UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

 

(Mark One)

 

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the first quarterly period ended March 31, 2016.

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: 0-27824
SPAR Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware	33-0684451
State of Incorporation	IRS Employer Identification No.
333 Westchester Avenue, South Building, Suite 204, White Plains, New York 10604
(Address of principal executive offices, including zip code)

 

Registrant's telephone number, including area code: (914) 332-4100

 

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   

☒ Yes    ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

☒ Yes    ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See the definitions of "large accelerated filer", "accelerated filer", "non-accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act).

 

Large Accelerated Filer ☐	Accelerated Filer ☐
Non-Accelerated Filer ☐	Smaller Reporting Company ☒
(Do not check if a smaller reporting company)

 

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

☐ Yes    ☒ No

 

On May 10, 2016, there were 20,571,469 shares of Common Stock outstanding.

 

 

SPAR Group, Inc.

 

Index

 

PART I:	FINANCIAL INFORMATION
Item 1	Condensed Consolidated Financial Statements	2
	Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	2
	Condensed Consolidated Statements of Comprehensive (Loss) for the three months ended March 31, 2016 and 2015	3
	Condensed Consolidated Statement of Equity for the three months ended March 31, 2016	4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2	Management's Discussion and Analysis of Financial Condition, Results of Operations, Liquidity and Capital Resources	17
Item 3	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4	Controls and Procedures	23
PART II:	OTHER INFORMATION
Item 1	Legal Proceedings	24
Item 1A	Risk Factors	24
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3	Defaults upon Senior Securities	24
Item 4	Mine Safety Disclosures	24
Item 5	Other Information	24
Item 6	Exhibits	24
SIGNATURES		25

 

 

PART I:         FINANCIAL INFORMATION

 

Item 1.           Condensed Consolidated Financial Statements

SPAR Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data) 

 (Unaudited)

 

 

See accompanying notes.

 

 

SPAR Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss)

(unaudited)

(In thousands, except per share data)

 

 

See accompanying notes.

 

 

SPAR Group, Inc. and Subsidiaries

Condensed Consolidated Statement of Equity

(unaudited)

(In thousands)

 

  

See accompanying notes.

 

 

SPAR Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

 

 

See accompanying notes.

 

 

SPAR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

 

SPAR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited) (continued)

 

 

 

 

SPAR Group, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(unaudited) (continued)

 

 

 

 

 

 

SPAR Group, Inc. and Subsidiaries

  

Item 2.

Management's Discussion and Analysis of Financial Condition, Results of Operations, Liquidity and Capital Resources

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q for the three months ended March 31, 2016 (this "Quarterly Report"), contains "forward-looking statements" made by SPAR Group, Inc. ("SGRP", and together with its subsidiaries, the "SPAR Group" or the "Company") and was filed on May 16, 2016, by SGRP with the Securities and Exchange Commission (the "SEC"). There also are "forward looking statements" contained in SGRP's Annual Report on Form 10-K for its fiscal year ended December 31, 2015 (as filed, the "Annual Report"), as filed with the SEC on March 30, 2016, in SGRP's definitive Proxy Statement respecting its Annual Meeting of Stockholders to be held on May 19, 2016 (as filed, the "Proxy Statement"), which SGRP filed with the SEC on April 27, 2016, and SGRP's Current Reports on Form 8-K and other reports and statements as and when filed with the SEC (including this Quarterly Report, the Annual Report and the Proxy Statement, each a "SEC Report"). "Forward-looking statements" are defined in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and other applicable federal and state securities laws, rules and regulations, as amended (together with the Securities Act and Exchange Act, collectively, "Securities Laws").

 

The forward-looking statements made by the Company in this Quarterly Report may include (without limitation) any expectations, guidance or other information respecting the pursuit or achievement of the Company's five corporate objectives (growth, customer value, employee development, productivity & efficiency, and earnings per share), building upon the Company's strong foundation, leveraging compatible global opportunities, improving on the value we already deliver to customers, our growing client base, continuing balance sheet strength, customer contract expansion, growing revenues and becoming profitable through organic growth and acquisitions, attracting new business that will increase SPAR Group's revenues, improving product mix, continuing to maintain or reduce costs and consummating any transactions. The Company's forward-looking statements also include, in particular and without limitation, those made in the "Management's Discussion and Analysis of Financial Condition, Results of Operations, Liquidity and Capital Resources" in this Quarterly Report, and those made in "Business", "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report. You can identify forward-looking statements in such information by the Company's use of terms such as "may", "will", "expect", "intend", "believe", "estimate", "anticipate", "continue" or similar words or variations or negatives of those words.

