SGRP US Equity☆

Item 1A. Risk Factors

Investing in SGRP's common stock ("SGRP Common Stock") is subject to a number of Risks that could cause the Company's actual results to differ materially from those projected or otherwise expected in any forward-looking statements or other information (see Forward-Looking Statements immediately preceding Part I, above).

You should carefully review and consider the following Risks, but you should not place undue reliance on any of them. All forward-looking statements and other information attributable to the Company or persons acting on its behalf are expressly subject to and qualified by all such Risks.

Those Risks reflect our expectations, views and assumptions only as of the date of this Annual Report, and the Company does not intend, assume any obligation, or promise to publicly update or revise any such Risk or information (in whole or in part), whether as a result of new information, new or worsening Risks or uncertainties, changed circumstances, future events, recognition, or otherwise.

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

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

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

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

The markets we operate in are cyclical and subject to the effects of economic downturns.

The markets in which the Company operates are cyclical and subject to the effects of economic downturns. The current political, social and economic conditions, including the impact of terrorism and COVID-19 on consumer and business behavior, make it difficult for the Company, its vendors and its clients to accurately forecast and plan future business activities. Substantially all of the Company's key clients are either retailers, manufacturers or those seeking to do product merchandising at retailers. Should the retail or manufacturing industries experience a significant economic downturn, the resultant reduction in product sales could decrease the Company's revenues. The Company also has risks associated with its clients changing their business plans and/or reducing their third-party services' budgets in response to economic conditions, which could also decrease the Company's revenues. Such revenue decreases could have a material adverse effect on the Company or its performance or condition.

We can be adversely affected if governments pass legislation that mandates an increase in wages, changes labor laws or otherwise drives market behavior that negatively impacts the business or operations of SPAR Group or our clients.

The Company has operations in nine distinct countries and relies on independent contractors as well as other third-party providers to perform work. There is risk that any government legislation that restricts travel, changes labor laws, impacts wages or otherwise incentivizes behavior that negatively impacts our business or our clients could impact our business.

The Company continues to analyze various aspects of potential business impact driven by any legislation in all of the countries we operate. While we do not foresee any material impact in the short-term, the Company will continue to monitor and manage the business accordingly.

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Our business depends on variable client projects that can shift from period to period, be delayed, be canceled or otherwise require us to assume higher costs to perform the work.

The Company has experienced and, in the future, may experience fluctuations in quarterly operating results and cash flow. Factors that may cause the Company's quarterly operating results and cash flow to vary from time to time and may result in reduced revenue and profits include: (i) the number of active client projects; (ii) seasonality of client products; (iii) client delays, changes and cancellations in projects; (iv) staffing requirements, indemnifications, risk allocations, primary insurance coverages, intellectual property claims and other contractual provisions and concessions demanded by clients that are unilateral, unreasonable and very time consuming to review and attempt to negotiate; (v) the timing requirements of client projects; (vi) the completion of major client projects; (vii) the timing of new engagements; (viii) the timing of personnel cost increases; (ix) service locations and conditions with higher than contemplated personnel costs (remote areas, weather and health closures, higher minimum wages, higher skill sets required, etc.); and (x) the loss of major clients. In addition, the Company is subject to revenue or profit uncertainties resulting from factors such as unprofitable client work and the failure of clients to pay. These revenue fluctuations could materially and adversely affect the Company or its performance or condition, whether actual or as planned, intended, anticipated, estimated or otherwise expected.

Our business could be adversely affected if retailers and manufacturers elect to perform merchandising and marketing services with their own resources or if they have less stores that need our services.

The business and growth of the Company depends in part on the continued outsourcing of merchandising and marketing services, which the Company believes has increased from the consolidation of retailers and manufacturers, as well as the desire to seek outsourcing specialists to reduce fixed operation expenses and concentrate internal staff on customer service and sales. There can be no assurance that this outsourcing will continue, as companies may elect to perform such services internally.

In addition, retailers with physical store locations are facing increasing consolidation and competition from eCommerce/virtual stores. The Company's business and growth depends in part on the continuing need for in-store merchandising of products and the continuing success of retailers with physical store locations. There can be no assurance that the in-store merchandising of products will increase or even continue at current levels or that retailers with physical store locations will continue to compete successfully in those stores, and some retailers are shifting their sales focus to their virtual online stores.

A significant decrease in such need for in-store merchandising or success of such physical stores could significantly decrease the Company's revenues and such decreased revenues could have a material adverse effect on the Company or its performance or condition, whether actual or as planned, intended, anticipated, estimated or otherwise expected.

We do work with furniture and other related assembly services at stores, in homes and in offices.

The Company's technicians assemble furniture and other products in the stores, homes and offices of customers. Working at a customer's store, home or office could give rise to claims against the Company for errors, omissions or misconduct by those technicians, including (without limitation) objectional behavior, harassment, personal injury, death, damage to or theft of customer property, or other civil or criminal misconduct by such technicians. Claims also could be made against the Company as a result of its involvement in such assembly services due to (among other things) product assembly errors and omissions, product defects, deficiencies, breakdowns or collapse, products that are not merchantable or fit for their particular purpose, products that do not conform to published specifications or satisfy customer expectations, or products that cause personal injury, death or property damage, in each case whether actual, alleged or perceived by customers, and irrespective of how much time may have passed since such assembly. If such claims are asserted and adversely determined against the Company, then to the extent such claims are not covered by indemnification from the product's seller or manufacturer or by insurance, they could have a material adverse effect on the Company or its performance or condition.

We depend upon third-party independent contractors and the services they provide.

The success of the Company's business in the USA is dependent upon the successful execution and administration of its domestic field services through the services of Field Specialists, and a significant portion of them are provided to the Company and are engaged by the Independent Field Vendor and located, scheduled, deployed and administered domestically through the services of Field Administrators (who were provided by an independent vendor through December 2022 and by the Company thereafter). The inability to identify, engage and successfully administer its domestic field services through qualified Field Specialists and Field Administrators could have a material adverse effect on the Company or its performance or condition.

A significant portion of the services of the Field Specialists provided to the Company are supplied by the Independent Field Vendor. It is possible that the appropriateness of the treatment of those Field Specialists as independent contractors by the Independent Field Vendor will be periodically subject to legal review or challenge by various states and others. The Company, in its discretion, may review and decide each request by its Independent Field Vendor for reimbursement of its legal defense expenses on a case-by-case basis, including the relative costs and benefits to the Company of doing so, but the Company has no obligation to do so.

To the Company's knowledge, its Independent Field Vendor is not involved in any material proceeding involving the misclassification of its independent contractors. However: (i) if the Company approves its reimbursement of any material legal defense costs of the Independent Field Vendor; (ii) if the Company somehow becomes liable for any legal expenses incurred by the Independent Field Vendor, any related party or any third party in defending any claim or satisfying any judgment against such parties; (iii) if the Company somehow becomes liable through any judicial determination for any judgment against the Independent Field Vendor, or any related party or other vendor or service provider (in whole or in part); or (iv) if any such proceeding or matter causes: (A) any decrease in the Independent Field Vendor's performance (quality or otherwise); (B) any inability by the Independent Field Vendor to execute the services for the Company or to continue with its present business model; or (C) any increase in the Company's use of employees (rather than independent contractors) as its domestic Field Specialists; then any of the foregoing, in whole or in part, could have a material adverse effect on the Company or its performance or condition.

There can be no assurance that plaintiffs or someone else will not claim that the Company is liable (under applicable law, through reimbursement or indemnification, or otherwise) for any judgment or similar amount imposed against any provider of Field Specialists or Field Administrators to the Company, which the Company would defend vigorously if pursued. There can be no assurance that the Company would be able to successfully defend any such claim. Any imposition of liability on the Company for any such judgment or amount could have a material adverse effect on the Company or its performance or condition.

Additionally, the Company believes that its business model of executing a significant portion of its services domestically (other than in California and in performing its non-merchandising services elsewhere), where the Company is using its own employees) through independent contractors provided by others is equally effective but inherently less costly than doing so with employees, both under applicable tax and employment laws and otherwise. However, the Company continues to reevaluate its business model of using third party independent contractors as Field Specialists in performing merchandising services outside of California in light of changing client requirements and legal and regulatory environments.

We rely onour systems and third-party vendors.

