SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the third quarterly period ended September 30, 2002
Commission file number: 0-27824
SPAR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0684451
State of Incorporation IRS Employer Identification No.
580 White Plains Road, Tarrytown, New York, 10591
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (914) 332-4100
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 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days: [ X ] Yes
On November 7, 2002, there were 18,813,559 shares of Common Stock outstanding.
SPAR GROUP, INC.
Index
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Condensed, Consolidated Balance Sheets
as of September 30, 2002 and December 31, 2001.....................3
Condensed, Consolidated Statements of Operations for the nine
months ended September 30, 2002 and September 30, 2001.............4
Condensed, Consolidated Statements of Cash Flows
for the nine months ended September 30, 2002 and
September 30, 2001.................................................5
Notes to Condensed, Consolidated Financial Statements..............6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................10
Item 3: Quantitative and Qualitative Disclosures About Market Risk........19
Item 4: Controls and Procedures...........................................20
PART II: OTHER INFORMATION
Item 1: Legal Proceedings.................................................21
Item 2: Changes in Securities and Use of Proceeds.........................21
Item 3: Defaults upon Senior Securities...................................21
Item 4: Submission of Matters to a Vote of Security Holders...............21
Item 5: Other Information.................................................22
Item 6: Exhibits and Reports on Form 8-K..................................22
SIGNATURES....................................................................23
Certifications.............................................................24-25
2
PART I:.FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
SPAR GROUP, INC.
Condensed, Consolidated Balance Sheets
(In thousands, except share data)
SEPTEMBER 30, DECEMBER 31,
2002 2001
---------------------- --------------------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, net 18,370 21,144
Prepaid expenses and other current assets 705 440
Deferred income taxes 3,241 3,241
---------------------- --------------------
Total current assets 22,316 24,825
Property and equipment, net 1,658 2,644
Goodwill and other intangibles, net 8,357 8,357
Deferred income taxes 389 389
Other assets 84 110
Net assets from discontinued operations - 4,830
---------------------- --------------------
Total assets $ 32,804 $ 41,155
====================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,159 $ 440
Accrued expenses and other current liabilities 6,318 5,925
Restructure, current 1,392 1,597
Due to certain stockholders 2,201 2,655
Net liabilities from discontinued operations - 5,732
---------------------- --------------------
Total current liabilities 11,070 16,349
Line of credit 4,060 11,287
Long-term debt due to certain stockholders 2,000 2,000
Restructure, long-term 322 585
Other long-term liabilities 1,381 -
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 3,000,000
Issued and outstanding shares - none - -
Common stock, $.01 par value:
Authorized shares - 47,000,000
Issued and outstanding shares - 18,807,242 - September
30, 2002, and 18,585,615 - December 31, 2001 188 186
Treasury Stock (11) -
Additional paid-in capital 10,814 10,531
Retained earnings 2,980 217
---------------------- --------------------
Total stockholders' equity 13,971 10,934
---------------------- --------------------
Total liabilities and stockholders' equity $ 32,804 $ 41,155
====================== ====================
Note: The Balance Sheet at December 31, 2001, has been derived from the
audited financial statements at that date but does not include any of
the information and footnotes required by accounting principles
generally accepted in the United States for complete financial
statements.
See accompanying notes.
3
SPAR GROUP, INC.
Condensed, Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
------------------------------------ -----------------------------------
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------------------------------ -----------------------------------
Net revenues $ 17,775 $ 19,026 $ 51,363 $ 50,058
Cost of revenues 10,760 11,669 31,102 30,277
------------------------------------ -----------------------------------
Gross profit 7,015 7,357 20,261 19,781
Selling, general and administrative expenses 4,571 4,826 14,212 13,811
Depreciation and amortization 467 692 1,345 2,002
------------------------------------ -----------------------------------
Operating income 1,977 1,839 4,704 3,968
Interest expense 144 126 231 452
Other expense 32 -- 166 --
------------------------------------ -----------------------------------
Income before provision for income taxes 1,801 1,713 4,307 3,516
Provision for income taxes 588 672 1,544 1,405
------------------------------------ -----------------------------------
Income from continuing operations 1,213 1,041 2,763 2,111
Loss from discontinued operations, net -- (463) -- (538)
------------------------------------ -----------------------------------
Net Income $ 1,213 $ 578 $ 2,763 $ 1,573
==================================== ===================================
Basic/diluted net income (loss) per common share:
Income from continuing operations - basic $ 0.06 $ 0.06 $ 0.15 $ 0.12
- diluted $ 0.06 $ 0.06 $ 0.14 $ 0.12
Loss from discontinued operations, net
-basic/diluted $ 0.00 $ (0.03) $ 0.00 $ (0.03)
Net Income - basic $ 0.06 $ 0.03 $ 0.15 $ 0.09
- diluted $ 0.06 $ 0.03 $ 0.14 $ 0.09
==================================== ===================================
Weighted average common shares - basic 18,696 18,272 18,700 18,272
==================================== ===================================
Weighted average common shares - diluted 19,103 18,391 19,118 18,350
==================================== ===================================
See accompanying notes.
