UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM
(Mark One)
OR
Commission file number
SPAR GROUP, INC.
(Exact name of Registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (
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.
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)
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 ☐ |
| 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
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
As of November 12, 2024, the Registrant had
Index
| PART I: | FINANCIAL INFORMATION | |
| Item 1 |
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| Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023 (Unaudited) |
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| Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 (Unaudited) |
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| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (Unaudited) |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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| Item 2 |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3 |
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| Item 4 |
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| PART II: | OTHER INFORMATION | |
| Item 1 |
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| Item 1A |
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| Item 2 |
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| Item 3 |
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| Item 4 |
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| Item 5 |
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| Item 6 |
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| SIGNATURES |
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| PART I: |
FINANCIAL INFORMATION |
| Condensed Consolidated Financial Statements (Unaudited) |
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(In thousands, except per share amounts)
| Three Months Ended |
Nine Months Ended |
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| September 30, |
September 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
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| Net revenues |
$ | $ | $ | $ | ||||||||||||
| Related party - cost of revenues |
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| Cost of revenues |
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| Gross profit |
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| Selling, general and administrative expense |
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| (Gain) Loss on sale of businesses |
( |
) | ||||||||||||||
| Depreciation and amortization |
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| Operating (loss) income |
( |
) | ||||||||||||||
| Interest expense |
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| Other expense (income), net |
( |
) | ( |
) | ||||||||||||
| (Loss) Income before income tax expense |
( |
) | ||||||||||||||
| Income tax (benefit) expense |
( |
) | ||||||||||||||
| Net (loss) income |
( |
) | ||||||||||||||
| Net loss (income) attributable to non-controlling interest |
( |
) | ( |
) | ( |
) | ||||||||||
| Net (loss) income attributable to SPAR Group, Inc. |
$ | ( |
) | $ | $ | $ | ||||||||||
| Basic (loss) income per common share attributable to SPAR Group, Inc. |
$ | ( |
) | $ | $ | $ | ||||||||||
| Diluted (loss) income per common share attributable to SPAR Group, Inc. |
$ | ( |
) | $ | $ | $ | ||||||||||
| Weighted-average common shares outstanding – basic |
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| Weighted-average common shares outstanding – diluted |
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| Net (loss) income |
$ | ( |
) | $ | $ | $ | ||||||||||
| Other comprehensive loss |
||||||||||||||||
| Foreign currency translation adjustments |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Comprehensive (loss) income |
( |
) | ||||||||||||||
| Comprehensive (income) loss attributable to non-controlling interest |
( |
) | ( |
) | ||||||||||||
| Comprehensive (loss) income attributable to SPAR Group, Inc. |
$ | ( |
) | $ | ( |
) | $ | $ | ||||||||
See accompanying 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)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Deferred income taxes, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Due to affiliates | ||||||||
| Customer incentives and deposits | ||||||||
| Lines of credit and short-term loans | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Long-term debt | ||||||||
| Deferred income taxes, net | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies – See Note 4 | ||||||||
| Stockholders' equity: | ||||||||
| Series B convertible preferred stock, $ par value per share: Authorized and available shares . Issued and outstanding shares at September 30, 2024 and at December 31, 2023 | ||||||||
| Common stock, $ par value per share: shares authorized as of September 30, 2024 and December 31, 2023; and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Treasury stock, at cost, shares as of September 30, 2024 and as of December 31, 2023 | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total stockholders' equity attributable to SPAR Group, Inc. | ||||||||
| Non-controlling interest | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(In thousands)
| Common Stock |
Series B Convertible Preferred Stock |
Treasury Stock |
Additional |
Accumulated Other |
Non- |
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| Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Paid-In Capital |
Comprehensive Loss |
Retained Earnings |
Controlling Interest |
Total Stockholders’ Equity |
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| Balance at January 1, 2024 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Share-based compensation |
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Conversion of preferred stock to common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Sale of joint ventures |
- | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Other comprehensive loss |
- | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Net income |
- | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Share-based compensation |
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Exercise of stock options |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Sale of joint ventures |
- | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Purchase of non-controlling interest |
- | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||
| Purchase of treasury shares |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income |
- | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net income |
- | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Share-based compensation |
- | - | - | - | ( |
) | - | - | - | ( |
) | |||||||||||||||||||||||||||||||||
| Exercise of stock options |
||||||||||||||||||||||||||||||||||||||||||||
| Sale of joint ventures |
- | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Other comprehensive income |
- | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Net loss |
- | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||||||||||||||
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity (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 Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Share-based compensation expense | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Conversion of preferred stock to common stock | ) | ) | ||||||||||||||||||||||||||||||||||||||||||
| Dividend to NCI | - | - | - | ) | ) | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | - | - | ) | - | - | - | ) | |||||||||||||||||||||||||||||||||
| Dividend to NCI | - | - | - | ) | ) | |||||||||||||||||||||||||||||||||||||||
| Payments to acquire noncontrolling interests | - | - | - | ) | ) | |||||||||||||||||||||||||||||||||||||||
| Retirement of shares | ) | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | - | - | ) | ) | |||||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Exercise of stock options | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Distribution to NCI | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
SPAR Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Provision for expected credit losses | ||||||||
| Deferred income tax expense | ( | ) | ||||||
| Gain on sale of businesses | ( | ) | ||||||
| Share-based compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accrued expenses, other current liabilities, due to affiliates and customer incentives and deposits | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | $ | ( | ) | $ | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Cash transferred in the sale of a business | ( | ) | ||||||
| Proceeds from the sale of joint ventures | ||||||||
| Net cash provided by (used in) investing activities | $ | $ | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Borrowings under line of credit | ||||||||
| Repayments under line of credit | ( | ) | ( | ) | ||||
| Proceeds from term debt | ||||||||
| Repurchases of common stock | ( | ) | ||||||
| Payments of notes to seller | ( | ) | ||||||
| Payments to acquire noncontrolling interests | ( | ) | ( | ) | ||||
| Dividend on noncontrolling interest | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | $ | $ | ( | ) | ||||
| Effect of foreign exchange rate changes on cash | $ | ( | ) | $ | ( | ) | ||
| Net change in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents at beginning of period | ||||||||
| Cash, cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flows information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
SPAR Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
| 1. | Nature of the Business |
SPAR Group, Inc. ("SGRP" or the "Corporation"), and its subsidiaries (and SGRP together with its subsidiaries may be referred to as "SPAR Group", the "Company", "SPAR", "We", or "Our") is a global merchandising and brand marketing services company, providing a broad range of services to retailers, consumer goods manufacturers and distributors around the world.
| 2. | Summary of Significant Accounting Policies |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities 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, 2023 included in the 2023 Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on April 1, 2024.
The 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 the accompanying unaudited condensed consolidated financial statements contain all adjustments which are necessary for a fair presentation of the Company’s consolidated financial position as of September 30, 2024, consolidated results of operations and comprehensive income for the three and nine months ended September 30, 2024 and 2023, and consolidated cash flows for the nine months ended September 30, 2024 and 2023. Such adjustments are of a normal and recurring nature. The consolidated results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the consolidated results of operations that may be expected for the year ending December 31, 2024.
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 reported amounts of revenues and expenses during the reporting year. Significant balances subject to such estimates and assumptions include carrying amounts of property and equipment and intangible assets, valuation allowances for receivables, carrying amounts for deferred tax assets and liabilities, and liabilities incurred from operations and customer incentives. Actual results could differ from those estimates.
Segment Reporting
Reportable segments are components of the Company for which separate financial information is available that is evaluated on a regular basis by the Chief Operating Decision Maker ("CODM”) in deciding how to allocate resources and in assessing performance. The Company's CODM is the Chief Executive Officer.
The Company provides similar merchandising, marketing and business services and has reportable regional segments: (i) Americas, which is comprised of United States, Canada, Brazil and Mexico; (ii) Asia-Pacific ("APAC”), which is comprised of Japan, China, and India; and (iii) Europe, Middle East and Africa ("EMEA”), which is comprised of South Africa. Certain corporate expenses have been allocated to segments based on each segment’s revenue as a percentage of total company revenue.
