UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the secondfirst quarterly period ended June 30, 2022.2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from __________ to __________.
Commission file number 0-27408
SPAR GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware | 33-0684451 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
|
1910 Opdyke Court, Auburn Hills, Michigan | 48326 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (248) 364-7727
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
The aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant on December 31, 2021, based on the closing price of the Common Stock as reported by the Nasdaq Capital Market on such date, was approximately $10.5 million.
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 $0.01 per share | SGRP |
|
As of August 4, 2023, the Registrant had 23,232,739 shares of common stock, par value $0.01 per share, outstanding.
Index
| PART I: | FINANCIAL INFORMATION | |
Item 1 | ||
Condensed Consolidated Balance Sheets as of June 30, | ||
| ||
Condensed Consolidated Statements of Cash Flows | ||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | |
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| ||
Item 3 | ||
Item 4 | ||
| PART II: | OTHER INFORMATION | |
Item 1 | ||
Item 1A | ||
Item 2 | ||
Item 3 | ||
Item 4 | ||
Item 5 | ||
Item 6 | ||
SIGNATURES | ||
PART I: | FINANCIAL INFORMATION |
Condensed ConsolidatedFinancial Statements (Unaudited) |
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Income Operationsand ComprehensiveIncome (Loss)
(unaudited)(Unaudited)
(In thousands, except share and per share data)amounts)
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Net revenues | $ | 67,799 | $ | 67,176 | $ | 126,794 | $ | 128,273 | $ | 65,936 | $ | 67,799 | $ | 130,316 | $ | 126,794 | ||||||||||||||||
Related Party - Cost of revenues | 2,521 | 1,979 | 4,666 | 3,843 | ||||||||||||||||||||||||||||
Related party - cost of revenues | 1,682 | 2,521 | 3,179 | 4,666 | ||||||||||||||||||||||||||||
Cost of revenues | 52,330 | 53,191 | 97,348 | 100,165 | 51,158 | 52,330 | 99,903 | 97,348 | ||||||||||||||||||||||||
Gross profit | 12,948 | 12,006 | 24,780 | 24,265 | 13,096 | 12,948 | 27,234 | 24,780 | ||||||||||||||||||||||||
Selling, general and administrative expense | 10,084 | 9,585 | 19,338 | 18,595 | 10,605 | 10,084 | 21,061 | 19,338 | ||||||||||||||||||||||||
Depreciation and amortization | 507 | 534 | 1,017 | 1,064 | 494 | 507 | 1,026 | 1,017 | ||||||||||||||||||||||||
Operating income | 2,357 | 1,887 | 4,425 | 4,606 | 1,997 | 2,357 | 5,147 | 4,425 | ||||||||||||||||||||||||
Interest expense | 178 | 129 | 328 | 277 | ||||||||||||||||||||||||||||
Other expense (income), net | (149 | ) | 5 | (237 | ) | (70 | ) | |||||||||||||||||||||||||
Interest expense, net | 478 | 178 | 868 | 328 | ||||||||||||||||||||||||||||
Other income, net | (125 | ) | (149 | ) | (183 | ) | (237 | ) | ||||||||||||||||||||||||
Income before income tax expense | 2,328 | 1,753 | 4,334 | 4,399 | 1,644 | 2,328 | 4,462 | 4,334 | ||||||||||||||||||||||||
Income tax expense | 715 | 621 | 1,266 | 1,486 | 538 | 715 | 1,579 | 1,266 | ||||||||||||||||||||||||
Net income | 1,613 | 1,132 | 3,068 | 2,913 | 1,106 | 1,613 | 2,883 | 3,068 | ||||||||||||||||||||||||
Net (income) attributable to non-controlling interest | (464 | ) | (618 | ) | (1,247 | ) | (1,482 | ) | ||||||||||||||||||||||||
Net income attributable to non-controlling interest | (467 | ) | (464 | ) | (1,378 | ) | (1,247 | ) | ||||||||||||||||||||||||
Net income attributable to SPAR Group, Inc. | $ | 1,149 | $ | 514 | $ | 1,821 | $ | 1,431 | $ | 639 | $ | 1,149 | $ | 1,505 | $ | 1,821 | ||||||||||||||||
Basic and diluted income per common share: | $ | 0.05 | $ | 0.02 | $ | 0.08 | $ | 0.07 | ||||||||||||||||||||||||
Weighted average common shares – basic | 21,808 | 21,262 | 21,696 | 21,225 | ||||||||||||||||||||||||||||
Weighted average common shares – diluted | 21,935 | 21,617 | 21,831 | 21,600 | ||||||||||||||||||||||||||||
Basic income per common share attributable to SPAR Group, Inc. | $ | 0.03 | $ | 0.05 | $ | 0.06 | $ | 0.08 | ||||||||||||||||||||||||
Diluted income per common share attributable to SPAR Group, Inc. | $ | 0.03 | $ | 0.05 | $ | 0.06 | $ | 0.08 | ||||||||||||||||||||||||
Weighted-average common shares outstanding – basic | 23,250 | 21,808 | 23,182 | 21,696 | ||||||||||||||||||||||||||||
Weighted-average common shares outstanding – diluted | 23,392 | 21,935 | 23,337 | 21,831 | ||||||||||||||||||||||||||||
Net income | $ | 1,613 | $ | 1,132 | $ | 3,068 | $ | 2,913 | $ | 1,106 | $ | 1,613 | $ | 2,883 | $ | 3,068 | ||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments | (3,562 | ) | 491 | (3,936 | ) | (1,344 | ) | (39 | ) | (3,562 | ) | 138 | (3,936 | ) | ||||||||||||||||||
Comprehensive (loss) income | (1,949 | ) | 1,623 | (868 | ) | 1,569 | ||||||||||||||||||||||||||
Comprehensive loss (income) attributable to non-controlling interest | 803 | (885 | ) | 1,999 | (112 | ) | ||||||||||||||||||||||||||
Comprehensive income (loss) | 1,067 | (1,949 | ) | 3,021 | (868 | ) | ||||||||||||||||||||||||||
Comprehensive (income) loss attributable to non-controlling interest | (97 | ) | 803 | (1,100 | ) | 1,999 | ||||||||||||||||||||||||||
Comprehensive income (loss) attributable to SPAR Group, Inc. | $ | (1,146 | ) | $ | 738 | $ | 1,131 | $ | 1,457 | $ | 970 | $ | (1,146 | ) | $ | 1,921 | $ | 1,131 | ||||||||||||||
See accompanying notes.notes to the unaudited condensed consolidated financial statements.
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share and per share data)
June 30, | December 31, | June 30, | December 31, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
(Unaudited) | ||||||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash, cash equivalents and restricted cash | $ | 12,402 | $ | 13,473 | ||||||||||||
Cash and cash equivalents | $ | 10,916 | $ | 9,345 | ||||||||||||
Accounts receivable, net | 63,636 | 54,171 | 63,018 | 63,714 | ||||||||||||
Prepaid expenses and other current assets | 5,769 | 4,382 | 4,779 | 7,861 | ||||||||||||
Total current assets | 81,807 | 72,026 | 78,713 | 80,920 | ||||||||||||
Property and equipment, net | 2,923 | 2,929 | 3,172 | 3,261 | ||||||||||||
Operating lease right-of-use assets | 1,297 | 1,781 | 1,856 | 969 | ||||||||||||
Goodwill | 4,171 | 4,166 | 1,715 | 1,708 | ||||||||||||
Intangible assets, net | 2,289 | 2,295 | 1,501 | 2,040 | ||||||||||||
Deferred income taxes | 5,803 | 4,468 | ||||||||||||||
Deferred income taxes, net | 4,100 | 3,766 | ||||||||||||||
Other assets | 1,927 | 1,351 | 2,019 | 1,934 | ||||||||||||
Total assets | $ | 100,217 | $ | 89,016 | $ | 93,076 | $ | 94,598 | ||||||||
Liabilities and equity | ||||||||||||||||
Liabilities and stockholders' equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 10,345 | $ | 8,943 | $ | 9,334 | $ | 10,588 | ||||||||
Accrued expenses and other current liabilities | 23,547 | 22,031 | 19,965 | 20,261 | ||||||||||||
Due to affiliates | 3,024 | 3,270 | 3,079 | 2,964 | ||||||||||||
Customer incentives and deposits | 2,880 | 3,901 | 2,327 | 2,399 | ||||||||||||
Lines of credit and short-term loans | 18,481 | 11,042 | 15,906 | 17,980 | ||||||||||||
Current portion of operating lease liabilities | 655 | 1,019 | 877 | 363 | ||||||||||||
Total current liabilities | 58,932 | 50,206 | 51,488 | 54,555 | ||||||||||||
Operating lease liabilities, less current portion | 643 | 762 | ||||||||||||||
Long-term debt and other liabilities | 700 | 700 | ||||||||||||||
Operating lease liabilities, net of current portion | 978 | 606 | ||||||||||||||
Long-term debt | 1,033 | 1,376 | ||||||||||||||
Total liabilities | 60,275 | 51,668 | 53,499 | 56,537 | ||||||||||||
Commitments and contingencies – See Note 9 | ||||||||||||||||
Equity: | ||||||||||||||||
SPAR Group, Inc. equity | ||||||||||||||||
Preferred stock - Series A, $.01 par value: Authorized shares– none and 3,000,000: none issued and outstanding at June 30, 2022 and December 31, 2021 | 0 - | 0 - | ||||||||||||||
Preferred stock - Series B, $.01 par value: Authorized shares– 2,000,000 and none: 1,650,000 and none issued and outstanding at June 30, 2022 and December 31, 2021 | 17 | 0 | ||||||||||||||
Common stock, $.01 par value: Authorized shares – 47,000,000: Issued shares – 21,771,401 and 21,320,414 at June 30, 2022 and December 31, 2021 | 218 | 213 | ||||||||||||||
Treasury stock, at cost: 128,342 shares – June 30, 2022 and 54,329 shares – December 31, 2021 | (193 | ) | (104 | ) | ||||||||||||
Commitments and contingencies – See Note 4 | ||||||||||||||||
Stockholders' equity: | ||||||||||||||||
Series B convertible preferred stock, $0.01 par value per share: 2,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 2,000,000 shares issued as of June 30, 2023 and December 31, 2022; 721,420 shares and 854,753 shares outstanding as of June 30, 2023 and December 31, 2022, respectively | 7 | 9 | ||||||||||||||
Common stock, $0.01 par value per share: 47,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 23,438,224 and 23,059,138 shares issued as of June 30, 2023 and December 31, 2022, respectively; 23,232,739 shares and 22,853,653 shares outstanding as of June 30, 2023 and December 31, 2022, respectively | 233 | 229 | ||||||||||||||
Treasury stock, at cost, 205,485 shares and 205,485 shares as of June 30, 2023 and December 31, 2022, respectively | (285 | ) | (285 | ) | ||||||||||||
Additional paid-in capital | 20,760 | 17,231 | 20,845 | 20,708 | ||||||||||||
Accumulated other comprehensive loss | (5,663 | ) | (5,028 | ) | (4,525 | ) | (4,941 | ) | ||||||||
Retained earnings | 9,260 | 7,439 | 8,212 | 6,707 | ||||||||||||
Total SPAR Group, Inc. equity | 24,399 | 19,751 | ||||||||||||||
Total stockholders' equity attributable to SPAR Group, Inc. | 24,487 | 22,427 | ||||||||||||||
Non-controlling interest | 15,543 | 17,597 | 15,090 | 15,634 | ||||||||||||
Total equity | 39,942 | 37,348 | ||||||||||||||
Total liabilities and equity | $ | 100,217 | $ | 89,016 | ||||||||||||
Total stockholders’ equity | 39,577 | 38,061 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 93,076 | $ | 94,598 | ||||||||||||
See accompanying notes.notes to the unaudited condensed consolidated financial statements.
