregate purchase price of $58,000,000 (subject to certain
adjustments).
The Proposed Acquisition involves various Risks, including (without limitation): the uncertainty of the closing of the Proposed Acquisition within the
anticipated time period, or at all, due to any reason, including any failure to satisfy the conditions to the consummation of the Proposed Acquisition or to
complete any necessary financing arrangements; the risk that the Proposed Acquisition disrupts our current plans and operations or diverts management's
attention from its ongoing business; the impact of the news of the Proposed Acquisition or developments in it; the nature, cost and outcome of any legal
proceedings related to the Proposed Acquisition; the impact of the Corporation's continued strategic review process, or any resulting action or inaction,
should the Proposed Acquisition not occur.
While the Company and Highwire are working to complete the Proposed Acquisition, either party may terminate the Merger Agreement if the Merger is
not completed by May 30, 2025.
The buyer may not be able to consummate the Proposed Acquisition pursuant to the Merger Agreement, and failure to complete the Proposed
Acquisition could negatively impact our stock price and our business, financial condition and results of operations.
As previously announced, on August 30, 2024, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Highwire
Capital, LLC, a Texas limited liability company ("Highwire") and Highwire Merger Co. I, Inc., a Delaware corporation and a wholly owned subsidiary of
Highwire ("Merger Sub"), pursuant to which Highwire will acquire the Company in a cash merger, with Merger Sub merging with and into the Company
(the “Proposed Acquisition”). While the Company and Highwire are working to complete the Proposed Acquisition, either party may terminate the Merger
Agreement if the Merger is not completed by May 30, 2025.
If the Proposed Acquisition is not consummated, the price of SGRP Common Stock may decline and our business, financial condition and results of
operations may be impacted. In addition, we have incurred substantial costs planning and negotiating the Merger Agreement. These costs include, but are
not limited to, costs associated with employing and retaining third-party advisors who performed the financial, auditing, and legal services required before
we were able to enter into the Merger Agreement and which will continue as we seek to complete the Merger. We will be responsible for these costs in the
event the Merger is not successful, which could adversely affect our liquidity and financial results.
The markets we operate in are cyclical and subject to the effects of economic downturns.
The markets in which the Company operates are cyclical and subject to the effects of economic downturns. The current political, social and economic
conditions, including the impact of terrorism on consumer and business behavior, make it difficult for the Company, its vendors and its clients to accurately
forecast and plan future business activities. Substantially all of the Company's key clients are either retailers, manufacturers or those seeking to do product
merchandising at retailers. Should the retail or manufacturing industries experience a significant economic downturn, the resultant reduction in product
sales could decrease the Company's revenues. The Company also has risks associated with its clients changing their business plans and/or reducing their
third-party services' budgets in response to economic conditions, which could also decrease the Company's revenues. Such revenue decreases could have a
material adverse effect on the Company or its performance or condition.
We can be adversely affected if governments pass legislation that mandates an increase in wages, changes labor laws or otherwise drives market
behavior that negatively impacts the business or operations of SPAR Group or our clients.
The Company relies on independent contractors as well as other third-party providers to perform work. There is risk that any government legislation that
restricts travel, changes labor laws, impacts wages or otherwise incentivizes behavior that negatively impacts our business or our clients could impact our
business.
The Company continues to analyze various aspects of potential business impact driven by any legislation in all of the areas we operate. While we do not
foresee any material impact in the short-term, the Company will continue to monitor and manage the business accordingly.
Our business depends on variable client projects that can shift from period to period, be delayed, be canceled or otherwise require us to assume higher
costs to perform the work.
The Company has experienced and, in the future, may experience fluctuations in quarterly operating results and cash flow. Factors that may cause the
Company's quarterly operating results and cash flow to vary from time to time and may result in reduced revenue and profits include: (i) the number of
active client projects; (ii) seasonality of client products; (iii) client delays, changes and cancellations in projects; (iv) staffing requirements,
indemnifications, risk allocations, primary insurance coverages, intellectual property claims and other contractual provisions and concessions demanded by
clients that are unilateral, unreasonable and very time consuming to review and attempt to negotiate; (v) the timing requirements of client projects; (vi) the
completion of major client projects; (vii) the timing of new engagements; (viii) the timing of personnel cost increases; (ix) service locations and conditions
with higher than contemplated personnel costs (remote areas, weather and health closures, higher minimum wages, higher skill sets required, etc.); and (x)
the loss of major clients. In addition, the Company is subject to revenue or profit uncertainties resulting from factors such as unprofitable client work and
the failure of clients to pay. These revenue fluctuations could materially and adversely affect the Company or its performance or condition, whether actual
or as planned, intended, anticipated, estimated or otherwise expected.
Our business could be adversely affected if retailers and manufacturers elect to perform merchandising and marketing services with their own
resources or if they have less stores that need our services.
The business and growth of the Company depends in part on the continued outsourcing of merchandising and marketing services, which the Company
believes has increased from the consolidation of retailers and manufacturers, as well as the desire to seek outsourcing specialists to reduce fixed operation
expenses and concentrate internal staff on customer service and sales. There can be no assurance that this outsourcing will continue, as companies may
elect to perform such services internally.
9
In addition, retailers with physical store locations are facing increasing consolidation and competition from eCommerce/virtual stores. The Company's
business and growth depends in part on the continuing need for in-store merchandising of products and the continuing success of retailers with physical
store locations. There can be no assurance that the in-store merchandising of products will increase or even continue at current levels or that retailers with
physical store locations will continue to compete successfully in those stores, and some retailers are shifting their sales focus to their virtual online stores.
A significant decrease in such need for in-store merchandising or success of such physical stores could significantly decrease the Company's revenues and
such decreased revenues could have a material adverse effect on the Company or its performance or condition, whether actual or as planned, intended,
anticipated, estimated or otherwise expected.
We do work with furniture and other related assembly services at stores, in homes and in offices.
The Company's technicians assemble furniture and other products in the stores, homes and offices of customers. Working at a customer's store, home or
office could give rise to claims against the Company for errors, omissions or misconduct by those technicians, including (without limitation) objectional
behavior, harassment, personal injury, death, damage to or theft of customer property, or other civil or criminal misconduct by such technicians. Claims also
could be made against the Company as a result of its involvement in such assembly services due to (among other things) product assembly errors and
omissions, product defects, deficiencies, breakdowns or collapse, products that are not merchantable or fit for their particular purpose, products that do not
conform to published specifications or satisfy customer expectations, or products that cause personal injury, death or property damage, in each case whether
actual, alleged or perceived by customers, and irrespective of how much time may have passed since such assembly. If such claims are asserted and
adversely determined against the Company, then to the extent such claims are not covered by indemnification from the product's seller or manufacturer or
by insurance, they could have a material adverse effect on the Company or its performance or condition.
We depend upon third-party independent contractors and the services they provide.
The success of the Company's business in the USA is dependent upon the successful execution and administration of its domestic field services through the
services of field specialists, and a significant portion of them are provided to the Company and are engaged by the Independent Field Vendor and located,
scheduled, deployed and administered domestically through the services of field administrators. The inability to identify, engage and successfully
administer its domestic field services through qualified field specialists and field administrators could have a material adverse effect on the Company or its
performance or condition.
A significant portion of the services of the field specialists provided to the Company are supplied by the Independent Field Vendor. It is possible that the
appropriateness of the treatment of those field specialists as independent contractors by the Independent Field Vendor will be periodically subject to legal
review or challenge by various states and others. The Company, in its discretion, may review and decide each request by its Independent Field Vendor for
reimbursement of its legal defense expenses on a case-by-case basis, including the relative costs and benefits to the Company of doing so, but the Company
has no obligation to do so.
To the Company's knowledge, its Independent Field Vendor is not involved in any material proceeding involving the misclassification of its independent
contractors. However: (i) if the Company approves its reimbursement of any material legal defense costs of the Independent Field Vendor; (ii) if the
Company somehow becomes liable for any legal expenses incurred by the Independent Field Vendor, any related party or any third party in defending any
claim or satisfying any judgment against such parties; (iii) if the Company somehow becomes liable through any judicial determination for any judgment
against the Independent Field Vendor, or any related party or other vendor or service provider (in whole or in part); or (iv) if any such proceeding or matter
causes: (A) any decrease in the Independent Field Vendor's performance (quality or otherwise); (B) any inability by the Independent Field Vendor to
execute the services for the Company or to continue with its present business model; or (C) any increase in the Company's use of employees (rather than
independent contractors) as its domestic field specialists; then any of the foregoing, in whole or in part, could have a material adverse effect on the
Company or its performance or condition.
There can be no assurance that plaintiffs or someone else will not claim that the Company is liable (under applicable law, through reimbursement or
indemnification, or otherwise) for any judgment or similar amount imposed against any provider of field specialists or field administrators to the Company,
which the Company would defend vigorously if pursued. There can be no assurance that the Company would be able to successfully defend any such
claim. Any imposition of liability on the Company for any such judgment or amount could have a material adverse effect on the Company or its
performance or condition.
Additionally, the Company believes that its business model of executing a significant portion of its services domestically (other than in California and in
performing its non-merchandising services elsewhere, where the Company is using its own employees) through independent contractors provided by others
is equally effective but inherently less costly than doing so with employees, both under applicable tax and employment laws and otherwise. However, the
Company continues to reevaluate its business model of using third party independent contractors as field specialists in performing merchandising services
outside of California in light of changing client requirements and legal and regulatory environments.
We rely on our systems and third-party vendors.
The Company relies on its proprietary systems for (among other things) the scheduling, tracking, coordination and reporting of its merchandising and
marketing services. In addition to proprietary software and applications of the Company, the systems use and rely upon software (including operating
system, office, exchange, data base and server programs) licensed and hardware purchased or leased from third parties and telecommunication services
provided by third parties, which third-party software, hardware and telecommunication services may not continue to be available at all or (if available) with
the necessary access, uptime, speeds or bandwidth, at reasonable prices or on commercially reasonable terms. Any defect, error or other performance
failure in such third-party software, hardware or service also could result in a defect, error or performance failure in our client services. Systems can
experience excess traffic and related inefficiencies, from increased demand or otherwise, as well as increased cyberattacks by hackers and other
saboteurs. To the extent that systems experience increased demands on current capacity and for additional capacity from (among other things) an increase
in the numbers of users, frequency or duration of use, bandwidth requirements of software, applications and users (including the increasing demand from
the Company's clients for data-intensive as-serviced pictures from the field specialists), or cyberattacks, there can be no assurance that the Company's
technological systems and third-party software, hardware and telecommunication providers will continue to be able to support the demands placed on them
by such increased demand or negative events.
10
The Company relies on third-party vendors to provide its telecommunication network access and other services used in its business, and the Company has
no control over such third-party providers. Additionally, a cybersecurity breach that results in unauthorized access to sensitive consumer or corporate
information contained in these systems may adversely affect the Company's reputation and lead to claims against it. Such claims could include identity
theft or other similar fraud-related claims and claims related to violations of applicable data privacy laws. Any system failure, accident or security breach
could result in disruptions to the Company's operations. To the extent that any disruption or security breach results in a loss or damage to the Company's
data, or results in inappropriate disclosure of confidential information, it could cause significant damage to the Company's reputation, affect its
relationships with its customers, lead to claims against it and ultimately harm its business. In addition, the Company may be required to incur significant
costs to protect against damage caused by these disruptions or security breaches in the future.
Any such software, hardware or service unavailability or unreasonable pricing or terms, defect, error or other performance failure in such third-party
software, hardware or service, increased capacity demands, disruption in services, security breach or protective measures could increase the Company's
costs of operation and reduce its efficiency and performance, which could have a material adverse effect on the Company or its performance or condition,
whether actual or as planned, intended, anticipated, estimated or otherwise expected.
Our stock is subject to volatility and general market risk.
The market price of SGRP Common Stock has historically experienced and may continue to experience significant volatility. During the year ended
December 31, 2024, the sale price of SGRP Common Stock fluctuated from $0.95 to $3.12 per share. The Company believes that its Common Stock is
subject to wide price fluctuations due to (among other things) the following:
●The relatively small public float and corresponding thin trading market for SGRP Common Stock, attributable to (among other things) the large
block of voting shares beneficially owned by the Company's Majority Stockholders (as defined below) and generally low trading volumes, and
that thin trading market may cause small trades to have significant impacts on SGRP Common Stock price.
●The substantial beneficial ownership of the Company's voting stock and potential control by Mr. Robert G. Brown and Mr. William H. Bartels
and related parties (the "Majority Stockholders"). Our significant stockholders may take actions, subject to the restrictions of the Change of
Control, Voting and Restricted Stock Agreement ("CIC Agreement”) and our By-Laws, Item 3 -- Legal Proceedings, below, Note 6 to the
Company's Consolidated Financial Statements - Commitments and Contingencies, and Note 10 to the Company's Consolidated Financial
Statements - Related Party Transactions, below.
●Any announcement, estimate or disclosure by the Company, or any projection or other claim or pronouncement by any of the Company's
competitors or any financial analyst, commentator, blogger or other person, respecting: (i) any new service created or improved, significant
contract, business acquisition or relationship, or other publicized development by the Company or any of its competitors; or (ii) any change,
fluctuation or other development in the Company's actual, estimated or desired affiliates, assets, business, clients, capital, cash flow, credit,
expenses, financial condition, income, legal costs, liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or
other achievement, results or condition or in those of any of the Company's competitors, in each case irrespective of accuracy or validity and
whether or not adverse or material.
●The general volatility of stock markets, consumer and investor confidence, and the general state of the economy (which often affect the prices of
stock issued by the Corporation and many others without regard to financial results or condition).
If the Corporation issues (other than at fair market value for cash) or the Majority Stockholders sell a large number of shares of SGRP Common Stock, or if
the market perceives such an issuance or sale is likely or imminent, the market price of SGRP Common Stock could decline.
The Corporation had in place a 2022 Stock Repurchase Program (as defined and described in Item 5 - Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities, below), which ended on May 24, 2023 and a 2024 Stock Repurchase Program, under which
1,000,000 shares were repurchased on May 3, 2024. Repurchases by the Corporation could adversely affect the market liquidity of the SGRP Common
Stock.
In addition, the volatility in the market price of SGRP Common Stock could lead to class action securities litigation that could in turn impose substantial
costs on the Company, divert management's attention and resources from the day-to-day operations of the Company's business and harm the Corporation's
stock price, the Company or its performance or condition.
11
As a small company with stock price volatility, our stock may be de-listed from NASDAQ.
There can be no assurance that the Corporation will be able to comply in the future with Nasdaq's Board Independence Rule, Audit Committee
Composition Rule, Bid Price Rule or other Nasdaq continued listing requirements. See Our significant stockholders may take actions, subject to the
restrictions of the Change of Control, Voting and Restricted Stock Agreement ("CIC Agreement") and our By-Laws, below. If the Corporation fails to
satisfy the applicable continued listing requirement again in the future, Nasdaq may commence delisting procedures against the Corporation (during which
the Corporation may have additional time of up to six (6) months to appeal and correct its non-compliance). If the SGRP Common Stock shares were
ultimately delisted by Nasdaq, trading of the SGRP Common Stock could be limited to "over-the-counter" trades and the market liquidity of the SGRP
Common Stock could be adversely affected, which could result in a decrease in the market price of the SGRP Common Stock due to (among other things)
the potential for increased spreads between bids and asks, lower trading volumes and reporting delays in over-the-counter trades and the negative
implications and perceptions that could arise from such a delisting
In addition to the foregoing, if the SGRP Common Stock is delisted from Nasdaq and is traded on the over-the-counter market, the "penny stock" rules, if
applicable, could adversely affect the market price of the SGRP Common Stock and increase the transaction costs to sell those shares. The SEC has
adopted specific rules regulating "penny stock", including additional risk disclosure requirements by broker dealers. If applicable in the future, the penny
stock rules may also restrict the ability of broker-dealers to sell the SGRP Common Stock and may adversely affect the ability of investors to sell their
shares.
We have inherent risk of failure to maintain effective internal controls.
Establishing and maintaining effective internal control over financial reporting and disclosures are necessary for the Company to provide reliable financial
and other reporting in accordance with accounting principles generally accepted and applicable securities and other laws in the United States and all other
countries in which we operate. Because of its inherent limitations, internal controls over financial and other reporting are not intended to provide absolute
assurance that the Company could prevent or detect a misstatement of its financial statements or other reports or any misconduct or fraud. Any failure to
maintain an effective system of internal control over financial and disclosure reporting could limit the Company's ability to report its financial results and
file its other reports accurately and timely or to detect and prevent misconduct or fraud. A significant financial or disclosure reporting failure or material
weakness in internal control over financial or other reporting could cause a loss of investor confidence and a decline in the market price of the SGRP
Common Stock. The Company's management is responsible for establishing and maintaining adequate internal controls over its financial reporting, as
defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act. As disclosed in Item 9A of Part II of this report, the Company identified
material weaknesses in its internal controls as of December 31, 2024. This material weaknesses resulted in errors in revenue, expense, accrual accounts and
prepaid accounts reconciliation at year end as well as a material error in the calculation over the sale of international components and the deconsolidation of
one subsidiary.
Due to the material weaknesses in the Company's internal control over financial reporting, the Company also concluded that its disclosure controls and
procedures were not effective as of December 31, 2024. Our inability to remediate the material weaknesses, our discovery of additional weaknesses, and
our ability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting could affect our ability to
ensure timely and reliable financial reports, and weaken investor confidence in our financial reporting. The Company is actively engaged in developing a
remediation plan designed to address the material weaknesses, but cannot be certain as to when its remediation plans will be fully completed. If the
remedial measures are insufficient to address the material weakness or if additional material weaknesses or significant deficiencies in the internal controls
are discovered or occur in the future, the consolidated financial statements may contain material misstatements and the Company could be required to
restate its financial results, which could materially and adversely affect the Company's business and results of operations or financial condition, restrict its
ability to access the capital markets, require the Company to expend significant resources to correct the weaknesses or deficiencies, subject it to fines,
lawsuits, penalties, judgements or other legal expenses, harm its reputation, create delays or the inability to meet future SEC reporting obligations or
otherwise cause a decline in investor confidence.
Our business is dependent on client payments, business performance and broad economic shifts, and we may be at risk of liquidity constraints and not
satisfying all of our credit facility covenants.
Our business and cash flow can be adversely affected by adverse changes in our client payments, our business performance and broad economic
shifts. There can be no assurances that in the future the Company will not violate covenants of its current or future credit facilities; and if it does violate
them, that the Company's lenders will waive any violations of such covenants affecting the Company's ability to maintain adequate lines of credit or
sufficient availability under its lines of credit. Accordingly, minimal profitability by the Company, additional one-time charges and changes in the
composition and quality of its borrowing base, as well as any failure to maintain sufficient availability or lines of credit from the Company's lenders (which
may involve their subjective judgment), could have a material adverse effect on the Company or its performance or condition, whether actual or as planned,
intended, anticipated, estimated or otherwise expected.
Our business and stock liquidity and market value could be adversely affected if we settle outstanding litigation by making payments or issuing stock.
The timing, size and success of litigation settlement efforts and any associated capital commitments cannot be readily predicted. Future litigation
settlements may be financed by issuing shares of the SGRP Common Stock (directly or through convertible securities), cash or a combination thereof. If
the SGRP Common Stock does not maintain a sufficient market value, or if potential litigants are otherwise unwilling to accept the SGRP Common Stock
as part of the consideration for the settlement of their litigation, the Company may be required to obtain additional capital through debt or equity
financings. To the extent the SGRP Common Stock is used for all or a portion of the consideration to be paid for legal settlements, dilution may be
experienced by existing stockholders. In addition, there can be no assurance that the Company will be able to obtain the additional financing it may need
for litigation settlements on terms that the Company deems acceptable. Failure to obtain such capital would materially and adversely affect the Company or
its performance or condition. There also can be no assurance that the other parties in any settlement will abide by the terms or any settlement or any related
releases. See Item 3 -- Legal Proceedings, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; Overview, and
Note 10 to the Company's Consolidated Financial Statements - Related Party Transactions, below.
Our business performance is connected to the experience and retention of key executives.
The business strategy, client relationships and operating knowledge are critical to the Company’s long-term success. We believe we have attracted and
developed the most experienced and proven executive leadership team in the industry. However, we work in a competitive industry where talent is visible
and other companies may approach and attract our key executives. We continuously review the terms and incentives for our executives to retain them and
competitively compensate them to deliver industry leading results on behalf of all shareholders.
12
Our significant stockholders may take actions, subject to the restrictions of the Change of Control, Voting and Restricted Stock Agreement ("CIC
Agreement") and our By-Laws.
The Company's co-founders, Mr. Robert G. Brown and Mr. William H. Bartels, are significant stockholders ("Significant Stockholders”) and Mr. Bartels is
a Director of SGRP and together with certain related parties (collectively, the "Majority Stockholders") beneficially own approximately 46.6% of the SGRP
Common Stock and could acquire more. That amount was calculated using their respective individual beneficial ownership, on December 31, 2024, which
includes the amounts they represented in the CIC Agreement and subsequent Form 4 filings, the total outstanding ownership (23,449,701 shares) of the
SGRP Common Stock on a non-diluted basis as of December 31, 2024. See Security Ownership of Certain Beneficial Owners and Management, in Part III
below, Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, and Note 10 to the
Company's Consolidated Financial Statements- Related Party Transactions, below.
As significant stockholders, the Majority Stockholders can have an impact on the nomination and election of directors and the passage of other shareholder
meeting proposals.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
SPAR Group Inc. recognizes the increased global cybersecurity threats and sophisticated, targeted computer crime and the risk it poses to our operations.
We rely on information technology and data to operate our business and develop, market and deliver our products and services to our customers.
Our cybersecurity risk management program is led by our Chief Information Officer (“CIO”), who is directly responsible for establishing cybersecurity
strategies and structures and managing ongoing cybersecurity risk management activities. Our CIO is part of the executive management team, and updates
our CEO and executive management on a monthly, or even more frequent, basis on cybersecurity enhancement and the development and implementation of
our roadmap.
We have strategically embedded cybersecurity risk management within an enterprise-wide framework, ensuring that it permeates across various facets of
our operations. This integrated approach encompasses administrative protocols, operational strategies, organizational structures, physical safeguards, and
technical measures, all tailored to align with the scope and nature of our business.
Cybersecurity Risk Management and Strategy
We believe this integrated approach allows cybersecurity considerations to be an integral part of our decision-making processes. Our day-to-day
cybersecurity work is led by our CIO and Head of Infrastructure. Both are highly experienced professionals. This group works closely with our executive
management to continuously evaluate and address cybersecurity risks in alignment with our business and operational needs.
Cybersecurity risks related to our business, technical operations, privacy and compliance issues are identified and addressed through a combination of
third-party assessments, internal audit, IT security, governance, risk and compliance reviews. To defend, detect and respond to cybersecurity incidents, we,
among other things:
●
Proactively review threat intelligence and other information obtained from governmental, public or private sources
●
Perform network vulnerability scans, cyber-hygiene assessments, and continually evaluate and address perceived gaps.
●
Conduct companywide cyber awareness training and on-going new employee cyber training.
●
Deploy a wide array of industry leading 3rd party solutions to continuously monitor network and endpoints.
●
On-going testing and evaluation of backup processes.
●
Perform disaster recovery tabletop exercises to assess readiness for possible events.
As noted, to operate our business, we utilize certain third-party service providers to perform a variety of functions and provide certain security-related
services, such as outsourced business critical functions, professional services, SaaS platforms, managed services, cloud-based infrastructure, data center
facilities, content delivery to customers, encryption and authentication technology, corporate productivity services, and other functions; as well as third
parties that assist us to identify, assess and manage cybersecurity risks, including professional services firms, threat intelligence service providers,
cybersecurity software providers, penetration testing firms and other vendors that help to identify, assess or manage cybersecurity risks.
In addition, we have implemented an incident response and breach management plan which has four overarching and interconnected stages:
●
Detection of a security incident,
●
Identification and containment,
●
Response, eradication and recovery,
●
Post-incident analysis and future preparations.
The plan also provides the process and workflow of communication for escalation of incidents to executive leadership to determine incident classification,
impact severity, and if and what further actions are warranted. Incident responses are overseen by leaders from our Software, Infrastructure Engineering,
and Executive team.
13
Cybersecurity Governance
Cybersecurity holds a significant role within our risk management procedures and remains a focal point for our Board and management. Under the Board's
oversight of general risk identification and management activities, the Audit Committee monitors cybersecurity risks. Committee members engage in
comprehensive discussions with management regarding these risks, as well as the measures taken to safeguard the company's information systems and
security, along with reviewing management's steps towards data privacy protection. Additionally, the Audit Committee receives annual cybersecurity
updates from senior management, covering both existing and emerging risks, management's responses and mitigation efforts, any cybersecurity or data
privacy incidents, and the status of key information security initiatives. Furthermore, our Board members regularly hold informal discussions with
management about cybersecurity news events and any updates to our cybersecurity risk management and strategy programs.
The leadership of our cybersecurity risk management and strategy is guided by experts from our Software, Infrastructure Engineering, and Executive
teams. With backgrounds spanning: information technology, security, systems, programming, and corporate strategy, these individuals are equipped to
oversee prevention, detection, mitigation, and remediation of cybersecurity incidents. They actively engage in managing our cybersecurity risk processes,
including executing our incident response plan, and regularly report relevant matters to the executive management and the Audit Committee.
We carry insurance that provides protection against the potential losses arising from a cybersecurity incident. However, there is no assurance that our
insurance coverage will cover, or be sufficient to cover, all losses or claims that may result from a cybersecurity incident.
Last year
During the last fiscal year, 2024, the Company did not encounter any material cybersecurity incidents, nor did it incur any notable
expenses as a result.
Item 2. Properties
The Company does not own any real property. The Company leases certain office space and storage facilities for its corporate headquarters, and
subsidiaries under various operating leases. These leases generally require the Company to pay rents at market rates, subject to periodic adjustments, plus
other charges, including utilities, real estate taxes and common area maintenance. The Company believes its relationships with its landlords to be generally
good. However, as these leased facilities generally are used for offices and storage, the Company believes that other leased spaces could be readily found
and utilized on similar terms should the need arise.
The Company relocated its corporate headquarters from New York to its existing operations office in Auburn Hills, Michigan, in September of 2020. The
Company also maintains its data processing center in Southfield, Michigan and its warehouse in Auburn Hills, Michigan, under an extended operating lease
expiring October 31, 2025.
The following is a list of the headquarter locations for the Company and its domestic and international subsidiaries:
DOMESTIC:
Auburn Hills, Michigan (Corporate Headquarters)
Southfield, Michigan (Data Center)
Jacksonville, Florida (Resource Plus)
INTERNATIONAL:
Vaughan, Ontario, Canada
Item 3. Legal Proceedings
The Company is a party to various legal actions and administrative proceedings arising in the normal course of business. In the opinion of Company's
management, resolution of these matters is not anticipated to have a material adverse effect on the Company or its estimated or desired affiliates, assets,
business, clients, capital, cash flow, credit, expenses, financial condition, income, legal costs, liabilities, liquidity, locations, marketing, operations,
prospects, sales, strategies, taxation or other achievement, results or condition.
Item 4. Mine Safety Disclosures
Not applicable.
14
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Company's Capital Stock Generally
SGRP's Certificate of Incorporation authorizes it to issue 47,000,000 shares of SGRP Common Stock ("SGRP Shares") with a par value of $0.01 per share,
which all have the same voting, dividend and liquidation rights. SGRP Common Stock is traded on the Nasdaq Capital Market under the symbol
"SGRP." On December 31, 2024, there were 23,449,701 shares of SGRP Common Stock outstanding in the aggregate (which does not include Treasury
Shares), and there were 12,199,788 shares (or approximately 52%) of SGRP Common Stock beneficially owned by non-affiliates of the Company in the
aggregate on a non-diluted basis (i.e., SGRP's public float). See Item IA - Risk Factors - Our significant stockholders may take actions, subject to the
restrictions of the Change of Control, Voting and Restricted Stock Agreement ("CIC Agreement") and our By-Laws, Security Ownership of Certain
Beneficial Owners and Management, in Part III below, and Note 10 to the Company's Consolidated Financial Statements- Related Party Transactions,
below.
SGRP's Certificate of Incorporation also authorizes it to issue 3,000,000 shares of preferred stock with a par value of $0.01 per share (the "SGRP Preferred
Stock"), which may have such preferences and priorities over the SGRP Common Stock and other rights, powers and privileges as SGRP's Board of
Directors may establish in its discretion from time to time.
The Corporation filed a "Certificate of Designation of Series "B" Preferred Stock of SPAR Group, Inc.” (the "Preferred Designation") with the Secretary of
State of Delaware, which designation had been approved by the Board on January 25, 2022. The Preferred Designation created a series of 2,000,000 shares
of Preferred Stock designated as "Series B Preferred Stock” with a par value of $.01 per share (the "Preferred Stock"). The Preferred Stock shares do not
carry any voting or dividend rights and automatically convert on vesting into the SGRP Common Stock on a 1 for 1.5 basis. See Note 10 to the Company's
Consolidated Financial Statements - Related Party Transactions, below. However, the holders of the Series B Preferred Stock have a liquidation
preference over the SGRP Common Stock and vote together for matters pertaining only to the Series B Preferred Stock (such as amending SGRP's
Certificate of Designation of Series B Preferred Stock) where only the holders of the Series B Preferred Stock are entitled to vote. The holders of
outstanding Series A Preferred Stock do not have the right to vote for directors or other matters submitted to the holders of the SGRP Common Stock.
On January 28, 2022, pursuant to the CIC Agreement, the Company issued to the Majority Stockholders 2,000,000 restricted shares of Series B Preferred
Stock, which have all vested and automatically converted into 3,000,000 SGRP Shares pursuant to the 1:1.5 conversion ratio set forth in the Preferred
Designation and the CIC Agreement. See Note 10 to the Company's Consolidated Financial Statements - Related Party Transactions, below.