Recently Adopted Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280):Improvements to Reportable Segment Disclosures, which will require Companies to report additional segment information, including certain significant segment expenses, and permit the disclosure of additional measures of a segment’s profit or loss. The guidance will be effective for the Company’s fiscal year beginning January 1, 2024 and for interim periods thereafter. The Company adopted ASU No. 2023-07 on January 1, 2024 and the impact was not material.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2023, the FASB issued ASU No. 2023-05, Business Combinations – Joint Venture Formations (Subtopic 805):Recognition and Initial Measurement, which will require joint ventures to recognize and initially measure its assets and liabilities at fair value upon formation. The guidance will be effective for the Company prospectively for all joint venture formations on or after January 1, 2025. Early adoption and retrospective application is permitted. The Company does not believe adoption will have a material effect on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740):Improvements to Income Tax Disclosures, which will require Companies to report specific categories of rate-reconciliation, certain details of income taxes paid and of certain information by tax jurisdictions. The guidance will be effective for the Company’s fiscal year beginning January 1, 2025. The Company is currently evaluating the impact adoption will have on its consolidated financial statements and related disclosures.
| 3. | Debt |
North Mill Capital Credit Facility
The Company, through SPAR Marketing Force, Inc. ("SMF") and SPAR Canada Company ULC ("SCC", and collectively with SMF, the “NM Borrowers”), has a secured revolving credit facility in the United States (the "US Revolving Credit Facility") and Canada (the "Canada Revolving Credit Facility", and collectively with the US Revolving Credit Facility, the "NM Credit Facility") with North Mill Capital, LLC, d/b/a SLR Business Credit ("NM").
In order to obtain, document and govern the NM Credit Facility, SMF, SCC, SGRP and certain of SGRP's direct and indirect subsidiaries in the United States and Canada (including SMF and SCC as borrowers and SGRP as a guarantor, collectively, the "NM Loan Parties") entered into a Loan and Security Agreement with NM dated as of April 10, 2019, which, as amended from time to time (as amended, the "NM Loan Agreement"), governs the NM Credit Facility. Pursuant to the NM Loan Agreement, the NM Borrowers agreed to reimburse NM for legal and documentation fees incurred in connection with the NM Loan Agreement and such amendments.
On 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 $
On March 27, 2024, the NM Loan Parties and NM executed and delivered a Seventh Modification Agreement, effective immediately (the "Seventh Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to extend the NM Credit Facility from October 10, 2024 to October 10, 2025.
The Restated US Note and Restated Canadian Note (together, the "NM Notes") and the NM Loan Agreement together require the NM Borrowers to pay interest on the loans thereunder equal to: (i) the designated from time to time by Wells Fargo Bank; plus (ii) one and nine-tenths percentage points (
As of September 30, 2024, the aggregate interest rate was
The NM Credit Facility contains certain financial and other restrictive covenants and also limits certain expenditures by the NM Loan Parties, including maintaining a positive trailing EBITDA for each the NM Borrowers (i.e., SMF and SCC) and imposes limits on all of the NM Loan Parties (including SGRP) on non-ordinary course payments and transactions, incurring or guaranteeing indebtedness, capital expenditures and certain other investments. The NM Loan Parties were in compliance with such covenants as of September 30, 2024. The obligations of the NM Borrowers are secured by the receivables and other assets of the NM Borrowers and substantially all of the assets of the other NM Loan Parties.
