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sgrp20221231_10k.htm
0001004989 SPAR GROUP, Inc. false --12-31 FY 2022 0.01 0.01 2,445,598 2,445,598 0 0.01 0.01 2,000,000 0 854,753 0 0.01 0.01 47,000,000 47,000,000 22,853,653 21,320,414 205,485 54,329 – 25,648 75,451 2 3 0 0 0.1 3 7 3 7 3 5 5 25 1.5 1.5 1.5 0.6 0.8 0.3 0.7 2019 2020 2021 2022 0 1 1 3 0 0 4 3 0 0 0 0 0 2 2 12,967,000 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. These expenses are reflected in "Selling, general, and administrative expense" expense in the consolidated statements of operations and comprehensive (loss) income Variable lease costs consist primarily of property taxes, property insurance, and common area or other maintenance costs for the Company’s leases of office space. Represent loans from the local investors into the Company's subsidiaries (representing their proportionate share of working capital loans). 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UNITED STATES

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, 2022

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, MI

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 June 30, 2022, based on the closing price of the Common Stock as reported by the Nasdaq Capital Market on such date, was approximately $13 million.

 

The number of shares of the Registrant's Common Stock outstanding as of March 15, 2023, was 21,845,414 shares.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Definitive Proxy Statement on Schedule 14A for the registrant's 2022 Annual Meeting of Stockholders, are incorporated by reference into Part III of this Form 10-K.

 

 
 

 

 

SPAR GROUP, INC.

ANNUAL REPORT ON FORM 10-K

 

INDEX

 

    

PART I

 

    

 

 

Page 

 

    

Item 1

Business

5

Item 1A

Risk Factors

7

Item 1B

Unresolved Staff Comments

10

Item 2

Properties

10

Item 3

Legal Proceedings

11

Item 4

Mine Safety Disclosures

11

 

    

PART II

 

 

    

Item 5

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

12

Item 6

[Reserved]

12

Item 7

Management's Discussion and Analysis of Financial Condition and Results of Operations

14

Item 7A

Quantitative and Qualitative Disclosures about Market Risk

18

Item 8

Financial Statements and Supplementary Data

18

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

18

Item 9A

Controls and Procedures

18

Item 9B

Other Information

19
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 19

 

    

PART III

 

    

Item 10

Directors, Executive Officers and Corporate Governance

20

Item 11

Executive Compensation

20

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

20

Item 13

Certain Relationships and Related Transactions, and Director Independence

20

Item 14

Principal Accountant Fees and Services

20

 

    

PART IV

 

    

Item 15

Exhibits and Financial Statement Schedules

21

Item 16

Form 10-K Summary

27

 

Signatures

28

 

 
 

 

 

NOTE ON Forward-Looking Statements

 

This Annual Report on Form 10-K for the year ended December 31, 2022 (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 2023 Annual Meeting of Stockholders (the "Proxy Statement"), which SGRP expects to file on or about TBD, 2023, 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, and 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"); the potential continuing negative effects of the COVID-19 pandemic on the Company's business; the Company's potential non-compliance with applicable Nasdaq 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 Company'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 affiliates, 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 global 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. Our goal is to be the most creative, energizing and effective global services company that drives sales, margins and operating efficiency for our clients.  

 

As of December 31, 2022, we operated in nine countries including the United States, Canada, Mexico, Brazil, South Africa, Australia, China, Japan and India. Across all of these countries, we successfully execute programs through our multi-lingual 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 globally, 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 commitment to excellence comes from our people and organizational culture. We are passionate about talent and building a culture of ideas and innovation. We know that attracting, supporting and encouraging our people to do great things for clients results in excellent work. This great work begets more work and creates an energy and enthusiasm for our people and the Company as a partner. We are proud of our people and their dedication to clients and our company success.  

  

We are also a results-driven organization that holds itself to a high standard of execution. We believe that our ability to meet or exceed our commitments to clients and the marketplace are part of how we define success. This is true if we are growing our core business, innovating with technology or testing new services. We aspire to be exceptional. 

 

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 includes placing orders, retail shelf maintenance, merchandising 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 manufacturers to set up their own products and merchandise the shelves on behalf of the retailer. To begin, manufacturers utilized their own sales representatives to do this work. Over time, this resulted in competing manufacturer representatives working in the same stores. This often led to the best presentation of merchandise resulting from the last manufacturer 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.

 

SPAR Group is one of the leading providers of these merchandising and marketing services to companies across the globe. 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, both in the United States and internationally, brand owners, consumer goods companies, manufacturers 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 over 25,000 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 service in-country and across geographies.

 

To capitalize on the growing demand, the Company’s business strategy is focused on four (4) priorities: 1) Grow the Core Business; 2) Introduce or Acquire New Services; 3) Invest in Technology; and 4) Expand Globally. 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 for more 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. 

 

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 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 a competitive advantage in the marketplace and is a core competitive strength. 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 Company results. 

 

Expand Globally

 

The Company operates in 9 countries. This provides us the unique ability to offer our services across borders and geographies to drive incremental revenue and operating efficiencies. We have many global clients that we work with in multiple countries based on the results we deliver and value we create. We believe our ability to offer multi-country agreements is a unique differentiator for us in the marketplace and we will continue to capitalize on this to grow our business. 

  

At the same time, we are continuously exploring ways to expand our current international businesses. As retail channels continue to consolidate around the globe, we look for unique, compelling financial opportunities to acquire, partner or organically grow into new segments, verticals and geographies. At the heart of this strategy is building upon our strength today and the leadership we have developed in country, regionally and around the world.

 

Our Business Divisions

 

The Company operates under three divisions: Americas, Asia Pacific (APAC), and Europe, Middle East and Africa (EMEA). The Americas division is comprised of the United States, Canada, Mexico and Brazil. The APAC division is comprised of Japan, China, Australia and India. The EMEA division is comprised of South Africa.

 

The total business is led and operated from our global headquarters in Auburn Hills, Michigan. Each country also has regional leadership and offices in the respective market. 

 

Our approach to the international marketplace has historically been to establish joint ventures. We believe this approach enables us to bring the breadth of our global capabilities and tools while capitalizing on the strength and importance of local executive leadership and resources.

 

We continue to be excited about our international growth opportunities and the performance of our individual businesses.

 

The following table provides details of the structure of our Domestic and International businesses:

 

 

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

 

 National Merchandising Services, LLC ("NMS")

51

 %

Fayetteville, Georgia

 

 Resource Plus of North Florida, Inc. ("RPI")

51

 %

Jacksonville, Florida
Canada SPAR Canada Company 100 % Vaughan, Ontario, Canada
Mexico SPAR TODOPROMO, SAPI, de CV 51 % Mexico City, Mexico
Brazil SPAR Brasil Serviços de Merchandising e Tecnologia S.A. 51 % Sao Paulo, Brazil

Asia- Pacific

        

Japan

 SPAR FM Japan, Inc.