All of the company's preferred stock issued under this plan have been converted into common stock as of December 31, 2024. Since there are no more
shares of Series B Preferred Stock outstanding, SGRP may change or cancel the authorized Series B Preferred Stock, and to the extent it reduces such
authorization without issuance, it can create other series of Preferred Stock with potentially different dividends, preferences and other terms.
Market Information
SGRP's Common Stock is traded on the Nasdaq Capital Market under the symbol "SGRP". As of December 31, 2024, there were approximately 3,498
stockholders of record.
Dividends
The Corporation has never declared or paid any cash dividends on its Common Stock and does not currently anticipate paying cash dividends on its
Common Stock in the foreseeable future. The Company historically has retained earnings to finance its operations and fund future growth of the business.
Any payment of future dividends will be at the discretion of the Board of Directors of the Corporation and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, cash flow, level of indebtedness, contractual restrictions in respect to the payment of
dividends and other factors that the Corporation Board of Directors deems relevant.
Equity Compensation
Information regarding the Company's equity compensation plans may be found in Item 11 of this Annual Report, which is hereby incorporated by
reference.
Stock Repurchase Program
On May 24, 2022, the Board of Directors of SGRP (the "Board"), authorized SGRP to repurchase up to 500,000 shares of its SGRP Shares pursuant to the
2022 Stock Repurchase Program (the "2022 Stock Repurchase Program"), which repurchases were made from time to time over the one-year period that
ended May 24, 2023 in the open market and through privately-negotiated transactions. Those repurchases were made subject to cash availability and
general market and other conditions. Through December 31, 2024, 151,156 shares of SGRP Common Stock were repurchased under the 2022 program and
became Treasury Shares.
On March 28, 2024, the Board approved SGRP's repurchase of up to 2,500,000 of SGRP's Shares of Common Stock ("SGRP Shares") under
the 2024 Stock Repurchase Program (the "2024 Stock Repurchase Program"), which repurchases would be made from time to time over a one-year period
in the open market and through privately-negotiated transactions, subject to cash availability and general market and other conditions. Pursuant to
the 2024 Stock Repurchase Program, on May 3, 2024, SGRP's Board and its Audit Committee approved SGRP's Repurchase Agreement with William H.
Bartels for SGRP's private repurchase of 1,000,000 shares of SGRP's Common Stock from William H. Bartels, dated and effective as of April 30, 2024, at a
purchase price of $1.80 per share (the Nasdaq closing price on April 29, 2024). Upon their repurchase those shares became Treasury Shares. Mr. Bartels is
a Director and significant stockholder of SGRP, is one of the founders of the Company, and is an affiliate and related party of SGRP. There were no other
share repurchases to date under the 2024 Stock Repurchase Program, which expired on March 28, 2025.
15
SGRP Common Stock Issuances
During 2024 and 2023, the Corporation issued respectively 1,208,742 and 387,306 SGRP Shares (including Treasury Shares and new shares of SGRP
Common Stock) in support of its requirement to satisfy the conversion of vested and surrendered Series B Preferred Stock (see above), benefit awards and
stock purchase plans, including employee Restricted Stock Units that vested and settled with stock, and the exercise of vested employee stock options. See
The Company's Capital Stock Generally, in Item 5 above, and Note 11 to the Company's Consolidated Financial Statements – Share Based Compensation,
below.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview of Our Business
SPAR Group is a leading merchandising and brand marketing services company, providing a broad range of sales enhancing services to retailers across
most classes of trade and consumer goods manufacturers and distributors around the world. The Company’s goal is to be the most creative, energizing and
effective retail services company that drives sales, margins and operating efficiency for our clients.
As of December 31, 2024, the Company operated in the United States and Canada. During 2024, the company strategically exited joint ventures in Mexico,
Brazil, South Africa, China, Japan and India.
With more than 50 years of experience and a diverse network of merchandising specialists around the world, the Company continues to grow its
relationships with some of the world’s leading businesses. The combination of resource scale, deep expertise, advanced technology and unwavering
commitment to excellence, separates the Company from the competition.
The Company is dedicated to delivering a spectrum of specialized services tailored to enhance retail operations and profitability across the globe. Our team
collaborates closely with clients to identify their primary goals, ensuring the execution of strategies that boost sales and profit margins. With a focus on
merchandising and brand marketing, our specialists deploy a variety of programs aimed at maximizing product sell-through to consumers. These initiatives
range from launching new products and setting up promotional displays to assembling fixtures and ensuring consistent stock availability, thus facilitating
efficient reordering processes. Furthermore, we extend our expertise to sales enhancement and customer service improvement. As the retail landscape
evolves, our team is adept at undertaking comprehensive store renovations and preparing new locations for their grand openings, ensuring they meet the
modern consumer's expectations. Additionally, our distribution associates play a pivotal role in retail and consumer goods distribution centers, preparing
these facilities for operation, optimizing system functionality, managing product logistics, and providing essential staffing solutions to meet our clients'
needs effectively.
The Company’s business is led and operated from its global headquarters in Auburn Hills, Michigan, with local leadership and offices in each country.
Delayed Filing
In fiscal year 2024, the Company navigated an exceptionally complex set of transactions and operational changes. During the year, the Company divested
six foreign joint ventures and acquired the remaining 49% ownership interest in another joint venture, significantly reshaping its corporate and
consolidation structure. The Company also implemented a new enterprise resource planning (ERP) system, running it in parallel during the fourth quarter
to transition from legacy financial systems. In addition, preparations for an anticipated acquisition of Highwire late in the year necessitated a delay in
completing the year-end financial close and postponed the start of the annual audit. These events collectively created an unusually challenging financial
reporting environment for 2024.
EBITDA and Adjusted EBITDA
Adjusted EBITDA is a non-GAAP measure of our operating performance and should not be considered as an alternative to net income as a measure of
financial performance or any other performance measure derived in accordance with generally accepted accounting principles in the United States of
America ("US GAAP"). Adjusted EBITDA is defined as net (loss) income before (i) depreciation and amortization of long-lived assets, (ii) interest
expense (iii) income tax expense, (iv) restructuring expenses, (v) impairment, (vi) nonrecurring legal settlement costs and associated legal expenses
unrelated to the Company's core operations, (vii) special items as determined by management, and (viii) review of strategic alternatives, which includes
primarily legal, consulting, and investment bank fees. This metric is a supplemental measure of our operating performance that is neither required by, nor
presented in accordance with, US GAAP.
We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a
consistent basis by excluding items that we do not believe are indicative of our ongoing operating performance. You are encouraged to evaluate these
adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the
future we may incur expenses that are the same as or similar to some of the adjustments in our presentation of Adjusted EBITDA. Our presentation of
Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. There can be no
assurance that we will not modify the presentation of Adjusted EBITDA in future periods, and any such modification may be material. In addition,
Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.
Our management believes Adjusted EBITDA is helpful in highlighting trends in our core operating performance compared to other measures, which can
differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital
investments. We also use Adjusted to supplement U.S. GAAP measures of performance in the evaluation of the effectiveness of our business strategies and
to make budgeting decisions.
16
Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported
under US GAAP. Some of these limitations include:
●
Adjusted EBITDA does not reflect our cash expenditure or future requirements for capital expenditures or contractual commitments;
●
Adjusted EBITDA does not reflect changes in our cash requirements for our working capital needs;
●
Adjusted EBITDA does not reflect the interest expense and the cash requirements necessary to service interest or principal payments on our
debt;
●
Adjusted EBITDA does not reflect cash requirements for replacement of assets that are being depreciated and amortized;
●
Adjusted EBITDA does not reflect non-cash compensation, which is a key element of our overall long-term compensation;
●
Adjusted EBITDA does not reflect the impact of certain cash charges or cash receipts resulting from matters we do not find indicative of our
ongoing operations; and
●
Other companies in our industry may calculate Adjusted EBITDA differently than we do.
Our Consolidated Net Income (loss) was approximately ($2.7) million and $4.8 million for the years ended December 31, 2024, and December 31,
2023. Our Consolidated EBITDA was approximately $2.5 million and $11.4 million for the years ended December 31, 2024 and 2023 respectively. The
following is a reconciliation of our net income to Adjusted EBITDA for the periods presented:
Year Ended December 31,
(in thousands)
2024
2023
Consolidated Net Income (Loss)
$
(2,687) $
4,776
Depreciation and amortization
1,616
2,001
Interest expense
2,222
1,919
Income tax expense
1,218
2,357
Other expense
171
346
Subtotal of Adjustments to Consolidated Net Income
5,227
6,623
Consolidated EBITDA
$
2,540 $
11,399
Review of Strategic Alternatives
5,221
544
(Gain)/Loss on sale of businesses
(1,348)
408
Restructuring costs
-
28
Legal costs / Settlements - non-recurring
100
289
Share-based compensation
137
297
Consolidated Adjusted EBITDA
$
6,650 $
12,965
Adjusted EBITDA attributable to non-controlling interest
(1,034)
(3,022)
Adjusted EBITDA attributable to SPAR Group, Inc.
5,616
9,943
Results of Operations
The following table sets forth selected financial data for the years indicated (dollars in millions):
Year Ended December 31,
2024
%
2023
%
Net revenues
$
196.8
100% $
262.7
100%
Related Party - Cost of revenues
-
-
5.2
2.0
Cost of revenues
158.3
80.4
202.1
76.9
Selling, general and administrative expense
37.3
19.0
43.7
16.6
(Gain) / Loss on sale of business
(1.3)
(0.7)
0.4
0.2
Depreciation and amortization
1.6
0.8
2.0
0.8
Interest expense
2.2
1.1
1.9
0.7
Other expense, net
0.2
0.1
0.3
0.1
Income (loss) before income taxes
(1.5)
(0.8)
7.1
2.7
Income tax expense
1.2
0.6
2.4
0.9
Net income (loss)
(2.7)
(1.4)
4.8
1.8
Net (income) attributable to non-controlling interest
(0.5)
(0.3)
(0.9)
(0.3)
Net income (loss) attributable to SPAR Group, Inc.
$
(3.2)
(1.6)% $
3.9
1.5%
17
Results of operations for the year ended December 31, 2024, compared to the year ended December 31, 2023.
Net Revenues
Consolidated net revenues for the year ended December 31, 2024, were $ 196.8 million compared to $ 262.7 million for the year ended December 31,
2023, a decrease of $ 65.9 million or 25.1%. This decrease in revenue was primarily driven by the sale of all international joint ventures during various
times throughout the year.
The Americas net revenues totaled $ 177.2 million and $ 203.7 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $
26.5 million or 13.0% is the result of the sale of our Brazilian joint venture during the second quarter. The decline in revenues associated with the sale of
Brazil were partially offset by 11% revenue growth in the United States and 15% revenue growth in Canada.
The Asia-Pacific net revenues totaled $ 11.3 million and $ 24.5 million for the years ended December 31, 2024 and 2023, respectively, a decrease of $ 13.2
million or 53.9%. The decline in revenues at Asia-Pacific is due to the exit of all joint ventures in the region in 2024, compared to a full year of revenues in
the prior year.
The EMEA net revenues totaled $ 8.3 million and $ 34.6 million for the years ended December 31, 2024 and 2023, respectively, a decrease of $
26.3 million or 76.1%. The decline in revenues is due to the exit of our South African joint venture in 2024.
Cost of Revenues
The Company's cost of revenues consists of its in-store labor and field management wages, related benefits, travel and other direct labor-related expenses
and was 80.5% of net revenue for the year ended December 31, 2024 compared to 78.9% of net revenues for the year ended December 31, 2023. The
decline in margin in 2024 was driven by significant growth in revenue from the remodel business, which is lower margin than the traditional merchandising
business.
The Americas cost of revenue as a percent of net revenue was 80.2% and 79.8% for the years ended December 31, 2024 and 2023, respectively. The
increase in cost of 0.4% was the result of higher costs in our owned U.S. business related to the high proportion of revenue growth in the remodel
business. These higher costs were partially offset by a partial year impact of the exit of Mexico and Brazil, which are traditionally lower margin businesses
than those in the U.S. and Canada.
The Asia-Pacific cost of revenue as a percent of net revenue was 80.7% and 74.7% for the years ended December 31, 2024 and 2023, respectively. Margins
declined in Asia-Pacific due to lower margins in China and the full year impact of the sale of Australia, which had high margins in 2023. As of December
31, 2024, the Company has exited all business in Asia-Pacific.
The EMEA cost of revenue as a percent of net revenue was 84.6% and 76.3% for the years ended December 31, 2024 and 2023, respectively. This decrease
in gross margin is due to (i) additional variable expenses in the cost of sales, (ii) government imposed wage increases (8.5%) ahead of inflation (5.3%) at a
time when the economy is under pressure which forced margin reduction in contract renegotiations. The Company exited the EMEA region in the first
quarter of 2024.
Selling, General and Administrative Expenses
Selling, general and administrative expenses of the Company include its corporate overhead, project management, information technology, executive
compensation, human resources, legal and accounting expenses. Selling, general and administrative expenses were approximately
$ 37.3 million, or
18.9% of net revenue, and approximately
$ 43.7 million, or
16.6% of net revenue for the years ended
December 31, 2024 and
2023, respectively. Selling,
general and administrative expenses for the year-ended
December 31, 2024 includes expenses of approximately $5.5 million related to our consideration of
strategic alternatives, costs to execute sale of joint ventures, and transaction costs associated with the proposed merger with Highwire capital. Absent these
costs, which are not on-going in nature, Selling, general and administrative expenses were 16.5% of net revenue in 2024.
The Americas selling, general and administrative expenses totaled $ 33.0 million and $ 32.2 million for the years ended December 31, 2024 and 2023,
respectively. Costs were essentially flat to prior year as the impact of the sale of Brazil was offset by higher costs associated with the evaluation of strategic
alternatives.
The Asia-Pacific selling, general and administrative expenses totaled $ 3.1 million and $ 6.5 million for the years ended December 31, 2024 and 2023,
respectively. The decrease of $ 3.4 million, or 52.2% is primarily attributable to the exit of international joint ventures by the end of the third quarter of
2024.
The EMEA selling, general and administrative expenses totaled $ 1.1 million and $ 5.0 million for the years ended December 31, 2024 and 2023,
respectively. EMEA was exited in second quarter of 2024.
Depreciation and Amortization
Depreciation and amortization expense was approximately $ 1.6 million and $ 2.0 million for the years ended December 31, 2024 and 2023, respectively.
Interest Expense
The Company's interest expense was $ 2.2 million and $ 1.9 million for the years ended December 31, 2024 and 2023, respectively.
The America interest expense was $ 2.1 million and $ 1.4 million for the years ended December 31, 2024 and 2023, respectively. The increase was due to
higher debt balances resulting from, among other factors, the legal obligation to have balance sheet cash of no less than $14.2 million at the closing date of
the Highwire merger.
Other Expense, Net
Other expense, net was $ 0.2 and $ 0.3 million for the years ended December 31, 2024 and 2023, respectively.
18
Income Tax Expense
The Company had income tax expense of $ 1.2 million, with an effective tax rate of -82.9%, and $ 2.4 million, with an effective rate of 33.0%, for the years
ended December 31, 2024 and 2023, respectively. For the year ended December 31, 2024, our effective income tax rate of -82.9% varied from the U.S.
federal statutory rate of 21% primarily as a result of foreign rate differential, the sale of foreign entities primarily as a result of the sale of the Brazilian JV
qualifying as a gain in Brazil and subject to foreign withholding tax but being characterized as a loss under US GAAP, and permanent differences.
Net income attributable to non-controlling interest
Net income attributable to noncontrolling interest was $ 0.5 million and $ 0.9 million for the years ended December 31, 2024 and 2023, respectively.
Critical Accounting Policies and Estimates
The Company’s critical accounting policies, including the assumptions and judgments underlying them, are disclosed in Note 2 to the Company’s
consolidated financial statements included elsewhere in this Annual Report on Form 10-K. These policies have been consistently applied in all material
respects and address matters such as impairment of long-lived assets, intangible assets, and goodwill, revenue recognition, allowance for credit losses, and
internal use software. While the estimates and judgments associated with the application of these policies may be affected by different assumptions or
conditions, the Company believes the estimates and judgments associated with the reported amounts are appropriate under the circumstances.
Impairment of Long-Lived Assets, Intangible Assets, and Goodwill
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of the Company’s property and
equipment and may not be recoverable. When indicators of potential impairment exist, the Company assesses the recoverability of the assets by estimating
whether the Company will recover its carrying value through the undiscounted future cash flows generated by the use of the asset and its eventual
disposition. Based on this analysis, if the Company does not believe that it will be able to recover the carrying value of the asset, the Company records an
impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset. If any assumptions, projections or estimates regarding any
asset change in the future, the Company may have to record an impairment to reduce the net book value of such individual asset.
When facts and circumstances indicate that the carrying value of definite-lived intangible assets may not be recoverable, the Company assesses the
recoverability of the carrying value by preparing estimates of sales volume and the resulting profit and cash flows expected to result from the use of the
asset or asset group and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the
carrying amount, the Company recognizes an impairment loss. The impairment loss recognized is the amount by which the carrying amount of the asset or
asset group exceeds the fair value. The Company uses a variety of methodologies to determine the fair value of these assets, including discounted cash flow
models, which are consistent with the assumptions hypothetical marketplace participants would use.
Goodwill is subject to annual impairment tests and interim impairment tests if impairment indicators are present. The Company performs the annual
impairment test during the third quarter each year. The impairment tests require the Company to first assess qualitative factors to determine whether it is
necessary to perform a quantitative goodwill impairment test. The Company is not required to calculate the fair value of a reporting unit unless it
determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. If it is determined that it is
more likely than not, or if the Company elects not to perform a qualitative assessment, the Company proceeds with the quantitative assessment. Under the
quantitative test, if the fair value of a reporting unit exceeds its carrying amount, then goodwill of the reporting unit is considered to not be impaired. If the
carrying amount of the reporting unit exceeds its fair value, then an impairment loss is recognized in an amount equal to the excess, up to the value of the
goodwill.
Revenue Recognition
The Company generates its revenues by providing merchandising services to its clients. Revenues are recognized when the Company satisfies a
performance obligation by transferring services promised in a contract to a customer and in an amount that reflects the consideration that the Company
expects to receive in exchange for those services. Performance obligations in the Company’s contracts represent distinct or separate services that we
provide to the Company’s customers; generally, the Company’s contracts have a single performance obligation. If, at the outset of an arrangement, the
Company determines that a contract with enforceable rights and obligations does not exist, revenues are deferred until all criteria for an enforceable
contract are met.
19
The Company’s merchandising services are provided over time, generally on a daily, weekly, or monthly basis, and transaction price is based on the
contractually-specified rate-per-driver metric (i.e., rate per hour, rate per store visit, or rate per unit stocked). The Company recognizes revenues for its
contracts based on the contractually-specified rate-per-driver metric(s) utilizing the right-to-invoice practical expedient because the Company has a right to
consideration for merchandising services completed to date. All of the Company’s contracts have a duration of one year or less and over 90% of the
Company’s contracts are completed in less than 30 days.
Customer deposits, which are considered advances on future work, are deferred and recorded as revenue in the period in which the services are provided.
Allowance for Credit Losses
The Company continually monitors the collectability of its accounts receivable based upon current client credit information and financial condition.
Balances that are deemed to be uncollectible after the Company has attempted reasonable collection efforts are written off through a charge to the bad debt
allowance and a credit to accounts receivable. Accounts receivable balances, net of any applicable reserves or allowances, are stated at the amount that
management expects to collect from the outstanding balances. The Company provides for probable uncollectible amounts through a charge to earnings and
a credit to bad debt allowance based in part on management’s assessment of the current status of individual accounts.
Based on management’s assessment, the Company established an allowance for credit losses of $0.4 million and $1.5 million at December 31, 2024 and
2023, respectively. Credit loss expense was $0.1 million and $0.3 million for the years ended December 31, 2024 and 2023, respectively.
Internal Use Software
The Company capitalizes certain costs associated with its internally developed software. The Company capitalizes the costs of materials and services
incurred in developing or obtaining internal use software and such costs include, but are not limited to: the cost to purchase software, the cost to write
program code, and payroll and related benefits and travel expenses for those employees who are directly involved with and who devote time to the
Company’s software development projects. Capitalization of such costs begins during the application development stage once the preliminary project stage
is complete, management authorizes and commits to funding the project, and it is probable that the project will be completed and that the software will be
used to perform the function intended. Capitalization ceases when the project is substantially complete and ready for its intended purpose. Costs incurred
during preliminary project and post-implementation stages, as well as software maintenance and training costs, are expensed in the period in which they are
incurred.
The Company capitalized approximately $1.0 million and $1.0 million of costs related to software developed for internal use for the years ended December
31, 2024 and 2023, respectively, and recognized approximately $1.4 million and $1.3 million of amortization of capitalized software for the years
ended December 31, 2024 and 2023
Recent Accounting Pronouncements
See the sections titled "Summary of Significant Accounting Policies— Recently Adopted Accounting Pronouncements” and "—Recently issued accounting
pronouncements not yet adopted” in Note 2 to the Company's Consolidated Financial Statements, Summary of Significant Accounting Policies, included
elsewhere in this Annual Report on Form 10‑K.
Liquidity and Capital Resources
Funding Requirements
Management believes that based upon the continuation of the Company's existing credit facilities, projected results of operations, vendor payment
requirements and other financing available to the Company (including amounts due to affiliates), sources of cash availability should be manageable and
sufficient to support ongoing operations over the next year. However, delays in collection of receivables due from any of the Company's major clients, a
significant reduction in business from such clients, or a negative economic downturn could have a material adverse effect on the Company's business, cash
resources and ongoing ability to fund operations.
The Company is a party to various domestic and international credit facilities. These various domestic and international credit facilities require compliance
with their respective financial covenants. For the year ended December 31, 2024, the Company was in compliance with all financial covenants under these
arrangements. See Note 4 to the Company's Consolidated Financial Statements, Debt, included elsewhere in this Annual Report on Form 10-K.
Cash Flows for the Years Ended December 31, 2024 and 2023
Net cash used in operating activities was $ (0.7) million for the year ended December 31, 2024 and net cash provided by operating activities was $ 6.8
million for the year ended December 31, 2023. The year-over-year decrease in net cash provided by operating activities was primarily due to the sale of
Brazil & South Africa, which both generated strong operating cash flows in 2023. This impact was partially offset by improved working capital
management in the US.
Net cash provided by investing activities for the year ended December 31, 2024 was $ 9.9 million, compared to cash used in investing activities of $
(2.3) million for the year ended December 31, 2023. The net cash provided by investing activities was primarily attributable to the sale of international joint
ventures, net of transaction costs.
20
Net cash used in financing activities for the year ended December 31, 2024 was approximately $ (1.7) million compared to $ (3.0) million used in financing
activities in 2023. The year-over-year decrease in cash from financing activities was driven by payment of notes to the sellers of Resource Plus, the
purchase of treasury stock, and distributions to non-controlling investors.
For the year ended December 31, 2024, the Company experienced a net increase in cash and cash equivalents amounting to approximately $ 7.5 million,
net of the impact of foreign exchange rate fluctuations of $(0.1) . The overall increase in cash was driven by proceeds from the sale of international joint
ventures as well as improved working capital management.
Brazil Joint Venture Sale and Non-GAAP EPS Impact
Economic Substance of the Transaction
In June 2024, SPAR Group completed the sale of its 51% ownership stake in its Brazilian joint venture. The total consideration was $10.7 million,
consisting of $9.7 million in cash received by SPAR and $1.0 million withheld for Brazilian tax purposes. SPAR’s carrying value for its investment in the
Brazilian joint venture was roughly $4.8 million before the sale. Based on these figures, the transaction generated an economic pre-tax gain of
approximately $5.9 million (i.e. the excess of the $10.7 million proceeds over the $4.8 million carrying value).
To facilitate this purchase, the buyer largely financed the payment at the joint venture level, rather than using entirely new funds. The funding was achieved
through two components:
●
a new $7.5 million loan incurred by the Brazilian joint venture in March 2024, and
●
$3.5 million paid by the minority (49%) joint venture partner.
As a result, the joint venture obtained the necessary $10.7 million to complete the acquisition of SPAR’s shares. SPAR received the $9.7 million in cash
proceeds (net of Brazilian withholding tax) before deconsolidating the Brazilian entity from its financial statements.
U.S. GAAP Accounting Treatment and Impact
Under U.S. GAAP, the accounting result of this sale differed from the economics described above. When SPAR deconsolidated its Brazilian joint venture
upon sale, it removed all the joint venture’s assets and liabilities from the consolidated balance sheet. As a consequence of the mechanics of the joint
venture financing, namely the payment originating from the joint venture qualifying as a capital distribution (instead of consideration for sale) SPAR was
required to reclassify approximately $7.5 million into the income statement as part of the gain/loss calculation. This non-cash reclassification effectively
reduced the gain on the sale by $7.5 million. Consequently, instead of recording the $5.9 million gain that the transaction economically produced, SPAR’s
financial statements reflect a $1.6 million loss on the sale of the Brazilian joint venture under GAAP. In other words, the $5.9 million economic gain was
offset by this $7.5 million accounting adjustment, yielding a net loss in the reported results. It is important to note that this $1.6 million loss is purely a
technical accounting/consolidation outcome and not reflective of the underlying economics of the transaction. The loss resulted from the required equity
reclassification entry, rather than any actual operational or cash loss on the sale. Had the economic substance been reflected in our accounting (i.e. had we
been able to record the approximately $5.9 million true gain on the sale instead of a loss), our pre-tax income for 2024 would have been higher by about
$7.5 million. After applying taxes, this difference would have significantly increased our net income and earnings per share.
For perspective, earnings per share (EPS) would have been materially higher if the $5.9 million gain were included - on such a basis, EPS for 2024 would
have been $0.19 per share compared to the reported GAAP result of ($0.13).
This adjusted EPS measure adds back the after-tax impact of the reduction of the economic gain on the sale by $7.5 million (approximately $0.32 per share)
to our GAAP EPS. This adjustment would have turned our reported net loss for the year into a net profit, underscoring the positive economic impact of the
Brazil joint venture sale.
In summary, while our official results are reported in accordance with U.S. GAAP (and thus include the $1.6 million accounting loss on the Brazil sale), we
believe it is helpful to provide investors with the economic context of this transaction. Excluding the technical accounting adjustment, the sale of our
Brazilian joint venture was a highly accretive disposition that added substantial economic value. The adjusted gain and related EPS impact discussed above
are supplemental, non-GAAP figures provided to illustrate the true economic outcome. Management emphasizes that the GAAP financial statements
remain the authoritative source of our results, but the additional context is intended to clarify that the GAAP loss on the sale was driven by accounting
requirements rather than an economic loss.
Year Ended December 31,
(in thousands)
2024
2023
GAAP Net (Loss) Income attributable to SPAR Group, Inc.
$
(3,150)
$
3,902
GAAP Earnings (Loss) per share (basic)
(0.13)
0.17
Adjustment to reflect what management believes is true economic gain on Brazil joint venture sale
7,556
-
EPS impact of adjustment (basic)
0.32
-
Non-GAAP Net Income
4,406
-
Non-GAAP basic Earnings per share
0.19
-
Restatement of Quarterly Financial Data
The Company has restated its previously issued unaudited interim financial statements for the three and six months ended June 30, 2024 and the three and
nine months ended September 30, 2024 (the “Non-Reliance Periods”). Detailed restatements of the Company's condensed consolidated quarterly financial
statements are provided in Note 16 – Restatement (Unaudited) in the accompanying notes to the consolidated financial statements.
21
The following unaudited quarterly statements of operations data for the quarter ended June 30, 2024 and for the quarter ended September 30, 2024 have
been prepared on a basis consistent with our audited annual financial statements included in this Annual Report on Form 10-K and include, in our opinion,
all normal recurring adjustments necessary for the fair presentation of the financial information contained in those statements. Our historical results are not
necessarily indicative of the results that may be expected in the future. The following should be read in conjunction with our audited financial statements
and the related notes included in this Annual Report on Form 10-K.
June 30, 2024
September 30,
2024
As Restated
As Restated
Net revenues
$
57,290 $
37,788
Related party - cost of revenues
-
-
Cost of revenues
46,297
29,346
Gross profit
10,993
8,442
Selling, general and administrative expense
9,541
8,558
Loss on sale of business
2,599
960
Depreciation and amortization
478
454
Operating (loss)
(1,625)
(1,530)
Interest expense
567
582
Other (income) loss, net
(296)
472
(Loss) before income tax expense
(1,896)
(2,584)
Income tax expense (benefit)
1,547
(2,314)
Net (loss)
(3,443)
(270)
Net (income) loss attributable to non-controlling interest
(448)
88
Net (loss) attributable to SPAR Group, Inc.
$
(3,891) $
(182)
Basic (loss) per common share attributable to SPAR Group, Inc.
$
(0.16) $
(0.01)
Diluted (loss) per common share attributable to SPAR Group, Inc.
$
(0.16) $
(0.01)
Weighted-average common shares outstanding – basic
23,786
23,435
Weighted-average common shares outstanding – diluted
24,010
23,435
Net (loss)
$
(3,443) $
(270)
Other comprehensive income (loss)
Foreign currency translation adjustments
1,372
(72)
Comprehensive (loss)
(2,071)
(342)
Comprehensive (income) loss attributable to non-controlling interest
(393)
45
Comprehensive (loss) attributable to SPAR Group, Inc.
$
(2,464) $
(297)
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under
this item.