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’Equity
(unaudited)(Unaudited)
(In thousands)
Common Stock | Series B Preferred Stock | Treasury Stock | Additional | Accumulated Other | Non- | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Paid-In Capital | Comprehensive Loss | Retained Earnings | Controlling Interest | Total Equity | ||||||||||||||||||||||||||||||||||
Balance at January 1, 2022 | 21,320 | $ | 213 | 0 | $ | 0 | 54 | $ | (104 | ) | $ | 17,231 | $ | (5,028 | ) | $ | 7,439 | $ | 17,597 | $ | 37,348 | |||||||||||||||||||||||
Share-based compensation | - | 0 | - | 0 | - | 0 | 150 | 0 | 0 | 0 | 150 | |||||||||||||||||||||||||||||||||
Majority Shareholder Agreement | 0 | 0 | 2,000 | 20 | 0 | 0 | 3,248 | 0 | 0 | 0 | 3,268 | |||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock | 525 | 5 | (350 | ) | (3 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 2 | |||||||||||||||||||||||||||||||
Other comprehensive (loss) | - | 0 | - | 0 | - | 0 | 0 | 1,602 | 0 | (1,976 | ) | (374 | ) | |||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | 0 | 0 | 672 | 783 | 1,455 | |||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 21,845 | $ | 218 | 1,650 | $ | 17 | 54 | $ | (104 | ) | $ | 20,629 | $ | (3,426 | ) | $ | 8,111 | $ | 16,404 | $ | 41,849 | |||||||||||||||||||||||
Share-based compensation | - | 0 | - | 0 | - | 0 | 130 | 0 | 0 | 0 | 130 | |||||||||||||||||||||||||||||||||
| Stock repurchase program | (74 | ) | 0 | 0 | 0 | 74 | (89 | ) | 1 | 0 | 0 | 0 | (88 | ) | ||||||||||||||||||||||||||||||
Other comprehensive (loss) | - | 0 | - | 0 | - | 0 | 0 | (2,237 | ) | 0 | (1,325 | ) | (3,562 | ) | ||||||||||||||||||||||||||||||
Net income | - | 0 | - | 0 | - | 0 | 0 | 0 | 1,149 | 464 | 1,613 | |||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 21,771 | $ | 218 | 1,650 | $ | 17 | 128 | $ | (193 | ) | $ | 20,760 | $ | (5,663 | ) | $ | 9,260 | $ | 15,543 | $ | 39,942 | |||||||||||||||||||||||
Common Stock | Series B Convertible Preferred Stock | Treasury Stock | Additional | Accumulated Other | Non- | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Paid-In Capital | Comprehensive Loss | Retained Earnings | Controlling Interest | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 22,961 | $ | 229 | 855 | $ | 9 | 205 | $ | (285 | ) | $ | 20,708 | $ | (4,941 | ) | $ | 6,707 | $ | 15,634 | $ | 38,061 | |||||||||||||||||||||||
Share-based compensation | - | - | - | - | - | - | 173 | - | - | - | 173 | |||||||||||||||||||||||||||||||||
Conversion of preferred stock to common stock | 307 | 4 | (205 | ) | (2 | ) | - | - | 3 | - | - | - | 5 | |||||||||||||||||||||||||||||||
Dividend to NCI | - | - | - | - | - | - | - | - | - | (334 | ) | (334 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | - | 85 | - | 92 | 177 | |||||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | - | 866 | 911 | 1,777 | |||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 23,268 | $ | 233 | 650 | $ | 7 | 205 | $ | (285 | ) | $ | 20,884 | $ | (4,856 | ) | $ | 7,573 | $ | 16,303 | $ | 39,859 | |||||||||||||||||||||||
Share-based compensation | - | - | - | - | - | - | (39 | ) | - | - | - | (39 | ) | |||||||||||||||||||||||||||||||
Dividend to NCI | - | - | - | - | - | - | - | - | - | (850 | ) | (850 | ) | |||||||||||||||||||||||||||||||
Payments to acquire noncontrolling interests | - | - | - | - | - | - | - | - | - | (460 | ) | (460 | ) | |||||||||||||||||||||||||||||||
Retirement of shares | (35 | ) | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
Other comprehensive | - | - | - | - | - | - | - | 331 | - | (370 | ) | (39 | ) | |||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | - | 639 | 467 | 1,106 | |||||||||||||||||||||||||||||||||
Balance at June 30, 2023 | 23,233 | $ | 233 | 650 | $ | 7 | 205 | $ | (285 | ) | $ | 20,845 | $ | (4,525 | ) | $ | 8,212 | $ | 15,090 | $ | 39,577 | |||||||||||||||||||||||
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’Equity (Continued)
(unaudited continued)(Unaudited)
(In thousands)
Common Stock | Series B Preferred Stock | Treasury Stock | Additional | Accumulated Other | Non- | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Paid-In Capital | Comprehensive Loss | Retained Earnings | Controlling Interest | Total Equity | ||||||||||||||||||||||||||||||||||
Balance at January 1, 2021 | 21,122 | $ | 211 | 0 | $ | 0 | 2 | $ | (2 | ) | $ | 16,645 | $ | (3,913 | ) | $ | 9,218 | $ | 16,463 | $ | 38,622 | |||||||||||||||||||||||
Exercise of stock options | 131 | 1 | - | - | - | - | (66 | ) | - | - | - | (65 | ) | |||||||||||||||||||||||||||||||
Share-based compensation | - | 0 | - | 0 | - | 0 | 99 | 0 | 0 | - | 99 | |||||||||||||||||||||||||||||||||
Other comprehensive (loss) | - | 0 | - | 0 | - | 0 | 0 | (198 | ) | 0 | (1,637 | ) | (1,835 | ) | ||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | 0 | 0 | 917 | 864 | 1,781 | |||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | 21,253 | $ | 212 | 0 | $ | 0 | 2 | $ | (2 | ) | $ | 16,678 | $ | (4,111 | ) | $ | 10,135 | $ | 15,690 | $ | 38,602 | |||||||||||||||||||||||
Exercise of stock options | 16 | 1 | 0 | 0 | 0 | 0 | (4 | ) | 0 | 0 | 0 | (3 | ) | |||||||||||||||||||||||||||||||
Share-based compensation | - | 0 | - | 0 | - | 0 | 183 | - | 0 | 0 | 183 | |||||||||||||||||||||||||||||||||
Other changes to non-controlling interest | - | 0 | - | 0 | - | 0 | 0 | 0 | 0 | 4 | 4 | |||||||||||||||||||||||||||||||||
Other comprehensive | - | 0 | - | 0 | - | 0 | 0 | 223 | 0 | 268 | 491 | |||||||||||||||||||||||||||||||||
Net income | - | 0 | - | 0 | - | 0 | 0 | 0 | 514 | 618 | 1,132 | |||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | 21,269 | $ | 213 | 0 | $ | 0 | 2 | $ | (2 | ) | $ | 16,857 | $ | (3,888 | ) | $ | 10,649 | $ | 16,580 | $ | 40,409 | |||||||||||||||||||||||
Common Stock | Series B Preferred Stock | Treasury Stock | Additional | Accumulated Other | Non- | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Paid-In Capital | Comprehensive Loss | Retained Earnings | Controlling Interest | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 21,320 | $ | 213 | - | $ | - | 54 | $ | (104 | ) | $ | 17,231 | $ | (5,028 | ) | $ | 7,439 | $ | 17,597 | $ | 37,348 | |||||||||||||||||||||||
Share-based compensation expense | - | - | - | - | - | - | 150 | - | - | - | 150 | |||||||||||||||||||||||||||||||||
Issuance of Series B convertible preferred stock | - | - | 2,000 | 20 | - | - | 3,248 | - | - | - | 3,268 | |||||||||||||||||||||||||||||||||
Conversion of Series B convertible preferred stock to common stock | 525 | 5 | (350 | ) | (3 | ) | - | - | - | - | - | - | 2 | |||||||||||||||||||||||||||||||
Other comprehensive income (loss) | - | - | - | - | - | - | - | 1,602 | - | (1,976 | ) | (374 | ) | |||||||||||||||||||||||||||||||
Net income | - | - | - | - | - | - | - | - | 672 | 783 | 1,455 | |||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 21,845 | $ | 218 | 1,650 | $ | 17 | 54 | $ | (104 | ) | $ | 20,629 | $ | (3,426 | ) | $ | 8,111 | $ | 16,404 | $ | 41,849 | |||||||||||||||||||||||
Share-based compensation | - | - | - | - | - | - | 130 | - | - | - | 130 | |||||||||||||||||||||||||||||||||
Stock repurchase program | (74 | ) | - | - | - | 74 | (89 | ) | 1 | - | - | - | (88 | ) | ||||||||||||||||||||||||||||||
Other comprehensive (loss) | - | - | - | - | - | - | - | (2,237 | ) | - | (1,325 | ) | (3,562 | ) | ||||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | 1,149 | 464 | 1,613 | |||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 21,771 | $ | 218 | 1,650 | $ | 17 | 128 | $ | (193 | ) | $ | 20,760 | $ | (5,663 | ) | $ | 9,260 | $ | 15,543 | $ | 39,942 | |||||||||||||||||||||||
See accompanying notes.notes to the unaudited condensed consolidated financial statements.
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)(Unaudited)
(In thousands)
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Operating activities | ||||||||
Net income | $ | 3,068 | $ | 2,913 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||
Depreciation and amortization | 1,017 | 1,064 | ||||||
Non-cash lease expense | 483 | 782 | ||||||
Bad debt expense, net of recoveries | 53 | 139 | ||||||
Share-based compensation | 280 | 282 | ||||||
Majority stockholders change in control agreement | (420 | ) | 0 | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (9,438 | ) | (10,377 | ) | ||||
Prepaid expenses and other assets | (1,971 | ) | (867 | ) | ||||
Accounts payable | 1,413 | 3,269 | ||||||
Operating lease liabilities | (483 | ) | (782 | ) | ||||
Accrued expenses, other current liabilities and customer incentives and deposits | 2,470 | 4,586 | ||||||
Net cash (used in) provided by operating activities | (3,528 | ) | 1,009 | |||||
Investing activities | ||||||||
Purchases of property and equipment and capitalized software | (794 | ) | (890 | ) | ||||
Partners' investment in subsidiary | 0 - | 4 | ||||||
Net cash (used in) investing activities | (794 | ) | (886 | ) | ||||
Financing activities | ||||||||
Borrowings under line of credit | 21,885 | 35,298 | ||||||
Repayments under line of credit | (14,446 | ) | (33,205 | ) | ||||
Payments from stock options exercised | 0 | (68 | ) | |||||
Net cash provided by financing activities | 7,439 | 2,025 | ||||||
Effect of foreign exchange rate changes on cash | (4,188 | ) | (1,419 | ) | ||||
Net change in cash and cash equivalents | (1,071 | ) | 729 | |||||
Cash, cash equivalents and restricted cash at beginning of period | 13,473 | 15,972 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 12,402 | $ | 16,701 | ||||
Supplemental disclosure of cash flows information: | ||||||||
Interest paid | $ | 406 | $ | 327 | ||||
Income taxes paid | $ | 1,243 | $ | 1,338 | ||||
Non-cash Majority Stockholders Agreement charges | $ | 3,270 | $ | 0 | ||||
Six Months Ended June 30, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 2,883 | $ | 3,068 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||||||
Depreciation and amortization | 1,026 | 1,017 | ||||||
Amortization of operating lease right-of-use assets | 256 | 483 | ||||||
Bad debt expense, net of recoveries | 38 | 53 | ||||||
Deferred income tax expense (benefit) | 111 | - | ||||||
Share-based compensation expense | 134 | 280 | ||||||
Majority stockholders change in control agreement | - | (420 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 1,205 | (9,438 | ) | |||||
Prepaid expenses and other current assets | 3,118 | (1,971 | ) | |||||
Accounts payable | (803 | ) | 1,413 | |||||
Operating lease liabilities | (256 | ) | (483 | ) | ||||
Accrued expenses, other current liabilities, due to affiliates and customer incentives and deposits | (968 | ) | 2,470 | |||||
Net cash provided by (used in) operating activities | 6,744 | (3,528 | ) | |||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | (717 | ) | (794 | ) | ||||
Net cash used in investing activities | (717 | ) | (794 | ) | ||||
Cash flows from financing activities | ||||||||
Borrowings under line of credit | 47,340 | 21,885 | ||||||
Repayments under line of credit | (50,003 | ) | (14,446 | ) | ||||
Payments to acquire noncontrolling interests | (473 | ) | - | |||||
Distribution to noncontrolling investors | (1,196 | ) | - | |||||
Net cash provided by (used in) financing activities | (4,332 | ) | 7,439 | |||||
Effect of foreign exchange rate changes on cash | (124 | ) | (4,188 | ) | ||||
Net change in cash, cash equivalents and restricted cash | 1,571 | (1,071 | ) | |||||
Cash, cash equivalents at beginning of period | 9,345 | 13,473 | ||||||
Cash, cash equivalents at end of period | $ | 10,916 | $12,402 | |||||
Supplemental disclosure of cash flows information: | ||||||||
Cash paid for interest | $ | 913 | $406 | |||||
Cash paid for income taxes | $ | 1,748 | $1,243 | |||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Non-cash majority stockholders change in control agreement charges | $ | - | $3,270 | |||||
See accompanying notes.notes to the unaudited condensed consolidated financial statements.
SPAR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. |
|
Basis of Presentation and Consolidation
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulationsNature of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. All intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
Unaudited Interim Consolidated Financial Information
The accompanying interim condensed consolidated balance sheet as of June 30, 2022 and the interim condensed consolidated statements of income, statements of comprehensive income (loss), and statements of equity for the six (6) months period ended June 30, 2022 and 2021, statements of cash flows for the six (6) months period ended June 30, 2022 and 2021, and the related disclosures, are unaudited. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and includes all normal and recurring adjustments necessary for the fair presentation of the Company’s financial position as of June 30, 2022, its results of operations for the six (6) months period ended June 30, 2022 and 2021, and its cash flows for the six (6) months period ended June 30, 2022 and 2021 in accordance with U.S. GAAP. The results for the six (6) months period ended June 30, 2022 are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period.
These unaudited condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto for the Company as contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on April 15, 2022, and the First Amendment to the Company's Annual Report on Form 10-K/A for the year ended December 31, 2021, as filed with the SEC on May 2, 2022 (as so amended, the "Annual Report"). Particular attention should be given to Items 1, Business and 1A, Risk Factors of the Company’s Annual Report on Form 10-K.
| Business |
SPAR Group, Inc., a Delaware corporation (“SGRP” ("SGRP" or the "Corporation"), and its subsidiaries (together(and SGRP together with SGRP, “SPAR Group”its subsidiaries may be referred to as "SPAR Group", the "Company", "SPAR", "We", or the “Company”, “We”, “Our”"Our"), is a leading global merchandising and brand marketing services company, providing a broad range of services to retailers, consumer goods manufacturers and distributors around the world. With more than 50 years
2. | Summary of Significant Accounting Policies |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of experience, a diverse networkAmerica (“U.S. GAAP”) and pursuant to the rules and regulations of merchandising specialists around the world working duringSecurities and Exchange Commission (“SEC”) for interim financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022 included in the 2022 Annual Report on Form 10-K that was filled with the Securities and long-term relationships with some of the world’s leading businesses, we provide specialized capabilities acrossExchange Commission on nineApril 17, 2023. (9) countries and five (5) continents. Our unique combination of resource scale, deep expertise, advanced technology and unwavering commitment to excellence, separates us from the competition.
The Company reports under three (3) segments: Americas, Asia-Pacific (“APAC”)unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the included disclosures are adequate, and Europe, Middle East and Africa (“EMEA”). The Americas segment is comprisedthe accompanying unaudited condensed consolidated financial statements contain all adjustments which are necessary for a fair presentation of the United States, Canada, Mexico, and Brazil, APAC is comprisedCompany’s consolidated financial position as of China, Japan, Australia, and India, and EMEA is comprised of South Africa.
Novel Coronavirus (Covid-19) Outbreak
The COVID-19 pandemic had an effect on the company’s joint venture operation in China in the second quarter of 2022. In March of 2022, China implemented zero tolerance COVID-19 policy and locked down Shanghai Province and surrounding districts, and as a result, operations of the Company's joint venture in China were impacted for most of the second quarter. Specifically, the joint venture in China generated a net loss attributable to SPAR of $329,000 and $420,000 for the three and six-months ended June 30, 2022,2023, respectively, as compared to netconsolidated results of operations and comprehensive income of $13,000 and net loss of $2,000 for the three and six-months ended June 30, 2021, respectively. The net loss generated by the joint venture was largely due to a decrease in revenues of $1.6 million or 50% and $2.0 million or 31% as a result of the lockdown for the three and six months ended June 30, 2023 and 2022,respectively, as compared to three and consolidated cash flows for the six months ended June 30, 2021,2023 while expenses continued to be incurredand 2022. Such adjustments are of a normal and recurring nature. The consolidated results of operations for wages, office rentthe three and administrative expenses. The lock-downsix-month ended in June 30, 2023 are not necessarily indicative of the consolidated results of operations that 2022may be expected for the year ending December 31, 2023.
Principles of Consolidation
The Company consolidates its 100%-owned subsidiaries and all of the 51%-owned joint ventures in which the Company has a controlling financial interest. All significant intercompany transactions have been eliminated in the unaudited condensed consolidated financial statements.
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the amounts disclosed for contingent assets and liabilities at the date of the consolidated financial statements and the business is now back in operation. Management continuesreported amounts of revenues and expenses during the reporting year. Significant balances subject to actively monitor the situationsuch estimates and assess operationalassumptions include carrying amounts of property and cashflow impact to determine course of actions.equipment and intangible assets, valuation allowances for receivables, carrying amounts for deferred tax assets and liabilities, and liabilities incurred from operations and customer incentives. Actual results could differ from those estimates.
Segment Reporting
Reportable segments are components of the Company for which separate financial information is available that is evaluated on a regular basis by the Chief Operating Decision Maker ("CODM”) in deciding how to allocate resources and in assessing performance. The Company's CODM is the Chief Executive Officer.
The Company provides similar merchandising, marketing and business services throughout the world and has three
Recently Adopted Accounting Pronouncements
SPAR Group, Inc.In June 2016, the FASB issued ASU No.2016-13,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU No.2016-13”), which replaces the existing incurred loss impairment model with an expected credit loss model and Subsidiariesrequires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The guidance will be effective for the Company beginning January 1, 2023, and interim periods therein. Early adoption is permitted. The Company adopted ASU No.2016-13 on January 1, 2023 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements, results of operations or disclosures.