 

You should carefully consider (and not place undue reliance on) the Company's forward-looking statements, risk factors and the other risks, cautions and information made, contained or noted in or incorporated by reference into this Quarterly Report, the Annual Report, the Proxy Statement and the other applicable SEC Reports that could cause the Company's actual performance or condition (including its assets, business, capital, cash flow, credit, expenses, financial condition, income, liabilities, liquidity, locations, marketing, operations, performance, prospects, sales, strategies, taxation or other achievement, results, risks, trends or condition to differ materially from the performance or condition planned, intended, anticipated, estimated or otherwise expected by the Company (collectively, "expectations") and described in the information in the Company's forward-looking and other statements, whether express or implied. Although the Company believes them to be reasonable, those expectations involve known and unknown risks, uncertainties and other unpredictable factors (many of which are beyond the Company's control) that could cause those expectations to fail to occur or be realized or such actual performance or condition to be materially and adversely different from the Company's expectations. In addition, new risks and uncertainties 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 the Company has identified all potential risks, or that the Company 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.

 

You should carefully review the risk factors described in the Annual Report (See Item 1A – Risk Factors) and any other risks, cautions or information made, contained or noted in or incorporated by reference into this Quarterly Report, the Annual Report, the Proxy Statement or other applicable SEC Report. All forward-looking and other statements or information attributable to the Company or persons acting on its behalf are expressly subject to and qualified by all such risk factors and other risks, cautions and information.

 

 

SPAR Group, Inc. and Subsidiaries

 

The Company does not intend or promise, and the Company expressly disclaims any obligation, to publicly update or revise any forward-looking statements, risk factors or other risks, cautions or information (in whole or in part), whether as a result of new information, risks or uncertainties, future events or recognition or otherwise, except as and to the extent required by applicable law.

 

 

GENERAL

 

SPAR Group, Inc. ("SGRP"), and its subsidiaries (together with SGRP, the "SPAR Group" or the "Company"), is a diversified international merchandising and marketing services company and provides a broad array of services worldwide to help companies improve their sales, operating efficiency and profits at retail locations. The Company provides its merchandising and other marketing services to manufacturers, distributors and retailers worldwide, primarily in mass merchandisers, office supply, grocery, drug store, independent, convenience, toy, home improvement and electronics stores. The Company also provides furniture and other product assembly services in stores, homes and offices. The Company has supplied these services in the United States since certain of its predecessors were formed in 1979 and internationally since the Company acquired its first international subsidiary in Japan in May of 2001. The Company currently does business in 9 countries that encompass approximately 50% of the total world population through its operations in the United States, Canada, Japan, South Africa, India, China, Australia, Mexico and Turkey.

 

Merchandising services primarily consist of regularly scheduled, special project and other product services provided at store level, and the Company may be engaged by either the retailer or the manufacturer. Those services may include restocking and adding new products, removing spoiled or outdated products, resetting categories "on the shelf" in accordance with client or store schematics, confirming and replacing shelf tags, setting new sale or promotional product displays and advertising, replenishing kiosks, demonstrating or promoting a product, providing on-site audit and in-store event staffing services and providing product assembly services in stores, homes and offices. Other merchandising services include whole store or departmental product sets or resets, including new store openings, new product launches and in-store demonstrations, special seasonal or promotional merchandising, focused product support and product recalls. The Company continues to seek to expand its merchandising, assembly and marketing services business throughout the world.

 

An Overview of the Merchandising and Marketing Services Industry

 

According to industry estimates over two billion dollars are spent annually in the United States alone on retail merchandising and marketing services. The merchandising and marketing services industry includes manufacturers, retailers, brokers, distributors and professional service merchandising companies. The Company believes that merchandising and marketing services add value to retailers, manufacturers and other businesses and enhance sales by making a product more visible and more available to consumers. These services primarily involve placing orders, shelf maintenance, display placement, reconfiguring products on store shelves and replenishing product inventory.

