SGRP · Read the filing

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

This "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, made or respecting by SPAR Group, Inc. ("SGRP") and its subsidiaries (together with SGRP, the "SPAR Group" or the "Company"). See FORWARD-LOOKING STATEMENTS preceding Part I, above. There also are "forward-looking statements" contained elsewhere in this Annual Report.

All forward-looking statements and other information attributable to the Company or persons acting on its behalf are expressly subject to and qualified by all of the Risks facing the Company, including the Risks and other information described in Item IA - Risk Factors, above, or elsewhere in this Annual Report.

The Company does not intend, assume any obligation, or promise to publicly update or revise any such forward-looking statement, Risk or information (in whole or in part), whether as a result of new information, new or worsening Risks or uncertainties, changed circumstances, future events, recognition or otherwise.

Overview

The business performed well and grew by 10.9% in 2021 to achieve the highest annual revenue in the company’s history. This is compared to a decline of 8.8% in 2020. Our 2021 International revenue increased 12.3% compared to a 14.7% decrease in 2020. Our 2021 Domestic revenue increased 8.9% compared to a 1.5% increase in 2020.

The 2021 performance was the result of our continuing focus on client success, developing new client relationships, expanding into new services, continuing to invest in and upgrade our software solution, SPARView, and aligning all of our global plans around a single, exciting vision. While we experienced disruption and uncertainty in a number of markets as a result of continued COVID-19 economic challenges, we stayed focused.

While our revenue increased year over year, our gross profit declined by 1% compared to 2020. This was the result of a combination of factors including: 1) incremental recruiting and labor expenses in the challenging U.S. market for the year; 2) an acceleration in the growth of our remodel business that includes resource travel expenses, which were also highly variable during the year due to pandemic challenges; and 3) continued operating efficiency pressure from large clients to cover more locations with the same resources.

As we experienced these gross profit pressures during the course of 2021, we initiated a number of robust gross profit improvement plans that we expect to materialize in 2022.

The most significant financial event for the business in 2021 was the Change of Control, Voting and Restricted Stock Agreement ("CIC Agreement"). While the execution of this agreement has a one-time negative effect on our 2021 financials, we believe reaching this agreement with the two (2) majority shareholders and resolving all outstanding claims and disputes while concurrently changing the Company’s By-Laws to improve independent board governance, were watershed events in the exciting future of the company.

The highlights of the comprehensive agreement follow. This summary combines both the key points of the agreement with the Significant Stockholders as well as the changes made to the Company By-Laws to improve independent governance of the board. Signing the agreement was conditional upon the changes to the By-Laws.

o Act or attempt to act by written consent;

o Change or attempt to change the size of the Board;

o The Board size is fixed at 7;

For this agreement and By-Law changes to go into effect, two (2) of the Board members, James R. Brown, Sr. and Panagiotis Lazaertos, who are affiliated with the Majority Stockholders, retired from the Board and assumed other advisory roles with the Company under separate agreements. The terms of these agreements are specified in the Related Party section of this document.

Our 2021 net loss attributable to the Company of $1.8 million is due to the one-time financial impact from the CIC Agreement. See Note 10to the Company’s Consolidated Financial Statements – Related Party Transactions Domestic Related Party Services (including Change of Control, Voting and Restricted Stock Agreement), below. Our 2020 net income attributable to the Company was $3.4 million including an approximate $3 million deferred tax benefit. Excluding both impacts for 2021 and 2020, our net income would have shown year-over-year improvement despite a challenging year to normalize operations through the pandemic and to prepare for future growth. We are proud of this achievement and the focus of our teams in light of the broad economic market impact of the pandemic across the globe.

CRITICAL ACCOUNTING ESTIMATES

The Company’s critical accounting policies, including the assumptions and judgements underlying them, are disclosed in Note 2 to the Company’s Consolidated Financial Statements – Summary of Significant Accounting Policies, below. These policies have been consistently applied in all material respects and address such matters as revenue recognition, doubtful accounts and credit risks, internal use software development costs, asset impairment recognition, consolidation of subsidiaries and other companies. While the estimates and judgements associated with the application of these policies may be affected by different assumptions or conditions, the Company believes the estimates and judgements associated with the reported amounts are appropriate under the circumstances.

Impairment of Long-Lived Assets, including Goodwill and Intangible Assets

At December 31, 2021 and 2020, the Company’s goodwill balance was $4.2 million and $3.8 million, respectively. The Company is required to test goodwill for impairment annually or more frequently, whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit with goodwill below its carrying amount. The Company annually tests goodwill impairment during the third quarter. Goodwill represents the excess purchase price over the fair value of assets acquired in connection with our acquisitions. We continually assess whether any indicators of impairment exist, which requires a significant amount of judgment. Such indicators may include a sustained significant decline in our share price and market capitalization; a decline in our expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; overall weaknesses in our industry; and slower growth rates. Adverse changes in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on the consolidated financial statements. The Company has the option to first assess qualitative factors such as current performance and overall economic conditions to determine whether or not it is necessary to perform a quantitative goodwill impairment test. If that option is chosen, then the Company would not be required to perform a quantitative goodwill impairment test unless it is determined that, based on a qualitative assessment, it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is determined that it is more likely than not, or if the Company chooses not to perform a qualitative assessment, the Company then proceeds with the quantitative assessment. Under the quantitative test, if the fair value of a reporting unit exceeds its carrying amount, then goodwill of the reporting unit is considered to not be impaired. If the carrying amount of the reporting unit exceeds its fair value, then an impairment loss is recognized in an amount equal to the excess, up to the value of the goodwill.

During each of the third quarters of 2021 and 2020, the Company completed its goodwill impairment testing by performing a quantitative assessment on the Resource Plus reporting unit using the income approach. The determination of the fair value of the reporting units requires us to make estimates and assumptions related to future revenue, operating income and discount rates. Based on the results of this test, no impairment loss was recognized. There were no triggering events identified from the date of our assessment through December 31, 2021 that would require an update to our annual impairment test. For all other reporting units, the Company performed a qualitative assessment. Based on the results of the qualitative assessments, goodwill of the remaining reporting units is not considered to be impaired.

The Company evaluates the carrying value of long-lived assets, other than goodwill, for impairment by analyzing the operating performance and anticipated future cash flows for those assets, whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable. The Company evaluates the need to adjust the carrying value of the underlying assets if the sum of the expected cash flows is less than the carrying value. The Company’s projections of future cash flows, the level of actual cash flows, the methods of estimation used for determining fair values and salvage values can impact impairment. Any changes in management’s judgments could result in greater or lesser annual depreciation and amortization expense or impairment charges in the future. Depreciation and amortization of long-lived assets is calculated using the straight-line method over the estimated useful lives of the assets.

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Revenue Recognition

The Company’s services are provided to its clients under contracts or agreements. The Company bills its clients based upon service fee arrangements. Revenues under service fee arrangements are recognized when the service is performed. Customer deposits, which are considered advances on future work, are recorded as revenue in the period services are provided.

The Company records revenue from contracts with its customers through the execution of a Master Service Agreement (“MSA”) that are effectuated through individual Statements of Work (“SOW” and with the applicable MSA collectively a “Contract”). The MSAs generally define the financial, service, and communication obligations between the client and SPAR while the SOWs state the project objective, scope of work, time frame, rate and driver in which SPAR will be paid. Only when the MSA and SOW are combined as a Contract can all five (5) revenue standard criteria be met. The Company integrates a series of tasks promised within these Contracts into a bundle of services that represent the combined performance obligation of Merchandising Services. Such Merchandising Services are performed over the duration of the SOW. Most Merchandising Services are performed on a daily, weekly or monthly basis. Revenue from Merchandising Services are recognized as the services are performed based on a rate-per-driver basis (per hour, store visit or unit stocked) with services delivered as they are consumed.

