SGRP · Read the filing

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

Overview of Our Business

SPAR Group is a leading 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 retail services company that drives sales, margins and operating efficiency for our clients.

As of December 31, 2024, the Company operated in the United States and Canada. During 2024, the company strategically exited joint ventures in Mexico, Brazil, South Africa, China, Japan and India.

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 is dedicated to delivering a spectrum of specialized services tailored to enhance retail operations and profitability across the globe. Our team collaborates closely with clients to identify their primary goals, ensuring the execution of strategies that boost sales and profit margins. With a focus on merchandising and brand marketing, our specialists deploy a variety of programs aimed at maximizing product sell-through to consumers. These initiatives range from launching new products and setting up promotional displays to assembling fixtures and ensuring consistent stock availability, thus facilitating efficient reordering processes. Furthermore, we extend our expertise to sales enhancement and customer service improvement. As the retail landscape evolves, our team is adept at undertaking comprehensive store renovations and preparing new locations for their grand openings, ensuring they meet the modern consumer's expectations. Additionally, our distribution associates play a pivotal role in retail and consumer goods distribution centers, preparing these facilities for operation, optimizing system functionality, managing product logistics, and providing essential staffing solutions to meet our clients' needs effectively.

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

Delayed Filing

In fiscal year 2024, the Company navigated an exceptionally complex set of transactions and operational changes. During the year, the Company divested six foreign joint ventures and acquired the remaining 49% ownership interest in another joint venture, significantly reshaping its corporate and consolidation structure. The Company also implemented a new enterprise resource planning (ERP) system, running it in parallel during the fourth quarter to transition from legacy financial systems. In addition, preparations for an anticipated acquisition of Highwire late in the year necessitated a delay in completing the year-end financial close and postponed the start of the annual audit. These events collectively created an unusually challenging financial reporting environment for 2024.

EBITDA and 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) restructuring expenses, (v) impairment, (vi) nonrecurring legal settlement costs and associated legal expenses unrelated to the Company's core operations, (vii) special items as determined by management, and (viii) review of strategic alternatives, which includes primarily legal, consulting, and investment bank fees. 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 Net Income (loss) was approximately ($2.7) million and $4.8 million for the years ended December 31, 2024, and December 31, 2023. Our Consolidated EBITDA was approximately $2.5 million and $11.4 million for the years ended December 31, 2024 and 2023 respectively. The following is a reconciliation of our net income to Adjusted EBITDA for the periods presented:

Year Ended December 31,

Consolidated Net Income (Loss) $ (2,687 ) $ 4,776

Depreciation and amortization 1,616 2,001

Subtotal of Adjustments to Consolidated Net Income 5,227 6,623

Review of Strategic Alternatives 5,221 544

(Gain)/Loss on sale of businesses (1,348 ) 408

Restructuring costs - 28

Legal costs / Settlements - non-recurring 100 289

Share-based compensation 137 297

Adjusted EBITDA attributable to non-controlling interest (1,034 ) (3,022 )

Adjusted EBITDA attributable to SPAR Group, Inc. 5,616 9,943

Results of Operations

The following table sets forth selected financial data for the years indicated (dollars in millions):

Year Ended December 31,

Related Party - Cost of revenues - - 5.2 2.0

Selling, general and administrative expense 37.3 19.0 43.7 16.6

(Gain) / Loss on sale of business (1.3 ) (0.7 ) 0.4 0.2

Depreciation and amortization 1.6 0.8 2.0 0.8

Income (loss) before income taxes (1.5 ) (0.8 ) 7.1 2.7

Net income (loss) attributable to SPAR Group, Inc. $ (3.2 ) (1.6 )% $ 3.9 1.5 %

Results of operations for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Net Revenues

Consolidated net revenues for the year ended December 31, 2024, were $ 196.8 million compared to $ 262.7 million for the year ended December 31, 2023, a decrease of $ 65.9 million or 25.1%. This decrease in revenue was primarily driven by the sale of all international joint ventures during various times throughout the year.

The Americas net revenues totaled $ 177.2 million and $ 203.7 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $ 26.5 million or 13.0% is the result of the sale of our Brazilian joint venture during the second quarter. The decline in revenues associated with the sale of Brazil were partially offset by 11% revenue growth in the United States and 15% revenue growth in Canada.

The Asia-Pacific net revenues totaled $ 11.3 million and $ 24.5 million for the years ended December 31, 2024 and 2023, respectively, a decrease of $ 13.2 million or 53.9%. The decline in revenues at Asia-Pacific is due to the exit of all joint ventures in the region in 2024, compared to a full year of revenues in the prior year.

The EMEA net revenues totaled $ 8.3 million and $ 34.6 million for the years ended December 31, 2024 and 2023, respectively, a decrease of $ 26.3 million or 76.1%. The decline in revenues is due to the exit of our South African joint venture in 2024.

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, 2024 compared to 78.9% of net revenues for the year ended December 31, 2023. The decline in margin in 2024 was driven by significant growth in revenue from the remodel business, which is lower margin than the traditional merchandising business.

The Americas cost of revenue as a percent of net revenue was 80.2% and 79.8% for the years ended December 31, 2024 and 2023, respectively. The increase in cost of 0.4% was the result of higher costs in our owned U.S. business related to the high proportion of revenue growth in the remodel business. These higher costs were partially offset by a partial year impact of the exit of Mexico and Brazil, which are traditionally lower margin businesses than those in the U.S. and Canada.

The Asia-Pacific cost of revenue as a percent of net revenue was 80.7% and 74.7% for the years ended December 31, 2024 and 2023, respectively. Margins declined in Asia-Pacific due to lower margins in China and the full year impact of the sale of Australia, which had high margins in 2023. As of December 31, 2024, the Company has exited all business in Asia-Pacific.

The EMEA cost of revenue as a percent of net revenue was 84.6% and 76.3% for the years ended December 31, 2024 and 2023, respectively. This decrease in gross margin is due to (i) additional variable expenses in the cost of sales, (ii) government imposed wage increases (8.5%) ahead of inflation (5.3%) at a time when the economy is under pressure which forced margin reduction in contract renegotiations. The Company exited the EMEA region in the first quarter of 2024.