 

Historically, retailers staffed their stores as needed to provide these services to ensure, that manufacturers' inventory levels, the advantageous display of new items on shelves, and the maintenance of shelf schematics and product placement were properly merchandised. However retailers, in an effort to improve their margins, have decreased their own store personnel and increased their reliance on manufacturers to perform such services. Initially, manufacturers attempted to satisfy the need for merchandising and marketing services in retail stores by utilizing their own sales representatives. Additionally, retailers also used their own employees to merchandise their stores to satisfy their own merchandising needs. However, both the manufacturers and the retailers discovered that using their own sales representatives and employees for this purpose was expensive and inefficient.

 

Most manufacturers and retailers have been, and SPAR Group believes they will continue outsourcing their merchandising and marketing service needs to third parties capable of operating at a lower cost by (among other things) serving multiple manufacturers simultaneously. The Company also believes that it is well positioned, as a domestic and international merchandising and marketing services company, to more effectively provide these services to retailers, manufacturers and other businesses around the world.

 

 

SPAR Group, Inc. and Subsidiaries

 

Another significant trend impacting the merchandising and marketing services business is the tendency of consumers to make product purchase decisions once inside the store. Accordingly, merchandising and marketing services and in-store product promotions have proliferated and diversified. Retailers are continually re-merchandising and re-modeling entire stores in an effort to respond to new product developments and changes in consumer preferences. We estimate that these activities have increased in frequency over the last five years. Both retailers and manufacturers are seeking third parties to help them meet the increased demand for these labor-intensive services.

 

In addition, the consolidation of many retailers has created opportunities for third party merchandisers when an acquired retailer's stores are converted to the look and format of the acquiring retailer. In many cases, stores are completely remodeled and re-merchandised after a consolidation.

 

SPAR Group believes the current trend in business toward globalization fits well with its expansion model. As companies expand into foreign markets they will need assistance in merchandising or marketing their products. As evidenced in the United States, retailer and manufacturer sponsored merchandising and marketing programs are both expensive and inefficient. The Company also believes that the difficulties encountered by these programs are only exacerbated by the logistics of operating in foreign markets. This environment has created an opportunity for the Company to exploit its Internet, hand-held computers, tablets and smart phone based technology and business model worldwide.

 

The Company's Domestic and International Geographic Segments:

 

The Company provides similar merchandising and marketing services throughout the world, operating within two reportable segments, its Domestic and International Divisions. The Company tracks and reports certain financial information separately for these two segments using the same metrics. The primary measurement utilized by management is operating profit level, historically the key indicator of long-term growth and profitability, as the Company is focused on reinvesting the operating profits of each of its international subsidiaries back into local markets in an effort to improve its market share and continued expansion efforts. Certain financial information regarding each of the Company's two segments, which includes their respective net revenues and operating income for each of the three months ended March 31, 2016 and 2015, and their respective assets as of March 31, 2016 and December 31, 2015, is provided above in Note 10 to the Company's Condensed Consolidated Financial Statements – Segment Information.

 

The Company's international business in each territory outside the United States is conducted through a foreign subsidiary incorporated in its primary territory. The primary territory establishment date (which may include predecessors), the percentage of the Company's equity ownership, and the principal office location for its US (domestic) subsidiaries and each of its foreign (international) subsidiaries is as follows:

Primary Territory		Date Established		SGRP Percentage Ownership		Principal Office Location
United States of America		1979		100%		White Plains, New York, United States of America
Japan		May 2001		100%		Tokyo, Japan
Canada		June 2003		100%		Toronto, Canada
South Africa		April 2004		51%		Durban, South Africa
India		April 2004		51%		New Delhi, India
Australia		April 2006		51%		Melbourne, Australia
China		March 2010		51%		Shanghai, China
Mexico		August 2011		51%		Mexico City, Mexico
Turkey		November 2011		51%		Istanbul, Turkey

 

Critical Accounting Policies

 

There were no material changes during the three months ended March 31, 2016, to the Company's critical accounting policies as reported in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as filed with the SEC on March 30, 2016.