All of the Company’s Contracts with customers have a duration of one (1) year or less, with over 90% being completed in less than 30 days, and revenue is recognized as services are performed. Given the nature of the Company’s business, how the Contracts are structured and how the Company is compensated, the Company has elected the right-to-invoice practical expedients method allowed under the revenue standard.

Doubtful Accounts and Credit Risks

The Company continually monitors the collectability of its accounts receivable based upon current client credit information and financial condition. Balances that are deemed to be uncollectible after the Company has attempted reasonable collection efforts are written off through a charge to the bad debt allowance and a credit to accounts receivable. Accounts receivable balances, net of any applicable reserves or allowances, are stated at the amount that management expects to collect from the outstanding balances. The Company provides for probable uncollectible amounts through a charge to earnings and a credit to bad debt allowance based in part on management’s assessment of the current status of individual accounts. Based on management’s assessment, the Company established an allowance for doubtful accounts of $564,000 and $563,000 at December 31, 2021, and 2020, respectively. Bad debt expense was $128,000 and $330,000 for the years ended December 31, 2021 and 2020, respectively. Based on the Company’s 2021 estimated bad debt, if the estimate of bad debt changed by 10% the reserve would change by approximately $50,000.

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Internal Use Software Development Costs

The Company capitalized approximately $1.2 million and $1.0 million of costs related to software developed for internal use in 2021 and 2020, respectively, and recognized approximately $1.2 million of amortization of capitalized software for the years ended December 31, 2021 and 2020.

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Results of Operations

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

Year Ended December 31,

Selling, general & administrative expense 36.8 14.4 33.3 14.5

Majority stockholders change of control agreement 4.5 1.8 - 0.0

Depreciation & amortization 2.1 0.8 2.1 0.9

Other (income) expense, net (0.5 ) (0.2 ) (0.2 ) (0.1 )

Income before income taxes 4.1 1.6 9.3 4.0

Net (loss) income attributable to SPAR Group, Inc. $ (1.8 ) (0.7 )% $ 3.4 1.5 %

Results of operations for the year ended December 31, 2021, compared to the year ended December 31, 2020.

Net Revenues

Net revenues for the year ended December 31, 2021, were $255.7 million compared to $230.5 million for the year ended December 31, 2020, an increase of $25.2 million or 10.9%. The Domestic segment contributed an increase of $8.2 million and the International segment contributed an increase of $17.0 million year over year.

Domestic net revenues totaled $100.3 million and $92.1 million at December 31, 2021 and 2020, respectively. The increase of $8.2 million or 8.9% is primarily attributable to post-pandemic recovery and project growth.

International net revenues totaled $155.4 million for the year ended December 31, 2021, compared to $138.4 million for the year ended December 31, 2020, an increase of $17.0 million or 12.3%. The increase in 2021 International net revenues was primarily driven by post-pandemic recovery from 2020. Every country with the exception of Mexico and India enjoyed higher revenue comparing to 2020. See Note 12 to the Company's Consolidated Financial Statements – Segment Information, below.

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 81.4% of net revenue for the year ended December 31, 2021 compared to 80.4% of net revenues for the year ended December 31, 2020.

Domestic cost of revenue as a percent of net revenue was 81.4% and 78.5% for the years ended December 31, 2021 and 2020, respectively. The increase in cost was driven by pressure of higher labor costs and unfavorable mix of project work.

International cost of revenue as a percent of net revenue was 81.4% and 81.6% for the years ended December 31, 2021 and 2020, respectively. The International cost of revenue percentage decrease of 0.2% percentage point was primarily due to margin improvements in Mexico, India, and Brazil.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses of the Company include its corporate overhead, project management, information technology, executive compensation, human resources, legal and accounting expenses. Selling, general and administrative expenses were approximately $41.3 million, or 16.1% of net revenue, and approximately $33.3 million, or 14.5% of net revenue for the years ended December 31, 2021 and 2020, respectively. In 2021, the Company recorded a one-time expense of $4.5 million relating to the CIC Agreement. See Note 10to the Company's Consolidated Financial Statements -Related Party Transactions Domestic Related Party Services (including Change of Control, Voting and Restricted Stock Agreement), below. Excluding the one-time CIC Agreement expenses, year-over-year increase was 10.2%; the increases in costs is in an effort to normalize operations post-pandemic as well as preparing for future growth and remained flat as % of net revenue.

Domestic selling, general and administrative expenses totaled approximately $21.4 million including the one-time CIC Agreement expenses and $16.8 million excluding the one-time CIC Agreement expenses for the year ended December 31, 2021 compared to approximately $16.3 million for the year ended December 31, 2020. The year-over-year increase was driven by the 2021 bonus accrual and cost associated with new executives.

International selling, general and administrative expenses totaled approximately $19.9 million and $17.1 million for the years ended December 31, 2021 and 2020, respectively. The year-over-year increase was driven by post-pandemic business recovery.

Depreciation and Amortization

Depreciation and amortization expense totaled approximately $2.1 million for each of the years ended December 31, 2021 and 2020.

Interest Expense

The Company's interest expense was $585,000 and $690,000 for the years ended December 31, 2021 and 2020, respectively.

The Domestic segment’s interest expense was $624,000 and $651,000 for the years ended December 31, 2021 and 2020, respectively. The decrease was a result of renegotiating lender financing terms.

The International segment had interest income of ($39,000) in 2021 versus interest expense of $40,000 in 2020. The International segment's 2021 net interest income was primarily due to expenses being offset by income generated from cash balance in banks.

Other Income and Expenses

Other income and expenses was a credit of $510,000 for the year ended December 31, 2021, versus a credit of $242,000 for the years ended December 31, 2020.

Income Tax

The income tax expense for the years ended December 31, 2021 and 2020 was $2.1 million and $312,000, respectively. In 2021, our effective income tax rate varied from the U.S. federal statutory rate primarily as a result of mix of income and impact of higher foreign tax rates, as well as the incremental tax expense associated with the global intangible low-taxed income inclusion under the Tax Cuts and Jobs Act of 2017. The 2020 lower tax was driven by the release of $2.1 million of the valuation allowance related to Brazil.

Non-Controlling Interest

Net operating profits from the non-controlling interests, relating to the Company's 51% owned subsidiaries, resulted in a reduction of net income attributable to the Company of $3.8 million and $5.6 million for the years ended December 31, 2021 and 2020, respectively.

Net (Loss) Income Attributable to SPAR Group, Inc.

The Company reported a net loss attributable to the Company of $1.8 million for the year ended December 31, 2021, or a loss of $0.08 per basic and diluted shares, compared to net income of $3.4 million for the year ended December 31, 2020, or income of $0.16 per basic and diluted share, based on basic and diluted shares outstanding of 21.3 million for both basic and diluted shares at December 31, 2021, and 21.1 and 21.2 million at December 31, 2020, respectively.

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Liquidity and Capital Resources

For the years ended December 31, 2021 and 2020, the Company had pre-tax net income before taxes of $4.1 million and $9.3 million, respectively.

Net cash provided by operating activities was $2.6 million and $8.8 million for the years ended December 31, 2021 and 2020, respectively. The year-over-year decrease in net cash provided by operating activities was primarily due to significant increase in accounts receivable due to revenue growth.

Net cash used in investing activities for the years ended December 31, 2021 and 2020, was $1.7 million and $1.6 million, respectively. The net cash used in investing activities was attributable to capitalization of internal use software.

Net cash provided by financing activities for the year ended December 31, 2021 was approximately $1.3 million compared to $131,000 in 2020. The year-over-year increase in net cash provided by financing activities during 2021 was primarily due to increase in net borrowing on lines of credit.