Item 8. Financial Statements and Supplementary Data
See Item 15 of 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
Management's Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) are designed to ensure that information
required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated
and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. The Chief
Executive Officer and the Chief Financial Officer, as our principal financial and accounting officer, have reviewed the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Annual Report on Form 10-K and, based on their evaluation, have concluded that the
disclosure controls and procedures were not effective as of such date due to material weaknesses in internal control over financial reporting, described
below.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
of the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief
Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
22
Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Also, projections of any evaluation of
the effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management utilized the criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) to conduct an assessment of the effectiveness of our internal control over financial reporting as of December 31,
2024. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2024. In
connection with the preparation of our consolidated financial statements for the year ended December 31, 2024, we identified two material weaknesses in
internal control over financial reporting, as described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.
Material Weakness in Internal Control Over Financial Reporting
Management did not maintain effective controls related to the financial statement close process to ensure the completeness and accuracy of certain amounts
and disclosures, specifically related to the preparation and review of balance sheet account reconciliations. This material weakness resulted in errors in
revenue, expense, accrual accounts and prepaid accounts at year end.
Management did not design and implement effective controls used in the financial close process over non-recurring transactions, including accounting for
the deconsolidation and sale of the international components. This material weakness resulted in errors around the calculation over the sale of international
components and the deconsolidation of one subsidiary.
Remediation Efforts
The Company has begun the process of, and is focused on, designing and implementing effective internal control measures to improve its internal control
over financial reporting and remediate the material weakness identified above. The Company's internal control remediation efforts include the following:
1. Implemented a modern and more efficient ERP system which went live January 1, 2025 with a parallel run in Q4 2024, and which includes modern
and inherent controls and reduces the need for manual adjustments and likelihood of errors;
2. Hiring of an Assistant Controller as of January 1, 2025, who is an experienced CPA, and will provide necessary support to the existing Controller and
ensure proper reconciliations are performed in a timely manner;
3. Consolidation of the finance and accounting team in one office (versus different offices and home offices), in a transition that started January 1,
2025, centralizing processes and ensuring more consistent application of controls across the Company
4. Simplified the organizational structure by divesting six foreign joint venture operations, thereby reducing the complexity of the Company’s financial
reporting and oversight processes.
Management expects that the actions described above and resulting improvements in controls will strengthen its internal control over financial reporting
and will address the identified material weaknesses.
Changes in Internal Controls Over Financial Reporting
Other than the material weaknesses described above, there were no changes in the Company's internal controls over financial reporting that occurred during
the Company's quarter ended December 31, 2024, that materially affected, or are reasonably likely to materially affect, the Company's internal controls
over financial reporting.
Item 9B. Other Information
a. During the fourth quarter of 2024, none of our directors or executive officers adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule
10b5-1 trading arrangement” (as each term is defined in Item 408(a) of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
23
PART III
"Reference is made below to SGRP’s definitive Proxy Statement for its 2024 Annual Meeting of Stockholders, which SGRP plans to file pursuant to
Regulation 14A on or about May 23, 2025, with the meeting scheduled to be held on or before June 12, 2025. For clarity (and without limitation),
information appearing in the sections of such Proxy Statement entitled "PROPOSAL 3 – ADVISORY VOTE ON EXECUTIVE COMPENSATION”,
"PROPOSAL 4 – ADVISORY VOTE ON THE FREQUENCY THAT THE CORPORATION HOLDS THE ADVISORY VOTE ON EXECUTIVE
COMPENSATION”, and "REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS” shall not be deemed to be incorporated by
reference in this Annual Report.
Item 10. Directors, Executive Officers and Corporate Governance
Reference is made to the information set forth under the captions "The Board of Directors of the Corporation”, "Executives and Officers of the
Corporation”, "Security Ownership of Certain Beneficial Owners and Management” and "Corporate Governance” in the 2024 Proxy Statement.
Item 11. Executive Compensation
Reference is made to the information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management”, "Executive
Compensation, Directors and Other Information”, "Executive Compensation, Equity Awards and Options” and "Compensation Plans” in the 2024 Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Reference is made to the information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management”, "Executive
Compensation, Equity Awards and Options” and "Compensation Plans” in the 2024 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Reference is made to the information set forth under the caption "Transactions with Related Persons, Promoters and Certain Control Persons” in the
2024 Proxy Statement.
Item 14. Principal Accountant Fees and Services
Reference is made to the information set forth under the caption "PROPOSAL 2 – RATIFICATION, ON AN ADVISORY BASIS, OF THE
APPOINTMENT OF BDO USA, P.C. AS THE COMPANY’S PRINCIPAL INDEPENDENT ACCOUNTANTS” in the 2024 Proxy Statement.
24
PART IV
Item 15. Exhibits and Financial Statement Schedules
Index to Financial Statements filed as part of this report:
Report of Independent Registered Public Accounting Firm (BDO USA, P.C.; Troy, Michigan; PCAOB ID#243)
32
Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2024
and 2023
33
Consolidated Balance Sheets as of December 31, 2024 and 2023
34
Consolidated Statement of Stockholders' Equity for the years ended December 31, 2024 and 2023
35
Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023
36
Notes to Consolidated Financial Statements
37
Exhibits
Exhibit
Number
Description
2.1
Agreement and Plan of Merger, dated August 30, 2024, by and among Highwire Capital, LLC, Highwire Merger Co. I, Inc. and SPAR
Group, Inc. (incorporated by reference to Exhibit 2.1 to SGRP’s Current Report on Form 8-K, as filed with the SEC on September 3,
2024).
3.1
Certificate of Incorporation of SPAR Group, Inc. (referred to therein under its former name of PIA Merchandising Services, Inc.), as
amended, incorporated by reference to the Corporation’s Registration Statement on Form S-1 (Registration No. 33-80429), as filed
with the SEC on December 14, 1995, and the Certificate of Amendment filed with the Secretary of State of the State of Delaware on
July 8, 1999 (which, among other things, changes the Corporation’s name to SPAR Group, Inc.), (incorporated by reference to Exhibit
4.1 to the Corporation’s Registration Statement on Form S-8 (Registration No. 33-80429) as filed with the SEC on April 2, 2021).
3.2
Certificate of Elimination of the Certificate of Designation of Series "A" Preferred Stock of SPAR Group, Inc., adopted as of January
25, 2022 (incorporated by reference to Exhibit 3.1 to SGRP's Current Report on Form 8-K, as filed with the SEC on January 28,
2022).
3.3
Certificate of Designation of Series "B” Convertible Preferred Stock of SPAR Group, Inc., adopted January 25, 2022 (incorporated by
reference to Exhibit 3.2 to SGRP's Current Report on Form 8-K, as filed with the SEC on January 28, 2022).
3.4
Amended and Restated By-Laws of SPAR Group, Inc., as adopted, restated, effective and dated January 18, 2019 and as further
amended through January 25, 2022 (incorporated by reference to Exhibit 3.3 to SGRP's Current Report on Form 8-K, as filed with the
SEC on January 28, 2022).
3.5
Amended and Restated Charter of the Audit Committee of the Board of Directors of SPAR Group, Inc., adopted, restated, effective
and dated August 12, 2020, (incorporated by reference to Exhibit 3.4 to the First Amendment to SGRP's Annual Report on Form 10-
K/A for the fiscal year ended December 31, 2020, as filed with the SEC on April, 29, 2021 ("SGRP's 2020 Annual Report
Amendment").
3.6
Charter of the Compensation Committee of the Board of Directors of SPAR Group, Inc., Amended, Restated and Dated (as of) August
11, 2020, (incorporated by reference to Exhibit 3.5 to the First Amendment to SGRP's Annual Report on Form 10-K/A for the fiscal
year ended December 31, 2020, as filed with the SEC on April, 29, 2021 ("SGRP's 2020 Annual Report Amendment").
25
3.7
Charter of the Governance Committee of the Board of Directors of SPAR Group, Inc., Dated (as of) April 23, 2020 and As Amended
through March 18, 2021 (incorporated by reference to Exhibit 3.6 to the First Amendment to SGRP's Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2020, as filed with the SEC on April, 29, 2021 ("SGRP's 2020 Annual Report Amendment").
3.08
SPAR Group, Inc. Statement of Policy Respecting Stockholder Communications with Directors, adopted on May 18, 2004
(incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on May 27, 2004).
3.9
SPAR Group, Inc. Statement of Policy Regarding Director Qualifications and Nominations, adopted on May 18, 2004 (incorporated
by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on May 27, 2004).
3.10
SPAR Group, Inc. Statement of Policy Respecting Complaints and Communications by Employees and Others as Amended and
Restated as of August 13, 2015 (also known as the Whistleblower Policy) (incorporated by reference to SGRP's Annual Report on
Form 10-K for the fiscal year ended December 31, 2017, as filed with the SEC on April 2, 2018).
3.11
SGRP 2024 Stock Repurchase Program as approved by SGRP's Audit Committee and adopted by its Board of Directors on March 28,
2024 (incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on April 3, 2024).
4.1
Form of SGRP's Common Stock Certificate (incorporated by reference to SGRP's Pre-Effective Amendment No. 1 to its Registration
Statement on Form S-3 (Registration No. 333-162657) as filed with the SEC on February 7, 2011).
4.2
Form of SGRP's Series B Preferred Stock Certificate (incorporated by reference to SGRP’s Annual Report on Form 10-K, as filed
with the SEC on April 17, 2023).
4.3
Registration Rights Agreement entered into as of January 21, 1992, by and between SGRP (as successor to, by merger in 1996 with,
PIA Holding Corporation, f/k/a RVM Holding Corporation, the California Limited Partnership, The Riordan Foundation and
Creditanstalt-Bankverine (incorporated by reference to the Form S-1).
4.4
Summary Description and Prospectus dated August 24, 2009, respecting the SPAR Group, Inc. 2008 Stock Compensation Plan, as
amended (incorporated by reference to Exhibit 99(a)(1)(G) to SGRP's SC TO-I).
10.1
2021 Stock Compensation Plan of SPAR Group, Inc., effective as of August 12, 2021 (incorporated by reference to Appendix A to the
Corporation’s Definitive Proxy Statement filed with the SEC on July 13, 2021).
10.2
2020 Stock Compensation Plan of SPAR Group, Inc., effective as of January 19, 2021 (incorporated by reference to Annex B to the
Corporation’s Definitive Proxy Statement filed with the SEC on December 10, 2020).
10.3
2018 Stock Compensation Plan of SGRP, effective as of May 2, 2018 (incorporated by reference to Annex A to SGRP's Definitive
Proxy Statement filed with the SEC on April 18, 2018).
10.4
2008 Stock Compensation Plan, effective as of May 29, 2008, and as amended through May 28, 2009 (the "SGRP 2008 Plan")
(incorporated by reference to SGRP's Current Report on Form 8-K dated June 4, 2009, as filed with the SEC on June 4, 2009).
10.5
2000 Stock Option Plan, as amended through May 16, 2006 (incorporated by reference to SGRP's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2006, as filed with the SEC on November 14, 2006).
10.6
Phantom Stock Unit Grant and Agreement entered into and effective as of April 3, 2023, between SGRP and Kori G. Belzer
(incorporated by reference to Exhibit 10.6 to SGRP's Annual Report on Form 10-K for the year ended December 31, 2023, as filed
with the SEC on April 1, 2024).
10.7
Phantom Stock Unit Grant and Agreement entered into and effective as of March 24, 2022, between SGRP and Kori G. Belzer
(incorporated by reference to Exhibit 10.7 to SGRP's Annual Report on Form 10-K for the year ended December 31, 2023, as filed
with the SEC on April 1, 2024).
26
10.8
Phantom Stock Unit Grant and Agreement entered into and effective as of April 3, 2023, between SGRP and Antonio Calisto Pato
(incorporated by reference to Exhibit 10.8 to SGRP's Annual Report on Form 10-K for the year ended December 31, 2023, as filed
with the SEC on April 1, 2024).
10.9
Phantom Stock Unit Grant and Agreement entered into and effective as of April 3, 2023, between SGRP and William Linnane
(incorporated by reference to Exhibit 10.9 to SGRP's Annual Report on Form 10-K for the year ended December 31, 2023, as filed
with the SEC on April 1, 2024).
10.10
Phantom Stock Unit Grant and Agreement entered into and effective as of March 24, 2022, between SGRP and William Linnane
(incorporated by reference to Exhibit 10.10 to SGRP's Annual Report on Form 10-K for the year ended December 31, 2023, as filed
with the SEC on April 1, 2024).
10.11
Phantom Stock Unit Grant and Agreement entered into and effective as of April 3, 2023, between SGRP and Ron Lutz (incorporated
by reference to Exhibit 10.11 to SGRP's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC
on April 1, 2024).
10.12
Phantom Stock Unit Grant and Agreement entered into and effective as of March 24, 2022, between SGRP and Ron Lutz
(incorporated by reference to Exhibit 10.12 to SGRP's Annual Report on Form 10-K for the year ended December 31, 2023, as filed
with the SEC on April 1, 2024).
10.13
Phantom Stock Unit Grant and Agreement entered into and effective as of April 3, 2023, between SGRP and Mike Matacunas
(incorporated by reference to Exhibit 10.13 to SGRP's Annual Report on Form 10-K for the year ended December 31, 2023, as filed
with the SEC on April 1, 2024).
10.14
Inducement RSU Contract between SPAR Group, Inc. and Antonio Calisto Pato dated March 10, 2023 (incorporated by reference to
Exhibit 10.14 to SGRP's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on April 1,
2024).
10.15
Inducement RSU Contract, between SPAR Group, Inc. and William Linnane, dated August 2, 2021 (incorporated by reference to
Exhibit 10.6 to the Corporation’s Annual Report on Form 10-K as filed with the SEC on April 15, 2022).
10.16
Inducement RSU Contract, between SPAR Group, Inc. and Ron Lutz, dated August 2, 2021 (incorporated by reference to Exhibit 10.7
to the Corporation’s Annual Report on Form 10-K as filed with the SEC on April 15, 2022).
10.17
Inducement Nonqualified Stock Option Contract, between SGRP and Mike Matacunas, dated February 22, 2021 (incorporated by
reference to Exhibit 4.5 to the Corporation’s Registration Statement on Form S-8 (Registration No. 33-80429) as filed with the SEC
on April 2, 2021).
10.18
Inducement RSU Contract, between SGRP and Mike Matacunas, dated February 22, 2021 (incorporated by reference to Exhibit 10.9
to the Corporation’s Annual Report on Form 10-K as filed with the SEC on April 15, 2022).
10.19
Inducement Nonqualified Stock Option Contract, between SGRP and Fay DeVriese, dated August 31, 2020 (incorporated by reference
to Exhibit 4.4 to the Corporation’s Registration Statement on Form S-8 (Registration No. 33-80429) as filed with the SEC on April 2,
2021).
10.20
2001 Employee Stock Purchase Plan (incorporated by reference to SGRP's Proxy Statement for SGRP's annual stockholders meeting
held on August 2, 2001, as filed with the SEC on July 12, 2001).
10.21
2001 Consultant Stock Purchase Plan (incorporated by reference to SGRP's Proxy Statement for SGRP's Annual meeting held on
August 2, 2001, as filed with the SEC on July 12, 2001).
10.22
Consulting Agreement dated January 27, 2022, effective February 1, 2022, between SGRP and Thenablers, Ltd., which is wholly
owned by and will provide certain consulting services from Panagiotis ("Panos") N. Lazaretos (who retired as a SGRP director
effective January 25, 2022) to SGRP regarding global sales and new markets’ expansion (incorporated by reference to Exhibit 10.3 to
SGRP's Current Report on Form 8-K, as filed with the SEC on January 28, 2022).
10.23
Consulting Agreement dated January 25, 2022, and effective January 26, 2022, between SGRP and James R. Brown, Sr. (who retired
as a SGRP director effective January 25, 2022) (incorporated by reference to Exhibit 10.2 to SGRP's Current Report on Form 8-K, as
filed with the SEC on January 28, 2022).
10.24
Change of Control, Voting and Restricted Stock Agreement, effective January 28, 2022, by and among SGRP, Robert G. Brown,
William H. Bartels, SPAR Administrative Services, Inc., a Nevada corporation, and SPAR Business Services, Inc., a Nevada
corporation (incorporated by reference to Exhibit 10.1 to SGRP's Current Report on Form 8-K, as filed with the SEC on January 28,
2022).
10.25
Change of Control Severance Agreement between SGRP and Antonio Calisto Pato dated as of February 28, 2023 (incorporated by
reference to Exhibit 10.25 to SGRP's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on
April 1, 2024).
10.26
Corrective Global Amendment to Change of Control Severance Agreements between SGRP, Fay DeVriese, William Linnane and Ron
Lutz made and entered into and effective as of August 10, 2022 (incorporated by reference to Exhibit 10.26 to SGRP's Annual Report
on Form 10-K for the year ended December 31, 2023, as filed with the SEC on April 1, 2024).
27
10.27
Amended and Restated Change of Control Severance Agreement (the "CICSA”) between SGRP and Fay DeVriese made and entered
into effective as of August 13, 2021 (incorporated by reference to Exhibit 10.1 to SGRP's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2021, as filed with the SEC on November 15, 2021).
10.28
Change of Control Severance Agreement between SGRP and William Linnane dated as of July 12, 2021 (incorporated by reference to
Exhibit 10.18 to the Corporation’s Annual Report on Form 10-K as filed with the SEC on April 15, 2022.
10.29
Change of Control Severance Agreement between SGRP and Ron Lutz dated as of July 12, 2021 (incorporated by reference to Exhibit
10.19 to the Corporation’s Annual Report on Form 10-K as filed with the SEC on April 15, 2022).
10.30
Change of Control Severance Agreement by and among SGRP, SPAR Marketing Force, Inc. and Mike Matacunas dated as of January
26, 2021 (incorporated by reference to Exhibit 10.1 to SGRP's Current Report on Form 8-K, as filed with the SEC on February 16,
2021).
10.31
Amended and Restated Change of Control Severance Agreement between Kori G. Belzer and SGRP, dated as of August 10, 2022
(incorporated by reference to Exhibit 10.2 to SGRP's Quarterly Report on Form 10-Q, as filed with the SEC on August 15, 2022).
10.32
Amended and Restated Change of Control Severance Agreement between Lawrence David Swift and SGRP dated as of August 10,
2022 (incorporated by reference to Exhibit 10.3 to SGRP's Current Report on Form 8-K, as filed with the SEC on August 14, 2022).
10.33
Trademark License Agreement dated as of July 8, 1999, by and between SPAR InfoTech, Inc., and SPAR Trademarks, Inc.
(incorporated by reference to SGRP's Annual Report on Form 10-K for the fiscal year ended December 31, 2002, as filed with the
SEC on March 31, 2003).
10.34
Trademark License Agreement dated as of July 8, 1999, by and between SPAR Marketing Services, Inc., and SPAR Trademarks, Inc.
(incorporated by reference to SGRP's Annual Report on Form 10-K for the fiscal year ended December 31, 2002, as filed with the
SEC on March 31, 2003).
10.35
Business Manager Agreement (re joint ownership of certain software) dated as of July 8, 1999, among SPAR Business Services, Inc.
(f/k/a SPAR Marketing Services, Inc.), SPAR InfoTech, Inc., and SPAR Marketing Force, Inc.(incorporated by reference to SGRP's
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1999, as filed with the SEC on May 1, 2000).
10.36
Joint Venture Agreement dated as of September 13, 2016, by and between JK Consultoria Empresarial Ltda.-ME, a limitada formed
under the laws of Brazil, Earth Investments, LLC, a Nevada limited liability company, and SGRP Brasil Participações Ltda., a
limitada formed under the laws of Brazil (incorporated by reference to SGRP's Annual Report on Form 10-K for the fiscal year ended
December 31, 2017, as filed with the SEC on April 2, 2018).
10.37
Joint Venture Contract dated July 4, 2014, among SPAR China Inc., established and existing under the laws of Hong Kong, Wedone
Shanghai, Co., Ltd., organized and existing under the laws of P.R. China, Shanghai Gold Pack Investment Management Co., Ltd.,
organized and existing under the laws of P.R. China, and XU Gang, an Australian citizen (incorporated by reference to SGRP's
Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC on April 17, 2017).
10.38
Joint Venture Agreement dated as of September 3, 2012, by and between Combined Manufacturers National (Pty) Ltd and SGRP
Meridian (Pty) Ltd, respecting SGRP's additional consolidated subsidiary in South Africa (incorporated by reference to SGRP's
Annual Report on Form 10-K, as filed with the SEC on April 2, 2013).
10.39
Joint Venture Agreement dated as of August 30, 2012, by and between National Merchandising of America, Inc., a Georgia
corporation, SPAR NMS Holdings, Inc., a Nevada corporation and consolidated subsidiary of SGRP, and National Merchandising
Services, LLC, a Nevada limited liability company and consolidated subsidiary of SGRP (incorporated by reference to SGRP's
Quarterly Report on Form 10-Q, as filed with the SEC on November 9, 2012).
10.40
Joint Venture Agreement dated as of August 2, 2011, by and among Todopromo, S.A. de C.V., Sepeme, S.A. de C.V., Top
Promoservicios, S.A. de C.V., Conapad, S.C., Mr. Juan Francisco Medina Domenzain, Mr. Juan Francisco Medina Staines, Mr. Jorge
Carlos Medina Staines, Mr. Julio Cesar Hernandez Vanegas, and SPAR Group International, Inc., respecting SGRP's consolidated
subsidiary in Mexico (incorporated by reference to SGRP's Annual Report on Form 10-K, as filed with the SEC on April 2, 2013).
10.41
Joint Venture Agreement dated as of March 29, 2006, by and between FACE AND COSMETIC TRADING SERVICES PTY
LIMITED and SPAR International Ltd., respecting the Company's subsidiary in Australia (incorporated by reference to SGRP's
Annual Report on Form 10-K for the fiscal year ended December 31, 2006, as filed with the SEC on April 2, 2007).
10.42
Joint Venture Shareholders Agreement between Friedshelf 401 (Proprietary) Limited, SPAR Group International, Inc., Derek O'Brien,
Brian Mason, SMD Meridian CC, Meridian Sales & Merchandising (Western Cape) CC, Retail Consumer Marketing CC, Merhold
Holding Trust in respect of SGRP Meridian (Proprietary) Limited, dated as of June 25, 2004, respecting SGRP's consolidated
subsidiary in South Africa (incorporated by reference to SGRP's Annual Report on Form 10-K for the fiscal year ended December 31,
2004, as filed with the SEC on April 12, 2005).
10.43
$100,000.00 secured Promissory Note from SMF to Richard Justus dated as of January 1, 2018 (the "Resource Justus Note")
(incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on January 16, 2018).
10.44
Securities Pledge and Escrow Agreement securing the Resource Justus Note between SMF and Richard Justus dated as of January 1,
2018 (incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on January 16, 2018).
10.45
Executive Officer Employment Terms and Severance Agreement between RPI and Richard Justus dated as of January 1, 2018
(incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on January 16, 2018).
10.46
Stock Purchase Agreement as of October 13, 2017, by and between SMF, as buyer, and Richard Justus, as seller (the "Resource Justus
SPA") (incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on January 16, 2018).
28
10.47
Guaranty of the Resource Paulk Note by SGRP, in favor of Joseph L. Paulk dated as of January 1, 2018 (incorporated by reference to
SGRP's Current Report on Form 8-K, as filed with the SEC on January 16, 2018).
10.48
$2,600,000.00 secured promissory note from SMF to Joseph L. Paulk dated as of January 1, 2018 (the "Resource Paulk Note")
(incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on January 16, 2018).
10.49
Securities Pledge and Escrow Agreement securing the Resource Paulk Note between SMF and Joseph L. Paulk dated as of January 1,
2018 (incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on January 16, 2018).
10.50
Stock Purchase Agreement as of October 13, 2017, by and between the SPAR Marketing Force, Inc. ("SMF"), as buyer and Joseph L.
Paulk, as seller (the "Resource Paulk SPA") (incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC
on January 16, 2018).
10.51
Collateral Assignment (Security Agreement) (Trademarks) effective: April 10, 2019, from SPAR Trademarks, Inc., to North Mill,
(incorporated by reference to SGRP's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2018, as filed with the
SEC on April 24, 2019).
10.52
Collateral Pledge Agreement dated as of April 10, 2019, by SGRP, the US NM Borrower and SPAR Acquisition, Inc., in favor of
North Mill, (incorporated by reference to SGRP's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2018, as
filed with the SEC on April 24, 2019).
10.53
Corporate Guaranty dated as of April 10, 2019, from the NM Guarantors to North Mill, (incorporated by reference to SGRP's Annual
Report on Form 10-K/A for the fiscal year ended December 31, 2018, as filed with the SEC on April 24, 2019).
10.54
Loan and Security Agreement entered into as of April 10, 2019, by and among North Mill Capital LLC, a Delaware limited liability
company ("North Mill"), SPAR Marketing Force, Inc., a Nevada corporation (the "US NM Borrower"), SPAR Canada Company, an
unlimited company organized under the laws of Nova Scotia (the "Canadian NM Borrower"), and each of SPAR Group, Inc., a
Delaware corporation ("SGRP"), and SPAR Acquisition, Inc., SPAR Canada, Inc., SPAR Trademarks, Inc., and SPAR Assembly &
Installation, Inc., each a Nevada corporation (including SGRP, each as a "NM Guarantor"), (incorporated by reference to SGRP's
Annual Report on Form 10-K/A for the fiscal year ended December 31, 2018, as filed with the SEC on April 24, 2019).
10.55
Waiver and Modification Agreement entered in as of January 4, 2021, and effective as of December 31, 2020 (the "Modification
Agreement"), among North Mill Capital, LLC ("NM"), SPAR Group, Inc. ("SGRP") and certain of its direct and indirect subsidiaries
in the United States and Canada, namely SPAR Marketing Force, Inc. ("SMF"), and SPAR Canada Company ("SCC"), and SPAR
Canada, Inc., SPAR Acquisition, Inc., SPAR Assembly and Installation, Inc., and SPAR Trademarks, Inc. (together with SGRP, each a
"NM Guarantor" and collectively, the "NM Guarantors", and together with SMF and SCC, each a "NM Loan Party" and collectively,
the "NM Loan Parties" (incorporated by reference to Exhibit 99.1 to SGRP's Current Report on Form 8-K as filed with the SEC on
January 11, 2021).
10.56
Second Modification Agreement dated as of March 22, 2021, and effective as of April 1, 2021 (the "Second Modification
Agreement"), among North Mill Capital, LLC ("NM"), d/b/a SLR Business Credit, SPAR Group, Inc. ("SGRP") and certain of its
direct and indirect subsidiaries in the United States and Canada, namely SPAR Marketing Force, Inc. ("SMF"), and SPAR Canada
Company ("SCC"), and SPAR Canada, Inc., SPAR Acquisition, Inc., SPAR Assembly and Installation, Inc., and SPAR Trademarks,
Inc. (together with SGRP, each a "NM Guarantor" and collectively, the "NM Guarantors", and together with SMF and SCC, each a
"NM Loan Party" and collectively, the "NM Loan Parties") (incorporated by reference to Exhibit 99.1 to SGRP’s Current Report on
Form 8-K as filed with the SEC on March 29, 2021).
10.57
Third Modification Agreement dated as of December 16, 2021, and effective as of December 1, 2021 (the "Third Modification
Agreement"), among North Mill Capital, LLC ("NM"), d/b/a SLR Business Credit, SPAR Group, Inc. ("SGRP") and certain of its
direct and indirect subsidiaries in the United States and Canada, namely SPAR Marketing Force, Inc. ("SMF"), and SPAR Canada
Company ("SCC"), and SPAR Canada, Inc., SPAR Acquisition, Inc., SPAR Assembly and Installation, Inc., and SPAR Trademarks,
Inc. (together with SGRP, each a "NM Guarantor" and collectively, the "NM Guarantors", and together with SMF and SCC, each a
"NM Loan Party" and collectively, the "NM Loan Parties") (incorporated by reference to Exhibit 10.57 to SGRP's Annual Report on
Form 10-K for the year ended December 31, 2023, as filed with the SEC on April 1, 2024).
10.58
Fourth Modification Agreement dated as of July 1, 2022, and effective as of June 30, 2022 (the "Fourth Modification Agreement"),
among North Mill Capital, LLC ("NM"), d/b/a SLR Business Credit, SPAR Group, Inc. ("SGRP") and certain of its direct and indirect
subsidiaries in the United States and Canada, namely SPAR Marketing Force, Inc. ("SMF"), and SPAR Canada Company ("SCC"),
and SPAR Canada, Inc., SPAR Acquisition, Inc., SPAR Assembly and Installation, Inc., and SPAR Trademarks, Inc. (together with
SGRP, each a "NM Guarantor" and collectively, the "NM Guarantors", and together with SMF and SCC, each a "NM Loan Party" and
collectively, the "NM Loan Parties") (incorporated by reference to Exhibit 10.1 to SGRP's Current Report on Form 10-Q for the
quarter ended June 30, 2022, as filed with the SEC on August 15, 2022).
10.59
Fifth Modification Agreement entered into as of August 9, 2022 (the "Fifth Modification Agreement"), among North Mill Capital,
LLC ("NM"), d/b/a SLR Business Credit, SPAR Group, Inc. ("SGRP") and certain of its direct and indirect subsidiaries in the United
States and Canada, namely SPAR Marketing Force, Inc. ("SMF"), and SPAR Canada Company ("SCC"), and SPAR Canada, Inc.,
SPAR Acquisition, Inc., SPAR Assembly and Installation, Inc., and SPAR Trademarks, Inc. (together with SGRP, each a "NM
Guarantor" and collectively, the "NM Guarantors", and together with SMF and SCC, each a "NM Loan Party" and collectively, the
"NM Loan Parties") (incorporated by reference to Exhibit 10.59 to SGRP's Annual Report on Form 10-K for the year ended
December 31, 2023, as filed with the SEC on April 1, 2024).