The Company relies on its proprietary systems for (among other things) the scheduling, tracking, coordination and reporting of its merchandising and marketing services. In addition to proprietary software and applications of the Company, the systems use and rely upon software (including operating system, office, exchange, data base and server programs) licensed and hardware purchased or leased from third parties and telecommunication services provided by third parties, which third-party software, hardware and telecommunication services may not continue to be available at all or (if available) with the necessary access, uptime, speeds or bandwidth, at reasonable prices or on commercially reasonable terms. Any defect, error or other performance failure in such third-party software, hardware or service also could result in a defect, error or performance failure in our client services. Systems can experience excess traffic and related inefficiencies, from increased demand or otherwise, as well as increased cyberattacks by hackers and other saboteurs. To the extent that systems experience increased demands on current capacity and for additional capacity from (among other things) an increase in the numbers of users, frequency or duration of use, bandwidth requirements of software, applications and users (including the increasing demand from the Company's clients for data-intensive as-serviced pictures from the Field Specialists), or cyberattacks, there can be no assurance that the Company's technological systems and third-party software, hardware and telecommunication providers will continue to be able to support the demands placed on them by such increased demand or negative events.

The Company relies on third-party vendors to provide its telecommunication network access and other services used in its business, and the Company has no control over such third-party providers. Additionally, a cybersecurity breach that results in unauthorized access to sensitive consumer or corporate information contained in these systems may adversely affect the Company's reputation and lead to claims against it. Such claims could include identity theft or other similar fraud-related claims and claims related to violations of applicable data privacy laws. Any system failure, accident or security breach could result in disruptions to the Company's operations. To the extent that any disruption or security breach results in a loss or damage to the Company's data, or results in inappropriate disclosure of confidential information, it could cause significant damage to the Company's reputation, affect its relationships with its customers, lead to claims against it and ultimately harm its business. In addition, the Company may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

Any such software, hardware or service unavailability or unreasonable pricing or terms, defect, error or other performance failure in such third-party software, hardware or service, increased capacity demands, disruption in services, security breach or protective measures could increase the Company's costs of operation and reduce its efficiency and performance, which could have a material adverse effect on the Company or its performance or condition, whether actual or as planned, intended, anticipated, estimated or otherwise expected.

Our stock is subject to volatility and general market risk.

The market price of SGRP Common Stock has historically experienced and may continue to experience significant volatility. During the year ended December 31, 2022, the sale price of SGRP Common Stock fluctuated from $1.27 to $1.30 per share. The Company believes that its Common Stock is subject to wide price fluctuations due to (among other things) the following:

If the Company issues (other than at fair market value for cash) or the Majority Stockholders sell a large number of shares of SGRP Common Stock, or if the market perceives such an issuance or sale is likely or imminent, the market price of SGRP Common Stock could decline.

The Company currently has in place a Repurchase Program (as defined and described in Item 5 - Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, below). Those repurchases could adversely affect the market liquidity of the SGRP Common Stock.

In addition, the volatility in the market price of SGRP Common Stock could lead to class action securities litigation that could in turn impose substantial costs on the Company, divert management's attention and resources from the day-to-day operations of the Company's business and harm the Company's stock price, the Company or its performance or condition.

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

There can be no assurance that the Company will be able to comply in the future with Nasdaq's Board Independence Rule, Audit Committee Composition Rule, Bid Price Rule or other Nasdaq continued listing requirements. See Our Significant Stockholders May Take Unilateral Actions, below. If the Company fails to satisfy the applicable continued listing requirement again in the future, Nasdaq may commence delisting procedures against the Company (during which the Company may have additional time of up to six (6) months to appeal and correct its non-compliance). If the SGRP Common Stock shares were ultimately delisted by Nasdaq, trading of the SGRP Common Stock could be limited to "over-the-counter" trades and the market liquidity of the SGRP Common Stock could be adversely affected, which could result in a decrease in the market price of the SGRP Common Stock due to (among other things) the potential for increased spreads between bids and asks, lower trading volumes and reporting delays in over-the-counter trades and the negative implications and perceptions that could arise from such a delisting

In addition to the foregoing, if the SGRP Common Stock is delisted from Nasdaq and is traded on the over-the-counter market, the "penny stock" rules, if applicable, could adversely affect the market price of the SGRP Common Stock and increase the transaction costs to sell those shares. The SEC has adopted specific rules regulating "penny stock", including additional risk disclosure requirements by broker dealers. If applicable in the future, the penny stock rules may also restrict the ability of broker-dealers to sell the SGRP Common Stock and may adversely affect the ability of investors to sell their shares.

We have inherent risk of failure to maintain effective internal controls.

Establishing and maintaining effective internal control over financial reporting and disclosures are necessary for the Company to provide reliable financial and other reporting in accordance with accounting principles generally accepted and applicable securities and other laws in the United States and all other countries in which we operate. Because of its inherent limitations, internal controls over financial and other reporting are not intended to provide absolute assurance that the Company could prevent or detect a misstatement of its financial statements or other reports or any misconduct or fraud. Any failure to maintain an effective system of internal control over financial and disclosure reporting could limit the Company's ability to report its financial results and file its other reports accurately and timely or to detect and prevent misconduct or fraud. A significant financial or disclosure reporting failure or material weakness in internal control over financial or other reporting could cause a loss of investor confidence and a decline in the market price of the SGRP Common Stock. The Company's management is responsible for establishing and maintaining adequate internal controls over its financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act. As disclosed in Item 9A of Part II of this report, the Company identified a material weakness in its internal controls as of December 31, 2022. While this control deficiency did not result in a material error in the annual or interim financial statements, there was a reasonable possibility that a material misstatement in the annual or interim financial statements would not have been detected. As such, Management has determined this control deficiency constitutes a material weakness. Please see the discussion of these conclusions below under Item 9A. “Controls and Procedures” of this Annual Report on Form 10-K.

Due to the material weakness in the Company's internal control over financial reporting, the Company also concluded that its disclosure controls and procedures were not effective as of December 31, 2022. Our inability to remediate the material weaknesses, our discovery of additional weaknesses, and our ability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting could affect our ability to ensure timely and reliable financial reports, affect the ability of our auditors to attest to the effectiveness of our internal controls, and weaken investor confidence in our financial reporting. The Company is actively engaged in developing a remediation plan designed to address the material weakness, but cannot be certain as to when its remediation plans will be fully completed. If the remedial measures are insufficient to address the material weakness or if additional material weaknesses or significant deficiencies in the internal controls are discovered or occur in the future, the consolidated financial statements may contain material misstatements and the Company could be required to restate its financial results, which could materially and adversely affect the Company's business and results of operations or financial condition, restrict its ability to access the capital markets, require the Company to expend significant resources to correct the weaknesses or deficiencies, subject it to fines, lawsuits, penalties, judgements or other legal expenses, harm its reputation, create delays or the inability to meet future SEC reporting obligations or otherwise cause a decline in investor confidence.

Our business is dependent on client payments, business performance and broad economic shifts, and we may be at risk of liquidity constraints and not satisfying all of our credit facility covenants.

Our business and cash flow can be adversely affected by adverse changes in our client payments, our business performance and broad economic shifts. There can be no assurances that in the future the Company will not violate covenants of its current or future credit facilities; and if it does violate them, that the Company's lenders will waive any violations of such covenants affecting the Company's ability to maintain adequate lines of credit or sufficient availability under its lines of credit. Accordingly, minimal profitability by the Company, additional one-time charges and changes in the composition and quality of its borrowing base, as well as any failure to maintain sufficient availability or lines of credit from the Company's lenders (which may involve their subjective judgement), could have a material adverse effect on the Company or its performance or condition, whether actual or as planned, intended, anticipated, estimated or otherwise expected.

Our business and stock liquidity and market value could be adversely affected if we settle outstanding litigation by making payments or issuing stock.

The timing, size and success of litigation settlement efforts and any associated capital commitments cannot be readily predicted. Future litigation settlements may be financed by issuing shares of the SGRP Common Stock (directly or through convertible securities), cash or a combination thereof. If the SGRP Common Stock does not maintain a sufficient market value, or if potential litigants are otherwise unwilling to accept the SGRP Common Stock as part of the consideration for the settlement of their litigation, the Company may be required to obtain additional capital through debt or equity financings. To the extent the SGRP Common Stock is used for all or a portion of the consideration to be paid for legal settlements, dilution may be experienced by existing stockholders. In addition, there can be no assurance that the Company will be able to obtain the additional financing it may need for litigation settlements on terms that the Company deems acceptable. Failure to obtain such capital would materially and adversely affect the Company or its performance or condition. There also can be no assurance that the other parties in any settlement will abide by the terms or any settlement or any related releases. See Item 3 -- Legal Proceedings, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations; Overview, and Note 10 to the Company's Consolidated Financial Statements - Related Party TransactionsDomestic Related Party Services (including Change of Control, Voting and Restricted Stock Agreement), below.

Our business performance is connected to the experience and retention of key executives.