Notes to Consolidated Financial Statements
(unaudited) (continued)
|
|
Fifth Third CreditFacility
One of the Company’s consolidated subsidiaries, Resource Plus of North Florida, Inc. (“Resource Plus”), was a party to a revolving line of credit facility (the “Fifth Third Credit Facility”) with Fifth Third Bank for $3.5 million, with an expiration date of June 16,2022. The credit facility was terminated as of December 31, 2021.
Resource Plus closed the line of credit with Fifth Third Bank on March 11, 2022. Resource Plus has maintained a letter of credit with an existing $857,000 restricted cash balance with Fifth Third Bank in order to be in compliance with Resource Plus' workers compensation insurance policy.
The Company's total cash, cash equivalents and restricted cash, as presented in the consolidated statements of cash flow, is as follows (in millions):
| June 30, 2022 | December 31, 2021 | |||||||
| Cash and cash equivalents | $ | 11,545 | $ | 13,473 | ||||
| Restricted cash included in cash, cash equivalents and restricted cash | 857 | 0 | ||||||
| Total as presented in the consolidated statement of cash flows | $ | 12,402 | $ | 13,473 | ||||
|
|
The following table sets forth the computations of basic and diluted net income per share (in thousands, except per share data):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Numerator: | ||||||||||||||||
Net income attributable to SPAR Group, Inc. | $ | 1,149 | $ | 514 | $ | 1,821 | $ | 1,431 | ||||||||
Denominator: | ||||||||||||||||
Shares used in basic net income per share calculation | 21,808 | 21,262 | 21,696 | 21,225 | ||||||||||||
Effect of diluted securities: | ||||||||||||||||
Stock options and unvested restricted shares | 127 | 355 | 135 | 375 | ||||||||||||
Shares used in diluted net income per share calculations | 21,935 | 21,617 | 21,831 | 21,600 | ||||||||||||
Basic and diluted net income per common share: | $ | 0.05 | $ | 0.02 | $ | 0.08 | $ | 0.07 | ||||||||
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited) (continued)
|
|
Domestic Credit Facilities
North Mill Capital Credit Facility
The Company, underthrough SPAR Marketing Force, (“SMF”Inc. ("SMF") and SPAR Canada Company ULC ("SCC"SCC", and collectively with SMF, the “NM Borrowers”), has a secured revolving credit facility in the United States (the "US Revolving Credit Facility") and Canada (the "NM"Canada Revolving Credit Facility", and collectively with the US Revolving Credit Facility," the "NM Credit Facility") with North Mill Capital, LLC, d/b/a SLR Business Credit ("NM"NM").
In order to obtain, document and govern the NM Credit Facility, SMF, SCC, SGRP and certain of itsSGRP's direct and indirect subsidiaries in the United States and Canada (including SMF and SCC as borrowers and SGRP as a guarantor, collectively, the "NM Loan Parties") entered into an 18-month individuala Loan and Security AgreementsAgreement with NM dated as of April 10, 2019.2019,
On January 5, 2021, which, as amended from time to time (as amended, the Company and NM entered into an agreement as of January 4, 2021, and effective as of December 31, 2020 (the "First Modification Agreement""NM Loan Agreement"), to extendgoverns the NM Credit Facility from October 10, 2021 Facility. Pursuant to April 10, 2022, and increased the amounts ofNM Loan Agreement, the credit facilities to $14.5 (USD) million in the United States and decreased the facility to $1.5 (CDN) million in Canada; in addition the First Modification Agreement increased SMF's borrowing base availability for unbilled receivables to up to 70% from January 1, 2021 through June 30, 2021, and increased the unbilled cap for SMF to $4.5 million (USD) from $3.9 million (USD).
The NM Credit Facility, as amended by the First Modification Agreement continued to require the Company to pay interest on the loans equal to: (A) Prime Rate designated by Wells Fargo Bank; plus (B) one hundred twenty-five basis points (1.25%) or a minimum of 6.75%. In addition, the Company continues to pay a facility fee to NM of 1.5% for the first$10.5 million loan balance, or $157,500 per year over the term of the agreement, plus a $15,000 one-time fee for each incremental $1 million increase in loan balance up to $14.5 million. Additionally, for the First Modification Agreement, SPAR paid NM a fee of $7,500 andBorrowers agreed to reimburse NM'sNM for legal and documentation fees.
On March 22, 2021, the Company and NM executed and delivered a Second Modification Agreement effective as of April 1, 2021 (the "Second Modification Agreement"), pursuant to which NM and the Company agreed to extendfees incurred in connection with the NM Loan Agreements from April 10, 2022 to October 10, 2023, Agreement and increased the amounts of the credit facilities for SMF to $16.5 (USD) million in the USA while the SCC facility remained at $1.5 (CDN) million in Canada; in addition, the Second Modification Agreement increased SMF's borrowing base availability for unbilled receivables to up to 70% permanently, and increased the unbilled cap for SMF to $5.5 (USD) million from $4.5 (USD) million. The NM Loan Agreements as amended by the Second Modification Agreement will require the Company to pay interest on the loans equal to: (A) Prime Rate designated by Wells Fargo Bank; plus; (B) one hundred twenty-five basis points (1.25%) or a minimum of 5.25%. In addition, the Company continues to pay a facility fee to NM of 0.8% (decreased from 1.5%) for the first$10.5 million loan balance, or $84,000 per year, over the term of the agreement, plus a $15,000 one-time fee for each incremental $1 million increase in loan balance up to $16.5 million. Additionally, the early termination fee has decreased from 1.0% to 0.85% of the advance limit.such amendments.
On July 1, 2022, the CompanyNM Loan Parties and NM executed and delivered a Fourth Modification Agreement, effective as of June 30, 2022 (the "Fourth"Fourth Modification Agreement"Agreement"), pursuant to which the NM Loan Parties and the CompanyNM agreed to extend the NM Loan AgreementsCredit Facility from October 10, 2023, to October 10, 2024, and increased the amountsamount of the credit facilities for SMFUS Revolving Credit Facility to $17.5 (USD) million in the USA while the SCC facilityCanada Revolving Credit Facility remained at $1.5 (CDN) million in Canada; inCDN$1.5 million. In addition, the Fourth Modification Agreement permanently increased SMF's borrowing base availability for billed receivables to up to 90% from 85%, and unbilled receivables to up to 80% from 70% permanently,, and increased the cap on unbilled capaccounts for SMF to $6.5 (USD) million from $5.5 (USD) million. The
On August 9, 2022, the NM Loan Agreements as amended by the FourthParties and NM executed and delivered a Fifth Modification Agreement, willeffective immediately (the "Fifth Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to temporarily increase the borrowing base availability under the NM Credit Facility, and the NM Borrowers agreed to pay certain additional fees.
On February 1, 2023, the NM Loan Parties and NM executed and delivered a Sixth Modification Agreement, effective immediately (the "Sixth Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to increase the amount of the US Revolving Credit Facility to $28.0 million and increase the Canada Revolving Credit Facility to CDN$2.0 million. In addition, the Sixth Modification Agreement increased the cap on unbilled accounts in the borrowing base for SMF to $7.0 million from $6.5 million.
The Restated US Note and Restated Canadian Note (together, the "NM Notes") and the NM Loan Agreement together require the CompanyNM Borrowers to establishpay interest on the loans thereunder equal to: (i) the Prime Rate designated from time to time by Wells Fargo Bank; plus (ii) one and nine-tenths percentage points (1.90%) or an aggregate minimum of 6.75% per annum. In addition, the NM Borrowers are paying a permanent $500,000 availability reserve againstfacility fee to NM in an amount equal to: (i) for the year commencing on October 10, 2022, approximately $0.1 million plus 0.80% of the amount of any advances other than under the US Advance Limit. The remaining termsRevolving Credit Facility plus an additional facility fee of $15,000 for every incremental $1.0 million of loan balance in excess of $21.0 million, and conditions remain(ii) for the same asyear commencing on October 10, 2023, approximately $0.2 million plus 0.80% of the Secondamount of any advances other than under the US Revolving Credit Facility plus an additional facility fee of $15,000 for every incremental $1.0 million of loan balance in excess of $21.0 million. For the Sixth Modification Agreement.Agreement, the NM Borrowers paid NM a fee of approximately $28,000 for the US and $3,000 for Canada.
OnAs of June 30, 2022,2023, the aggregate interest rate was 5.25%10.15% per annum and the aggregate outstanding loan balance was $15.5approximately $11.9 million, which is included within lines of credit and short-term loans in the unaudited condensed consolidated balance sheets. The aggregate outstanding loan balance is divided between the US Revolving Credit Facility and the Canada Revolving Credit Facility as follows: (i) the outstanding loan balance under the US Revolving Credit Facility was approximately $10.8 million; and (ii) the outstanding loan balance under the Canada Revolving Credit Facility was approximately $1.1 million. Outstanding amounts are classified as short-term debt.
The NM Credit Facility contains certain financial and other restrictive covenants and also limits certain expenditures by the Company,NM Loan Parties, including maintaining a positive trailing EBITDA for each Borrower,the NM Borrowers (i.e., SMF and SCC) and imposes limits on all of the NM Loan Parties (including SGRP) on non-ordinary course payments and transactions, incurring or guarantyingguaranteeing indebtedness, increases in executive, officer or director compensation, capital expenditures and certain other investments. The Company wasNM Loan Parties were in compliance with such covenants as of June 30, 2022.2023.
The obligations of the NM Borrowers are secured by the receivables and other assets of the NM Borrowers and substantially all of the assets of the other NM Loan Parties, however, the obligations are not secured by any equity in, financial asset respecting or asset of any Excluded Subsidiary (as such term is defined in the NM Loan Agreement). Pursuant to the NM Loan Agreement, Excluded Subsidiary means each of the following direct or indirect subsidiaries of SGRP: (i) Resource Plus of North Florida, Inc. (“Resource Plus”), Mobex of North Florida, Inc., and Leasex, LLC, and their respective subsidiaries; (ii) NMS Retail Services ULC, which is an inactive Nova Scotia ULC; (iii) SPAR Group International, Inc.; (iv) SPAR FM Japan, Inc.; (v) SPAR International, Ltd.; (vi) each other subsidiary formed outside of the United States or Canada; and (vii) any other entity in which any such subsidiary is a partner, joint venture or other equity investor.
Resource Plus –Seller Notes
Effective with the closing of the Company's acquisition of Resource Plus acquisition in January 2018,the Company entered intoissued promissory notes withto the sellers totalingof $2.3 million. The promissory notes are payable inat annual installments atin various amounts due on December 31 31stof each year, starting with December 31, 2018 and continuing through December 31, 2023.
As such these notes are classified as both short term and long term for of June 30, 2023, the appropriate amounts. The annual interest rate iswas 1.85% and the total balance owed at June 30, 2022 outstanding under the promissory notes was approximately $1.0 million.
SPAR Group, Inc.credit and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited) (continued)
short-term loans in the unaudited condensed consolidated balance sheets.
International Credit Facilities
In October 2017, SPARFACTS Australia Pty. Ltd. hassecured a secured line of credit facility with National Australia Bank effective October 31, 2017, for $800,000 (Australian) or approximately $551,000 USD (based upon the exchange rate at June 30, 2022).AUD$0.8 million. The facility provides for borrowing based upon a formula, as defined in the applicable loan agreement (principally 80% of eligible accounts receivable less certain deductions). The outstanding balance with National Australia Bankannual interest rate was 12.1% as of June 30, 20222023. As of June 30, 2023, the outstanding balance was $132,000 (Australian) or $92,000 USDapproximately $0.1 million, and iswas due on demand.
In December 2020, SPAR China has secured a loan with Industrial and Commercial Bank of China, effective December 21, 2021, for 2.0 million Chinese Yuan or approximately $299,000 USD (based upon the exchange rate at June 30, 2022). The loan expires on November 4, 2022. The outstanding balance with Industrial and Commercial Bank of China as of June 30, 2022 was 2.0 million Chinese Yuan or $299,000 USD and is due on demand.
SPAR China has secured a loan with People's Bank of China for 1.0 million Chinese Yuan or approximately $149,000 USD (based upon the exchange rate at June 30, 2022). The loan expired on June 7, 2022 and subsequently was not renewed.
SPAR China has secured a loan with Industrial Bank for 3.0 million Chinese Yuan or approximately $448,000 USD (based upon the exchange rate at June 30, 2022). Yuan. The loan expires onwill expire in December 18, 2022.July 2023. The annual interest rate was 4.0% as of June 30, 2022.2023. As of June 30, 2023, the outstanding balance was approximately $0.4 million, and was due on demand.
In December 2021, SPAR China secured a loan with Industrial and Commercial Bank of China for 2.0 million Chinese Yuan. The loan will expire in December 2023. The outstanding balance with Industrial Bankannual interest rate was 4.15% as of June 30, 20222023. As of June 30, 2023, the outstanding balance was 3.0approximately $0.3 million, Chinese Yuan or $448,000 USD and iswas due on demand.
In March 2022,SGRP Meridian has(Pty), Ltd. secured a loanloans with Investec Bank Ltd, for 30.0100.5 million South African Rand; of which 25.0 million South African Rand or approximately $1.8 million USD (based upon the exchangeis due July 2023. The annual interest rate at June 30, 2022). The loan expires on July 13, 2023. The outstanding balance with Investec Bank Ltdwas 11.75% as of June 30, 20222023. As of June 30, 2023, the outstanding balance was approximately 30.0 million South African Rand or $1.8 million USD.$3.6 million.
Interest Rate | ||||||||||||||||||||||||||||
as of | ||||||||||||||||||||||||||||
June 30, 2022 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | ||||||||||||||||||||||
Australia - National Australia Bank | 8.31 | % | 92 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
China- Industrial and Commercial Bank | 4.15 | % | 299 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
China- Industrial Bank | 4.00 | % | 448 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
| South Africa - Investec Bank Ltd. | 7.75 | % | 1,817 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
USA - North Mill Capital | 5.25 | % | 15,525 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
USA - Resource Plus Seller Notes | 1.85 | % | 300 | 700 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
Total | $ | 18,481 | $ | 700 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||
Summary of the Company’s lines of credit and short-term loans (in thousands):
Interest Rate | Balance | Interest Rate | Balance | |||||||||||||
as of | as of | as of | as of | |||||||||||||
| June 30, 2023 | June 30, 2023 | December 31, 2022 | December 31, 2022 | |||||||||||||
Australia - National Australia Bank | 12.10 | % | $ | 80 | 10.60 | % | $ | 156 | ||||||||
China- Construction Bank | 4.15 | % | 276 | 4.15 | % | 290 | ||||||||||
China- Industrial Bank | 4.00 | % | 413 | 4.00 | % | 435 | ||||||||||
South Africa - Investec Bank Ltd. | 11.75 | % | 2,542 | 10.50 | % | 1,700 | ||||||||||
USA - North Mill Capital | 10.15 | % | 11,895 | 5.25 | % | 14,399 | ||||||||||
USA - Resource Plus Seller Notes | 1.85 | % | 700 | 1.85 | % | 1,000 | ||||||||||
Total | $ | 15,906 | $ | 17,980 | ||||||||||||
Summary of the Company’s Long- term debt(dollars in thousands):
Interest Rate as of | Balance Outstanding | Interest Rate as of | Balance Outstanding | |||||||||||||
June 30, 2023 | June 30, 2023 | December 31, 2022 | December 31, 2022 | |||||||||||||
South Africa - Investec Bank Ltd. | 11.75 | % | $ | 1,033 | 10.50 | % | $ | 1,376 | ||||||||
Total | $ | 1,033 | $ | 1,376 | ||||||||||||
Summary of Unused Company Credit and Other Debt Facilities (in thousands):
June 30, | December 31, | June 30, | December 31, | |||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Unused Availability: | ||||||||||||||||
United States / Canada | $ | 2,474 | $ | 5,319 | $ | 6,498 | $ | 4,601 | ||||||||
Australia | 460 | 455 | 451 | 390 | ||||||||||||
| South Africa | 26 | 0 | 1,996 | 454 | ||||||||||||
Mexico | - | - | ||||||||||||||
China | 0 | 157 | - | - | ||||||||||||
Mexico | 373 | 743 | ||||||||||||||
Total Unused Availability | $ | 3,333 | $ | 6,674 | $ | 8,945 | $5,446 | |||||||||
4. | Commitments and Contingencies |
Management believes that based uponLegal Matters
The Company is a party to various legal actions and administrative proceedings arising in the continuationnormal course of business. In the opinion of Company's existing credit facilities, projected resultsmanagement, resolution of operations, vendor payment requirements and other financing availablethese matters is not anticipated 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, or a significant reduction in business from such clients could have a material adverse effect on the Company'sCompany or its estimated or desired affiliates, assets, business, clients, capital, cash resourcesflow, credit, expenses, financial condition, income, legal costs, liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition.