 

 

SPAR Group, Inc. and Subsidiaries

 

Results of Operations

 

Three months ended March 31, 2016, compared to three months ended March 31, 2015

 

The following table sets forth selected financial data and data as a percentage of net revenues for the periods indicated (in thousands, except percent data).

 

		Three Months Ended March 31,
		2016								2015
		$				%				$				%
Net revenues		$	26,611				100.0	%		$	29,266				100.0	%
Cost of revenues			20,442				76.8				22,353				76.4
Gross profit			6,169				23.2				6,913				23.6
Selling, general & administrative expense			5,513				20.7				6,096				20.8
Depreciation & amortization			488				1.8				468				1.6
Operating income			168				0.7				349				1.2
Interest expense, net			28				0.1				58				0.2
Other (income) expense, net			(24	)			(0.1	)			(29	)			(0.1	)
Income before income taxes			164				0.7				320				1.1
Income tax expense			5				0.0				151				0.5
Net income			159				0.7				169				0.6
Net income attributable to non-controlling interest			(298	)			(1.1	)			(243	)			(0.8	)
Net (loss) attributable to SPAR Group, Inc.		$	(139	)			(0.4	)%		$	(74	)			(0.2	)%

 

Net Revenues

 

Net revenues for the three months ended March 31, 2016, were $26.6 million, compared to $29.3 million for the three months ended March 31, 2015, a decrease of $2.7 million or 9.1%. The decline is directly attributable to the negative $2.9 million impact due to foreign currency translation year over year and impacted by other factors discussed below.

 

Domestic net revenues totaled $9.7 million in the three months ended March 31, 2016, compared to $11.0 million for the same period in 2015. The change is due to lower project and annuity work compared to the same period last year.

 

International net revenues totaled $16.9 million for the three months ended March 31, 2016, compared to $18.3 million for the same period in 2015, a decrease of $1.4 million or 7.8%. The decrease in net revenues was primarily due to lower revenue in Australia, Turkey, India, Canada, China and South Africa, partially offset by increased revenue in Mexico and Japan. Actual in-country revenue increased by $1.5 million but was offset by negative FX impact of $2.9 million year over year.

 

Cost of Revenues

 

The Company's cost of revenues consists of its on-site labor and field administration fees, travel and other direct labor-related expenses and was 76.8% of its net revenues for the three months ended March 31, 2016, and 76.4% of its net revenues for the three months ended March 31, 2015. 

 

Domestic cost of revenues was 71.5% of net revenues for the three months ended March 31, 2016, and 69.2% of net revenues for the three months ended March 31, 2015. The increase in cost of revenues as a percentage of net revenues of 2.3 percentage points was due primarily to an unfavorable mix of project and annuity work compared to the same period last year. For the three months ended March 31, 2016 and 2015, approximately 82% and 88%, respectively, of the Company's domestic cost of revenues resulted from in-store merchandiser specialist, on-site assembly technician and field administration services purchased from certain of the Company's affiliates, SPAR Business Services, Inc. ("SBS"), and SPAR Administrative Services, Inc. ("SAS"), respectively. For the three months ended March 31, 2015, approximately 3% of the Company's domestic cost of revenues resulted from in-store merchandiser specialist services purchased from certain of the Company's other affiliates, National Retail Source, LLC ("NRS"). As of December 2015, the Company no longer uses NRS, but could again in the future (See Note 5 to the Condensed Consolidated Financial Statements - Related-Party Transactions).  

  

 

SPAR Group, Inc. and Subsidiaries

 

Internationally, the cost of revenues decreased to 79.9% of net revenues for the three months ended March 31, 2016, compared to 80.7% of net revenues for the three months ended March 31, 2015. The cost of revenue decrease of 0.8 percentage points was primarily due to a mix of lower cost margin business in Mexico, China and Japan, partially offset by a mix of higher cost margin business in South Africa.

 

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 $5.5 million and $6.1 million for the three months ended March 31, 2016 and 2015, respectively.

 

Domestic selling, general and administrative expenses totaled $2.7 million for three months ended March 31, 2016, compared to $3.1 million for the three months ended March 31, 2016. The decrease of approximately $0.4 million was primarily due to lower wages and travel costs.