100

 %

Tokyo, Japan
India SPAR KROGNOS Marketing Private Limited 51

%

 New Delhi, India

 

Preceptor Marketing Services Private Limited

 51

%

New Delhi, India

Australia

 SPARFACTS Australia (PTY), Ltd.

 51

%

Melbourne, Australia

China

 SPAR (Shanghai) Marketing Management Company Ltd.

 51

%

Shanghai, China
Europe, Middle East, Africa (EMEA)        
South Africa SGRP Meridian (PTY), Ltd.  51

%

 Durban, South Africa

 

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, as the Company is focused primarily 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 divisions, which includes their respective net revenues and operating income for each of the years ended December 31, 2022 and 2021, and their respective assets as of December 31, 2022 and 2021, is provided in Note 12 to the Company's Consolidated Financial Statements – Segment Information, below.

 

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Our Services

 

The Company currently provides six (6) principal types of services: merchandising services, brand marketing services, new store openings and remodeling services, assembly services, distribution staffing services and retail compliance and price audit services.

 

Merchandising Services

 

Merchandising services consist of regularly scheduled merchandising and marketing services provided at the retail store level for retailers, manufacturers and distributors  ("syndicated merchandising services") and "dedicated merchandising services" which are performed for a specific retailer or manufacturer by a dedicated organization, sometimes including a management team. The syndicated services are performed for multiple manufacturers and distributors while the dedicated services work exclusively for that retailer or manufacturer.

 

Brand Marketing Services

 

Project services consist primarily of specific in-store services initiated by retailers and manufacturers, such as new product launches, special seasonal or promotional merchandising, focused product support, product recalls, in-store product demonstrations and in-store product sampling. The Company also performs other project services, such as kiosk product replenishment, inventory control, new store sets and existing store resets, re-merchandising, remodels and category implementations, under annual or stand-alone project contracts or agreements.

 

New Store Openings and Remodeling Services

 

Retailer specific services including store transformation, remodeling, fixture building, major category changes, adaptation of online in the store and regular store refresh program support, under annual or stand-alone project contracts or agreements. 

 

Most retailers refresh each store every three, five or seven years. The Company offers services to ensure each store is inviting, exciting and well maintained for the retailer. This may include adding categories of product, changing the front-of-store checkout, building out pack and ship areas within a store to serve regional online delivery and more.

 

Assembly Services

 

The Company's assembly services are initiated by consumers, retailers or manufacturers. Upon request, the Company assembles furniture, grills and many other products in stores, homes and offices. The Company performs ongoing routed coverage at retail locations to ensure that furniture and other product lines are well displayed and maintained, and builds any new items or replacement items, as required. In addition, the Company provides in-home and in-office assembly to customers who purchase their product from retailers, whether in store, online or through catalog sales.

 

Distribution Staffing Services

 

The Company offers staff and distribution center experienced resources to retailers and consumer goods manufacturers. These services support new distribution center set up and testing, receiving, put-away and picking, packing and shipping activities. These services have become in higher demand as the growth of online has accelerated and more retailers and manufacturers are shipping product direct to the end consumer for these facilities. 

 

Retail Compliance and Price Audit Services

 

The Company's retail compliance and price audit services are initiated by retailers and manufacturers and focus on the following: Validating store promotions, auditing compliance with branding and signage, verifying product placement and displays, collecting inventory levels and out-of-stock status and more. In addition, the Company provides competitive price intelligence gathering for retailers as well as ensuring price accuracy and consistency within the retail itself.

 

Our Customers

 

The Company currently represents numerous manufacturers and/or retail clients in a wide range of retail segments and stores worldwide, and its customers (which it refers to as "clients") include the following markets:

 

Retail segments served include:

 

 

●

Grocery and HBA
  ● Pharmacies
 

●

Discount
 

●

Dollar
 

●

Convenience
 

●

Cash and Carry
 

●

Home Improvement
 

●

Consumer Electronics
 

●

Automotive
 

●

Office Supply
 

●

Mass Merchandisers

 

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, 2022 and 2021.

 

-6-
 

 

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 royalty free pursuant to license agreements for limited terms (executed contemporaneously with their respective joint venture agreements); and (iv) for use by the Independent Field Vendor and Independent Field Administrator respectively providing Field Administrators through 2022 and 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"). 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 $1.5 million in 2022 and $1.2 million in 2021, respectively. Except for SBS and Infotech (they do not need such software licenses because of their co-ownership), each subsidiary and field vendor trademark license and arrangement also licenses the Co-Owned Software to the licensee. 

 

Our Labor Force

 

Worldwide, the Company utilized a labor force in 2022 of up to approximately 25,000 people depending on seasonality, including the services of Field Specialists and Field Administrators provided by independent third parties. 

  

The Company executes and administers its field services in the USA through the services of field merchandising, auditing, assembly and other field personnel (each a "Field Specialist"), substantially all of whom are provided to the Company and engaged by independent third parties and located, scheduled, deployed and administered domestically through the services of local, regional, district and other personnel (each a "Field Administrator"). Substantially all of its Field Administrators in the USA were in turn employed by other independent third parties through December 2022 and by the Company thereafter. 

  

As of December 31, 2022, the Company's labor force in the Americas totaled approximately 17,500 including the services of Field Specialists and Field Administrators furnished by independent third parties. The Company employed in Americas a labor force of 494 full-time employees and 62 part-time employees engaged in operations. In the Company's America 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 17,000) were supplied to the Company by an independent vendor (the "Independent Field Vendor"). The services of a significant portion of the Field Administrators who supervise the Field Specialists (approximately 60) were provided to the Company in the USA by an independent vendor (the "Independent Field Administrator") through December 2022 and by the Company thereafter. 

  

As of December 31, 2022, the Company's Asia-Pacific Division's labor force totaled approximately 1,600 including the services of field personnel and others furnished by independent third parties. Foreign subsidiaries employed 295 full-time and 3 part-time employees. The Company's Asia-Pacific Division's field force consisted of approximately 1,300 Field Specialists engaged locally by our foreign subsidiaries in their respective international operations.  

  

As of December 31, 2022, the Company's EMEA Division's labor force totaled approximately 5,200 including the services of field personnel and others furnished by independent third parties. Foreign subsidiaries employed 648 full-time and 4 part-time employees. The Company's EMEA Division's field force consisted of approximately 4,500 Field Specialists engaged locally by our foreign subsidiaries in their respective international operations.  

  

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 arise 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 include breadth and quality of client services, cost, development and deployment of technology, the ability to execute specific client priorities rapidly and consistently over a wide geographic area, and the ability to ideate 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 national and international initiatives and develop and administer national and international manufacturer programs. 

 

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 Relations 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. 

  

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 results of operations were adversely affected in 2021 globally by the COVID-19 pandemic, and the adverse impact continued through 2022 in certain international countries. The adverse impact of the COVID-19 pandemic may continue through 2023 and beyond.