All prior litigations associated with the Company through SPAR Business Services, Inc. ("SBS") and its ongoing abilityindependent contractors have been settled as per CIC Agreement (note 8).
5. | Common Stock |
As of June 30, 2023, the Company’s certificate of incorporation authorized the Company to fund operations.issue 47,000,000 shares of common stock, par value $0.01 per share.
The voting, dividend and liquidation rights of the holders of the Company’s common stock are subject to and qualified by the rights, powers and preferences of the holders of the Company’s Series B convertible preferred stock. Each share of the Company’s common stock is entitled to one vote on all matters submitted to a vote of the Company’s stockholders. Holders of the Company’s common stock are entitled to receive dividends as may be declared by the Company’s board of directors (the "Board"), if any, subject to the preferential dividend rights of the Company’s Series B convertible preferred stock. No cash dividends had been declared or paid during the periods presented.
In May 2022, the Board authorized the Company to repurchase up to 500,000 shares of the Company’s common stock pursuant to the 2022 Stock Repurchase Program (the "2022 Stock Repurchase Program"), which ended May 2023. During the three and six months ended June 30, 2023, there were no shares of common stock repurchased under the 2022 Stock Repurchase Program.
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited) (continued)
6. |
|
The Company’s certificate of incorporation authorizes it to issue 3,000,000 shares of preferred stock with a par value of $0.01 per share, which may have such preferences and priorities over the Company’s common stock and other rights, powers and privileges as the Board may establish in its discretion.
In January 2022, the Company 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 created a series of 2,000,000 shares of convertible preferred stock designated as “Series B” convertible preferred stock, par value of $0.01 per share. In January 2022, 2,000,000 shares of Series B convertible preferred stock were issued to the majority stockholders and related parties pursuant to the Change of Control, Voting and Restricted Stock Agreement. See Note 8.
Shares of Series B convertible preferred stock do not carry any voting or dividend rights and upon vesting, are convertible into the Company’s common stock at a ratio of 1-to-1.5. SeeNote 8. The holders of the Series B convertible preferred stock have a liquidation preference over the Company’s common stock and vote together for matters pertaining only to the Series B convertible preferred stock where only the holders of the Series B convertible preferred stock are entitled to vote. The holders of outstanding Series B Preferred Stock do not have the right to vote for directors or other matters submitted to the holders of the Company’s common stock.
During the six months ended June 30, 2023, 204,753 shares of Series B convertible preferred stockconverted to 307,130 shares of the Company’s common stock. As of June 30, 2023, 650,000 shares of Series B convertible preferred stock were outstanding, which upon vesting, will convert to 975,000 shares of the Company’s common stock.
Following the remaining Series B convertible preferred stock shares converting to common stock and when there are no more shares of Series B convertible preferred stock outstanding, the Company may change or cancel the authorized Series B convertible preferred stock, and to the extent it reduces such authorization without issuance, the Company can create other series of preferred stock with potentially different dividends, preferences and other terms.
7. | Share-Based Compensation |
Stock Options
For the three months ended June 30, 2023 and 2022, the Company recognized share-based compensation expense related to stock options of approximately $(17,000) and $22,000, respectively. For the six months ended June 30, 2023 and 2022, the Company recognized share-based compensation expense related to stock options of approximately $30,000 and $136,000, respectively.
Restricted Stock Units
For the three months ended June 30, 2023 and 2022, the Company recognized share-based compensation expense related to restricted stock units of approximately $(26,000) and $34,000, respectively. For the six months ended June 30, 2023 and 2022, the Company recognized share-based compensation expense related to restricted stock units of approximately $100,000 and $74,000, respectively.
8. | Related Party Transactions |
Domestic Related Party Transactions
Mr. Robert G. Brown and Mr. William H. Bartels are directors and significant stockholders of SGRP, and thus each is a related party and affiliate of SGRP. Mr. Robert G. Brown was the Chairman of the Board of Directors of SGRP (the "Board"), but ceased to be eligible to hold that position when the 2022 By-Laws became effective on January 25, 2022. SPAR Business Services, Inc. ("SBS") (See note 4) and SPAR Administrative Services, Inc. ("SAS"), are related parties and affiliates of SGRP, but are not under the control or part of the Company. SBS is a related party and affiliate of SGRP because it is owned by SBS LLC, which in turn is beneficially owned by Mr. Robert G. Brown. SAS is a related party and affiliate of SGRP because it is owned principally by Mr. William H. Bartels and entities owned by affiliates of Mr. Robert G. Brown.
Change of Control, Voting and Restricted Stock Agreement
Approved by the majority of the Board and the Audit Committee and accepted by the Majority Stockholders on December 31, 2021, and signed and effective January 28, 2022, SGRP entered into theThe Change of Control, Voting and Restricted Stock Agreement ("(the "CIC Agreement"), became effective on January 28, 2022, when signed by the Company and among SGRP, Robert G. Brown, ("Mr. Brown"), William H. Bartels, ("Mr. Bartels"), SPAR Administrative Services, Inc., a corporation ("SAS"), and SPAR Business Services, Inc., ("SBS"), and collectively with Mr. Brown, Mr. Bartels SAS and SBS,SAS, the ("Majority Stockholders"). Mr. Bartels and Mr. Brown are Directors of the Corporation. Mr. Brown was the Chairman of the Board of Directors of SGRP (the "AgreemenBoardt""), but ceased holding that position when the 2022 By-Laws (as defined below) became effective on January 25, 2022.
The execution of the CIC Agreement was conditional upon making the changes to and restatement of the Corporation's 2022 By-Laws, which were approved by the Board and became effective on January 25, 2022 (the "2022 By-Laws").
The financial terms of the CIC Agreement to the Majority Stockholders, totalingtotaled $4,477,585, and fully accrued in December 2021, consistsconsisting of the following:
| The Corporation issued to the Majority Stockholders 2,000,000 restricted shares of Series B Preferred Stock, which are convertible into 3,000,000 SGRP Shares |
| The Corporation made a $250,000 cash payment to Mr. Brown and agreed to reimburse up to $35,000 of the legal expenses of the Majority Stockholders that were incurred after January 1, 2021, in connection with the negotiation and execution of the CIC Agreement. |
| The Corporation assumed financial responsibility for, and |
Pursuant to the CIC Agreement, all actions, claims and demands between the Majority Stockholders and the Company were resolved; and the Majority Stockholders and their affiliates during the five-year term of the CIC Agreement have agreed to give up their rights to do any of the following; (i) act or attempt to act by written consent; (ii) submit or attempt to submit any stockholder proposals in advance of any annual or special stockholders meeting of the Corporation; (iii) call or attempt to call any special meetings of the Corporation's stockholders; (iv) continue or commence or attempt to continue or commence any legal claims against the Company; (v) change or attempt to change the size of the Board; (vi) appoint or remove or attempt to appoint or remove any director or officer of the Corporation, except as expressly permitted with in the CIC Agreement; (vii) amend or attempt to amend the Corporation's Certificate of Incorporation or 2022 By-Laws; and (viii) enter or attempt to enter into any agreement, arrangement or understanding with any other person in an effort to take any of those actions.
The Corporation's amended and restated 2022 By-Laws were adopted to increase the independence of the Board by making the following changes (among others): (i) the Board size was fixed at 7 and must consist of at least three (3) Super Independent Directors (as defined below) plus the CEO at all times; (ii) the Chairman, Vice Chairman and all Committee Chairpersons must qualify as Super Independent Directors ; and (iii) to establish a quorum, any Board meeting must have 70% of the Directors including the majority of Super Independent Directors. If there are less than three (3) Super Independent Directors, than the least tenured non-Super Independent Director, other than the CEO, may not vote on Board matters, which helps to ensure that the Board remains under independent governance. As defined in the 2022 By-Laws "Super Independent Director" means a member of the Board who: (1) qualifies as an independent director under applicable laws and regulations; (2) is affirmatively determined to be an independent director by the Governance Committee of the Board; (3) excludes the Majority Stockholders, Spar Administrative Services, Inc. and Spar Business Services, Inc. and any of their respective Relatives, Family Members, or Affiliates; and (4) excludes any Person that is or was a present or past employee or advisor of any company with which any of the Majority Stockholders has been involved and any Person that is, or was in the past, related or affiliated in any way to any of the Majority Stockholders, including, without limitation, any Affiliates of Innovative Global Technologies, LLC or SP/R, Inc. Defined Benefit Pension Trust.
In January 2022, for the CIC Agreement and 2022 By-Law to go into effect, two (2) of the Board members at the time, James R. Brown, Sr. Advisorand Panagiotis Lazaretos, who are affiliated with the Majority Stockholders, retired from the Board and assumed other advisory roles with the Company under separate agreements (see below).
Panagiotis Lazaretos Consulting Agreement
EffectiveOn January 26,27, 2022, SGRP entered into a consulting agreement with Mr. James R. Brown, Sr., following his retirement as a director of SGRP on January 25, 2022, pursuant to which Mr. Brown will serve as a Board advisor to SGRP from time to time for a term of one (1) year (the "Brown Advisor Agreement"). As compensation for his services, Mr. Brown is entitled to receive compensation at a rate of $55,000 for the term of the Brown Advisor Agreement. Payments will be made in equal quarterly installments and will be pro-rated for partial quarters. Consultant fee paid to Mr. Brown was $13,750 for the three-months and $27,500 for the six-months period ended June 30, 2022.
Panagiotis Lazaretos Consulting Agreement
Effective February 1, 2022, SGRPCorporation entered into a consulting agreement with Thenablers, Ltd. (theeffective February 1, 2022 (the "Lazaretos Consulting Agreement"Agreement"). Thenablers, Ltd. is wholly owned by Mr. PanagiotisMr.Panagiotis Lazaretos, a retired director of SGRP.the corporation. Following Mr. Lazaretos' retirement as a director on January 25, 2022, Thenablers, Ltd. agreed to provide the consulting services of Mr. Lazaretos to SGRPthe Corporation regarding global sales and new markets' expansion. The Lazaretos Consulting Agreement cannot be terminated by the consent of either party for the first twelve (12) months, and automatically expires on January 31, 2024. Upon the one-year anniversary of the effective date, the Lazaretos Consulting Agreement may be terminated by either party with 180 days’ notice in writing to the other party. As compensation for its services, Thenablers, Ltd. is entitled to receive: (i) base compensation at a rate of $10,000 per month for the term of the Consulting Agreement; (ii) incentive-based compensation;incentive based compensation as calculated in Exhibit A of the Lazaretos Consulting Agreement; and (iii) the outstanding options granted to Mr. Panagiotis ("Panos"Panos") N. Lazaretos on February 4, 20212022 will continue to be outstanding and vest according to their terms under the agreement. Consultant fee paid to Mr. LazaretosAs permitted by that agreement, on February 2, 2023, the Corporation gave notice that it was $30,000 for theterminating that agreement effective three-months and $50,000 for the six-months period ended June 30, 2022.July 31, 2023.
Other Domestic Related Party Transactions
National Merchandising Services, LLC ("NMS"NMS"), is a consolidated domestic subsidiary of the Company and is owned jointly by SGRP through its indirect ownership of 51% of the NMS membership interests and by National Merchandising of America, Inc. ("NMA"NMA"), through its ownership of the other 49% of the NMS membership interests. Mr. Edward Burdekin is the Chief Executive Officer and President and a director of NMS and also is an executive officer and director of NMA. Ms. Andrea Burdekin, Mr. Burdekin's wife, is the sole stockholder and also a director of both NMA and NMS. NMA is an affiliate of the Company but is not under the control of or consolidated with the Company. Mr. Burdekin also owns 100% of National Store Retail Services ("NSRS"NSRS"). Beginning in September 2018 and through June 2021, of 2021,NSRS provided substantially all of the domestic merchandising specialist field force used by NMS. For those services, NMS agrees to reimburse NSRS certain costs for providing those services plus a premium ranging from 4.0% to 10.0% of certain costs. Starting in July 2021, of 2021,the domestic merchandising specialist field force services provided by NSRS was transitioned to National Remodel & Setup Services, LLC ("NRSS"NRSS") with the same financial arrangement. Mrs. Andrea Burdekin is the owner of NRSS. NMS also leases office space from Mr. Burdekin. The costs associated with labor and office lease were approximately $2.5 millionthese activities for the three-months months ended June 30, 2023 and 2022 were approximately $1.6 million and $2.5 million, respectively. The costs associated with these activities for the six months ended June 30, 2023 and 2022 were approximately $2.7 million and $4.6 million, for the six-months period ended June 30, 2022, and $2.0M for the three-months and $3.8M for the six-months period ended June 30, 2021.respectively.
Resource Plus is owned jointly by SGRP through its indirectdirect ownership of 51% of the Resource Plus membership interests and by Mr. Richard Justus through his ownership of the other 49% of the Resource Plus membership interests. Mr. Justus has a 50% ownership interest in RJ Holdings which owns the buildings where Resource Plus is headquartered and operates and are subleased to Resource Plus. The costs associated with these transactions were approximately $183,000activities for the three-months months ended June 30, 2023 and $363,0002022 were approximately $0.1 million and $0.2 million, respectively. The costs associated with these activities for the six months ended June 30, 2023 and 2022 were approximately $0.2 million and $0.4 million, respectively.
On December 1, 2021, the Corporation entered into the Agreement for Marketing and Advertising Services (the "WB Agreement") with WB Marketing, Inc. (the "Agent", and together with the Company, the "Parties"). The Agent is an entity owned and controlled by Mrs. Jean Matacunas who is the wife of President and Chief Executive Officer, Michael R. Matacunas. Costs associated with these activities for the six-months period ended June 30, 2022,2023 and $276,000 for the three-months and $566,000 for the six-months period ended June 30, 2021.were approximately $0.1.