4
SPAR GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited) (In thousands)
NINE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
------------------ ------------------
OPERATING ACTIVITIES
Net income $ 2,763 $ 2,111
Adjustments to reconcile net income to net cash provided
(used in) by operating activities:
Depreciation 1,345 1,423
Amortization 579
Changes in operating assets and liabilities:
Accounts receivable 2,774 (1,832)
Prepaid expenses and other current assets (239) (383)
Accounts payable, accrued expenses and other current
liabilities 1,529 (1,227)
Restructuring charges (468) (1,311)
------------------ ------------------
Net cash provided by (used in) operating activities of
continuing operations 7,704 (640)
Net cash used in operating activities of discontinued
operations (902) (2,804)
------------------ ------------------
Net cash provided by (used in) operating activities 6,802 (3,444)
INVESTING ACTIVITIES
Purchases of property and equipment (359) (1,158)
Other long-term liabilities 1,021 -
------------------ ------------------
Net cash provided by (used in) investing activities 662 (1,158)
FINANCING ACTIVITIES
Net (payments of) borrowings on line of credit (7,227) 5,741
Net proceeds from employee stock purchase plan and
exercised options 83 1
Net payments of other long-term debt (57) (1,124)
Net payments to certain shareholders (252) (16)
Purchase of Treasury Stock (11)
------------------ ------------------
Net cash (used in) provided by financing activities (7,464) 4,602
Net change in cash - -
Cash at beginning of period - -
------------------ ------------------
Cash at end of period $ - $ -
================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 619 $ 1,532
NON-CASH TRANSACTIONS:
Stock options exercised by reduction of stockholder debt 202 -
See accompanying notes.
5
SPAR GROUP, INC.
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed, consolidated financial statements
of SPAR Group, Inc., and its subsidiaries (collectively, the "Company" or the
"SPAR Group") have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included in the financial statements. However, these interim financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the Company as contained in Form 10-K for the
year ended December 31, 2001, as filed with the Securities Exchange Commission
on April 1, 2002. The results of operations for the interim periods are not
necessarily indicative of the operating results for the entire year. 2. SALE OF
SPAR PERFORMANCE GROUP, INC.
On June 30, 2002, SPAR Incentive Marketing, Inc. ("SIM"), a
wholly-owned subsidiary of the Company, entered into a Stock Purchase and Sale
Agreement with Performance Holdings, Inc. ("PHI"), a Delaware corporation
headquartered in Carrollton, Texas. SIM sold all of the stock of its subsidiary
SPAR Performance Group, Inc. ("SPG") to PHI for $6.0 million. As a condition of
the sale, PHI issued and contributed 1,000,000 shares of its common stock to
Performance Holdings, Inc. Employee Stock Ownership Plan, which became the only
shareholder of PHI.
The $6.0 million sales price was evidenced by two Term Loans, an Initial
Term Loan totaling $2.5 million and an Additional Term Loan totaling $3.5
million (collectively the "Term Loans"). The Term Loans are guaranteed by SPG
and secured by pledges of all the assets of PHI and SPG. The Term Loans bear
interest at a rate of 12% per annum through December 31, 2003. On January 1,
2004 and on January 1 each year thereafter, the interest rate is adjusted to
equal the higher of the median or mean of the High Yield Junk Bond interest rate
as reported in the Wall Street Journal (or similar publication or service if the
Wall Street Journal no longer reports such rate) on the last business day in the
immediately preceding December. The Initial Term Loan is required to be repaid
in quarterly installments that increase over the term of the loan, commencing
March 31, 2003 with a balloon payment required at maturity on September 30,
2007. In addition to the preceding payments of the Initial Term Loan, PHI is
required to make annual mandatory prepayments of the Term Loans on February 15th
of each year, commencing on February 15, 2004 equal to:
6
SPAR GROUP, INC.
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
o 40% of the amount of Adjusted Cash Flow (as defined in the
Revolver, which is defined below) for the immediately preceding
fiscal year ended December 31; and
o 35% of the amount of excess targeted Adjusted Cash Flow (as
defined in the Revolver) for the immediately preceding fiscal
year ended December 31.
These payments will be applied first to accrued and unpaid interest on
the Term Loans and Revolver (as defined below), then to the Additional Term Loan
until repaid, and then to the Initial Term Loan.
Because collection of the notes depends on the future operations of
PHI, the $6.0 million notes were fully reserved pending collection.
In addition to the Term Loans, SIM agreed to provide a discretionary
revolving line of credit to SPG not to exceed $2.0 million (the "Revolver"). The
Revolver is secured by a pledge of all the assets of SPG and is guarantied by
PHI. The Revolver provides for advances in excess of the borrowing base through
September 30, 2003. Through September 30, 2003, the Revolver bears interest at
the higher of the Term Loans interest rate or the prime commercial lending rate
as announced in the Wall Street Journal plus 4.0% per annum. As of October 1,
2003, the Revolver will include a borrowing base calculation (principally 85% of
eligible accounts receivable). Prior to September 1, 2003, SPG may request that
SIM provide advances of up to $1,000,000 in excess of the borrowing base. If
advances are limited to the borrowing base on and after October 1, 2003, the
interest rate will be reduced to the higher of the Term Loans interest rate less
4.0% per annum or the prime commercial lending rate as announced in the Wall
Street Journal plus 4.0% per annum. If SPG requests that advances be allowed in
excess of the borrowing base, the interest rate will remain unchanged. On
September 30, 2002, there was approximately $0.2 million outstanding under the
Revolver. Due to the speculative nature of the loan SIM has established a
reserve for collection of approximately $1.0 million at September 30, 2002. The
net liability of approximately $0.8 million is included in Other Long Term
Liabilities.
7
SPAR GROUP, INC.