The business strategy, client relationships and operating knowledge are critical to the Company’s long-term success. We believe we have attracted and developed the most experienced and proven executive leadership team in the industry. However, we work in a competitive industry where talent is visible and other companies may approach and attract our key executives. We continuously review the terms and incentives for our executives to retain them and competitively compensate them to deliver industry leading results on behalf of all shareholders.

Our significant stockholders may take actions, subject to the restrictions of the Change of Control, Voting and Restricted Stock Agreement ("CIC Agreement") and our By-Laws.

The Company's co-founders, Mr. Robert G. Brown and Mr. William H. Bartels, are significant stockholders ("Significant Stockholders”) and Directors of SGRP and together with certain related parties (collectively, the "Majority Stockholders") beneficially own approximately 52.3% of the SGRP Common Stock and could acquire more. That amount was calculated using their respective individual beneficial ownership, excluding affiliates shares, on January 28, 2022, as they represented in the CIC Agreement and the total outstanding ownership (approximately 21.3 million shares) of the SGRP Common Stock on a non-diluted basis as of December 31, 2021. Assuming no other purchases or sales, after the vesting of their Series B Preferred Stock and its conversion into SGRP Common Stock in accordance with the CIC Agreement, the Significant Stockholders will together beneficially own approximately 52.3% of the SGRP Common Stock, excluding affiliates shares. Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

, and

Note 10 to the Company's Consolidated Financial Statements- Related Party Transactions Domestic Related Party Services (including Change of Controls, Voting and Restricted Stock Agreement)

, below.

As significant stockholders, the Majority Stockholders can have an impact on the nomination and election of directors and the passage of other shareholder meeting proposals.

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

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

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

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

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We have inherent risks operating international businesses.

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

● Expenses associated with customizing services and technology;

● Local laws and business practices that favor local competition;

● Potentially adverse tax and employment law consequences;

● Local accounting principles, practices and procedures;

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

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

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company does not own any real property. The Company leases certain office space and storage facilities for its corporate headquarters, and subsidiaries under various operating leases. These leases generally require the Company to pay rents at market rates, subject to periodic adjustments, plus other charges, including utilities, real estate taxes and common area maintenance. The Company believes its relationships with its landlords to be generally good. However, as these leased facilities generally are used for offices and storage, the Company believes that other leased spaces could be readily found and utilized on similar terms should the need arise.

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The Company relocated its corporate headquarters from New York to its existing operations office in Auburn Hills, Michigan, in September of 2020. The Company also maintains its data processing center in Southfield, Michigan and its warehouse in Auburn Hills, Michigan, under an extended operating lease expiring October 31, 2025.

The following is a list of the headquarter locations for the Company and its domestic and international subsidiaries:

DOMESTIC:

INTERNATIONAL:

Vaughan, Ontario, Canada Tokyo, Japan Durban, South Africa

New Delhi, India Melbourne, Australia Mexico City, Mexico

Shanghai, China Sao Paulo, Brazil

Item 3. Legal Proceedings

The Company is a party to various legal actions and administrative proceedings arising in the normal course of business. In the opinion of Company's management, resolution of these matters is not anticipated to have a material adverse effect on the Company or its estimated or desired affiliates, assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, legal costs, liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition.

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

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

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's Capital Stock Generally

SGRP's Certificate of Incorporation authorizes it to issue 47,000,000 shares of SGRP Common Stock ("SGRP Shares") with a par value of $0.01 per share, which all have the same voting, dividend and liquidation rights. SGRP Common Stock is traded on the Nasdaq Capital Market under the symbol "SGRP." On December 31, 2022, there were 22,960,966 shares of SGRP Common Stock outstanding in the aggregate (which does not include Treasury Shares), and there were 10,127,244 million shares (or approximately 47.6%) of SGRP Common Stock beneficially owned by non-affiliates of the Company in the aggregate on a non-diluted basis (i.e., SGRP's public float). See Item IA - Risk Factors - Our significant stockholders may take actions, subject to the restrictions of the Change of Control, Voting and Restricted Stock Agreement ("CIC Agreement") and our By-Laws, and Note 10 to the Company's Consolidated Financial Statements- Related PartyTransactions Domestic RelatedPartyServices (includingChangeof Controls,Votingand Restricted Stock Agreement), below.

SGRP's Certificate of Incorporation also authorizes it to issue 3,000,000 shares of preferred stock with a par value of $0.01 per share (the "SGRP Preferred Stock"), which may have such preferences and priorities over the SGRP Common Stock and other rights, powers and privileges as SGRP's Board of Directors may establish in its discretion from time to time.

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

Subsequent to filing the Certificate of Elimination, on January 25, 2022, the Corporation filed a "Certificate of Designation of Series "B" Preferred Stock of SPAR Group, Inc.” (the "Preferred Designation") with the Secretary of State of Delaware, which designation had been approved by the Board on January 25, 2022. The Preferred Designation created a series of 2,000,000 shares of Preferred Stock designated as "Series B Preferred Stock” with a par value of $.01 per share (the "Preferred Stock"). The Preferred Stock shares do not carry any voting or dividend rights and automatically convert on vesting into the SGRP Common Stock on a 1 for 1.5 basis. See Note 10 to the Company's Consolidated Financial Statements - Related Party TransactionsDomestic Related Party Services (including Change of Control, Voting and Restricted Stock Agreement), below. However, the holders of the Series B Preferred Stock have a liquidation preferences over the SGRP Common Stock and vote together for matters pertaining only to the Series B Preferred Stock (such as amending SGRP's Certificate of Designation of Series B Preferred Stock) where only the holders of the Series B Preferred Stock are entitled to vote. The holders of outstanding Series A Preferred Stock do not have the right to vote for directors or other matters submitted to the holders of the SGRP Common Stock.

On January 28, 2022, pursuant to the CIC Agreement, the Corporation issued to the Majority Stockholders 2,000,000 restricted shares of Series B Preferred Stock, which were automatically convertible upon vesting into 3,000,000 SGRP Shares pursuant to the 1:1.5 conversion ratio set forth in the Preferred Designation and the CIC Agreement, subject to adjustment for a forward or reverse share split, share dividend, or similar transactions. See Note 10 to the Company's Consolidated Financial Statements - Related Party TransactionsDomestic Related Party Services (including Change of Control, Voting and Restricted Stock Agreement), below .

At December 31, 2022, 854,753 shares of Series B Preferred Stock remained issued and outstanding (which upon vesting will automatically convert to 1,282,129 shares of SGRP Common Stock), and 1,145,247 shares of Series B Preferred Stock had been surrendered and automatically converted to 1,717,870 shares of SGRP Common Stock. When there are no more shares of Series B Preferred Stock outstanding, SGRP may change or cancel the authorized Series B Preferred Stock, and to the extent it reduces such authorization without issuance, it can create other series of Preferred Stock with potentially different dividends, preferences and other terms.

Market Information

SGRP's Common Stock is traded on the Nasdaq Capital Market under the symbol "SGRP". As of December 31, 2022, there were approximately 169 stockholders of record.

Dividends

The Corporation has never declared or paid any cash dividends on its Common Stock and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. No dividends are payable on the Series B Preferred Stock. The Company currently intends to retain future earnings to finance its operations and fund the growth of the business. Any payment of future dividends will be at the discretion of the Board of Directors of the Corporation and will depend upon, among other things, the Company's earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions in respect to the payment of dividends and other factors that the Corporation Board of Directors deems relevant.

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Equity Compensation

Information regarding the Company's equity compensation plans may be found in Item 12 of this Annual Report, which is hereby incorporated by reference.

Stock Repurchase Program

On May 24, 2022, the Board of Directors of SGRP (the "Board"), authorized SGRP to repurchase up to 500,000 shares of its SGRP Shares pursuant to the 2022 Stock Repurchase Program (the "2022 Stock Repurchase Program"), which repurchases would be made from time to time over a one-year period in the open market and through privately-negotiated transactions, subject to cash availability and general market and other conditions. Through December 31, 2022, 151,156 shares of SGRP Common Stock were repurchased under the 2022 program and became Treasury Shares.

SGRP Common Stock Issuances

During 2022, the Corporation issued 73,867 SGRP Shares (including Treasury Shares and new shares of SGRP Common Stock) in support of its requirement to satisfy the conversion of vested and surrendered Series B Preferred Stock (see above), benefit awards and stock purchase plans, including employee Restricted Stock Units that vested and settled with stock, and the exercise of vested employee stock options. See Note 11to the Company's Consolidated Financial Statements – Stock Based Compensation and Other Plans, below.

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

Forward-Looking Statements

This Annual Report on Form 10-K (this " Annual Report ") contains "forward-looking statements" within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, made by, or respecting, SPAR Group, Inc. (" SGRP " or the "Corporation") and its subsidiaries (together with SGRP, " SPAR " , the " SPAR Group " or the " Company "). "Forward-looking statements" are defined in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the " Exchange Act "), and other applicable federal and state securities laws, rules and regulations, as amended (together with the Securities Act and Exchange Act, the " Securities Laws ").