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

$ 37.3 million, or

18.9% of net revenue, and approximately

$ 43.7 million, or

16.6% of net revenue for the years ended

December 31, 2024 and

2023, respectively. Selling, general and administrative expenses for the year-ended

December 31, 2024 includes expenses of approximately $5.5 million related to our consideration of strategic alternatives, costs to execute sale of joint ventures, and transaction costs associated with the proposed merger with Highwire capital. Absent these costs, which are not on-going in nature, Selling, general and administrative expenses were 16.5% of net revenue in 2024.

The Americas selling, general and administrative expenses totaled $ 33.0 million and $ 32.2 million for the years ended December 31, 2024 and 2023, respectively. Costs were essentially flat to prior year as the impact of the sale of Brazil was offset by higher costs associated with the evaluation of strategic alternatives.

The Asia-Pacific selling, general and administrative expenses totaled $ 3.1 million and $ 6.5 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $ 3.4 million, or 52.2% is primarily attributable to the exit of international joint ventures by the end of the third quarter of 2024.

The EMEA selling, general and administrative expenses totaled $ 1.1 million and $ 5.0 million for the years ended December 31, 2024 and 2023, respectively. EMEA was exited in second quarter of 2024.

Depreciation and Amortization

Depreciation and amortization expense was approximately $ 1.6 million and $ 2.0 million for the years ended December 31, 2024 and 2023, respectively.

Interest Expense

The Company's interest expense was $ 2.2 million and $ 1.9 million for the years ended December 31, 2024 and 2023, respectively.

The America interest expense was $ 2.1 million and $ 1.4 million for the years ended December 31, 2024 and 2023, respectively. The increase was due to higher debt balances resulting from, among other factors, the legal obligation to have balance sheet cash of no less than $14.2 million at the closing date of the Highwire merger.

Other Expense, Net

Other expense, net was $ 0.2 and $ 0.3 million for the years ended December 31, 2024 and 2023, respectively.

Income Tax Expense

The Company had income tax expense of $ 1.2 million, with an effective tax rate of -82.9%, and $ 2.4 million, with an effective rate of 33.0%, for the years ended December 31, 2024 and 2023, respectively. For the year ended December 31, 2024, our effective income tax rate of -82.9% varied from the U.S. federal statutory rate of 21% primarily as a result of foreign rate differential, the sale of foreign entities primarily as a result of the sale of the Brazilian JV qualifying as a gain in Brazil and subject to foreign withholding tax but being characterized as a loss under US GAAP, and permanent differences.

Net income attributable to non-controlling interest

Net income attributable to noncontrolling interest was $ 0.5 million and $ 0.9 million for the years ended December 31, 2024 and 2023, respectively.

Critical Accounting Policies and Estimates

The Company’s critical accounting policies, including the assumptions and judgments 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 credit losses, and internal use software. While the estimates and judgments associated with the application of these policies may be affected by different assumptions or conditions, the Company believes the estimates and judgments 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.

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.

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 Credit Losses

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 credit losses of $0.4 million and $1.5 million at December 31, 2024 and 2023, respectively. Credit loss expense was $0.1 million and $0.3 million for the years ended December 31, 2024 and 2023, respectively.

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 $1.0 million and $1.0 million of costs related to software developed for internal use for the years ended December 31, 2024 and 2023, respectively, and recognized approximately $1.4 million and $1.3 million of amortization of capitalized software for the years ended December 31, 2024 and 2023

Recent Accounting Pronouncements

See the sections titled "Summary of Significant Accounting Policies— Recently Adopted Accounting Pronouncements” and "—Recently issued accounting pronouncements not yet adopted” in Note 2 to the Company's Consolidated Financial Statements, Summary of Significant Accounting Policies, included elsewhere in this Annual Report on Form 10‐K.

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 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, 2024, the Company was in compliance with all financial covenants under these arrangements. See Note 4 to the Company's Consolidated Financial Statements, Debt, included elsewhere in this Annual Report on Form 10-K.

Cash Flows for the Years Ended December 31, 2024 and 2023

Net cash used in operating activities was $ (0.7) million for the year ended December 31, 2024 and net cash provided by operating activities was $ 6.8 million for the year ended December 31, 2023. The year-over-year decrease in net cash provided by operating activities was primarily due to the sale of Brazil & South Africa, which both generated strong operating cash flows in 2023. This impact was partially offset by improved working capital management in the US.

Net cash provided by investing activities for the year ended December 31, 2024 was $ 9.9 million, compared to cash used in investing activities of $ (2.3) million for the year ended December 31, 2023. The net cash provided by investing activities was primarily attributable to the sale of international joint ventures, net of transaction costs.

Net cash used in financing activities for the year ended December 31, 2024 was approximately $ (1.7) million compared to $ (3.0) million used in financing activities in 2023. The year-over-year decrease in cash from financing activities was driven by payment of notes to the sellers of Resource Plus, the purchase of treasury stock, and distributions to non-controlling investors.

For the year ended December 31, 2024, the Company experienced a net increase in cash and cash equivalents amounting to approximately $ 7.5 million, net of the impact of foreign exchange rate fluctuations of $(0.1) . The overall increase in cash was driven by proceeds from the sale of international joint ventures as well as improved working capital management.

Brazil Joint Venture Sale and Non-GAAP EPS Impact

Economic Substance of the Transaction

In June 2024, SPAR Group completed the sale of its 51% ownership stake in its Brazilian joint venture. The total consideration was $10.7 million, consisting of $9.7 million in cash received by SPAR and $1.0 million withheld for Brazilian tax purposes. SPAR’s carrying value for its investment in the Brazilian joint venture was roughly $4.8 million before the sale. Based on these figures, the transaction generated an economic pre-tax gain of approximately $5.9 million (i.e. the excess of the $10.7 million proceeds over the $4.8 million carrying value).

To facilitate this purchase, the buyer largely financed the payment at the joint venture level, rather than using entirely new funds. The funding was achieved through two components:

● $3.5 million paid by the minority (49%) joint venture partner.