 

International selling, general and administrative expenses totaled $2.8 million for the three months ended March 31, 2016, compared to $3.0 million for the same period in 2015. The decrease of approximately $0.2 million was primarily attributable to decreases in Australia, Mexico and South Africa, partially offset by increases in Japan and China.

 

Depreciation and Amortization

 

Depreciation and amortization charges totaled $488,000 for the three months ended March 31, 2016, and $468,000 for the same period in 2015.

 

Interest Expense

 

The Company's net interest expense was $28,000 and $58,000 for the three months ended March 31, 2016 and 2015, respectively.

 

Other Income

 

Other income totaled $24,000 and $29,000 for the three months ended March 31, 2016 and 2015, respectively.

 

Income Taxes

 

The income tax provision totaled $5,000 for the three months ended March 31, 2016 and $151,000 for the three months ended March 31, 2015.

 

Non-controlling Interest

 

Net operating profits from the non-controlling interest, from the Company's 51% owned subsidiaries, resulted in a reduction of net income of $298,000 and $243,000 for the three months ended March 31, 2016 and 2015, respectively.

 

 

SPAR Group, Inc. and Subsidiaries

 

Net (Loss) Income

 

The Company reported a net loss of $139,000 for the three months ended March 31, 2016, or $0.01 per diluted share, compared to a net loss of $74,000, or $0.00 per diluted share, for the corresponding period last year.

 

Liquidity and Capital Resources  

 

In the three months ended March 31, 2016, the Company had a net income before non-controlling interest of $159,000.

 

Net cash provided by operating activities was $4.4 million and $1.4 million for the three months ended March 31, 2016 and 2015, respectively. The net cash provided by operating activities was primarily due to a decrease in accounts receivable and an increase in accounts payable.

 

Net cash used in investing activities for the three months ended March 31, 2016, and March 31, 2015, was approximately $400,000 and $600,000, respectively. The net cash used in investing activities in 2016 was due to fixed asset additions.

 

Net cash used in financing activities for the three months ended March 31, 2016 was approximately $2.2 million, compared to $400,000 for the three months ended March 31, 2015. Net cash used in financing activities was primarily a result of payments on lines of credit, and also a distribution to the non-controlling investors in South Africa.

 

The above activity resulted in an increase in cash and cash equivalents for the three months ended March 31, 2016 of $1.3 million.

 

At March 31, 2016, the Company had net working capital of $13.9 million, as compared to net working capital of $16.8 million at December 31, 2015. The Company's current ratio was 1.9 at March 31, 2016, compared to 2.3 at December 31, 2015.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

The Company's accounting policies for financial instruments and disclosures relating to financial instruments require that the Company's consolidated balance sheets include the following financial instruments: cash and cash equivalents, accounts receivable, accounts payable and lines of credit. The Company carries current assets and liabilities at their stated or face amounts in its consolidated financial statements, as the Company believes those amounts approximate the fair value for these items because of the relatively short period of time between origination of the asset or liability and their expected realization or payment. The Company monitors the risks associated with asset and liability positions, as well as interest rates. The Company's investment policy objectives require the preservation and safety of the principal, and the maximization of the return on investment based upon its safety and liquidity objectives.

 

The Company is exposed to market risk related to the variable interest rate on its lines of credit, both in its United States subsidiaries (i.e., the Domestic Division) and in its International (non-U.S.) subsidiaries (i.e., the International Division). At March 31, 2016, the Company's outstanding lines of credit and other debt totaled approximately $4.3 million, as noted in the table below (in thousands):

 

Location		Variable Interest Rate (1)						US Dollars (2)
United States				3.0%				$	4,004
International			0.1%	-	6.5%				327
								$	4,331

 

(1)	Based on interest rate at March 31, 2016.

(2)	Based on exchange rate at March 31, 2016.

 

 

SPAR Group, Inc. and Subsidiaries

 

The Company has foreign currency exposure associated with its international subsidiaries. In both 2016 and 2015, these exposures are primarily concentrated in the South African Rand, the Canadian Dollar, the Mexican Peso, the Australian Dollar, the Japanese Yen, and the Chinese Yuan.