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
3. RESTRUCTURE
In connection with the PIA Merger, the Company's Board of Directors
approved a plan to restructure the operations of the PIA Companies. Restructure
costs are composed of committed costs required to integrate the SPAR Companies'
and the PIA Companies' field organizations and the consolidation of
administrative functions to achieve beneficial synergies and costs savings.
The Company recognized termination costs in accordance with EITF 95-3,
Recognition of Liabilities in Connection with a Business Combination.
The following table displays a roll-forward of the liabilities for
restructure from December 31, 2001 to September 30, 2002 (in thousands):
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, 2002 SEPTEMBER 30,
2001 DEDUCTIONS 2002
-------------------------------------------------------------------------------
Restructure costs:
Equipment and office lease
settlements $ 2,182 $ 468 $ 1,714
Management believes that the remaining reserves for restructure are
adequate to complete its plan.
8
SPAR GROUP, INC.
NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
4. EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted
earnings per share (in thousands, except per share data):
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------- ----------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
-------------------------------------- ----------------------------------
Numerator:
Net income from continuing operations
$ 1,213 $ 1,041 $ 2,763 $ 2,111
Loss from operations of discontinued
division - (463) - (538)
-------------------------------------- ----------------------------------
Net income $ 1,213 $ 578 $ 2,763 $ 1,573
Denominator:
Shares used in basic earnings per share
calculation 18,696 18,272 18,700 18,272
Effect of diluted securities:
Employee stock options 407 119 418 78
-------------------------------------- ----------------------------------
Shares used in diluted earnings per share
calculation 19,103 18,391 19,118 18,350
================= ==================== ================= ================
Basic and diluted earnings per common share:
Income from continuing operations-basic $0.06 $0.06 $0.15 $0.12
-diluted $0.06 $0.06 $0.14 $0.12
Loss from operations of discontinued
division - basic/diluted - (0.03) - (0.03)
-------------------------------------- ----------------------------------
Net Income - basic $0.06 $0.03 $0.15 $0.09
================= ==================== ================= ================
- diluted $0.06 $0.03 $0.14 $0.09
================= ==================== ================= ================
9
SPAR GROUP, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- --------------------------
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, including, in particular, the statements about the Company's plans
and strategies under the headings "Management's Discussion and Analysis of
Financial Condition and Results of Operations". Although the Company believes
that its plans, intentions and expectations reflected in or suggested by such
forward-looking statements are reasonable, it cannot assure that such plans,
intentions or expectations will be achieved. Certain, but not all, factors that
could cause actual results to differ materially from the forward-looking
statements made in this Quarterly Report on Form 10-Q are set forth in this
Quarterly Report on Form 10-Q. All forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified by the
cautionary statements contained in this Quarterly Report on Form 10-Q or on the
Company's Annual Report on Form 10-K for the year ended December 31, 2001, as
previously filed with the Security Exchange Commission on April 1, 2002.
The Company does not undertake any obligation to update or revise any
forward-looking statement or risk factor or to publicly announce any revisions
to any of them to reflect future events, developments or circumstances.
OVERVIEW
- --------
The Company is a supplier of in-store merchandising and marketing services
throughout the United States, Canada, and Japan. The Company also provides
database marketing, teleservices, marketing research, and Internet-based
software. The Company's operations are currently divided into two divisions: the
Merchandising Services Division and the International Division. In October 2002,
the Company discontinued the operations in its Technology Division. The Company
will continue to market its technology products through the Merchandising
Division and International Division.
MERCHANDISING SERVICES DIVISION
The Company's Merchandising Services Division consists of (1) SPAR
Marketing, Inc., a Delaware corporation ("SMI") (an intermediate holding
company), SPAR Marketing Force, Inc. ("SMF"), SPAR Marketing, Inc., a Nevada
corporation ("SMNEV"), SPAR/Burgoyne Retail Services, Inc. ("SBRS"), and SPAR,
Inc. ("SINC") (collectively, the "SPAR Marketing Companies"), and (2) PIA
Merchandising Co. Inc., Pacific Indoor Display d/b/a Retail Resources, Pivotal
Sales Company and PIA Merchandising Ltd. (collectively, "PIA" or the "PIA
Companies").
Merchandising services generally consist of special projects or regularly
scheduled routed services provided at stores for a specific retailer or multiple
manufacturers primarily under single or multi-year contracts. Services also
include stand-alone large-scale implementations. These services may include
sales
10
SPAR GROUP, INC.
enhancing activities such as ensuring that client products authorized for
distribution are in stock and on the shelf, adding new products that are
approved for distribution but not presently on the shelf, setting category
shelves in accordance with approved store schematics, ensuring shelf tags are in
place, checking for the overall salability of client products and selling new
and promotional items. Specific in-store services can be initiated by retailers
and manufacturers, such as new product launches, special seasonal or promotional
merchandising, focused product support and product recalls. The Company also
provides database marketing, teleservices and research services.
INTERNATIONAL DIVISION
The Company believes there is a significant market for its merchandising
services throughout the world. The domestic merchandising services business has
been developed utilizing Internet-based technology that can be modified to
accommodate foreign markets. The International Division, SPAR Group
International, Inc., was established to cultivate foreign markets, modify the
necessary systems and implement the Company's merchandising services business
model worldwide. The Company is currently providing merchandising services in
Japan through a joint venture with a large Japanese distributor.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The Company's critical accounting policies, including the assumptions,
judgments and estimations, are disclosed in the form 10-K for the year ended
December 31, 2001, as filed with the Securities Exchange Commission on April 1,
2002. Two of the more significant areas of estimation are unbilled receivables
and the accounts receivable allowance for bad debt. Historically, the Company's
estimates on such items have not differed materially from the actual results.