As a result, the joint venture obtained the necessary $10.7 million to complete the acquisition of SPAR’s shares. SPAR received the $9.7 million in cash proceeds (net of Brazilian withholding tax) before deconsolidating the Brazilian entity from its financial statements.

U.S. GAAP Accounting Treatment and Impact

Under U.S. GAAP, the accounting result of this sale differed from the economics described above. When SPAR deconsolidated its Brazilian joint venture upon sale, it removed all the joint venture’s assets and liabilities from the consolidated balance sheet. As a consequence of the mechanics of the joint venture financing, namely the payment originating from the joint venture qualifying as a capital distribution (instead of consideration for sale) SPAR was required to reclassify approximately $7.5 million into the income statement as part of the gain/loss calculation. This non-cash reclassification effectively reduced the gain on the sale by $7.5 million. Consequently, instead of recording the $5.9 million gain that the transaction economically produced, SPAR’s financial statements reflect a $1.6 million loss on the sale of the Brazilian joint venture under GAAP. In other words, the $5.9 million economic gain was offset by this $7.5 million accounting adjustment, yielding a net loss in the reported results. It is important to note that this $1.6 million loss is purely a technical accounting/consolidation outcome and not reflective of the underlying economics of the transaction. The loss resulted from the required equity reclassification entry, rather than any actual operational or cash loss on the sale. Had the economic substance been reflected in our accounting (i.e. had we been able to record the approximately $5.9 million true gain on the sale instead of a loss), our pre-tax income for 2024 would have been higher by about $7.5 million. After applying taxes, this difference would have significantly increased our net income and earnings per share.

For perspective, earnings per share (EPS) would have been materially higher if the $5.9 million gain were included - on such a basis, EPS for 2024 would have been $0.19 per share compared to the reported GAAP result of ($0.13).

This adjusted EPS measure adds back the after-tax impact of the reduction of the economic gain on the sale by $7.5 million (approximately $0.32 per share) to our GAAP EPS. This adjustment would have turned our reported net loss for the year into a net profit, underscoring the positive economic impact of the Brazil joint venture sale.

In summary, while our official results are reported in accordance with U.S. GAAP (and thus include the $1.6 million accounting loss on the Brazil sale), we believe it is helpful to provide investors with the economic context of this transaction. Excluding the technical accounting adjustment, the sale of our Brazilian joint venture was a highly accretive disposition that added substantial economic value. The adjusted gain and related EPS impact discussed above are supplemental, non-GAAP figures provided to illustrate the true economic outcome. Management emphasizes that the GAAP financial statements remain the authoritative source of our results, but the additional context is intended to clarify that the GAAP loss on the sale was driven by accounting requirements rather than an economic loss.

Year Ended December 31,

GAAP Net (Loss) Income attributable to SPAR Group, Inc. $ (3,150) $ 3,902

GAAP Earnings (Loss) per share (basic) (0.13) 0.17

EPS impact of adjustment (basic) 0.32 -

Non-GAAP Net Income 4,406 -

Non-GAAP basic Earnings per share 0.19 -

Restatement of Quarterly Financial Data

The Company has restated its previously issued unaudited interim financial statements for the three and six months ended June 30, 2024 and the three and nine months ended September 30, 2024 (the “Non-Reliance Periods”). Detailed restatements of the Company's condensed consolidated quarterly financial statements are provided in Note 16 – Restatement (Unaudited) in the accompanying notes to the consolidated financial statements.

The following unaudited quarterly statements of operations data for the quarter ended June 30, 2024 and for the quarter ended September 30, 2024 have been prepared on a basis consistent with our audited annual financial statements included in this Annual Report on Form 10-K and include, in our opinion, all normal recurring adjustments necessary for the fair presentation of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following should be read in conjunction with our audited financial statements and the related notes included in this Annual Report on Form 10-K.

As Restated As Restated

Related party - cost of revenues - -

Selling, general and administrative expense 9,541 8,558

Depreciation and amortization 478 454

Other (income) loss, net (296 ) 472

(Loss) before income tax expense (1,896 ) (2,584 )

Income tax expense (benefit) 1,547 (2,314 )

Net (income) loss attributable to non-controlling interest (448 ) 88

Net (loss) attributable to SPAR Group, Inc. $ (3,891 ) $ (182 )

Weighted-average common shares outstanding – basic 23,786 23,435

Weighted-average common shares outstanding – diluted 24,010 23,435

Other comprehensive income (loss)

Foreign currency translation adjustments 1,372 (72 )

Comprehensive (loss) (2,071 ) (342 )

Comprehensive (income) loss attributable to non-controlling interest (393 ) 45

Comprehensive (loss) attributable to SPAR Group, Inc. $ (2,464 ) $ (297 )

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

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, 2024. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2024. In connection with the preparation of our consolidated financial statements for the year ended December 31, 2024, we identified two material weaknesses in internal control over financial reporting, as described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Material Weaknessin Internal Control Over Financial Reporting

Management did not maintain effective controls related to the financial statement close process to ensure the completeness and accuracy of certain amounts and disclosures, specifically related to the preparation and review of balance sheet account reconciliations. This material weakness resulted in errors in revenue, expense, accrual accounts and prepaid accounts at year end.

Management did not design and implement effective controls used in the financial close process over non-recurring transactions, including accounting for the deconsolidation and sale of the international components. This material weakness resulted in errors around the calculation over the sale of international components and the deconsolidation of one subsidiary.

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:

1. Implemented a modern and more efficient ERP system which went live January 1, 2025 with a parallel run in Q4 2024, and which includes modern and inherent controls and reduces the need for manual adjustments and likelihood of errors;

2. Hiring of an Assistant Controller as of January 1, 2025, who is an experienced CPA, and will provide necessary support to the existing Controller and ensure proper reconciliations are performed in a timely manner;

3. Consolidation of the finance and accounting team in one office (versus different offices and home offices), in a transition that started January 1, 2025, centralizing processes and ensuring more consistent application of controls across the Company

4. Simplified the organizational structure by divesting six foreign joint venture operations, thereby reducing the complexity of the Company’s financial reporting and oversight processes.