10.60
Sixth Modification Agreement entered into as of February 1, 2023 (the "Sixth Modification Agreement"), among North Mill Capital,
LLC ("NM"), d/b/a SLR Business Credit, SPAR Group, Inc. ("SGRP") and certain of its direct and indirect subsidiaries in the United
States and Canada, namely SPAR Marketing Force, Inc. ("SMF"), and SPAR Canada Company ("SCC"), and SPAR Canada, Inc.,
SPAR Acquisition, Inc., SPAR Assembly and Installation, Inc., and SPAR Trademarks, Inc. (together with SGRP, each a "NM
Guarantor" and collectively, the "NM Guarantors", and together with SMF and SCC, each a "NM Loan Party" and collectively, the
"NM Loan Parties") (incorporated by reference to Exhibit 10.1 to SGRP's Current Report on Form 8-K as filed with the SEC on
March 2, 2023).
29
10.61
US$28 million Fourth Amended and Restated Revolving Credit Master Promissory Note executed and delivered by SMF to NM and
dated as of February 1, 2023 (incorporated by reference to Exhibit 10.2 to SGRP’s Current Report on Form 8-K as filed with the SEC
on March 2, 2023).
10.62
CDN$2 million Fourth Amended and Restated Revolving Credit Master Promissory Note executed and delivered by SCC to NM and
dated as of February 1, 2023 (incorporated by reference to Exhibit 10.3 to SGRP’s Current Report on Form 8-K as filed with the SEC
on March 2, 2023).
10.63
Letter of Offer dated September 29, 2011, and General Business Factoring Agreement (undated) between Oxford Funding Pty Ltd and
SPARFACTS Pty Ltd (incorporated by reference to SGRP's Annual Report on Form 10-K, as filed with the SEC on April 2, 2013).
10.64
Limited Mutual Release Agreement, dated as of January 18, 2019, among Robert G. Brown, William H. Bartels, Christiaan Olivier,
Lorrence T. Kellar, Jack W. Partridge, Arthur B. Drogue and R. Eric McCarthey (incorporated by reference to Exhibit 10.1 to SGRP's
Current Report on Form 8-K, as filed with the SEC on January 25, 2019).
10.65
Stipulation of Dismissal, dated as of January 18, 2019 (incorporated by reference to Exhibit 10.2 to SGRP's Current Report on Form
8-K, as filed with the SEC on January 25, 2019).
10.66
Text of Letter to SPAR Group, Inc. ("SGRP"), from the Nasdaq Stock Market, Inc. ("Nasdaq"), dated July 16, 2021 (incorporated by
reference to Exhibit 99.1 to SGRP’s Current Report on Form 8-K, as filed with the SEC on July 30, 2021).
10.67
Text of Letter to SGRP, from the Nasdaq Stock Market, Inc. ("Nasdaq"), dated June 15, 2021, stating that SGRP no longer
com3208plies with Nasdaq's majority independent director and audit committee requirements as set forth in Nasdaq Listing Rule 5605
(incorporated by reference to Exhibit 17.1 to SGRP’s Current Report on Form 8-K, as filed with the SEC on June 22, 2021).
10.68
Text of Letter to SGRP, from the Nasdaq Stock Market, Inc. ("Nasdaq"), dated March 11, 2025 (incorporated by reference to Exhibit
99.1 to SGRP’s Current Report on Form 8-K, as filed with the SEC on March 17, 2025).
10.69
Seventh Modification Agreement entered into as of March 28 2024, by and among North Mill Capital LLC, d/b/a SLR Business
Credit, SPAR MARKETING FORCE, INC., and SPAR CANADA COMPANY (as filed herewith).
10.70
Fifth Amended and Restated Revolving Credit Master Promissory Note, dated as of October 10, 2024 (as filed herewith)
14.1
SPAR Group Code of Ethical Conduct for its Directors, Executives, Officers, Employees, Consultants and other Representatives
Amended and Restated (as of) March 15, 2018 (incorporated by reference to SGRP's Annual Report on Form 10-K for the fiscal year
ended December 31, 2017, as filed with the SEC on April 2, 2018).
19.1
Statement of Policy Regarding Personal Securities Transactions in SGRP Stock and Non-Public Information, as adopted, restated,
effective and dated as of May 1, 2004, and as further amended through March 10, 2011 (incorporated by reference to SGRP's Annual
Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 15, 2011).
21.1
List of Subsidiaries (as filed herewith).
23.1
Consent of BDO USA, P.C. (as filed herewith).
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (as filed herewith).
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (as filed herewith).
32.1
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (as filed herewith).
32.2
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (as filed herewith).
97
Spar Group, Inc. Compensation Recovery Policy
101.INS*
Inline XBRL Instance
101.SCH*
Inline XBRL Taxonomy Extension Schema
101.CAL*
Inline XBRL Taxonomy Extension Calculation
101.DEF*
Inline XBRL Taxonomy Extension Definition
101.LAB*
Inline XBRL Taxonomy Extension Labels
101.PRE*
Inline XBRL Taxonomy Extension Presentation
104
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)
* XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of
1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to
liability under these sections.
Item 16. Form 10-K Summary
None.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SPAR Group, Inc.
By: /s/ Michael R. Matacunas
Michael R. Matacunas
President and Chief Executive Officer
Dated as of: May 16, 2025
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Antonio Calisto
Pato and Michael R. Matacunas and each of them, jointly and severally, his attorneys-in-fact, each with full power of substitution, for each of them in any
and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorneys-in-fact or his substitute or
substitutes, may do or cause to be done by virtue hereof.
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 indicated.
SIGNATURE
TITLE
/s/ Michael R. Matacunas
President, Chief Executive Officer and Director,
Michael R. Matacunas
(Principal Executive Officer)
Dated as of: May 16, 2025
/s/ James R. Gillis
Director
James R. Gillis
Dated as of: May 16, 2025
/s/ John Bode
Director
John Bode
Dated as of: May 16, 2025
/s/ Linda Houston
Director
Linda Houston
Dated as of: May 16, 2025
/s/ William H. Bartels
Director
William H. Bartels
Dated as of: May 16, 2025
/s/ James R. Brown, Sr
Director
James R. Brown, Sr
Dated as of: May 16, 2025
/s/ Panagiotis Lazaretos
Director
Panagiotis Lazaretos
Dated as of: May 16, 2025
/s/ Antonio Calisto Pato
Chief Financial Officer,
Antonio Calisto Pato
Treasurer and Secretary (Principal Financial and Accounting Officer)
Dated as of: May 16, 2025
31
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
SPAR Group, Inc.
Auburn Hills, MI
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of SPAR Group, Inc. (the “Company”) as of December 31, 2024 and 2023, the related
consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows for each of the years then ended, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition
As indicated in Note 2 to the consolidated financial statements, the Company generates revenues by providing merchandising services to its customers,
generally on a daily, weekly, or monthly basis. The Company recognizes revenues as the services are performed based on the contractually specified rate-
per-driver metric(s) (i.e., rate per hour, rate per store visit or rate per unit stocked). For the year ended December 31, 2024, the Company’s net revenues
were $196.8 million.
We identified revenue recognition from merchandising services as a critical audit matter due to the large volume of customer contracts and transactions.
The principal consideration for our determination is the increased extent of auditor effort involved in performing procedures and evaluating audit evidence
related to the Company’s revenue recognition.
The primary procedures we performed to address this critical audit matter included:
●
Testing the accuracy and existence of revenue recognized for a sample of revenue transactions by obtaining and inspecting source documents
such as customer contracts, invoices, cash receipts, and other documents for each applicable per-driver metric (i.e., hours worked, store
visits, or units stocked).
●
Testing the cut off of revenue recognized for a sample of revenue transactions prior to and subsequent to December 31, 2024.
/s/ BDO USA, P.C.
We have served as the Company's auditor since 2013.
Troy, Michigan
May 16, 2025
32
SPAR Group, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive (Loss) Income
(In thousands, except per share data)
Year Ended December 31,
2024
2023
Net revenues
$
196,814 $
262,747
Related Party - Cost of revenues
-
5,197
Cost of revenues
158,357
202,070
Gross profit
38,457
55,480
Selling, general and administrative expense
37,265
43,673
(Gain) / Loss on sale of business
(1,348)
408
Depreciation and amortization
1,616
2,001
Operating income
924
9,398
Interest expense
2,222
1,919
Other expenses, net
171
346
Income (loss) before income tax expense
(1,469)
7,133
Income tax expense
1,218
2,357
Net income (loss)
(2,687)
4,776
Net (income) attributable to non-controlling interest
(463)
(874)
Net income (loss) attributable to SPAR Group, Inc.
$
(3,150) $
3,902
Basic earnings (loss) per common share attributable to SPAR Group, Inc.
$
(0.13) $
0.17
Diluted earnings (loss) per common share attributable to SPAR Group, Inc.
$
(0.13) $
0.16
Weighted average common shares – basic
23,555
23,333
Weighted average common shares – diluted
23,729
24,455
Net income (loss)
$
(2,687) $
4,776
Other comprehensive income (loss):
Foreign currency translation adjustments
(1,553)
1,283
Comprehensive income (loss)
(4,240)
6,059
Comprehensive (income) attributable to non-controlling interest
(172)
(317)
Comprehensive income (loss) attributable to SPAR Group, Inc.
$
(4,412) $
5,742
See accompanying notes to the Company's consolidated financial statements.
33
SPAR Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31, 2024
December 31,
2023
Assets
Current assets:
Cash and cash equivalents
$
18,221 $
10,719
Accounts receivable, net
24,766
59,776
Prepaid expenses and other current assets
3,009
5,614
Total current assets
45,996
76,109
Property and equipment, net
2,015
2,871
Operating lease right-of-use assets
630
2,323
Goodwill
856
1,382
Intangible assets, net
841
1,180
Deferred income taxes
4,259
4,687
Other assets
1,834
1,729
Total assets
$
56,431 $
90,281
Liabilities and equity
Current liabilities:
Accounts payable
$
8,767 $
9,488
Accrued expenses and other current liabilities
3,533
15,274
Due to affiliates
-
3,205
Customer incentives and deposits
892
1,905
Lines of credit and short-term loans
16,082
17,530
Current portion of long-term debt
500
-
Current operating lease liabilities
276
1,163
Total current liabilities
30,050
48,565
Operating lease liabilities, less current portion
353
1,160
Long-term debt
1,722
310
Total liabilities
32,125
50,035
Commitments and contingencies – See Note 6
Equity:
SPAR Group, Inc. equity
Preferred stock, Series - B. $.01 par value:
Authorized and available shares– 2,000,000 Issued and outstanding shares– 0 at December 31, 2024 and
650,000 at December 31, 2023
–
7
Common stock, $.01 par value:
Authorized shares – 47,000,000 Issued and outstanding shares – 23,449,701 at December 31, 2024 and
23,240,959 at December 31, 2023
234
232
Treasury stock, at cost 1,205,485 shares at December 31, 2024 and 205,485 Shares at December 31, 2023
(2,075)
(285)
Additional paid-in capital
19,886
21,004
Accumulated other comprehensive (loss)
(1,198)
(3,341)
Retained earnings
7,459
10,609
Total SPAR Group, Inc. equity
24,306
28,226
Non-controlling interest
-
12,020
Total equity
24,306
40,246
Total liabilities and equity
$
56,431 $
90,281
See accompanying notes to the Company's consolidated financial statements.
34
SPAR Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands)
Common Stock
Series B Preferred
Stock
Treasury Stock
Additional
Paid-In
Accumulated
Other
Comprehensive Retained
Non-
Controlling
Total
Shares Amount
Shares Amount
Shares Amount
Capital
Loss
Earnings
Interest
Equity
Balance at
January 1, 2023
22,961 $
229
855.00 $
9
205 $
(285) $
20,708 $
(4,941) $
6,707 $
15,634 $ 38,061
Share-based
compensation
–
–
–
–
–
–
297
–
–
–
297
Conversion of
Series B
convertible
preferred stock
307
3
(205)
(2)
–
–
(1)
–
–
–
–
Retirement of
Shares
(27)
–
–
–
–
–
–
–
–
–
–
Payments to
Acquire NCI
–
–
–
–
–
–
–
–
–
(460)
(460)
Sale of Joint
Ventures
–
–
–
–
–
–
–
–
–
(694)
(694)
Distribution to
non-controlling
investors
–
–
–
–
–
–
–
–
–
(3,017)
(3,017)
Other
comprehensive
income (loss), net
of tax
–
–
–
–
–
–
–
1,600
–
(317)
1,283
Net income
–
–
–
–
–
–
–
–
3,902
874
4,776
Balance at
December 31,
2023
23,241 $
232
650 $
7
205 $
(285) $
21,004 $
(3,341) $
10,609 $
12,020 $ 40,246
Share-based
compensation
–
–
–
–
–
–
137
–
–
–
137
Conversion of
Series B
convertible
preferred stock
975
10
(650)
(7)
–
–
(1)
–
–
–
2
Exercise of stock
options
233
2
–
–
–
–
(398)
–
–
–
(396)
Purchase of
treasury shares
(1,000)
(10)
–
–
1,000
(1,790)
–
–
–
–
(1,800)
Sale of Joint
Ventures
–
–
–
–
–
–
–
3,524
–
(10,616)
(7,092)
Purchase of non-
controlling
interest
–
–
–
–
–
–
(856)
–
–
(1,695)
(2,551)
Other
comprehensive
income (loss), net
of tax
–
–
–
–
–
–
–
(1,381)
–
(172)
(1,553)
Net income (loss)
–
–
–
–
–
–
–
–
(3,150)
463
(2,687)
Balance at
December 31,
2024
23,449 $
234 $
- $
-
1,205 $
(2,075) $
19,886 $
(1,198)
7,459 $
- $ 24,306
See accompanying notes to the Company's consolidated financial statements.
35
SPAR Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2024
2023
Cash flows from operating activities:
Net income (loss)
$
(2,687) $
4,776
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization
1,616
2,001
Amortization of operating lease assets
545
875
Provision for expected credit losses
128
88
Deferred income tax expense/(benefit)
(1,500)
921
Share based compensation
137
297
(Gain) Loss on disposal of business
(1,348)
408
Changes in operating assets and liabilities, net of business disposals:
Accounts receivable
(5,656)
3,232
Prepaid expenses and other assets
(2,375)
2,082
Accounts payable
6,958
(2,960)
Operating lease liabilities
(541)
(875)
Accrued expenses, other current liabilities and customer incentives and deposits
4,058
(4,024)
Net cash (used in) provided by operating activities
(665)
6,821
Cash flows from investing activities:
Proceeds from sale of joint ventures, net of cash transferred
11,020
(1,027)
Purchases of property and equipment and internal use software
(1,139)
(1,242)
Net cash provided by (used in) investing activities
9,881
(2,269)
Cash flows from financing activities:
Borrowings under lines of credit
132,133
103,742
Repayments under lines of credit
(128,347)
(104,845)
Payment of notes to seller
(1,843)
–
Repurchase of common stock
(1,800)
–
Distribution to non-controlling investors
(1,315)
(1,673)
Payments to acquire noncontrolling interests
(500)
(473)
Proceeds from long-term debt
15
930
Payments on term debt
-
(701)
Net cash (used in) financing activities
(1,657)
(3,020)
Effect of foreign exchange rate changes on cash
(58)
(158)
Net increase in cash and cash equivalents
7,502
1,374
Cash and cash equivalents at beginning of year
10,719
9,345
Cash and cash equivalents at end of year
$
18,221 $
10,719
Supplemental disclosure of cash flows information
Interest paid
$
2,059 $
2,331
Income taxes paid
$
277 $
1,585
Promissory notes issued to Resource Plus non-controlling interest
$
2,500 $
-
See accompanying notes to the Company's consolidated financial statements.
36
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of the Business
SPAR Group, Inc. ("SGRP" or the "Corporation"), and its subsidiaries (and SGRP together with its subsidiaries may be referred to as "SPAR Group", the
"Company", "SPAR", "We", or "Our") is a global merchandising and brand marketing services company, providing a broad range of services to retailers,
consumer goods manufacturers and distributors around the world.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The Company consolidates its 100%-owned subsidiaries and all of the 51%-owned joint ventures in which the Company has a controlling financial interest.
All significant intercompany transactions have been eliminated in the consolidated financial statements.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States ("US GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the amounts disclosed for contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting year.
Significant balances subject to such estimates and assumptions include carrying amounts of property and equipment and intangible assets, valuation
allowances for receivables, carrying amounts for deferred tax assets and liabilities, and liabilities incurred from operations and customer incentives. Actual
results could differ from those estimates.
Segment Reporting
Reportable segments are components of the Company for which separate financial information is available that is evaluated on a regular basis by the Chief
Operating Decision Maker ("CODM”) in deciding how to allocate resources and in assessing performance. The Company's CODM is the Chief Executive
Officer.
The Company provides similar merchandising, marketing and business services throughout the world and has three reportable regional segments: (i)
Americas, which is comprised of United States, Canada, Brazil and Mexico; (ii) Asia-Pacific ("APAC”), which is comprised of Japan, China, and India;
and (iii) Europe, Middle East and Africa ("EMEA”), which is comprised of South Africa. Certain corporate expenses have been allocated to segments
based on each segment’s revenue as a percentage of total company revenue.
Variable Interest Entities
The Company consolidates all entities where a controlling financial interest exists. The Company has considered its relationships with its 51%-owned joint
ventures to determine whether the Company has a variable interest in these entities, and if so, whether the Company is the primary beneficiary of the
relationship. US GAAP requires variable interest entities ("VIEs”) to be consolidated if an entity’s interest in the VIE is a controlling financial interest.
Under the variable model, a controlling financial interest is determined based on which entity, if any, has (i) the power to direct the activities of the VIE that
most significantly impacts the VIE’s economic performance and (ii) the obligations to absorb losses that could potentially be significant to the VIE or the
right to receive benefits from the VIE that could potentially be significant to the VIE.
Management performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will
cause the consolidation conclusion to change. The consolidation status of a VIE may change as a result of such reassessments. Changes in consolidation
status are applied prospectively in accordance with US GAAP.
All these entities have been disposed of by December 31, 2024.
Cash Equivalents
The Company considers all short-term, highly liquid investments with original maturities of three months or less at the date of purchase to be cash
equivalents. There are no cash equivalents at December 31, 2024 or 2023.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company
maintains cash balances with high quality financial institutions and periodically evaluates the creditworthiness of such institutions. At times, the Company’s
cash and cash equivalents balances with individual banking institutions are in excess of insured limits. The Company does not believe it is exposed to
significant credit risk and the Company has not experienced any losses related to its cash and cash equivalents balances. No customer accounted for more
than 10% of the Company’s net revenue for the years ended December 31, 2024 and December 31, 2023. No customer accounted for more than 10% of the
Company’s accounts receivable, net as of December 31, 2024 and December 31, 2023.
Revenue Recognition
The Company generates its revenues by providing merchandising services to its clients. Revenues are recognized when the Company satisfies a
performance obligation by transferring services promised in a contract to a customer and in an amount that reflects the consideration that the Company
expects to receive in exchange for those services. Performance obligations in the Company’s contracts represent distinct or separate services that we
provide to the Company’s customers; generally, the Company’s contracts have a single performance obligation. If, at the outset of an arrangement, the
Company determines that a contract with enforceable rights and obligations does not exist, revenues are deferred until all criteria for an enforceable
contract are met.
37
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The Company’s merchandising services are provided over time, generally on a daily, weekly, or monthly basis, and transaction price is based on the
contractually-specified rate-per-driver metric (i.e., rate per hour, rate per store visit, or rate per unit stocked). The Company recognizes revenues for its
contracts based on the contractually-specified rate-per-driver metric(s) utilizing the right-to-invoice practical expedient because the Company has a right to
consideration for merchandising services completed to date. In general, (i) Standard Merchandising Service Contracts have a duration of 1 to 3 years with
indexed rate increases while individual brand projects can be added with less than 6 months duration. (ii) Retail Remodel Contracts typically auto-renew
with annual project SOWs, with regional awards typically granted 6 to 12 months in advance and individual projects assigned quarterly/monthly. (iii)
Fulfillment Contracts are typically an annual award and selected projects can be less than 6 months. (iv) Standard Assembly Service Agreements are 1 to 3
years in duration with indexed rates increases. Customer deposits, which are considered advances on future work, are deferred and recorded as revenue in
the period in which the services are provided.
Unbilled Accounts Receivable
Unbilled accounts receivable represents services performed but not billed and are included as accounts receivable.
Allowance for Credit Losses
The Company continually monitors the collectability of its accounts receivable based upon current client credit information and financial condition.
Balances that are deemed to be uncollectible after the Company has attempted reasonable collection efforts are written off through a charge to the
allowance for credit losses and a credit to accounts receivable. Accounts receivable balances, net of any applicable reserves or allowances, are stated at the
amount that management expects to collect from the outstanding balances. The Company provides for probable uncollectible amounts through a charge to
earnings and a credit to allowance for credit losses based in part on management’s assessment of the current status of individual accounts.
Leases
The Company determines if a contract contains a lease at inception. The Company’s material operating leases consist of office space and equipment. The
Company recognizes a right-of-use ("ROU”) asset and lease liability for operating leases with a term of greater than one year. The ROU asset is measured
as the sum of (1) the present value of all remaining fixed and in-substance fixed payments using the rate implicit in the lease whenever that is readily
determinable or the Company’s incremental borrowing rate, (2) any lease payments made at or before the commencement date (less any lease incentives
received) and (3) any initial direct costs incurred. The lease liability is measured similarly to the ROU asset, but excludes any payments made before the
commencement date and initial direct costs incurred. Lease terms include options to extend or terminate the lease if it is reasonably certain the Company
will exercise these options. Expense for operating leases and leases with a term of one year or less is recognized on a straight-line basis over the term of the
lease, unless another systematic and rational basis is more representative of the derivation of benefit from use of the leased property. Variable lease
payments are recognized in the period in which the related obligation is incurred and consist primarily of payments for insurance and property taxes.
Operating lease expense and variable lease payments are recorded in selling, general and administrative expense in the consolidated statements of
operations and comprehensive income (loss).
Property and Equipment, Net
Property and equipment, including leasehold improvements, are stated at cost, net of accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets, which range from three to seven years for equipment, three to seven years for
furniture and fixtures, and three to five years for capitalized software costs. Leasehold improvements are depreciated over the shorter of their estimated
useful lives or the related lease terms, which range from three to fifteen years. Maintenance and minor repairs are expensed as incurred.
Internal Use Software
The Company capitalizes certain costs associated with its internally developed software. The Company capitalizes the costs of materials and services
incurred in developing or obtaining internal use software and such costs include, but are not limited to: the cost to purchase software, the cost to write
program code, and payroll and related benefits for those employees who are directly involved with and who devote time to the Company’s software
development projects. Capitalization of such costs begins during the application development stage once the preliminary project stage is complete,
management authorizes and commits to funding the project, and it is probable that the project will be completed and that the software will be used to
perform the function intended. Capitalization ceases when the project is substantially complete and ready for its intended purpose. Costs incurred during
preliminary project and post-implementation stages, as well as software maintenance and training costs, are expensed in the period in which they are
incurred.
Impairment of Long-Lived Assets
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of the Company’s property and
equipment and may not be recoverable. When indicators of potential impairment exist, the Company assesses the recoverability of the assets by estimating
whether the Company will recover its carrying value through the undiscounted future cash flows generated by the use of the asset and its eventual
disposition. Based on this analysis, if the Company does not believe that it will be able to recover the carrying value of the asset, the Company records an
impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset. If any assumptions, projections or estimates regarding any
asset change in the future, the Company may have to record an impairment to reduce the net book value of such individual asset.
38
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Intangible Assets, Net
Intangible assets consist primarily of customer contracts and lists, trade names, patents and non-compete agreements, all of which have a finite useful
life. Intangible assets are amortized based on the pattern in which the economic benefits of the intangible assets are estimated to be realized. When facts
and circumstances indicate that the carrying value of definite-lived intangible assets may not be recoverable, the Company assesses the recoverability of the
carrying value by preparing estimates of sales volume and the resulting profit and cash flows expected to result from the use of the asset or asset group and
its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, the
Company recognizes an impairment loss. The impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds
the fair value.
Goodwill
Goodwill may result from business acquisitions. Goodwill is assigned to reporting units based on the expected benefit from the synergies arising from each
business combination, determined by using certain financial metrics, including the forecast discounted cash flows associated with each reporting unit. The
goodwill acquired in a business combination is allocated to the appropriate reporting unit as of the acquisition date. Goodwill is subject to annual
impairment tests and interim impairment tests if impairment indicators are present. The Company performs the annual impairment test as of October
31st each year. The impairment tests require the Company to first assess qualitative factors to determine whether it is necessary to perform a quantitative
goodwill impairment test. The Company is not required to calculate the fair value of a reporting unit unless it determines, based on a qualitative
assessment, that it is more likely than not that its fair value is less than its carrying amount. If it is determined that it is more likely than not, or if the
Company elects not to perform a qualitative assessment, the Company proceeds with the quantitative assessment. Under the quantitative test, if the fair
value of a reporting unit exceeds its carrying amount, then goodwill of the reporting unit is considered to not be impaired. If the carrying amount of the
reporting unit exceeds its fair value, then an impairment loss is recognized in an amount equal to the excess, up to the value of the goodwill.
Treasury Stock
The Company records treasury stock activities under the cost method whereby the cost of the acquired stock is recorded as treasury stock. The Company’s
accounting policy upon the formal retirement of treasury stock is to deduct the par value from the Company’s common stock and to reflect any excess of
cost over par value as a reduction to additional paid-in capital (to the extent created by previous issuances of the shares).
Noncontrolling Interest
The Company recognizes noncontrolling interest related to VIEs, in which the Company is the primary beneficiary, as equity in the consolidated financial
statements separate from the parent entity’s equity. The amount of net income or loss attributable to noncontrolling interests is included in consolidated net
income on the face of the consolidated statements of operations and comprehensive loss. Changes in the parent entity’s ownership interest in a subsidiary
that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. In addition, when a
subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary will be initially measured at fair value and the
difference between the carrying value and fair value of the retained interest will be recorded as a gain or loss. Because these transactions take place
between entities under common control, any gains or losses attributable to these transactions are required to be included within additional paid-in-capital on
the consolidated balance sheets. During 2024 the company deconsolidated its entire controlling interest in all its VIEs. As of December 31, 2024, the
company has no continuing involvement in these entities.
Advertising and Promotional Expenses
Advertising and promotional expenses are included in selling, general and administrative expenses within the consolidated statements of operations and
comprehensive loss and are expensed when incurred. Advertising and promotional expenses were $41,352 and $9,466 during the years ended December
31, 2024 and 2023, respectively.
Share-Based Compensation
The Company measures all share-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes
compensation expense for those awards, over the requisite service period, which is generally the vesting period of the respective award, on a straight-line
basis for the entire award. The fair value of stock options is estimated on the date of grant using the Black-Scholes option-pricing model, which requires
inputs based on certain subjective assumptions, including the fair market value of the Company’s common stock, expected stock price volatility, the
expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and the Company’s expected dividend
yield.
39
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The Company classifies share-based compensation expense in its consolidated statements of operations and comprehensive (loss) income in the same
manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. The Company made a
policy election to estimate the number of share-based compensation awards that are expected to vest to determine the amount of compensation expense
recognized in earnings. Forfeiture estimates are revised if subsequent information indicates that the actual number of forfeitures is likely to differ from
previous estimates.
Excess tax benefits are realized from the exercise of stock options and are reported as a financing cash inflow in the consolidated statement of cash flows.
Fair Value Measurements
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The US GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and
disclosed in one of the following three categories:
●Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
●Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not
active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
●Level 3 – Prices or valuation techniques where little or no market data is available that requires inputs significant to the fair value measurement
and unobservable.
If the inputs used to measure the fair value fall within different levels of the hierarchy, the fair value is determined based upon the lowest level input that is
significant to the fair value measurement. Whenever possible, the Company uses quoted market prices to determine fair value. In the absence of quoted
market prices, the Company uses independent sources and data to determine fair value.
The fair value of the long-term portion of the Resource Plus Seller Notes is determined using a discounted cash flow methodology. Under this approach, the
expected future cash flows of the notes are discounted to their present value using a discount rate derived from observable market data, such as current
interest rates or yield curves for similar instruments. This valuation technique utilizes inputs classified as Level 2 under the ASC 820 fair value hierarchy.
Accordingly, the carrying amount of the long-term portion of the Resource Plus Seller Notes approximates its fair value, as it represents the present value
of the notes’ future cash flows.
Income Taxes
Income tax provisions and benefits are made for taxes currently payable or refundable, and for deferred income taxes arising from future tax consequences
of events that were recognized in the Company’s financial statements or tax returns and tax credit carry forwards. The effects of income taxes are measured
based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse. If necessary, a valuation allowance is established
to reduce deferred income tax assets to an amount that will more likely than not be realized.
The calculation of income taxes involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for
uncertain tax positions based on a two-step process. The first step involves evaluating the tax position for recognition by determining if the weight of
available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step involves estimating and measuring the tax benefit as the largest amount that is more than 50% likely to be realized upon
ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company has to determine the probability of various possible
outcomes. The Company’s evaluation of uncertain tax positions is based on factors including, but not limited to, changes in facts or circumstances, changes
in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a
tax benefit or an additional charge to the tax provision.
Recently Adopted Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which will
require Companies to report additional segment information, including certain significant segment expenses, and permit the disclosure of additional
measures of a segment’s profit or loss. The guidance was effective for the Company’s fiscal year beginning January 1, 2024 and for interim periods
thereafter. The Company adopted ASU No. 2023-07 on January 1, 2024 and the impact was not material.
40
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2023, the FASB issued ASU No. 2023-05, Business Combinations – Joint Venture Formations (Subtopic 805):Recognition and Initial
Measurement, which will require joint ventures to recognize and initially measure its assets and liabilities at fair value upon formation. The guidance will
be effective for the Company prospectively for all joint venture formations on or after January 1, 2025. Early adoption and retrospective application is
permitted. The Company does not believe adoption will have a material effect on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740):Improvements to Income Tax Disclosures, which will require Companies
to report specific categories of rate-reconciliation, certain details of income taxes paid and of certain information by tax jurisdictions. The guidance will be
effective for the Company’s fiscal year beginning January 1, 2025. The Company does not believe adoption will have a material effect on its consolidated
financial statements and related disclosures.