11
SPAR GROUP, INC.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
- --------------------------------------------------------------------
SEPTEMBER 30, 2001
- ------------------
The following table sets forth selected financial data and data as a
percentage of net revenues for the periods indicated.
Three months Ended
---------------------------------------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
(amounts in thousands) Incr.
Amount % Amount % (Decr.)
------ - ------ - -------
Net Revenues $17,775 100.0% $19,026 100.0% (6.6)%
Cost of revenues 10,760 60.5% 11,669 61.3% (7.8)%
Selling, general, and administrative expense 4,571 25.7% 4,826 25.4% (5.3)%
Depreciation and amortization 467 2.6% 692 3.6% (32.5)%
Interest expense 144 0.8% 126 0.7% 14.4%
Other expense 32 0.2% - 0.0%
-------------------------------------------------------
Income before provision for income taxes 1,801 10.1% 1,713 9.0% 5.1%
Provision for income taxes 588 3.3% 672 3.5% (12.5)%
-------------------------------------------------------
Income from continuing operations 1,213 6.8% 1,041 5.5% 16.5%
Loss from discontinued operations, net - (463)
--------------- ---------------
Net income $1,213 $578
=============== ===============
Net revenues from continuing operations for the three months ended
September 30, 2002, were $17.8 million, compared to $19.0 million for the three
months ended September 30, 2001, a decrease of 6.6%. The decrease in net
revenues is primarily a result of decreased business in mass merchandiser and
drug store chains.
12
SPAR GROUP, INC.
One customer accounted for 28.2% and 32.2% of the Company's net revenues
for the three months ended September 30, 2002, and 2001, respectively. This
customer also accounted for approximately 39.2% and 28.4% of accounts receivable
at September 30, 2002, and 2001, respectively.
Approximately 16.4% and 28.4% of the Company's net revenues for the three
months ended September 30, 2002, and 2001, respectively, resulted from
merchandising services performed for others at the stores of one retailer that
filed for protection under the U.S. Bankruptcy Code in January of 2002. While
the Company's customers and the resultant contractual relationships are with
various manufacturers and not this retailer, a significant reduction of this
retailer's stores or cessation of this retailer's business would negatively
impact the Company.
Cost of revenues consists of in-store labor and field management wages,
related benefits, travel and other direct labor-related expenses, of which
approximately $8.1 million or 75.2% and $4.3 million or 36.7% were purchased
from the Company's affiliates, SPAR Marketing Services, Inc. and SPAR Management
Services, Inc. in the three months ended September 30, 2002, and 2001,
respectively. Cost of revenues as a percentage of net revenues decreased 0.8% to
60.5% for the three months ended September 30, 2002, compared to 61.3% for the
three months ended September 30, 2001. This decrease is principally attributable
to lower field costs resulting from improved efficiencies.
Operating expenses include selling, general and administrative expenses as
well as depreciation and amortization. Selling, general and administrative
expenses include corporate overhead, project management, information technology,
executive compensation, human resources expenses, legal and accounting expenses.
The following table sets forth the operating expenses as a percentage of net
revenues for the time periods indicated:
Three Months Ended
----------------------------------------------------------------------
Incr.
September 30, 2002 September 30, 2001 (Decr.)
------------------------- -------------------------- -----------
Amount % Amount % %
------ - ------ - -
(amounts in millions)
Selling, general and administrative $ 4.6 25.7% $ 4.8 25.4% (5.3)%
Depreciation and amortization 0.5 2.6 0.7 3.6 (32.5)
Selling, general and administrative expenses were $4.6 million for the
three months ended September 30, 2002 compared to $4.8 million for the three
months ended September 30, 2001, a decrease of $0.2 million or 5.3%. The
decrease is due primarily to cost improvements. The Company purchased $0.4
million and $0.3 million of information technology from its affiliate SPAR
Infotech, Inc. for the three months ended September 30, 2002 and 2001,
respectively. Depreciation and amortization decreased by
13
SPAR GROUP, INC.
$0.2 million for the three months ended September 30, 2002, due primarily to the
change in accounting principles for goodwill amortization adopted by the Company
effective January 1, 2002.
INTEREST EXPENSE
Interest expense increased $18,000 for the three months ended September 30,
2002, compared to the three months ended September 30, 2001.
OTHER EXPENSE
The Company recognized a loss of $32,266 for the three months ended
September 30, 2002 for its share of the Japan joint venture loss.
INCOME TAXES
The income tax provision for the three months ended September 30,
2002represents a combined federal and state income tax rate of 33% compared to
39% for the three months ended September 30, 2001. The 2002 tax rate for the
three months was favorably impacted by the Company's adjustment of the current
year tax expense for resolution of tax exposures accrued for in prior years. The
effective tax rate for the remainder of 2002 is expected to be 38%.
NET INCOME
The Company had net income from continuing operations of $1.2 million for
the three months ended September 30, 2002 or $0.06 per diluted share compared to
income from continuing operations of $1.0 million or $0.06 per diluted share for
the corresponding period last year. For the three months ended September 30,
2001, the Company had net income of $0.6 million or $0.03 per diluted share
after reporting losses of $0.5 million or $0.03 per diluted share from
discontinued operations.
14
SPAR GROUP, INC.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
- ------------------------------------------------------------------
SEPTEMBER 30, 2001
- ------------------
The following table sets forth selected financial data and data as a
percentage of net revenues for the periods indicated.