The above activity and the impact of foreign exchange rate changes resulted in a decrease in cash and cash equivalents for the year ended December 31, 2021 of approximately $2.5 million.

At December 31, 2021, the Company had net working capital of $22.1 million, as compared to net working capital of $23.6 million at December 31, 2020. The Company's current ratio was 1.4 and 1.6 at December 31, 2021 and December 31, 2020, respectively.

Credit Facilities

The Company is a party to various domestic and international credit facilities. See Note 4 to the Company's Consolidated Financial Statements – Credit Facilities, below.

These various domestic and international credit facilities require compliance with their respective financial covenants. During 2021, the Company was in compliance with all other financial covenants, other than the credit facility with Fifth Third bank for Resource Plus of which the Company had no outstanding balance at December 31, 2021.

Management believes that based upon the continuation of the Company's existing credit facilities, projected results of operations, vendor payment requirements and other financing available to the Company (including amounts due to affiliates), sources of cash availability should be manageable and sufficient to support ongoing operations over the next year. However, delays in collection of receivables due from any of the Company's major clients, a significant reduction in business from such clients, or a negative economic downturn resulting from the continuing impact of the COVID-19 pandemic, could have a material adverse effect on the Company's business, cash resources and ongoing ability to fund operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

See Item 15 – Exhibits and Financial Statement Schedules of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

All information that was required to be disclosed under an 8-K during the fourth quarter of 2021 was disclosed.

Item 9A. Controls and Procedures

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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 Rules 13a-15(f) and 15d-15(f) of the Exchange Act of 1934, as amended (the "Exchange Act"). 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 accounting principles generally accepted in the United States of America ("U.S. GAAP").

The Company's management has evaluated the effectiveness of the Company's internal control over financial reporting using the "Internal Control – Integrated Framework (2013)" created by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") framework. Based on this evaluation, management has concluded that internal controls over financial reporting were effective as of December 31, 2021.

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 December 31, 2021, 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 SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's year ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

Item 9B. Other Information

[None.]

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

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PART III

Reference is made below to SGRP's definitive Proxy Statement respecting its Annual Meeting of Stockholders currently scheduled to be held in May of 2022, as and when filed with the SEC, which SGRP plans to file pursuant to Regulation 14A in April of 2022, but not later than 120 days after the end of the Company's 2021 fiscal year (the "2022 Proxy Statement"), For clarity (and without limitation), information appearing in the sections in such 2022 Proxy Statement entitled "PROPOSAL 3 - ADVISORY VOTE ON EXECUTIVE COMPENSATION", "PROPOSAL 4 - ADVISORY VOTE ON THE FREQUENCY THAT THE CORPORATION HOLDS THE ADVISORY VOTE ON EXECUTIVE COMPENSATION", and "REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS" shall not be deemed to be incorporated by reference in this Annual Report.

Item 10. Directors, Executive Officers and Corporate Governance

Reference is made to the information set forth under the captions "The Board of Directors of the Corporation", "Executives and Officers of the Corporation", "Security Ownership of Certain Beneficial Owners and Management" and "Corporate Governance" in the 2022 Proxy Statement.

Item 11. Executive Compensation

Reference is made to the information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management", "Executive Compensation, Directors and Other Information", "Executive Compensation, Equity Awards and Options" and "Compensation Plans" in the 2022 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Reference is made to the information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management", "Executive Compensation, Equity Awards and Options" and "Compensation Plans" in the 2022 Proxy Statement.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Reference is made to the information set forth under the caption "Transactions with Related Persons, Promoters and Certain Control Persons" in the 2022 Proxy Statement.

Item 14. Principal Accountant Fees and Services

Reference is made to the information set forth under the caption "PROPOSAL 2 - RATIFICATION, ON AN ADVISORY BASIS, OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY'S PRINCIPAL INDEPENDENT ACCOUNTANTS" in the 2022 Proxy Statement.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

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

Consolidated Balance Sheets as of December 31, 2021 and 2020 F-3

Notes to Consolidated Financial Statements F-6

2. Financial Statement Schedule

3. Exhibits

Exhibit Number Description

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21.1 List of Subsidiaries (as filed herewith).

23.1 Consent of BDO USA, LLP (as filed herewith).

101.INS* Inline XBRL Instance

101.SCH* Inline XBRL Taxonomy Extension Schema

101.CAL* Inline XBRL Taxonomy Extension Calculation

101.DEF* Inline XBRL Taxonomy Extension Definition

101.LAB* Inline XBRL Taxonomy Extension Labels

101.PRE* Inline XBRL Taxonomy Extension Presentation

* XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Item 16. Form 10-K Summary

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SPAR Group, Inc.

By: /s/ Michael R. Matacunas

Michael R. Matacunas

President and Chief Executive Officer

KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Fay DeVriese and Michael R. Matacunas and each of them, jointly and severally, his attorneys-in-fact, each with full power of substitution, for each of them in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorneys-in-fact or his substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated.

SIGNATURE TITLE

/s/ Michael R. Matacunas President, Chief Executive Officer and Director,

Michael R. Matacunas (Principal Executive Officer)

Robert G. Brown Director

Robert G. Brown

/s/ Sean M. Whelan Director

Sean M. Whelan

/s/ Michael Wager Director

Michael Wager

/s/William H. Bartels Director

William H. Bartels

/s/Peter W. Brown Director

Peter W. Brown

/s/ Fay DeVriese Chief Financial Officer,

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of the Directors

SPAR Group, Inc. and Subsidiaries

Auburn Hills, Michigan

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of SPAR Group, Inc. (the "Company") and subsidiaries as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive (loss) income, equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes and schedule listed in the accompanying index (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2021 and 2020, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Realizability of Deferred Tax Assets

As described in Note 5 to the consolidated financial statements, the Company has recorded net deferred tax assets of $4.5 million as of December 31, 2021. The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions, which affect the Company’s provision for income taxes and recognition of deferred tax assets and liabilities.

We identified accounting for income taxes, specifically the evaluation of the realizability of certain deferred tax assets, as a critical audit matter. Assessing the realizability of deferred tax assets involves significant judgment and subjective evaluation of assumptions in scheduling the utilization of future net operating losses in the respective jurisdiction. Auditing these elements involved especially complex auditor judgment due to the nature and extent of audit effort required to address these matters, including the need to involve personnel with specialized skill and knowledge.

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

/s/ BDO USA, LLP

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

Troy, Michigan

April 15, 2022

F-1

SPAR Group, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive (Loss) Income

(In thousands, except per share data)

Year Ended December 31,

Selling, general and administrative expense 36,778 33,336

Majority stockholders change of control agreement 4,478 -

Depreciation and amortization 2,083 2,130

Other (income) expense, net (510 ) (242 )

Income before income tax expense 4,108 9,274

Less: Net (income) attributable to non-controlling interest (3,779 ) (5,595 )

Net (loss) income attributable to SPAR Group, Inc. $ (1,779 ) $ 3,367

Weighted average common shares – basic 21,266 21,110

Weighted average common shares – diluted 21,266 21,155

Other comprehensive (loss):

Foreign currency translation adjustments (3,724 ) (1,835 )

Comprehensive (loss) income (1,724 ) 7,127

Comprehensive (loss) income attributable to SPAR Group, Inc. $ (2,894 ) $ 3,070

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

F-2

SPAR Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share data)

Assets

Current assets:

Prepaid expenses and other current assets 4,382 3,631

Operating lease right-of-use assets 1,781 2,900

Liabilities and equity

Current liabilities:

Accrued expenses and other current liabilities 22,031 18,745

Customer incentives and deposits 3,901 1,799

Lines of credit and short-term loans 11,042 9,329

Current portion of operating lease liabilities 1,019 1,398

Operating lease liabilities, less current portion 762 1,502

Commitments and contingencies

Equity:

SPAR Group, Inc. equity

Preferred stock, $.01 par value:

Common stock, $.01 par value:

Accumulated other comprehensive loss (5,028 ) (3,913 )

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

F-3

SPAR Group, Inc. and Subsidiaries

Consolidated Statements of Equity

(In thousands)

Shares Amount Shares Amount Capital Loss Earnings Interest Equity

Share-based compensation – – – – 136 – – – 136

Exercise of stock options 20 – – – (2 ) – – – (2 )

Other comprehensive (loss) – – – – – (297 ) – (1,538 ) (1,835 )

Share-based compensation – – – – 711 – – – 711

Exercise of stock options 198 2 – – (125 ) – – – (123)

Other changes to non-controlling interest – – – – – – – 4 4

Director liability settlement – – 52 (102 ) – – – – (102 )

Distribution to non-controlling investors – – – – – – – (40 ) (40 )

Other comprehensive (loss) – – – – – (1,115 ) – (2,609 ) (3,724 )

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

F-4

SPAR Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

Operating activities

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization 2,083 2,130

Amortization of operating lease assets 1,120 2,048

Deferred income tax expense (benefit) (267 ) (654 )

Share based compensation 711 136

Majority stockholders change of control agreement 4,478 -

Changes in operating assets and liabilities:

Prepaid expenses and other assets (510 ) (3,833 )

Operating lease liabilities (1,120 ) (2,048 )

Net cash provided by operating activities 2,629 8,801

Investing activities

Purchases of property and equipment and capitalized software (1,722 ) (1,600 )

Net cash used in investing activities (1,722 ) (1,600 )

Financing activities

Repayments under line of credit (75,451 ) (60,932 )

Payments related to stock options exercised (123 ) (2 )

Payments on term debt (300 ) (333 )

Net cash provided by financing activities 1,326 131

Effect of foreign exchange rate changes on cash (4,732 ) (1,818 )

Net (decrease) increase in cash and cash equivalents (2,499 ) 5,514

Cash and cash equivalents at beginning of year 15,972 10,458

Cash and cash equivalents at end of year $ 13,473 $ 15,972

Supplemental disclosure of cash flows information

Cash Transactions:

Non-cash Transaction:

Treasury shares from director liability settlement $ 102 $ -

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

F-5

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Business

SPAR Group (the "Company", "We", "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 of experience, a network of approximately 25,000 merchandising specialists' around the world working during the year, more than 11 million hours in store per year, and long-term relationships with some of the world’s leading businesses, we provide specialized capabilities across 9 countries and 5 continents. Our unique combination of resource scale, deep expertise, advanced technology and unwavering commitment to excellence, separates us from the competition.

The Company operates under two (2) divisions: Domestic and International. The Domestic division is comprised of all operations within the United States. The International division is a consolidation of all other operations and joint ventures.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies

Principles of Consolidation

The Company consolidates its 100% owned subsidiaries and all of its 51% owned joint venture subsidiaries in accordance with the provisions required by the Consolidation Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). All significant intercompany accounts and transactions have been eliminated.

Immaterial Revisions

Subsequent to the issuance of the Company’s December 31, 2020 consolidated financial statements, the following errors in the 2020 consolidated financial statements were identified:

1) the Company’s 2020 allocation of income (loss) between domestic and foreign income in the income before income taxes table within the Income Taxes footnote in the 2020 consolidated financial statements was incorrect. The table has been corrected to allocate $615,000 of losses from Foreign to Domestic pre-tax income (loss) for 2020. Corresponding adjustments have been made within Notes 5 – Income Taxes and 12 - Segment Information within the reported balances for United States and International income before income taxes and net income disclosures.

2) the Company’s 2020 deferred tax inventory table of the Income Taxes footnote in the 2020 consolidated financial statements was incorrect. As a result, deferred tax assets from net operating loss carry forwards as of December 31, 2020, were understated by $2.4 million, and other foreign deferred tax assets, i.e., accrued payroll, payroll taxes payable and allowance for doubtful accounts and other receivable, were also understated by approximately $600,000, while the Company’s foreign subsidiaries deferred tax asset was overstated by $3.0 million. The correction relates primarily to the Company’s Brazil subsidiary. In addition, the Company’s deferred tax table overstated deferred tax assets and liabilities related to right to use assets and liabilities in the amount of $2.3 million. See Note 5 for further details.

3) the Company’s 2020 supplemental disclosure of cash flows information within the Consolidated Statements of Cash Flows in the 2020 consolidated financial statements incorrectly stated that income taxes paid were $184,000, instead of $1.2 million.

4) the Company’s presentation of borrowings and payments under its revolving line of credit in the Consolidated Statement of Cash Flows was incorrect. The Company disclosed the borrowings on the line of credit net of proceeds and repayments, whereas the balance should be reported on a gross basis for proceeds and repayments. The Company has determined the correction is applicable for the year ended December 31, 2020, the three-month periods ended March 31, 2021 and March 31, 2020, the six-month periods ended June 30, 2021 and June 30, 2020, and the nine-month periods ended September 30, 2021 and September 30, 2020.

The Company assessed the materiality of the errors above considering both the qualitative and quantitative factors and determined that the adjustments are not material as of and for the three-month periods ended March 31, 2021 and 2020, the six-month periods ended June 30, 2021 and 2020, the nine-month periods ended September 30, 2021 and 2020, and the year ended December 31, 2020.

The effect of the revisions on the Company’s previously issued Consolidated Statements of Cash Flows for the year ended December 31, 2020 are as follows:

As Previously Reported Adjustments As Revised

Cash flows from financing activities

Net Borrowing on lines of credit $ 466 $ (466) $ -

Repayments under line of credit - (60,932) (60,932)

The effects of the revisions on the line items within the Company’s consolidated statements of cash flows for the three-month periods ended March 31, 2021 and 2020,six-month periods ended June 30, 2021 and 2020, and nine-month periods ended September 30, 2021 and 2020 are as follows:

Three Months Ended March 30, 2021 Three Months Ended March 30, 2020

Cash flows from financing activities

Six Months Ended June 30, 2021 Six Months Ended June 30, 2020

Cash flows from financing activities

Net Borrowing on lines of credit $ 2,093 $ (2,093) $ - $ (792) $ 792 $ -

Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020

Cash flows from financing activities

Three months ended March 31, 2021

Nine months ended September 30, 2021

These immaterial adjustments had no effect on the consolidated balance sheets, statements of operations and comprehensive income and equity for any periods presented.

Accounting for Joint Venture Subsidiaries

For the Company’s less than wholly owned subsidiaries, the Company first analyzes to determine if a joint venture subsidiary is a variable interest entity (a “VIE”) in accordance with ASC 810 and if so, whether the Company is the primary beneficiary requiring consolidation. A VIE is an entity that has: (i) insufficient equity to permit it to finance its activities without additional subordinated financial support; or (ii) equity holders that lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary, which is the entity that has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that potentially could be significant to the entity. Variable interests in a VIE are contractual, ownership, or other financial interests in a VIE that change with changes in the fair value of the VIE’s net assets. The Company continuously re-assesses at each level of the joint venture whether the entity is: (i) a VIE; and (ii) if the Company is the primary beneficiary of the VIE. If it was determined that an entity in which the Company holds an interest qualified as a VIE and the Company was the primary beneficiary, it would be consolidated.