International Related Party Services
The Corporation'sCompany's principal Brazilian subsidiary, SPAR BSMT, is owned 51% by the Company, 39% by JK Consultoria Empresarial Ltda.-ME, a Brazilian limitada ("JKC"), and 10% by EILLC. JKC is owned byCompany. Mr. Jonathan Dagues Martins, a Brazilian citizen and resident ("JDM"JDM") and his sister, Ms. Karla Dagues Martins, a Brazilian citizen and resident. JDM is the Chief Executive Officer and President of each SPAR Brazil subsidiary pursuant to a Management Agreement between JDM and SPAR BSMT dated September 13, 2016. JDM also is a director of SPAR BSMT. Accordingly, JKC and JDM are each a related party respectingof the Company. EILLC is owned by Mr. Peter W. Brown, a director of SPAR BSMT and SGRP. In November 2020, SPAR BSMT hired Mr. Peter W. Brown as a consultant to provide Brazil acquisition strategy services to SPAR BSMT, with a one-time initiation fee of $30,000 Brazilian Real and a monthly fee of $15,000 Brazilian Real effective December 1, 2020. The consultant fee paid to Mr. Brown was approximately $19,000 USD for the three-months and $38,000 USD for the six-months period ended for both June 30, 2022 and 2021, respectively.Corporation.
SPARFACTS is a consolidated international joint venturesubsidiary of the Company and is owned 51% by SGRP and 49% bySGRP. Ms. Lydna Chapman. Ms. Chapman is a director of SPARFACTS. Her various companies provide office lease, accounting and consultant services to SPARFACTS. The costs associated with these activities were approximately $81,000 for the three-months and $171,000 six-months period ended June 30, 2022 and $62,000 for the three-months and $138,000 for the six-months period ended June 30, 2021.
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited) (continued)
Summary of Certain Related Party Transactions
Due to affiliates consists of the following (in thousands): | June 30, | December 31, | ||||||
2022 | 2021 | |||||||
Loans from local investors:(1) | ||||||||
Australia | $ | 610 | $ | 597 | ||||
Mexico | 623 | 623 | ||||||
China | 905 | 1,784 | ||||||
South Africa | 620 | 0 | ||||||
Resource Plus | 266 | 266 | ||||||
Total due to affiliates | $ | 3,024 | $ | 3,270 | ||||
Due to related parties consists of the following as of the periods presented (in thousands):
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
Loans from joint venture partners(1): | ||||||||
China | $ | 1,554 | $ | 1,382 | ||||
Mexico | 623 | 623 | ||||||
Australia | 636 | 693 | ||||||
Resource Plus | 266 | 266 | ||||||
Total due to affiliates | $ | 3,079 | $ | 2,964 | ||||
(1) | Represent loans due from the local investors into the Company's subsidiaries (representing their proportionate share of working capital loans). The loans have no payment terms, are due on demand, and are classified as current liabilities in the |
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited) (continued)
Bartels' Retirement and Director Compensation
Mr. William H. Bartels retired as an employee of the Company as of January 1, 2020 but continues to serve as a member of SPAR's Board, a position he has held since July 8, 1999. Board. Mr. Bartels is also one of the founders and a significant stockholder of SGRP. Effective January 18, 2020, SPAR's Governance Committee proposed and unanimously approved retirement benefits for the five-year period commencing January 1, 2020, and ending December 31, 2024 (the "Five-Year Period""Five-Year Period"), for Mr. Bartels. The aggregate value of benefits payable to Mr. Bartels is approximately $220,558$0.2 million per year and a total of $1,102,790$1.1 million for the Five-Year Period.
As of June 30, 20222023, $352,600 remains outstanding and isthere are approximately $0.2 million of benefits payable, which are included withinin accrued expenses and other current liabilities.liabilities in the unaudited condensed consolidated balance sheets.
Other Related Party Transactions and Arrangements
SBS and SPAR InfoTech, Inc. ("Infotech") are related parties and affiliates of SGRP, but are not under the control or part of the consolidated Company. SBS is an affiliate because it is owned by SBS LLC, which in turn is beneficially owned by Robert G. Brown, Director, Chairman of the Board, and significant shareholder of SGRP. Infotech is an affiliate because it is owned principally by Robert G. Brown.
In July 1999 SMF, SBS and Infotech entered into a perpetual software ownership agreement providing that each party independently owned an undivided share of and has the right to unilaterally license and exploit certain portions of the Company's proprietary scheduling, tracking, coordination, reporting and expense software are co-owned with SBS and Infotech and each entered into a non-exclusive royalty-free license from the Company to use certain "SPAR" trademarks in the United States.
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited) (continued)
|
|
SGRP's certificate of incorporation authorizes it to issue 3,000,000 shares of preferred stock with a par value of $0.01 per share, which may have such preferences and priorities over the SGRP Common Stock and other rights, powers and privileges as the Company's Board of Directors may establish at its discretion. The Company has created and authorized the issuance of a maximum of 3,000,000 shares of Series A Preferred Stock pursuant to SGRP's Certificate of Designation of Series "A" Preferred Stock (the "SGRP Series A Preferred Stock"), which have dividend and liquidation preferences, have a cumulative dividend of 10% per year, are redeemable at the Company's option and are convertible at the holder's option (and without further consideration) on a 1-to-one basis into SGRP Common Stock. The Company issued 554,402 of SGRP shares to affiliated retirement plans, which were all converted into common shares in 2011 (including dividends earned thereon), leaving 2,445,598 shares of remaining authorized SGRP Series "A" Preferred Stock. At June 30, 2022, no shares of SGRP Series "A" Preferred Stock were issued and outstanding.
On January 28, 2022, SGRP entered into the Change in Control, Voting and Restricted Stock Agreement ("CIC Agreement") with the Majority Stockholders. As part of execution of the CIC agreement, 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 Series "A" Preferred Stock was cancelled and withdrawn. As a result, all 3,000,000 shares of 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 Shares do not carry any voting or dividend rights and are convertible into the Common Stock on a 1 for 1.5 basis. As of June 30, 2022, 1,650,000 shares of Series "B" Preferred Stock remain outstanding although 700,000 shares were vested and convertible to Common Stock, pending initiation of transactions by the Majority Stockholders as further discussed in Note 6.
|
|
The Company recognized approximately $22,000 and $183,000 in stock-based compensation expense relating to stock option awards during the three (3) month periods ended June 30, 2022 and 2021, respectively. The tax benefit available from stock-based compensation expense related to stock option during both the three (3) months period ended June 30, 2022 and 2021 was approximately $6,000 and $46,000 respectively. The Company recognized approximately $136,000 and $282,000 in stock-based compensation expense relating to stock option awards during the six (6) month periods ended June 30, 2022 and 2021, respectively. The tax benefit available from stock-based compensation expense related to stock option during both the six (6) months period ended June 30, 2022 and 2021 was approximately $34,000 and $78,000 respectively. As of June 30, 2022, total unrecognized stock-based compensation expense related to stock options was $252,000.
During the three (3) months period ended June 30, 2022 and 2021, the Company recognized approximately $34,000 and $12,000, respectively of stock-based compensation expense related to restricted stock. The tax benefit available to the Company from stock-based compensation expense related to restricted stock during the three (3) months period ended June 30, 2022 and 2021 was approximately $8,400 and $3,000, respectively. During the six (6) months period ended June 30, 2022 and 2021, the Company recognized approximately $74,000 and $18,000, respectively of stock-based compensation expense related to restricted stock. The tax benefit available to the Company from stock-based compensation expense related to restricted stock during the six (6) months period ended June 30, 2022 and 2021 was approximately $19,000 and $4,000, respectively. As of June 30, 2022, there was $83,000 unrecognized stock-based compensation expense related to unvested restricted stock awards.
|
|
Legal Matters
The Company is a party to various legal actions and administrative proceedings arising in the normal course of business. In the opinion of Company's management, resolution of these matters is not anticipated to have a material adverse effect on the Company or its estimated or desired affiliates, assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, legal costs, liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition.
All prior litigations associated with the Company through SPAR Business Services, Inc., a corporation ("SBS") and its Independent Contractors have been settled and, in most cases, paid to plaintiffs in full. As of June 30, 2022, a $325,000 accrual remained for the final payment of the SBS Clothier Litigation. The litigation was settled on September 20, 2019 for $1.3 million payable in four (4) equal annual installments of $325,000, with the final payment to be paid in December 2022.
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited) (continued)
| Segment Information |
The Company reports net revenues from operating income by reportable segment. Reportable segments are componentsSelect statement of operations activity of the CompanyCompany’s reportable segments for which separate financial information is available that is evaluated on a regular basis by the management in deciding how to allocate resources and in assessing performance.
The Company continues to evaluate the global growth strategy. To better align with its global growth strategy, effective January 1, 2022, the Company began reporting in (3) regional segments as follows: Americas which is comprised of United States, Canada, Brazil and Mexico, Asia-Pacific (“APAC”) which is comprised of Japan, China, India and Australia, and Europe, Middle East and Africa (“EMEA”) which is comprised of South Africa. Certain corporate expenses have been assigned to segments based on each segment’s revenue as a percent of total company revenue.
The operations and performance metrics for each country remains unchanged; the accounting policies for each country also remains the same. Therefore the new segment reporting has no impact to the existing accounting policies and are the same as those described in the Summary of Significant Accounting Policies. Management evaluates performance as followsperiods presented were (in thousands):
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||
Net revenues: | ||||||||||||||||||||||||||||||||
Americas | $ | 53,274 | $ | 51,251 | $ | 96,253 | $ | 96,364 | $ | 52,083 | $ | 53,274 | $ | 100,661 | $ | 96,253 | ||||||||||||||||
Asia - Pacific | 5,386 | 7,401 | 12,205 | 15,664 | ||||||||||||||||||||||||||||
APAC | 5,658 | 5,386 | 11,758 | 12,205 | ||||||||||||||||||||||||||||
EMEA | 9,139 | 8,524 | 18,336 | 16,245 | 8,195 | 9,139 | 17,897 | 18,336 | ||||||||||||||||||||||||
Total revenue | $ | 67,799 | $ | 67,176 | $ | 126,794 | $ | 128,273 | ||||||||||||||||||||||||
Total net revenues | $ | 65,936 | $ | 67,799 | $ | 130,316 | $ | 126,794 | ||||||||||||||||||||||||
Operating income (loss): | ||||||||||||||||||||||||||||||||
Operating income: | ||||||||||||||||||||||||||||||||
Americas | $ | 2,636 | $ | 1,667 | $ | 4,419 | $ | 3,995 | $ | 2,038 | $ | 2,636 | $ | 4,553 | $ | 4,419 | ||||||||||||||||
Asia - Pacific | (713 | ) | (147 | ) | (1,155 | ) | (125 | ) | ||||||||||||||||||||||||
APAC | (97 | ) | (713 | ) | (289 | ) | (1,155 | ) | ||||||||||||||||||||||||
EMEA | 434 | 367 | 1,161 | 736 | 56 | 434 | 883 | 1,161 | ||||||||||||||||||||||||
Total operating income | $ | 2,357 | $ | 1,887 | $ | 4,425 | $ | 4,606 | $ | 1,997 | $ | 2,357 | $ | 5,147 | $ | 4,425 | ||||||||||||||||
Interest expense (income): | ||||||||||||||||||||||||||||||||
Interest expense, net: | ||||||||||||||||||||||||||||||||
Americas | $ | 99 | $ | 151 | $ | 201 | $ | 284 | $ | 357 | $ | 99 | $ | 631 | $ | 201 | ||||||||||||||||
Asia - Pacific | 18 | (23 | ) | 17 | (15 | ) | ||||||||||||||||||||||||||
APAC | 17 | 18 | 16 | 17 | ||||||||||||||||||||||||||||
EMEA | 61 | 1 | 110 | 8 | 104 | 61 | 221 | 110 | ||||||||||||||||||||||||
Total interest expense | $ | 178 | $ | 129 | $ | 328 | $ | 277 | ||||||||||||||||||||||||
Total interest expense, net | $ | 478 | $ | 178 | $ | 868 | $ | 328 | ||||||||||||||||||||||||
Other expense (income), net: | ||||||||||||||||||||||||||||||||
Other income, net: | ||||||||||||||||||||||||||||||||
Americas | $ | (4 | ) | $ | 71 | $ | (11 | ) | $ | 85 | $ | (12 | ) | $ | (4 | ) | $ | 17 | $ | (11 | ) | |||||||||||
Asia - Pacific | 4 | (32 | ) | (12 | ) | (80 | ) | |||||||||||||||||||||||||
APAC | (4 | ) | 4 | (10 | ) | (12 | ) | |||||||||||||||||||||||||
EMEA | (149 | ) | (34 | ) | (214 | ) | (75 | ) | (109 | ) | (149 | ) | (190 | ) | (214 | ) | ||||||||||||||||
Total other expense (income), net | $ | (149 | ) | $ | 5 | $ | (237 | ) | $ | (70 | ) | |||||||||||||||||||||
Total other income, net | $ | (125 | ) | $ | (149 | ) | $ | (183 | ) | $ | (237 | ) | ||||||||||||||||||||
Income before income tax expense: | ||||||||||||||||||||||||||||||||
Americas | $ | 2,541 | $ | 1,445 | $ | 4,229 | $ | 3,626 | $ | 1,693 | $ | 2,541 | $ | 3,905 | $ | 4,229 | ||||||||||||||||
Asia - Pacific | (735 | ) | (92 | ) | (1,160 | ) | (30 | ) | ||||||||||||||||||||||||
APAC | (110 | ) | (735 | ) | (295 | ) | (1,160 | ) | ||||||||||||||||||||||||
EMEA | 522 | 400 | 1,265 | 803 | 61 | 522 | 852 | 1,265 | ||||||||||||||||||||||||
Total income before income tax expense | $ | 2,328 | $ | 1,753 | $ | 4,334 | $ | 4,399 | $ | 1,644 | $ | 2,328 | $ | 4,462 | $ | 4,334 | ||||||||||||||||
Income tax expense: | ||||||||||||||||||||||||||||||||
Americas | $ | 509 | $ | 543 | $ | 877 | $ | 1,336 | $ | 456 | $ | 509 | $ | 1,223 | $ | 877 | ||||||||||||||||
Asia - Pacific | 46 | 22 | 41 | 70 | ||||||||||||||||||||||||||||
APAC | (53 | ) | 46 | (35 | ) | 41 | ||||||||||||||||||||||||||
EMEA | 160 | 56 | 348 | 80 | 135 | 160 | 391 | 348 | ||||||||||||||||||||||||
Total income tax expense | $ | 715 | $ | 621 | $ | 1,266 | $ | 1,486 | $ | 538 | $ | 715 | $ | 1,579 | $ | 1,266 | ||||||||||||||||
Net income, depreciation and amortization expense, and capital expenditures of the Company’s reportable segments for the periods presented were (in thousands):
Net income (loss): | ||||||||||||||||
Americas | $ | 1,237 | $ | 2,032 | $ | 2,682 | $ | 3,352 | ||||||||
APAC | (57 | ) | (781 | ) | (260 | ) | (1,201 | ) | ||||||||
EMEA | (74 | ) | 362 | 461 | 917 | |||||||||||
Total net income | $ | 1,106 | $ | 1,613 | $ | 2,883 | $ | 3,068 | ||||||||
Net income (loss) attributable to non-controlling interest | ||||||||||||||||
Americas | $ | (394 | ) | $ | (525 | ) | $ | (879 | ) | $ | (1,076 | ) | ||||
APAC | (12 | ) | 367 | (16 | ) | 520 | ||||||||||
EMEA | (61 | ) | (306 | ) | (483 | ) | (691 | ) | ||||||||
Total net income attributable to non-controlling interest | $ | (467 | ) | $ | (464 | ) | $ | (1,378 | ) | $ | (1,247 | ) | ||||
Net income attributable to SPAR Group, Inc. | ||||||||||||||||
Americas | $ | 843 | $ | 1,507 | $ | 1,803 | $ | 2,276 | ||||||||
APAC | (69 | ) | (414 | ) | (276 | ) | (681 | ) | ||||||||
EMEA | (135 | ) | 56 | (22 | ) | 226 | ||||||||||
Total net income attributable to SPAR Group, Inc. | $ | 639 | $ | 1,149 | $ | 1,505 | $ | 1,821 | ||||||||
Depreciation and amortization | ||||||||||||||||
Americas | $ | 466 | $ | 487 | $ | 930 | $ | 972 | ||||||||
APAC | 12 | 11 | 24 | 25 | ||||||||||||
EMEA | 16 | 9 | 72 | 20 | ||||||||||||
Total depreciation and amortization | $ | 494 | $ | 507 | $ | 1,026 | $ | 1,017 | ||||||||
Capital expenditures: | ||||||||||||||||
Americas | $ | 371 | $ | 330 | $ | 660 | $ | 780 | ||||||||
APAC | 3 | 6 | 6 | 14 | ||||||||||||
EMEA | 2 | – | 51 | – | ||||||||||||
Total capital expenditures | $ | 376 | $ | 336 | $ | 717 | $ | 794 |
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited) (continued)
Net income (loss): | ||||||||||||||||
Americas | $ | 2,032 | $ | 902 | $ | 3,352 | $ | 2,290 | ||||||||
Asia - Pacific | (781 | ) | (114 | ) | (1,201 | ) | (100 | ) | ||||||||
EMEA | 362 | 344 | 917 | 723 | ||||||||||||
Total net income | $ | 1,613 | $ | 1,132 | $ | 3,068 | $ | 2,913 | ||||||||
Net (income) loss attributable to non-controlling interest: | ||||||||||||||||
Americas | $ | (525 | ) | $ | (350 | ) | $ | (1,076 | ) | $ | (865 | ) | ||||
Asia - Pacific | 367 | 58 | 520 | 54 | ||||||||||||
EMEA | (306 | ) | (326 | ) | (691 | ) | (671 | ) | ||||||||
Total net (income) attributable to non-controlling interest | $ | (464 | ) | $ | (618 | ) | $ | (1,247 | ) | $ | (1,482 | ) | ||||
Net income (loss) attributable to SPAR Group, Inc.: | ||||||||||||||||
Americas | $ | 1,507 | $ | 552 | $ | 2,276 | $ | 1,425 | ||||||||
Asia - Pacific | (414 | ) | (56 | ) | (681 | ) | (46 | ) | ||||||||
EMEA | 56 | 18 | 226 | 52 | ||||||||||||
Total net income (loss) attributable to SPAR Group, Inc. | $ | 1,149 | $ | 514 | $ | 1,821 | $ | 1,431 | ||||||||
Depreciation and amortization: | ||||||||||||||||
Americas | $ | 487 | $ | 489 | $ | 972 | $ | 991 | ||||||||
Asia - Pacific | 11 | 35 | 25 | 53 | ||||||||||||
EMEA | 9 | 10 | 20 | 20 | ||||||||||||
Total depreciation and amortization | $ | 507 | $ | 534 | $ | 1,017 | $ | 1,064 | ||||||||
Capital expenditures: | ||||||||||||||||
Americas | $ | 330 | $ | 432 | $ | 780 | $ | 750 | ||||||||
Asia - Pacific | 6 | 30 | 14 | 37 | ||||||||||||
EMEA | 0 | 97 | 0 | 103 | ||||||||||||
Total capital expenditures | $ | 336 | $ | 559 | $ | 794 | $ | 890 |
Note: There were 0 inter-companyno intercompany sales for thethree and six months ended June 30, 20222023 orand 20212022..