Readers can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.Words such as "may," "will," "expect," "intend," "believe," "estimate," "anticipate," "continue," "plan," "project," or the negative of these terms or other similar expressions also identify forward-looking statements. Forward-looking statements made by the Company in this Annual Report may include (without limitation) statements regarding: risks, uncertainties, cautions, circumstances and other factors ("Risks");the potential continuing negative effects of the COVID-19 pandemic on the Company's business; the Company's potential non-compliance with applicable Nasdaq director independence; bid price or other rules;the Company's cash flow or financial condition; and plans, intentions, expectations, guidance or other information respecting the pursuit or achievement of the Company's corporate objectives. The Company's forward-looking statements also include (without limitation) those made in this Annual Report in "Business," "Risk Factors," "Legal Proceedings," "Management's Discussion and Analysis of Financial Condition and Results of Operations,""Directors, Executive Officers and Corporate Governance," "Executive Compensation," "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters," and "Certain Relationships and Related Transactions, and Director Independence."

You should carefully review and consider the Company's forward-looking statements (including all risk factors and other cautions and uncertainties) and other information made, contained or noted in or incorporated by reference into this Quarterly Report, the Annual Report, the Proxy Statement, the First Special Meeting Proxy/Information Statement and the First Special Meeting Report and the other applicable SEC Reports, but you should not place undue reliance on any of them. The results, actions, levels of activity, performance, achievements or condition of the Company (including its affiliates, assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, liabilities, liquidity, locations, marketing, operations, performance, prospects, sales, strategies, taxation or other achievement, results, risks, trends or condition) and other events and circumstances planned, intended, anticipated, estimated or otherwise expected by the Company (collectively, "Expectations"), and our forward-looking statements (including all Risks) and other information reflect the Company's current views about future events and circumstances. Although the Company believes those Expectations and views are reasonable, the results, actions, levels of activity, performance, achievements or condition of the Company or other events and circumstances may differ materially from our Expectations and views, and they cannot be assured or guaranteed by the Company, since they are subject to Risks and other assumptions, changes in circumstances and unpredictable events (many of which are beyond the Company's control). In addition, new Risks arise from time to time, and it is impossible for the Company to predict these matters or how they may arise or affect the Company. Accordingly, the Company cannot assure you that its Expectations will be achieved in whole or in part, that it has identified all potential Risks, or that it can successfully avoid or mitigate such Risks in whole or in part, any of which could be significant and materially adverse to the Company and the value of your investment in the Company's Common Stock.

These forward-looking statements reflect the Company's Expectations, views, Risks and assumptions only as of the date of thisQuarterlyReport, and the Company does not intend, assume any obligation, or promise to publicly update or revise any forward-looking statements (including any Risks or Expectations) or other information (in whole or in part), whether as a result of new information, new or worsening Risks or uncertainties, changed circumstances, future events, recognition, or otherwise.

Overview of Our Business

SPAR Group is a leading global merchandising and brand marketing services company, providing a broad range of sales enhancing services to retailers across most classes of trade and consumer goods manufacturers and distributors around the world. The Company’s goal is to be the most creative, energizing and effective global services company that drives sales, margins and operating efficiency for our clients.

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

With more than 50 years of experience and a diverse network of merchandising specialists around the world, the Company continues to grow its relationships with some of the world’s leading businesses. The combination of resource scale, deep expertise, advanced technology and unwavering commitment to excellence, separates the Company from the competition.

The Company’s focus is services. The team works closely with clients to determine their key objectives to execute globally, focusing on enhancing their sales and profit. At retail, the Company’s merchandising brand marketing specialists perform a wide range of programs to maximize product sell-through to consumers. Some of these programs include launching new products, installing displays, assembling product fixtures, and ensuring shelves are fully stocked and reordering when they are not. The Company also assists with sales and customer service. As retailers adapt to changes and new opportunities, our team engages in the total renovations and updating of stores, as well as preparing new locations for grand openings. The Company’s distribution associates work in retail and consumer goods distribution centers to prepare the centers to open, testing systems, putting away, picking products and providing peak staffing services for our clients.

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

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure of our operating performance and should not be considered as an alternative to net income as a measure of financial performance or any other performance measure derived in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). Adjusted EBITDA is defined as net (loss) income before (i) depreciation and amortization of long-lived assets, (ii) interest expense(iii) income tax expense, (iv) Board of Directors incremental compensation expense, (v) restructuring, (vi) impairment, (vii) nonrecurring legal settlement costs and associated legal expenses unrelated to the Company's core operations, (viii) and special items as determined by management. This metric is a supplemental measure of our operating performance that is neither required by, nor presented in accordance with, US GAAP.

We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our ongoing operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in our presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. There can be no assurance that we will not modify the presentation of Adjusted EBITDA in future periods, and any such modification may be material. In addition, Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry or across different industries.

Our management believes Adjusted EBITDA is helpful in highlighting trends in our core operating performance compared to other measures, which can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate and capital investments. We also use Adjusted to supplement U.S. GAAP measures of performance in the evaluation of the effectiveness of our business strategies and to make budgeting decisions.

Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under US GAAP. Some of these limitations include:

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

Twelve Months Ended December 31,

Depreciation and amortization 2,033 2,083

Costs and other relating to CIC (32 ) 4,814

Review of Strategic Alternatives 540 72

Goodwill impairment 2,458 -

Board of Directors compensation - 711

Board of Directors incremental compensation 394 -

Adjusted EBITDA attributable to non-controlling interest (4,637 ) (4,908 )

Adjusted EBITDA attributable to SPAR Group, Inc. $ 6,142 $ 6,957

Results of Operations

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

Year Ended December 31,

Related party - cost of revenues 8.8 3.4 7.4 2.9

Selling, general and administrative expense 41.1 15.7 36.8 14.4

Majority stockholders change of control agreement - - 4.5 1.8

Depreciation and amortization 2.0 0.8 2.1 0.8

Impairment of goodwill 2.5 1.0 - -

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

Income before income taxes 4.9 1.9 4.1 1.6

Net income attributable to noncontrolling interest (2.9 ) (1.1 ) (3.8 ) (1.5 )

Net loss attributable to SPAR Group, Inc. $ (0.7 ) (0.3 )% $ (1.8 ) (0.7 )%

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

Net Revenues

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

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

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

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

Cost of Revenues

The Company's cost of revenues consists of its in-store labor and field management wages, related benefits, travel and other direct labor-related expenses and was 80.5% of net revenue for the year ended December 31, 2022 compared to 81.4% of net revenues for the year ended December 31, 2021. We delivered a 90-basis point improvement in gross margins against the global pressure of recruiting and wages.

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

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

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

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

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

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

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

Depreciation and Amortization

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

Impairment of Goodwill

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

Interest Expense, Net

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

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

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

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

Other Income, Net

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

Income Tax Expense

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

Noncontrolling Interest

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

Critical Accounting Policies and Estimates

The Company’s critical accounting policies, including the assumptions and judgements underlying them, are disclosed in Note 2 to the Company’s consolidated financial statements included elsewhere in this Annual Report on Form 10-K. These policies have been consistently applied in all material respects and address matters such as impairment of long-lived assets, intangible assets, and goodwill, revenue recognition, allowance for doubtful accounts, and internal use software. While the estimates and judgements associated with the application of these policies may be affected by different assumptions or conditions, the Company believes the estimates and judgements associated with the reported amounts are appropriate under the circumstances.

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

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

When facts and circumstances indicate that the carrying value of definite-lived intangible assets may not be recoverable, the Company assesses the recoverability of the carrying value by preparing estimates of sales volume and the resulting profit and cash flows expected to result from the use of the asset or asset group and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, the Company recognizes an impairment loss. The impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the fair value. The Company uses a variety of methodologies to determine the fair value of these assets, including discounted cash flow models, which are consistent with the assumptions hypothetical marketplace participants would use.

Goodwill is subject to annual impairment tests and interim impairment tests if impairment indicators are present. The Company performs the annual impairment test during the third quarter each year. The impairment tests require the Company to first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. The Company is not required to calculate the fair value of a reporting unit unless it determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. If it is determined that it is more likely than not, or if the Company elects not to perform a qualitative assessment, the Company proceeds with the quantitative assessment. Under the quantitative test, if the fair value of a reporting unit exceeds its carrying amount, then goodwill of the reporting unit is considered to not be impaired. If the carrying amount of the reporting unit exceeds its fair value, then an impairment loss is recognized in an amount equal to the excess, up to the value of the goodwill.