 

In March 2020, the World Health Organization declared the novel strain of Coronavirus ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, operations, suppliers, industry and workforce.

 

In 2021, most of our clients whose business was shut down or reduced capacity earlier in 2020 returned to normal operations, and the overall business improved for fiscal year 2021 and 2022. However, a few international countries continued to be impacted during fiscal 2022. Specifically, China and Japan. The zero-covid policy in China caused many of our client operations in China to suspend operations for several months. In Japan, the government policies have continued to make it more challenging to continue our normal work in stores for 2022. 

 

Although the Company cannot reasonably estimate the length or severity of the continuing pandemic, we do not anticipate a continual material adverse impact on our consolidated financial position, results of operations and cash flows.

 

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 and COVID-19 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 has operations in nine distinct countries and 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 countries 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. 

 

-7-
 

 

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. 

  

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 (who were provided by an independent vendor through December 2022 and by the Company thereafter). 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.

 

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, 2022, the sale price of SGRP Common Stock fluctuated from $1.27 to $1.30 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"). 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, 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 Domestic Related Party - (including Change of Control, Voting and Restricted Stock Agreement), 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 Company and many others without regard to financial results or condition).

 

If the Company 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 Company currently has in place a 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). Those repurchases 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 Company's stock price, the Company or its performance or condition.

 

As a small company with stock price volatility, our stock may be de-listed from NASDAQ.

 

There can be no assurance that the Company 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 Unilateral Actions, below. If the Company fails to satisfy the applicable continued listing requirement again in the future, Nasdaq may commence delisting procedures against the Company (during which the Company 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 a material weakness in its internal controls as of December 31, 2022. While this control deficiency did not result in a material error in the annual or interim financial statements, there was a reasonable possibility that a material misstatement in the annual or interim financial statements would not have been detected. As such, Management has determined this control deficiency constitutes a material weakness. Please see the discussion of these conclusions below under Item 9A. “Controls and Procedures” of this Annual Report on Form 10-K.

 

Due to the material weakness 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, 2022. 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, affect the ability of our auditors to attest to the effectiveness of our internal controls, and weaken investor confidence in our financial reporting. The Company is actively engaged in developing a remediation plan designed to address the material weakness, 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 judgement), 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 Domestic Related Party Services (including Change of Control, Voting and Restricted Stock Agreement), 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.

 

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 Directors of SGRP and together with certain related parties (collectively, the " Majority Stockholders ") beneficially own approximately  52.3%  of the SGRP Common Stock and could acquire more. That amount was calculated using their respective individual beneficial ownership, excluding affiliates shares, on January 28, 2022, as they represented in the CIC Agreement and the total outstanding ownership (approximately 21.3 million shares) of the SGRP Common Stock on a non-diluted basis as of December 31, 2021. Assuming no other purchases or sales, after the vesting of their Series B Preferred Stock and its conversion into SGRP Common Stock in accordance with the CIC Agreement, the Significant Stockholders will together beneficially own approximately 52.3% of the SGRP Common Stock, excluding affiliates shares.  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 Domestic Related  Party  Services (including  Change  of Controls,  Voting  and Restricted Stock Agreement)
, 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.

 

-8-
 

 

There is inherent business risk for a joint venture business structure.

 

The Company's growth strategy for the international markets has been to join forces with local investors having merchandising service expertise, and combine their knowledge of the local market with the Company's proprietary software and expertise in the merchandising business through joint venture business structure. Currently, of the 9 countries the Company conducting businesses in, 6 of the countries are under a joint venture business structure (Brazil, South Africa, Mexico, China, Australia and India). The Company also has begun to use the model in the United States in recent years and formed or acquired two joint ventures, National Merchandising Services, LLC (NMS), and Resource Plus Inc. (RPI), domestically.

 

The Company owns 51% of these joint ventures in all cases; the principal of our local minority investors generally is the Chief Executive Officer, and each joint venture is governed by a Board comprised of directors from both parties. SGRP designates half of the directors for the local boards of its joint venture subsidiaries (other than Brazil where it is 60%), and significant actions require local board agreement. All joint ventures are also governed under the Company’s policies and guidelines.

 

The Company believes its relationship with the joint venture partners are strong. However, there can be no assurance that the Company can successfully manage through inherent business risk due to significant misalignment of business objectives. Any cancellation, nonperformance or material changes of the joint venture could have a material adverse effect of the Company.

 

-9-
 

 

We have inherent risks operating international businesses.

 

The Company operates in 9 countries around the world. There can be no assurances that the respective business environments will remain favorable. In the future, the Company's International operations and sales may be affected by the following risks, which may adversely affect United States companies doing business in foreign countries:

 

  ●

Political and economic risks, including terrorist attacks and political instability;
  ●

Various forms of protectionist trade legislation that currently exist or have been proposed;
  ●

Expenses associated with customizing services and technology;
  ●

Local laws and business practices that favor local competition;
  ●

Dependence on local vendors and potential for undisclosed related party transactions;
  ●

Multiple conflicting and changing governmental laws, regulations and enforcement;
  ●

Potentially adverse tax and employment law consequences;
  ●

Local accounting principles, practices and procedures;
  ●

Local legal principles, practices and procedures, local contract review and negotiation, and limited familiarity with contract issues (excessive warranties, extra-territoriality, sweeping intellectual property claims and the like);
  ●

Limited familiarity or an unwillingness to comply with, or wrongly believing the inapplicability of, generally accepted accounting principles in the USA ("GAAP"), applicable corporate controls and policies of the Company (including its ethics code), or applicable law in the USA (including Nasdaq rules, securities laws, anti-terrorism law, Sarbanes Oxley and the Foreign Corrupt Practices Act) by Local Investors;
  ●

Foreign currency exchange rate fluctuations and limits on the export of funds;
  ●

Substantial communication barriers, including those arising from language, culture, custom and time zones; and
  ●

Supervisory challenges arising from local board deadlocks, agreements, distance, physical absences and such communication barriers.

 

If any developments should occur with respect to any of those international risks and materially and adversely affect the Company's applicable international subsidiary, such developments could have a material adverse effect on the Company or its performance or condition.

 

Item 1B. Unresolved Staff Comments

 

None.

 

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.

 

-10-
 

 

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)

Fayetteville, Georgia (NMS)

Jacksonville, Florida (Resource Plus)

 

INTERNATIONAL:     

Vaughan, Ontario, Canada

Tokyo, Japan

Durban, South Africa

New Delhi, India

Melbourne, Australia

 Mexico City, Mexico

Shanghai, China

Sao Paulo, Brazil

 

 

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.