Nine Months Ended
--------------------------------------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
(amounts in thousands) Incr.
Amount % Amount % (Decr.)
------ - ------ - -------
Net Revenues $ 51,363 100.0% $ 50,058 100.0% 2.6%
Cost of Revenues 31,102 60.6% 30,277 60.5% 2.7%
Selling, general and administrative expense 14,212 27.7% 13,811 27.6% 2.9%
Depreciation and amortization 1,345 2.6% 2,002 4.0% (32.8)%
Interest expense 231 0.4% 452 0.9% (49.0)%
Other Expense 166 0.3% - 0.0%
---------------- ----------------- ---------------- ---------------- --------------
Income before provision for income taxes 4,307 8.4% 3,516 7.0% 22.5%
Provision for income taxes 1,544 3.0% 1,405 2.8% 9.9%
---------------- ----------------- ---------------- ---------------- --------------
Income from continuing operations 2,763 5.4% 2,111 4.2% 30.9%
Loss from discontinued operations, net - (538)
---------------- ----------------
Net Income $ 2,763 $ 1,573
================ ================
Net revenues for the nine months ended September 30, 2002, were $51.4
million, compared to $50.1 million for the nine months ended September 30, 2001,
a 2.6% increase. The increase in net revenues is primarily attributed to
increased business in mass merchandiser and drug store chains. One customer
accounted for 28.5% and 28.6% of the Company's net revenues for the nine months
ended September 30, 2002, and 2001, respectively. This customer also accounted
for approximately 39.2% and 28.4% of accounts receivable at September 30, 2002,
and 2001, respectively.
15
SPAR GROUP, INC.
Approximately 19.7% and 25.4% of the Company's net revenues for the nine
months ended September 30, 2002, and 2001, respectively, resulted from
merchandising services performed for others at the stores of one retailer that
filed for protection under the U.S. Bankruptcy Code in January of 2002. While
the Company's customers and the resultant contractual relationships are with the
manufacturers and not this retailer, a significant reduction of this retailer's
stores or cessation of this retailer's business would negatively impact the
Company.
Cost of revenues from continuing operations consists of in-store labor and
field management wages, related benefits, travel and other direct labor-related
expenses, of which approximately $22.8 million or 73.3% and $10.6 million or
35.1% were purchased from the Company's affiliates, SPAR Marketing Services,
Inc. and SPAR Management Services, Inc. in the nine months ended September 30,
2002, and 2001, respectively. For the nine months ended September 30, 2002, cost
of revenue as a percent of revenue was 60.6% and was consistent with the prior
year.
Operating expenses include selling, general and administrative expenses as
well as depreciation and amortization. Selling, general and administrative
expenses include corporate overhead, project management, information technology,
executive compensation, human resources expenses, legal and accounting expenses.
The following table sets forth the operating expenses as a percentage of net
revenues for the time periods indicated:
Nine Months Ended
------------------------------------------------------------------------
Incr.
September 30, 2002 September 30, 2001 (Decr.)
--------------------------- -------------------------- -----------
Amount % Amount % %
------ - ------ - -
(amounts in millions)
Selling, general and administrative $ 14.2 27.7% $ 13.8 27.6% 2.9%
Depreciation and amortization 1.3 2.6 2.0 4.0 (32.8)
Selling, general and administrative expenses were $14.2 million for the
nine months ended September 30, 2002 compared to $13.8 million for the nine
months ended September 30, 2001, an increase of $0.4 million or 2.9%. The
increase is due primarily to increased spending on information technology. The
Company purchased $1.3 million and $0.9 million in information technology from
its affiliate SPAR Infotech, Inc. for the nine months ended September 30, 2002
and 2001, respectively.
Depreciation and amortization decreased $0.7 million to $1.3 million from
$2.0 million for the nine months ended September 30, 2002 and 2001,
respectively, due primarily to the change in accounting principles for goodwill
amortization adopted by the Company effective January 1, 2002.
16
SPAR GROUP, INC.
INTEREST EXPENSE
Interest expense decreased $0.2 million for the nine months ended September
30, 2002, due to decreased interest rates and debt levels in 2002.
OTHER EXPENSE
The Company recognized a loss of $166,298 for the nine months ended
September 30, 2002 for its share of the Japan joint venture loss.
INCOME TAXES
The income tax provision for the nine months ended September 30, 2002
represents a combined federal and state income tax rate of 36% compared to 40.0%
for the nine months ended September 30, 2001. The 2002 tax rate for the nine
months was favorably impacted by the Company's adjustment of the current year
tax expense for resolution of tax exposures accrued for in prior years. The
effective tax rate for the remainder of 2002 is expected to be 38%.
NET INCOME
The Company had net income from continuing operations of $2.8 million for
the nine months ended September 30, 2002 or $0.14 per diluted share compared to
net income from continuing operations of $2.1 million or $0.12 per diluted share
for the nine months ended September 30, 2001. For the nine months ended
September 30, 2001, the Company had net income of $1.6 million or $0.09 per
diluted share after reporting losses of $0.5 million or $0.03 per diluted share
from discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended September 30, 2002, the Company had a net income
of $2.8 million. Net cash provided by operating activities for the nine months
ended September 30, 2002, was $6.8 million, compared with net cash used by
operations of $3.4 million for the nine months ended September 30, 2001. Cash
provided by operating activities in 2002 was primarily a result of net operating
profits and decreases in accounts receivable and increases in accounts payable,
accrued expenses and other current liabilities, partially offset by decreases in
restructure charges.