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Revenue Recognition

The Company generates its revenues by providing merchandising services to its clients. Revenues are recognized when the Company satisfies a performance obligation by transferring services promised in a contract to a customer and in an amount that reflects the consideration that the Company expects to receive in exchange for those services. Performance obligations in the Company’s contracts represent distinct or separate services that we provide to the Company’s customers; generally, the Company’s contracts have a single performance obligation. If, at the outset of an arrangement, the Company determines that a contract with enforceable rights and obligations does not exist, revenues are deferred until all criteria for an enforceable contract are met.

The Company’s merchandising services are provided over time, generally on a daily, weekly, or monthly basis, and transaction price is based on the contractually-specified rate-per-driver metric (i.e., rate per hour, rate per store visit, or rate per unit stocked). The Company recognizes revenues for its contracts based on the contractually-specified rate-per-driver metric(s) utilizing the right-to-invoice practical expedient because the Company has a right to consideration for merchandising services completed to date. All of the Company’s contracts have a duration of one year or less and over 90% of the Company’s contracts are completed in less than 30 days.

Customer deposits, which are considered advances on future work, are deferred and recorded as revenue in the period in which the services are provided.

Allowance for Doubtful Accounts

The Company continually monitors the collectability of its accounts receivable based upon current client credit information and financial condition. Balances that are deemed to be uncollectible after the Company has attempted reasonable collection efforts are written off through a charge to the bad debt allowance and a credit to accounts receivable. Accounts receivable balances, net of any applicable reserves or allowances, are stated at the amount that management expects to collect from the outstanding balances. The Company provides for probable uncollectible amounts through a charge to earnings and a credit to bad debt allowance based in part on management’s assessment of the current status of individual accounts.

Based on management’s assessment, the Company established an allowance for doubtful accounts of $1.6 million and $0.6 million at December 31, 2022, and 2021, respectively. Bad debt expense was $1.3 million and $0.1 million for the years ended December 31, 2022 and 2021, respectively.

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Internal Use Software

The Company capitalizes certain costs associated with its internally developed software. The Company capitalizes the costs of materials and services incurred in developing or obtaining internal use software and such costs include, but are not limited to: the cost to purchase software, the cost to write program code, and payroll and related benefits and travel expenses for those employees who are directly involved with and who devote time to the Company’s software development projects. Capitalization of such costs begins during the application development stage once the preliminary project stage is complete, management authorizes and commits to funding the project, and it is probable that the project will be completed and that the software will be used to perform the function intended. Capitalization ceases when the project is substantially complete and ready for its intended purpose. Costs incurred during preliminary project and post-implementation stages, as well as software maintenance and training costs, are expensed in the period in which they are incurred.

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

Recent Accounting Pronouncements

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

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Liquidity and Capital Resources

Funding Requirements

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

The Company is a party to various domestic and international credit facilities. These various domestic and international credit facilities require compliance with their respective financial covenants. For the year ended December 31, 2022, the Company was in compliance with all financial covenants under these arrangements other than Resource Plus of North Florida, Inc.’s credit facility with Fifth Third Bank, under which there was no outstanding balance as of December 31, 2022. See Note 4 to the Company's consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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

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

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

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

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

Item 8. Financial Statements and Supplementary Data

See Item 15 of this Annual Report on Form 10-K.

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

None

Item 9A. Controls and Procedures

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Management's Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. The Chief Executive Officer and the Chief Financial Officer, as our principal financial and accounting officer, have reviewed the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K and, based on their evaluation, have concluded that the disclosure controls and procedures were not effective as of such date due to material weaknesses in internal control over financial reporting, described below.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management utilized the criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to conduct an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2022. In connection with the audit of our consolidated financial statements for the year ended December 31, 2022, we identified a material weakness in internal control over financial reporting, as described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Material Weakness in Internal Control Over Financial Reporting

Management has determined that a material weakness in its internal control over financial reporting existed as the Company has not designed and implemented effective controls used in the financial close process over non-recurring transactions involving international components. While this control deficiency did not result in a material error in the annual or interim financial statements, there was a reasonable possibility that a material misstatement in the annual or interim financial statements would not have been detected.

Remediation Efforts

The Company has begun the process of, and is focused on, designing and implementing effective internal control measures to improve its internal control over financial reporting and remediate the material weakness identified above. The Company's internal control remediation efforts include the following:

The Company expects that the actions described above and resulting improvements in controls will strengthen its internal control over financial reporting and will address the identified material weaknesses.

Changes in Internal Controls Over Financial Reporting

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

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

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PART III

Reference is made below to SGRP’s definitive Proxy Statement respecting its 2023 Annual Meeting of Stockholders currently scheduled to be held in May of 2023, as and when filed with the SEC, which SGRP plans to file pursuant to Regulation 14A in April of 2023, but not later than 120 days after the end of the Company’s 2022 fiscal year (the "2023 Proxy Statement”), For clarity (and without limitation), information appearing in the sections in such 2023 Proxy Statement entitled "PROPOSAL 3 – ADVISORY VOTE ON EXECUTIVE COMPENSATION”, "PROPOSAL 4 – ADVISORY VOTE ON THE FREQUENCY THAT THE CORPORATION HOLDS THE ADVISORY VOTE ON EXECUTIVE COMPENSATION”, and "REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS” shall not be deemed to be incorporated by reference in this Annual Report.

Item 10. Directors, Executive Officers and Corporate Governance

Reference is made to the information set forth under the captions "The Board of Directors of the Corporation”, "Executives and Officers of the Corporation”, "Security Ownership of Certain Beneficial Owners and Management” and "Corporate Governance” in the 2023 Proxy Statement.

Item 11. Executive Compensation

Reference is made to the information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management”, "Executive Compensation, Directors and Other Information”, "Executive Compensation, Equity Awards and Options” and "Compensation Plans” in the 2023 Proxy Statement.

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

Reference is made to the information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management”, "Executive Compensation, Equity Awards and Options” and "Compensation Plans” in the 2023 Proxy Statement.

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

Reference is made to the information set forth under the caption "Transactions with Related Persons, Promoters and Certain Control Persons” in the 2023 Proxy Statement.

Item 14. Principal Accountant Fees and Services

Reference is made to the information set forth under the caption "PROPOSAL 2 – RATIFICATION, ON AN ADVISORY BASIS, OF THE APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S PRINCIPAL INDEPENDENT ACCOUNTANTS” in the 2023 Proxy Statement.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

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

Consolidated Balance Sheets as of December 31, 2022 and 2021 F-3

Notes to Consolidated Financial Statements F-6

3. Exhibits

Exhibit Number Description

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4.2 Form of SGRP's Series B Preferred Stock Certificate (as filed herewith).

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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 Antonio Calisto Pato and Michael R. Matacunas and each of them, jointly and severally, his attorneys-in-fact, each with full power of substitution, for each of them in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorneys-in-fact or his substitute or substitutes, may do or cause to be done by virtue hereof.

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

SIGNATURE TITLE

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

Michael R. Matacunas (Principal Executive Officer)

_____________________ 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/ Antonio Calisto Pato Chief Financial Officer,

-28-

Report of Independent Registered Public Accounting Firm

Shareholders and Board of the Directors

SPAR Group, Inc. and Subsidiaries

Auburn Hills, Michigan

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of SPAR Group, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

Critical Audit Matter

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

Goodwill impairment assessment for the Resource Plus Reporting Unit

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

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

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

/s/ BDO USA, LLP

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

Troy, Michigan

April 17, 2023

F-1

SPAR Group, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive (Loss) Income

(In thousands, except share and per share data)

Year Ended December 31,

Related Party - Cost of revenues 8,804 7,401

Selling, general and administrative expense 41,135 36,778

Majority stockholders change of control agreement – 4,478

Depreciation and amortization 2,033 2,083

Impairment of goodwill 2,458 -

Other income, net (482 ) (510 )

Income before income tax expense 4,903 4,108

Net income attributable to noncontrolling interest (2,858 ) (3,779 )

Net loss attributable to SPAR Group, Inc. $ (732 ) $ (1,779 )

Basic loss per common share attributable to SPAR Group, Inc. $ (0.03 ) $ (0.08 )

Other comprehensive loss:

Foreign currency translation adjustments (391 ) (3,724 )

Comprehensive income (loss) 1,735 (1,724 )

Comprehensive (income) attributable to noncontrolling interest (2,380 ) (1,170 )

Comprehensive loss attributable to SPAR Group, Inc. $ (645 ) $ (2,894 )

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

F-2

SPAR Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share data)

Assets

Current assets:

Prepaid expenses and other current assets 7,861 4,382

Operating lease right-of-use assets 969 1,781

Liabilities and stockholder's equity

Current liabilities:

Accrued expenses and other current liabilities 20,261 22,031

Customer incentives and deposits 2,399 3,901

Current portion of operating lease liabilities 363 1,019

Operating lease liabilities, net of current portion 606 762

Commitments and contingencies – See Note 6

Stockholders' equity:

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

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

Common stock, $0.01 par value per share:

Accumulated other comprehensive loss (4,941 ) (5,028 )

Total stockholders' equity attributable to SPAR Group, Inc. 22,427 19,751

Total liabilities and stockholders' equity $ 94,598 $ 89,016

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

F-3

SPAR Group, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Stockholder's Equity

(In thousands)

Shares Amount Shares Amount Shares Amount Capital Loss Earnings Interest Equity

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

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

Other changes to noncontrolling interest – – – – – – – – – 4 4

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

Distribution to noncontrolling investors – – – – – – – – – (40 ) (40 )

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

Share-based compensation – – – – – – 346 – – – 346

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

Repurchases of common stock – – – – 151 (181 ) – – – – (181 )

Other comprehensive income (loss) – – – – – – – 87 – (478 ) (391 )

Retirement of shares (151 ) – – – – – – – – – –

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,

Cash Flows from operating activities:

Depreciation and amortization 2,033 2,083

Impairment of goodwill 2,458 -

Amortization of operating lease right-of-use assets 646 1,120

Bad debt expenses, net of recoveries 1,092 128

Deferred income tax expense (benefit) 994 (267 )

Share- based compensation expense 346 711

Majority stockholders change in control agreement – 4,478

Changes in operating assets and liabilities-

Prepaid expenses and other assets (3,285 ) (510 )

Operating lease liabilities (744 ) (1,120 )

Net cash (used in) provided by operating activities (5,044 ) 2,629

Cash flows from investing activities:

Purchases of property and equipment (1,797 ) (1,722 )

Net cash used in investing activities (1,797 ) (1,722 )

Cash flows from financing activities:

Repayments under lines of credit (25,648 ) (75,451 )

Proceeds related to stock options exercised 118 –

Payments related to stock options exercised – (123 )

Repurchase of common stock (181 ) –

Distribution to non-controlling investors (1,785 ) –

Acquisition of minority interest (2,558 ) –

Proceeds from term debt 3,530 –

Payments on term debt (454 ) (300 )

Net cash provided by financing activities 3,489 1,326

Net decrease in cash and cash equivalents (4,128 ) (2,499 )

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

Cash and cash equivalents at end of year $ 9,345 $ 13,473

Supplemental disclosure of cash flow information:

Cash paid for interest $ 1,200 $ 701

Cash paid for income taxes $ 2,287 $ 2,219

Supplemental disclosure of non-cash investing and financing activities:

Non-cash net majority stockholders agreement $ 3,270 $ -

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. Nature of the Business

SPAR Group, Inc. ("SGRP" or the "Corporation"), and its subsidiaries (and SGRP together with its subsidiaries may be referred to as "SPAR Group", the "Company", "SPAR", "We", or "Our") is a global merchandising and brand marketing services company, providing a broad range of services to retailers, consumer goods manufacturers and distributors around the world.

F-

6

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 the 51%-owned joint ventures in which the Company has a controlling financial interest. All significant intercompany transactions have been eliminated in the consolidated financial statements.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States ("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 carrying amounts of property and equipment and intangible assets, valuation allowances for receivables, carrying amounts for deferred tax assets and liabilities, and liabilities incurred from operations and customer incentives. Actual results could differ from those estimates.

Segment Reporting

Reportable segments are components of the Company for which separate financial information is available that is evaluated on a regular basis by the Chief Operating Decision Maker ("CODM”) in deciding how to allocate resources and in assessing performance. The Company's CODM is the Chief Executive Officer.

The Company provides similar merchandising, business technology, and marketing services throughout the world. Until December 31, 2021, the Company historically operated within two reportable segments: (i) the domestic division, which was comprised of the business in the United States, and (ii) the international division, which was comprised of all countries outside United States.

Effective January 1, 2022 to better leverage the regional footprint to align with global growth strategy, the Company realigned its reportable segments from two segments to three regional segments as follows: Americas which is comprised of United States, Canada, Brazil and Mexico; Asia-Pacific ("APAC”) which is comprised of Japan, China, India and Australia; and Europe, Middle East and Africa ("EMEA”) which is comprised of South Africa. Certain corporate expenses have been allocated to segments based on each segment’s revenue as a percent of total company revenue.

Variable Interest Entities

The Company consolidates all entities where a controlling financial interest exists. The Company has considered its relationships with its 51%-owned joint ventures to determine whether the Company has a variable interest in these entities, and if so, whether the Company is the primary beneficiary of the relationship. US GAAP requires variable interest entities ("VIEs”) to be consolidated if an entity’s interest in the VIE is a controlling financial interest. Under the variable model, a controlling financial interest is determined based on which entity, if any, has (i) the power to direct the activities of the VIE that most significantly impacts the VIE’s economic performance and (ii) the obligations to absorb losses that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Management performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change. The consolidation status of a VIE may change as a result of such reassessments. Changes in consolidation status are applied prospectively in accordance with US GAAP.

Cash Equivalents

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

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company maintains cash balances with high quality financial institutions and periodically evaluates the creditworthiness of such institutions. At times, the Company’s cash and cash equivalents balances with individual banking institutions are in excess of insured limits. The Company does not believe it is exposed to significant credit risk and the Company has not experienced any losses related to its cash and cash equivalents balances. No customer accounted for more than 10% of the Company’s net revenue for the years ended December 31, 2022 and December 31, 2021. No customer accounted for more than 10% of the Company’s accounts receivable, net as of December 31, 2022 and December 31, 2021.

Revenue Recognition

The Company generates its revenues by providing merchandising services to its clients. Revenues are recognized when the Company satisfies a performance obligation by transferring services promised in a contract to a customer and in an amount that reflects the consideration that the Company expects to receive in exchange for those services. Performance obligations in the Company’s contracts represent distinct or separate services that we provide to the Company’s customers; generally, the Company’s contracts have a single performance obligation. If, at the outset of an arrangement, the Company determines that a contract with enforceable rights and obligations does not exist, revenues are deferred until all criteria for an enforceable contract are met.

The Company’s merchandising services are provided over time, generally on a daily, weekly, or monthly basis, and transaction price is based on the contractually-specified rate-per-driver metric (i.e., rate per hour, rate per store visit, or rate per unit stocked). The Company recognizes revenues for its contracts based on the contractually-specified rate-per-driver metric(s) utilizing the right-to-invoice practical expedient because the Company has a right to consideration for merchandising services completed to date. All of the Company’s contracts with customers have a duration of one year or less and over 90% of the Company’s contracts are completed in less than 30 days.

Customer deposits, which are considered advances on future work, are deferred and recorded as revenue in the period in which the services are provided.

F-

7

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.

Allowance for Doubtful Accounts

The Company continually monitors the collectability of its accounts receivable based upon current client credit information and financial condition. Balances that are deemed to be uncollectible after the Company has attempted reasonable collection efforts are written off through a charge to the bad debt allowance and a credit to accounts receivable. Accounts receivable balances, net of any applicable reserves or allowances, are stated at the amount that management expects to collect from the outstanding balances. The Company provides for probable uncollectible amounts through a charge to earnings and a credit to bad debt allowance based in part on management’s assessment of the current status of individual accounts. Based on management’s assessment, the Company established an allowance for doubtful accounts of $1.6 million and $0.6 million at December 31, 2022, and 2021, respectively. Bad debt expense was $1.3 million and $.1 million for the years ended December 31, 2022 and 2021, respectively.

Leases

The Company determines if a contract contains a lease at inception. The Company’s material operating leases consist of office space and equipment. The Company recognizes a right-of-use ("ROU”) asset and lease liability for operating leases with a term of greater than one year. The ROU asset is measured as the sum of (1) the present value of all remaining fixed and in-substance fixed payments using the rate implicit in the lease whenever that is readily determinable or the Company’s incremental borrowing rate, (2) any lease payments made at or before the commencement date (less any lease incentives received) and (3) any initial direct costs incurred. The lease liability is measured similarly to the ROU asset, but excludes any payments made before the commencement date and initial direct costs incurred. Lease terms include options to extend or terminate the lease if it is reasonably certain the Company will exercise these options.

Expense for operating leases and leases with a term of one year or less is recognized on a straight-line basis over the term of the lease, unless another systematic and rational basis is more representative of the derivation of benefit from use of the leased property. Variable lease payments are recognized in the period in which the related obligation is incurred and consist primarily of payments for insurance and property taxes. Operating lease expense and variable lease payments are recorded in selling, general and administrative expense in the consolidated statements of operations and comprehensive income (loss).