 

All previous open and potential claims between the Significant Stockholders and the Company have been released mutually upon execution of the Change of Control, Voting and Restricted Stock Agreement ("CIC Agreement"), as of January 28, 2022. See Note 10 to the Company's Consolidated Financial Statements - Related Party Transactions Domestic Related Party Services (including Change of Control, Voting and Restricted Stock Agreement), below. The matters resolved in the CIC Agreement included all previous claims of the Majority Stockholders that the Company was somehow liable for claims and judgements by or against them or their respective companies, as well as all legal bills and other expense and amounts.

 

All prior litigations associated with the Company through SPAR Business Services, Inc., a corporation ("SBS") and its Independent Contractors have been resolved, including the claims of SBS and the Corporation in the SBS bankruptcy and settlement, and all additional related claims raised later by SBS and Robert G Brown were released by them in the CIC Agreement. The SBS bankruptcy and settlement are described in the Corporation's Current Report filed with the SEC on August 8,2019.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

-11-
 

 

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, 2022, there were 22,960,966 shares of SGRP Common Stock outstanding in the aggregate (which does not include Treasury Shares), and there were 10,127,244 million shares (or approximately 47.6%) 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, and Note 10 to the Company's Consolidated Financial Statements- Related Party Transactions Domestic Related Party Services (including Change of Controls, Voting and Restricted Stock Agreement), 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.

 

On January 25, 2022, the Corporation filed a Certificate of Elimination for its "Certificate of Designation of Series "A" Preferred Stock of SPAR Group, Inc.” (the "Certificate of Elimination"). Pursuant to the Certificate of Elimination, the previous Series A Preferred Stock designation was cancelled and withdrawn. As a result, all 3,000,000 shares the previously authorized Series A Preferred Stock were returned to the Corporation’s authorized "blank check" preferred stock. There were no shares of Series A Preferred Stock outstanding at the time of the cancellation.

 

Subsequent to filing the Certificate of Elimination, on January 25, 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 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 Domestic Related Party Services (including Change of Control, Voting and Restricted Stock Agreement), below. However, the holders of the Series B Preferred Stock have a liquidation preferences 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 Corporation issued to the Majority Stockholders 2,000,000 restricted shares of Series B Preferred Stock, which were automatically convertible upon vesting into 3,000,000 SGRP Shares pursuant to the 1:1.5 conversion ratio set forth in the Preferred Designation and the CIC Agreement, subject to adjustment for a forward or reverse share split, share dividend, or similar transactions. See Note 10 to the Company's Consolidated Financial Statements - Related Party Transactions Domestic Related Party Services (including Change of Control, Voting and Restricted Stock Agreement), below . 

 

At December 31, 2022, 854,753 shares of Series B Preferred Stock remained issued and outstanding (which upon vesting will automatically convert to 1,282,129 shares of SGRP Common Stock), and 1,145,247 shares of Series B Preferred Stock had been surrendered and automatically converted to 1,717,870 shares of SGRP Common Stock. When 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, 2022, there were approximately 169 stockholders of record.

 

Dividends

 

The Corporation has never declared or paid any cash dividends on its Common Stock and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. No dividends are payable on the Series B Preferred Stock. The Company currently intends to retain future earnings to finance its operations and fund the 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, level of indebtedness, contractual restrictions in respect to the payment of dividends and other factors that the Corporation Board of Directors deems relevant.

 

-12-
 

 

Equity Compensation

 

Information regarding the Company's equity compensation plans may be found in Item 12 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 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. Through December 31, 2022, 151,156 shares of SGRP Common Stock were repurchased under the 2022 program and became Treasury Shares.

 

SGRP Common Stock Issuances

 

During 2022, the Corporation issued 73,867 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 Note 11 to the Company's Consolidated Financial Statements – Stock Based Compensation and Other Plans, below.

 

-13-
 

 

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This Annual Report on Form 10-K (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 (together with SGRP, " SPAR " , the " SPAR Group " or the " Company "). "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, the " Securities Laws "). 

 

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 "); the potential continuing negative effects of the COVID-19 pandemic on the Company's business; the Company's potential non-compliance with applicable Nasdaq 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 Company'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 Quarterly Report, the Annual Report, the Proxy Statement, the First Special Meeting Proxy/Information Statement and the First Special Meeting Report and the other applicable SEC Reports, 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 affiliates, assets, business, clients, 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) 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 Quarterly 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.

 

Overview of Our Business

 

SPAR Group is a leading global 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 global services company that drives sales, margins and operating efficiency for our clients. 

 

As of December 31, 2022, the Company operated in nine countries: the United States, Canada, Mexico, Brazil, South Africa, Australia, China, Japan and India. Across all of these countries, the Company executes programs through its multi-lingual logistics, reporting and communication technology, which provides clients value through real-time insight on store/product conditions.

 

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’s focus is services. The team works closely with clients to determine their key objectives to execute globally, focusing on enhancing their sales and profit. At retail, the Company’s 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. The Company also assists with sales and customer service. As retailers adapt to changes and new opportunities, our team engages in the total renovations and updating of stores, as well as preparing new locations for grand openings. The Company’s distribution associates work in retail and consumer goods distribution centers to prepare the centers to open, testing systems, putting away, picking products and providing peak staffing services for our clients.

 

The Company’s business is led and operated from its global headquarters in Auburn Hills, Michigan, with local leadership and offices in each country. 

 

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) Board of Directors incremental compensation expense, (v) restructuring, (vi) impairment, (vii) nonrecurring legal settlement costs and associated legal expenses unrelated to the Company's core operations, (viii) and special items as determined by management. 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.

 

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 EBITDA was approximately $7.4 million and $6.3 million for the years ended December 31, 2022 and 2021, respectively. The following is a reconciliation of our net (loss) income to Adjusted EBITDA for the periods presented:

 

 

 

   

Twelve Months Ended December 31,

  

(in thousands)

    

2022

    

2021

  
Consolidated Net Income   $ 2,126   $ 2,000  
Depreciation and amortization     2,033     2,083  
Interest expense     965     585  
Income Tax expense     2,777     2,108  
Other income     (482 )   (509 )
Consolidated EDITDA     7,419     6,268  
Costs and other relating to CIC     (32 )   4,814  
Review of Strategic Alternatives     540     72  
Goodwill impairment     2,458     -  
Board of Directors compensation     -     711  
Board of Directors incremental compensation     394     -  
Consolidated Adjusted EBITDA     10,779     11,864  
Adjusted EBITDA attributable to non-controlling interest     (4,637 )   (4,908 )
Adjusted EBITDA attributable to SPAR Group, Inc.   $ 6,142   $ 6,957  

 

Results of Operations

 

The following table sets forth selected financial data and such data as a percentage of net revenues for the years indicated (dollars in millions):

 

     

Year Ended December 31,

  
     

2022

    

%

    

2021

    

%

  

Net revenues

    

$

261.3

      

100

%

  

$

255.7

      

100

%

Related party - cost of revenues

      

8.8

      

3.4

    

 