Net cash provided by investing activities for the nine months ended
September 30, 2002, was $0.7 million, compared with net cash used in investing
activities of $1.2 million for the nine months ended September 30, 2001. The net
cash provided by investing activities in 2002 resulted primarily from a change
in other long-term liability partially offset by the purchases of property and
equipment.
Net cash used by financing activities for the nine months ended September
30, 2002, was $7.5 million, compared with net cash provided by financing
activities of $4.6 million for the nine months ended September 30, 2001. The net
cash used by financing activities in 2002 was primarily a result of repayments
of the line of credit, shareholder and other long-term debt.
17
SPAR GROUP, INC.
The above activity resulted in no change in cash and cash equivalents for
the nine months ended September 30, 2002, as the Company utilizes excess cash to
pay down its line of credit.
At September 30, 2002, the Company had positive working capital of $11.2
million as compared to positive working capital of $8.5 million at December 31,
2001. The increase in working capital is due primarily to a decrease in net
liabilities from discontinued operations partially offset by increases in
accounts payable and accrued expenses and other current liabilities and a
decrease in accounts receivable. The Company's current ratio was 2.02 at
September 30, 2002, and 1.52 at December 31, 2001.
In 1999, IBJ Whitehall Business Credit Corporation, currently doing
business as Whitehall Business Credit Corporation ("WBCC") and the members of
the SPAR Group (other than PIA Canada) (collectively, the "Borrowers") entered
into a Revolving Credit, Term Loan and Security Agreement as amended (the "Bank
Loan Agreement"). The Bank Loan Agreement provides the Borrowers with a $15.0
million Revolving Credit facility. In addition, the agreement provided for a
$2.5 million term loan that was repaid in December 2001. The Revolving Credit
facility allows the Borrowers to borrow up to $15.0 million based upon a
borrowing base formula as defined in the Agreement (principally 85% of
"eligible" accounts receivable). The Bank Loan Agreement's revolving credit
loans of $15.0 million were scheduled to mature on September 21, 2002. As of
October 29, 2002, WBCC extended the maturity date to October 31, 2003. The
revolving loans bear interest at WBCC's "Alternate Base Rate" plus one-half of
one percent (0.50%) (a total of 5.25% per annum at September 30, 2002). The
facility is secured with all the assets of the Company and its subsidiaries.
The Bank Loan Agreement contains an option for the Bank to purchase 16,667
shares of common stock of the Company for $0.01 per share in the event that the
Company's average closing share price over a ten consecutive trading day period
exceeds $15.00 per share.
The Bank Loan Agreement contains certain financial covenants that must be
met by the Borrowers on a consolidated basis, among which are a minimum "Net
Worth", a "Fixed Charge Coverage Ratio", a minimum twelve month EBITDA
requirement, and a limitation on capital expenditures, as such terms are defined
in the Bank Loan Agreement. The Company was in compliance with such financial
covenants on September 30, 2002.
The balances outstanding on the revolving line of credit were $4.0 million
and $11.3 million at September 30, 2002, and December 31, 2001, respectively. As
of September 30, 2002, based upon the borrowing base formula, the SPAR Group had
availability of $7.8 million of the $11.0 million unused revolving line of
credit.
The Company is obligated, under certain circumstances, to pay costs in
connection with the Merger (restructure charges) of approximately $1.7 million
as of September 30, 2002. In addition, the Company incurred substantial cost in
connection with the transaction, including legal, accounting and investment
banking fees estimated to be an aggregate unpaid obligation as of September 30,
2002, of approximately $1.1 million. The Company has also accrued approximately
$0.9 million for expenses incurred by PIA prior to the Merger, which have not
been paid as of September 30, 2002.
18
SPAR GROUP, INC.
As of September 30, 2002, a total of $4.2 million in loans to certain
principal stockholders of the Company remain outstanding, which bear an interest
rate of 8% and are due on demand. During 2002, $0.5 million of such indebtedness
has been repaid by the Company. The current Bank Loan Agreement contains certain
restrictions on the repayment of stockholder debt and accordingly $2.0 million
of such debt at both September 30, 2002 and December 31, 2001 is classified as
long-term.
Management believes that based upon the Company's current working capital
position and the existing credit facilities, funding will be sufficient to
support ongoing operations over the next twelve months. However, delays in
collection of receivables due from any of the Company's major clients, or a
significant reduction in business from such clients, or the inability to acquire
new clients, would have a material adverse effect on the Company's cash
resources and its ongoing ability to fund operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to the variable interest rate
on the line of credit. The Company's accounting policies for financial
instruments and disclosures relating to financial instruments require that the
Company's consolidated balance sheets include the following financial
instruments: cash and cash equivalents, accounts receivable, accounts payable
and long term debt. The Company considers carrying amounts of current assets and
liabilities in the consolidated financial statements to approximate the fair
value for these financial instruments because of the relatively short period of
time between origination of the instruments and their expected realization. The
carrying amounts of long-term debt approximate fair value because the obligation
bears interest at a floating rate. The Company monitors the risks associated
with interest rates and financial instrument positions. The Company's investment
policy objectives require the preservation and safety of the principal, and the
maximization of the return on investment based upon the safety and liquidity
objectives.
Currently, the Company's revenue derived from international operations is
not material and, therefore, the risk related to foreign currency exchange rates
is not material.
The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents, as available cash is generally
utilized to pay down the outstanding line of credit.