Property and Equipment, Net

Property and equipment, including leasehold improvements, are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from three to seven years for equipment, three to seven years for furniture and fixtures, and three to five years for capitalized software costs. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease terms, which range from three to fifteen years. Maintenance and minor repairs are expensed as incurred.

Internal Use Software

The Company capitalizes certain costs associated with its internally developed software. The Company capitalizes the costs of materials and services incurred in developing or obtaining internal use software and such costs include, but are not limited to: the cost to purchase software, the cost to write program code, and payroll and related benefits for those employees who are directly involved with and who devote time to the Company’s software development projects. Capitalization of such costs begins during the application development stage once the preliminary project stage is complete, management authorizes and commits to funding the project, and it is probable that the project will be completed and that the software will be used to perform the function intended. Capitalization ceases when the project is substantially complete and ready for its intended purpose. Costs incurred during preliminary project and post-implementation stages, as well as software maintenance and training costs, are expensed in the period in which they are incurred.

F-

8

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 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.

Intangible Assets, Net

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 the pattern in which the economic benefits of the intangible assets are estimated to be realized.

When facts and circumstances indicate that the carrying value of definite-lived intangible assets may not be recoverable, the Company assesses the recoverability of the carrying value by preparing estimates of sales volume and the resulting profit and cash flows expected to result from the use of the asset or asset group and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, the Company recognizes an impairment loss. The impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the fair value.

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 Company performs the annual impairment test as of October 31st each year. The impairment tests require the Company to first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. The Company is not required to calculate the fair value of a reporting unit unless it determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. If it is determined that it is more likely than not, or if the Company elects not to perform a qualitative assessment, the Company proceeds with the quantitative assessment. Under the quantitative test, if the fair value of a reporting unit exceeds its carrying amount, then goodwill of the reporting unit is considered to not be impaired. If the carrying amount of the reporting unit exceeds its fair value, then an impairment loss is recognized in an amount equal to the excess, up to the value of the goodwill.

Treasury Stock

The Company records treasury stock activities under the cost method whereby the cost of the acquired stock is recorded as treasury stock. The Company’s accounting policy upon the formal retirement of treasury stock is to deduct the par value from the Company’s common stock and to reflect any excess of cost over par value as a reduction to additional paid-in capital (to the extent created by previous issuances of the shares).

Noncontrolling Interest

The Company recognizes noncontrolling interest related to VIEs, in which the Company is the primary beneficiary, as equity in the consolidated financial statements separate from the parent entity’s equity. The amount of net income or loss attributable to noncontrolling interests is included in consolidated net income on the face of the consolidated statements of operations and comprehensive loss. Changes in the parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. In addition, when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary will be initially measured at fair value and the difference between the carrying value and fair value of the retained interest will be recorded as a gain or loss. Because these transactions take place between entities under common control, any gains or losses attributable to these transactions are required to be included within additional paid-in-capital on the consolidated balance sheets.

Advertising and Promotional Expenses

Advertising and promotional expenses are included in selling, general and administrative expenses within the consolidated statements of operations and comprehensive loss and are expensed when incurred. Advertising and promotional expenses were $19,549 and $9,298 during the years ended December 31, 2022 and 2021, respectively.

Share-Based Compensation

The Company measures all share-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense for those awards, over the requisite service period, which is generally the vesting period of the respective award, on a straight-line basis for the entire award. The fair value of stock options is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the fair market value of the Company’s common stock, expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and the Company’s expected dividend yield.

The Company classifies share-based compensation expense in its consolidated statements of operations and comprehensive (loss) income in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. The Company made a policy election to estimate the number of share-based compensation awards that are expected to vest to determine the amount of compensation expense recognized in earnings. Forfeiture estimates are revised if subsequent information indicates that the actual number of forfeitures is likely to differ from previous estimates.

Excess tax benefits are realized from the exercise of stock options and are reported as a financing cash inflow in the consolidated statement of cash flows.

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 US GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

F-

9

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-term nature, the carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximated the fair values (Level 1) as of December 31, 2022 and 2021. 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).

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.

F-

10

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No.2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU No.2019-12”), which simplifies the accounting for income taxes by removing a variety of exceptions within the framework of ASC 740. The Company adopted ASU No.2019-12 on January 1, 2021, and the amendments applicable to the Company were applied prospectively. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements or disclosures for the year ended December 31, 2021.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No.2016-13,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU No.2016-13”), which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The guidance will be effective for the Company beginning January 1, 2023, and interim periods therein. Early adoption is permitted. The Company will adopt this new standard in the first quarter of 2023 and does not believe it will have a material effect on its consolidated financial statements and related disclosures.

F-

11

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Supplemental Balance Sheet Information

Accounts Receivable Net December 31,

Less allowance for doubtful accounts (1,654 ) (564 )

Property and Equipment, Net December 31,

Less accumulated depreciation and amortization (21,817 ) (20,305 )

Property and equipment, net $ 3,261 $ 2,929

Depreciation expense (including amortization of internal use software and intangible assets as described below) was $2.0 million and $2.1 million for the years ended December 31, 2022 and 2021, respectively.

The Company capitalized $1.5 million and $1.2 million of costs related to internal use software in the years ended December 31, 2022 and 2021, respectively.

The Company recognized approximately $1.2 million and $1.2 million of amortization expense related to internal use software for the years ended December 31, 2022 and 2021, respectively.

Goodwill Americas Asia-Pacific EMEA

Goodwill (in thousands):

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

Impairment of goodwill (2,458 ) – – (2,458 )

Goodwill is generally deductible for tax purposes, except for the portion related to purchase accounting step-up goodwill.

As of December 31, 2022 and 2021, accumulated impairment losses of goodwill were $2.5 million and $0, respectively.

Goodwill Impairment of Resource Plus of North Florida, Inc.

The Company acquired Resource Plus of North Florida, Inc. ("Resource Plus”) in 2018 as a joint venture partnership and owns 51% of the Resource Plus business. At the time of the acquisition, the Company recorded $2.0 million of goodwill and $1.2 million of intangible assets relating to brand and technology. Due to the loss of a significant customer, during the year ended December 31, 2022, Resource Plus did not meet original forecast and reduced forecasts. The Company performed the Step 1 qualitative impairment test using a combination of the discounted cash flow and guideline public company methodologies.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires the Company to make assumptions and estimates regarding its future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, and other market factors. The Company’s expectations also include certain assumptions that could be negatively impacted if the Company is unable to meet its cost expectations in relation to inflation. If current expectations of future growth rates and margins are not met, if market factors outside of the Company’s control, such as discount rates, income tax rates, foreign currency exchange rates, inflation, or any other factors, change, or if management’s expectations or plans otherwise change, including updates to the Company’s long-term operating plans, then one or more of our reporting units might become impaired in the future.

As of December 31, 2022, the Company was required to test the Resource Plus reporting unit for impairment due to continued decline in revenues and profitability. The Company performed the Step 1 qualitative impairment test using a combination of the discounted cash flow and guideline public company methodologies. Key assumptions include management's estimates of forecasted revenue and forecasted cash flows.

The impairment test indicated the goodwill of Resource Plus was fully impaired and the Company recorded an impairment loss of $2.0 million during the year ended December 31, 2022.

Goodwill Impairment ofSPAR TODOPROMO, SAPI, de CV

The Company acquired SPAR TODOPROMO, SAPI, de CV ("SPAR Mexico”) in 2011 as a joint venture partnership and currently owns 51% of the SPAR Mexico business. At time of acquisition, the Company recorded $0.5 million of goodwill. During year ended December 31, 2022, SPAR Mexico did not meet original forecasts due to labor law changes in Mexico. The Company performed the Step 1 qualitative impairment test using a combination of the discounted cash flow and guideline public company methodologies. The impairment test indicated that the goodwill of SPAR Mexico was fully impaired and the Company recorded an impairment loss of $0.5 million USD during the year ended December 31, 2022.

Intangible Assets, Net December 31,

Customer contracts and lists $ 3,543 $ 3,362

Less accumulated amortization (3,793 ) (3,357 )

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SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Supplemental Balance Sheet Information (continued)

The Company is amortizing its intangible assets over lives ranging from 5 to 25 years. Amortization expense for the years ended December 31, 2022 and 2021 was approximately $0.4 and $0.5, respectively.