On November 4, 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures which
requires disaggregated disclosure of income statement expenses for public business entities (PBEs). The ASU does not change the expense captions an
entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures
within the footnotes to the financial statements. ASU 2024-03 is effective for all PBEs for fiscal years beginning after December 15, 2026, and interim
periods within fiscal years beginning after December 15, 2027. The Company does not believe adoption will have a material effect on its consolidated
financial statements and related disclosures.
3. Supplemental Balance Sheet Information
December 31,
Accounts receivable, net, consists of the following:
2024
2023
(in thousands)
Trade
$
12,059 $
51,567
Unbilled
9,284
6,537
Non-trade
3,834
3,133
Gross accounts receivable
25,177
61,237
Less allowance for credit losses
(411)
(1,461)
Accounts Receivable, net
$
24,766 $
59,776
December 31,
Activity in allowance for credit losses
2024
2023
(in thousands)
Beginning balance in allowance for credit losses
$
1,461 $
1,654
Current provision for expected credit losses
128
261
Allowances associated with businesses sold
(12)
(281)
Write-offs charged against the allowance
(1,166)
(126)
Recoveries of amounts previously written off
-
(47)
Ending balance in allowance for credit losses
$
411 $
1,461
December 31,
Property and equipment consist of the following:
2024
2023
(in thousands)
Equipment
$
4,060 $
5,062
Furniture and fixtures
591
2,330
Leasehold improvements
384
366
Capitalized internal use software costs
18,967
18,336
24,002
26,094
Less accumulated depreciation and amortization
(21,987)
(23,223)
Property and equipment, net
$
2,015 $
2,871
41
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Supplemental Balance Sheet Information (continued)
Depreciation expense (including amortization of internal use software and intangible assets as described below) was $ 1.6 million and $ 2.0 million for the
years ended December 31, 2024 and 2023, respectively. The Company capitalized $1.0 million and $1.0 million of costs related to internal use software in
the years ended December 31, 2024 and 2023. The Company recognized approximately $1.3 million and $1.1 million of amortization expense related to
internal use software for the years ended December 31, 2024 and 2023, respectively.
Americas
Asia-Pacific
EMEA
Total
Goodwill
(in thousands)
Balance at January 1, 2023
Aggregate goodwill acquired
$
1,270
-
438
1,708
Change in goodwill due to impact of foreign currency
7
-
-
7
Sale of business
(333)
-
-
(333)
Balance at December 31, 2023
944
-
438
1,382
Change in goodwill due to impact of foreign currency
(6)
-
-
(6)
Sale of business
(82)
–
(438)
(520)
Balance at December 31, 2024
$
856 $
- $
- $
856
Intangible Assets
December 31,
Intangible assets consist of the following:
2024
2023
(in thousands)
Customer contracts and lists
$
- $
3,011
Trade names
900
900
Patents
870
870
Gross intangible assets
1,770
4,781
Less accumulated amortization
(929)
(3,601)
Intangible assets, net
$
841 $
1,180
The decline in gross intangible assets of $3 million is due to the sale of the remaining international Joint Ventures.
The Company is amortizing its intangible assets over lives ranging from 5 to 25 years. Amortization expense for the years ended December 31, 2024 and
2023 was approximately $0.2 million and $0.4 million, respectively.
The annual amortization for each of the following years succeeding December 31, 2024 is summarized as follows (in thousands):
(in thousands)
Year
Amount
2025
$
133
2026
133
2027
36
2028
36
2029
36
Thereafter
467
Total
$
841
December 31,
Accrued expenses and other current liabilities:
2024
2023
(in thousands)
Taxes payable
$
137 $
1,598
Accrued salaries and wages
1,644
9,206
Accrued accounting and legal expenses
-
1,018
Accrued third party labor
131
1,477
Other
1,621
1,975
Accrued expenses and other current liabilities
$
3,533 $
15,274
42
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Debt
North Mill Capital Credit Facility
The Company, through SPAR Marketing Force, Inc. ("SMF") and SPAR Canada Company ULC ("SCC", and collectively with SMF, the “NM
Borrowers”), has a secured revolving credit facility in the United States (the "US Revolving Credit Facility") and Canada (the "Canada Revolving Credit
Facility", and collectively with the US Revolving Credit Facility, the "NM Credit Facility") with North Mill Capital, LLC, d/b/a SLR Business Credit
("NM").In order to obtain, document and govern the NM Credit Facility, SMF, SCC, SGRP and certain of SGRP's direct and indirect subsidiaries in the
United States and Canada (including SMF and SCC as borrowers and SGRP as a guarantor, collectively, the "NM Loan Parties") entered into a Loan and
Security Agreement with NM dated as of April 10, 2019, which, as amended from time to time (as amended, the "NM Loan Agreement"), governs the NM
Credit Facility. Pursuant to the NM Loan Agreement, the NM Borrowers agreed to reimburse NM for legal and documentation fees incurred in connection
with the NM Loan Agreement and such amendments.
On July 1, 2022, the NM Loan Parties and NM executed and delivered a Fourth Modification Agreement, effective as of June 30, 2022 (the "Fourth
Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to extend the NM Credit Facility from October 10, 2023, to October 10,
2024, and increased the amount of the US Revolving Credit Facility to $17.5 million while the Canada Revolving Credit Facility remained at CDN$1.5
million. In addition, the Fourth Modification Agreement permanently increased SMF's borrowing base availability for billed receivables to up to 90% from
85%, and unbilled receivables to up to 80% from 70%, and increased the cap on unbilled accounts for SMF to $6.5 million from $5.5 million.
On August 9, 2022, the NM Loan Parties and NM executed and delivered a Fifth Modification Agreement, effective immediately (the "Fifth Modification
Agreement"), pursuant to which the NM Loan Parties and NM agreed to temporarily increase the borrowing base availability under the NM Credit Facility,
and the NM Borrowers agreed to pay certain additional fees.
On February 1, 2023, the NM Loan Parties and NM executed and delivered a Sixth Modification Agreement, effective immediately (the "Sixth
Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to increase the amount of the US Revolving Credit Facility to $28.0
million and increase the Canada Revolving Credit Facility to CDN$2.0 million. In addition, the Sixth Modification Agreement increased the cap on
unbilled accounts in the borrowing base for SMF to $7.0 million from $6.5 million.
On March 27, 2024, the NM Loan Parties and NM executed and delivered a Seventh Modification Agreement, effective immediately (the "Seventh
Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to extend the NM Credit Facility from October 10, 2024 to October 10,
2025.
The Restated US Note and Restated Canadian Note (together, the "NM Notes") and the NM Loan Agreement together require the NM Borrowers to pay
interest on the loans thereunder equal to: (i) the Prime Rate designated from time to time by Wells Fargo Bank; plus (ii) one and nine-tenths percentage
points (1.90%) or an aggregate minimum of 6.75% per annum. In addition, the NM Borrowers are paying a facility fee to NM in an amount equal to: (i) for
the year commencing on October 10, 2022, approximately $0.1 million plus 0.80% of the amount of any advances other than under the US Revolving
Credit Facility plus an additional facility fee of $15,000 for every incremental $1.0 million of loan balance in excess of $21.0 million, and (ii) for the year
commencing on October 10, 2023, approximately $0.2 million plus 0.80% of the amount of any advances other than under the US Revolving Credit
Facility plus an additional facility fee of $15,000 for every incremental $1.0 million of loan balance in excess of $21.0 million. For the Sixth Modification
Agreement, the NM Borrowers paid NM a fee of approximately $28,000 for the US and $3,000 for Canada.
As of December 31, 2024, the aggregate interest rate was 9.40% per annum and the aggregate outstanding loan balance was approximately $16.1 million,
which is included within lines of credit and short-term loans in the consolidated balance sheets. The aggregate outstanding loan balance is divided between
the US Revolving Credit Facility and the Canada Revolving Credit Facility as follows: (i) the outstanding loan balance under the US Revolving Credit
Facility was approximately $14.8 million; and (ii) the outstanding loan balance under the Canada Revolving Credit Facility was approximately
$1.3 million.
The NM Credit Facility contains certain financial and other restrictive covenants and also limits certain expenditures by the NM Loan Parties, including
maintaining a positive trailing EBITDA for each the NM Borrowers (i.e., SMF and SCC) and imposes limits on all of the NM Loan Parties (including
SGRP) on non-ordinary course payments and transactions, incurring or guaranteeing indebtedness, increases in executive, officer or director compensation,
capital expenditures and certain other investments. The NM Loan Parties were in compliance with such covenants as of December 31, 2024. The
obligations of the NM Borrowers are secured by the receivables and other assets of the NM Borrowers and substantially all of the assets of the other NM
Loan Parties, however, the obligations are not secured by any equity in, financial asset respecting or asset of any Excluded Subsidiary meaning each of the
following direct or indirect subsidiaries of SGRP: (i) Resource Plus of North Florida, Inc. (“Resource Plus”), Mobex of North Florida, Inc., and Leasex,
LLC, and their respective subsidiaries; (ii) NMS Retail Services ULC, which is an inactive Nova Scotia ULC; (iii) SPAR Group International, Inc.; (iv)
SPAR FM Japan, Inc.; (v) SPAR International, Ltd.; (vi) each other subsidiary formed outside of the United States or Canada; and (vii) any other entity in
which any such subsidiary is a partner, joint venture or other equity investor.
43
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Debt (continued)
Resource Plus – Seller Notes
On April 18, 2024, the Company entered into a Securities Purchase Agreement to buy from Mr. Richard Justus the remaining minority joint venture
interests of Resource Plus and its sister companies, Mobex of North Florida, Inc., and Leasex, LLC. Based on the terms set in the original joint venture
agreement, the Company will pay a total of $3 million in annual payments over a five-year period. $0.25 million was paid within the five business days of
closing, and the remaining $2.75 million will be paid pursuant to a Secured Promissory Note. The agreement resulted in the termination of all relevant
shareholder and operating agreements, although specific confidentiality obligations remain effective for three years post-closing and specific mutual
releases were provided. The purchase was closed and completed on May 1, 2024. As of December 31, 2024, $0.5 million has been paid and the remaining
$2.2 million Promissory Note (net of discount) is outstanding and is reported on the balance sheet in current portion of long-term debt and long-term debt.
International Credit Facilities
In December 2020, SPAR (Shanghai) Marketing Management Company Ltd. ("SPAR China") secured a loan with Industrial Bank for 2.0 million Chinese
Yuan. The loan was renewed in December 22 2023, with an expiration date in December 2024. In December 2021, SPAR China secured a loan with
Industrial and Commercial Bank of China for 2.0 million Chinese Yuan. The loan was paid in July 2023 and a new loan was secured in November 2023 for
2.0 million Chinese Yuan with expiration date of November 2024. The company's controlling interest in the China JV was sold in the second quarter of
2024. This debt was deconsolidated at that time and remained with Chinese company. The Company no longer has any interest in SPAR China.
In March 2022, SGRP Meridian (Pty), Ltd. secured loans with Investec Bank Ltd, for 105 million South African Rand which expires July 2025. This loan
is secured by the company's available cash and Accounts Receivable and is being repaid in monthly installments commensurate with an amortization
schedule. The interest rate of 11.75% is calculated based on the South African Prime rate. As part of the agreement, SGRP Meridian is subject to covenant
restrictions that mandate minimum levels of Debt to EBITDA, Asset and Accounts Receivable balances, and coverage ratios. The Company's controlling
interest in the South Africa JV was sold in the first quarter of 2024. This debt was deconsolidated at that time and remained with South African
company. The Company no longer has any interest in SGRP Meridian (Pty), Ltd.
Summary of the Company’s lines of credit and short-term loans (in thousands):
Interest Rate as of
Balance as of
Interest Rate as of
Balance as of
December 31,
2024
December 31,
2024
December 31,
2023
December 31,
2023
USA - North Mill Capital
9.40% $
16,082
10.40% $
12,475
USA - Resource Plus Sellers
4.30%
500
1.85%
1,120
South Africa - Investec Bank Ltd.
N/A
–
11.75%
3,369
China- Industrial Bank
N/A
–
3.56%
283
China- Industrial and Commercial Bank of China
N/A
–
4.00%
283
Total
$
16,582
$
17,530
The effective interest rate on these instruments is not materially different from the stated rate.
Summary of Unused Company Credit and Other Debt Facilities (in thousands):
December 31, 2024
December 31, 2023
Unused Availability:
United States
$
13,310 $
6,525
South Africa
N/A
2,064
Total Unused Availability
$
13,310 $
8,589
Summary of the Company's Long-term debt (dollars in thousands):
Interest Rate
Balance
Interest Rate
Balance
as of
as of
as of
as of
December 31,
2024
December 31,
2024
December 31,
2023
December 31,
2023
USA - Resource Plus Seller Notes
4.30% $
1,722
N/A $
-
South Africa - Investec Bank Ltd.
N/A
-
11.75%
310
$
1,722
$
310
44
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes
Beginning in 2018, the Tax Cuts and Jobs Act (the "Act”) included two (2) new U.S. corporate tax provisions, the global intangible low-taxed income
regime ("GILTI”) and the base-erosion and anti-abuse tax ("BEAT”). The GILTI provision requires the Company to include in its U.S. income tax return
non-U.S. subsidiary earnings in excess of an allowable return on the non-U.S. subsidiary’s tangible assets. The Company has elected to treat GILTI as a
period cost. The Company evaluated the GILTI provision resulting in a financial statement impact of approximately $0.28 million and $0 for the year ended
December 31, 2024 and December 31, 2023 respectively. The Company is below the three-year average gross receipts threshold for BEAT to apply.
Income (loss) before income taxes is summarized as follows (in thousands):
Year Ended December 31,
2024
2023
Domestic
$
1,234 $
(2,134)
Foreign
(2,703)
9,267
Total:
$
(1,469) $
7,133
The income tax expense (benefit) is summarized as follows (in thousands):
Year Ended December 31,
2024
2023
Current:
Federal
$
21 $
(54)
Foreign
2,475
2,311
State
222
150
Deferred:
Federal
(1,196)
(145)
Foreign
(114)
91
State
(190)
4
Net expense
$
1,218 $
2,357
The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income
taxes. The items causing this difference are as follows (dollars in thousands):
Year Ended December 31,
2024
Rate
2023
Rate
Provision for income taxes at federal statutory rate
$
(309)
21.0% $
1,498
21.0%
State income taxes, net of federal benefit
32
(2.2)%
123
1.7%
Permanent differences
(45)
3.1%
282
4.0%
Section 162(m) adjustment
245
(16.7)%
55
0.8%
Return to provision adjustment
(10)
0.7%
(339)
(4.8)%
Foreign tax rate differential
(157)
10.7%
877
12.3%
GILTI tax
284
(19.3)%
-
-
Sale of membership interest
-
0.0%
149
2.1%
Sale of foreign entities
102
(6.9)%
-
-
Transaction costs
118
(8.0)%
-
-
Withholding tax
1,046
(71.2)%
-
-
Subpart F Income
213
(14.5)%
-
-
Foreign tax credit
(556)
37.8%
-
-
Foreign disregarded income
292
(19.9)%
Change in valuation allowance
(2)
0.1%
(268)
(3.8)%
Other
(35)
2.4%
(20)
(0.3)%
Net expense
$
1,218
-82.9% $
2,357
33.0%
45
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
Deferred taxes consist of the following (in thousands):
December 31,
2024
2023
Deferred tax assets:
Net operating loss carry forwards
$
389 $
2,270
Capital loss carry forwards
–
58
Federal research and development credit
164
240
Foreign withholding tax
872
316
Accrued payroll
4
155
Transaction costs
753
-
Allowance for credit losses and other receivable
93
63
Share-based compensation expense
258
253
Business interest limitation
889
519
Operating lease liability
128
504
Capitalized software development costs
277
63
Other
891
1,371
Total deferred tax assets, gross
4,718
5,812
Valuation allowance
-
(242)
Total deferred tax assets
4,718
5,570
Deferred tax liabilities:
Goodwill & Intangible assets of subsidiaries
291
324
Right to use asset
127
504
Depreciation
41
55
Total deferred tax liabilities
459
883
Net deferred income taxes
$
4,259 $
4,687
As of December 31, 2024, the Company’s deferred tax assets were primarily the result of the business interest limitation and transaction costs. The
Company has gross U.S. Federal NOL carryforwards of $1.5 million and tax effected amount of $0.3 million. The $0.3 million U.S Federal NOL
carryforward has no expiration date. The Company has a U.S. State NOL deferred tax asset of $0.1 million of varying expiration dates from 2024 to 2041.
The Company has $0.1 million of US Research and Development credits with expiration dates ranging from 2031 to 2035. The Company has $0.9 million
of US foreign tax credits with expiration dates ranging from 2033 to 2034.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing net
deferred tax assets. U.S.-based net deferred tax assets are approximately $4.2 million. Management continues to monitor its operating performance and
currently believes that the achievement of the required future taxable income necessary to realize these deferred assets is more likely than not. Key
considerations in this assessment include our expectation of continued improvements in U.S. operating results and the period of time available to generate
future taxable income.
A reconciliation of the beginning and ending amount of uncertain tax position reserves is as follows (in thousands):
Year Ended December 31,
2024
2023
Beginning balance
$
54 $
46
Additions based on tax positions related to the current year
60
8
Ending balance
$
114 $
54
The provision for income taxes includes the impact of uncertain tax position reserves and changes to reserves that are considered appropriate. As of
December 31, 2024, included in the balance of uncertain tax position reserves are $0.11 million of reserves that, if recognized, would affect the effective
rate of income from continuing operations. Interest and penalties that the tax law requires to be paid on the underpayment of taxes should be accrued on the
difference between the amount claimed or expected to be claimed on the return and the tax benefit recognized in the financial statements. The Company's
policy is to record this interest and penalties as additional tax expense. We accrued penalties of $0.8 thousand and interest of $3 thousand during 2024 and
in total, as of December 31, 2024 recognized a liability related to the uncertain tax position reserves noted above for penalties of $16 thousand and interest
of $20 thousand. During 2023, we accrued penalties of $1 thousand and interest of $0.4 thousand and in total, as of December 31, 2023, recognized a
liability of penalties of $15 thousand and interest of $17 thousand. Management does not expect in the next 12 months that the uncertain tax position
reserves will significantly increase or decrease. Consistent with that expectation, interest and penalties related to the uncertain tax position reserve should
not significantly increase.
Details of the Company's tax reserves at December 31, 2024 are outlined in the table below (in thousands). These reserves are presented on the balance
sheet within accrued expenses and other current liabilities.
Taxes
Interest
Penalty
Total Tax
Liability
Domestic
State
$
114 $
20 $
16 $
150
Federal
–
–
–
–
International
–
–
–
–
Total reserve
$
114 $
20 $
16 $
150
46
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
In management's view, the Company's tax reserves at December 31, 2024 and 2023, for potential domestic state tax liabilities were sufficient.
SPAR and its subsidiaries file numerous consolidated, combined and separate company income tax returns in the U.S. Federal jurisdiction and in many U.S.
states and foreign jurisdictions. With few exceptions, SPAR is subject to U.S. Federal, state and local income tax examinations for the years 2021 through
the present. Foreign entities are subject to tax audits that vary based on jurisdiction. However, tax authorities have the ability to review years prior to the
position taken by the Company to the extent that SPAR utilized tax attributes carried forward from those prior years.
6. Commitments and Contingencies
Legal Matters
The Company is a party to various legal actions and administrative proceedings arising in the normal course of business. In the opinion of Company's
management, resolution of these matters is not anticipated to have a material adverse effect on the Company or its estimated or desired affiliates, assets,
business, clients, capital, cash flow, credit, expenses, financial condition, income, legal costs, liabilities, liquidity, locations, marketing, operations,
prospects, sales, strategies, taxation or other achievement, results or condition.
7. Common Stock
As of December 31, 2024, the Corporation's certificate of incorporation authorized the Corporation to issue 47,000,000 shares of common stock, par value
$0.01 per share. The voting, dividend and liquidation rights of the holders of the Corporation's common stock are subject to and qualified by the rights,
powers and preferences of the holders of the Corporation's Series B convertible preferred stock. Each share of the Corporation's common stock is entitled to
one vote on all matters submitted to a vote of the Corporation's stockholders. Holders of the Corporation's common stock are entitled to receive dividends
as may be declared by the Corporation's board of directors (the "Board"), if any, subject to the preferential dividend rights of the Corporation's Series B
convertible preferred stock. No cash dividends had been declared or paid during the periods presented.
On March 28, 2024, the Board approved SGRP's repurchase of up to 2,500,000 of SGRP's Shares of Common Stock ("SGRP Shares") under
the 2024 Stock Repurchase Program (the "2024 Stock Repurchase Program"), which repurchases would be made from time to time over a one-year period
in the open market and through privately-negotiated transactions, subject to cash availability and general market and other conditions. Pursuant to
the 2024 Stock Repurchase Program, on May 3, 2024, SGRP's Board and its Audit Committee approved SGRP's Repurchase Agreement with William H.
Bartels for SGRP's private repurchase of 1,000,000 shares of SGRP's Common Stock from William H. Bartels, dated and effective as of April 30, 2024, at
a purchase price of $1.80 per share (the Nasdaq closing price on April 29, 2024). Upon their repurchase those shares became Treasury Shares. Mr. Bartels
is a Director and significant stockholder of SGRP, is one of the founders of the Company, and is an affiliate and related party of SGRP. There have
been no other share repurchases to date under the 2024 Stock Repurchase Program.
8. Preferred Stock
The Corporation’s certificate of incorporation authorizes it to issue 3,000,000 shares of preferred stock with a par value of $0.01 per share, which may have
such preferences and priorities over the Corporation’s common stock and other rights, powers and privileges as the Board of may establish in its discretion.
In January 2022, the Corporation filed a "Certificate of Designation of Series "B” Preferred Stock of SPAR Group, Inc.” (the "Preferred Designation”) with
the Secretary of State of Delaware, which designation had been approved by the Board in January 2022. The Preferred Designation created a series of
2,000,000 shares of convertible preferred stock designated as "Series B” convertible preferred stock, par value of $0.01 per share.
The Series B convertible preferred stock do not carry any voting or dividend rights and upon vesting converted into the Corporation's common stock at a
ratio of 1-to-1.5. The holders of the Series B convertible preferred stock had a liquidation preference over the Corporation's common stock and voted
together for matters pertaining only to the Series B convertible preferred stock where only the holders of the Series B convertible preferred stock are
entitled to vote. The holders of outstanding Series B Preferred Stock do not have the right to vote for directors or other matters submitted to the holders of
the Corporation's common stock.
In January 2022, 2,000,000 shares of Series B convertible preferred stock were issued to the majority stockholders and related parties pursuant to the
Change of Control, Voting and Restricted Stock Agreement.
During the year ended December 31, 2022, 1,145,247 shares of Series B convertible preferred stock converted to 1,717,870 shares of the
Corporation's common stock. As of the year ended December 31, 2022, 854,753 shares of Series B convertible preferred stock were outstanding, which
upon vesting would automatically convert into 1,282,129 shares of the Corporation's common stock.
During the year ended December 31, 2023, all of the remaining 854,753 shares of Series B convertible preferred stock vested and automatically became
convertible into 1,282,129 shares of the Corporation's common stock of which 307,129 shares of the Corporation's Common Stock were issued prior to
December 31, 2023. The remaining 975,000 shares of SGRP Common Stock were in the process of being issued and the remaining shares of Series B
Preferred Stock were in the process of being returned and cancelled at December 31, 2023. These issuances and cancellations were completed during the
quarter ending March 31, 2024.
SGRP may change or cancel the authorized Series B Preferred Stock, and to the extent it reduces such authorization without issuance, it can create other
series of Preferred Stock with potentially different dividends, preferences and other terms.
47
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Retirement Plans
The Company has a 401(k) Profit Sharing Plan covering substantially all eligible domestic employees. The Company made discretionary contributions of
$0.1 million and $0.1 million for the years ended December 31, 2024 and 2023, respectively.
10. Related Party Transactions
Domestic Related Party Transactions
On December 1, 2021, the Corporation entered into the Agreement for Marketing and Advertising Services (the "WB Agreement") with WB Marketing,
Inc. (the "Agent", and together with the Company, the "Parties"). The Agent is an entity owned and controlled by Mrs. Jean Matacunas who is the wife of
President and Chief Executive Officer, Michael R. Matacunas. Mr. Matacunas is also a minority owner of the Agent. The service fees paid to WB
Marketing for the years ended December 31, 2024 and 2023, were $104,000 and $103,000, respectively.
Prior to December 31, 2023, National Merchandising Services, LLC ("NMS"), was a consolidated domestic subsidiary of the Company owned jointly by
SGRP and by National Merchandising of America, Inc. ("NMA"). Mr. Edward Burdekin was the Chief Executive Officer and President and a director of
NMS and also an executive officer and director of NMA. Ms. Andrea Burdekin, Mr. Burdekin's wife, was the sole stockholder and also a director of both
NMA and NMS. NMA was a related party of the Company but is not under the control of or consolidated with the Company. Mr. Burdekin's wife also
owns National Remodel & Setup Services, LLC ("NRSS"). During the years ended December 31, 2023 and 2022, NRSS provided substantially all of the
domestic merchandising specialist field force used by NMS. For those services, NMS reimbursed NRSS certain costs for providing those services plus a
premium ranging from 4.0% to 10.0% of certain costs. NMS also leased office space from Mr. Burdekin's personal property. In December 2023, the
Company sold its ownership interest in NMS.
On December 22, 2023, the Company entered into an agreement with National Retail Remodel Services (the "Buyer") to sell its 51% ownership interest in
National Merchandising Services, LLC ("NMS") to the Buyer for total consideration of $1,441,004. The transaction closed on December 31, 2023. Per the
agreement, the purchase price is due from the Buyer as follows: (1) a payment of $700,000 due immediately to the escrow agent upon closing, releasable to
the Company in January 2024; (2) $523,000 in the form of the Buyer's promissory note due and payable on January 31, 2024; and (3) a payment of up to
$209,004 contingent upon collection of an outstanding receivable. The $700,000 and $523,000 portions of consideration for this transaction are recorded in
"Other Receivables" at December 31, 2023 and were received in first quarter of 2024. The Company’s December 31, 2023 financial results include a loss
on this sale of approximately $427,000, primarily reflecting the write-off of remaining goodwill related to NMS. As of December 31st, 2024, payment
upon collection of the outstanding receivables has not been made and attempts to collect are ongoing. The Company has not included the receivables
related to this collection on its balance sheet.
Summary of Certain Related Party Transactions
The following costs of affiliates were charged to the Company (in thousands):
Year Ended December 31,
2024
2023
Services provided by affiliates:
National Remodel & Setup Services (NRSS) (1)
$
- $
5,173
Consulting and administrative services (RJ Holdings) (2)
161
472
Office lease expenses (RJ Holdings) (2)
4
8
Consulting and administrative fees (SPARFACTS) (2)
-
112
Other (2)
50
178
Total services provided by affiliates
$
215 $
5,943
Due to affiliates consists of the following (in thousands):
December 31,
2024
2023
Loans from local investors:(3)
China
$
- $
2,316
Mexico
-
623
Resource Plus
-
266
Total due to affiliates
$
- $
3,205
(1) Represent loans from the local investors into the Company's subsidiaries (representing their proportionate share of working capital loans). The loans
have no payment terms and are due on demand.
(2) These expenses are reflected in "Selling, general, and administrative expense" expense in the consolidated statements of operations and
comprehensive (loss) income.
(3) Represent loans from the local investors into the Company's subsidiaries (representing their proportionate share of working capital loans). The loans
have no payment terms and are due on demand.
48
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions (continued)
Bartels' Retirement and Director Compensation
William H. Bartels retired as an employee of the Company as of January 1, 2020. However, he continues to serve as a member of SPAR's Board. Mr.
Bartels is a significant stockholder of SGRP, is one of the founders of the Company, and is an affiliate and related party of SGRP.
Effective as of January 18, 2020, SPAR's Governance Committee proposed and unanimously approved retirement benefits for Mr. Bartels, for the five-year
period commencing January 1, 2020, and ending December 31, 2024 (the "Five-Year Period"), for Mr. Bartels. The aggregate value of benefits payable to
Mr. Bartels is approximately $0.2 million per year and a total of $1.1 million for the Five-Year Period. As of December 31, 2024
$23,000 of retirement benefits remains outstanding and is included within Accrued expenses and other current liabilities on the consolidated balance
sheets.
Pursuant to the 2024 Stock Repurchase Program, on May 3, 2024, SGRP's Board and its Audit Committee approved SGRP's Repurchase Agreement with
William H. Bartels for SGRP's private repurchase of 1,000,000 shares of SGRP's Common Stock from William H. Bartels, dated and effective as of April
30, 2024, at a purchase price of $1.80 per share (the Nasdaq closing price on April 29, 2024).
Other Related Party Transactions and Arrangements
On April 18, 2024, the Company entered into a Securities Purchase Agreement to buy from Mr. Richard Justus the remaining minority joint venture
interests of Resource Plus and its sister companies, Mobex of North Florida, Inc., and Leasex, LLC. Based on the terms set in the original joint venture
agreement, the Company will pay a total of $3 million in annual payments over a five-year period. $0.3 million was paid within the five business days of
closing, and the remaining $2.8 million will be paid pursuant to a Secured Promissory Note. The agreement resulted in the termination of all relevant
shareholder and operating agreements, although specific confidentiality obligations remain effective for three years post-closing and specific mutual
releases were provided. The purchase was closed and completed on May 1, 2024. As of December 31, 2024, $0.5 million has been paid and the remaining
$2.2 million Promissory Note is outstanding and is reported on the balance sheet in long-term debt (including current portion).