7.4

      

2.9

  

Cost of revenues

      

201.5

      

77.1

      

200.8

      

78.5

  

Selling, general and administrative expense

      

41.1

      

15.7

      

36.8

      

14.4

  

Majority stockholders change of control agreement

      

-

      

-

      

4.5

      

1.8

  

Depreciation and amortization

      

2.0

      

0.8

      

2.1

      

0.8

  

Impairment of goodwill

      

2.5

      

1.0

      

-

      

-

  

Interest expense, net

      

1.0

      

0.4

      

0.5

      

0.2

  

Other income, net

      

(0.5

)

    

(0.2

)

    

(0.5

)

    

(0.2

)

Income before income taxes

      

4.9

      

1.9

      

4.1

      

1.6

  

Income tax expense

      

2.8

      

1.1

      

2.1

      

0.8

  

Net income

      

2.1

      

0.8

      

2.0

      

0.8

  

Net income attributable to noncontrolling interest

      

(2.9

)

    

(1.1

)

    

(3.8

)

    

(1.5

)

Net loss attributable to SPAR Group, Inc.

    

$

(0.7

)

    

(0.3

)%

  

$

(1.8

)

    

(0.7

)%

 

Results of operations for the year ended December 31, 2022, compared to the year ended December 31, 2021.

 

Net Revenues

 

Net revenues for the year ended December 31, 2022, were $261.3 million compared to $255.7 million for the year ended December 31, 2021, an increase of $5.6 million or 2.2%. This increase was on top of the headwinds we faced cycling the 2021 Mexican labor law change, zero-Covid policy in China beginning in the first quarter of 2022, and a negative foreign exchange rate impact. 

 

The Americas net revenues totaled $198.6 million and $186.4 million at December 31, 2022 and 2021, respectively. The increase of $12.2 million or 6.5% is the result of 16% growth in the U.S. owned services business, 24% growth in our Brazil joint venture revenue offset by a 2% and 57% drop in Canada and Mexico revenue, respectively. We won a number of new clients, extended agreements with current clients and continued to grow our remodel and distribution services businesses.

 

The Asia-Pacific net revenues totaled $26.0 million and $33.8 million at December 31, 2022 and 2021, respectively. The decrease of $7.8 million or 23.1% is primarily the result of the zero-Covid policy that impacted our business in China and broader economic pressures in Japan. Our joint venture business in China was down 31% and has not fully recovered from the impact of first quarter 2022.

 

The EMEA net revenues totaled $36.7 million and $35.5 million at December 31, 2022 and 2021, respectively. The increase of $1.2 million or 3.3% is the result of the continued growth of our joint venture in South Africa.

 

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, 2022 compared to 81.4% of net revenues for the year ended December 31, 2021. We delivered a 90-basis point improvement in gross margins against the global pressure of recruiting and wages.

 

The Americas cost of revenue as a percent of net revenue was 81.5% and 83.2% for the years ended December 31, 2022 and 2021, respectively. The decrease in cost of 1.8% was the result of 2% lower costs in our owned U.S. business, 60-basis point lower cost in Brazil, 1.8% lower costs in Mexico, 3.7% lower costs in our U.S. joint ventures offset by a 50-basis point increase in costs in Canada. We were able to achieve these results by focusing on recruiting, client pricing, adding fuel surcharges when the market demanded, reducing field resource travel and reducing overtime among other improvements.

 

The Asia-Pacific cost of revenue as a percent of net revenue was 77.3% and 73.5% for the years ended December 31, 2022 and 2021, respectively. The increase in cost of 3.8% was primarily the result of temporary loss of our higher margin business in China during the lockdown, rising rates in Japan, and challenge attracting resources in Australia due to the low unemployment.

 

The EMEA cost of revenue as a percent of net revenue was 77.4% and 79.5% for the years ended December 31, 2022 and 2021, respectively. The decrease in cost of 2.1% was primarily the result of our focus on pricing, operating improvements and new client business.

 

-14-
 

 

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 $41.1 million, or 15.7% of net revenue, and approximately $41.3 million, or 16.2% of net revenue for the years ended December 31, 2022 and 2021, respectively. Selling, general and administrative expenses for the year-ended December 31, 2022 includes several one-time expenses of approximately $.5 million related to our consideration of strategic alternatives and a $1.2 million of bad debt expense related to the bankruptcy of one of our customers. 

 

The Americas selling, general and administrative expenses totaled $28.4 million and $26.9 million at December 31, 2022 and 2021, respectively. The increase of $1.5 million, or 5.6%, is primarily the result of the one-time strategic alternative expenses, the bad debt write-off, increased board compensation, and an increase in selling, general and administrative expenses in our Brazil joint venture as an investment to support the accelerated growth. 

 

The Asia-Pacific selling, general and administrative expenses totaled $7.4 million and $9.9 million at December 31, 2022 and 2021, respectively. The decrease of $2.5 million, or 25.3%, is primarily attributable to a $0.8 million reduction in Japan’s selling, general and administrative expenses as we carefully manage this business in response to the broader economic trends and a $1.0 million reduction in China selling, general and administrative expenses as we reduced expenses in reaction to the client impact of zero-Covid policies.

 

The EMEA selling, general and administrative expenses totaled $5.3 million and $4.5 million at December 31, 2022 and 2021, respectively. The increase of $0.8 million, or 17.8%, is primarily attributable to the investment in resources and operations to support the emerging growth.

 

Depreciation and Amortization

 

Depreciation and amortization expense was approximately $2.0 million and $2.1 million for the years ended December 31, 2022 and 2021.respectively

 

Impairment of Goodwill

 

Impairment of goodwill was $2.5 million and nil for the years ended December 31, 2022 and 2021, respectively. The increase of $2.5 million, or 100%, was attributable to the recognition of impairment losses of $2.0 million and $0.5 million for the reporting units Resource Plus of North Florida, Inc. and SPAR TODOPROMO, SAPI, de CV, respectively, during the three months ended December 31, 2022.

 

Interest Expense, Net

 

The Company's interest expense, net was $1.0 million and $0.5 million for the years ended December 31, 2022 and 2021, respectively.

 

The America interest expense, net was $0.7 million and $0.5 million for the years ended December 31, 2022 and 2021, respectively. The increase was a result of higher interest rates.

 

The Asia-Pacific interest expense of $39,000 for the year ended December 31, 2022 versus interest income of $9,000 for the year ended December 31, 2021. Net interest income in 2021 was primarily due to expenses being offset by income generated from cash balance in banks.

 

The EMEA interest income of $0.3 million and $43,000 for the years ended December 31, 2022 and 2021, respectively.

 

Other Income, Net

 

Other income, net was $0.5 million and $0.5 million for the years ended December 31, 2022 and 2021, respectively.