Management 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

Other than the material weaknesses described above, there were no changes in the Company's internal controls over financial reporting that occurred during the Company's quarter ended December 31, 2024, that materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

Item 9B. Other Information

a. During the fourth quarter of 2024,none of our directors or executive officers adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408(a) of Regulation S-K).

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

"Reference is made below to SGRP’s definitive Proxy Statement for its 2024 Annual Meeting of Stockholders, which SGRP plans to file pursuant to Regulation 14A on or about May 23, 2025, with the meeting scheduled to be held on or before June 12, 2025. For clarity (and without limitation), information appearing in the sections of such 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 2024 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 2024 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 2024 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 2024 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, P.C. AS THE COMPANY’S PRINCIPAL INDEPENDENT ACCOUNTANTS” in the 2024 Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules

Index to Financial Statements filed as part of this report:

Consolidated Balance Sheets as of December 31, 2024 and 2023 34

Notes to Consolidated Financial Statements 37

Exhibits

Exhibit Number Description

21.1 List of Subsidiaries (as filed herewith).

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

97 Spar Group, Inc. Compensation Recovery Policy

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.

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)

/s/ James R. Gillis Director

James R. Gillis

/s/ John Bode Director

John Bode

/s/ Linda Houston Director

Linda Houston

/s/ William H. Bartels Director

William H. Bartels

/s/ James R. Brown, Sr Director

James R. Brown, Sr

/s/ Panagiotis Lazaretos Director

Panagiotis Lazaretos

/s/ Antonio Calisto Pato Chief Financial Officer,

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

SPAR Group, Inc.

Auburn Hills, MI

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of SPAR Group, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows for each of 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, 2024 and 2023, 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 the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition

As indicated in Note 2 to the consolidated financial statements, the Company generates revenues by providing merchandising services to its customers, generally on a daily, weekly, or monthly basis. The Company recognizes revenues as the services are performed based on the contractually specified rate-per-driver metric(s) (i.e., rate per hour, rate per store visit or rate per unit stocked). For the year ended December 31, 2024, the Company’s net revenues were $196.8 million.

We identified revenue recognition from merchandising services as a critical audit matter due to the large volume of customer contracts and transactions. The principal consideration for our determination is the increased extent of auditor effort involved in performing procedures and evaluating audit evidence related to the Company’s revenue recognition.

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

/s/ BDO USA, P.C.

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

Troy, Michigan

May 16, 2025

SPAR Group, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive (Loss) Income

(In thousands, except per share data)

Year Ended December 31,

Related Party - Cost of revenues - 5,197

Selling, general and administrative expense 37,265 43,673

(Gain) / Loss on sale of business (1,348 ) 408

Depreciation and amortization 1,616 2,001

Income (loss) before income tax expense (1,469 ) 7,133

Net (income) attributable to non-controlling interest (463 ) (874 )

Net income (loss) attributable to SPAR Group, Inc. $ (3,150 ) $ 3,902

Weighted average common shares – basic 23,555 23,333

Weighted average common shares – diluted 23,729 24,455

Other comprehensive income (loss):

Foreign currency translation adjustments (1,553 ) 1,283

Comprehensive income (loss) (4,240 ) 6,059

Comprehensive (income) attributable to non-controlling interest (172 ) (317 )

Comprehensive income (loss) attributable to SPAR Group, Inc. $ (4,412 ) $ 5,742

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

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 3,009 5,614

Operating lease right-of-use assets 630 2,323

Liabilities and equity

Current liabilities:

Accrued expenses and other current liabilities 3,533 15,274

Due to affiliates - 3,205

Customer incentives and deposits 892 1,905

Current portion of long-term debt 500 -

Current operating lease liabilities 276 1,163

Operating lease liabilities, less current portion 353 1,160

Commitments and contingencies – See Note 6

Equity:

SPAR Group, Inc. equity

Preferred stock, Series - B. $.01 par value:

Common stock, $.01 par value:

Accumulated other comprehensive (loss) (1,198 ) (3,341 )

Non-controlling interest - 12,020

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

SPAR Group, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

(In thousands)

Shares Amount Shares Amount Shares Amount Capital Loss Earnings Interest Equity

Share-based compensation – – – – – – 297 – – – 297

Retirement of Shares (27 ) – – – – – – – – – –

Payments to Acquire NCI – – – – – – – – – (460 ) (460 )

Sale of Joint Ventures – – – – – – – – – (694 ) (694 )

Distribution to non-controlling investors – – – – – – – – – (3,017 ) (3,017 )

Other comprehensive income (loss), net of tax – – – – – – – 1,600 – (317 ) 1,283

Share-based compensation – – – – – – 137 – – – 137

Exercise of stock options 233 2 – – – – (398 ) – – – (396 )

Purchase of non-controlling interest – – – – – – (856 ) – – (1,695 ) (2,551 )

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

SPAR Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

Cash flows from operating activities:

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

Depreciation and amortization 1,616 2,001

Amortization of operating lease assets 545 875

Provision for expected credit losses 128 88

Deferred income tax expense/(benefit) (1,500 ) 921

Share based compensation 137 297

(Gain) Loss on disposal of business (1,348 ) 408

Changes in operating assets and liabilities, net of business disposals:

Prepaid expenses and other assets (2,375 ) 2,082

Operating lease liabilities (541 ) (875 )

Net cash (used in) provided by operating activities (665 ) 6,821

Cash flows from investing activities:

Proceeds from sale of joint ventures, net of cash transferred 11,020 (1,027 )

Purchases of property and equipment and internal use software (1,139 ) (1,242 )

Net cash provided by (used in) investing activities 9,881 (2,269 )

Cash flows from financing activities:

Payment of notes to seller (1,843 ) –

Repurchase of common stock (1,800 ) –

Distribution to non-controlling investors (1,315 ) (1,673 )

Payments to acquire noncontrolling interests (500 ) (473 )

Proceeds from long-term debt 15 930

Payments on term debt - (701 )

Net cash (used in) financing activities (1,657 ) (3,020 )

Effect of foreign exchange rate changes on cash (58 ) (158 )

Net increase in cash and cash equivalents 7,502 1,374

Cash and cash equivalents at beginning of year 10,719 9,345

Cash and cash equivalents at end of year $ 18,221 $ 10,719

Supplemental disclosure of cash flows information

Promissory notes issued to Resource Plus non-controlling interest $ 2,500 $ -

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

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Nature of theBusiness

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

2. Summary of Significant Accounting Policies

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, marketing and business services throughout the world and has three reportable regional segments: (i) Americas, which is comprised of United States, Canada, Brazil and Mexico; (ii) Asia-Pacific ("APAC”), which is comprised of Japan, China, and India; and (iii) Europe, Middle East and Africa ("EMEA”), which is comprised of South Africa. Certain corporate expenses have been allocated to segments based on each segment’s revenue as a percentage of total company revenue.