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 | |||||||||||||
| September 30, 2024 | September 30, 2024 | December 31, 2023 | December 31, 2023 | |||||||||||||
| USA / Canada North Mill Capital | % | $ | % | $ | ||||||||||||
| USA - Resource Plus Seller Notes | % | % | ||||||||||||||
| China- Industrial Bank | N/A | % | ||||||||||||||
| China - Industrial and Commercial Bank of China | N/A | % | ||||||||||||||
| South Africa - Investec Bank Ltd. | N/A | % | ||||||||||||||
| Total | $ | $ | ||||||||||||||
Summary of Unused Company Credit and Other Debt Facilities (in thousands):
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Unused Availability: | ||||||||
| United States / Canada | $ | $ | ||||||
| South Africa | ||||||||
| Total Unused Availability | $ | $ | ||||||
Summary of the Company’s Long- term debt (dollars in thousands):
| Interest Rate | Balance | Interest Rate | Balance | |||||||||||||
| as of | as of | as of | as of | |||||||||||||
| September 30, 2024 | September 30, 2024 | December 31, 2023 | December 31, 2023 | |||||||||||||
| USA - Resource Plus Seller Notes | % | $ | N/A | $ | ||||||||||||
| South Africa - Investec Bank Ltd. | N/A | % | ||||||||||||||
| $ | $ | |||||||||||||||
| 4. | Commitments and Contingencies |
Legal Matters
The Company is a party to various legal actions and administrative proceedings arising in the normal course of business. In the opinion of Company's management, resolution of these matters is not anticipated to have a material adverse effect on the Company or its estimated or desired affiliates, assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, legal costs, liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition.
| 5. | Common Stock |
As of September 30, 2024, the Corporation’s certificate of incorporation authorized the Corporation to issue
The voting, dividend and liquidation rights of the holders of the Corporation’s common stock are subject to and qualified by the rights, powers and preferences of the holders of the Corporation’s Series B convertible preferred stock. Each share of the Corporation’s common stock is entitled to one vote on all matters submitted to a vote of the Corporation’s stockholders. Holders of the Corporation’s common stock are entitled to receive dividends as may be declared by the Corporation’s board of directors (the "Board"), if any, subject to the preferential dividend rights of the Corporation’s Series B convertible preferred stock. cash dividends had been declared or paid during the periods presented.
2024 Stock Repurchase Program
On March 28, 2024, the Board approved SGRP's repurchase of up to
| 6. | Preferred Stock |
The Corporation’s certificate of incorporation authorizes it to issue
In January 2022, the Corporation filed a Certificate of Elimination for its "Certificate of Designation of Series "A” Preferred Stock of SPAR Group, Inc.” (the "Certificate of Elimination”). Pursuant to the Certificate of Elimination, the previous Series A convertible preferred stock designation was cancelled and withdrawn. As a result, all
Subsequent to filing the Certificate of Elimination, in January 2022, the Corporation filed a "Certificate of Designation of Series "B” Preferred Stock of SPAR Group, Inc.” (the "Preferred Designation”) with the Secretary of State of Delaware, which designation had been approved by the Board in January 2022. The Preferred Designation created a series of
The Series B convertible preferred stock do not carry any voting or dividend rights and upon vesting converted into the Corporation's common stock at a ratio of 1-to-
In January 2022,
During the year ended December 31, 2022,
During the year ended December 31, 2023, all of the remaining
| 7. | Share-Based Compensation |
Stock Options
For the three months ended September 30, 2024 and 2023, the Company recognized share-based compensation expense related to stock options of approximately $(
Restricted Stock Units
For the three months ended September 30, 2024 and 2023, the Company recognized share-based compensation expense related to restricted stock units of approximately $(
2023 and 2022 Executive Deferred Compensation Agreements
The Corporation prepared a 2022 Stock Compensation Plan that would have included Awards for NQSOs and RSUs (as defined below), but that plan was never submitted to its shareholders for approval. However, the Board had previously approved, for certain key executives, incentive stock-based awards for 2023 and 2022 using RSUs or cash. Since there were no plan based RSUs available, those executives instead received deferred compensation in the form of Phantom Stock Units ("PSUs"), which correspond to an equal number of shares of the Corporation's Common Stock ("SGRP Shares"). The number of PSUs received equals the dollar value of the incentive award divided by the per share market price of SGRP shares on the date of award. Each PSU represents the right of the grantee to receive cash payments based on the fair market value of SGRP Shares at the time of vesting, but not to receive SGRP Shares themselves. The number of the Grantee's PSUs will be automatically adjusted to reflect the specified events respecting the SGRP Shares as provided in the applicable Phantom Stock Agreement. The PSUs do not possess the rights of common stockholders of the Corporation, including any voting or dividend rights, and cannot be exercised or traded for SGRP Shares.