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Assets: | ||||||||
Americas | $ | 80,386 | $ | 64,960 | ||||
Asia - Pacific | 7,214 | 10,699 | ||||||
EMEA | 12,617 | 13,357 | ||||||
Total assets | $ | 100,217 | $ | 89,016 | ||||
Total assets of the Company’s reportable segments as of the periods presented were (in thousands):
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Long lived assets: | ||||||||
Americas | $ | 4,369 | $ | 3,968 | ||||
Asia - Pacific | 1,539 | 1,798 | ||||||
EMEA | 239 | 295 | ||||||
Total long-lived assets | $ | 6,147 | $ | 6,061 | ||||
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
Assets: | ||||||||
Americas | $ | 72,804 | $ | 75,440 | ||||
APAC | 8,262 | 5,952 | ||||||
EMEA | 12,010 | 13,206 | ||||||
Total assets | $ | 93,076 | $ | 94,598 | ||||
Long-lived assets of the Company’s reportable segments as of the periods presented were (in thousands):
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
Long lived assets: | ||||||||
Americas | $ | 5,257 | $ | 4,605 | ||||
APAC | 962 | 1,244 | ||||||
EMEA | 828 | 315 | ||||||
Total long lived assets | $ | 7,047 | $ | 6,164 | ||||
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited) (continued)
Geographic Data (in thousands)
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
% of | % of | % of | % of | % of | % of | % of | % of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
consolidated | consolidated | consolidated | consolidated | consolidated | consolidated | consolidated | consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| net revenue | net revenue | net revenue | net revenue | net revenue | net revenue | net revenue | net revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| United States | $ | 31,577 | 46.5 | % | $ | 27,252 | 40.6 | % | $ | 54,931 | 43.3 | % | $ | 50,928 | 39.6 | % | $ | 26,088 | 39.6 | % | $ | 31,577 | 46.5 | % | $ | 52,281 | 40.1 | % | $ | 54,931 | 43.3 | % | ||||||||||||||||||||||||||||||||
Brazil | 17,032 | 25.1 | 13,596 | 20.2 | 32,600 | 25.7 | 25,897 | 20.2 | 20,016 | 30.4 | 17,032 | 25.1 | 38,098 | 29.2 | 32,600 | 25.7 | ||||||||||||||||||||||||||||||||||||||||||||||||
South Africa | 9,138 | 13.5 | 8,524 | 12.7 | 18,336 | 14.5 | 16,246 | 12.7 | 8,195 | 12.4 | 9,138 | 13.5 | 17,897 | 13.7 | 18,336 | 14.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
Mexico | 2,347 | 3.5 | 8,363 | 12.4 | 4,757 | 3.8 | 15,622 | 12.2 | 2,559 | 3.9 | 2,347 | 3.5 | 5,032 | 3.9 | 4,757 | 3.8 | ||||||||||||||||||||||||||||||||||||||||||||||||
China | 1,610 | 2.4 | 3,195 | 4.8 | 4,470 | 3.5 | 6,458 | 5.0 | 2,225 | 3.4 | 1,610 | 2.4 | 4,901 | 3.8 | 4,470 | 3.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
Japan | 1,788 | 2.6 | 2,538 | 3.8 | 3,811 | 3.0 | 4,988 | 3.9 | 1,491 | 2.2 | 1,788 | 2.6 | 3,044 | 2.4 | 3,811 | 3.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Canada | 2,318 | 3.4 | 2,040 | 3.0 | 3,965 | 3.1 | 3,918 | 3.1 | 3,420 | 5.2 | 2,318 | 3.4 | 5,250 | 4.0 | 3,965 | 3.1 | ||||||||||||||||||||||||||||||||||||||||||||||||
India | 1,595 | 2.4 | 1,358 | 2.0 | 3,211 | 2.5 | 3,584 | 2.8 | 1,437 | 2.1 | 1,595 | 2.4 | 2,843 | 2.2 | 3,211 | 2.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
Australia | 394 | 0.6 | 310 | 0.5 | 713 | 0.6 | 633 | 0.5 | 505 | 0.8 | 394 | 0.6 | 970 | 0.7 | 713 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total revenue | $ | 67,799 | 100.0 | % | $ | 67,176 | 100.0 | % | $ | 126,794 | 100.0 | % | $ | 128,273 | 100.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Total net revenue | $ | 65,936 | 100.0 | % | $ | 67,799 | 100.0 | % | $ | 130,316 | 100.0 | % | $ | 126,794 | 100.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
The Company reviews new accounting pronouncements as they are issued or proposed by the Financial Accounting Standards Board (“FASB”).
Not Yet Adopted
In June 2016, the FASB issued ASU No.2016-13, “Financial Instruments (Topic 326) Credit Losses”. Topic 326 changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial assets and net investment in leases that are not accounted for at fair value through net income are to be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. Topic 326 is effective as of January 1, 2020, although in November 2019, the FASB delayed the effective date until fiscal years beginning after December 15, 2022 for SEC filers eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities. The Company qualifies as a smaller reporting company under the SEC’s definition. Early adoption is permitted. The Company is currently evaluating the impact of Topic 326 on its consolidated balance sheets, statements of income (loss), statements of cash flows and related disclosures.
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited) (continued)
| Leases |
The Company is a lessee under certain operating leases for office space and equipment.
ManyThe components of SPAR's equipment leases are short-term or cancellable with notice. SPAR’s office space leases have remaining lease terms between one and eleven (11) years, manyexpenses consisted of which include onethe following for the periods presented (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||||
June 30, | June 30, | |||||||||||||||||
Lease Costs | Classification | 2023 | 2022 | 2023 | 2022 | |||||||||||||
Operating lease cost | Selling, General and Administrative Expense | $ | 71 | $ | 114 | $ | 141 | $ | 255 | |||||||||
Short-term lease cost | Selling, General and Administrative Expense | 35 | 137 | 111 | 262 | |||||||||||||
Variable costs | Selling, General and Administrative Expense | 15 | 24 | 31 | 53 | |||||||||||||
Total lease cost | $ | 121 | $ | 275 | $ | 283 | $ | 570 | ||||||||||
(1) Variable lease expense consists primarily of property taxes, property insurance, and common area or more options to extendother maintenance costs for the term for periods thereafter. The extension options and termination options may be exercised at SPAR’s sole discretion. SPAR does not consider in the measurementCompany’s leases of ROU assets and lease liabilities an option to extend or terminate a lease if SPAR is not reasonably certain to exercise the option. As of the end of this reporting period, SPAR has not included any options to extend or terminate in its measurement of ROU assets or lease liabilities.office space.
The following includes supplemental information for the periods presented (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities | $ | 106 | $ | 258 | $ | 256 | $ | 529 | ||||||||
Assets obtained in exchange for new operating lease liabilities | ||||||||||||||||
Operating lease | $ | 808 | $ | - | $ | 1,111 | $ | - | ||||||||
Balance sheet information related to leases consisted of the following as of the periods presented (in thousands):
June 30, 2023 | December 31, 2022 | |||||||
Assets: | ||||||||
Operating lease right-of-use assets | $ | 1,856 | $ | 969 | ||||
Liabilities: | ||||||||
Current portion of operating lease liabilities | 878 | 363 | ||||||
Non-current portion of operating lease liabilities | 978 | 606 | ||||||
Total operating lease liabilities | $ | 1,856 | $ | 969 | ||||
Weighted-average remaining lease term - operating leases (in years) | 2.1 | 2.04 | ||||||
Weighted-average discount rate - operating leases | 10.0 | % | 6.4 | % | ||||
The following table summarizes the maturities of lease liabilities as of June 30, 2023 (in thousands):
Period Ending December 31, | Amount | |||
2023 | $ | 482 | ||
2024 | 791 | |||
2025 | 862 | |||
2026 | 84 | |||
2027 | 49 | |||
Thereafter | 45 | |||
Total Lease Payments | 2,313 | |||
Less: imputed interest | 457 | |||
Total | $ | 1,856 | ||
11. | Earnings Per Share |
The following table sets forth the computations of basic and diluted net income per share (in thousands, except per share data):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Numerator: | ||||||||||||||||
Net income attributable to SPAR Group, Inc. | $ | 639 | $ | 1,149 | $ | 1,505 | $ | 1,821 | ||||||||
Denominator: | ||||||||||||||||
Weighted-average common shares outstanding – basic | 23,250 | 21,808 | 23,182 | 21,696 | ||||||||||||
Effect of potentially dilutive securities: | ||||||||||||||||
Stock options and unvested restricted shares | 142 | 127 | 155 | 135 | ||||||||||||
Weighted-average common shares outstanding – diluted | 23,392 | 21,935 | 23,337 | 21,831 | ||||||||||||
Basic income per common share attributable to SPAR Group, Inc. | $ | 0.03 | $ | 0.05 | $ | 0.06 | $ | 0.08 | ||||||||
Diluted income per common share attributable to SPAR Group, Inc. | $ | 0.03 | $ | 0.05 | $ | 0.06 | $ | 0.08 | ||||||||
SPAR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited) (continued)
The components of SPAR's lease expenses for the three (3) and six (6) months ended June 30, 2022 and 2021, which are included in the condensed consolidated income statement, are as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||||
June 30, | June 30, | |||||||||||||||||
Lease Costs | Classification | 2022 | 2021 | 2022 | 2021 | |||||||||||||
Operating lease cost | Selling, General and Administrative Expense | $ | 114 | $ | 218 | $ | 255 | $ | 435 | |||||||||
Short-term lease cost | Selling, General and Administrative Expense | 137 | 206 | 262 | 508 | |||||||||||||
Variable costs | Selling, General and Administrative Expense | 24 | 42 | 53 | 92 | |||||||||||||
Total lease cost | $ | 275 | $ | 466 | $ | 570 | $ | 1,035 | ||||||||||
Supplemental cash flow information related to SPAR’s leases for the three (3) and six (6) months ended June 30, 2022 and 2021 is as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities | $ | 258 | $ | 426 | $ | 529 | $ | 946 | ||||||||
Assets obtained in exchange for new operating lease liabilities | ||||||||||||||||
Operating lease | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
At June 30, 2022, SPAR had the following maturities of lease liabilities related to office space and equipment, all of which are under non-cancellable operating leases (in thousands):
Period Ending December 31, | Amount | |||
2022 | $ | 481 | ||
2023 | 384 | |||
2024 | 247 | |||
2025 | 392 | |||
2026 | 45 | |||
Thereafter | 96 | |||
Total Lease Payments | 1,645 | |||
Less: imputed interest | 348 | |||
Total | $ | 1,297 | ||
SPAR Group, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report""Quarterly 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"SGRP") and its subsidiaries (together with SGRP, “SPAR”, the "SPAR Group""SPAR Group" or the "Company""Company"). There also are forward-looking statements contained in: (a) SGRP's 2022 Annual Report on Form 10-K for its fiscalthe year ended December 31, 2021,2022, as filed with the Securities and Exchange Commission (the "SEC""SEC") on April 15, 2022,17, 2023, and SGRP's First Amendment to the 2022 Annual Report on Form 10-K/A for the year ended December 31, 2021,2022, as filed with the SEC on May 2, 2022 (as1, 2023(as so amended, the "Annual Report""Annual Report"); (b) SGRP's definitive Proxy Statement respecting its Annual Meeting of Stockholders held on July 12, 2022 which SGRPfiled with the SEC on June 13,2022(the "Proxy Statement"); and (c)(b) 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 Quarterly Report and the Annual Report, and the Proxy Statement, each a "SEC Report""SEC Report"). "Forward-looking statements" are defined in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act""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""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 AnnualQuarterly Report may include (without limitation) statements regarding: risks, uncertainties, cautions, circumstances and other factors ("Risks"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 AnnualQuarterly Report in "Business," "Risk Factors," "Legal Proceedings," and "Management's Discussion and Analysis of Financial Condition and Results of Operations,"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""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.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.