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.

All these entities have been disposed of by December 31, 2024.

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. There are no cash equivalents at December 31, 2024 or 2023.

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, 2024 and December 31, 2023. No customer accounted for more than 10% of the Company’s accounts receivable, net as of December 31, 2024 and December 31, 2023.

Revenue Recognition

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

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. In general, (i) Standard Merchandising Service Contracts have a duration of 1 to 3 years with indexed rate increases while individual brand projects can be added with less than 6 months duration. (ii) Retail Remodel Contracts typically auto-renew with annual project SOWs, with regional awards typically granted 6 to 12 months in advance and individual projects assigned quarterly/monthly. (iii) Fulfillment Contracts are typically an annual award and selected projects can be less than 6 months. (iv) Standard Assembly Service Agreements are 1 to 3 years in duration with indexed rates increases. Customer deposits, which are considered advances on future work, are deferred and recorded as revenue in the period in which the services are provided.

Unbilled Accounts Receivable

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

Allowance for Credit Losses

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 allowance for credit losses 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 allowance for credit losses based in part on management’s assessment of the current status of individual accounts.

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.

Impairment of Long-Lived Assets

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

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. During 2024 the company deconsolidated its entire controlling interest in all its VIEs. As of December 31, 2024, the company has no continuing involvement in these entities.

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 $41,352 and $9,466 during the years ended December 31, 2024 and 2023, 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.

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

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:

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.

The fair value of the long-term portion of the Resource Plus Seller Notes is determined using a discounted cash flow methodology. Under this approach, the expected future cash flows of the notes are discounted to their present value using a discount rate derived from observable market data, such as current interest rates or yield curves for similar instruments. This valuation technique utilizes inputs classified as Level 2 under the ASC 820 fair value hierarchy. Accordingly, the carrying amount of the long-term portion of the Resource Plus Seller Notes approximates its fair value, as it represents the present value of the notes’ future cash flows.

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.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU No.2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which will require Companies to report additional segment information, including certain significant segment expenses, and permit the disclosure of additional measures of a segment’s profit or loss. The guidance was effective for the Company’s fiscal year beginning January 1, 2024 and for interim periods thereafter. The Company adopted ASU No.2023-07 on January 1, 2024 and the impact was not material.

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2023, the FASB issued ASU No.2023-05,Business Combinations – Joint Venture Formations (Subtopic 805):Recognition and Initial Measurement, which will require joint ventures to recognize and initially measure its assets and liabilities at fair value upon formation. The guidance will be effective for the Company prospectively for all joint venture formations on or after January 1, 2025. Early adoption and retrospective application is permitted. The Company does not believe adoption will have a material effect on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No.2023-09,Income Taxes(Topic 740):Improvements to Income Tax Disclosures, which will require Companies to report specific categories of rate-reconciliation, certain details of income taxes paid and of certain information by tax jurisdictions. The guidance will be effective for the Company’s fiscal year beginning January 1, 2025. The Company does not believe adoption will have a material effect on its consolidated financial statements and related disclosures.

On November 4, 2024, the FASB issued ASU 2024-03,Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures which requires disaggregated disclosure of income statement expenses for public business entities (PBEs). The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 is effective for all PBEs for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The Company does not believe adoption will have a material effect on its consolidated financial statements and related disclosures.

3. Supplemental Balance Sheet Information

December 31,

Accounts receivable, net, consists of the following: 2024 2023

(in thousands)

Less allowance for credit losses (411 ) (1,461 )

December 31,

Activity in allowance for credit losses 2024 2023

(in thousands)

Beginning balance in allowance for credit losses $ 1,461 $ 1,654

Current provision for expected credit losses 128 261

Allowances associated with businesses sold (12 ) (281 )

Write-offs charged against the allowance (1,166 ) (126 )

Recoveries of amounts previously written off - (47 )

Ending balance in allowance for credit losses $ 411 $ 1,461

December 31,

Property and equipment consist of the following: 2024 2023

(in thousands)

Capitalized internal use software costs 18,967 18,336

Less accumulated depreciation and amortization (21,987 ) (23,223 )

Property and equipment, net $ 2,015 $ 2,871

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Supplemental Balance Sheet Information (continued)

Depreciation expense (including amortization of internal use software and intangible assets as described below) was $ 1.6 million and $ 2.0 million for the years ended December 31, 2024 and 2023, respectively. The Company capitalized $1.0 million and $1.0 million of costs related to internal use software in the years ended December 31, 2024 and 2023. The Company recognized approximately $1.3 million and $1.1 million of amortization expense related to internal use software for the years ended December 31, 2024 and 2023, respectively.

Americas Asia-Pacific EMEA Total

Goodwill

(in thousands)

Balance at January 1, 2023

Change in goodwill due to impact of foreign currency 7 - - 7

Sale of business (333 ) - - (333 )

Change in goodwill due to impact of foreign currency (6 ) - - (6 )

Intangible Assets

December 31,

Intangible assets consist of the following: 2024 2023

(in thousands)

Customer contracts and lists $ - $ 3,011

Less accumulated amortization (929 ) (3,601 )

Intangible assets, net $ 841 $ 1,180

The decline in gross intangible assets of $3 million is due to the sale of the remaining international Joint Ventures.

The Company is amortizing its intangible assets over lives ranging from 5 to 25 years. Amortization expense for the years ended December 31, 2024 and 2023 was approximately $0.2 million and $0.4 million, respectively.