 

Income Tax Expense

 

The Company had income tax expense of $2.8 million with an effective tax rate of 56.6% and $2.1 million with an effective rate of 51.3%, for the years ended December 31, 2022 and 2021, respectively. For the year ended December 31, 2022, our effective income tax rate of 56.6% varied from the U.S. federal statutory rate of 21% primarily as a result of dispersion of global income and impact of higher foreign tax rates, permanent items including goodwill impairment charges as well as the incremental tax expense associated with the global intangible low-taxed income inclusion under the Tax Cuts and Jobs Act of 2017.

 

Noncontrolling Interest

 

Net income attributable to noncontrolling interest was $(2.9) million and $(3.8) million for the years ended December 31, 2022 and 2021, respectively.

 

Critical Accounting Policies and Estimates

 

The Company’s critical accounting policies, including the assumptions and judgements 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 doubtful accounts, and internal use software. While the estimates and judgements associated with the application of these policies may be affected by different assumptions or conditions, the Company believes the estimates and judgements 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.

 

-15-
 

 

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.

 

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 Doubtful Accounts

 

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 doubtful accounts of $1.6 million and $0.6 million at December 31, 2022, and 2021, respectively. Bad debt expense was $1.3 million and $0.1 million for the years ended December 31, 2022 and 2021, respectively. 

 

-16-
 

 

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 $1.5 million and $1.2 million of costs related to software developed for internal use in 2022 and 2021, respectively, and recognized approximately $1.3 million of amortization of capitalized software for the years ended December 31, 2022 and 2021.

 

Recent Accounting Pronouncements

 

See the sections titled "Summary of Significant Accounting Policies—Recent Accounting Pronouncements” and "—Recently issued accounting pronouncements not yet adopted” in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10‑K.

 

-17-
 

 

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 resulting from the continuing impact of the COVID-19 pandemic, 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, 2022, the Company was in compliance with all financial covenants under these arrangements other than Resource Plus of North Florida, Inc.’s credit facility with Fifth Third Bank, under which there was no outstanding balance as of December 31, 2022. See Note 4 to the Company's consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

 

Cash Flows for the Years Ended December 31, 2022 and 2021

 

Net cash used in operating activities was $4.9 million for the year ended December 31, 2022 and net cash provided by operating activities was $2.6 million for the year ended December 31, 2021. The year-over-year decrease in net cash provided by operating activities was primarily due to significant increase in accounts receivable due to revenue growth.

 

Net cash used in investing activities for the years ended December 31, 2022 and 2021, was $1.8 million and $1.7 million, respectively. The net cash used in investing activities was primarily attributable to capitalization of internal use software.

 

Net cash provided by financing activities for the year ended December 31, 2022 was approximately $3.5 million compared to $1.3 million in 2021. The year-over-year increase in net cash provided by financing activities during 2022 was primarily due to increase in net borrowing on lines of credit.

 

The above activity and the impact of foreign exchange rate changes resulted in a decrease in cash and cash equivalents for the year ended December 31, 2022 of approximately $4.1 million.

 

 

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

 

-18-
 

 

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.

 

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, 2022. In connection with the audit of our consolidated financial statements for the year ended December 31, 2022, we identified a material weakness 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 has determined that a material weakness in its internal control over financial reporting existed as the Company has not designed and implemented effective controls used in the financial close process over non-recurring transactions involving international components. While this control deficiency did not result in a material error in the annual or interim financial statements, there was a reasonable possibility that a material misstatement in the annual or interim financial statements would not have been detected. 

 

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:

 

 

●

Subsequent to year end, the Company hired a new Chief Financial Officer, a new Vice President Controller and a Director of Accounting;

 

 

●

 The Company is in the process of implementing a risk assessment process by which management identifies risks of misstatement related to all account balances;

 

 

●

Enhancing policies and procedures to retain adequate documentary evidence for certain management review controls over certain business processes including precision of review and evidence of review procedures performed to demonstrate effective operation of such controls;

 

 

●

Strengthening monitoring activities and protocols that will allow the Company to timely assess the design and the operating effectiveness of controls over financial reporting and make necessary changes to the design of controls, if any;

 

The Company 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

 

Except for the material weakness and corrective measures discussed above, there was no other changes in the Company's internal controls over financial reporting that occurred during the Company's quarter ended December 31, 2022, that materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

 

 

Item 9B. Other Information 

 

None.

 

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

 

Not applicable.

 

-19-
 

 

PART III

 

Reference is made below to SGRP’s definitive Proxy Statement respecting its 2023 Annual Meeting of Stockholders currently scheduled to be held in May of 2023, as and when filed with the SEC, which SGRP plans to file pursuant to Regulation 14A in April of 2023, but not later than 120 days after the end of the Company’s 2022 fiscal year (the "2023 Proxy Statement”), For clarity (and without limitation), information appearing in the sections in such 2023 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 2023 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 2023 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 2023 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 2023 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, LLP AS THE COMPANY’S PRINCIPAL INDEPENDENT ACCOUNTANTS” in the 2023 Proxy Statement.

 

-20-
 

 

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules

 

F.     Index to Financial Statements filed as part of this report:

 

 

 

 

 

Report of Independent Registered Public Accounting Firm (BDO USA, LLP; Troy, Michigan; PCAOB ID#243)

F-1

  
Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2022 and 2021F-2
  

Consolidated Balance Sheets as of December 31, 2022 and 2021

F-3
  

Consolidated Statements of Equity for the years ended December 31, 2022 and 2021

F-4
  

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

F-5
  

Notes to Consolidated Financial Statements

F-6

 

 

 

3.

Exhibits

 

 

 

 

 

Exhibit

Number

 Description
   

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 Series "A" Preferred Stock of SPAR Group, Inc., as of January 25, 2022 (incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on January 28, 2022). 

   
3.3 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).
   
3.4 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).
   

3.5

 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). 
   

3.6

 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"). 
   

3.7

 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").
   

3.8

 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").

 

-21-
 

 

3.09

 

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). 

   

3.10

 

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).

   

3.11

 

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). 

   
3.12 SGRP 2018 Stock Repurchase Program as approved by SGRP's Audit Committee and adopted by its Board of Directors on November 10, 2017 and ratified on March 14, 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).
   

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 (as filed herewith).

   

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

 

SGRP's Offer to Exchange Certain Outstanding Stock Options for New Stock Options dated August 24, 2009 (incorporated by reference to Exhibits 99(a)(1)(A) through (G) of SGRP's Schedule TO dated August 24, 2009, as filed with the SEC on August 25, 2009 ("SGRP's SC TO-I")).

   
4.5 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 is effective as of March 24, 2022, between SGRP and Kori G. Belzer (as filed herewith).
   
10.7 Phantom Stock Unit Grant and Agreement entered into and is effective as of March 24, 2022, between SGRP and William Linnane (as filed herewith).
   
10.8 Phantom Stock Unit Grant and Agreement entered into and is effective as of March 24, 2022, between SGRP and Ron Lutz (as filed herewith).
   