Effective as of March 24, 2022 (the "2022 Grant Date"), the Corporation issued an award of
Effective as of April 3, 2023 (the "2023 Grant Date"), the Corporation granted an award of
Effective as of the 2023 Grant Date, the Corporation also granted an award of
Effective as of the 2023 Grant Date, the Corporation also granted an award of
| 8. | Related Party Transactions |
Domestic Related Party Transactions
Change of Control, Voting and Restricted Stock Agreement
The Change of Control, Voting and Restricted Stock Agreement (the "CIC Agreement") became effective on January 28, 2022, when signed by the Company and Mr. Robert G. Brown, ("Mr. Brown"), Mr. William H. Bartels ("Mr. Bartels"), SPAR Administrative Services, Inc. ("SAS"), and SPAR Business Service, Inc. ("SBS"). Mr. Brown, Mr. Bartels, SAS and SBS may be referred to collectively as the "Majority Stockholders".
Pursuant to the CIC Agreement, the Corporation issued to the Majority Stockholders
Pursuant to the CIC Agreement, all actions, claims and demands between the Majority Stockholders and the Corporation were resolved; and the Majority Stockholders and their affiliates during the five-year term of the CIC Agreement, ending on June 25, 2027, have agreed to give up certain rights with respect to the management of the Corporation.
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. 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"), for Mr. Bartels. The aggregate value of benefits payable to Mr. Bartels is approximately $
As of September 30, 2024, there are approximately $
Other Related Party Transactions and Arrangements
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. During the first nine months of 2024, the company his recognized approximately ,000 in expenses under this agreement.
SBS and Infotech are related parties and affiliates of SGRP, but are not under the control or part of the consolidated Company. See Change of Controls, Voting and Restricted Stock Agreement, above. In July 1999 the Company, 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.
On May 13, 2024, SGRP privately repurchased
International Joint Venture Transactions
Agreement to sell the Company’s ownership interest in its South African Joint Venture
Prior to March 31, 2024, SGRP Meridian Proprietary Limited ("Meridian") was a consolidated international subsidiary of the Company and was owned
On February 7, 2024, the Company entered into an agreement to sell its
The closing conditions under that agreement were satisfied in all material respects by March 31, 2024. and on April 29, the Company received
Agreement to sell the Company’s ownership interest in its Chinese Joint Venture
On February 23, 2024, the Company entered into an agreement to sell its
Agreement to sell the Company’s Brazilian subsidiary that owns its interest in its Brazilian Joint Venture
On March 26, 2024, the Company signed a share purchase agreement with JK Consultoria Empresarial Ltda. ("JKC") for JKC to acquire the Company's Brazilian holding company (which in turn owns the Company's
Agreement to sell SPAR's 100% ownership interest in SPAR Japan
On July 23, 2024, the Company entered into an agreement to sell its
Agreement to sell SPAR's 51% ownership interest in its Indian Joint Venture
On September 25, 2024, the Company closed on an agreement to sell its
Summary of Certain Related Party Transactions
Due to related parties consists of the following as of the periods presented (in thousands):
| Due to affiliates consists of the following (in thousands): | September 30, | December 31, | ||||||
| 2024 | 2023 | |||||||
| Loans from local investors:(1) | ||||||||
| Mexico | $ | $ | ||||||
| China | ||||||||
| Resource Plus | ||||||||
| Total due to affiliates | $ | $ | ||||||
| (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 unaudited condensed consolidated balance sheets. |
| 9. | Segment Information |
Select statement of operations activity of the Company’s reportable segments for the periods presented were (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net revenues: | ||||||||||||||||
| Americas | $ | $ | $ | $ | ||||||||||||
| APAC | ||||||||||||||||
| EMEA | ||||||||||||||||
| Total net revenues | $ | $ | $ | $ | ||||||||||||
| Operating (loss) income: | ||||||||||||||||
| Americas | $ | ( | ) | $ | $ | $ | ||||||||||
| APAC | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| EMEA | ||||||||||||||||