The annual amortization for each of the following years succeeding December 31, 2024 is summarized as follows (in thousands):

(in thousands)

Year Amount

December 31,

Accrued expenses and other current liabilities: 2024 2023

(in thousands)

Accrued accounting and legal expenses - 1,018

Accrued expenses and other current liabilities $ 3,533 $ 15,274

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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. Pursuant to the NM Loan Agreement, the NM Borrowers agreed to reimburse NM for legal and documentation fees incurred in connection with the NM Loan Agreement and such amendments.

On 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 Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to temporarily increase the borrowing base availability under the NM Credit Facility, and the NM Borrowers agreed to pay certain additional fees.

On February 1, 2023, the NM Loan Parties and NM executed and delivered a Sixth Modification Agreement, effective immediately (the "Sixth Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to increase the amount of the US Revolving Credit Facility to $28.0 million and increase the Canada Revolving Credit Facility to CDN$2.0 million. In addition, the Sixth Modification Agreement increased the cap on unbilled accounts in the borrowing base for SMF to $7.0 million from $6.5 million.

On March 27, 2024, the NM Loan Parties and NM executed and delivered a Seventh Modification Agreement, effective immediately (the "Seventh Modification Agreement"), pursuant to which the NM Loan Parties and NM agreed to extend the NM Credit Facility from October 10, 2024 to October 10, 2025.

The Restated US Note and Restated Canadian Note (together, the "NM Notes") and the NM Loan Agreement together require the NM Borrowers to pay interest on the loans thereunder equal to: (i) the Prime Rate designated from time to time by Wells Fargo Bank; plus (ii) one and nine-tenths percentage points (1.90%) or an aggregate minimum of 6.75% per annum. In addition, the NM Borrowers are paying a facility fee to NM in an amount equal to: (i) for the year commencing on October 10, 2022, approximately $0.1 million plus 0.80% of the amount of any advances other than under the US Revolving Credit Facility plus an additional facility fee of $15,000 for every incremental $1.0 million of loan balance in excess of $21.0 million, and (ii) for the year commencing on October 10, 2023, approximately $0.2 million plus 0.80% of the amount of any advances other than under the US Revolving Credit Facility plus an additional facility fee of $15,000 for every incremental $1.0 million of loan balance in excess of $21.0 million. For the Sixth Modification Agreement, the NM Borrowers paid NM a fee of approximately $28,000 for the US and $3,000 for Canada.

As of December 31, 2024, the aggregate interest rate was 9.40% per annum and the aggregate outstanding loan balance was approximately $16.1 million, which is included within lines of credit and short-term loans in the consolidated balance sheets. The aggregate outstanding loan balance is divided between the US Revolving Credit Facility and the Canada Revolving Credit Facility as follows: (i) the outstanding loan balance under the US Revolving Credit Facility was approximately $14.8 million; and (ii) the outstanding loan balance under the Canada Revolving Credit Facility was approximately $1.3 million.

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, 2024. The obligations of the NM Borrowers are secured by the receivables and other assets of the NM Borrowers and substantially all of the assets of the other NM Loan Parties, however, the obligations are not secured by any equity in, financial asset respecting or asset of any Excluded Subsidiary meaning each of the following direct or indirect subsidiaries of SGRP: (i) Resource Plus of North Florida, Inc. (“Resource Plus”), Mobex of North Florida, Inc., and Leasex, LLC, and their respective subsidiaries; (ii) NMS Retail Services ULC, which is an inactive Nova Scotia ULC; (iii) SPAR Group International, Inc.; (iv) SPAR FM Japan, Inc.; (v) SPAR International, Ltd.; (vi) each other subsidiary formed outside of the United States or Canada; and (vii) any other entity in which any such subsidiary is a partner, joint venture or other equity investor.

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. Debt (continued)

Resource Plus – Seller Notes

On April 18, 2024, the Company entered into a Securities Purchase Agreement to buy from Mr. Richard Justus the remaining minority joint venture interests of Resource Plus and its sister companies, Mobex of North Florida, Inc., and Leasex, LLC. Based on the terms set in the original joint venture agreement, the Company will pay a total of $3 million in annual payments over a five-year period. $0.25 million was paid within the five business days of closing, and the remaining $2.75 million will be paid pursuant to a Secured Promissory Note. The agreement resulted in the termination of all relevant shareholder and operating agreements, although specific confidentiality obligations remain effective for three years post-closing and specific mutual releases were provided. The purchase was closed and completed on May 1, 2024. As of December 31, 2024, $0.5 million has been paid and the remaining $2.2 million Promissory Note (net of discount) is outstanding and is reported on the balance sheet in current portion of long-term debt and long-term debt.

International Credit Facilities

In December 2020, SPAR (Shanghai) Marketing Management Company Ltd. ("SPAR China") secured a loan with Industrial Bank for 2.0 million Chinese Yuan. The loan was renewed in December 22 2023, with an expiration date in December 2024. In December 2021, SPAR China secured a loan with Industrial and Commercial Bank of China for 2.0 million Chinese Yuan. The loan was paid in July 2023 and a new loan was secured in November 2023 for 2.0 million Chinese Yuan with expiration date of November 2024. The company's controlling interest in the China JV was sold in the second quarter of 2024. This debt was deconsolidated at that time and remained with Chinese company. The Company no longer has any interest in SPAR China.

In March 2022, SGRP Meridian (Pty), Ltd. secured loans with Investec Bank Ltd, for 105 million South African Rand which expires July 2025. This loan is secured by the company's available cash and Accounts Receivable and is being repaid in monthly installments commensurate with an amortization schedule. The interest rate of 11.75% is calculated based on the South African Prime rate. As part of the agreement, SGRP Meridian is subject to covenant restrictions that mandate minimum levels of Debt to EBITDA, Asset and Accounts Receivable balances, and coverage ratios. The Company's controlling interest in the South Africa JV was sold in the first quarter of 2024. This debt was deconsolidated at that time and remained with South African company. The Company no longer has any interest in SGRP Meridian (Pty), Ltd.

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

South Africa - Investec Bank Ltd. N/A – 11.75 % 3,369

China- Industrial Bank N/A – 3.56 % 283

China- Industrial and Commercial Bank of China N/A – 4.00 % 283

The effective interest rate on these instruments is not materially different from the stated rate.