19
SPAR GROUP, INC.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer, Robert Brown, and Chief Financial
Officer, Charles Cimitile, have reviewed the Company's disclosure controls and
procedures within 90 days prior to the filing of this report. Based upon this
review, these officers believe that the Company's disclosure controls and
procedures are effective in ensuring that material information related to the
Company is made known to them by others within the Company.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls during the quarter
covered by this report or from the end of the reporting period to the date of
this Form 10-Q.
20
SPAR GROUP, INC.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No change.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
Item 2(a): Not applicable
-------------------------
Item 2(b): Not applicable
-------------------------
Item 2(c): Not Applicable
-------------------------
Item 2(d): Not Applicable
-------------------------
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on
August 8, 2002. The meeting was held (1) to elect the Board of
Directors and (2) to ratify the appointment of Ernst & Young LLP
as the Company's independent auditors for the year ending
December 31, 2002.
The number of votes cast for each proposal are set forth below:
Proposal Number 1 - Election of the Board of Directors:
Name For: Abstention:
-----------------------------------------------------------------
Robert G. Brown 17,060,740 17,990
William H. Bartels 16,871,176 207,554
Robert O. Aders 17,074,840 3,890
Jerry B. Gilbert 17,077,770 960
George W. Off 17,077,770 960
Jack W. Partridge 17,077,770 960
-----------------------------------------------------------------
Each of the nominees was elected to the Board of Directors.
21
SPAR GROUP, INC.
Proposal Number 2 - Ratification of the appointment of Ernst &
Young LLP as the Company's independent auditors for the year
ending December 31, 2002.
For: Against: Abstention:
-----------------------------------------------------------------
17,078,290 30 410
ITEM 5: OTHER INFORMATION
Not applicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS.
10.20 Amendment No. 7 to Second Amended and Restated Revolving
Credit, Term Loan and Security Agreement by and among the SPAR
Borrowers and the Lender, effective as of October 31, 2002, and
filed herewith.
99.1 Certification of the CEO pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, and filed herewith.
99.2 Certification of the CFO pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, and filed herewith.
REPORTS ON FORM 8-K.
NONE.
22
SPAR GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2002 SPAR Group, Inc., Registrant
-----------------
By: /s/ Charles Cimitile
--------------------
Charles Cimitile
Chief Financial Officer and Secretary
23
SPAR GROUP, INC.
Certification for Quarterly Report on Form 10-Q
I, Robert G. Brown, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SPAR Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Robert G. Brown
----------------------------------------
Robert G. Brown
Chairman, President and CEO
24
SPAR GROUP, INC.
Certification for Quarterly Report on Form 10-Q
I, Charles Cimitile, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SPAR Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Charles Cimitile
----------------------------------------
Charles Cimitile
Chief Financial Officer and Secretary
25
EXHIBITS.
10.20 Amendment No. 7 to Second Amended and Restated Revolving
Credit, Term Loan and Security Agreement by and among the SPAR
Borrowers and the Lender, effective as of October 31, 2002, and
filed herewith.
99.1 Certification of the CEO pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, and filed herewith.
99.2 Certification of the CFO pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, and filed herewith.
Exhibit 10.20
AMENDMENT NO. 7 TO SECOND AMENDED AND RESTATED
REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 7 ("Amendment") is entered into as of October 31, 2002, by
and between SPAR Marketing Force, Inc., a Nevada corporation ("SMF"), SPAR,
Inc., a Nevada corporation ("SPAR"), SPAR/Burgoyne Retail Services, Inc., an
Ohio corporation ("SBRS"), SPAR Group, Inc., a Delaware corporation ("SGI"),
SPAR Incentive Marketing, Inc., a Delaware corporation ("SIM"), SPAR Trademarks,
Inc., a Nevada corporation ("STM"), SPAR Marketing, Inc. (DE), a Delaware
corporation ("SMIDE"), SPAR Marketing, Inc. (NV), a Nevada corporation
("SMINV"), SPAR Acquisition, Inc., a Nevada corporation ("SAI"), PIA
Merchandising Co., Inc., a California corporation ("PIA"), Pacific Indoor
Display Co., Inc., a California corporation ("Pacific") and Pivotal Sales
Company, a California corporation ("Pivotal") (each a "Borrower" and
collectively, the "Borrowers") and Whitehall Business Credit Corporation
("Lender").
BACKGROUND
Borrowers and Lender are parties to a Second Amended and Restated Revolving
Credit, Term Loan and Security Agreement dated as of September 22, 1999 (as
amended, supplemented or otherwise modified from time to time, the "Loan
Agreement"), pursuant to which Lender provides Borrowers with certain financial
accommodations.
Borrowers have requested that Lender increase the letter of credit
subfacility and Lender is willing to do so on the terms and conditions hereafter
set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of the Borrowers by Lender,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Loan Agreement.
2. Amendment to Loan Agreement. Subject to satisfaction of the conditions
precedent set forth in Section 4 below, the Loan Agreement is hereby amended as
follows:
(a) Section 1(A) of the Loan Agreement is amended as follows:
(i) the following defined terms are added in their appropriate
alphabetical order:
"Seventh Amendment" shall mean Amendment No. 7 to Second
Amended and Restated Revolving Credit, Term Loan and
Security Agreement dated as of October 31, 2002.
"Seventh Amendment Effective Date" shall mean the date upon
which all the conditions precedent set forth in Section 4 of
the Seventh Amendment have been satisfied.
(b) The following defined term is amended in its entirety to provide as
follows:
"Term shall mean the Closing Date through October 31, 2003
subject to acceleration upon the occurrence of an Event of
Default hereunder or other termination hereunder."
