sgrp20190630

10-Q 1 sgrp20210331_10q.htm FORM 10-Q sgrp20190630_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the first quarterly period ended March 31, 2021.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from __________ to __________.

Commission file number 0-27408

SPAR GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware	33-0684451
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1910 Opdyke Court, Auburn Hills, Michigan	48326
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (248) 364-7727

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.). (Check one):

Large Accelerated Filer ☐	Accelerated Filer ☐

Non-Accelerated Filer ☒	Smaller reporting company ☒

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) YES ☐ NO ☒

The aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant on April 30, 2021, based on the closing price of the Common Stock as reported by the Nasdaq Capital Market on such date, was approximately $36.6 million.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common

SGRP

Nasdaq

The number of shares of the Registrant's Common Stock outstanding as of April 16, 2021, was 21,256,266 shares.

PART I:	FINANCIAL INFORMATION

Item 1	Consolidated Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of March 31, 2021 (Unaudited), and December 31, 2020	2

	Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited) for the three months ended March 31, 2021 and 2020	3

	Condensed Consolidated Statement of Equity (Unaudited) for the three months ended March 31, 2021 and 2020	4

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2021 and 2020	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3	Quantitative and Qualitative Disclosures about Market Risk	29

Item 4	Controls and Procedures	29

PART II:	OTHER INFORMATION

Item 1	Legal Proceedings	30

Item 1A	Risk Factors	32

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3	Defaults Upon Senior Securities	32

Item 4	Mine Safety Disclosures	32

Item 5	Other Information	32

Item 6	Exhibits	33

SIGNATURES		34

	March 31,			December 31,
	2021			2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	19,713		$	15,972
Accounts receivable, net		53,025			46,914
Prepaid expenses and other current assets		2,941			3,631
Total current assets		75,679			66,517
Property and equipment, net		2,734			2,795
Operating lease right-of-use assets		2,479			2,900
Goodwill		3,752			3,760
Intangible assets, net		2,123			2,255
Deferred income taxes		4,142			4,201
Other assets		1,484			1,601
Total assets	$	92,393		$	84,029
Liabilities and equity
Current liabilities:
Accounts payable	$	9,232		$	7,859
Accrued expenses and other current liabilities		19,276			18,745
Due to affiliates		4,569			3,775
Customer incentives and deposits		4,295			1,799
Lines of credit and short-term loans		12,940			9,329
Current portion of operating lease liabilities		960			1,398
Total current liabilities		51,272			42,905
Operating lease liabilities, less current portion		1,519			1,502
Long-term debt and other liabilities		1,000			1,000
Total liabilities		53,791			45,407
Commitments and contingencies – See Note 8
Equity:
SPAR Group, Inc. equity
Preferred stock, $.01 par value: Authorized and available shares– 2,445,598 Issued and outstanding shares – None – Balance at March 31, 2021 and December 31, 2020		-			-
Common stock, $.01 par value: Authorized shares – 47,000,000 Issued shares – 21,253,483 – Balance at March 31, 2021, and 21,122,312 – December 31, 2020		212			211
Treasury stock, at cost 1,697 shares – Balance at March 31, 2021 and December 31, 2020		(2	)		(2	)
Additional paid-in capital		16,678			16,645
Accumulated other comprehensive loss		(4,111	)		(3,913	)
Retained earnings		10,135			9,218
Total SPAR Group, Inc. equity		22,912			22,159
Non-controlling interest		15,690			16,463
Total equity		38,602			38,622
Total liabilities and equity	$	92,393		$	84,029

	Three Months Ended
	March 31,
	2021			2020

Net revenues	$	61,097		$	61,348
Cost of revenues		48,838			49,560
Gross profit		12,259			11,788
Selling, general and administrative expense		9,011			9,771
Depreciation and amortization		530			540
Operating income		2,718			1,477
Interest expense		147			228
Other income, net		(75	)		(8	)
Income before income tax expense		2,646			1,257

Income tax expense		865			335
Net income		1,781			922
Net (income) attributable to non-controlling interest		(864	)		(624	)
Net income attributable to SPAR Group, Inc.	$	917		$	298
Basic and diluted income per common share:	$	0.04		$	0.01
Weighted average common shares – basic		21,188			21,105
Weighted average common shares – diluted		21,581			21,228

Net income	$	1,781		$	922
Other comprehensive income (loss):
Foreign currency translation adjustments		(1,835	)		(3,900	)
Comprehensive (loss)		(54	)		(2,978	)
Comprehensive loss attributable to non-controlling interest		773			1,820
Comprehensive income (loss) attributable to SPAR Group, Inc.	$	719		$	(1,158	)

	Common Stock				Treasury Stock					Additional			Accumulated Other					Non-
	Shares		Amount		Shares		Amount			Paid-In Capital			Comprehensive Loss			Retained Earnings		Controlling Interest			Total Equity
Balance at January 1, 2021		21,122	$	211		2	$	(2	)	$	16,645		$	(3,913	)	$	9,218	$	16,463		$	38,622

Exercise of stock options		131		1		–		–			(66	)		–			–		–			(65	)
Share-based compensation		–		–		–		–			99			–			–		–			99
Other comprehensive (loss)		–		–		–		–			–			(198	)		–		(1,637	)		(1,835	)
Net income		–		–		–		–			–			–			917		864			1,781
Balance at March 31, 2021		21,253	$	212		2	$	(2	)	$	16,678		$	(4,111	)	$	10,135	$	15,690		$	38,602