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

Unused Availability:

South Africa N/A 2,064

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

Interest Rate Balance Interest Rate Balance

as of as of as of as of

USA - Resource Plus Seller Notes 4.30 % $ 1,722 N/A $ -

South Africa - Investec Bank Ltd. N/A - 11.75 % 310

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Income Taxes

Beginning in 2018, the Tax Cuts and Jobs Act (the "Act”) included two (2) new U.S. corporate tax provisions, the global intangible low-taxed income regime ("GILTI”) and the base-erosion and anti-abuse tax ("BEAT”). The GILTI provision requires the Company to include in its U.S. income tax return non-U.S. subsidiary earnings in excess of an allowable return on the non-U.S. subsidiary’s tangible assets. The Company has elected to treat GILTI as a period cost. The Company evaluated the GILTI provision resulting in a financial statement impact of approximately $0.28 million and $0 for the year ended December 31, 2024 and December 31, 2023 respectively. The Company is below the three-year average gross receipts threshold for BEAT to apply.

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

Year Ended December 31,

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

Year Ended December 31,

Current:

Deferred:

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

Year Ended December 31,

State income taxes, net of federal benefit 32 (2.2 )% 123 1.7 %

Return to provision adjustment (10 ) 0.7 % (339 ) (4.8 )%

Sale of membership interest - 0.0 % 149 2.1 %

Sale of foreign entities 102 (6.9 )% - -

Transaction costs 118 (8.0 )% - -

Subpart F Income 213 (14.5 )% - -

Foreign tax credit (556 ) 37.8 % - -

Foreign disregarded income 292 (19.9 )%

Change in valuation allowance (2 ) 0.1 % (268 ) (3.8 )%

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Income Taxes (continued)

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

Deferred tax assets:

Net operating loss carry forwards $ 389 $ 2,270

Capital loss carry forwards – 58

Federal research and development credit 164 240

Foreign withholding tax 872 316

Accrued payroll 4 155

Transaction costs 753 -

Allowance for credit losses and other receivable 93 63

Share-based compensation expense 258 253

Business interest limitation 889 519

Operating lease liability 128 504

Capitalized software development costs 277 63

Total deferred tax assets, gross 4,718 5,812

Valuation allowance - (242 )

Deferred tax liabilities:

Goodwill & Intangible assets of subsidiaries 291 324

Total deferred tax liabilities 459 883

Net deferred income taxes $ 4,259 $ 4,687

As of December 31, 2024, the Company’s deferred tax assets were primarily the result of the business interest limitation and transaction costs. The Company has gross U.S. Federal NOL carryforwards of $1.5 million and tax effected amount of $0.3 million. The $0.3 million U.S Federal NOL carryforward has no expiration date. The Company has a U.S. State NOL deferred tax asset of $0.1 million of varying expiration dates from 2024 to 2041. The Company has $0.1 million of US Research and Development credits with expiration dates ranging from 2031 to 2035. The Company has $0.9 million of US foreign tax credits with expiration dates ranging from 2033 to 2034.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing net deferred tax assets. U.S.-based net deferred tax assets are approximately $4.2 million. Management continues to monitor its operating performance and currently believes that the achievement of the required future taxable income necessary to realize these deferred assets is more likely than not. Key considerations in this assessment include our expectation of continued improvements in U.S. operating results and the period of time available to generate future taxable income.

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

Year Ended December 31,

Beginning balance $ 54 $ 46

Additions based on tax positions related to the current year 60 8

The provision for income taxes includes the impact of uncertain tax position reserves and changes to reserves that are considered appropriate. As of December 31, 2024, included in the balance of uncertain tax position reserves are $0.11 million of reserves that, if recognized, would affect the effective rate of income from continuing operations. Interest and penalties that the tax law requires to be paid on the underpayment of taxes should be accrued on the difference between the amount claimed or expected to be claimed on the return and the tax benefit recognized in the financial statements. The Company's policy is to record this interest and penalties as additional tax expense. We accrued penalties of $0.8 thousand and interest of $3 thousand during 2024 and in total, as of December 31, 2024 recognized a liability related to the uncertain tax position reserves noted above for penalties of $16 thousand and interest of $20 thousand. During 2023, we accrued penalties of $1 thousand and interest of $0.4 thousand and in total, as of December 31, 2023, recognized a liability of penalties of $15 thousand and interest of $17 thousand. Management does not expect in the next 12 months that the uncertain tax position reserves will significantly increase or decrease. Consistent with that expectation, interest and penalties related to the uncertain tax position reserve should not significantly increase.

Details of the Company's tax reserves at December 31, 2024 are outlined in the table below (in thousands). These reserves are presented on the balance sheet within accrued expenses and other current liabilities.

Taxes Interest Penalty Total Tax Liability

Domestic

Federal – – – –

International – – – –

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Income Taxes (continued)

In management's view, the Company's tax reserves at December 31, 2024 and 2023, for potential domestic state tax liabilities were sufficient.

SPAR and its subsidiaries file numerous consolidated, combined and separate company income tax returns in the U.S. Federal jurisdiction and in many U.S. states and foreign jurisdictions. With few exceptions, SPAR is subject to U.S. Federal, state and local income tax examinations for the years 2021 through the present. Foreign entities are subject to tax audits that vary based on jurisdiction. However, tax authorities have the ability to review years prior to the position taken by the Company to the extent that SPAR utilized tax attributes carried forward from those prior years.

6. Commitments and Contingencies

Legal Matters

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

7. Common Stock

As of December 31, 2024, the Corporation's certificate of incorporation authorized the Corporation to issue 47,000,000 shares of common stock, par value $0.01 per share. The voting, dividend and liquidation rights of the holders of the Corporation's common stock are subject to and qualified by the rights, powers and preferences of the holders of the Corporation's Series B convertible preferred stock. Each share of the Corporation's common stock is entitled to one vote on all matters submitted to a vote of the Corporation's stockholders. Holders of the Corporation's common stock are entitled to receive dividends as may be declared by the Corporation's board of directors (the "Board"), if any, subject to the preferential dividend rights of the Corporation's Series B convertible preferred stock. No cash dividends had been declared or paid during the periods presented.