Based on the Company’s analysis for each of its 51% owned joint ventures, the Company has determined that each is a VIE and the Company is the primary beneficiary of that VIE. In addition to its controlling interest, the Company controls the proprietary information technology that is used at and is significant to each joint venture and the Company has the ability to control other key decisions. Accordingly, the Company has the power to direct key activities and the obligation to absorb losses or the right to receive benefits that could be significant and consolidates each joint venture under the VIE rules and reflects the 49% interests in the Company’s consolidated financial statements as non-controlling interests. The Company records these non-controlling interests at their initial fair value, adjusting the basis prospectively for their share of the respective consolidated investments’ net income or loss or equity contributions and distributions. These non-controlling interests are not redeemable by the equity holders and are presented as part of permanent equity. Income and losses are allocated to the non-controlling interest holder based on its economic ownership percentage.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the US (“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 the fair value of assets and liabilities acquired in business combinations, carrying amounts of property and equipment and intangible assets, valuation allowances for receivables, carrying amounts for deferred taxes assets and liabilities, and liabilities incurred from operations and customer incentives. Actual results could differ from those estimates.

Cash Equivalents

The Company considers all highly liquid short-term investments with original maturities of three (3) months or less at the time of acquisition to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value.

Concentration of Credit Risk

The Company maintains cash balances with high quality financial institutions and periodically evaluates the creditworthiness of such institutions and believes that the Company is not exposed to significant credit risk.

Revenue Recognition

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Unbilled Accounts Receivable

Unbilled accounts receivable represents services performed but not billed and are included as accounts receivable.

Doubtful Accounts and Credit Risks

Leases

The Company’s Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Since most of the Company’s leases do not have an implicit borrowing rate, the Company’s incremental borrowing rate is based on the information available at commencement date in determining the present value of lease payments. Leases may include options allowing the Company at its sole discretion to extend or terminate the lease, and when it is reasonably certain that those options will be exercised, the Company will include those periods in the lease term. Variable costs, such as payments for insurance and tax payments, are expensed when the obligation for those payments is incurred.

Property and Equipment and Depreciation

Property and equipment, including leasehold improvements, are stated at cost. Depreciation is calculated on a straight-line basis over estimated useful lives of the related assets, which range from three (3) to seven (7) years for equipment, three (3) to seven (7) years for furniture and fixtures and three (3) to five (5) years for capitalized software costs. Leasehold improvements are depreciated over the shorter of their estimated useful lives or lease term, using the straight-line method, which have useful lives ranging from three (3) to fifteen (15) years. Maintenance and minor repairs are charged to expense as incurred. Depreciation expense for both years ended December 31, 2021 and 2020 (including amortization of capitalized software as described below) was $2.1 million.

Internal Use Software Development Costs

The Company capitalizes certain costs associated with its internally developed software. Specifically, the Company capitalizes the costs of materials and services incurred in developing or obtaining internal use software. These costs include (but are not limited to) the cost to purchase software, the cost to write program code, payroll and related benefits and travel expenses for those employees who are directly involved with and who devote time to the Company’s software development projects. Capitalization of such costs ceases when the project is substantially complete and ready for its intended purpose. Costs incurred during preliminary project and post-implementation stages, as well as software maintenance and training costs, are expensed in the period in which they are incurred. Capitalized software development costs are amortized over three (3) years on a straight-line basis.

The Company capitalized $1.2 million of costs related to software developed for internal use in 2021 and $1.0 million in 2020, respectively. The Company recognized approximately $1.2 million of amortization of capitalized software for the years ended December 31, 2021 and 2020.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Impairment of Long-Lived Assets

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of the Company’s property and equipment and intangible assets subjected to amortization may not be recoverable. When indicators of potential impairment exist, the Company assesses the recoverability of the assets by estimating whether the Company will recover its carrying value through the undiscounted future cash flows generated by the use of the asset and its eventual disposition. Based on this analysis, if the Company does not believe that it will be able to recover the carrying value of the asset, the Company records an impairment loss to the extent that the carrying value exceeds the estimated fair value of the asset. If any assumptions, projections or estimates regarding any asset change in the future, the Company may have to record an impairment to reduce the net book value of such individual asset.

Goodwill

Goodwill may result from business acquisitions. Goodwill is assigned to reporting units based on the expected benefit from the synergies arising from each business combination, determined by using certain financial metrics, including the forecast discounted cash flows associated with each reporting unit. The goodwill acquired in a business combination is allocated to the appropriate reporting unit as of the acquisition date.

Goodwill is subject to annual impairment tests and interim impairment tests if impairment indicators are present. The impairment tests require the Company to first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. The Company is not required to calculate the fair value of a reporting unit unless it determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. If it is determined that it is more likely than not, or if the Company elects not to perform a qualitative assessment, the Company proceeds with the quantitative assessment. Under the quantitative test, if the fair value of a reporting unit exceeds its carrying amount, then goodwill of the reporting unit is considered to not be impaired. If the carrying amount of the reporting unit exceeds its fair value, then an impairment loss is recognized in an amount equal to the excess, up to the value of the goodwill. The Company has determined that a quantitative goodwill impairment test was only considered necessary for one of the domestic reporting units, as of December 31, 2021 and 2020. Based on the results of this test, no impairment loss was recognized. However, due to the narrow margin of passing the Step 1 goodwill impairment testing for 2021 within the Resource Plus reporting unit, there is potential for a partial or full impairment of the goodwill value in 2022 if the projected operational results are not achieved. One of the key assumptions for achieving the projected operational results includes revenue growth. As of December 31,2021, the Resource Plus reporting unit had a goodwill carrying value of $1,962.

Accounting for Share Based Compensation

The Company measures all employee share-based compensation awards using a fair value method and records the related expense in the financial statements over the period during which an employee is required to provide service in exchange for the award. Excess tax benefits are realized from the exercise of stock options and are reported as a financing cash inflow rather than as a reduction of taxes paid in cash flow from operations. For each award that has a graded vesting schedule, the Company recognizes compensation cost on a straight-line basis over the requisite service period for the entire award. Share based employee compensation expense for the years ended December 31, 2021 and 2020 was $711,000 and $136,000, respectively.

Fair Value Measurements

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The generally accepted accounting principles fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three (3) categories:

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

If the inputs used to measure the fair value fall within different levels of the hierarchy, the fair value is determined based upon the lowest level input that is significant to the fair value measurement. Whenever possible, the Company uses quoted market prices to determine fair value. In the absence of quoted market prices, the Company uses independent sources and data to determine fair value. Due to their short maturity, the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximated the fair values (Level 1) at December 31, 2021 and 2020. The carrying value of the Company’s long-term debt with variable interest rates approximates fair value based on instruments with similar terms (Level 2).

Accounting for Income Taxes

Income tax provisions and benefits are made for taxes currently payable or refundable, and for deferred income taxes arising from future tax consequences of events that were recognized in the Company’s financial statements or tax returns and tax credit carry forwards. The effects of income taxes are measured based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse. If necessary, a valuation allowance is established to reduce deferred income tax assets to an amount that will more likely than not be realized.

The calculation of income taxes involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step involves evaluating the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step involves estimating and measuring the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company has to determine the probability of various possible outcomes. The Company’s evaluation of uncertain tax positions is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

Net Income Per Share

Basic net income per share amounts are based upon the weighted average number of common shares outstanding. Diluted net income per share amounts are based upon the weighted average number of common and potential common shares outstanding except for periods in which such potential common shares are anti-dilutive. Potential common shares outstanding include stock options and restricted stock and are calculated using the treasury stock method.

Translation of Foreign Currencies

The financial statements of the foreign entities consolidated into the Company’s consolidated financial statements were translated into United States dollar equivalents at exchange rates as follows: Balance sheet accounts for assets and liabilities were converted at year-end rates, equity at historical rates and income statement accounts at average exchange rates for the year. The resulting translation gains and losses are reflected in accumulated other comprehensive income or loss in the consolidated statements of equity.