(c) Section 2(A) (a) of the Loan Agreement is amended by deleting
"$750,000" and inserting "$900,000" in its place and stead.
(d) Section 2(A)(c)(ii) of the Loan Agreement is hereby amended by
adding the following proviso at the end of clause (ii) which provides as
follows:
"provided, however, if any Borrower requests the issuance of any
Letter of Credit having an expiry date later than the last day of
the Term (which was July 31, 2003 as of the Sixth Amendment
Effective Date and is October 31, 2003 as of the Seventh Amendment
Effective Date), then on the last day of the Term Borrowers will
cause cash to be deposited and maintained in an account with Lender,
as cash collateral in an amount equal to one hundred and five
percent (105%) of such Letters of Credit, such cash collateral to be
required without the necessary of any demand, but otherwise to be
held by Lender in accordance with the second paragraph of Section
5(b)(v)."
3. Consent. Subject to satisfaction of the conditions precedent set forth
in Section 4 below and notwithstanding anything to the contrary set forth in
Section 12(n)(ii) of the Loan Agreement, Lender consents to the repurchase by
SPAR of shares of SPAR stock for not greater than $500,000 in the aggregate;
provided, however, that after giving effect to any such repurchase, Borrowers
shall have an average Undrawn Availability of at least $2,500,000 for the ten
(10) day period prior to such repurchase.
4. Conditions of Effectiveness. This Amendment shall become effective upon
Lender's receipt of four (4) copies of this Amendment executed by Borrowers and
consented and agreed to by the Guarantors.
5. Representations and Warranties. Each Borrower hereby represents and
warrants as follows:
(a) This Amendment and the Loan Agreement, as amended hereby, constitute
legal, valid and binding obligations of such Borrower and are enforceable
against such Borrower in accordance with their respective terms.
(b) Upon the effectiveness of this Amendment, such Borrower hereby
reaffirms that all continuing covenants, representations and warranties made in
the Loan
Agreement, to the extent the same are not amended hereby, are true and correct
in all material respects and agrees that all such continuing covenants,
representations and warranties shall be deemed to have been remade as of the
effective date of this Amendment, excluding, however, those events subject to an
express written waiver or consent from us or those expressly permitted or not
prohibited by the covenants, provided, however, that any representation or
warranty incorporating schedules speak only as of the Closing Date, subject to
Borrower's obligation under Section 12(m) of the Loan Agreement to notify Lender
of certain occurrences or events.
(c) No Event of Default or Default has occurred and is continuing or
would exist after giving effect to this Amendment, excluding, however, those
events subject to an express written waiver or consent from us.
(d) As of the date hereof, Borrower has no defense, counterclaim or
offset with respect to the Loan Agreement.
6. Effect on the Loan Agreement.
(a) Upon the effectiveness of this Amendment hereof, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Loan Agreement as amended
hereby.
(b) Except as specifically amended herein, the Loan Agreement, and all
other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) Except as expressly provided in this Amendment, the execution,
delivery and effectiveness of this Amendment shall not operate as a waiver of
any right, power or remedy of Lender, nor constitute a waiver of any provision
of the Loan Agreement, or any other documents, instruments or agreements
executed and/or delivered under or in connection therewith.
7. Governing Law. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns and
shall be governed by and construed in accordance with the laws of the State of
New York.
8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9. Counterparts. This Amendment may be executed by the parties hereto in
one or more counterparts, each of which shall be deemed an original and all of
which when taken together shall constitute one and the same agreement.
[SIGNATURE PAGES TO FOLLOW]
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first written above.
SPAR MARKETING FORCE, INC.
SPAR, INC.
SPAR/BURGOYNE RETAIL SERVICES, INC.
SPAR INCENTIVE MARKETING, INC.
SPAR TRADENAMES, INC.
SPAR MARKETING, INC. (DE)
SPAR MARKETING, INC. (NV)
SPAR ACQUISITION, INC.
SPAR PERFORMANCE GROUP, INC.,
PIA MERCHANDISING CO., INC.
PACIFIC INDOOR DISPLAY CO., INC.
PIVOTAL SALES COMPANY
SPAR GROUP, INC., as Borrowers
By: /s/ Charles Cimitile
-------------------------------------
Name: Charles Cimitile
Title: Chief Financial Officer of
each of the foregoing entities
WHITEHALL BUSINESS CREDIT CORPORATION
By: /s/ Joseph Zautra
-------------------------------------
Name: Joseph Zautra
Title: Vice President
CONSENTED AND AGREED TO:
/s/ Robert G. Brown
- ------------------------------
Robert G. Brown, a Guarantor
/s/ William H. Bartels
- ------------------------------
William H. Bartels, a Guarantor
PIA MERCHANDISING LIMITED,
a Guarantor
By: /s/ Charles Cimitile
----------------------------
Name: Charles Cimitile
Title: Chief Financial Officer
Exhibit 99.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2002 (the "Report"), by SPAR GROUP, INC. (the
"Registrant"), the undersigned hereby certifies that, to the best of his
knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, as applicable; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Registrant.
/s/ Robert G. Brown
---------------------------------------
Robert G. Brown, Chairman,
President and Chief Executive Officer
Exhibit 99.2
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2002 (the "Report"), by SPAR GROUP, INC. (the
"Registrant"), the undersigned hereby certifies that, to the best of his
knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, as applicable; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of Registrant.
/s/ Charles Cimitile
---------------------------------------
Charles Cimitile, Secretary
and Chief Financial Officer