10.9 Inducement RSU Contract between SPAR Group, Inc. and Antonio Calisto Pato dated March 10, 2023 (as filed herewith).
   
10.10 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).
   
10.11 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).
   
10.12 Inducement Nonqualified Stock Option Contract, between SPAR Group, Inc. 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).
   
10.13 Inducement RSU Contract, between SPAR Group, Inc. 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).
   
10.14 Inducement Nonqualified Stock Option Contract, between SPAR Group, Inc. 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).
   
10.15 SGRP 2018 Stock Repurchase Program as approved by SGRP's Audit Committee and adopted by its Board of Directors on November 10, 2017 and ratified on March 14, 2018 (incorporated by reference to SGRP's Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on April 2, 2018).
   
10.16 SGRP 2022 Stock Repurchase Program as approved by SGRP's Audit Committee and adopted by its Board of Directors on April 19, 2022 (incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on May 24, 2022).
   

10.17

 

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).

   

10.18

 

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).

   
10.19 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).
   
10.20 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).
   
10.21 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).
   
10.22 Change of Control Severance Agreement between SGRP and Antonio Calisto Pato dated as of February 28, 2023 (as filed herewith).
   
10.23 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 (as filed herewith).
   
10.24 Amended and Restated Change of Control Severance Agreement (the "CICSA”) between SPAR Group, Inc. ("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).
   
10.25 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. 
   
10.26 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).
   
10.27 Change of Control Severance Agreement by and among SPAR Group, Inc., 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).
   
10.28 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).

 

-22-
 

 

10.29 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).
   
10.30 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).
   

10.31

 

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).

   
10.32 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).
   
10.33 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).
   
10.34 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).
   
10.35 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).
   
10.36 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).
   
10.37 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).
   

10.38

 

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).

   

10.39

 

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).

 

-23-
 

 

10.40 Asset Purchase Agreement dated as of March 15, 2013, between Market Force Information, Inc., a Delaware corporation, and SPAR Marketing Force, Inc., a Nevada corporation and consolidated subsidiary of SGRP (incorporated by reference to SGRP's Current Report on Form 8-K, as filed with the SEC on March 20, 2013).
   

10.41

 

Field Services Agreement dated as of September 1, 2012, between National Merchandising of America, Inc., a Georgia corporation, 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).

   

10.42

 

Master Field Services Agreement dated as of August 1, 2013, between National Retail Source, LLC, a Georgia limited liability company and affiliate 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 for the quarter ended September 30, 2013, as filed with the SEC on November 14, 2013).

   

10.43

 

Share Purchase Agreement (respecting equity and debt interests in SPAR Business Ideas Provider S.R.L.) dated as of August 31, 2013, between SPAR InfoTech, Inc. ("Infotech"), a Nevada corporation and affiliate of SGRP, and SPAR International Ltd. ("SPAR Cayman"), a Cayman Islands corporation and consolidated subsidiary of SGRP (incorporated by reference to SGRP's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, as filed with the SEC on November 14, 2013).

   
10.44 $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).
   
10.45 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).
   
10.46 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).
   
10.47 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).
   
10.48 Guaranty of the Resource Paulk Note by SPAR Group, Inc. ("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).
   
10.49 $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).
   
10.50 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).
   

10.51

 

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).

 

-24-
 

 

10.52 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).
   
10.53 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).
   
10.54 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).
   

10.55

 

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).

   
10.56 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).
   
10.57 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).
   
10.58 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") (as filed herewith).
   
10.59 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).
   
10.60 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") (as filed herewith).
   
10.61 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).
   
10.62 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).
   
10.63 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).

 

 

-25-
 

 

10.64 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).
   
10.65 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).
   
10.66 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).
   
10.67 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).
   
10.68 Text of Letter to SPAR Group, Inc. ("SGRP"), from the Nasdaq Stock Market, Inc. ("Nasdaq"), dated June 15, 2021, stating that SGRP no longer complies 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).
   

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).

 

-26-
 

 

14.2

 

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, LLP (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).

   

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.

 

-27-
 

 

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: April 17, 2023

 

 

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: April 17, 2023

 

 

 

  
_____________________ Director
     Robert G. Brown  

Dated as of: April 17, 2023

  
   
/s/ Sean M. Whelan 

Director

     Sean M. Whelan

  

Dated as of: April 17, 2023

 

 

 

  
/s/ Michael Wager 

Director

     Michael Wager

  

Dated as of: April 17, 2023

 

 

 

  
/s/ William H. Bartels 

Director

     William H. Bartels

 

 

Dated as of: April 17, 2023

 

 

 

  

/s/ Peter W. Brown

 

Director

     Peter W. Brown

 

 

Dated as of: April 17, 2023

 

 

 

  
/s/ Antonio Calisto Pato Chief Financial Officer,
     Antonio Calisto Pato Treasurer and Secretary (Principal Financial and Accounting Officer)

Dated as of: April 17, 2023

  

 

-28-
 

 

 

 

Report of Independent Registered Public Accounting Firm

 

Shareholders and Board of the Directors

SPAR Group, Inc. and Subsidiaries

Auburn Hills, Michigan

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of SPAR Group, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows for 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, 2022 and 2021, 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 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.

 

Goodwill impairment assessment for the Resource Plus Reporting Unit

 

As discussed in Note 3 to the consolidated financial statements, the goodwill balance pertaining to the Company’s Resource Plus reporting unit before impairment was $2.0 million at December 31, 2022. Management performs impairment assessment for goodwill annually on October 31 of each fiscal year and more frequently if potential impairment indicators exist. Management determined potential impairment indicators existed within the Resource Plus reporting unit and therefore, performed additional quantitative impairment assessments. Management determined that goodwill of the Resource Plus reporting unit was fully impaired at December 31, 2022 and recognized an impairment charge of $2.0 million. Management’s evaluation of goodwill for impairment involves comparison of the fair value of the reporting unit to its carrying value. Management determined the fair value of the Resource Plus reporting unit using an equal weighting of the income and market approaches, which required management to make significant estimates and assumptions related to discount rate and forecasts of revenue and profits.

 

We identified the valuation of goodwill for the Resource Plus reporting unit during the year as a critical audit matter. Auditing management’s impairment assessment is complex and highly judgmental due to the significant estimation required in determining the fair value of the reporting unit. The determination of the fair value of the Resource Plus reporting unit is sensitive to certain assumptions, which are affected by expected future market and economic conditions. Auditing management’s impairment assessment involved especially challenging and subjective auditor judgment due to the uncertainty surrounding future events and the extent of specialized skill required to test certain valuation assumptions.

 

The primary procedures we performed to address this critical audit matter included: 

 

 

●

Evaluating the reasonableness of assumptions used in the Company’s impairment assessments, including the forecasted revenue and profit margin.