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SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

New Accounting Pronouncements

Recently Adopted

In December 2019, the FASB issued ASU 2019-12 simplifying various aspects related to the accounting for income taxes. The guidance removes exceptions to the general principles in Topic 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The ASU is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual periods, with early adoption permitted. There was no material impact for the adoption of ASU 2019-12.

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 operations, statements of cash flows and related disclosures.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Supplemental Balance Sheet Information (in thousands)

December 31,

Accounts receivable, net, consists of the following: 2021 2020

Less allowance for doubtful accounts (564 ) (563 )

December 31,

Property and equipment consist of the following: 2021 2020

Capitalized software development costs 15,823 14,680

Less accumulated depreciation and amortization (20,305 ) (18,840 )

Property and equipment, net $ 2,929 $ 2,795

United States International Total

Goodwill:

Change in goodwill due to impact of foreign currency – (24 ) (24 )

Purchase of interest in subsidiary – 394 394

Change in goodwill due to impact of foreign currency – 12 12

December 31,

Intangible assets consist of the following: 2021 2020

Customer contracts and lists $ 3,362 $ 2,731

Less accumulated amortization (3,357 ) (2,766 )

Intangible assets consist primarily of customer contracts and lists, trade names, patents and non-compete agreements, all of which have a finite useful life. Intangible assets are amortized based on either the pattern in which the economic benefits of the intangible assets are estimated to be realized or on a straight-line basis, which approximates the manner in which the economic benefits of the intangible asset will be consumed. Amortization is generally not deductible for tax purposes.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Supplemental Balance Sheet Information (continued)

The Company is amortizing its intangible assets of $5.7 million over lives ranging from 5 to 25 years. Amortization expense for the years ended December 31, 2021 and 2020 was approximately $494,000 and $476,000, respectively. The annual amortization for each of the following years succeeding December 31, 2021 is summarized as follows:

Year Amount

December 31,

Accrued expenses and other current liabilities: 2021 2020

Accrued accounting and legal expenses 1,251 1,389

Litigation settlement (Director Retirement) – 650

Majority stockholders change of control agreement 4,478 -

Accrued expenses and other current liabilities $ 22,031 $ 18,745

4. Credit Facilities

Domestic Credit Facilities

North Mill Capital Credit Facility

The Company has a secured revolving credit facility in the United States and Canada (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 for Spar Group, Inc. (“SGRP”) and certain of its direct and indirect subsidiaries in the United States and Canada, entered into individual 18-month Loan and Security Agreements with NM dated as of April 10, 2019. The revolving credit facility requires the Company to maintain a lockbox whereby all cash remittances from SMF (as defined below) and customers are applied to reduce the borrowings. As such, the line of credit is classified as a current obligation in the consolidated balance sheets.

On January 5, 2021, the Company and NM entered into an agreement as of January 4, 2021, and effective as of December 31, 2020 (the “SecondModification Agreement”), to extend the NM Credit Facility from October 10, 2021 to April 10, 2022, and increased the amounts of the credit facilities to $14.5 (USD) million in the USA and decreased the facility to $1.5 (CDN) million in Canada; in addition the First Modification Agreement increased Spar Marketing Force ( “SMF”) 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 (USD) million from $3.9 (USD) million.

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 $15,000one-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 and agreed to reimburse NM’s 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 "SecondModification Agreement"), pursuant to which NM and the Company agreed to extend the NM Loan Agreements from April 10, 2022 to October 10, 2023, 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 $15,000one-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.

On December 31, 2021, the aggregate interest rate was 5.25% per annum, and the outstanding loan balance was $9.7 million with a fair market value of $9.9 million versus 6.75% and $8.3 million with a fair market value of $8.4 million on December 31, 2020. 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, including, maintaining a positive trailing EBITDA for each Borrower, limits on non-ordinary course payments and transactions, incurring or guarantying indebtedness, increases in executive, officer or director compensation, capital expenditures and other investments. The Company was in compliance of such covenants as of December 31, 2021.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. Credit Facilities (continued)

Fifth Third CreditFacility

One of the Company’s consolidated subsidiaries, Resource Plus of North Florida, Inc. (“Resource Plus”), is a party to a revolving line of credit facility (the “Fifth Third Credit Facility”) from Fifth Third Bank for $3.5 million, with an expiration date of June 16,2022.

As of December 31, 2021, there was no outstanding balance. Revolving loans of up to $3.5 million are available to Resource Plus under the Fifth Third Credit Facility based upon the borrowing base formula defined in the applicable loan agreement (principally 80% of “eligible” accounts receivable less certain reserves). The Fifth Third Credit Facility is secured by substantially all assets of Resource Plus.

The Fifth Third Credit Facility required Resource Plus to pay interest on the loans thereunder equal to (A) the Daily LIBOR Rate (as defined in the applicable loan agreement) per annum; plus (B) two hundred fifty basis points (2.50%). On December 31, 2021, the aggregate interest rate under that formula was 3.6% per annum. The Fifth Third Credit Facility contains a debt service charge coverage ratio financial covenant requiring Resource Plus to maintain a minimum ratio of 1.2 for available cash flow to fixed charges, as defined in the agreement. Resource Plus was in violation of this covenant at December 31, 2021. Fifth Third issued a waiver of default for the Resource Plus' covenant violation as of December 31, 2021 prior to the termination of the facility.

Subsequent to December 31, 2021, Resource Plus closed the line of credit with Fifth Third Bank on March 11, 2022. Resource Plus maintained an existing $850,000 cash balance with Fifth Third Bank to be in compliance with their insurance policy.

Resource Plus – Seller Notes

Effective with the closing of the Resource Plus acquisition, it entered into promissory notes with the sellers totaling $2.3 million. The notes are payable in annual installments at various amounts due on December 31st of 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 the appropriate amounts. The annual interest rate was 1.85% and the total balance owed at December 31, 2021 was approximately $1.0 million.

International Credit Facilities

SPARFACTS Australia Pty. Ltd. has a secured line of credit facility with National Australia Bank, effective October 31, 2017, for $800,000 (Australian) or approximately $572,000 USD (based upon the exchange rate at December 31, 2021). 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 Bank as of December 31, 2021 was $164,000 (Australian) or $118,000 USD and is due on demand, and December 31, 2020 was $200,000 (Australian) or $154,000 USD, respectively.

SPAR China has secured a loan with Construction Bank, effective June 30, 2021, for 1.0 million Chinese Yuan or approximately $157,000 USD (based upon the exchange rate at December 31, 2021). The loan will expire May 31, 2022. The annual interest rate was 4.25% as of December 31, 2021. There was no outstanding balance with Construction Bank as of December 31, 2021.

SPAR China has secured a loan with People’s Bank of China, effective June 21, 2021, for 1.0 million Chinese Yuan or approximately $157,000 USD (based upon the exchange rate at December 31, 2021). The loan will expire June 7, 2022. The annual interest rate was 3.65% as of December 31, 2021. The outstanding balance with People’s Bank of China as of December 31, 2021 was 1.0 million Chinese Yuan or $157,000 USD and is due on demand.

SPAR China has secured a loan with Industrial Bank, effective December 18, 2020, for 3.0 million Chinese Yuan or approximately $472,000 USD (based upon the exchange rate at December 31, 2021). The loan will expire December 18, 2022. The annual interest rate was 6.0% as of December 31, 2021. The outstanding balance with Industrial Bank as of December 31, 2021 was 3.0 million Chinese Yuan or $472,000 USD and is due on demand, December 31, 2020 was 3.0 million Chinese Yuan or $460,000 USD, respectively.