International Joint Venture Transactions
Agreement to sell the Company’s ownership interest in its South African Joint Venture
Prior to March 31, 2024, SGRP Meridian Proprietary Limited ("Meridian") was a consolidated international subsidiary of the Company and was
owned 51% by the Company and 49% by Friedshelf (Pty) Ltd., Lindicom Proprietary Limited, and Lindicom Empowerment Holdings Proprietary Limited
("Local Owners"). On February 7, 2024, the Company entered into an agreement to sell its 51% ownership interest in Meridian to the Local
Owners for 180,700,000 South African Rand, 80% of which would be paid upon closing.
The closing conditions under that agreement were satisfied in all material respects by March 31, 2024. and on April 29, the Company
received 144,560,000 South African Rand from the Local Buyers (or approximately $7.7 million). The remaining purchase price of approximately $1.9
million is recorded as other receivable on the balance sheet and will be paid on December 31, 2025, and its payment is secured by an irrevocable
unconditional guarantee from Investec Bank Limited. The Company has also licensed certain technology (including SPARView) and trademarks to
Meridian in connection with the sale. The Company recognized a pre-tax gain of approximately $7.2 million on this transaction, which is presented within
“(Gain) / Loss on sale of business” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. The company has no continuing
involvement in Meridian.
Agreement to sell the Company’s ownership interest in its Chinese Joint Venture
On February 23, 2024, the Company entered into an agreement to sell its 51% ownership interest in SPAR (Shanghai) Marketing Management Co., Ltd. to
Shanghai Jingbo Enterprise Consulting Co., Ltd. and Shanghai Wedone Marketing Management Co. Ltd. The total price paid to the Company is
$200,000. The sale was completed in April 2024. The Company has recognized a loss of $1.1 million in the second quarter of 2024 as a result of this
transaction, which is presented within “(Gain) / Loss on sale of business” in the Consolidated Statements of Operations and Comprehensive (Loss)
Income. The company has no continuing involvement in SPAR (Shanghai) Marketing Management Co., Ltd.
49
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Related Party Transactions (continued)
Agreement to sell the Company’s Brazilian subsidiary that owns its interest in its Brazilian Joint Venture
On March 26, 2024, the Company signed a share purchase agreement with JK Consultoria Empresarial Ltda. ("JKC") for JKC to acquire the Company's
Brazilian holding company (which in turn owns the Company's 51 percent interest in its Brazilian joint venture subsidiary) for BRL 58.9 million or
approximately $11.8 million. Closing of the sale occurred in June 2024. The Company has recognized a loss of $1.6 million in the second quarter
of 2024 as a result of this transaction, which is presented within “(Gain) / Loss on sale of business” in the Consolidated Statements of Operations and
Comprehensive (Loss) Income. The company has no continuing involvement in the Brazilian Joint Venture.
Agreement to sell SPAR's 100% ownership interest in SPAR Japan
On July 23, 2024, the Company entered into an agreement to sell its 100% ownership interest in SPAR Japan for $500,000. The sale closed on August 30,
2024. The Company has recognized a loss of $0.7 million in the third quarter of 2024 as a result of this transaction, which is presented within “(Gain) /
Loss on sale of business” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. The company has no continuing involvement in
SPAR Japan.
Agreement to sell SPAR's 51% ownership interest in its Indian Joint Venture
On August 31, 2024, the Company closed on an agreement to sell its 51% ownership interest in its Indian Joint venture for $500,000. The sale closed on
September 25, 2024. The Company has recognized a loss of $1.4 million in the third quarter of 2024 as a result of this transaction, which is presented
within “(Gain) / Loss on sale of business” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. The company has no
continuing involvement in the Indian Joint Venture.
Agreement to sell SPAR's 51% ownership interest in its Mexican Joint Venture
On December 19, 2024, the Company closed on an agreement to sell its 51% ownership interest in its Mexican Joint venture for $417,000. The sale closed
on December 19, 2024. The Company has recognized a loss of $1.1 million in the fourth quarter of 2024 as a result of this transaction, which is presented
within “(Gain) / Loss on sale of business” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. The company has no
continuing involvement in the Mexican Joint Venture.
11. Share Based Compensation
As of December 31, 2024, the Company has outstanding stock options and unvested restricted stock units granted under its 2008 Stock Compensation Plan,
2018 Stock Compensation Plan, 2020 Stock Compensation Plan and 2021 Stock Compensation Plan, which generally permitted stock-based awards under
terms determined by the Company’s board of directors. Stock options and RSUs generally provided for vesting over service periods of one to four years,
with option exercise prices generally equal to fair market value on the date of grant. As of December 31, 2024, no further shares were available under these
plans for future awards. The Company also granted stock options and restricted stock units as inducements under contracts with selected executives.
50
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Share Based Compensation (continued)
Stock options
2008 Plan Summary
The Company’s 2008 Stock Compensation Plan, as amended, provides for equity-based awards to employees, directors, and eligible consultants. Awards
under the Plan may take the form of incentive stock options, nonqualified stock options, restricted stock, restricted stock units (RSUs), stock appreciation
rights (SARs), or other stock-based awards, all of which are classified as equity. Awards are generally settled by issuing shares of the Company’s common
stock. Stock options and SARs are granted with exercise prices at least equal to the fair market value of the common stock on the grant date and typically
have a contractual term of up to ten years. In accordance with ASC 718, the Company measures stock-based compensation expense for awards under the
Plan at the grant-date fair value and recognizes it over the awards’ requisite service or performance period (generally the vesting period). The fair value of
stock option and SAR grants is estimated on the grant date using the Black-Scholes option pricing model, while the fair value of restricted stock and RSUs
is based on the market price of the Company’s stock at grant. Awards generally vest over a multi-year period of continuous service (e.g. four-year graded
vesting for stock options) or upon achievement of specified performance goals, as applicable. Unvested awards are generally forfeited upon termination of
employment or service, unless the Company’s Compensation Committee exercises its discretion to accelerate vesting or provide for alternative vesting
arrangements in certain cases. The 2008 Plan Stock option award activity for the years ended December 31, 2024 and 2023 is summarized below for the
periods presented.
Weighted-
Weighted-
Average
Aggregate
Average
Remaining
Intrinsic
Exercise
Contractual
Value
Option Awards
Shares
Price
Term (Years)
(thousands)
Outstanding at January 1, 2023
513,100 $
1.63
2.16 $
68
Granted
–
–
–
–
Exercised / cancelled
-
–
–
–
Forfeited or expired
(291,100)
2.10
–
–
Outstanding at December 31, 2023
222,000
1.01
3.27
12
Granted
–
Exercised / cancelled
(79,000) $
0.97
98
Forfeited or expired
(56,000)
Outstanding at December 31, 2024
$
87,000 $
1.01
2.66 $
73
Exercisable at December 31, 2024
87,000 $
1.01
2.66 $
73
The Company recognized no stock-based compensation expense relating to stock option awards during the years ended December 31, 2024 and 2023 for
the 2008 plan. The total intrinsic value of shares exercised in 2024 was $98,000. The recognized tax benefit on stock-based compensation expense related
to stock options during the years ended December 31, 2024 and 2023, was $0.
2018 Plan Summary
SPAR Group’s 2018 Stock Compensation Plan provides for stock-based awards including stock options, stock appreciation rights (“SARs”), restricted
stock, and restricted stock units (“RSUs”). All awards under the plan are classified as equity instruments and are generally settled by issuing shares of the
Company’s common stock. Stock options are granted with exercise prices at least equal to the fair market value of the stock on the grant date and have a
contractual term of up to ten years. The fair value of stock option and SAR awards is measured on the grant date using the Black-Scholes option pricing
model, and the fair value of restricted stock and RSU awards is determined based on the market price of the Company’s common stock on the grant date.
Awards generally vest over the recipients’ requisite service period, often in equal annual installments over four years from the grant date. Stock-based
compensation cost is measured at the grant-date fair value of awards and recognized as expense on a straight-line basis over the vesting period, net of
estimated forfeitures. If an award is forfeited before it vests, any previously recognized compensation expense is reversed. The plan also provides for
accelerated vesting of outstanding awards under certain conditions such as the participant’s death, disability, or a change in control, which would result in
immediate recognition of any remaining unrecognized compensation cost. 2018 Plan Stock option award activity for the years ended December 31,
2024 and 2023 are summarized below.
Weighted-
Weighted-
Average
Aggregate
Average
Remaining
Intrinsic
Exercise
Contractual
Value
Option Awards
Shares
Price
Term (Years)
(thousands)
Outstanding at January 1, 2023
145,000 $
0.94
5.79 $
52
Granted
–
–
–
–
Exercised/cancelled
–
–
–
–
Forfeited or expired
–
–
–
–
Outstanding at December 31, 2023
145,000 $
0.94
4.79 $
26
Granted
–
–
Exercised
(75,000) $
0.99
90
Forfeited or expired
(30,000)
–
Outstanding at December 31, 2024
40,000 $
0.93
3.80 $
40
Exercisable at December 31, 2024
40,000 $
0.93
3.80 $
26
51
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Share Based Compensation (continued)
The Company recognized no stock-based compensation expense relating to stock option awards during the years ended December 31, 2024 and 2023 under
the 2018 plan. The total intrinsic value of shares exercised in 2024 was $90,000. The recognized tax benefit on stock-based compensation expense related
to stock options during the years ended December 31, 2024 and 2023, was $0.
2020 Plan Summary
Under the 2020 Stock Compensation Plan, SPAR Group grants equity-classified stock-based awards exclusively in the form of non-qualified stock options
(NQSOs). The plan does not authorize incentive stock options, stock appreciation rights, restricted stock, or restricted stock units. Each option award is
settled by issuing shares of the Company’s common stock upon exercise. In accordance with ASC 718, the Company measures stock-based compensation
expense for stock options at the grant-date fair value of the award (estimated using the Black-Scholes option pricing model) and recognizes it over the
requisite service period (generally the vesting period) on a straight-line basis. The total expense is adjusted for estimated forfeitures of awards to reflect
only those options expected to vest. Stock options under the 2020 Plan generally vest in annual installments over approximately four years of continuous
service. The options have a contractual term of five years from the grant date. If a participant’s service terminates before an option is fully vested, any
unvested portion is forfeited (no acceleration occurs on termination). Vested options typically remain exercisable for up to three months following
termination of service, including in cases of retirement, death, or disability. In the event of a participant’s death, any remaining unvested options become
fully vested immediately and are exercisable for up to three months thereafter by the participant’s estate or legal representative. 2020 Plan Stock option
award activity for the years ended December 31, 2024 and 2023 are summarized below.
Weighted-
Weighted-
Average
Aggregate
Average
Remaining
Intrinsic
Exercise
Contractual
Value
Option Awards
Shares
Price
Term (Years)
(thousands)
Outstanding at January 1, 2023
375,000 $
1.55
3.10 $
-
Granted
–
–
–
–
Exercised/cancelled
–
–
–
–
Forfeited or expired
(20,000)
–
–
–
Outstanding at December 31, 2023
355,000 $
1.55
2.10 $
-
Granted
–
–
–
–
Exercised
(22,500)
1.55
17
Forfeited or expired
(220,000)
–
–
–
Outstanding at December 31, 2024
112,500 $
1.55
1.10 $
44
Exercisable at December 31, 2024
78,750 $
1.55
1.10 $
31
The Company recognized $19,500 and $47,000 in stock-based compensation expense relating to stock option awards during the years ended December 31,
2024 and 2023, respectively. The total intrinsic value of shares exercised in 2024 was $17,000.
As of December 31, 2024, total unrecognized stock-based compensation expense related to stock options was $2,200, which will be recognized by the end
of 2025. The recognized tax benefit on stock-based compensation expense related to stock options during the years ended December 31, 2024 and 2023,
was $5,800 and $12,000.
CEO Inducement Plan Summary
The Company granted a nonqualified stock option as an inducement award to the CEO, outside of the Company’s stockholder-approved equity plan. This
stock option is classified as an equity award and carries a ten-year term. The grant-date fair value of the option was measured using the Black-Scholes
option pricing model. The resulting compensation cost is recognized over the award’s requisite service period (the vesting period) on a straight-line basis.
Vesting and Forfeiture Provisions: The option vested 100% on February 22, 2022. Upon vesting, any exercised portions were settled in shares of the
Company’s common stock. The CEO Inducement Plan stock option award activity for the years ended December 31, 2024 and 2023 are summarized
below.
Weighted-
Weighted-
Average
Aggregate
Average
Remaining
Intrinsic
Exercise
Contractual
Value
Option Awards
Shares
Price
Term (Years)
(thousands)
Outstanding at January 1, 2023
630,000 $
1.90
8.15 $
-
Granted
–
–
–
–
Exercised/cancelled
–
–
–
–
Forfeited or expired
–
–
–
–
Outstanding at December 31, 2023
630,000 $
1.90
7.15 $
-
Granted
–
–
–
–
Exercised
–
–
–
–
Forfeited or expired
–
–
–
–
Outstanding at December 31, 2024
630,000 $
1.90
6.15 $
25
Exercisable at December 31, 2024
630,000 $
1.90
6.15 $
25
52
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Share Based Compensation (continued)
The Company recognized $0 stock-based compensation expense relating to stock option awards during the years ended December 31, 2024 and 2023. The
recognized tax benefit on stock-based compensation expense related to stock options during the years ended December 31, 2024 and 2023, was $0.
As of December 31, 2024, there was no unrecognized share-based compensation expense related to stock options granted under the CEO Inducement
Plan.
Restricted Stock Units
The following table summarizes the activity for Restricted Stock Unit (RSU) awards during the years ended
December 31, 2024 and 2023.
Weighted-
Average
Grant Date
Fair Value
Shares
per Share
Unvested at January 1, 2023
38,675 $
1.81
Granted
304,513
1.16
Vested
(100,337)
1.20
Forfeited
(16,575)
1.81
Unvested at December 31, 2023
226,276 $
1.19
Granted
57,143
1.75
Vested
(226,276)
1.19
Forfeited
–
-
Unvested at December 31, 2024
57,143 $
1.75
During the years ended December 31, 2024 and 2023, the Company recognized approximately $117,500 and $235,000, respectively, of stock-based
compensation expense related to RSUs. During the years ended December 31, 2024 and 2023, the total fair value of RSUs vested was $315,000 and
$104,000, respectively. As of December 31, 2024, total unrecognized stock-based compensation expense related to unvested RSUs awards was $36,885,
which is expected to be recognized over a weighted average period of approximately 0.3 years.
Phantom Stock Awards
The Corporation prepared a 2022 Stock Compensation Plan that would have included Awards for NQSOs and RSUs (as defined below), but that plan was
never submitted to its shareholders for approval. However, the Board had previously approved, for certain key executives, incentive stock based awards
for 2022 using RSUs or cash. Since there were no plan based RSUs available, those executives instead received phantom stock awards.
On and effective as of March 24, 2022, the Corporation issued an award of 111,111 Phantom Stock Units to each of its executives: Kori G. Belzer; William
Linnane; and Ron Lutz. Each Phantom Stock Unit represents the right of the grantee to receive cash payments based on the fair market value of SGRP's
Common Stock at the time of vesting. Vesting will occur in three tranches of one-third each over the three (3) year period following the Grant Date,
provided that (i) the Grantee is an employee of the Company at the time and (ii) the Corporation has achieved 90% of the agreed upon the applicable
financial target for the year commencing with 2022 (which was EBITDA for 2022), but tranches will rollover to the following year and be payable upon
achievement of 120% of the agreed upon the applicable financial target for such following year. The Phantom Stock Units do not possess the rights of
common stockholders of the Corporation, including any voting or dividend rights, and cannot be exercised or traded for the SGRP's Common Stock. Due to
the cash settlement feature, the Phantom Stock Units are classified as liabilities in accrued expenses and other current liabilities and other long-term
liabilities in the consolidated balance sheet. Accrued expenses and other current liabilities on the Consolidated Balance Sheet included $0 and $0.6 million
related to Phantom Stock Units as of December 31, 2024 and December 31, 2023, respectively.
.
12. Segment Information
The Company has three reportable geographic segments: Americas, Asia-Pacific, and EMEA. The Company’s Chief Executive Officer, who serves as the Chief Operating
Decision Maker (CODM), regularly reviews financial information for each segment, including net revenues, selling, general and administrative expense, depreciation and
amortization, interest expense, other expense (income), net, income (loss) before income tax expense, income tax expense (benefit), and net income (loss) attributable to
SPAR Group, Inc. These measures are used by the CODM to assess segment performance, make decisions regarding resource allocation, and evaluate current operating
results and long-term strategic opportunities in each geographic market.
53
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Segment Information (continued)
(in Thousands)
Year Ended December 31,
2024
2023
Net revenues
Americas
$
177,232 $
203,705
Asia - Pacific
11,305
24,480
EMEA
8,277
34,562
Total Net revenues
$
196,814 $
262,747
Selling, general and administrative expense
Americas
$
33,020 $
30,213
Asia - Pacific
3,107
8,437
EMEA
1,138
5,023
Total Selling, general and administrative expense
$
37,265 $
43,673
Operating Income (loss)
Americas
$
1,821 $
7,240
Asia - Pacific
(999)
(599)
EMEA
102
2,757
Total Operating Income (loss)
$
924 $
9,398
Interest expense
Americas
$
65 $
1,388
Asia - Pacific
2,157
122
EMEA
-
409
Total Interest expense
$
2,222 $
1,919
Other expense (income), net
Americas
$
(1,083) $
1,070
Asia - Pacific
1,254
(759)
EMEA
-
35
Total Other expense (income), net
$
171 $
346
Income (loss) before income tax expense
Americas
$
(4,990) $
4,304
Asia - Pacific
6,338
236
EMEA
(2,817)
2,593
Total Income (loss) before income tax expense
$
(1,469) $
7,133
Income tax expense (benefit)
Americas
$
1,243 $
1,543
Asia - Pacific
(64)
62
EMEA
39
752
Total Income tax expense (benefit)
$
1,218 $
2,357
Net income (loss)
Americas
$
(6,233) $
3,236
Asia - Pacific
6,402
(24)
EMEA
(2,856)
1,564
Total Net income (loss)
$
(2,687) $
4,776
Net income (loss) attributable to non-controlling interest
Americas
$
277 $
(492)
Asia - Pacific
(104)
33
EMEA
290
1,333
Total Net income (loss) attributable to non-controlling interest
$
463 $
874
Net Income (loss) attributable to SPAR Group, Inc.
Americas
$
(6,510) $
3,729
Asia - Pacific
6,506
(57)
EMEA
(3,146)
230
Total Net Income (loss) attributable to SPAR Group, Inc.
$
(3,150) $
3,902
Depreciation and amortization:
Americas
$
1,518 $
1,737
Asia - Pacific
66
94
EMEA
32
170
Total Depreciation and amortization:
$
1,616 $
2,001
Capital expenditures:
Americas
$
1,134 $
1,077
Asia - Pacific
5
71
EMEA
-
101
Total Capital expenditures:
$
1,139 $
1,249
There were no inter-segment sales for 2024 or 2023.
54
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Segment Information (continued)
December 31,
2024
2023
Assets:
Americas
$
56,431 $
71,372
Asia - Pacific
-
13,361
EMEA
-
5,548
Total assets
$
56,431 $
90,281
Geographic Data (in thousands)
Year Ended December 31,
2024
2023
Net international revenue:
% of consolidated
net revenue
% of consolidated
net revenue
United States
$
117,507
59.7% $
104,647
39.8%
Brazil
33,185
16.9%
74,873
28.5%
South Africa
8,277
4.2%
34,562
13.2%
Mexico
12,235
6.2%
11,691
4.4%
China
2,698
1.4%
10,167
3.9%
Japan
3,778
1.9%
6,256
2.4%
India
4,829
2.5%
6,148
2.3%
Canada
14,305
7.2%
12,494
4.8%
Australia
-
0.0%
1,909
0.7%
Total net international revenue
$
196,814
100.0% $
262,747
100.0%
(in thousands)
Year Ended December 31,
2024
2023
Long lived assets:
Americas
$
4,479 $
4,585
Asia - Pacific
-
1,015
EMEA
-
745
Total long lived assets
$
4,479 $
6,345
13. Earnings Per Share
The following table sets forth the computations of basic and diluted earnings per share (in thousands, except per share data):
Year Ended December 31,
2024
2023
Numerator:
Net income (loss) attributable to SPAR Group, Inc.
$
(3,150) $
3,902
Denominator:
Shares used in basic net income per share calculation
23,555
23,333
Effect of diluted securities:
Stock options and unvested restricted shares
174
147
Convertible Series B Preferred Stock
–
975
Shares used in diluted net income per share calculations
23,729
24,455
Basic net income (loss) per common share:
$
(0.13) $
0.17
Diluted net income (loss) per common share:
$
(0.13) $
0.16
The Company excluded 103,000 stock options and 71,000 RSUs from the computation of diluted net loss per share for the year ended December 31,
2024 because including them would have had an anti-dilutive effect.
55
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Leases
The Company is a lessee under certain operating leases for office space and equipment.
The components of lease expenses consisted of the following for the periods presented (in thousands):
Year Ended
Year Ended
Lease Costs
Classification
December 31, 2024
December 31, 2023
Operating lease cost
Selling, General and Administrative Expense
$
545 $
875
Short-term lease cost
Selling, General and Administrative Expense
370
378
Total lease cost
$
915 $
1,253
The following includes supplemental information for the periods presented (in thousands).
Year Ended
Year Ended
December 31, 2024
December 31,
2023
Operating cash flows from operating leases
$
545 $
875
Right-of-use assets obtained in exchange for lease obligations
Operating leases
$
- $
2,229
Balance sheet information related to leases consisted of the following as of the periods presented (in thousands):
Leases
December 31, 2024 December 31, 2023
Assets:
Operating lease right-of-use assets
$
630 $
2,323
Liabilities:
Current portion of operating lease liabilities
276
1,163
Non-current portion of operating lease liabilities
353
1,160
Total operating lease liabilities
$
629 $
2,323
Weighted average remaining lease term - operating leases (in years)
2.64
2.64
Weighted average discount rate - operating leases
7.7%
8.8%
56
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Leases (continued)
The following table summarizes the maturities of lease liabilities as of
December 31, 2024 (in thousands):
For the Year Ended December 31,
Amount
2025
$
331
2026
165
2027
139
2028
87
2029
-
Thereafter
-
Total future operating lease liability
$
722
Less: present value discount
(93)
Present value of operating lease liabilities
$
629
15. Subsequent Events
Potential Going Private Transaction
As previously announced, on August 30, 2024, the Corporation entered into an Agreement and Plan of Merger (the "Merger Agreement"), with Highwire
Capital, LLC, a Texas limited liability company ("Highwire"), and Highwire Merger Co. I, Inc., a Delaware corporation and a wholly owned subsidiary of
Highwire ("Merger Sub"), pursuant to which Highwire will acquire all of the stock of the Corporation for $2.50 per fully diluted share in cash, representing
an aggregate purchase price of $58,000,000 (subject to certain adjustments) (the “Merger Consideration”), upon the closing of the Merger Agreement and
the transactions contemplated thereby (“Merger Transaction”).
The board of directors of the Corporation (the "Board") established a special committee (the "Special Committee") to, among other things, evaluate the
advisability and fairness of strategic alternatives to the Corporation and its stockholders (including unaffiliated stockholders of the Corporation). The
Special Committee eventually received, negotiated and approved the letter of intent from Highwire previously announced on June 5, 2024, which led to
the negotiation of the Merger Agreement.
The Special Committee and the Board approved the execution, delivery and performance by the Corporation of the Merger Transaction. The SGRP
stockholders approved the Merger Transaction on October 25, 2024.
The parties to the Merger Agreement are working to finalize the closing of the Merger Transaction. The Merger Agreement currently allows until
May 30, 2025, to close the Merger Transaction. If the Corporation terminates the Merger Agreement because all closing conditions are satisfied and
Highwire fails to close within five business days following written confirmation from the Corporation that it is prepared to close, then Highwire shall pay
to the Corporation a termination fee of 3% of the Merger Consideration.
57
16. Restatement (Unaudited)
Prior to the filing of the Company’s December 31, 2024 Form 10-K, management determined that there was an error in the reported gain on sale of its joint
venture in Brazil during the quarter ended June 30, 2024, which resulted in the gain being overstated and additional paid in capital being understated. The
Company’s management and the audit committee of the Company’s Board of Directors concluded that it is appropriate to restate the unaudited quarterly
condensed consolidated financial statements for the quarterly periods ended June 30, 2024 and September 30, 2024. The following presents the restated
unaudited quarterly condensed financial statements as of June 30, 2024 and September 30, 2024 and for the three and six month periods ended June 30,
2024 and the three and nine month periods ended September 30, 2024.
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
June 30, 2024
As Previously
Reported
Adjustment
Restated
Assets
Current assets:
Cash and cash equivalents
$
21,695 $
- $
21,695
Accounts receivable, net
37,963
-
37,963
Prepaid expenses and other current assets
2,117
-
2,117
Total current assets
61,775
-
61,775
Property and equipment, net
2,467
-
2,467
Operating lease right-of-use assets
1,154
-
1,154
Goodwill
1,238
-
1,238
Intangible assets, net
718
-
718
Deferred income taxes, net
1,029
-
1,029
Other assets
1,644
-
1,644
Total assets
$
70,025 $
- $
70,025
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
$
7,211 $
- $
7,211
Accrued expenses and other current liabilities
5,643
-
5,643
Due to affiliates
623
-
623
Customer incentives and deposits
4,541
-
4,541
Lines of credit and short-term loans
18,442
-
18,442
Current portion of operating lease liabilities
482
-
482
Total current liabilities
36,942
-
36,942
Operating lease liabilities, net of current portion
672
-
672
Long-term debt
1,711
-
1,711
Total liabilities
39,325
-
39,325
Commitments and contingencies – See Note 4
Stockholders' equity:
Series B convertible preferred stock, $0.01 par value per share: Authorized and
available shares 3,000,000. Issued and outstanding shares 0 at June 30, 2024 and
650,000 at December 31, 2023
-
-
-
Common stock, $0.01 par value per share: 47,000,000 shares authorized as of June
30, 2024 and December 31, 2023; 23,419,744 and 23,446,444 shares issued and
outstanding as of June 30, 2024 and December 31, 2023, respectively
234
-
234
Treasury stock, at cost, 1,205,485 shares as of June 30, 2024 and 205,485 as of
December 31, 2023
(2,075)
-
(2,075)
Additional paid-in capital
13,338
7,518
20,856
Accumulated other comprehensive (loss)
(2,268)
-
(2,268)
Retained earnings
20,151
(7,518)
12,633
Total stockholders' equity attributable to SPAR Group, Inc.
29,380
-
29,380
Non-controlling interest
1,320
-
1,320
Total stockholders’ equity
30,700
-
30,700
Total liabilities and stockholders’ equity
$
70,025 $
- $
70,025
58
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
September 30, 2024
As Previously
Reported
Adjustment
Restated
Assets
Current assets:
Cash and cash equivalents
$
19,652 $
- $
19,652
Accounts receivable, net
37,777
-
37,777
Prepaid expenses and other current assets
3,078
-
3,078
Total current assets
60,507
-
60,507
Property and equipment, net
2,142
-
2,142
Operating lease right-of-use assets
838
-
838
Goodwill
1,238
-
1,238
Intangible assets, net
693
-
693
Deferred income taxes, net
-
-
-
Other assets
1,978
-
1,978
Total assets
$
67,396 $
- $
67,396
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
$
9,220 $
- $
9,220
Accrued expenses and other current liabilities
3,713
-
3,713
Due to affiliates
623
-
623
Customer incentives and deposits
1,678
-
1,678
Lines of credit and short-term loans
18,538
-
18,538
Current portion of operating lease liabilities
508
-
508
Total current liabilities
34,280
-
34,280
Operating lease liabilities, net of current portion
330
-
330
Deferred income taxes, net
1,707
-
1,707
Long-term debt
1,538
-
1,538
Total liabilities
37,855
-
37,855
Commitments and contingencies – See Note 4
Stockholders' equity:
Series B convertible preferred stock, $0.01 par value per share: Authorized and
available shares 3,000,000. Issued and outstanding shares 0 at June 30, 2024 and
650,000 at December 31, 2023
-
-
-
Common stock, $0.01 par value per share: 47,000,000 shares authorized as of June
30, 2024 and December 31, 2023; 23,419,744 and 23,446,444 shares issued and
outstanding as of June 30, 2024 and December 31, 2023, respectively
234
-
234
Treasury stock, at cost, 1,205,485 shares as of June 30, 2024 and 205,485 as of
December 31, 2023
(2,075)
-
(2,075)
Additional paid-in capital
13,151
7,556
20,707
Accumulated other comprehensive (loss)
(2,022)
-
(2,022)
Retained earnings
20,007
(7,556)
12,451
Total stockholders' equity attributable to SPAR Group, Inc.
29,295
-
29,295
Non-controlling interest
246
-
246
Total stockholders’ equity
29,541
-
29,541
Total liabilities and stockholders’ equity
$
67,396 $
- $
67,396
59
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(In thousands, except per share data)
Three Months Ended
June 30, 2024
As Previously
Reported
Adjustment
Restated
Net revenues
$
57,290 $
- $
57,290
Related party - cost of revenues
-
-
-
Cost of revenues
46,297
-
46,297
Gross profit
10,993
-
10,993
Selling, general and administrative expense
9,541
-
9,541
(Gain) / Loss on sale of business
(4,919)
7,518
2,599
Depreciation and amortization
478
-
478
Operating income (loss)
5,893
(7,518)
(1,625)
Interest expense
567
-
567
Other (income), net
(296)
-
(296)
Income (loss) before income tax expense
5,622
(7,518)
(1,896)
Income tax expense
1,547
-
1,547
Net income (loss)
4,075
(7,518)
(3,443)
Net (income) attributable to non-controlling interest
(448)
-
(448)
Net income (loss) attributable to SPAR Group, Inc.