SPAR Group, Inc. and Subsidiaries
GENERALOverview of Our Business
SPAR Group Inc., a Delaware corporation (“SGRP”), and its subsidiaries (together with SGRP, “SPAR Group” or the “Company”), is a leading global merchandising, and brand marketing, distribution services and analytics company, providing a broad range of sales enhancing services and insights 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 June 30, 2022,2023, the Company operated in nine (9) countries, including the United States, Canada, Mexico, Brazil, South Africa, Australia, China, Japan and India. Across all of these countries, the Company successfully executes programs through its multi-lingual logistics, reporting and communication technology, which provides clients value through real-time insight on store /and product conditions.
With more than 50 years of experience and a diverse network of merchandising specialists’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 providing 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 reviews its results in three segments, as follows: (i) the Americas, which is comprised of the United States, Canada, Brazil and Mexico; (ii) Asia-Pacific ("APAC”), which is comprised of Japan, China, India and Australia; and (iii) Europe, the Middle East and Africa ("EMEA”), which is comprised of South Africa
The Company’s business is led and operated globally 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 ("U.S. GAAP"). "Adjusted EBITDA" is defined as net income before (i) depreciation and amortization, (ii) interest expense, net, (iii) income tax expense, (iv) Board of Directors incremental compensation expense, (v) restructuring, (vi) goodwill impairment, (vii) nonrecurring legal settlement costs and associated legal expenses unrelated to the Company's core operations, and (viii) 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, U.S. 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.
SPAR Group, Inc.Adjusted EBITDA has its limitations as an analytical tool, and Subsidiariesyou should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations include:
Results of Operations
For the three (3) months period ended June 30, 2022, compared to the three (3) months period ended June 30, 2021
● | 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. |
The following table sets forth selected financial data and data asis a percentagereconciliation of our net revenuesincome to Adjusted EBITDA for the periods indicated (in thousands, except percent data).presented:
Three Months Ended June 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Net revenues | $ | 67,799 | 100.0 | % | $ | 67,176 | 100.0 | % | ||||||||
Cost of revenues | 54,851 | 80.9 | 55,170 | 82.1 | ||||||||||||
Gross profit | 12,948 | 19.1 | 12,006 | 17.9 | ||||||||||||
Selling, general & administrative expense | 10,084 | 14.9 | 9,585 | 14.3 | ||||||||||||
Depreciation & amortization | 507 | 0.7 | 534 | 0.8 | ||||||||||||
Operating income | 2,357 | 3.5 | 1,887 | 2.8 | ||||||||||||
Interest expense, net | 178 | 0.3 | 129 | 0.2 | ||||||||||||
Other expense (income), net | (149 | ) | (0.2 | ) | 5 | - | ||||||||||
Income before income taxes | 2,328 | 3.4 | 1,753 | 2.6 | ||||||||||||
Income tax expense | 715 | 1.1 | 621 | 0.9 | ||||||||||||
Net income | 1,613 | 2.3 | 1,132 | 1.7 | ||||||||||||
Net income attributable to non-controlling interest | (464 | ) | (0.7 | ) | (618 | ) | (0.9 | ) | ||||||||
Net income attributable to SPAR Group, Inc. | $ | 1,149 | 1.6 | % | $ | 514 | 0.8 | % | ||||||||
Net Revenues
Net revenues for the three (3) months period ended June 30, 2022 were $67.8 million, compared to $67.2 million for the three (3) months period ended June 30, 2021, an increase of $0.1 million or 0.9%.
Americas net revenues totaled $53.3 million and $51.3 million for the three (3) months period ended June 30, 2022 and 2021, respectively. An increase of $2.0 million or 3.9% was primarily due to organic growth for US and Brazil business, partially offset by decrease in Mexico driven by change of labor regulation.
APAC net revenues totaled $5.4 million and $7.4 million for the three (3) months period ended June 30, 2022 and 2021, respectively. A decrease of $2.0 million or 27.0% was primarily due to the continuing effects of COVID-19 in China and Japan.
EMEA net revenues totaled $9.1 million and $8.5 million for the three (3) months period ended June 30, 2022 and 2021, respectively. An increase of $600,000 or 7.1% is due to organic growth and acquisition of Bordax business in South Africa in July of 2021.
Cost of Revenues
The Company's cost of revenues consists of its on-site labor and field administration fees, travel and other direct labor related expenses and was 80.8% of its net revenues for the three (3) months period ended June 30, 2022, and 82.1% of its net revenues for the three (3) months period ended June 30, 2021.
Americas cost of revenues was 81.1% of net revenues and 83.6% of net revenues for the three (3) months period ended June 30, 2022 and 2021, respectively. A decrease of 2.6% was primarily due to execution of gross margin improvement initiatives for the domestic business and favorable margin mix for Brazil.
APAC cost of revenues was 77.8% of net revenues and 71.6% of net revenues for the three (3) months period ended June 30, 2022 and 2021, respectively. An increase of 6.2% was primarily due to continuing effect of COVID-19 in China and Japan. During the lock-down in China, government mandated businesses to continue to incur labor costs although less revenue was generated.
EMEA cost of revenues was 81.3% of net revenues and 82.4% of net revenues for the three (3) months period ended June 30, 2022 and 2021, respectively. A decrease of 1.0% was primarily due to execution of gross margin improvement initiatives.
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 $10.1 million and $9.6 million for the three (3) months period ended June 30, 2022 and 2021, respectively. The year-over-year increase was the result of additional expenditures needed to normalize post-pandemic operations vs. same period prior year, as well continued investment in the growth of the business for most countries.
Americas selling, general and administrative expenses totaled $7.1 million and $6.3 million for the three (3) months period ended June 30, 2022 and 2021, respectively.
APAC selling, general and administrative expenses totaled $1.8 million and $2.2 million for the three (3) months period ended June 30, 2022 and 2021, respectively. The decrease is driven by cost reduction effort to minimize negative impact due to COVID-19.
EMEA selling, general and administrative expenses totaled $1.2 million and $1.1 million for the three (3) months period ended June 30, 2022 and 2021, respectively.
Depreciation and Amortization
Depreciation and amortization charges totaled $507,000 and $534,000 for the three (3) months period ended June 30, 2022 and 2021, respectively.
Interest Expense
The Company's net interest expense was $178,000 and $129,000 for the three (3) months period ended June 30, 2022 and 2021, respectively.
Other Income
Other income was $149,000 for the three (3) months period ended June 30, 2022 and other expense was $5,000 for the three (3) months period ended June 30, 2021.
Income Taxes
Income tax expense was $715,000 and $621,000 for the three (3) months period ended June 30, 2022 and 2021, respectively.
Non-controlling Interest
Net income related to the Company’s non-controlling interest was $464,000 and $618,000 for the three (3) months period ended June 30, 2022 and 2021, respectively. The decrease was attributed to less profit from Mexico and China partially offset by Brazil and South Africa.
Net Income
Net income attributable to SPAR was $1.1 million for the three (3) months period ended June 30, 2022, or $0.05 per diluted share, compared to $514,000, or $0.02 per diluted share, for the corresponding period last year.
For the six (6) months period ended June 30, 2022, compared to the six (6) months period ended June 30, 2021
The following table sets forth selected financial data and data as a percentage of net revenues for the periods indicated (in thousands, except percent data).
Six Months Ended June 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Net revenues | $ | 126,794 | 100.0 | % | $ | 128,273 | 100.0 | % | ||||||||
Cost of revenues | 102,014 | 80.5 | 104,008 | 81.1 | ||||||||||||
Gross profit | 24,780 | 19.5 | 24,265 | 18.9 | ||||||||||||
Selling, general & administrative expense | 19,338 | 15.3 | 18,595 | 14.5 | ||||||||||||
Depreciation & amortization | 1,017 | 0.8 | 1,064 | 0.8 | ||||||||||||
Operating income | 4,425 | 3.4 | 4,606 | 3.6 | ||||||||||||
Interest expense, net | 328 | 0.3 | 277 | 0.2 | ||||||||||||
Other income, net | (237 | ) | (0.2 | ) | (70 | ) | (0.1 | ) | ||||||||
Income before income taxes | 4,334 | 3.3 | 4,399 | 3.5 | ||||||||||||
Income tax expense | 1,266 | 1.0 | 1,486 | 1.2 | ||||||||||||
Net income | 3,068 | 2.3 | 2,913 | 2.3 | ||||||||||||
Net income attributable to non-controlling interest | (1,247 | ) | (1.0 | ) | (1,482 | ) | (1.2 | ) | ||||||||
Net income attributable to SPAR Group, Inc. | $ | 1,821 | 1.3 | % | $ | 1,431 | 1.1 | % | ||||||||
Net Revenues
Net revenues for the six (6) months period ended June 30, 2022 were $126.8 million, compared to $128.3 million for the six (6) months period ended June 30, 2021, a decrease of $1.5 million or 1.2%.
Americas net revenues totaled $96.3 million and $96.4 million for the six (6) months period ended June 30, 2022 and 2021, respectively. A decrease of $100,000 or 0.1% was primarily due to changes in Mexican labor laws that became effective in July 2021, and led to a reduction of our client base that started in the second half of 2021. The decrease in revenue for Mexico was offset by revenue growth for domestic business and Brazil.
APAC net revenues totaled $12.2 million and $15.7 million for the six (6) months period ended June 30, 2022 and 2021, respectively. A decrease of $3.5 million or 22.3% was primarily due to the continuing effects of COVID-19 in China and Japan.
EMEA net revenues totaled $18.3 million and $16.2 million for the six (6) months period ended June 30, 2022 and 2021, respectively. An increase of $2.1 million or 13.0% is due to organic growth and the acquisition of Bordax in South Africa in July of 2021.
Cost of Revenues
The Company's cost of revenues consists of its on-site labor and field administration fees, travel and other direct labor related expenses and was 80.4% of its net revenues for the six (6) months period ended June 30, 2022, and 81.1% of its net revenues for the six (6) months period ended June 30, 2021.
Americas cost of revenues was 81.0% of net revenues and 82.3% of net revenues for the six (6) months period ended June 30, 2022 and 2021, respectively. A decrease of 1.3% was primarily due to execution of gross margin improvement initiatives for the domestic business and favorable margin mix for Brazil
APAC cost of revenues was 76.2% of net revenues and 72.6% of net revenues for the six (6) months period ended June 30, 2022 and 2021, respectively. An increase of 3.6% was primarily due to continuing effect of COVID-19 in China and Japan.
EMEA cost of revenues was 80.3% of net revenues and 82.7% of net revenues for the six (6) months period ended June 30, 2022 and 2021, respectively. A decrease of 2.4% was primarily due to South Africa's margin improvement initiatives.
SPAR Group, Inc. and Subsidiaries
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 $19.3 million and $18.6 million for the six (6) months period ended June 30, 2022 and 2021, respectively. The year-over-year increase was the result of additional expenditures needed to normalize post-pandemic operations vs. same period prior year, as well continued investment in the growth of the business.
Americas selling, general and administrative expenses totaled $13.1 million and $12.1 million for the six (6) months period ended June 30, 2022 and 2021, respectively.
APAC selling, general and administrative expenses totaled $4.0 million and $4.4 million for the six (6) months period ended June 30, 2022 and 2021, respectively. The decrease is driven by cost reduction effort to minimize negative impact due to COVID-19.
EMEA selling, general and administrative expenses totaled $2.2 million and $2.1 million for the six (6) months period ended June 30, 2022 and 2021, respectively.
Depreciation and Amortization
Depreciation and amortization charges totaled $1.0 million and $1.1 million for the six (6) months period ended June 30, 2022 and 2021, respectively.
Interest Expense
The Company's net interest expense was $328,000 and $277,000 for the six (6) months period ended June 30, 2022 and 2021, respectively.
Other (Income)
Other income was $237,000 and $70,000 for the six (6) months period ended June 30, 2022 and 2021, respectively.
Income Taxes
Income tax expense was $1.3 million and $1.5 million for the six (6) months period ended June 30, 2022 and June 30, 2021., respectively.
Non-controlling Interest
Net income related to the Company’s non-controlling interest was $1.2 million for the six (6) months period ended June 30, 2022 from $1.5 million for six (6) months period ended June 30, 2021. The decrease was attributed to less profit from Mexico and China partially offset by Brazil and South Africa.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net Income | $ | 1,106 | $ | 1,613 | $ | 2,883 | $ | 3,068 | ||||||||
Depreciation and amortization | 494 | 507 | 1,026 | 1,017 | ||||||||||||
Interest expense, net | 478 | 178 | 868 | 328 | ||||||||||||
Income tax expense | 538 | 715 | 1,579 | 1,266 | ||||||||||||
Other expense (income), net | (125 | ) | (149 | ) | (183 | ) | (237 | ) | ||||||||
Consolidated EBITDA | 2,491 | 2,864 | 6,173 | 5,443 | ||||||||||||
Review of strategic alternatives | 111 | - | 428 | - | ||||||||||||
Shared based compensation | (39 | ) | 130 | 134 | 280 | |||||||||||
Legal Costs / Settlements - non recurring | - | - |
| - | (368 |
| ||||||||||
Consolidated Adjusted EBITDA | 2,563 | 2,994 | 6,735 | 5,355 | ||||||||||||
Adjusted EBITDA attributable to noncontrolling interest | (959 | ) | (861 | ) | (2,234 | ) | (1,740 | ) | ||||||||
Adjusted EBITDA attributable to SPAR
| $ | 1,604 | $ | 2,133 | $ | 4,501 | $ | 3,615 | ||||||||
RESULTS OF OPERATIONS
For the three months ended June 30, 2023, compared to the three months endedJune 30, 2022
The following table sets forth selected financial data and data as a percentage of Net revenues for the periods indicated (in thousands).
Three Months Ended June 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Net revenues | $ | 65,936 | 100.0 | % | $ | 67,799 | 100.0 | % | ||||||||
Cost of re venues
| 52,840 | 80.1 | 54,851 | 80.9 | ||||||||||||
Gross profit | 13,096 | 19.9 | 12,948 | 19.1 | ||||||||||||
Selling, general & administrative expense | 10,605 | 16.1 | 10,084 | 14.9 | ||||||||||||
Depreciation & amortization | 494 | 0.7 | 507 | 0.7 | ||||||||||||
Operating income | 1,997 | 3.0 | 2,357 | 3.5 | ||||||||||||
Interest expense, net | 478 | 0.7 | 178 | 0.3 | ||||||||||||
Other (income), net | (125 | ) | (0.2 | ) | (149 | ) | (0.2 | ) | ||||||||
Income before income taxes | 1,644 | 2.5 | 2,328 | 3.4 | ||||||||||||
Income tax expense | 538 | 0.8 | 715 | 1.1 | ||||||||||||
Net income | 1,106 | 1.7 | 1,613 | 2.3 | ||||||||||||
Net income attributable to non-controlling interest | (467 | ) | (0.7 | ) | (464 | ) | (0.7 | ) | ||||||||
Net income attributable to SPAR Group, Inc. | $ | 639 | 1.0 | % | $ | 1,149 | 1.6 | % | ||||||||
Net Revenues
Net revenues for the three months ended June 30, 2023 were $65.9 million, compared to $67.8 million for the three months ended June 30, 2022, a decrease of $1.9 million, or 2.7%.