SPAR China has secured a loan with Industrial and Commericao Bank of China, effective December 21, 2021, for 2.0 million Chinese Yuan or approximately $315,000 USD (based upon the exchange rate at December 31, 2021). The loan will expire November 4, 2022. The annual interest rate was 4.15% as of December 31, 2021. The outstanding balance with Industrial and Commericao Bank of China as of December 31, 2021 was 2.0 million Chinese Yuan or $315,000 USD and is due on demand.

Effective February 4, 2020, SPAR Todopromo established a line of credit facility with Ve Por Mas for 8.0 million Mexican Pesos or approximately $383,000 USD (based upon the exchange rate at December 31, 2021). The line expires on February 2022. The variable interest rate is the interbank “equilibrium” rate known as the TIIE plus 3.0% resulting in a rate of 7.5% as of December 31, 2021. There was no outstanding balance as of December 31, 2021.

SPAR Todopromo has secured a line of credit facility with BBVA Bancomer for 7.5 million Mexican Pesos, or approximately $359,000 USD (based upon the exchange rate at December 31, 2021) effective May 1, 2021. The revolving line of credit expires May 2022. The variable interest rate is TIIE plus 5.2% resulting in a rate of 9.5% as of December 31, 2021. There was no outstanding balance as of December 31, 2021.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. Credit Facilities (continued)

Summary of the Company’s lines of credit and short-term loans (in thousands):

Effective Interest Rate as of

USA – North Mill Capital 5.38 % 9,680 –

Australia – National Australia Bank 6.76 % 118 –

China – People’s Bank of China 3.71 % 157 –

China – Industrial Bank 6.17 % 472 –

China – Industrial and Commercial Bank of China 4.23 % 315 –

China – Construction Bank 5.33 % – –

Mexico – Ve Por Mas 7.76 % – –

Mexico – Bancomer Bank 9.92 % – –

Summary of Unused Company Credit and Other Debt Facilities (in thousands):

Unused Availability:

United States, (excluding Resource Plus facility) $ 5,319 $ 10,238

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Income Taxes

Beginning in 2018, the Tax Cuts and Jobs Act (the “Act”) included two (2) new U.S. corporate tax provisions, the global intangible low-taxed income (“GILTI”) and the base-erosion and anti-abuse tax (“BEAT”). The GILTI provision requires the Company to include in its U.S. income tax return non-U.S. subsidiary earnings in excess of an allowable return on the non-U.S. subsidiary’s tangible assets. The Company has elected to treat GILTI as a period cost. The Company evaluated the GILTI resulting in a financial statement impact of approximately $400,000 and $350,000 for the year ended December 31, 2021 and December 31, 2020 respectively. The Company is below the three-year average gross receipts threshold for BEAT to apply.

Income (loss) before income taxes is summarized as follows (in thousands):

Year Ended December 31,

The income tax expense (benefit) is summarized as follows (in thousands):

Year Ended December 31,

Current:

Federal $ - $ 473

Deferred:

The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference are as follows (dollars in thousands):

Year Ended December 31,

Provision for income taxes at federal statutory rate $ 863 21.0 % $ 1,947 21.0 %

State income taxes, net of federal benefit 68 1.6 % 144 1.6 %

Brazil Deferred Tax Allowance Release - 0.0 % (2,158 ) -23.3 %

In 2021, our effective income tax rate varied from the U.S. federal statutory rate primarily as a result of mix of income and impact of higher foreign tax rates, as well as the incremental tax expense associated with the global intangible low-taxed income inclusion under the Tax Cuts and Jobs Act of 2017.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Income Taxes (continued)

Deferred taxes consist of the following (in thousands): December 31,

Deferred tax assets:

Net operating loss carry forwards $ 4,144 $ 3,541

Federal Research and Development Credit 240 240

Deferred revenue 330 –

Outside basis in domestic partnership 92 92

Allowance for doubtful accounts and other receivable 93 98

Share-based compensation expense 407 434

Valuation allowance (478 ) (397 )

Deferred tax liabilities:

Goodwill & Intangible assets of subsidiaries 700 558

Capitalized software development costs 476 482

Total deferred tax liabilities 1,629 1,822

As discussed in Note 2, the following adjustments have been made to the 2020 disclosures: 1) the income before income taxes table has been corrected to allocate $615,000 of losses from Foreign to the Domestic pre-tax income (loss), 2) the deferred taxes inventory table has been corrected as the tax effected net operating loss carry forward deferred tax asset and other foreign deferred tax assets, i.e. accrued payroll, payroll taxes payable and allowance for doubtful accounts and other receivable, were understated by $2.4 million and $0.6 million, respectively, while the Company’s foreign subsidiaries deferred tax asset was overstated by $3.0 million. In addition, the Company’s deferred tax table overstated deferred tax assets and liabilities related to right to use assets and liabilities in the amount of $2.3 million. There was no impact to the net deferred tax asset and tax expense. For comparative purposes, the Company’s prior year income tax footnote has been revised to reflect the adjustment to the applicable deferred tax line items.

As of December 31, 2021, the Company’s deferred tax assets were primarily the result of U.S. Net Operating Loss (“NOL”), Brazil NOL and temporary differences. The Company has Federal and State NOL carryforwards of $8.3 million, of which approximately $4.0 million has no expiration date, and the remaining balance, if unused, will expire in years 2026 through 2032. The Company has additional NOL carryforwards of $4.7 million in Brazil and $1.4 million in Australia, all of which has no expiration date. For the year ended December 31, 2020, the Company recorded a net valuation allowance release of $2.1 million (comprising a full-year valuation release related to the Brazil operations), on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2020, the Company achieved three (3) years of cumulative pretax income in the Brazil federal tax jurisdiction, management determined that there is sufficient evidence to conclude that it is likely that additional deferred taxes are realizable; therefore, the valuation allowance was reduced accordingly.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing net deferred tax assets. For the U.S. based net deferred tax assets, which are approximately $1.9 million, management continues to monitor its operating performance and currently believes that the achievement of the required future taxable income necessary to realize these deferred assets is more likely than not. Key considerations in this assessment includes current tax law that is expected to continue to generate future U.S. taxable income based on the results of our foreign operations (GILTI tax), our expectation of continued improvements in U.S. operating results and the period of time available to generate future taxable income.

A reconciliation of the beginning and ending amount of uncertain tax position reserves is as follows (in thousands):

Year Ended December 31,

Beginning balance $ 13 $ 8

Current year provision $ 29 $ 5

Removal for tax provisions of prior years $ - –

Ending balance $ 42 $ 13

Interest and penalties that the tax law requires to be paid on the underpayment of taxes should be accrued on the difference between the amount claimed or expected to be claimed on the return and the tax benefit recognized in the financial statements. The Company's policy is to record this interest and penalties as additional tax expense.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Income Taxes (continued)

Details of the Company's tax reserves at December 31, 2021, are outlined in the table below (in thousands):

Taxes Interest Penalty Total Tax Liability

Domestic

Federal – – – –

International – – – –

In management's view, the Company's tax reserves at December 31, 2021 and 2020, for potential domestic state tax liabilities were sufficient. The Company has evaluated the tax liabilities of its international subsidiaries and does not believe a reserve is necessary at this time.