$
3,627 $
(7,518) $
(3,891)
Basic income (loss) per common share attributable to SPAR Group, Inc.
$
0.15 $
(0.32) $
(0.16)
Diluted income (loss) per common share attributable to SPAR Group, Inc.
$
0.15 $
(0.31) $
(0.16)
Weighted-average common shares outstanding – basic
23,786
23,786
23,786
Weighted-average common shares outstanding – diluted
24,010
24,010
24,010
Net income (loss)
$
4,075 $
(7,518) $
(3,443)
Other comprehensive income
Foreign currency translation adjustments
1,372
–
1,372
Comprehensive income (loss)
5,447
(7,518)
(2,071)
Comprehensive (income) attributable to non-controlling interest
(393)
-
(393)
Comprehensive income (loss) attributable to SPAR Group, Inc.
$
5,054 $
(7,518) $
(2,464)
60
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(In thousands, except per share data)
Three Months Ended
September 30, 2024
As Previously
Reported
Adjustment
Restated
Net revenues
$
37,788 $
- $
37,788
Related party - cost of revenues
-
-
-
Cost of revenues
29,346
-
29,346
Gross profit
8,442
-
8,442
Selling, general and administrative expense
8,558
-
8,558
Loss on sale of business
922
38
960
Depreciation and amortization
454
-
454
Operating (loss)
(1,492)
(38)
(1,530)
Interest expense
582
-
582
Other expense, net
472
-
472
(Loss) before income tax benefit
(2,546)
(38)
(2,584)
Income tax benefit
(2,314)
-
(2,314)
Net (loss)
(232)
(38)
(270)
Net loss attributable to non-controlling interest
88
-
88
Net (loss) attributable to SPAR Group, Inc.
$
(144) $
(38) $
(182)
Basic (loss) per common share attributable to SPAR Group, Inc.
$
(0.01) $
(0.00) $
(0.01)
Diluted (loss) per common share attributable to SPAR Group, Inc.
$
(0.01) $
(0.00) $
(0.01)
Weighted-average common shares outstanding – basic
23,435
23,435
23,435
Weighted-average common shares outstanding – diluted
23,435
23,435
23,435
Net (loss)
$
(232) $
(38) $
(270)
Other comprehensive loss
Foreign currency translation adjustments
(72)
–
(72)
Comprehensive (loss)
(304)
(38)
(342)
Comprehensive loss attributable to non-controlling interest
45
-
45
Comprehensive (loss) attributable to SPAR Group, Inc.
$
(259) $
(38) $
(297)
61
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(In thousands, except per share data)
Six Months Ended
June 30, 2024
As Previously
Reported
Adjustment
Restated
Net revenues
$
125,984 $
- $
125,984
Related party - cost of revenues
-
-
-
Cost of revenues
102,448
-
102,448
Gross profit
23,536
-
23,536
Selling, general and administrative expense
19,158
-
19,158
(Gain) / Loss on sale of business
(12,076)
7,518
(4,558)
Depreciation and amortization
989
-
989
Operating income (loss)
15,465
(7,518)
7,947
Interest expense
1,097
-
1,097
Other (income), net
(288)
-
(288)
Income (loss) before income tax expense
14,656
(7,518)
7,138
Income tax expense
3,401
-
3,401
Net income (loss)
11,255
(7,518)
3,737
Net (income) attributable to non-controlling interest
(1,002)
-
(1,002)
Net income (loss) attributable to SPAR Group, Inc.
$
10,253 $
(7,518) $
2,735
Basic income (loss) per common share attributable to SPAR Group, Inc.
$
0.43 $
(0.32) $
0.12
Diluted income (loss) per common share attributable to SPAR Group, Inc.
$
0.43 $
(0.31) $
0.11
Weighted-average common shares outstanding – basic
23,670
23,670
23,670
Weighted-average common shares outstanding – diluted
23,873
23,873
23,873
Net income (loss)
$
11,255 $
(7,518) $
3,737
Other comprehensive loss
Foreign currency translation adjustments
(1,148)
–
(1,148)
Comprehensive income (loss)
10,107
(7,518)
2,589
Comprehensive loss attributable to non-controlling interest
97
-
97
Comprehensive income (loss) attributable to SPAR Group, Inc.
$
10,204 $
(7,518) $
2,686
62
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(In thousands, except per share data)
Nine Months Ended
September 30, 2024
As Previously
Reported
Adjustment
Restated
Net revenues
$
163,771 $
- $
163,771
Related party - cost of revenues
-
-
-
Cost of revenues
131,801
-
131,801
Gross profit
31,970
-
31,970
Selling, general and administrative expense
27,707
-
27,707
(Gain) / Loss on sale of business
(11,154)
7,556
(3,598)
Depreciation and amortization
1,443
-
1,443
Operating income (loss)
13,974
(7,556)
6,418
Interest expense
1,678
-
1,678
Other expense, net
184
-
184
Income (loss) before income tax expense
12,112
(7,556)
4,556
Income tax expense
1,088
-
1,088
Net income (loss)
11,024
(7,556)
3,468
Net (income) attributable to non-controlling interest
(914)
-
(914)
Net income (loss) attributable to SPAR Group, Inc.
$
10,110 $
(7,556) $
2,554
Basic income (loss) per common share attributable to SPAR Group, Inc.
$
0.43 $
(0.32) $
0.11
Diluted income (loss) per common share attributable to SPAR Group, Inc.
$
0.43 $
(0.32) $
0.11
Weighted-average common shares outstanding – basic
23,591
23,591
23,591
Weighted-average common shares outstanding – diluted
23,768
23,768
23,768
Net income (loss)
$
11,024 $
(7,556) $
3,468
Other comprehensive loss
Foreign currency translation adjustments
(1,220)
–
(1,220)
Comprehensive income (loss)
9,804
(7,556)
2,248
Comprehensive loss attributable to non-controlling interest
142
-
142
Comprehensive income (loss) attributable to SPAR Group, Inc.
$
9,946 $
(7,556) $
2,390
63
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
Three Months Ended June 30
(In thousands)
As Previously Reported
Common Stock
Series B
Convertible
Preferred Stock
Treasury Stock Additional
Accumulated
Other
Non-
Shares Amount Shares Amount Shares Amount
Paid-In
Capital
Comprehensive
Loss
Retained
Earnings
Controlling
Interest
Total
Stockholders’
Equity
Balance at March 31, 2024 24,216 $
242
- $
-
205 $
(285) $
21,131 $
(4,659) $ 16,524 $
7,103 $
40,056
Share-based compensation
-
-
-
-
-
-
128
-
-
-
128
Exercise of stock options
204
2
-
-
-
-
(403)
-
-
-
(401)
Sale of joint ventures
-
-
-
-
-
-
(7,518)
1,412
-
(4,509)
(10,615)
Purchase of non-controlling
interest
-
-
-
-
-
-
-
-
-
(2,115)
(2,115)
Purchase of treasury shares (1,000)
(10)
-
- 1,000 (1,790)
-
-
-
-
(1,800)
Other comprehensive
income
-
-
-
-
-
-
-
979
-
393
1,372
Net income
-
-
-
-
-
-
-
-
3,627
448
4,075
Balance at June 30, 2024
23,420 $
234
- $
- 1,205 $ (2,075) $
13,338 $
(2,268) $ 20,151 $
1,320 $
30,700
Adjustments
Sale of joint ventures
-
-
-
-
-
-
7,518
-
-
-
7,518
Net (loss)
-
-
-
-
-
-
-
-
(7,518)
-
(7,518)
Total Adjustments
- $
-
- $
-
0 $
- $
7,518 $
- $ (7,518) $
- $
-
As Restated
Common Stock
Series B
Convertible
Preferred Stock
Treasury Stock Additional
Accumulated
Other
Non-
Shares Amount Shares Amount Shares Amount
Paid-In
Capital
Comprehensive
Loss
Retained
Earnings
Controlling
Interest
Total
Stockholders’
Equity
Balance at March 31, 2024 24,216 $
242
- $
-
205 $
(285) $
21,131 $
(4,659) $ 16,524 $
7,103 $
40,056
Share-based compensation
-
-
-
-
-
-
128
-
-
-
128
Exercise of stock options
204
2
-
-
-
-
(403)
-
-
-
(401)
Sale of joint ventures
-
-
-
-
-
-
-
1,412
-
(4,509)
(3,097)
Purchase of non-controlling
interest
-
-
-
-
-
-
-
-
-
(2,115)
(2,115)
Purchase of treasury shares (1,000)
(10)
-
- 1,000 (1,790)
-
-
-
-
(1,800)
Other comprehensive
income
-
-
-
-
-
-
-
979
-
393
1,372
Net income (loss)
-
-
-
-
-
-
-
-
(3,891)
448
(3,443)
Balance at June 30, 2024
23,420 $
234
- $
- 1,205 $ (2,075) $
20,856 $
(2,268) $ 12,633 $
1,320 $
30,700
64
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
Three Months Ended September 30
(In thousands)
As Previously Reported
Common Stock
Series B
Convertible
Preferred Stock
Treasury Stock Additional
Accumulated
Other
Non-
Shares Amount Shares Amount Shares Amount
Paid-In
Capital
Comprehensive
Loss
Retained
Earnings
Controlling
Interest
Total
Stockholders’
Equity
Balance at June 30, 2024
23,420 $
234
- $
- 1,205 $ (2,075) $
13,338 $
(2,268) $ 20,151 $
1,320 $
30,700
Share-based compensation
-
-
-
-
-
-
(149)
-
-
-
(149)
Exercise of stock options
28
-
-
-
-
-
-
-
-
-
-
Sale of joint ventures
-
-
-
-
-
-
(38)
273
-
(941)
(706)
Purchase of non-controlling
interest
-
-
-
-
-
-
-
-
-
-
-
Purchase of treasury shares
-
-
-
-
-
-
-
-
-
-
-
Other comprehensive
income
-
-
-
-
-
-
-
(27)
-
(45)
(72)
Net (loss)
-
-
-
-
-
-
-
-
(144)
(88)
(232)
Balance at September 30,
2024
23,448 $
234
- $
- 1,205 $ (2,075) $
13,151 $
(2,022) $ 20,007 $
246 $
29,541
Adjustments
Balance at June 30, 2024
- $
-
- $
-
0 $
- $
7,518 $
- $ (7,518) $
- $
-
Sale of joint ventures
-
-
-
-
-
-
38
-
-
-
38
Net (loss)
-
-
-
-
-
-
-
-
(38)
-
(38)
Total Adjustments
- $
-
- $
-
0 $
- $
38 $
- $
(38) $
- $
-
As Restated
Common Stock
Series B
Convertible
Preferred Stock
Treasury Stock Additional
Accumulated
Other
Non-
Shares Amount Shares Amount Shares Amount
Paid-In
Capital
Comprehensive
Loss
Retained
Earnings
Controlling
Interest
Total
Stockholders’
Equity
Balance at June 30, 2024
23,420 $
234
- $
- 1,205 $ (2,075) $
20,856 $
(2,268) $ 12,633 $
1,320 $
30,700
Share-based compensation
-
-
-
-
-
-
(149)
-
-
-
(149)
Exercise of stock options
28
-
-
-
-
-
-
-
-
-
-
Sale of joint ventures
-
-
-
-
-
-
-
273
-
(941)
(668)
Purchase of non-controlling
interest
-
-
-
-
-
-
-
-
-
-
-
Purchase of treasury shares
-
-
-
-
-
-
-
-
-
-
-
Other comprehensive (loss)
-
-
-
-
-
-
-
(27)
-
(45)
(72)
Net (loss)
-
-
-
-
-
-
-
-
(182)
(88)
(270)
Balance at September 30,
2024
23,448 $
234
- $
- 1,205 $ (2,075) $
20,707 $
(2,022) $ 12,451 $
246 $
29,541
65
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
Six Months Ended June 30
(In thousands)
As Previously Reported
Common Stock
Series B
Convertible
Preferred Stock
Treasury Stock Additional
Accumulated
Other
Non-
Shares Amount Shares Amount Shares Amount
Paid-In
Capital
Comprehensive
Loss
Retained
Earnings
Controlling
Interest
Total
Stockholders’
Equity
Balance at January 1,
2024
23,241 $
232
650 $
7
205 $
(285) $
21,004 $
(3,341) $ 10,609 $
12,020 $
40,246
Share-based compensation
-
-
-
-
-
-
256
-
-
-
256
Conversion of preferred
stock to common stock
975
10
(650)
(7)
(1)
2
Exercise of stock options
204
2
-
-
-
-
(403)
-
-
-
(401)
Sale of joint ventures
-
-
-
-
-
-
(7,518)
2,124
(711)
(9,490)
(15,595)
Purchase of non-controlling
interest
-
-
-
-
-
-
-
-
-
(2,115)
(2,115)
Purchase of treasury shares (1,000)
(10)
-
- 1,000 (1,790)
-
-
-
-
(1,800)
Other comprehensive (loss)
-
-
-
-
-
-
-
(1,051)
-
(97)
(1,148)
Net income
-
-
-
-
-
-
-
-
10,253
1,002
11,255
Balance at June 30, 2024
23,420 $
234
- $
- 1,205 $ (2,075) $
13,338 $
(2,268) $ 20,151 $
1,320 $
30,700
Adjustments
Sale of joint ventures
-
-
-
-
-
-
7,518
-
-
-
7,518
Net (loss)
-
-
-
-
-
-
-
-
(7,518)
-
(7,518)
Total Adjustments
- $
-
- $
-
0 $
- $
7,518 $
- $ (7,518) $
- $
-
As Restated
Common Stock
Series B
Convertible
Preferred Stock
Treasury Stock Additional
Accumulated
Other
Non-
Shares Amount Shares Amount Shares Amount
Paid-In
Capital
Comprehensive
Loss
Retained
Earnings
Controlling
Interest
Total
Stockholders’
Equity
Balance at January 1,
2024
23,241 $
232
650 $
7
205 $
(285) $
21,004 $
(3,341) $ 10,609 $
12,020 $
40,246
Share-based compensation
-
-
-
-
-
-
256
-
-
-
256
Conversion of preferred
stock to common stock
975
10
(650)
(7)
-
-
(1)
-
-
-
2
Exercise of stock options
204
2
-
-
-
-
(403)
-
-
-
(401)
Sale of joint ventures
-
-
-
-
-
-
-
2,124
(711)
(9,490)
(8,077)
Purchase of non-controlling
interest
-
-
-
-
-
-
-
-
-
(2,115)
(2,115)
Purchase of treasury shares (1,000)
(10)
-
- 1,000 (1,790)
-
-
-
-
(1,800)
Other comprehensive (loss)
-
-
-
-
-
-
-
(1,051)
-
(97)
(1,148)
Net income
-
-
-
-
-
-
-
-
2,735
1,002
3,737
Balance at June 30, 2024
23,420 $
234
- $
- 1,205 $ (2,075) $
20,856 $
(2,268) $ 12,633 $
1,320 $
30,700
66
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
Nine Months Ended September 30
(In thousands)
As Previously Reported
Common Stock
Series B
Convertible
Preferred Stock
Treasury Stock Additional
Accumulated
Other
Non-
Shares Amount Shares Amount Shares Amount
Paid-In
Capital
Comprehensive
Loss
Retained
Earnings
Controlling
Interest
Total
Stockholders’
Equity
Balance at January 1,
2024
23,241 $
232
650 $
7
205 $
(285) $
21,004 $
(3,341) $ 10,609 $
12,020 $
40,246
Share-based compensation
-
-
-
-
-
-
107
-
-
-
107
Conversion of preferred
stock to common stock
975
10
(650)
(7)
(1)
2
Exercise of stock options
232
2
-
-
-
-
(403)
-
-
-
(401)
Sale of joint ventures
-
-
-
-
-
-
(7,556)
2,397
(712)
(10,431)
(16,302)
Purchase of non-controlling
interest
-
-
-
-
-
-
-
-
-
(2,115)
(2,115)
Purchase of treasury shares (1,000)
(10)
-
- 1,000 (1,790)
-
-
-
-
(1,800)
Other comprehensive (loss)
-
-
-
-
-
-
-
(1,078)
-
(142)
(1,220)
Net income
-
-
-
-
-
-
-
-
10,110
914
11,024
Balance at September 30,
2024
23,448 $
234
- $
- 1,205 $ (2,075) $
13,151 $
(2,022) $ 20,007 $
246 $
29,541
Adjustments
Sale of joint ventures
-
-
-
-
-
-
7,556
-
-
-
7,556
Net (loss)
-
-
-
-
-
-
-
-
(7,556)
-
(7,556)
Total Adjustments
- $
-
- $
-
0 $
- $
7,556 $
- $ (7,556) $
- $
-
As Restated
Common Stock
Series B
Convertible
Preferred Stock
Treasury Stock Additional
Accumulated
Other
Non-
Shares Amount Shares Amount Shares Amount
Paid-In
Capital
Comprehensive
Loss
Retained
Earnings
Controlling
Interest
Total
Stockholders’
Equity
Balance at January 1,
2024
23,241 $
232
650 $
7
205 $
(285) $
21,004 $
(3,341) $ 10,609 $
12,020 $
40,246
Share-based compensation
-
-
-
-
-
-
107
-
-
-
107
Conversion of preferred
stock to common stock
975
10
(650)
(7)
-
-
(1)
-
-
-
2
Exercise of stock options
232
2
-
-
-
-
(403)
-
-
-
(401)
Sale of joint ventures
-
-
-
-
-
-
-
2,397
(712)
(10,431)
(8,746)
Purchase of non-controlling
interest
-
-
-
-
-
-
-
-
-
(2,115)
(2,115)
Purchase of treasury shares (1,000)
(10)
-
- 1,000 (1,790)
-
-
-
-
(1,800)
Other comprehensive (loss)
-
-
-
-
-
-
-
(1,078)
-
(142)
(1,220)
Net income
-
-
-
-
-
-
-
-
2,554
914
3,468
Balance at September 30,
2024
23,448 $
234
- $
- 1,205 $ (2,075) $
20,707 $
(2,022) $ 12,451 $
246 $
29,541
67
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Six months ended June 30, 2024
As Previously
Reported
Adjustment
Restated
Cash flows from operating activities:
Net income (loss)
$
11,255 $
(7,518) $
3,737
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization
989
-
989
Amortization of operating lease right-of-use assets
310
-
310
Provision for expected credit losses
89
-
89
Deferred income tax expense
1,349
-
1,349
(Gain) / loss on sale of business
(12,076)
7,518
(4,558)
Share-based compensation
256
-
256
Changes in operating assets and liabilities:
-
Accounts receivable, net
(9,766)
-
(9,766)
Prepaid expenses and other current assets
(2,620)
-
(2,620)
Change in deferred taxes due to deconsolidation
2,307
-
2,307
Accounts payable
1,992
-
1,992
Operating lease liabilities
(310)
-
(310)
Accrued expenses, other current liabilities, due to affiliates and customer
incentives and deposits
6,395
-
6,395
Net cash provided by operating activities
$
170 $
- $
170
Cash flows from investing activities
Proceeds from sale of joint ventures, net of cash transferred
11,743
-
11,743
Purchases of property and equipment
(781)
-
(781)
Net cash provided by investing activities
$
10,962 $
- $
10,962
Cash flows from financing activities
Borrowings under line of credit
69,117
-
69,117
Repayments under line of credit
(64,044)
-
(64,044)
Proceeds from term debt
26
-
26
Net cash settlement of stock options
-
-
-
Repurchases of common stock
(1,800)
-
(1,800)
Payments of notes to seller
(1,843)
-
(1,843)
Payments to acquire noncontrolling interests
(250)
-
(250)
Dividend on noncontrolling interest
(1,315)
-
(1,315)
Net cash (used in) financing activities
$
(109) $
- $
(109)
Effect of foreign exchange rate changes on cash
(48)
-
(48)
Net change in cash, cash equivalents and restricted cash
10,976
-
10,976
Cash, cash equivalents at beginning of period
10,719
-
10,719
Cash, cash equivalents at end of period
$
21,695 $
- $
21,695
Supplemental disclosure of cash flows information:
Cash paid for interest
$
1,030 $
- $
1,030
Cash paid for income taxes
$
277 $
- $
277
68
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine months ended September 30, 2024
As Previously
Reported
Adjustment
Restated
Cash flows from operating activities:
Net income (loss)
$
11,024 $
(7,556) $
3,468
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization
1,443
-
1,443
Amortization of operating lease right-of-use assets
415
-
415
Provision for expected credit losses
133
-
133
Deferred income tax expense
4,577
-
4,577
(Gain) / loss on sale of business
(11,154)
7,556
(3,598)
Share-based compensation
107
-
107
Changes in operating assets and liabilities:
-
Accounts receivable, net
(5,843)
-
(5,843)
Prepaid expenses and other current assets
(2,383)
-
(2,383)
Accounts payable
3,832
-
3,832
Operating lease liabilities
(415)
-
(415)
Accrued expenses, other current liabilities, due to affiliates and customer
incentives and deposits
(2,466)
-
(2,466)
Net cash (used by) operating activities
$
(730) $
- $
(730)
Cash flows from investing activities
Proceeds from sale of joint ventures, net of cash transferred
10,436
-
10,436
Purchases of property and equipment
(908)
-
(908)
Net cash provided by investing activities
$
9,528 $
- $
9,528
Cash flows from financing activities
Borrowings under line of credit
103,184
-
103,184
Repayments under line of credit
(97,782)
-
(97,782)
Proceeds from term debt
16
-
16
Net cash settlement of stock options
-
-
-
Repurchases of common stock
(1,800)
-
(1,800)
Payments of notes to seller
(1,843)
-
(1,843)
Payments to acquire noncontrolling interests
(250)
-
(250)
Dividend on noncontrolling interest
(1,315)
-
(1,315)
Net cash provided by financing activities
$
210 $
- $
210
Effect of foreign exchange rate changes on cash
(75)
-
(75)
Net change in cash, cash equivalents and restricted cash
8,933
-
8,933
Cash, cash equivalents at beginning of period
10,719
-
10,719
Cash, cash equivalents at end of period
$
19,652 $
- $
19,652
Supplemental disclosure of cash flows information:
Cash paid for interest
$
1,640 $
- $
1,640
Cash paid for income taxes
$
277 $
- $
277
69
Exhibit 10.69
SEVENTH MODIFICATION AGREEMENT
THIS SEVENTH MODIFICATION AGREEMENT (this "Modification Agreement") is entered into as of March 28t 2024, by and among NORTH
MILL CAPITAL LLC, a Delaware limited liability company, d/b/a SLR Business Credit ("Lender"), with a place of business at 821 Alexander Road,
Suite 130, Princeton, New Jersey 08540, SPAR MARKETING FORCE, INC., a Nevada corporation("US Borrower"), with its chief executive office
located at 1910 Opdyke Court, Auburn Hills, Michigan 48326, and SPAR CANADA COMPANY, an unlimited company organized under the laws of
Nova Scotia ('Canadian Borrower''), with its chief executive office located at 10 Planchet Road, Unit 21, Vaughan, Ontario L4K 2C8.
RECITALS
WHEREAS, Lender, US Borrower and Canadian Borrower entered into a Loan and Security Agreement dated as of April 10, 2019 (as amended, modified,
supplemented, substituted, extended or renewed from time to time, the "Loan Agreement") which sets forth the terms and conditions of a US Revolving
Credit Facility by Lender to US Borrower and a Canadian Revolving Credit Facility by Lender to Canadian Borrower; and
WHEREAS, Borrowers have requested and Lender has agreed to, among other things, (i) amend the terms and conditions of the Loan Documents, and (ii)
waiver certain "Specified Defaults" (as defined herein), each pursuant to the terms and conditions of this Modification Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereto adopt the above recitals and agree as
follows:
1.
Definitions. Capitalized terms used herein, but not defined herein, shall have the same meanings ascribed to such terms in the Loan Agreement. The
term "Modification Agreement," as defined in the preamble to this Modification Agreement, is incorporated by reference into the Loan Agreement.
2.
Estoppel; Release. To induce Lender to enter into this Modification Agreement, each Borrower represents and warrants to Lender that it has no
defenses, offsets or counterclaims regarding its Obligations under the Loan Agreement and the other Loan Documents to which it is a party. To induce
Lender to enter into this Modification Agreement, each Borrower waives and releases and forever discharges Lender and its officers, directors,
investors, bank group members, attorneys, agents, and employees from any liability, damage, claim, loss or expense of any kind that it may have
against Lender or any of them arising out of or relating to the Obligations. Each Borrower further agrees to indemnify and hold Lender and its officers,
directors, investors, bank group members, attorneys, agents and employees harmless from any loss, damage, judgment, liability or expense (including
reasonable attorneys' fees) suffered by or rendered against Lender or any of them on account of any claims arising out of or relating to the Obligations,
in each case, except to the extent caused by the gross negligence or willful misconduct of the indemnitee or any of its representatives.
3.
Specific Amendments to the Loan Agreement. Effective as of the date hereof, the Loan Agreement is amended in the following particulars:
a.
The definition of Termination Date in Section 1.1 (Terms) of the Loan Agreement is hereby modified to read as follows:
"Termination Date means (a) October 10, 2025 (which represents a twelve-month extension/renewal of the initial term which would have ended on
October 10, 2024 but for such extension with such extended period now being, the Initial Term) unless such date is extended pursuant to Section 3.1
hereof, and if so extended on one or more occasions, the last date of the last such extension, or (b) if earlier terminated by Lender pursuant to Section
9.1 hereof, the date of such termination."
b.
Section 1.1 (Terms) of the Loan Agreement is hereby modified to add the following new defined term thereto in appropriate alphabetical order:
"Seventh Modification Agreement means that certain Seventh Modification Agreement, dated as of March 28th, 2024, among US Borrower, Canadian
Borrower and Lender."
c.
The first sentence of Section 2.l(a) (Revolving Advances; Advance Limit) of the Loan Agreement is hereby modified effective as of October 10,2024,
to read as follows:
"Upon the request of US Borrower made at any time from and after the date hereof until the Termination Date, and so long as no Event of Default has
occurred and is continuing, Lender may, in its Good Faith discretion, make Advances in Dollars to US Borrower under a revolving credit facility (the
US Revolving Credit Facility) in an amount up to, so long as Dilution is less than three percent (3%), the sum of (a) up to ninety percent (90%) of the
aggregate outstanding amount of Eligible Accounts of US Borrower plus (b) (i) up to eighty percent (80%) of Eligible Unbilled Accounts of US
Borrower or (ii) Seven Million Dollars ($7,000,000), whichever is less, minus (c) an availability reserve in the amount of $500,000; provided,
however, in no event at any time shall the maximum aggregate principal amount outstanding under the US Revolving Credit Facility exceed Twenty-
Four Million Five Hundred Thousand Dollars ($24,500,000) (said Dollar limit being, the US Advance Limit)."
d.
Section 2.7(a) (Facility Fee) of the Loan Agreement is hereby modified to read as follows: "(a)
(i)
For the contract (loan) year commencing October 10, 2023, US Borrower shall pay to Lender a Facility Fee equal to eight tenths of one percent
(0.80%) of Twenty-One Million Dollars ($21,000,000). One twelfth (1/12) of such Facility Fee shall be paid on October 10, 2023, and the
remaining amount shall be paid in installments of like amount on the first (1st) day of each month thereafter until paid in full.
ii.
In addition, if the amount owed under the US Revolving Credit Facility during the contract (loan) year commencing October 10, 2023, (A)
exceeds Twenty-one Million Dollars ($21,000,000), but is less than or equal to Twenty-Two Million Dollars ($22,000,000), an additional Facility
Fee of Fifteen Thousand Dollars ($15,000) will be charged at the initial occurrence thereof, (B) exceeds Twenty-Two Million Dollars
($22,000,000), but is less than or equal to Twenty-Three Million Dollars ($23,000,000), an additional Facility Fee of Fifteen Thousand Dollars
($15,000) will be charged at the initial occurrence thereof, (C) exceeds Twenty-Three Million Dollars ($23,000,000), but is less than or equal to
Twenty-Four Million Dollars ($24,000,000), an additional Facility Fee of Fifteen Thousand Dollars ($15,000) will be charged at the initial
occurrence thereof, (D) exceeds Twenty-Four Million Dollars ($24,000,000), but is less than or equal to Twenty-Five Million Dollars
($25,000,000), an additional Facility Fee of Fifteen Thousand Dollars ($15,000) will be charged at the initial occurrence thereof, or (E) exceeds
Twenty-Five Million Dollars ($25,000,000), but is less than or equal to Twenty-Six Million Dollars ($26,000,000), an additional Facility Fee of
Fifteen Thousand Dollars ($15,000) will be charged at the initial occurrence thereof, or (F) exceeds Twenty-Six Million Dollars ($26,000,000), but
is less than or equal to Twenty-Seven Million Dollars ($27,000,000), an additional Facility Fee of Fifteen Thousand Dollars ($15,000) will be
charged at the initial occurrence thereof, or (G) exceeds Twenty-Seven Million Dollars ($27,000,000), but is less than or equal to Twenty-Eight
Million Dollars ($28,000,000), an additional Facility Fee of Fifteen Thousand Dollars ($15,000) will be charged at the initial occurrence thereof
(each such $1,000,000 increment in clause (A), (B), (C), (D) (E) (F) and (G) above, being hereinafter referred to as an Increment). The highest
Daily Balance of the US Revolving Credit Facility during the contract (loan) year commencing October 10, 2023 (rounded upward to the next
$1,000,000 unless such amount is a multiple of $1,000,000, in which case, such amount need not be rounded upward), but in no event less than
Seventeen Million Five Hundred Thousand Dollars ($17,500,000), shall hereinafter be referred to as the 2023-2024 Benchmark Advance
Amount.
iii. For the contract (loan) year commencing October 10, 2024, US Borrower shall pay to Lender a Facility Fee equal to eight tenths of one percent
(0.80%) of the sum of (x) the 2023-2024 Benchmark Advance Amount plus (y) any Advances other than under the US Revolving Credit Facility.