 

 

●

Testing the accuracy and completeness of the data used by management to develop its projections.

 

 

●

Utilizing personnel with specialized skills and knowledge in valuation approach and methodologies to assist in: (i) assessing the appropriateness of the fair value methodology, and (ii) evaluating the reasonableness of certain valuation assumptions used, including the discount rate.

 

/s/ BDO USA, LLP

 

We have served as the Company's auditor since 2013.

 

Troy, Michigan

April 17, 2023

 

 

F-1
 
 

 

SPAR Group, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive (Loss) Income

(In thousands, except share and per share data)

 

   

Year Ended December 31,

  
   

2022

    

2021

  

Net revenues

   $ 261,268     $ 255,719  

Related Party - Cost of revenues

     8,804       7,401  

Cost of revenues

     201,452       200,796  

Gross profit

     51,012       47,522  

Selling, general and administrative expense

     41,135       36,778  

Majority stockholders change of control agreement

     –       4,478  

Depreciation and amortization

     2,033       2,083  
Impairment of goodwill     2,458       -  

Operating income

     5,386       4,183  

Interest expense, net

     965       585  

Other income, net

     (482 )     (510 )

Income before income tax expense

     4,903       4,108  
                 

Income tax expense

     2,777       2,108  

Net income

     2,126       2,000  

Net income attributable to noncontrolling interest

     (2,858 )     (3,779 )

Net loss attributable to SPAR Group, Inc.

   $ (732 )   $ (1,779 )

Basic loss per common share attributable to SPAR Group, Inc.

   $ (0.03 )   $ (0.08 )

Diluted loss per common share attributable to SPAR Group, Inc.

   $ (0.03 )   $ (0.08 )

Weighted- average common shares outstanding – basic

     22,109,780       21,266,264  

Weighted- average common shares outstanding – diluted

     22,109,780       21,266,264  
                 

Net income

   $ 2,126     $ 2,000  

Other comprehensive loss:

                

Foreign currency translation adjustments

     (391 )     (3,724 )
                 

Comprehensive income (loss)

     1,735       (1,724 )

Comprehensive (income) attributable to noncontrolling interest

     (2,380 )     (1,170 )

Comprehensive loss attributable to SPAR Group, Inc.

   $ (645 )   $ (2,894 )

 

See accompanying notes to the Company's consolidated financial statements.

 

F-2
 

 

 

SPAR Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share data)

 

  December 31, 2022  December 31, 2021 

Assets

        

Current assets:

        

Cash and cash equivalents

 $9,345  $13,473 

Accounts receivable, net

  63,714   54,171 

Prepaid expenses and other current assets

  7,861   4,382 

Total current assets

  80,920   72,026 
         

Property and equipment, net

  3,261   2,929 

Operating lease right-of-use assets

  969   1,781 

Goodwill

  1,708   4,166 

Intangible assets, net

  2,040   2,295 

Deferred tax assets, net

  3,766   4,468 

Other assets

  1,934   1,351 

Total assets

 $94,598  $89,016 
         

Liabilities and stockholder's equity

        

Current liabilities:

        

Accounts payable

 $10,588  $8,943 

Accrued expenses and other current liabilities

  20,261   22,031 

Due to affiliates

  2,964   3,270 

Customer incentives and deposits

  2,399   3,901 

Lines of credit and short-term loans

  17,980   11,042 

Current portion of operating lease liabilities

  363   1,019 

Total current liabilities

  54,555   50,206 

Operating lease liabilities, net of current portion

  606   762 

Long-term debt

  1,376   700 

Total liabilities

  56,537   51,668 
         

Commitments and contingencies – See Note 6

          
         

Stockholders' equity:

        

 

        

 Series A convertible preferred stock, $0.01 par value per share:

        

 2,445,598 shares authorized as of December 31,2022 and 2021; No shares outstanding as of December 31,2022 

  –   – 

Series B convertible preferred stock, $0.01 par value per share:

        
2,000,000 shares and no shares authorized as of December 31, 2022 and 2021, respectively; 2,000,000 shares and no shares outstanding as of December 31, 2022 and 2021, respectively; 854,753 shares and no shares outstanding as of December 31, 2022 and 2021, respectively  9   – 

Common stock, $0.01 par value per share:

        

47,000,000 shares authorized as of December 31,2022 and 2021. Shares outstanding 22,853,653 – December 31,2022 and 21,320,414 – December 31, 2021

  229   213 

Treasury stock, at cost 205,485 shares and 54,329 shares as of December 31, 2022 and 2021

  (285)  (104)

Additional paid-in capital

  20,708   17,231 

Accumulated other comprehensive loss

  (4,941)  (5,028)

Retained earnings

  6,707   7,439 

Total stockholders' equity attributable to SPAR Group, Inc. 

  22,427   19,751 

Noncontrolling interests

  15,634   17,597 

Total stockholders' equity

  38,061   37,348 

Total liabilities and stockholders' equity

 $94,598  $89,016 

 

See accompanying notes to the Company's consolidated financial statements.

 

F-3
 

 

 

SPAR Group, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Stockholder's Equity

(In thousands)

 

   

Common Stock

    

Series B Convertible Preferred Stock

    

Treasury Stock

    

Additional Paid-In

    

Accumulated Other Comprehensive

    

Retained

    

Noncontrolling

    

Total Stockholders'

  
   

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Loss

    

Earnings

    

Interest

    

Equity

  
                                                                                         

Balance at January 1, 2021

     21,122     $ 211       -     $ -       2     $ (2 )   $ 16,645     $ (3,913 )   $ 9,218     $ 16,463     $ 38,622  
                                                                                         

Share-based compensation

     –       –       –       –       –       –       711       –       –       –       711  

Exercise of stock options

     198       2       –       –       –       –       (125 )     –       –       –       (123 )

Other changes to noncontrolling interest

     –       –       –       –       –       –       –       –       –       4       4  

Director liability settlement

     –       –       –       –       52       (102 )     –       –       –       –       (102 )

Distribution to noncontrolling investors

     –       –       –       –       –       –       –       –       –       (40 )     (40 )

Other comprehensive income

     –       –       –       –       –       –       –       (1,115 )     –       (2,609 )     (3,724 )

Net (loss) income

     –       –       –       –       –       –       –       –       (1,779 )     3,779       2,000  

Balance at December 31, 2021

     21,320     $ 213       -     $ -       54     $ (104 )   $ 17,231     $ (5,028 )   $ 7,439     $ 17,597     $ 37,348  
                                                                                         

Share-based compensation

     –       –       –       –       –       –       346       –       –       –       346  
Exercise of stock options     74       –       –       –       –       –       (118 )     –       –       –       (118 )

Conversion of Series B convertible preferred stock

     1,718       16       (1,145 )     (11 )     –       –             –       –       –       5  

Majority shareholder Agreement

     –       –       2,000       20       –       –       3,249       –       –       –