SPAR and its subsidiaries file numerous consolidated, combined and separate company income tax returns in the U.S. Federal jurisdiction and in many U.S. states and foreign jurisdictions. With few exceptions, SPAR is subject to U.S. Federal, state and local income tax examinations for the years 2018 through the present. Foreign entities are subject to tax audits that vary based on jurisdiction. However, tax authorities have the ability to review years prior to the position taken by the Company to the extent that SPAR utilized tax attributes carried forward from those prior years.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). Intended to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions, among others, addressing the carryback of net operating losses for specific periods, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property. Additionally, the CARES Act, in efforts to enhance business' liquidity, provides for the deferral of the employer-paid portion of social security taxes. As of December 31, 2021, the Company has elected to defer the employer-paid portion of social security taxes of $686,000, which is included in "Accrued expenses and other current liabilities" in the Consolidated Balance Sheets. The balance as of December 31, 2020 was $1.3 million.

6. 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.

All previous open and potential claims between the Significant Stockholders and the Company have been released mutually upon execution of the Change of Control, Voting and Restricted Stock Agreement ("CIC Agreement"), as of January 28, 2022.

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 December 31, 2021, 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.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

7. Treasury Stock

On December 22, 2020, the Board of Directors of SGRP (the "Board"), authorized SGRP to repurchase up to 500,000 shares of its SGRP Shares pursuant to the 2021 Stock Repurchase Program (the "2021 Stock RepurchaseProgram"). There were no share repurchases made during the year ended December 31, 2021 and 2020 under this program. The increase in shares in 2021 of 52,000 shares was driven from settlement of Mr. William H. Bartels' obligation for the $100,000 Note with the Company.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. Preferred Stock

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 (the "SGRP Preferred Stock"), 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 in its discretion from time to time. 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 one-to-one basis into SGRP Common Stock. The Company issued 554,402 of SGRP Preferred Stock 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 preferred stock. At December 31, 2021 and 2020,no shares of SGRP Series A Preferred Stock were issued and outstanding.

On January 28, 2022, SGRP entered into the Change of Control, Voting and Restricted Stock Agreement ("CIC Agreement") with the Majority Stockholders. See Note 10to the Company's Consolidated Financial Statements -Related Party Transactions Domestic Related Party Services (including Change of Control, Voting and Restricted Stock Agreement).

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.

9. Retirement Plans

The Company has a 401(k) Profit Sharing Plan covering substantially all eligible domestic employees. The Company made discretionary contributions of $72,000 for both years ended December 31, 2021 and 2020.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

10. Related Party Transactions

SPAR's policy respecting approval of transactions with related persons, promoters and control persons is contained in the SPAR Group Code of Ethical Conduct for its Directors, Executives, Officers, Employees, Consultants and other Representatives Amended and Restated (as of) March 15, 2018 (the "Ethics Code").

SPAR's Audit Committee has the specific duty and responsibility to review and approve the overall fairness to the Company and terms of all material related-party transactions and payments. The Audit Committee periodically (often annually) reviewed, in accordance with the Audit Committee Charter, the Ethics Code, the Nasdaq rules and other applicable law to ensure that the overall economic and other terms will be (or continue to be) no less favorable to the Company than would be the case in an arms-length contract with an unrelated provider of similar services (i.e., its overall fairness to the Company, including pricing, payments to related parties and the ability to provide services at comparable performance levels). The Audit Committee periodically reviews all related party relationships and transactions.

Domestic Related Party Transactions

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 defined below on December 31, 2021, and signed and effective January 28, 2022, SGRP entered into the Change of Control, Voting and Restricted Stock Agreement ("CIC Agreement"), by 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., a corporation ("SBS"), and collectively with Mr. Brown, Mr. Bartels and SAS, the ("Majority Stockholders") (the "Agreement"). Mr. Bartels and Mr. Brown are Directors of SPAR Company. Mr. Brown was the Chairman of the Board of Directors of SGRP (the "Board"), but ceased holding that position when the 2022 By-Laws became effective on January 25, 2022.

The financial terms of the CIC Agreement to the Majority Stockholders, totaling $4,477,585, consists the following:

James R. Brown, Sr. Advisor Agreement

On January 25, 2022, SGRP entered into a consulting agreement with Mr. James R. Brown, Sr., effective January 26, 2022, following his retirement as a director of SGRP on January 25, 2021, 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.

Panagiotis Lazaretos Consulting Agreement

On January 27, 2022, SGRP entered into a consulting agreement with Thenablers, Ltd. effective February 1, 2022 (the " Lazaretos Consulting Agreement"). Thenablers, Ltd. is wholly owned by Mr. Panagiotis Lazaretos, a retired director of SGRP. Following Mr. Lazaretos' retirement as a director on January 25, 2021, Thenablers, Ltd. agreed to provide the consulting services of Mr. Lazaretos to SGRP regarding global sales and new markets' expansion. The Lazaretos Consulting Agreement cannot be terminated by the consent of either party for the firsttwelve (12) months, and automatically expires on January 31, 2024. 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 as calculated in Exhibit A of the Lazaretos Consulting Agreement; and (iii) the outstanding options granted to Mr. Panagiotis ("Panos") N. Lazaretos on February 4, 2021 will continue to be outstanding and vest according to their terms under the agreement.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

10. Related Party Transactions (continued)

Other Domestic Related Party Transactions

National Merchandising Services, LLC ("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"), 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"). Since September 2018 through June 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 of 2021, the domestic merchandising specialist field force services provided by NSRS was transitioned to National Remodel & Setup Services, LLC ("NRSS") with the same financial arrangement. Mrs. Andrea Burdekin is the owner of NRSS. NMS also leases office space from Mr. Burdekin's Personal property.

Resource Plus of North Florida, Inc. ("Resource Plus"), is a consolidated domestic subsidiary of the Company and is owned jointly by SGRP through its indirect 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. Both buildings are subleased to Resource Plus.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

10. Related Party Transactions (continued)

International Related Party Services

SGRP Meridian (Pty), Ltd. ("Meridian") is a consolidated international subsidiary of the Company and is owned 51% by SGRP, 23% by Friedshelf 401 Proprietary Limited and 26% by Lindicom Empowerment Holdings Proprietary Limited. Mr. Adrian Wingfield, who is a Director of CMR Meridian, is one of the beneficial owners of Merhold Holding Trust ("MHT"). MHT owns the building where Meridian is headquartered.

The Corporation'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 by Mr. Jonathan Dagues Martins, a Brazilian citizen and resident ("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 respecting the Company. EILLC is owned by Mr. Peter W. Brown, a director of SPAR BSMT and SGRP.

SPARFACTS is a consolidated international subsidiary of the Company and is owned 51% by SGRP and 49% by Ms. Lydna Chapman. Ms. Chapman is a director of SPARFACTS. Her various companies provide office lease, accounting and consultant services to SPARFACTS.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

10. Related Party Transactions (continued)

Summary of Certain Related Party Transactions

The following costs of affiliates were charged to the Company (in thousands):

Year Ended December 31,

Services provided by affiliates:

National Store Retail Services (NSRS) $ 3,799 $ 4,805

National Remodel & Setup Services (NRSS) 3,484 -

Consulting and administrative services (RJ Holdings) 567 939

Office lease expenses (RJ Holdings) 248 248

Office and vehicle rental expenses (MPT, MCPT, MHT) 115 1,470

Consulting and administrative fees (SPARFACTS) 325 210

Total services provided by affiliates $ 8,689 $ 7,873

Due to affiliates consists of the following (in thousands): December 31,

Loans to local investors:

China (included in Other receivables) $ - $ 613

Loans from local investors:(1)

South Africa - 415

(1) Represent loans from the local investors into the Company's subsidiaries (representing their proportionate share of working capital loans). The loans have no payment terms and are due on demand and as such have been classified as current liabilities in the Company's consolidated financial statements.

F-

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

SGRP US Equity

SGRP · 10-K · period ended 2021-12-31

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

SGRP US Equity☆

SGRP · 10-K · period ended 2021-12-31

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

SGRP US Equity