 

Item 4.      Controls and Procedures

 

Management's Report on Internal Control Over Financial Reporting

 

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the registrant, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management has designed such internal control over financial reporting by the Company to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

 

The Company's management has evaluated the effectiveness of the Company's internal control over financial reporting using the "Internal Control – Integrated Framework (2013)" created by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") framework. Based on this evaluation, management has concluded that internal controls over financial reporting were effective as of March 31, 2016.

 

Management's Evaluation of Disclosure Controls and Procedures

 

The Company's chief executive officer and chief financial officer have each reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report, as required by Exchange Act Rules 13a-15(b) and Rule 15d-15(b). Based on that evaluation, the chief executive officer and chief financial officer have each concluded that the Company's current disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in reports it files, or submits under the Exchange Act were recorded, processed, summarized and reported within the time period specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls Over Financial Reporting

 

There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's first quarter of its 2016 fiscal year that materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

 

 

SPAR Group, Inc. and Subsidiaries

 

PART II: OTHER INFORMATION

 

Item 1.        Legal Proceedings

 

The Company is a party to various legal actions and administrative proceedings arising in the normal course of business. See Note 9 to the Condensed Consolidated Financial Statements – Commitments and Contingencies.

 

Item 1A.     Risk Factors

 

Existing Risk Factors

 

Various risk factors applicable to the Company and its businesses are described in Item 1A under the caption "Risk Factors" in SGRP's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as filed with the Securities and Exchange Commission (the "SEC") on March 30, 2016 (the "2015 Annual Report"), which risk factors are incorporated by reference into this Quarterly Report. There have been no material changes in the Company's risk factors since those reports.

 

 

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds

 

Item 2(a): The Company approved an extension on their previously reported Stock Repurchase Plan until  August 2018 and increased the total amount that could be purchased to 532,000 shares.

Item 2(b): Not applicable

Item 2(c): Not applicable

 

Item 3.        Defaults upon Senior Securities

 

Item 3(a): Defaults under Indebtedness: None.

Item 3(b): Defaults under Preferred Stock: None.

 

Item 4.        Mine Safety Disclosures

 

Not applicable. 

 

Item 5.        Other Information

 

Not applicable.

 

Item 6.        Exhibits

 

31.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
31.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
32.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
32.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
101.INS*		XBRL Instance
101.SCH*		XBRL Taxonomy Extension Schema
101.CAL*		XBRL Taxonomy Extension Calculation
101.DEF*		XBRL Taxonomy Extension Definition
101.LAB*		XBRL Taxonomy Extension Labels
101.PRE*		XBRL Taxonomy Extension Presentation
* 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.

 

 

SPAR Group, Inc. and Subsidiaries

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Date: May 16, 2016	SPAR Group, Inc., Registrant
	By: /s/ James R. Segreto
	James R. Segreto Chief Financial Officer, Treasurer, Secretary and duly authorized signatory

 

 

25

 

SPAR Group, Inc. and Subsidiaries

 

 

EXHIBIT 31.1

 

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Jill Blanchard, certify that:

 

1.     I have reviewed this quarterly report on Form 10-Q for the three-month period ended March 31, 2016 (this "report"), of SPAR Group, Inc. (the "registrant");

 

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;

 

(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, 2016

/s/ Jill Blanchard Jill Blanchard President and Chief Executive Officer

SPAR Group, Inc. and Subsidiaries

 

 

EXHIBIT 31.2

 

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, James R. Segreto, certify that:

 

1.     I have reviewed this quarterly report on Form 10-Q for the three-month period ended March 31, 2016 (this "report"), of SPAR Group, Inc. (the "registrant");

 

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;

 

(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, 2016

/s/ James R. Segreto James R. Segreto, Chief Financial Officer, Treasurer and Secretary

SPAR Group, Inc. and Subsidiaries

 

 

EXHIBIT 32.1

 

Certification of the Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the quarterly report on Form 10-Q for the three-month period ended March 31, 2016 (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/ Jill Blanchard Jill Blanchard President and Chief Executive Officer May 16, 2016

 

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. 

SPAR Group, Inc. and Subsidiaries

 

EXHIBIT 32.2

 

Certification of the Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the quarterly report on Form 10-Q for the three-month period ended March 31, 2016 (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/ James R. Segreto James R. Segreto Chief Financial Officer, Treasurer and Secretary May 16, 2016

 

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.