Note 13 - Purchase and Sale of Interests in Subsidiaries

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

13. Purchase and Sale of Interests in Subsidiaries

The following contains descriptions of the Company's purchases and sale of interests in its operating subsidiaries during the years ended December 31, 2014 and 2013.  In each of the consolidated subsidiaries noted below, the Company made its investment together with an experienced person or company in the local area who is not otherwise affiliated with the Company (each a "Local Investor"). The Company provides its subsidiaries with its proprietary Internet-based technological systems (which include its logistical, communication, scheduling, tracking, reporting and accounting programs) that run on and are developed, managed, maintained and controlled from the Company's information and technology control center in Auburn Hills, Michigan, U.S.A. (the Company's "Global Technology Systems"), which are generally phased in over time following acquisition. The Company also provides its subsidiaries with company-wide executive management, administrative support, accounting oversight, procedures and controls (financial and reporting), credit support and corporate codes and policies that apply to each such subsidiary (the Company's "Global Administration", and together with its Global Technology Systems, the Company's "Global Contributions"). The Company also seeks to own a majority (at least 51%) of such a subsidiary's equity while the Local Investor purchases a minority equity interest in it (49% or less). In addition to that equity, a Local Investor provides credit support, certain services and the useful local attention, perspective and relationships of a substantial (although non-controlling) equity owner with a strong financial stake in such subsidiary's success (the "Local Contributions"). The Local Investor also often contributes an existing customer base to the subsidiary in which it invests. The Company, through its various agreements with the applicable Local Investor, has provided for exit strategies that are deemed fair and equitable for both the Company and the Local Investor.  

Preceptor (India)

In March 2013, the Company purchased a majority (51%) of the equity interests in Preceptor Marketing Services Private Limited ("Preceptor"), a recently formed Indian corporation, from KROGNOS Integrated Marketing Services Private Limited ("Krognos"), and Preceptor became a new consolidated subsidiary of the Company.  The Company also is providing the usual Global Contributions to Preceptor, while Krognos, as the Local Investor, retained the remaining minority (49%) non-controlling interest in Preceptor and is providing the usual Local Contributions.  Krognos also is the Local Investor in the Company's existing subsidiary in India, SPAR Krognos Marketing Private Limited.  Preceptor enables the Company to service clients not serviced by its other Indian subsidiary.  The Company paid $21,000 for its interest in Preceptor, and Preceptor became a consolidated subsidiary of the Company on March 1, 2013. 

Certain MFI Business (USA)

In March 2013, the Company also purchased general merchandising service and certain in-store audit service businesses from Market Force Information, Inc. ("MFI"), a leading customer intelligence solution provider.  The acquired in-store audit services include the price, point of sale, out of stock, intercept and planogram audits managed by MFI's New York office.  With this acquisition, the Company entered the growing in-store audit service business and expanded its existing general merchandising service and client base domestically.

The purchase was made pursuant to the Asset Purchase Agreement dated as of March 15, 2013 (the "Purchase Agreement") between MFI, as the seller, and SPAR Marketing Force, Inc. ("SMF"), a consolidated subsidiary of SGRP and its principal domestic operating company.  The purchase was completed on March 15, 2013.  The Purchase Price under the Purchase Agreement consisted of a cash purchase price of $1.3 million and the assumption of certain specified liabilities (principally those arising after the closing under the assumed contracts).  The Company completed its purchase price valuation analysis and has recorded customer contracts and customer list with a value of approximately $1.3 million and goodwill of approximately $8,000 based on its analysis.  The customer contracts and customer lists value of $1.3 million is being amortized on a straight line basis over five years. In addition, SMF entered into a Consulting Services Agreement and a Transition Services Agreement with MFI, under which MFI provided certain services, equipment and facilities for up to one year, and various assignments and other transfer documents.

China (Unilink)

In July 2014, the Company, through its subsidiary in Hong Kong, SPAR China Ltd., entered into an agreement to purchase certain business assets of the following three companies in China: Shanghai Unilink Marketing Execution and Design Co. Ltd, Shanghai Gold Park Investment Management Co. Ltd, and Beijing Merchandising Sales and Marketing Co. Ltd (collectively Unilink). As consideration for the purchase, Unilink is paid in cash of $1.1 million and a 20% ownership in SPAR Shanghai at closing, leaving SPAR, Shanghai Wedone Marketing Consulting Co. Ltd (the Local Investor) and Unilink with ownership interests in SPAR Shanghai of 51%, 29% and 20%, respectively. The Company began consolidating operations beginning August 1, 2014.

Of the total purchase price of $1.46 million, the Company's investment in Unilink represented 51% or $749,660, of which, $374,830 was paid in cash and the remaining $374,830 was recorded as a contingent liability to be paid based on Unilink's future earnings as fully described below. Our Local Investor in Shanghai invested the remaining 49% or a total of $720,262.

The total contingent liability of $374,830 (payable at the rate of $187,415 in each of the next two year periods) is due and payable to Unilink provided Unilink operation income exceeds base earnings of $235,000 in each of the next two year periods. If this minimum operation earnings is not achieved in each year the payment in that year is not paid to Unilink. The Company is confident that the Unilink business will meet or exceed this minimum operating earnings target and therefore has recorded the additional future payment of $374,830 as a contingent liability at December 31, 2014. The Company has completed its valuation of the fair value and recorded an intangible asset for its customer list that was valued at $1,469,922 at December 31, 2014, which is being amortized over ten years.

In addition, if (for each of the next two year periods) the operating earnings of Unilink exceed $585,000 in each year, SPAR Shanghai agreed to pay a bonus to the sellers of Unilink equal to 50% of the excess operating income over the base of $585,000. The Company does not expect that the Unilink business will exceed the $585,000 operating earnings target and, as such, has not recorded this additional future payment as a contingent liability at December 31, 2014.

The following table includes the amount of Unilink's revenue and earnings included in the Company's consolidated statement of income for the year ended December 31, 2014 and a pro forma calculation of the amounts that would have been included in the Company's consolidated statements of income for the years ended December 31, 2014 and 2013 had the Unilink acquisition date been January 1, 2013, instead of August 1, 2014 (in thousands):

	Revenue		Net Income
Actual Unilink from August 1 to December 31, 2014	$	3,957	$	102
Consolidated supplemental pro forma from January 1 to December 31, 2014	$	127,555	$	3,475
Consolidated supplemental pro forma from January 1 to December 31, 2013	$	119,757	$	3,768