For the three months ended June 30, 2023 and 2022, the Americas net revenue was $52.1 million and $53.3 million, respectively, a decrease of $1.2 million, or 2.2%. This decrease is primarily due to clients rescheduling remodel projects to later in the year or early next year partially offset by continued growth of our core merchandising services business.
For the three months ended June 30, 2023 and 2022, APAC net revenue was $5.7 million and $5.4 million, respectively, an increase of $0.3 million, or 5.0%. This increase is the result of normal operations in China during this second quarter compared to the zero-tolerance Covid policy lockdown in China 2Q last year that began in late March 2022. In addition, Australia performance was up 28% over the prior year same period.
For the three months ended June 30, 2023 and 2022, EMEA net revenue was $8.2 million and $9.1 million, respectively, a decrease of $0.9 million, or 10.3%. Our business in South Africa performed well in an economy that is slowing down, however, one of our larger commission clients implemented a new supply chain ERP system that impacted volumes moving to stores. This in turn impacted our ability to stock the product and gain the benefit of the commission agreement.
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 80.1% of net revenue for the quarter ended June 30, 2023 compared to 80.9% of net revenues for the quarter ended June 30, 2022. We delivered an 80-basis point improvement in gross margins against the global pressure of recruiting and wages.
Cost of revenues for the three months ended June 30, 2023 were $52.8 million, compared to $54.9 million for the three months ended June 30, 2022, a decrease of $2.1 million, or 3.8%.
For the three months ended June 30, 2023 and 2022, the Americas cost of revenues were $41.8 million and $43.2 million, respectively, a decrease of $1.4 million, or 3.3%. The Americas cost of revenue as a percent of net revenue was 80.2% for the quarter ended June 30, 2023 and 81.0% for the quarter ended June 30, 2022, reflecting an 80-basis-point improvement in gross margin. We were able to achieve these results by focusing on contract pricing, increasing our higher margin services mix and reducing travel expenses related to remodel projects.
For the three months ended June 30, 2023 and 2022, APAC cost of revenues were $4.2 million and $4.2 million, respectively, a decrease of less than $0.1 million, or 1.7%. The APAC cost of revenue as a percent of net revenue was 73.8% and 78.8% for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022. The decrease in cost of revenue was primarily the result of having revenue to offset the cost in our China operations for the quarter.
For the three months ended June 30, 2023 and 2022, EMEA cost of revenues were $6.9 million and $7.4 million, respectively a decrease of $0.5 million, or 7.2%. The EMEA cost of revenue as a percent of net revenue was 84.3% and 81.5% for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022. The increase in cost was primarily the result of the higher than expected 9.6% government mandated minimum wage increase in March 2023 and rising inflation that is resulting in contract cost pressures and lowering consumer demand.
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 $10.6 million, or 16.1% of net revenue, and approximately $10.1 million, or 14.9% of net revenue for the quarters ended June 30, 2023 and 2022, respectively. Selling, general and administrative expenses for the quarter ended June 30, 2023 includes several one-time expenses of approximately $.3 million related to our consideration of strategic alternatives and our Board increasing its compensation.
For the three months ended June 30, 2023 and 2022, Americas selling, general and administrative expenses were approximately $7.8 million and $7.0 million, respectively, an increase of $0.8 million, or 12.0%. The increase is primarily the result of the one-time strategic alternative expenses and the annualization of our investment in recruiting and moving our technology to the cloud.
For the three months ended June 30, 2023 and 2022, APAC selling, general and administrative expenses were approximately $1.6 million and $1.8 million, respectively, a decrease is of $0.2 million, or 15.0%. The decrease is primarily attributable to reduction in China and Japan's SG&A's expenses as we carefully manage these businesses in response to the broader economic trends.
For the three months ended June 30, 2023 and 2022, EMEA selling, general and administrative expenses were approximately $1.2 million and $1.2 million, respectively, an increase of less than $0.1 million, or 2.9%, primarily attributable to the investment in resources and operations.
Depreciation and Amortization
For the three months ended June 30, 2023 and 2022, depreciation and amortization was approximately $0.5 million and $0.5 million, respectively.
Interest Expense
For the three months ended June 30, 2023 and 2022, interest expense was approximately $0.5 million and $0.2 million, respectively which reflects higher leverage (to support growth) and an increase in interest rates.
Other (Income), Net
For the three months ended June 30, 2023 and 2022, other (income), net was approximately (0.1) million and ($0.1) million, respectively.
Income Tax Expense
For the three months ended June 30, 2023 and 2022, income tax expense was approximately $0.5 million with an effective rate of 32.7% and $0.7 million with an effective rate of 30.7%, respectively. For the second quarter of 2023, our effective rate of 32.7% 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 and permanent items including non-deductible expenses.
For thesix months ended June 30, 2023, compared to thesix months endedJune 30, 2022
The following table sets forth selected financial data and data as a percentage of net revenues for the periods indicated (in thousands).
Six Months Ended June 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
$ | % | $ | % | |||||||||||||
Net revenues | $ | 130,316 | 100.0 | % | $ | 126,794 | 100.0 | % | ||||||||
Cost of revenues | 103,082 | 79.1 | 102,014 | 80.5 | ||||||||||||
Gross profit | 27,234 | 20.9 | 24,780 | 19.5 | ||||||||||||
Selling, general & administrative expense | 21,061 | 16.2 | 19,338 | 15.3 | ||||||||||||
Depreciation & amortization | 1,026 | 0.8 | 1,017 | 0.8 | ||||||||||||
Operating income | 5,147 | 3.9 | 4,425 | 3.4 | ||||||||||||
Interest expense, net | 868 | 0.7 | 328 | 0.3 | ||||||||||||
Other income, net | (183 | ) | (0.1 | ) | (237 | ) | (0.2 | ) | ||||||||
Income before income taxes | 4,462 | 3.4 | 4,334 | 3.3 | ||||||||||||
Income tax expense | 1,579 | 1.2 | 1,266 | 1.0 | ||||||||||||
Net income | 2,883 | 2.2 | 3,068 | 2.3 | ||||||||||||
Net income attributable to non-controlling interest | (1,378 | ) | (1.1 | ) | (1,247 | ) | (1.0 | ) | ||||||||
Net income attributable to SPAR Group, Inc. | $ | 1,505 | 1.2 | % | $ | 1,821 | 1.3 | % | ||||||||
Net Revenues
Net revenues for the six months ended June 30, 2023 were $130.3 million, compared to $126.8 million for the six months ended June 30, 2022, an increase of $3.5 million, or 2.8%.
For the six months ended June 30, 2023 and 2022, the Americas net revenue was $100.7 million and $96.3 million, respectively, an increase of $4.4 million, or 4.6%. This increase is due to continued strength in our merchandising services, remodel and distribution services in the U.S. partially offset by a decline in the remodel business as key clients are pushing projects into the future. Our Canadian operations continued merchandising work while expanding store remodel work. We also began a new agreement with a major customer in Canada. Other contributors are the continued demand momentum in Brazil with stronger revenue and margins as the year started and stability in Mexico.
For the six months ended June 30, 2023 and 2022, APAC net revenue was $11.8 million and $12.2 million, respectively, a decrease of $0.4 million, or 3.7%. This decrease reflects that despite some sense of recovery in Q2, there is still strong continued economic pressures in China and Japan partially offset by growth in Australia
For the six months ended June 30, 2023 and 2022, EMEA net revenue was $17.9 million and $18.3 million, respectively, a decrease of $0.4 million, or 2.4%. We have expanded relationships with key clients and continued our focus on profitability in our South African joint venture
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 79.1% of net revenue for the six months ended June 30, 2023 compared to 80.5% of net revenues for the six months ended June 30, 2022. We delivered a 130-basis point improvement in gross margins against the global pressure of recruiting and wages.
Cost of revenues for the six months ended June 30, 2023 were $103.1 million, compared to $102.0 million for the six months ended June 30, 2022, an increase of $1.1 million, or 1.1%.
For the six months ended June 30, 2023 and 2022, the Americas cost of revenues were $80.0 million and $78.0 million, respectively, an increase of $2.0 million, or 2.6%. The Americas cost of revenue as a percent of net revenue was 79.5% for the six months ended June 30, 2023 and 81.1% for the six months ended June 30, 2022, reflecting a 60-basis point improvement in gross margin. We were able to achieve these results by focusing on contract pricing, increasing our higher margin services mix and reducing overtime among other improvements.
For the six months ended June 30, 2023 and 2022, APAC cost of revenues were $8.8 million and $9.3 million, respectively, a decrease of $0.5 million, or 5.0%. The APAC cost of revenue as a percent of net revenue was 74.9% and 76.0% for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The decrease in cost of revenue was primarily the result of efficiencies in the Indian and Chinese operations.
For the six months ended June 30, 2023 and 2022, EMEA cost of revenues were $14.2 million and $14.7 million, respectively a decrease of $0.5 million, or 3.2%. The EMEA cost of revenue as a percent of net revenue was 79.5% and 80.2% for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The decrease in cost was primarily the result of our continuous focus on pricing, operating improvements and new client business.
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 $21.1 million, or 16.1% of net revenue, and approximately $19.3 million, or 15.3% of net revenue for the six months ended June 30, 2023 and 2022, respectively. Selling, general and administrative expenses for the six months ended June 30, 2023 includes several one-time expenses of approximately $.3 million related to our consideration of strategic alternatives.
For the six months ended June 30, 2023 and 2022, Americas selling, general and administrative expenses were approximately $15.1 million and $12.8 million, respectively, an increase of $2.3 million, or 18.1%. The increase is primarily the result of the one-time strategic alternative expenses, and investment in SG&A to support the accelerated growth.
For the six months ended June 30, 2023 and 2022, APAC selling, general and administrative expenses were approximately $3.2 million and $4.1 million, respectively, a decrease is of $0.9 million, or 20.9%. The decrease is primarily attributable to reduction in China and Japan's SG&A's expenses as we carefully manage these businesses in response to the broader economic trends.
For the six months ended June 30, 2023 and 2022, EMEA selling, general and administrative expenses were approximately $2.7 million and $2.4 million, respectively, an increase of $0.3 million, or 10.6%, primarily attributable to the investment in resources and operations to support the emerging growth.
Depreciation and Amortization
For the six months ended June 30, 2023 and 2022, depreciation and amortization was approximately $1.0 million and $1.0 million, respectively.
Interest Expense
For the six months ended June 30, 2023 and 2022, interest expense was approximately $0.9 million and $0.3 million, respectively which reflects higher leverage (to support growth) and the an increase in interest rates.
Other Expense (Income), Net
For the six months ended June 30, 2023 and 2022, other expense (income), net was approximately ($0.2) million and ($0.2) million, respectively.
Income Tax Expense
For the six months ended June 30, 2023 and 2022, income tax expense was approximately $1.6 million with an effective rate of 37.0% and $1.3 million with an effective rate of 29.2%, respectively. For the first six months of 2023, our effective rate of 37.0% 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 and permanent items including non-deductible expenses.
Critical Accounting Estimates
The preparation of our consolidated financial statements in conformity with US GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and related notes thereto. However, we believe we have used reasonable estimates and assumptions in preparing the unaudited condensed consolidated financial statements. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.
The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in our audited consolidated financial statements as of and for the fiscal year ended December 31, 2022, and the notes thereto, which are included in the 2022 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on April 17, 2023. Except as detailed in Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to our significant accounting policies during the three months ended June 30, 2023.
Liquidity and Capital Resources
Funding Requirements
Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and the other risks detailed in the section titled "Risk Factors" included elsewhere in our 2022 Annual Report on Form 10-K. The Company 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 working capital and capital expenditure requirements over the next 12 months. 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. See Note 3 to the Company's unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Cash Flows for the Six Months Ended June 30, 2023 and 2022
Net cash provided by (used in) operating activities $6.7 million and ($3.5) million for the six months ended June 30, 2023 and 2022, respectively.
Net cash used in investing activities was approximately $0.7 million and $0.8 million for the six months ended June 30, 2023 and 2022, respectively.
Net cash provided by (used in) financing activities was approximately $(4.3) million and $7.4 million for the six months ended June 30, 2023 and 2022, respectively.
Reflecting the impact of foreign exchange rate changes on the activity above resulted in a decrease in cash, cash equivalents and restricted cash for the six months ended June 30, 2023 and 2022 of approximately $0.1 million and $4.2 million, respectively.
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.
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 Quarterly Report on Form 10-Q 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.
Changes in Internal Controls 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 June 30, 2023. 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 Weaknessin 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:
● | In the six months ended June 30, |
● | 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; and |
● | 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 three months ended June 30, 2023 that materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
SPAR Group, Inc. and Subsidiaries
PART II: OTHER INFORMATION
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.
For further discussion of certain legal proceedings, see Note 8 – Related Party Transactions and Note 4 - Commitments and Contingencies of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the three months ended June 30, 2023, which is incorporated herein by reference, and Note 6 - Commitments and Contingencies of the Notes to the Consolidated Financial Statements included in Part IV, Item 15 on the 2022 Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on April 17, 2023.
SPAR Group, Inc. and Subsidiaries
Existing Risk Factors
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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.
Various risk factors applicable to the Company and its businesses are described in Item 1A under the caption "Risk Factors" in the 2022 Annual Report on Form 10-K for the year ended December 31, 2022, which Risk Factors are incorporated by reference into this Quarterly Report on Form 10-Q for the three months ended June 30, 2023.
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Management's Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have each reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report, as required by Exchange Act Rules 13a-15(b) and Rule 15d-15(b). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have each concluded that the Company's current disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in reports it files, or submits under the Exchange Act were recorded, processed, summarized and reported within the time period specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting for the registrant, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Management has designed such internal control over financial reporting by the Company to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.
The Company's management has evaluated the effectiveness of the Company's internal control over financial reporting using the "Internal Control – Integrated Framework (2013)" created by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") framework. Based on this evaluation, management has concluded that internal controls over financial reporting was effective as of March
There have been no material changes in the Company's risk factors since the 2022 Annual Report on Form 10-K for the year ended December 31, 2022.
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Not applicable.
Not applicable.
Mine Safety Disclosures
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Not applicable.
Other Information |
Not applicable.
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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.
For further discussion of certain legal proceedings, see Note 6 “Related-Party Transactions” and Note 9 “Commitments and Contingencies” of the Notes to the’ Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, and Note 6 “Commitments and Contingencies” of the Notes to the ’Condensed Consolidated Financial Statements included in Part IV, Item 15 on Annual Report From 10-K.
SPAR Group, Inc. and Subsidiaries
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