On March 28, 2024, the Board approved SGRP's repurchase of up to 2,500,000 of SGRP's Shares of Common Stock ("SGRP Shares") under the 2024 Stock Repurchase Program (the "2024 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. Pursuant to the 2024 Stock Repurchase Program, on May 3, 2024, SGRP's Board and its Audit Committee approved SGRP's Repurchase Agreement with William H. Bartels for SGRP's private repurchase of 1,000,000 shares of SGRP's Common Stock from William H. Bartels, dated and effective as of April 30, 2024, at a purchase price of $1.80 per share (the Nasdaq closing price on April 29, 2024). Upon their repurchase those shares became Treasury Shares. Mr. Bartels is a Director and significant stockholder of SGRP, is one of the founders of the Company, and is an affiliate and related party of SGRP. There have been no other share repurchases to date under the 2024 Stock Repurchase Program.

8. Preferred Stock

The Corporation’s certificate of incorporation authorizes it to issue 3,000,000 shares of preferred stock with a par value of $0.01 per share, which may have such preferences and priorities over the Corporation’s common stock and other rights, powers and privileges as the Board of may establish in its discretion.

In January 2022, the Corporation filed a "Certificate of Designation of Series "B” Preferred Stock of SPAR Group, Inc.” (the "Preferred Designation”) with the Secretary of State of Delaware, which designation had been approved by the Board in January 2022. The Preferred Designation created a series of 2,000,000 shares of convertible preferred stock designated as "Series B” convertible preferred stock, par value of $0.01 per share.

The Series B convertible preferred stock do not carry any voting or dividend rights and upon vesting converted into the Corporation's common stock at a ratio of 1-to-1.5. The holders of the Series B convertible preferred stock had a liquidation preference over the Corporation's common stock and voted together for matters pertaining only to the Series B convertible preferred stock where only the holders of the Series B convertible preferred stock are entitled to vote. The holders of outstanding Series B Preferred Stock do not have the right to vote for directors or other matters submitted to the holders of the Corporation's common stock.

In January 2022, 2,000,000 shares of Series B convertible preferred stock were issued to the majority stockholders and related parties pursuant to the Change of Control, Voting and Restricted Stock Agreement.

During the year ended December 31, 2022, 1,145,247 shares of Series B convertible preferred stock converted to 1,717,870 shares of the Corporation's common stock. As of the year ended December 31, 2022, 854,753 shares of Series B convertible preferred stock were outstanding, which upon vesting would automatically convert into 1,282,129 shares of the Corporation's common stock.

During the year ended December 31, 2023, all of the remaining 854,753 shares of Series B convertible preferred stock vested and automatically became convertible into 1,282,129 shares of the Corporation's common stock of which 307,129 shares of the Corporation's Common Stock were issued prior to December 31, 2023. The remaining 975,000 shares of SGRP Common Stock were in the process of being issued and the remaining shares of Series B Preferred Stock were in the process of being returned and cancelled at December 31, 2023. These issuances and cancellations were completed during the quarter ending March 31, 2024.

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.

SPAR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

9. Retirement Plans

The Company has a 401(k) Profit Sharing Plan covering substantially all eligible domestic employees. The Company made discretionary contributions of $0.1 million and $0.1 million for the years ended December 31, 2024 and 2023, respectively.

10. Related Party Transactions

Domestic Related Party Transactions

On December 1, 2021, the Corporation entered into the Agreement for Marketing and Advertising Services (the "WB Agreement") with WB Marketing, Inc. (the "Agent", and together with the Company, the "Parties"). The Agent is an entity owned and controlled by Mrs. Jean Matacunas who is the wife of President and Chief Executive Officer, Michael R. Matacunas. Mr. Matacunas is also a minority owner of the Agent. The service fees paid to WB Marketing for the years ended December 31, 2024 and 2023, were $104,000 and $103,000, respectively.

Prior to December 31, 2023, National Merchandising Services, LLC ("NMS"), was a consolidated domestic subsidiary of the Company owned jointly by SGRP and by National Merchandising of America, Inc. ("NMA"). Mr. Edward Burdekin was the Chief Executive Officer and President and a director of NMS and also an executive officer and director of NMA. Ms. Andrea Burdekin, Mr. Burdekin's wife, was the sole stockholder and also a director of both NMA and NMS. NMA was a related party of the Company but is not under the control of or consolidated with the Company. Mr. Burdekin's wife also owns National Remodel & Setup Services, LLC ("NRSS"). During the years ended December 31, 2023 and 2022, NRSS provided substantially all of the domestic merchandising specialist field force used by NMS. For those services, NMS reimbursed NRSS certain costs for providing those services plus a premium ranging from 4.0% to 10.0% of certain costs. NMS also leased office space from Mr. Burdekin's personal property. In December 2023, the Company sold its ownership interest in NMS.

On December 22, 2023, the Company entered into an agreement with National Retail Remodel Services (the "Buyer") to sell its 51% ownership interest in National Merchandising Services, LLC ("NMS") to the Buyer for total consideration of $1,441,004. The transaction closed on December 31, 2023. Per the agreement, the purchase price is due from the Buyer as follows: (1) a payment of $700,000 due immediately to the escrow agent upon closing, releasable to the Company in January 2024; (2) $523,000 in the form of the Buyer's promissory note due and payable on January 31, 2024; and (3) a payment of up to $209,004 contingent upon collection of an outstanding receivable. The $700,000 and $523,000 portions of consideration for this transaction are recorded in "Other Receivables" at December 31, 2023 and were received in first quarter of 2024. The Company’s December 31, 2023 financial results include a loss on this sale of approximately $427,000, primarily reflecting the write-off of remaining goodwill related to NMS. As of December 31st,2024, payment upon collection of the outstanding receivables has not been made and attempts to collect are ongoing. The Company has not included the receivables related to this collection on its balance sheet.

Summary of Certain Related Party Transactions

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

SGRP US Equity

SGRP · 10-K · period ended 2024-12-31

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

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

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

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

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

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

SGRP US Equity☆

SGRP · 10-K · period ended 2024-12-31

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

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

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

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

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

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

SGRP US Equity