The annual amortization for each of the following years succeeding December 31, 2022 is summarized as follows (in thousands):

Year Amount

Accrued Expenses and Other Current Liabilities December 31,

Accrued accounting and legal expenses 2,186 1,251

Majority stockholders change of control agreement – 4,478

Accrued expenses and other current liabilities $ 20,261 $ 22,031

4. Debt

North Mill Capital Credit Facility

The Company, through SPAR Marketing Force, Inc. ("SMF") and SPAR Canada Company ULC ("SCC", and collectively with SMF, the "NM Borrowers”), has a secured revolving credit facility in the United States (the "US Revolving Credit Facility") and Canada (the "Canada Revolving Credit Facility", and collectively with the US Revolving Credit Facility, the "NM Credit Facility") with North Mill Capital, LLC, d/b/a SLR Business Credit ("NM").

In order to obtain, document and govern the NM Credit Facility, SMF. SCC, SGRP and certain of SGRP's direct and indirect subsidiaries in the United States and Canada (including SMF and SCC as borrowers and SGRP as a guarantor, collectively, the "NM Loan Parties") entered into a Loan and Security Agreement with NM dated as of April 10, 2019, which, as amended from time to time (as amended, the "NM Loan Agreement"), governs the NM Credit Facility.

On January 5, 2021, the NM Loan Parties and NM executed and delivered a First Modification Agreement as of January 4, 2021, and effective as of December 31, 2020 (the "First Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to extend the NM Credit Facility from October 10, 2021, to April 10, 2022, and increased the amount of the US Revolving Credit Facility to $14.5 million and decreased the Canada Revolving Credit Facility to CDN$1.5 million. In addition, the First Modification Agreement increased SMF's borrowing base availability for unbilled receivables to up to 70% from January 1, 2021, through June 30, 2021, and increased the cap on unbilled accounts for SMF to $4.5 million from $3.9 million.

On March 22, 2021, the NM Parties and NM executed and delivered a Second Modification Agreement, effective as of April 1, 2021 (the "Second Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to extend the NM Credit Facility from April 10, 2022, to October 10, 2023, and increased the amount of the US Revolving Credit Facility to $16.5 million while the Canada Revolving Credit Facility remained at CDN$1.5 million. In addition, the Second Modification Agreement permanently increased SMF's borrowing base availability for unbilled receivables to up to 70%, and increased the cap on unbilled accounts for SMF to $5.5 million from $4.5 million.

On December 16, 2021, the NM Parties and NM executed and delivered a Third Modification Agreement, effective as of December 1, 2021 (the "ThirdModification Agreement"), pursuant to which the NM Loan Parties and NM agreed to temporarily increase the borrowing base availability under the NM Credit Facility, and the NM Borrowers agreed to pay certain additional fees.

On July 1, 2022, the NM Loan Parties and NM executed and delivered a Fourth Modification Agreement, effective as of June 30, 2022 (the "Fourth Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to extend the NM Credit Facility from October 10, 2023, to October 10, 2024, and increased the amount of the US Revolving Credit Facility to $17.5 million while the Canada Revolving Credit Facility remained at CDN$1.5 million. In addition, the Fourth Modification Agreement permanently increased SMF's borrowing base availability for billed receivables to up to 90% from 85%, and unbilled receivables to up to 80% from 70%, and increased the cap on unbilled accounts for SMF to $6.5 million from $5.5 million.

On August 9, 2022, the NM Loan Parties and NM executed and delivered a Fifth Modification Agreement, effective immediately (the "Fifth ModificationAgreement"), pursuant to which the NM Loan Parties and NM agreed to temporarily increase the borrowing base availability under the NM Credit Facility, and the NM Borrowers agreed to pay certain additional fees.

The NM Credit Facility contains certain financial and other restrictive covenants and also limits certain expenditures by the NM Loan Parties, including maintaining a positive trailing EBITDA for each the NM Borrowers (i.e., SMF and SCC) and imposes limits on all of the NM Loan Parties (including SGRP) on non-ordinary course payments and transactions, incurring or guaranteeing indebtedness, increases in executive, officer or director compensation, capital expenditures and certain other investments. The NM Loan Parties were in compliance with such covenants as of December 31, 2022.

The obligations of the NM Borrowers are secured by the receivables and other assets of the NM Borrowers and substantially all of the assets of the other NM Loan Parties, however, the obligations are not secured by any equity in, financial asset respecting or asset of any Excluded Subsidiary (as such term is defined in the NM Loan Agreement). Pursuant to the NM Loan Agreement, Excluded Subsidiary means each of the following direct or indirect subsidiaries of SGRP: (i) Resource Plus of North Florida, Inc., Mobex of North Florida, Inc., and Leasex, LLC, and their respective subsidiaries; (ii) NMS Retail Services ULC, which is an inactive Nova Scotia ULC; (iii) SPAR Group International, Inc.; (iv) SPAR FM Japan, Inc.; (v) SPAR International, Ltd.; (vi) each other subsidiary formed outside of the United States or Canada; and (vii) any other entity in which any such subsidiary is a partner, joint venture or other equity investor.

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SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. Debt (continued)

Fifth Third CreditFacility

One of the Company’s consolidated subsidiaries, Resource Plus, was a party to a revolving line of credit facility (the "Fifth Third Credit Facility”) from Fifth Third Bank for $3.5 million, which ended in March 2022.

As of December 31, 2021, there was no outstanding balance under the Fifth Third Credit Facility. Resource Plus closed the line of credit with Fifth Third Bank in March 2022 and as such, there was no balance outstanding as of December 31, 2022. Resource Plus maintained an existing $0.9 million cash balance with Fifth Third Bank to be in compliance with their insurance policy.

Resource Plus – Seller Notes

Effective with the closing of the Company's acquisition of Resource Plus in 2018, the Company issued into promissory notes with the sellers of $2.3 million. The promissory notes are payable at annual installments in various amounts on December 31 of each year, starting with December 31, 2018 and continuing through December 31, 2023.

As of December 31, 2022 and 2021, the annual interest rate was 1.85% and the balance outstanding under the promissory notes was approximately $1.0 million, which is included in lines of credit and short-term loans in the consolidated balance sheets.

International Credit Facilities

In October 2017, SPARFACTS Australia Pty. Ltd. secured a line of credit facility with National Australia Bank, for AUD $0.8 million. The facility provides for borrowing based upon a formula, as defined in the applicable loan agreement (principally 80% of eligible accounts receivable less certain deductions). The annual interest rate was 10.60% as of December 31, 2022. As of December 31, 2022 the outstanding balance was AUD $0.2 million or $0.1 million USD and was due on demand. As of December 31, 2021 the balance was AUD $0.2 million or $0.1 million USD and was due on demand.

In December 2020, SPAR China secured a loan with Industrial Bank for 3.0 million Chinese Yuan. The loan will expire in July 2023. The annual interest rate was 4.00% as of December 31, 2022. As of December 31, 2022, the outstanding balance was 3.0 million Chinese Yuan or approximately $0.4 million and was due on demand. As of December 31, 2021, the outstanding balance was 3.0 million Chinese Yuan or $0.5 million and was due on demand.

In June 2021, SPAR China, Inc. ("SPAR China”) secured a loan with People's Bank of China for 1.0 million Chinese Yuan. The loan expired in June 2022 and was not renewed. As of December 31, 2022, there is no balance outstanding. As of December 31, 2021, the outstanding balance was 1.0 million Chinese Yuan or $0.1 million and was due on demand.

In December 2021, SPAR China secured a loan with Industrial and Commercial Bank of China for 2.0 million Chinese Yuan. The loan will expire in December 2023. The annual interest rate was 4.15% as of December 31, 2022. As of December 31, 2022, the outstanding balance was 2.0 million Chinese Yuan or $0.3 million and was due on demand. As of December 31, 2021, the outstanding balance was 2.0 million Chinese Yuan or $0.3 million and was due on demand.

In March 2022, SGRP Meridian (Pty), Ltd. secured loans with Investec Bank Ltd, for 60.0 million South African Rand; of which 30.0 million South African Rand is due July 2023. The annual interest rate was 10.50% as of December 31, 2022. As of December 31, 2022, the outstanding balance was approximately 52.3 million South African Rand or $3.1 million USD.

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SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. Debt (continued)

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

Interest Rate as of Balance as of Interest Rate as of Balance as of

United States - Resource Plus Seller Notes 1.85 % 1,000 1.87 % 300

South Africa - Investec Bank Ltd. 10.50 % 1,700 - % -

China - People's Bank of China - % - 3.71 % 157

China - Industrial and Commercial Bank of China 4.15 % 290 4.23 % 315

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

Unused Availability:

South Africa 454 –

Total Unused Availability $ 5,446 $ 6,674

Summary of the Company’s Long- term debt (dollars in thousands):

Interest Rate as of Balance Outstanding Interest Rate as of Balance Outstanding

South Africa - Investec Bank Ltd. 10.5 % $ 1,376 $ –

United States - Resource Plus Seller Notes – % – 1.87 % 700

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