	Three Months Ended March 31,
	2021			2020
Operating activities
Net income	$	1,781		$	922
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization		530			540
Non-cash lease expense		421			722
Bad debt expense, net of recoveries		69			44
Share-based compensation		99			25
Changes in operating assets and liabilities:
Accounts receivable		(6,100	)		1,015
Prepaid expenses and other assets		857			107
Accounts payable		1,384			(386	)
Operating lease liabilities		(421	)		(722	)
Accrued expenses, other current liabilities and customer incentives and deposits		3,773			(812	)
Net cash provided by operating activities		2,393			1,455

Investing activities
Purchases of property and equipment and capitalized software		(332	)		(342	)
Net cash used in investing activities		(332	)		(342	)

Financing activities
Net borrowings on lines of credit		3,646			1,786
Payments related to stock options exercised		(65	)		-
Payments on term debt		-			(333	)
Net cash provided by financing activities		3,581			1,453

Effect of foreign exchange rate changes on cash		(1,901	)		(3,914	)
Net change in cash and cash equivalents		3,741			(1,348	)
Cash and cash equivalents at beginning of period		15,972			10,458
Cash and cash equivalents at end of period	$	19,713		$	9,110

Supplemental disclosure of cash flows information:
Interest paid	$	159		$	203
Income taxes paid	$	44		$	14

	Three Months Ended
	March 31,
	2021		2020
Numerator:
Net income attributable to SPAR Group, Inc.	$	917	$	298

Denominator:
Shares used in basic net income per share calculation		21,188		21,105
Effect of diluted securities:
Stock options and unvested restricted shares		393		122
Shares used in diluted net income per share calculations		21,581		21,228

Basic and diluted net income per common share:	$	0.04	$	0.01

	Interest Rate
	as of
	March 31, 2021			2021		2022		2023		2024		2025		2026
Australia - National Australia Bank		6.56	%		9		-		-		-		-		-
China - Industrial Bank		6.00	%		460		-		-		-		-		-
China - CCB Bank		6.00	%		153		-		-		-		-		-
Mexico - Ve Por Mas		7.30	%		-		-		-		-		-		-
Mexico - Bancomer Bank		9.60	%		244		-		-		-		-		-
USA - North Mill Capital		6.75	%		11,774		-		-		-		-		-
USA - Fifth Third Bank		3.60	%		-		-		-		-		-		-
USA - Resource Plus Seller Notes		1.85	%		300		300		700		-		-		-
Total				$	12,940	$	300	$	700	$	-	$	-	$	–

Due to affiliates consists of the following (in thousands):	March 31,		December 31,
	2021		2020
Loans from local investors:(1)
Australia	$	578	$	586
Mexico		623		623
Brazil		139		139
China		1,740		1,746
South Africa		1,223		415
Resource Plus		266		266
Total due to affiliates	$	4,569	$	3,775

Net income:
United States	$	452		$	101
International		1,329			821
Total net income	$	1,781		$	922

Net (income) attributable to non-controlling interest:
United States	$	(80	)	$	(63	)
International		(784	)		(561	)
Total net (income) attributable to non-controlling interest	$	(864	)	$	(624	)

Net income attributable to SPAR Group, Inc.:
United States	$	372		$	38
International		545			260
Total net income attributable to SPAR Group, Inc.	$	917		$	298

Depreciation and amortization:
United States	$	390		$	414
International		140			126
Total depreciation and amortization	$	530		$	540

Capital expenditures:
United States	$	285		$	381
International		47			(39	)
Total capital expenditures	$	332		$	342

		Three Months Ended		Three Months Ended
Lease Costs	Classification	March 31, 2021		March 31, 2020
Operating lease cost	Selling, General and Administrative Expense	$	217	$	674
Short-term lease cost	Selling, General and Administrative Expense		302		112
Variable costs	Selling, General and Administrative Expense		50		97
Total lease cost		$	569	$	883

	March 31,		December 31,
	2021		2020
Unused Availability:
United States / Canada	$	6,726	$	10,238
Australia		599		463
Mexico		390		262
Total Unused Availability	$	7,715	$	10,963

	Three Months Ended
	March 31,
	2021		2020
Services provided by affiliates:
National Store Retail Services (NSRS)		1,840		1,342
Office lease expenses (Mr. Burdekin)		6		6
Office lease expenses (RJ Holdings)		228		173
Office and vehicle lease expenses (MPT)		17		16
Vehicle rental expenses (MCPT)		12		299
Office and vehicle rental expenses (MHT)		29		73
Consulting and administrative services (CON)		-		12
Legal Services (KMSA)		14		23
Warehousing rental (JFMD)		12		13
Consulting and administrative fees (SPARFACTS)		76		31

Total services provided by affiliates	$	2,234	$	1,988

	Three Months Ended March 31,
	2021					2020
			% of					% of
			consolidated					consolidated
International revenue:			net revenue					net revenue
Brazil	$	12,300		20.1	%	$	15,564		25.4	%
South Africa		7,722		12.6			6,914		11.3
Mexico		7,259		11.9			5,847		9.5
China		3,263		5.3			2,564		4.2
Japan		2,450		4.0			2,782		4.5
India		2,226		3.6			2,291		3.7
Canada		1,878		3.1			1,717		2.8
Australia		323		0.5			380		.6
Total international revenue	$	37,421		61.1	%	$	38,059		62.0	%

Period Ending December 31,	Amount
2021	$	1,065
2022		792
2023		337
2024		247
2025		393
Thereafter		143
Total Lease Payments		2,977
Less: imputed interest		498
Total		2,479

	Three Months Ended		Three Months Ended
	March 31, 2021		March 31, 2020

Cash paid for amounts included in the measurement of lease liabilities	$	520	$	720

Assets obtained in exchange for new operating lease liabilities
Operating lease	$	-	$	722

SEC Form 10-Q filed by SPAR Group, Inc.