One twelfth (1/12) of such Facility Fee shall be paid on October 10, 2023, and the remaining amount shall be paid in installments of like amount
on the first (1st) day of each month thereafter until paid in full.
iv.
In addition, Borrower shall pay to Lender an additional Facility Fee of Fifteen Thousand Dollars ($15,000) at the initial occurrence that the
amount owed under the US Revolving Credit Facility during the contract (loan) year commencing October 10, 2024 exceeds the 2023-2024
Benchmark Advance Amount by each applicable Increment (up to the US Advance Limit). The highest Daily Balance of the US Revolving Credit
Facility during the contract (loan) year commencing October 10, 2024 (rounded upward to the next $1,000,000 unless such amount is a multiple
of$1,000,000, in which case, such amount need not be rounded upward), but in no event less than the 2022-2023 Benchmark Advance Amount,
shall hereinafter be referred to as the 2024-2025 Benchmark Advance Amount."
e.
Section 2.7(b) (Facility Fee) of the Loan Agreement is hereby modified to read as follows: "(b)
(i)
For the Initial Term, Canadian Borrower shall pay to Lender a Facility Fee equal to eight tenths of one percent (0.80%) of Two Million Canadian
Dollars (CDN$2,000,000) on October 10, 2023 and on October 10, 2024. Such Facility Fee is fully earned on the date of this Seventh
Modification Agreement but as an accommodation to Borrower, such fee may paid in equal monthly installments of $1,333.33 payable monthly on
the first day of each month for each contract (loan) year until paid in full."
(t)
Section 7.8 Compensation is deleted in its entirety and that section is now "Reserved."
4.
Notice of Events of Default and Limited Waiver.
a.
Borrower acknowledges the existence of the following Events of Default under the Loan Agreement (the "Specified Defaults"): (i) failure of the
Borrower to comply with Section 6.4(a) of the Loan Agreement with respect to Borrower's delivery of the month end :financial statements for the
month ending January 31, 2024 and quarter end :financial statements for the quarter ending December 31, 2023; and (ii) failure of the Borrower to
furnish to Lender, Borrowers' fiscal year projections prior to January 31, 2024.
b.
Subject to the conditions set forth below, Lender hereby waives compliance by the Borrower with respect to the Specified Defaults only. Lender's
waiver of non-compliance is limited to the specific instance of the Specified Defaults and shall not be deemed a waiver of or consent to any other
failure to comply. Such waiver shall not prejudice or constitute a waiver of any right or remedies, which Lender may have or be entitled to with respect
to any other breach of any of the foregoing Sections or any other provision of the Loan Agreement. The waiver is for this particular instance and shall
not be construed as a waiver of any other presently existing or future Event of Default.
5.
Fifth Amended and Restated Revolving Credit Master Promissory Notes. To evidence the increase in each of the US Revolving Credit Facility and
the Applicable Rate, US Borrower shall execute and deliver to Lender a Fifth Amended and Restated Revolving Credit Master Promissory Note (the
"Amended and Restated US Note"), which Amended and Restated US Note shall amend and restate and supersede and replace the Fourth Amended
and Restated Revolving Credit Master Promissory Note dated as of February 1, 2023 made by US Borrower and payable to the order of Lender and
shall not be considered a novation and shall be a Note under the Loan Agreement. To evidence the increase in each of the Canadian Revolving Credit
Facility and the Applicable Rate, Canadian Borrower shall execute and deliver to Lender a Fifth Amended and Restated Revolving Credit Master
Promissory Note (the "Amended and Restated Canadian Note"), which Amended and Restated Canadian Note shall amend and restate and supersede
and replace the Fourth Amended and Restated Revolving Credit Master Promissory Note dated as of February 1, 2023 made by Canadian Borrower
and payable to the order of Lender and shall not be considered a novation and shall be a Note under the Loan Agreement.
6.
Conditions to Effectiveness of this Modification Agreement. As conditions precedent to this Modification Agreement, Borrowers shall deliver, or
cause to be delivered to Lender, or Lender shall have received the following, all in form and substance satisfactory to Lender, on or before the date
hereof:
a.
This Modification Agreement, duly executed by Borrowers, together with the consent of the Guarantors attached hereto; and
b.
The Amended and Restated US Note, duly executed by US Borrower, and the Amended and Restated Canadian Note, duly executed by Canadian
Borrower.
c.
Borrower shall provide to Lender month end financial statements for January 31, 2024, quarter end financial statements for December 31, 2023 and
fiscal year projections as indicated in Section 4(a) by March 31, 2024.
7.
Reaffirmation of Representations and Warranties. Each Borrower hereby reaffirms the representations and warranties made by it in the Loan
Agreement and all of the other Loan Documents as fully and completely as if set forth herein at length and made anew. All of such representations and
warranties are true, correct and complete as of the date hereof (except as to such representations and warranties which are made as of a specified date,
in which case such representations and warranties remain true as of such date, and except as to the matters expressly waived hereunder). In addition,
each Borrower represents and warrants to Lender that:
a.
No consent or approval of, or exemption by any person is required to authorize, or is otherwise required in connection with the execution and delivery
of this Modification Agreement, which has not been obtained and which remains in full force and effect;
b.
Such Borrower has the power to execute, deliver and carry out this Modification Agreement and all documents executed in connection herewith, and
this Modification Agreement and such other Loan Documents have been duly authorized by all requisite organizational action and are valid, binding
and enforceable as against such Borrower in accordance with their terms;
c.
No material adverse change in the financial condition of such Borrower has occurred since the date of the most recent financial statements of such
Borrower submitted to Lender, and the information contained in said statements and reports is true and correctly reflects the financial condition of such
Borrower as of the dates of the statements and reports, and such statements and reports have been prepared in accordance with GAAP and do not
contain any material misstatement of fact or omit to state any facts necessary to make the statements contained therein not misleading; and
d.
Except with respect to the "Specified Defaults" referred to and defined in Section 4 hereof, no Event of Default has occurred and is continuing under
the Loan Agreement or any of the other Loan Documents.
7.
Reaffirmation of Covenants. Each Borrower hereby reaffirms the affirmative and negative covenants set forth in the Loan Agreement and the other
Loan Documents as fully and completely as if set forth herein at length (except as otherwise revised herein), and agrees that such covenants shall
remain in full force and effect until payment in full of the Obligations.
8.
Reaffirmation of Security Interests and Liens. Each Borrower hereby confirms the security interests and liens granted by such Borrower to Lender
in, to and under the Collateral in accordance with the Loan Agreement and other Loan Documents as security for its Obligations to Lender and
acknowledges that such security interests shall continue unimpaired and in full force and effect. Each Borrower represents and warrants that, as of the
date hereof, there are no claims, setoffs or defenses to Lender's exercise of any rights or remedies available to it as a creditor in realizing upon such
assets under the terms and conditions of the Loan Agreement and the other Loan Documents and the security interests and liens in favor of Lender on
such assets shall cover and secure all of such Borrower's existing and future Obligations to Lender, as increased and modified by this Modification
Agreement.
9.
Miscellaneous.
a.
Each Borrower agrees to pay any and all fees and expenses, including reasonable counsel fees (including allocated fees of in-house counsel) incurred
by Lender in connection with the preparation and execution of this Modification Agreement and all other documents executed in connection herewith.
b.
This Modification Agreement is intended to supplement and modify the Loan Agreement and the rights and obligations of the parties under the Loan
Agreement shall not in any way be vacated, modified or terminated except as herein provided. All terms and conditions contained in each and every
agreement or promissory note or other evidence of indebtedness of Borrowers to Lender are incorporated herein by reference. If there is a conflict
between any of the provisions heretofore entered into and the provisions of this Modification Agreement, then the provisions of this Modification
Agreement shall govern. By entering into this Modification Agreement, Lender is not waiving any Event of Default, if any so exists, or any of its rights
and remedies as a consequence thereof. Each Borrower expressly ratifies and confirms the confession of judgment and waiver of jury trial
provisions contained in the Loan Documents.
c.
This Modification Agreement will be binding upon an inure to the benefit of each Borrower and Lender and their respective successors and assigns.
d.
This Modification Agreement may be executed and delivered in counterparts and by facsimile or other electronic delivery means, with each such
counterpart and facsimile or other electronic delivery means constituting a valid, effective and enforceable agreement.
10. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER. THE VALIDITY OF THIS MODIFICATION AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION AND ENFORCEMENT AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW JERSEY, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES HERETO AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS MODIFICATION AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE COURTS LOCATED
IN THE COUNTY OF MERCER, STATE OF NEW JERSEY, THE FEDERAL COURTS WHOSE VENUE INCLUDES THE STATE OF NEW
JERSEY OR AT THE SOLE OPTION OF LENDER, IN ANY OTHER COURT IN WHICH LENDER SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THEMATTERINCONTROVERSY. EACH LOAN PARTY
ANDLENDEREACHWAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, THE RIGHT TO A TRIAL BY JURY IN
ANY PROCEEDING UNDER THIS MODIFICATION AGREEMENT OR RELATING TO THE DEALINGS OF LOAN PARTIES AND LENDER
AND ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF "FORUM NON CONVENIENS" OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 10.
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Modification Agreement to be executed and delivered as of the day and year first above
written.
SPAR MARKETING FORCE, INC., a Nevada corporation,
as US Borrower
Name Michael Matacunas
Title: CEO
SPAR CANADA COMPANY, an unlimited company
organized under the laws of Nova Scotia, as Canadian Borrower
Name Michael Matacunas
Title: CEO
NORTH MILL CAPITAL LLC
Name: Beatriz Hernandez
Title: Executive Vice President
CONSENT OF GUARANTORS
Each of the undersigned guarantors (collectively, the "Guarantors") consents to the provisions of the foregoing Modification Agreement and all prior
amendments (if any) to the Loan Agreement and confirms and agrees that: (a) such Guarantor's obligations under its respective guaranty dated April 10,
2019 (as amended, modified, supplemented, substituted, extended or renewed, from time to time, each a "Guaranty") relating to the Obligations
mentioned in the Loan Agreement, as increased and modified by the Modification Agreement shall be unimpaired by the Modification Agreement; (b) such
Guarantor has no defenses or setoffs, counterclaims, discounts, or charges of any kind against Lender, its officers, directors, investors, bank group
members, employees, agents or attorneys with respect to its Guaranty; and (c) all of the terms, conditions, and covenants in its Guaranty remain unaltered
and in full force and effect and are hereby ratified and confirmed and apply to the Obligations, as amended by the Modification Agreement. Each Guarantor
certifies that all representations and warranties made in its Guaranty are true and correct on the date hereof (except as to such representations and
warranties which are made as of a specified date, in which case such representations and warranties remain true as of such date). Each Guarantor
acknowledges and agrees that its obligations under its Guaranty include, without limitation, its guaranty of the payment and performance obligations of
Borrowers under the Loan Agreement, as modified, and the Notes evidencing the same. Each Guarantor acknowledges and confirms the cross-default and
cross-collateralization provisions of the Loan Agreement, as increased and modified by the Modification Agreement. Each Guarantor expressly ratifies
and confirms the confession of judgment and waiver of jury trial provisions contained in the Guaranty.
[signature page follows]
WITNESS the due execution hereof as a document under seal, as of the date of this Modification Agreement, intending to be legally bound hereby.
SPAR GROUP, INC., a Delaware corporation, as a Guarantor
Name: Michael Matacunas
Title: CEO
SPAR ACQUISITION, INC., a Nevada corporation,
as a Guarantor
Name: Michael Matacunas
Title: CEO
SPAR CANADA, INC., a Nevada corporation,
as a Guarantor
Name: Michael Matacunas
Title: CEO
SPAR TRADEMARKS, INC., a Nevada corporation,
as a Guarantor
Name: Michael Matacunas
Title: CEO
SPAR ASSEMBLY & INSTALLATION, INC., a
Nevada corporation, as a Guarantor
Name: Michael Matacunas
Title: CEO
Exhibit 10.70
Fifth Amended and Restated Revolving Credit Master Promissory Note (US Borrower)
FIFTH AMENDED AND RESTATED REVOLVING CREDIT MASTER
PROMISSORY NOTE
$24,500,000.00 Princeton, New Jersey
October 10, 2024
FOR VALUE RECEIVED, the undersigned SPAR MARKETING FORCE, INC., a Nevada corporation ("Borrower"), promises to pay to the order of
NORTH MILL CAPITAL LLC, a Delaware limited liability company, d/b/a SLR Business Credit ("Lender"), at 821 Alexander Road, Suite 130, Princeton,
New Jersey 08540, or such other address as Lender may notify Borrower, such sum up to Twenty-Four Million Five Hundred Thousand and 00/100 Dollars
($24,500,000.00), together with interest as hereinafter provided, as may be outstanding on Advances by Lender to Borrower under Section 2.1(a) of the
Loan and Security Agreement dated April 10, 2019, by and among Lender, Borrower and SPAR CANADA COMPANY, an unlimited company organized
under the laws of Nova Scotia (as amended, modified, supplemented, substituted, extended or renewed from time to time, the "Loan Agreement"). This
instrument, as amended, modified, supplemented, substituted, extended or renewed from time to time, may be referred to as the "Note". Capitalized terms
not otherwise defined herein have the meanings set forth in the Loan Agreement. The Loan Agreement is incorporated herein as though fully set forth, and
Borrower acknowledges its reading and execution thereof. In the event of any conflict or inconsistency between this Note and the Loan Agreement, the
applicable provision of the Loan Agreement shall control, govern and be given effect. The principal amount owing hereunder shall be paid to Lender on the
Termination Date, which is currently October 10, 2025, or as may otherwise be provided for in the Loan Agreement.
On the first day of each calendar month hereafter, Borrower shall pay to Lender accrued interest, computed on the basis of a 360-day year for the actual
number of days elapsed, on the Daily Balance, at the per annum rate of one and nine tenths percentage points (1.90%) above the Prime Rate in effect from
time to time, but not less than six and three-quarters percent (6.75%) per annum. If there is a change in the Prime Rate, the rate of interest on the Daily
Balance shall be changed accordingly as of the date of the change in the Prime Rate, without notice to Borrower.
To secure the payment of this Note and the Obligations, Borrower has granted to Lender a continuing security interest in and lien on the Collateral.
In addition to all remedies provided by law upon default on payment of this Note, or upon an Event of Default, Lender may, at its option:
(1) declare this Note and the Obligations immediately due and payable;
(2) collect interest on this Note at the Default Rate set forth in the Loan Agreement from the date of such Event of Default, and if this Note is referred to an
attorney for collection, collect reasonable attorneys' fees; and
(3) exercise any and all remedies provided for in the Loan Agreement.
BORROWER WAIVES PRESENTMENT FOR PAYMENT, PROTEST AND NOTICE OF PROTEST FOR NON-PAYMENT OF THIS NOTE AND
TRIAL BY JURY IN ANY ACTION UNDER OR RELATING TO THIS NOTE AND THE ADVANCES EVIDENCED HEREBY. THIS NOTE IS
GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
This Note amends and restates in its entirety that certain Fourth Amended and Restated Revolving Credit Master Promissory Note dated as of February 1,
2023, executed by Borrower in favor of Lender (the "Original Note"). The execution and delivery of this Note is not intended to be a repayment, settlement
or other novation of the indebtedness evidenced by the Original Note, or release or otherwise adversely affect any lien or security interest securing such
indebtedness.
[signature page follows]
Fifth Amended and Restated Revolving Credit Master Promissory Note (US Borrower)
SPAR MARKETING FORCE, INC.
By:
Name: Michael Matacunas
Title: CEO
Exhibit 21.1
SPAR Group, Inc.
List of Subsidiaries at December 31 2024
Owned Subsidiaries
State or Country of Incorporation
SPAR Acquisition, Inc.
100 %
Nevada
SPAR Assembly & Installation, Inc. (f/k/a SPAR
National Assembly Services, Inc.)
100 %
Nevada
SPAR Canada Company
100 %
Nova Scotia, Canada
SPAR Canada, Inc.
100 %
Nevada
SPAR Group International, Inc.
100 %
Nevada
SPAR, Inc.
100 %
Nevada
SPAR International Ltd.
100 %
Cayman Islands
SPAR Marketing Force, Inc.
100 %
Nevada
SPAR Trademarks, Inc.
100 %
Nevada
SPAR China Ltd.
100 %
China
SPAR NMS Holdings, Inc. (inactive)
100 %
Nevada
NMS Retail Services, ULC (inactive)
100 %
Nova Scotia, Canada
Resource Plus of North Florida, Inc. (RPI")
100 %
Florida
BDA Resources, LLC1
70
%
Florida
Leasex, LLC. (Operated by and with RPI)
100 %
Florida
Mobex of North Florida, Inc. (Operated by and with RPI) 100 %
Florida
SPAR Merchandising Romania, Ltd. (inactive and
dissolved effective March 2025)
100 %
Romania
1 RPI owns a 70% interest in BDA Resource, LLC, a Florida limited liability company.
SPAR Group, Inc.
List of Former Subsidiaries included in the Company's Financial Statements for the Periods Owned by the Company
Formerly Owned Subsidiaries
State or Country of Incorporation
National Merchandising Services, LLC2
51
%
Nevada
SGRP Meridian Proprietary Limited ("Meridian")3
51
%
South Africa
CMR-Meridian Proprietary Limited4
51
%
South Africa
Bordax Retail Services (Pty) Ltd 4
51
%
South Africa
Bordax Retail Services Gauteng (Pty) Ltd 4
51
%
South Africa
SPARFACTS Australia (Pty), Ltd.5
51
%
Australia
SPAR (Shanghai) Marketing Management Company Ltd.6
51
%
China
Unilink7A
51
%
China
SPAR DSI Human Resource Company7B
38.5 %
China
SPAR TODOPROMO, SAPI, de CV8
51
%
Mexico
SPAR NDS Tanitim Ve Danismanlik A.S. 9
51
%
Turkey
SPAR KROGNOS Marketing Private Limited 10
51
%
India
Preceptor Marketing Services Private Limited 10
51
%
India
SGRP Brasil Participações Ltda. ("Brazil Holdings")11A
100 %
Brazil
SPAR Brasil Serviços de Merchandising e Tecnologia S.A.
("SPAR Brazil")11B
51
%
Brazil
SPAR Brasil Serviços Ltda. (f/k/a New Momentum
Ltda.)11C
51
%
Brazil
SPAR Brasil Serviços Temporários Ltda. (f/k/a New
Momentum Serviços Temporários Ltda.)11C
51
%
Brazil
Plus Trade Do Brasil Prestacao De Servicos Ltda12
51
%
Brazil
SPAR Brasil Servicos Ltda 12
51
%
Brazil
SGRP Servicos Ltda12
51
%
Brazil
SPAR FM Japan, Inc.13
100 %
Japan
2 The Company sold its 51% interest in this joint venture effective December 31, 2023.
3 The Company sold its 51% interest in this joint venture effective March 31, 2024
4 Owned by and being sold with Meridian.
6 The Company sold its 51% interest in this joint venture effective December 31, 2023.
7 The Company sold its 51% interest in this joint venture effective April 8, 2024
7A Owned by and being sold with SPAR (Shanghai) Marketing Management Company Ltd.
7B Inactive and being liquidated. It is 75.5% Owned by and being sold with SPAR (Shanghai) Marketing Management Company Ltd.
8 The Company sold its 51% interest in this joint venture effective December 19, 2024
9 The Company assigned its 51% interest in this joint venture effective August 13, 2024
10 The Company sold its 51% interest in this joint venture effective August 31, 2024
11A The Company sold 100% interest in SGRP Brasil Participações Ltda. effective June 2024
11B Brazil Holdings owns 51% of SPAR Brasil Serviços de Merchandising e Tecnologia S.A. ("SPAR Brazil"), and Brazil Holdings will continue to own
those interests after the Brazil Holdings Sale.
11C Brazil Holdings effectively owns slightly more than 51% of this subsidiary since SPAR Brazil owns 99% and Brazil Holdings owns 1% of the equity
in this subsidiary, and SPAR Brazil and Brazil Holdings will continue to own those equity interests after the Brazil Holdings Sale.
12 The Company believes SPAR Brazil owned and will continue to own those interest after the Brazil Holdings Sale
13 The Company sold its 51% interest in this joint venture effective August 30, 2024.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-152706, 333-189964, 333-228185, and 333-
254991) of SPAR Group, Inc. of our report dated May 16, 2025, relating to the consolidated financial statements, which appears in this Annual Report on
Form 10-K for the year ended December 31, 2024.
/s/ BDO USA, P.C.
Troy, Michigan
May 16, 2025
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael R. Matacunas, certify that:
1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2024, of SPAR Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 16, 2025
/s/ Michael R. Matacunas
Michael R. Matacunas, President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Antonio Calisto Pato, certify that:
1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2024 of SPAR Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 16, 2025
/s/ Antonio Calisto Pato
Antonio Calisto Pato, Chief Financial Officer,
Treasurer and Secretary
EXHIBIT 32.1
Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report on Form 10-K for the year ended December 31, 2024 (this "Report"), of SPAR Group, Inc. (the "Registrant"), the
undersigned hereby certifies that, to his knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Registrant.
/s/ Michael R. Matacunas
Michael R. Matacunas
President and Chief Executive Officer
May 16, 2025
A signed original of this written statement required by Section 906 has been provided to SPAR Group, Inc. and will be retained by SPAR Group,
Inc., and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the annual report on Form 10-K for the year ended December 31, 2024 (this "Report"), of SPAR Group, Inc. (the "Registrant"), the
undersigned hereby certifies that, to her knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Registrant.
/s/ Antonio Calisto Pato
Antonio Calisto Pato
Chief Financial Officer, Treasurer and Secretary
May 16, 2025
A signed original of this written statement required by Section 906 has been provided to SPAR Group, Inc. and will be retained by SPAR Group,
Inc., and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 97
SPAR Group, Inc.
Compensation Recovery Policy
1.
Purpose. The purpose of this Compensation Recovery Policy (this "Policy") is to describe the circumstances under which SPAR Group, Inc.
("SGRP" or the "Corporation", and together with its subsidiaries, the "Company") is required to recover certain compensation paid to
certain employees. Any references in compensation plans, agreements, equity awards or other policies to the Company's "recoupment",
"clawback" or similarly-named policy shall be deemed to refer to this Policy with respect to Incentive-Based Compensation Received on or
after the Effective Date.
2.
Mandatory Recovery of Compensation. In the event that the Corporation is required to prepare an Accounting Restatement, the Corporation
shall recover reasonably promptly the amount of Erroneously Awarded Compensation.
3.
Definitions. For purposes of this Policy, the following terms, when capitalized, shall have the meanings set forth below:
a.
"Accounting Restatement" shall mean any accounting restatement required by applicable U.S. accounting principles due to material
noncompliance by the Corporation with any financial reporting requirement under the securities laws, including correction of an error in
previously issued financial statements that is material to the previously issued financial statements or that would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the current period. Subject to the requirements of
applicable listing standards, for clarity, Accounting Restatement does not include: (a) any proforma presentation reflecting any
acquisition, disposition, merger or other transaction (however material); or (b) any other recasting of the Company's financial statements
not correcting such a material noncompliance.
b.
"Covered Officer" shall mean the Company's president; principal financial officer; principal accounting officer (or if there is no such
accounting officer, the controller); any vice-president of the Company in charge of a principal business unit, division, or function (such as
sales, administration, or finance); any other officer who performs a significant policy-making function; or any other person who performs
similar significant policy-making functions for the Company.
c.
"Effective Date" shall mean October 2, 2023.
d.
"Erroneously Awarded Compensation" shall mean the excess of (i) the amount of Incentive-Based Compensation Received by a person
(A) after beginning service as a Covered Officer, (B) who served as a Covered Officer at any time during the performance period for that
Incentive-Based Compensation, (C) while the Company has a class of securities listed on a national securities exchange or a national
securities association and (D) during the Recovery Period; over (ii) the Recalculated Compensation. For the avoidance of doubt, a person
who served as a Covered Officer during the periods set forth in clauses (A) and (B) of the preceding sentence shall continue to be subject
to this Policy even after such person's service as a Covered Officer has ended.
e.
"Incentive-Based Compensation" shall mean any compensation that is granted, earned, or vested based wholly or in part upon the
attainment of a financial reporting measure. A financial reporting measure is a measure that is determined and presented in accordance
with the accounting principles used in preparing the Company's financial statements, and any measures that are derived wholly or in part
from such measures, regardless of whether such measure is presented within the financial statements or included in a filing with the
Securities and Exchange Commission. Each of stock price and total shareholder return is a financial reporting measure. For the
avoidance of doubt, incentive-based compensation subject to this Policy does not include stock options, restricted stock, restricted stock
units, phantom stock, or similar equity-based awards for which the grant is not contingent upon achieving any financial reporting
measure performance goal and vesting is contingent solely upon completion of a specified employment period and/or attaining one or
more non-financial reporting measures.
f.
"Recalculated Compensation" shall mean the amount of Incentive-Based Compensation that otherwise would have been Received had
it been determined based on the restated amounts in the Accounting Restatement, computed without regard to any taxes paid. For
Incentive-Based Compensation based on stock price or total shareholder return, where the amount of the Erroneously Awarded
Compensation is not subject to mathematical recalculation directly from the information in an Accounting Restatement, the amount of the
Recalculated Compensation must be based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or
total shareholder return, as the case may be, on the compensation Received. The Corporation must maintain documentation of the
determination of that reasonable estimate and provide such documentation to the national securities exchange or association on which its
securities are listed.
g.
Incentive-Based Compensation is deemed "Received" in theCorporation's fiscal period during which the financial reporting measure
specified in the award of such Incentive-Based Compensation is attained, even if the payment or grant of the Incentive-Based
Compensation occurs after the end of that period.
h.
"Recovery Period" shall mean the three completed fiscal years of the Corporation immediately preceding the date the Corporation is
required to prepare an Accounting Restatement; provided that the Recovery Period shall not begin before the Effective Date. For
purposes of determining the Recovery Period, the Corporation is considered to be "required to prepare an Accounting Restatement" on
the earlier to occur of: (i) the date the Corporation's Super Independent Directors (as defined in the Corporation's Amended and Restated
By-Laws as in effect on the Effective Date) (collectively, acting by majority vote, the "Super Independent Directors") conclude, or
reasonably should have concluded, that the Corporation is required to prepare an Accounting Restatement, or (ii) the date a court,
regulator, or other legally authorized body directs the Corporation to prepare an Accounting Restatement; provided that application and
pursuit of recovery under this Policy would occur only after such conclusion or order is final and non-appealable . If the Corporation
changes its fiscal year, then the transition period within or immediately following such three completed fiscal years also shall be included
in the Recovery Period, provided that if the transition period between the last day of the Corporation's prior fiscal year end and the first
day of its new fiscal year comprises a period of nine to 12 months, then such transition period shall instead be deemed one of the three
completed fiscal years and shall not extend the length of the Recovery Period.
4.
Exceptions. Notwithstanding anything to the contrary in this Policy, recovery of Erroneously Awarded Compensation will not be required to
the extent the Corporation's committee of independent directors responsible for executive compensation decisions (or a majority of the
independent directors on the Corporation's board of directors in the absence of such a committee) has made a determination that such recovery
would be impracticable and one of the following conditions have been satisfied:
a.
The direct expense paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered; provided that, before
concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation that was Incentive-Based
Compensation based on the expense of enforcement, the Company must make a reasonable attempt to recover such Erroneously Awarded
Compensation, document such reasonable attempt(s) to recover, and provide that documentation to the national securities exchange or
association on which its securities are listed.
b.
Recovery would violate home country law where, with respect to Incentive-Based Compensation, that law was adopted prior to
November 28, 2022; provided that, before concluding that it would be impracticable to recover any amount of Erroneously Awarded
Compensation that was Incentive-Based Compensation based on violation of home country law, the Corporation must obtain an opinion
of home country counsel, acceptable to the national securities exchange or association on which its securities are listed, that recovery
would result in such a violation, and must provide such opinion to the exchange or association.
c.
Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the
Corporation, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
5.
Manner of Recovery. In addition to any other actions permitted by law or contract, the Corporation may take any or all of the following
actions to recover any Erroneously Awarded Compensation: (a) require the Covered Officer to repay such amount; (b) offset such amount
from any other compensation owed by the Corporation or any of its affiliates to the Covered Officer, regardless of whether the contract or
other documentation governing such other compensation specifically permits or specifically prohibits such offsets; and (c) subject to Section
4(c), to the extent the Erroneously Awarded Compensation was deferred into a plan of deferred compensation, whether or not qualified, forfeit
such amount (as well as the earnings on such amounts) from the Covered Officer's balance in such plan, regardless of whether the plan
specifically permits or specifically prohibits such forfeiture. If the Erroneously Awarded Compensation consists of shares of the
Corporation's common stock, and the Covered Officer still owns such shares, then the Corporation may satisfy its recovery obligations by
requiring the Covered Officer to transfer such shares back to the Corporation.
6.
Other.
a.
This Policy shall be administered and interpreted, and may be amended from time to time, by the Super Independent Directors, and the
determinations of the Super Independent Directors shall be binding on all Covered Officers.
b.
The Corporation shall not indemnify any Covered Officer against the loss of Erroneously Awarded Compensation.
c.
The Corporation shall file all disclosures with respect to this Policy in accordance with the requirements of the Federal securities laws,
including disclosure required by the Securities and Exchange Commission filings.
d.
Any right to recovery under this Policy shall be in addition to, and not in lieu of, any other rights of recovery that may be available to the
Corporation, provided that all recovery shall not exceed the amount of the Erroneously Awarded Compensation.